Why Homeowners Need to Shift the Burden of Proof To Foreclosure Mills

05 Thursday Dec 2013

Posted by BNG in Affirmative Defenses, Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Bank of America, Borrower, Foreclosure, MERS, Mortgage Electronic Registration System, Ohio, U.S. Bancorp, US Bank

CASE STUDY:

This case brings to mind why homeowner MUST shift the burden of proof to foreclosure mills in order to save their homes or the courts will ‘assume’ that the burden rests on the homeowner. (Which it does not). Borrower has no burden of proof as the burden of proof is squarely shouldered by the illegal entity bringing a judicial or non judicial foreclosure proceeding against the homeowner, in order for them to show that either they owns the Note or had the rights of enforcement on the Note. Even if they “own the Note,” they might not have the “right to enforce it”, even if they are “holder of the note, and does not own it“, they might not have “standing to bring the action“, per UCC. (That is the law of negotiable instruments – and your “Note” is a negotiable instrument just like a “Check”.

SO FOLKS! DO YOUR HOMEWORK AND MAKE THEM PROVE IT! DO NOT LOSE YOUR DREAM HOME BASED ON MERE IGNORANCE!

U.S. BANK NATL. ASSN. v. SPICERNo. 9-11-01

2011 Ohio 3128 U.S. Bank National Association, As Trustee On Behalf of the Home Equity Asset Trust 2007-3 Home Equity Pass-Through Certificates, Series 2007-3, Plaintiff-Appellee,
v.
Gregory M. Spicer, Defendant-Appellant, and
Mortgage Electronic Registration Systems, Inc., et al., Defendants-Appellees.
Court of Appeals of Ohio, Third District, Marion County.
Date of Decision: June 27, 2011.

OPINION

SHAW, J.

{¶1} Appellant, Gregory M. Spicer (“Spicer”) appeals the December 9, 2010 judgment of the Marion County Court of Common Pleas overruling his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.”

{¶2} On November 22, 2006, Spicer executed a promissory note with Intervale Mortgage Corporation (“Intervale”) for a mortgage loan in the amount of $212,000.00 to purchase a residence located at 1517 Eagle Links Drive in Marion, Ohio. The loan documents identified Decision One LLC (“Decision One”) as Intervale’s servicing agent and Mortgage Electronic Registration Systems, Inc. (“MERS”) as Intervale’s nominee for matters related to Spicer’s loan. The mortgage was recorded in the Marion County Recorder’s office on December 1, 2006.

{¶3} In February of 2007, Spicer received a letter from Select Portfolio Servicing (“SPS”) notifying him that the servicing of his mortgage loan had been transferred from Decision One to SPS and that, as of March 1, 2007, SPS would be the entity receiving his mortgage payments.

{¶4} On September 22, 2008, Bill Koch, an assistant secretary for MERS, issued a “corporate assignment of mortgage,” which evidenced that MERS, as nominee for Intervale, assigned Spicer’s mortgage to Appellee, U.S. Bank National Association, as trustee, on behalf of the holders of the Home Equity Asset Trust 2007-3 Home Equity Pass-Through Certificates, Series 2007-3 (“U.S. Bank”). This assignment of Spicer’s mortgage was subsequently recorded in the Marion County Recorder’s office.

{¶5} On September 25, 2008, U.S. Bank filed a complaint for foreclosure against Spicer alleging the note to be in default because Spicer failed to make the monthly payments on the note since April 28, 2008, and the default had not been cured. The complaint alleged that a balance of $208,865.11, plus interest remained outstanding on the promissory note. U.S. Bank requested judgment against Spicer for this amount, plus late charges, advances made for the payment of taxes, assessments, insurance premiums, or cost incurred for the protection of the mortgaged premises. U.S. Bank also requested the trial court to order a foreclosure and sale of the property. The record demonstrates that Spicer was properly served with the complaint on October 21, 2008.

{¶6} Spicer failed to appear or otherwise enter into the action and on January 5, 2009, U.S. Bank filed a motion for default judgment which was subsequently granted by the trial court. On January 12, 2009, the trial court entered a decree in foreclosure and ordered the property to be sold. The property was scheduled for a Sheriff’s sale on April 17, 2009.

{¶7} On April 13, 2009, Spicer sent an ex parte letter to the trial court requesting a stay in the sale proceedings. Spicer’s letter was placed in the record with a “received” stamp, but was not “file-stamped” by the clerk of courts. Moreover, there is no evidence that Spicer served this letter on counsel for U.S. Bank or that U.S. Bank was otherwise made aware of the existence of this letter.

{¶8} On April 23, 2009, U.S. Bank filed a “Motion to Vacate Order for Sale and Withdraw Property from Sale” with the trial court. In this motion, U.S. Bank informed the court that “Plaintiff and the borrower have entered into a loss mitigation agreement.” On April 24, 2009, the trial court granted U.S. Bank’s motion to withdraw the property from the scheduled Sheriff’s sale.

{¶9} On June 23, 2009, U.S. Bank filed an “Alias Praecipe for Order for Sale” requesting an order of sale and for the Sheriff to appraise, advertise, and sell the property.

{¶10} On August 10, 2009, a notice of sale was filed. The sale was scheduled to take place on September 18, 2009. U.S. Bank subsequently filed another “Motion to Vacate Order for Sale and Withdraw Property from Sale” stating that the parties “have entered into a forbearance agreement.” The trial court subsequently granted U.S. Bank’s motion to vacate the order of sale.

{¶11} On March 31, 2010, U.S. Bank filed a second “Alias Praecipe for Order for Sale” requesting an order of sale on the property and notice of sale was subsequently filed, scheduling the sale of the property. On June 22, 2010, U.S. Bank then filed a third “Motion to Vacate Order for Sale and Withdraw Property from Sale.” The reason cited for this motion was that the parties “are in the process of negotiating a loss mitigation agreement.”

{¶12} On July 12, 2010, the trial court granted U.S. Bank’s motion to withdraw the property from the Sheriff’s sale; however, the court also noted in its order that “No further withdrawals of sale will be allowed.”

{¶13} On July 15, 2010, U.S. Bank filed a “Pluries Praecipe for Order for Sale without Reappraisal” requesting that another order of sale be issued on the property. Sale of the property was scheduled for November 19, 2010.

{¶14} On October 21, 2010, nineteen months after the trial court issued its decree in foreclosure on the property, Spicer filed a “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.” Notably, this is the first formal appearance entered by Spicer in this action. In this motion, Spicer argued that he was never given the original loan documents evidencing his loan with Intervale, and that his original loan had been “shuffled around and assigned to various parties.” Spicer further alleged that there is no proof U.S. Bank was properly assigned the promissory note and mortgage. Spicer also claimed that he is a victim of “robo-signing”¹ by SPS, the servicing agent for his mortgage loan. In support of his motion, Spicer attached several internet articles and blogs, which generally discussed the alleged misconduct of some mortgage companies.

{¶15} In this motion, Spicer also requested that the trial court stay the Sheriff’s sale until it can be proven “who has actual position [sic] and ownership of the original mortgage and standing to foreclose on the mortgage.” However, he failed to specifically claim in this motion that he is entitled to relief pursuant to any of the enumerated grounds listed in Civ.R. 60(B) with respect to his instant case, or otherwise attempt to satisfy any the requirements a movant must prove in order to be entitled to Civ.R. 60(B) relief from judgment.

{¶16} On October 25, 2010, Spicer filed a supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale” and attached several more unauthenticated articles and documents about MERS and Intervale, which were not of direct relevance to his case.

{¶17} On October 28, 2010, Spicer filed another supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” attaching an amicus brief written by the Ohio Attorney General, which was filed in relation to a Cuyahoga County case, a separate and distinct case from Spicer’s case. Spicer argued that this other case was of particular relevance to his case because it involved U.S. Bank and its counsel of record in the case sub judice. Spicer urged the trial court to impute to his case any misconduct alleged against U.S. Bank in the Cuyahoga County case. Spicer also filed more internet articles generally examining the causes of the mortgage crisis, specifically the role of “robo-signing” by lenders in foreclosure actions.

{¶18} On November 4, 2010, Spicer filed a third supplement to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” now arguing that U.S. Bank had no standing to bring the underlying foreclosure action because the original mortgage lender, Intervale, did not have authority to execute mortgages in Ohio. Spicer further argued that U.S. Bank did not sign the original promissory note and does not have the original “wet ink” promissory note in its possession. Spicer also identified, for the first time, the two individuals who signed affidavits in support of the foreclosure proceedings from MERS and SPS,² and accused them of being “robo-signers” who “lack personal knowledge of the facts herein.” (Supp. Mot. Nov. 4, 2010 at 2).

{¶19} Notably, in each of his supplements to his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale,” Spicer again failed to identify any grounds on which he is entitled to relief pursuant to Civ.R. 60(B).

{¶20} On November 8, 2010, U.S. Bank filed its memorandum in opposition to Spicer’s “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.” U.S. Bank argued that Spicer failed to satisfy the burden required to be shown by a movant that he or she is entitled to relief from judgment under Civ.R. 60(B). Specifically, U.S. Bank asserted that Spicer failed to identify what grounds, if any, exist for vacating the judgment, provide any operative facts or admissible evidence in support of such grounds, failed to identify a meritorious defense to the foreclosure proceedings—i.e. why the loan is not in default for Spicer’s non-payment, and that his Civ.R. 60(B) motion was not timely.

{¶21} U.S. Bank further asserted that it is the real party in interest to bring the foreclosure proceedings and argued that Spicer had waived this issue by failing to raise it until nineteen months after the decree in foreclosure was entered by the trial court.

{¶22} On November 15, 2010, Spicer filed a “Reply Brief” to U.S. Bank’s memorandum in opposition to his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.” In his response, Spicer urged the trial court to follow a procedural rule adopted by the Cuyahoga Court of Common Pleas requiring plaintiffs to follow certain directives in filing complaints for foreclosure in that court. Spicer also, for the first time, alleged that he is entitled to relief on one of the grounds listed in Civ.R. 60(B), specifically Civ.R. 60(B)(5), which is the “catch-all” provision under the rule, permitting the court to vacate a judgment “for any other reason justifying relief from the judgment.” Civ.R. 60(B)(5). Spicer argued that U.S. Bank “is perpetrating a fraud upon this court” and asserted several unsubstantiated allegations to support his position. Spicer also maintained that his motion is timely because Civ.R. 60(B)(5) does not state a specific timeframe to bring the motion, but rather requires the motion to be filed within a “reasonable time.”

{¶23} U.S. Bank filed a response to Spicer’s “Reply Brief” on November 19, 2010, and attached several documents refuting Spicer’s various allegations, including that it was not the real party in interest under Civ.R. 17(A) to file the foreclosure action.

{¶24} On November 22, 2010, U.S. Bank filed a fourth “Motion to Vacate Order for Sale and Withdraw Property from Sale” requesting the trial court to temporarily refrain from executing the sale in order for U.S. Bank to comply with recent directives issued by the U.S. Treasury Department.

{¶25} On December 9, 2010, the trial court issued its decision overruling Spicer’s “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.” Specifically, the trial court determined that Spicer failed to timely raise the defense that U.S. Bank was not the real party in interest under Civ. R. 17(A). The trial court also concluded that Spicer failed to satisfy his burden demonstrating he is entitled to relief under Civ.R. 60(B)(5). Furthermore, the trial court found the following with respect to Spicer’s allegations of misconduct by SPS:

As no misconduct has been alleged against [SPS], Defendant Gregory Spicer has not shown sufficient grounds [for] the granting of relief from judgment in this action. This is particularly true since said Defendant did nothing to object to the original judgment being rendered in this action, and did nothing to attempt to obtain relief from judgment until 21 [sic] months after the Judgment was rendered in this action. Said Defendant has made absolutely no showing that he had not failed to make his mortgage payments as agreed under the promissory note.

(JE, Dec. 9, 2010 at 4).

{¶26} Spicer subsequently filed this appeal, asserting the following assignments of error.

ASSIGNMENT OF ERROR NO. I THE TRIAL COURT ERRED IN THAT FORECLOSURE IN THIS ACTION WAS FILED ON JANUARY 12, 2009, AND THAT DEFENDANT GREGORY SPICER DID NOT FILE HIS MOTION FOR RELIEF FROM JUDGMENT UNTIL OCTOBER 21, 2010. THIS 21-MONTH DELAY IS WELL BEYOND THE ONE YEAR TIME LIMIT. ASSIGNMENT OF ERROR NO. II THE TRIAL COURT ERRED IN CONCLUDING THAT NOTHING IN THE RECORD OF THIS ACTION SHOWING THAT THE SERVICER OF THE MORTGAGE QUESTIONED, SELECT PORTFOLIO SERVICING, INC., OR THAT BILL KOCH HAS ENGAGED IN ANY OF THE MISCONDUCT.

{¶27} For ease of discussion, we elect to address Spicer’s assignments of error together.

{¶28} In his first assignment of error, Spicer claims that the trial court erred when it found that he did not file his Civ.R. 60(B) motion for relief from judgment until twenty-one months after the trial court rendered judgment on the foreclosure action.³ Spicer appears to argue that his April 13, 2009 ex parte letter to the trial court served as a functional equivalent for a Civ.R. 60(B) motion for relief from judgment and, therefore, his motion should be considered timely because it was sent to the court only three months after it rendered its foreclosure judgment.

{¶29} First, we observe that in his April 13, 2009 letter, Spicer simply requests the trial court to stay the Sheriff’s sale. In reviewing this letter, we note that Spicer fails to mention Civ.R. 60(B), let alone make any statement that can be construed as a request for relief from judgment under Civ.R. 60(B). In addition, Spicer neglects to cite any legal authority which supports his position that his ex parte letter, which does not contain the contents required by Civ.R. 60(B) in substance or in form, should be construed by the trial court as a timely filed motion for relief from judgment.

{¶30} Moreover, pursuant to App.R. 16(A)(7) we are not required to address arguments that have not been sufficiently presented for review or supported by proper authority. Therefore, it is well within our purview to disregard this assignment of error. See App.R. 12(A)(2). Nevertheless, in reviewing this issue we find no authority supporting Spicer’s contention that the trial court erred when it determined that he failed to file his Civ.R. 60(B) motion until twenty-one months after the foreclosure judgment was entered.

{¶31} Spicer also argues under this assignment of error that the trial court erred in determining that he is not entitled to relief from judgment under Civ.R. 60(B)(5). Initially, we note that in order to prevail on a Civ.R. 60(B) motion, a party must show 1) a meritorious defense or claim to present if relief is granted; 2) the party is entitled to relief under one of the five enumerated grounds stated in Civ.R. 60(B)(1) through (5); and 3) the motion is made within the required timeframe. In re Whitman, 81 Ohio St.3d 239, 242, 690 N.E.2d 535, 1998-Ohio-466; Douglas v. Boykin (1997), 121 Ohio App.3d 140, 145, 699 N.E.2d 123.

{¶32} The elements entitling a movant to Civ.R. 60(B) relief “are independent and in the conjunctive; thus, the test is not fulfilled if any one of the requirements is not met.” Strack v. Pelton, 70 Ohio St.3d. 172, 174, 637 N.E.2d 914, 1994-Ohio-107. “The decision to grant or deny a motion to vacate judgment pursuant to Civ.R. 60(B) lies in the sound discretion of the trial court and will not be disturbed absent an abuse of discretion.” Id. An abuse of discretion means that the trial court was unreasonable, arbitrary, or unconscionable in its ruling. Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 219, 450 N.E.2d 1140.

{¶33} On appeal, Spicer argues that he is entitled to relief from judgment under Civ.R. 60(B)(5), which is the “catch-all” provision of the rule permitting a court to relieve a party from a final judgment for “any other reason justifying relief from the judgment.” This provision of the rule is not subject to the one-year limitation in filing as motions filed under Civ.R. 60(B)(1), (2), and (3).⁴ Rather, motions filed on the grounds of Civ.R. 60(B)(5) are required to be filed in a reasonable time.

{¶34} In support of his position, Spicer argues that U.S. Bank is not the real party in interest to bring these foreclosure proceedings and that U.S. Bank and its servicing agent SPS had committed a “fraud upon the court.” The trial court addressed both of these issues in its judgment entry overruling his “Motion for Rule 60(B) to Vacate Judgment and Motion to Stay Sheriff’s Sale.”

{¶35} First, with respect to Spicer’s argument that U.S. Bank is not the real party in interest to bring these foreclosure proceedings, we note that the trial court concluded that Spicer waived this argument because he failed to timely assert it. Civil Rule 17(A) provides, in pertinent part:

Every action shall be prosecuted in the name of the real party in interest. * * * No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest.

{¶36} The Supreme Court of Ohio has stated that “[t]he purpose behind the real party in interest rule is to enable the defendant to avail himself of evidence and defenses that the defendant has against the real party in interest, and to assure him finality of the judgment, and that he will be protected against another suit brought by the real party at interest on the same matter.” Shealy v. Campbell (1985), 20 Ohio St.3d 23, 24, 485 N.E.2d 701.

{¶37} As previously noted by this Court, a majority of appellate courts infer that the defense that a party is not the real party in interest can be raised after an initial responsive pleading, and if it is not raised in a timeframe relative to that initial pleading stage in the proceedings, then the defense is waived. First Union Natl. Bank v. Hufford, 146 Ohio App.3d 673, 677, 2001-Ohio-2271, ¶13, 767 N.E.2d 1206 citing Travelers Indemn. Co. v. R.L. Smith Co. (Apr. 13, 2001), 11th Dist. No. 2000-L-014, Hang-Fu v. Halle Homes, Inc. (Aug. 10, 2000), 8th Dist. No. 76589, Robbins v. Warren (May 6, 1996), 12th Dist. No. CA95-11-200; see also Mid-State Trust IX v. Davis, 2nd Dist. No. 07-CA-31, ¶58 (affirming this principle on similar facts and concluding that the issue of standing for the real party in interest defense is waived if not timely asserted).

{¶38} Here, the record demonstrates that Spicer failed to enter a formal appearance in this action until more than nineteen months after the trial court entered its decree in foreclosure on the property. Spicer provides neither the trial court nor this Court with any explanation why he was unable to make any appearance in the underlying foreclosure proceedings, let alone timely raise this issue during the initial pleading phase. Rather, Spicer simply makes blanket assertions that U.S. Bank is not the real party in interest without submitting any evidence to substantiate his claim. Moreover, Spicer cites no legal authority to support his position. Accordingly, we do not find the trial court’s determination that Spicer failed to timely assert a real-party-in-interest defense to be an abuse of discretion.

{¶39} Spicer’s second basis that he is entitled to relief under Civ.R. 60(B)(5) is his assertion that U.S. Bank and SPS have committed a “fraud on the court.” In making this argument Spicer relies solely on Coulson v. Coulson, (1983), 5 Ohio St.3d 12, 448 N.E.2d 809. In Coulson, an attorney represented to the court that he was counsel for the Plaintiff in a divorce action at the same time he was colluding with the Defendant in the action, by drafting a separation agreement on the behalf of the Plaintiff at the direction and upon the terms dictated by the Defendant. Id. at 13. The domestic relations court relied on the attorney’s representation and approved the separation agreement and incorporated it into its judgment, unaware of the attorney’s prior arrangement with the Defendant. Id. The Supreme Court of Ohio determined that the attorney’s actions in this instance constituted a “fraud upon the court.” Id. at 16-17.

{¶40} As explained by the Supreme Court, fraud upon the court embraces the “`species of fraud which does or attempts to, defile the court itself, or is a fraud perpetrated by the officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases that are presented for adjudication.'” Coulson, 5 Ohio St.3d at 15 quoting MOORE’S FEDERAL PRACTICE (2 Ed.1971) 515, paragraph 60.33.

{¶41} As the basis for his claim that U.S. Bank and SPS committed a fraud upon the trial court, Spicer alleges that Bill Koch, the individual who effectuated the assignment of Spicer’s mortgage between Intervale and U.S. Bank, is a “robo-signer.” However, Spicer provided the trial court with no evidence to substantiate this claim other than unauthenticated internet articles discussing the alleged misconduct of mortgage lenders in the industry. There is nothing in these articles or Spicer’s unsupported allegations that can be construed as a “fraud upon the court.” Spicer simply failed to provide any relevant evidence to demonstrate misconduct on the part of U.S. Bank or its servicing agent, SPS in this matter.

{¶42} In addition, we note that Civ.R. 60(B)(5) applies only when a more specific provision of the rule does not apply. Strack v. Pelton (1994), 70 Ohio St.3d 172, 174, 637 N.E.2d 914, 1994-Ohio-107. Moreover, Civ.R. 60(B)(5) is not intended to be used as a substitute for any of the other more specific provisions of Civ.R. 60(B). Caruso-Ciresi, Inc. v. Lohman (1983), 5 Ohio St.3d 64, 448 N.E.2d 1365. Here Spicer’s allegations of misconduct against U.S. Bank and SPS are more akin to the traditional legal concept of fraud, which is specifically addressed by Civ.R. 60(B)(3). However, as previously mentioned, a motion filed pursuant to Civ.R. 60(B)(3) must be filed within one year from the entry of the judgment the movant seeks to vacate. Spicer’s “Motion for Rule 60(B) to Vacate Judgment” was filed several months after the expiration of this timeframe. Accordingly, for all these reasons we find that the trial court did not abuse its discretion when it concluded that Spicer is not entitled to relief under Civ.R. 60(B) and overruled his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale.”

{¶43} Based on the foregoing, Spicer’s first and second assignments of error are overruled and the judgment of the Marion County Court of Common Pleas is affirmed.

Judgment Affirmed

ROGERS, P.J. and PRESTON, J., concur.

FootNotes

1. Here, Spicer is referring to media reports covering the alleged widespread misconduct by mortgage servicers and banks during foreclosing procedures. Such alleged misconduct includes employees of these entities signing affidavits purporting to have knowledge of the contents of foreclosure files that the employees never actually reviewed and, therefore, have no personal knowledge of relative to the foreclosure proceedings.2. SPS is also the servicer for U.S. Bank on Spicer’s mortgage.3. As a point of clarification, Spicer filed his “Motion for Rule 60(B) to Vacate Judgment and Motion for Stay of Sheriff’s Sale” nineteen months after the trial court entered its judgment of foreclosure. However, Spicer’s initial filing of his motion was captioned as a Civ.R. 60(B) motion, but contained none of the required substance of such a motion. It was not until two months later, twenty-one months after the trial court’s foreclosure judgment, that Spicer actually included Civ.R. 60(B) elements in his “Reply Brief.”4. Civil Rule 60(B) specifically provides, “On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order or proceeding for the following reasons: (1) mistake, inadvertence, surprise or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(B); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation or other misconduct of an adverse party; (4) the judgment has been satisfied, released or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (5) any other reason justifying relief from the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2) and (3) not more than one year after the judgment, order or proceeding was entered or taken. A motion under this subdivision (B) does not affect the finality of a judgment or suspend its operation.”

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, visit: http://www.fightforeclosure.net

What Florida Homeowners Need to Know About Mortgage Assignments

05 Thursday Dec 2013

Posted by BNG in Affirmative Defenses, Banks and Lenders, Case Laws, Case Study, Foreclosure Defense, Fraud, Judicial States, MERS, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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Article 9 of the Japanese Constitution, Assignment (law), Business, Florida Supreme Court, Promissory note, Securitization, UCC, Uniform Commercial Code

Today, a mortgage originator might make hundreds of loans and assign them as collateral to borrow money from a bank in a “mortgage warehouse facility.” The borrowed money is used to originate more mortgages. A mortgage warehouse is often only temporary, so the mortgages might be transferred from one facility to another. When the mortgage originator has a sufficiently large pool of mortgages, it may permanently “securitize” them by assigning them to a newly formed company that issues securities that are then sold to investors. In the end, the company owns the mortgages, and the investors receive payments on the securities which are based on the collections from the mortgage pool. In this manner, mortgages are effectively packaged as securities, which can more easily be traded than individual mortgages — hence the name “securitization.”

The recorded form assignment I prepared as a young associate is not well-suited to use in these transactions. Because transactions involve the assignment of hundreds or even thousands of mortgages, there is a temptation to skip the step of recording an assignment in the public records, particularly when the assignment is only a temporary collateral assignment. Transactions sometimes take the form of nothing more than an unrecorded pledge of the mortgages in bulk to the bank, together with delivery of the original notes to the bank for perfection. In many instances, even the task of holding possession of the notes is outsourced to a bailee who holds the notes for the bank’s benefit. The mortgages might be transferred many times by unrecorded assignment in bulk without physically moving the notes, but with the bailee simply signing a receipt changing the name of the lender for whom it holds the notes.

The attorneys who pioneered these transactions were comforted that the structure would work by legal conclusions they drew from Article 9 of the Uniform Commercial Code (UCC), the Official Comments to the UCC (Comments),² and favorable case law.³ The law was clear enough that attorneys were able to give legal opinions concerning perfection, but as the amount of securitized mortgages reached into the trillions of dollars, the uniform law commissioners decided to revisit Article 9 and make it safe for securitizations by officially sanctioning these practices.

It is useful to observe the simplicity of a mortgage assignment in its purest form. F.S. §673.2031(1) (2010), governing negotiable instruments, states that “[a]n instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.” Even before the UCC, the Florida Supreme Court ruled that a mortgage can be transferred without a written assignment simply by delivering the note with intent to assign it.⁴ So at its core, between the parties to the assignment, assigning a mortgage is very much like selling a used lawn mower. What makes it more complex in practice is the potential for disputes and the precautions that must be taken to protect the parties. There are a number of contexts in which mortgage assignments might be considered:

1) The rights of a mortgage assignor and assignee vis-a-vis each other;

2) The rights of a mortgage assignee relative to the rights of its creditors, including lien creditors and bankruptcy trustees;

3) The rights of a mortgage assignee relative to the rights of a subsequent assignee;

4) The obligation of a mortgagor to make payment to the mortgage holder;

5) The right of the mortgage holder to foreclose in the event of default; and

6) The rights of a person acquiring an interest in the real estate.

The drafters of Article 9 focused primarily on problems one through three because these related to the issues that most concerned securitization participants and their attorneys. The rules the drafters set up treated mortgages as personal property that could be transferred without regard to the real estate records.⁵ Article 9 extends to sales of promissory notes, as well as assignments for security purposes.⁶ Although Article 9 recognizes some differences between collateral assignments and sales of notes, the UCC does not provide rules to distinguish a collateral assignment from an absolute assignment.⁷ Thus, the term “secured party” includes a collateral assignee as well as a purchaser of promissory notes,⁸ and the term “debtor” includes both an assignor of promissory notes for security and a seller of promissory notes.⁹

Problem 1 — Attachment
Article 3 governs the transfer of negotiable instruments. Article 9 governs security interests in and sales of both negotiable and nonnegotiable promissory notes. Thus, there is some overlap. The principal effect of extending Article 9 to sales of promissory notes was to apply the perfection and priority rules to those transactions.

F.S. §679.2031 (2010) determines when an assignment “attaches” or in other words, when it becomes effective between the assignor and assignee. That section requires that a) value be given; b) the debtor has rights in the collateral; and c) either the debtor has “authenticated a security agreement” describing the collateral or the secured party is in possession of the collateral pursuant to the security agreement.¹⁰

In the case of an assignment of a promissory note, the promissory note is the “collateral”¹¹ and the assignment is the “security agreement.”¹² Thus, the assignment becomes enforceable between the assignor and assignee when value is given, the assignor has assignable rights in the promissory note, and the assignor has either executed a written assignment describing the promissory note or the assignee has taken possession pursuant to the agreement of the assignor to assign the promissory note. Attachment of the security interest to the promissory note also constitutes attachment of the security interest to the mortgage, effectively adopting the pre-Article 9 case law that the mortgage follows the promissory note.¹³

A written assignment of the promissory note will satisfy the “security agreement” requirement whether the assignment is made pursuant to a sale or for the purpose of collateral. Similarly, an indorsement pursuant to Article 3 should satisfy that requirement.¹⁴ However, the implication of F.S. §§673.2031 and 679.2031 (2010), and of Johns v. Gillian, 184 So. 140 (Fla. 1938), is that the security agreement need not be in writing, so long as there is intent to assign and the promissory note is delivered to the assignee.¹⁵

Problem 2 — Perfection
Third parties lacking notice are not bound merely because the assignor and assignee have agreed among themselves that the mortgage has been transferred to the assignee. To protect the assignee from claims of third parties dealing with the assignor, the assignment must be perfected. Perfection of the security interest in the promissory note operates to perfect a security interest in the mortgage.¹⁶ The assignee may perfect its rights against the conflicting rights of a lien creditor (including a judgment lien holder, bankruptcy trustee, or receiver)¹⁷ by taking possession of the original promissory note¹⁸ or by filing a financing statement in the applicable filing office¹⁹ (which for a debtor located in Florida is the Florida Secured Transactions Registry).²⁰ Possession may be effected by means of a bailee, provided that the bailee authenticates a writing acknowledging that it holds possession for the benefit of the secured party.²¹ However, not all modes of perfection are equal. As discussed below in connection with priority, possession of the promissory note generally offers more protection than filing a financing statement. All modes of perfection, however, provide protection against the rights of a subsequent lien creditor.²²

In the case of a sale of the promissory note (as opposed to a collateral assignment), perfection is automatic upon attachment.²³ Thus, neither possession nor filing is needed to perfect against the rights of subsequent lien creditors, provided that the assignment is a true sale rather than a secured transaction. However, for several reasons, absolute assignees often perfect by possession of the promissory note and/or filing, even though perfection is automatic in the case of a sale.²⁴

Problem 3 — Priority
The question of whether an assignee prevails over another assignee is one of priority. Pursuant to F.S. §679.322(1)(a) (2010), if both assignments are perfected, then priority is generally determined by the time of filing or perfection. Perfection is accomplished by filing automatically in the case of sales, or by possession of the promissory note. However, §679.322(3) refers to F.S. §679.330 (2010), which states in part: “[A] purchaser of an instrument has priority over a security interest in the instrument perfected by a method other than possession if the purchaser gives value and takes possession of the instrument in good faith and without knowledge that the purchase violates the rights of the secured party.”

Regardless of whether the assignee receives absolute ownership pursuant to a true sale or merely an assignment for the purpose of security, the assignee is considered a “purchaser.”²⁵ If the second assignee takes possession for value in good faith and without knowledge that it violates the first assignee’s rights, then the second assignee takes priority over an assignment perfected without possession. Mere filing of a financing statement by the first assignee (and even actual knowledge by the second assignee of such a filing) is not enough to charge the second assignee with a lack of good faith or knowledge that the second assignment violated the first assignee’s rights.²⁶ It is not clear precisely what facts might disqualify the assignee in possession from relying on §679.330(4) for its priority, but F.S. §671.201(20) (2010) provides a general definition of “good faith,” which requires honesty in fact (an actual knowledge standard), and observance of reasonable commercial standards of fair dealing. Given this nebulous standard, the party who perfects by filing or automatically should assume that it will not be protected against a subsequent assignee who takes possession.

The foregoing principles are demonstrated in American Bank of the South v. Rothenberg, 598 So. 2d 289 (Fla. 5th DCA 1992). In that case, the bank took a security interest in a note and mortgage, perfected by possession. The assignor then sold the same note to a second assignee. The second assignee recorded his assignment in the public records before the bank did, but received only a copy of the note. The court held that though he recorded first, the second assignee lost because the bank had possession. Although the case did not involve a UCC filing by the losing assignee, that would not have changed the result since possession generally trumps a UCC filing. In fact, because the mortgage was sold (rather than assigned as collateral), the second assignee’s interest was perfected automatically. However, like filing, automatic perfection does not generally protect the assignee from a conflicting assignment perfected by possession.

If the assignment is intended only as secondary collateral on unspecific assets, then possibly the assignee would be satisfied with such ethereal rights as are created by merely filing, but if the assignee is giving new value to acquire specific mortgages, then greater protection is usually required — namely, possession of the promissory note.

Problem 4 — Who Does the Mortgagor Pay?
Comment 6 to UCC §9-308 explains that Article 3 (not Article 9) dictates who the maker of a negotiable instrument must pay. F.S. §673.6021(1) (2010) states that with limited exceptions (knowledge of injunction or theft, etc.), the instrument is discharged upon payment to “a person entitled to enforce the instrument.”

F.S. §673.3011 (2010) states:

The term “person entitled to enforce” an instrument means:

(1) The holder of the instrument;

(2) A nonholder in possession of the instrument who has the rights of a holder; or

(3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to s. 673.3091 or s. 673.4181(4).

A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

In general, it is the “holder” who is entitled to enforce the instrument. “The person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession” is a “holder.”²⁷ In some instances, a nonholder may enforce the instrument. The comment to UCC §3-301 states that a “person who under applicable law is a successor to the holder or otherwise acquires the holder’s rights” can enforce the instrument under subsection (2), even though not a holder. This would include an assignee from the holder who for some reason did not become a holder, perhaps because it did not receive a proper indorsement.²⁸ Subsection (3) would include an assignee who is not a holder because the instrument was lost.

One might wonder whether these provisions make any sense. The mortgagor cannot be expected to ascertain the holder by demanding exhibition of the promissory note whenever it makes a payment,²⁹ nor would the lender likely accommodate such a demand, even if made. Usually, the note expressly waives presentment, so that the original need not be exhibited on demand for payment.³⁰ In the real world, the mortgagor simply pays whomever the note says should be paid (often a servicer), until the mortgagor receives a notice to pay someone else. The law of contract and agency will often lead a court to give effect to payments made in this manner, despite Article 3.³¹ Nevertheless, unless the parties have expressly or impliedly agreed otherwise, Article 3 requires the mortgagor to ascertain the status of the payee as holder by demanding exhibition of the promissory note, and the holder must comply as a condition for demanding payment.

Article 3 does not control payment of nonnegotiable notes.³² The common law of contract generally applies. The common law rule is that payment of a nonnegotiable promissory note can be made to the payee without demanding delivery of the original promissory note, and will be effective so long as the maker does not have notice that the payee has transferred the promissory note to a third person.³³ In other words, the result is not very different from the “real world” practice of making payment on a negotiable promissory note, as described above.

Problem 5 — Who Has Standing to Foreclose the Mortgage?
The provisions of Article 3 speak in terms of who is entitled to “enforce” an instrument. Thus, the solution to problem four must also be the solution to problem five. Unlike problem four, however, there are a number of reported cases concerning standing in foreclosures that must be considered. It should come as no surprise that the holder of the promissory note has standing to maintain a foreclosure action.³⁴ Further, an agent for the holder can sue to foreclose.³⁵ The holder of a collateral assignment has sufficient standing to foreclose.³⁶

Failure to file the original promissory note or offer evidence of standing might preclude summary judgment.³⁷ Even when the plaintiff files the original, it might be necessary to offer additional evidence to show that the plaintiff is the holder or has rights as a nonholder. In BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), for example, the court reversed a summary judgment of foreclosure, saying the plaintiff had not proven it held the note. The written assignment was incomplete and unsigned. The plaintiff filed the original note, which showed an indorsement to another person, but no indorsement to the plaintiff. The court found that was insufficient. Clearly, a party in possession of a note indorsed to another is not a “holder,” but recall that Johns v. Gillian holds that a written assignment is not needed to show standing when the transferee receives delivery of the note. The court’s ruling in BAC Funding Consortium was based on the heavy burden required for summary judgment. The court said the plaintiff did not offer an affidavit or deposition proving it held the note and suggested that “proof of purchase of the debt, or evidence of an effective transfer” might substitute for an assignment.³⁸

In Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA 1990), the court held that an assignment executed after the filing of the foreclosure case was not sufficient to show the plaintiff had standing at the time the complaint was filed. In WM Specialty Mortgage, LLC v. Salomon, 874 So. 2d 680 (Fla. 4th DCA 2004), however, the court distinguished Jeff-Ray Corp., stating that the execution date of the written assignment was less significant when the plaintiff could show that it acquired the mortgage before filing the foreclosure without a written assignment, as permitted by Johns v. Gilliam.³⁹

When the note is lost, a document trail showing ownership is important. The burden in BAC Funding Consortium might be discharged by an affidavit confirming that the note was sold to the plaintiff prior to foreclosure. Corroboratory evidence of sale documents or payment of consideration is icing on the cake, but probably not needed absent doubt over the plaintiff’s rights. If doubt remains, indemnity can be required if needed to protect the mortgagor.⁴⁰

In the case of a defaulting mortgagor, someone presumably has a right to foreclose. Excessively strict standing requirements might result in a windfall to the mortgagor at the expense of the lender. At the same time, courts must ensure that the mortgagor is not subjected to double liability. A review of the cases shows that while there are a few cases in which mortgagors paid the wrong party and were later held liable to the true holder, there is a dearth of cases in Florida where a mortgagor was foreclosed by one putative mortgagee, and later found liable to another who was the true holder. The lack of such nightmare cases is a testament to the fine job courts have done in enforcing the standing requirements, but it also begs the question whether the risk of double liability may be overstated. Given the long foreclosure process in Florida, a defaulting borrower is unlikely to remain unaware of conflicting demands long enough to complete a foreclosure. It seems that in such an event, either the borrower must have ignored conflicting demands, or one of the putative mortgagees sat on its rights. While both are plausible scenarios, they each present clear equities that should assist a court in positioning the loss.

Problem 6 — Real Estate Transactions
The UCC deals with problems one through five, but the Article 9 Comments expressly disclaim intent to deal with problem six because it is an issue of real estate law beyond Article 9’s scope.⁴¹ In Florida, a mortgage is not an interest in real estate, but rather personal property.⁴² On the other hand, the statutes permit persons taking an interest in real estate to rely on the real estate records to determine ownership of a mortgage without regard to the UCC. F.S. §701.02 (2010) says in part:

701.02. Assignment not effectual against creditors unless recorded and indicated in title of document; applicability

(1) An assignment of a mortgage upon real property or of any interest therein, is not good or effectual in law or equity, against creditors or subsequent purchasers, for a valuable consideration, and without notice, unless the assignment is contained in a document that, in its title, indicates an assignment of mortgage and is recorded according to law.

(2) This section also applies to assignments of mortgages resulting from transfers of all or any part or parts of the debt, note or notes secured by mortgage, and none of same is effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration without notice, unless a duly executed assignment be recorded according to law.

*****

(4) Notwithstanding subsections (1), (2), and (3) governing the assignment of mortgages, chapters 670-680 of the Uniform Commercial Code of this state govern the attachment and perfection of a security interest in a mortgage upon real property and in a promissory note or other right to payment or performance secured by that mortgage. The assignment of such a mortgage need not be recorded under this section for purposes of attachment or perfection of a security interest in the mortgage under the Uniform Commercial Code.

(5) Notwithstanding subsection (4), a creditor or subsequent purchaser of real property or any interest therein, for valuable consideration and without notice, is entitled to rely on a full or partial release, discharge, consent, joinder, subordination, satisfaction, or assignment of a mortgage upon such property made by the mortgagee of record, without regard to the filing of any Uniform Commercial Code financing statement that purports to perfect a security interest in the mortgage or in a promissory note or other right to payment or performance secured by the mortgage, and the filing of any such financing statement does not constitute notice for the purposes of this section. For the purposes of this subsection, the term “mortgagee of record” means the person named as the mortgagee in the recorded mortgage or, if an assignment of the mortgage has been recorded in accordance with this section, the term “mortgagee of record” means the assignee named in the recorded assignment.

One can accept that a person taking an interest in real estate should be charged with notice only of what appears from the real estate records. However, the statute seems overly broad in that it says an assignment must be recorded to be effectual against creditors and purchasers. Subsections (1) and (2) seem to contradict the rules of Article 9, which permit perfection against lien creditors merely by taking possession of the note or filing a financing statement. Also, under Article 9, a good faith purchaser with possession takes free of a prior assignment, even if recorded. Although subsection (4) says the statute does not alter the perfection requirements of Article 9, what does the statute mean if not that an unrecorded assignment of mortgage is not enforceable against creditors of the assignor?

One might argue that §701.02 means that an absolute assignment must be recorded in the real estate records, while a collateral assignment need not be recorded.⁴³ Subsection (4) discusses perfection of a “security interest,” but it does not specifically mention a sale of the mortgage.However, the term “security interest” in the UCC includes an assignment pursuant to a sale,⁴⁴ and the term “assignment” in subsections (1) and (2) is not, on its face or in the case law, limited to absolute assignments.⁴⁵ Such a limitation would undercut the §701.02 protections given to real estate purchasers (particularly considering the case law holding that a collateral assignee in possession may enforce the mortgage). Likewise, requiring a sale to be recorded in the real estate records for validity against subsequent purchasers from the mortgagee would undermine the protections for purchasers of mortgages under the UCC. Clearly, the statute says that an assignment need not be recorded to be perfected under the UCC, but that does not necessarily mean that an unrecorded assignment will be effective against a person taking an interest in the realty in reliance on the real estate records.

Perhaps the term “creditors” refers only to creditors of the fee title owner of the land — not to creditors of the mortgage assignor. There is no need to protect creditors of a mortgage assignor with this statute. The priority of a lien creditor of the assignor is adequately addressed by Article 9. By contrast, creditors of the fee title owner are not protected by Article 9 and might rely on the real estate records in acquiring an interest in or lien on the real estate.⁴⁶ Also, the subsection (5) phrase “purchaser of real property” supports that interpretation. There is no mention of purchasers of the mortgage.

If that is the intent of the statute, then the unqualified use of the term “creditors” is unfortunate. The statute should say the protection extends to creditors, purchasers, or other persons acquiring an interest in the real property, but not to persons acquiring a mortgage from the mortgagee (whose rights are determined instead by the UCC). Even though it could be clearer, the foregoing interpretation is not plainly refuted by the statutory language. Moreover, there is case law support. In American Bank of the South v. Rothenberg, 598 So. 2d 289 (Fla. 5th DCA 1992), also discussed above, the bank received a collateral assignment and took possession of the note. However, the note was sold to a second assignee who recorded first in the real estate records and argued that §701.02 gave him better title. The court disagreed, stating:

The confusion in this case arises from the failure of both parties to recognize that section 701.02…is inapplicable. This case, involving as it does the competing interests of successive assignees of a note and mortgage, is governed by negotiable instruments law, not the recording statute. Section 701.02 was enacted to protect a creditor or subsequent purchaser of land who has relied on the record satisfaction of a prior mortgage, which satisfaction was executed by the mortgagee after he made an unrecorded assignment of the same mortgage. Manufacturers’ Trust Co. v. People’s Holding Co., 110 Fla. 451, 149 So. 5 (Fla. 1933).⁴⁷

The court’s reading is unduly narrow in that §701.02 protects more than just persons relying on mortgage satisfactions, but the idea that it governs only real estate transactions seems correct.⁴⁸

However, some courts have confused the rules applicable to problem six with those applicable to problems one through five. In JP Morgan Chase v. New Millennial, LC, 6 So. 3d 681 (Fla. 2d DCA 2009), rev. dism., 10 So. 3d 632 (Fla. 2009), for example, the closing agent in a real estate transaction telephoned AmSouth Bank concerning two mortgages that it appeared to own of record and was told they had been paid. AmSouth Bank faxed a printout to the closing agent showing a balance of $0 and stating “PD OFF.” In fact, AmSouth Bank had merely sold the loans to JP Morgan, which failed to record an assignment. The transaction closed in reliance on the fax. Later, JP Morgan sought to foreclose, and the purchaser argued that JP Morgan’s unrecorded assignment was ineffective under §701.02. JP Morgan argued that §701.02 protected only assignees of the mortgagee, not grantees of the land owner, and the court agreed.⁴⁹ In other words, the court’s interpretation was exactly opposite that in American Bank of the South. Yet, the idea that persons acquiring the land may rely on §701.02 seems required by the statute and the case law.⁵⁰

Although JP Morgan Chase’sinterpretation of §701.02 seems wrong,one might argue the case was correct for another reason. The court said the closing agent never received a satisfaction, but simply relied on the fax. Although F.S. §701.04 (2010) permits the purchaser to rely on an estoppel letter, the court said the fax did not qualify for that protection. Arguably, the true holding of JP Morgan Chase is that the party relying on the real estate records must obtain a satisfaction, and informal assurances are inadequate. Nevertheless, JP Morgan Chase will add to the confusion until the Florida Supreme Court rules decisively on the meaning of §701.02.

Even if one accepts the interpretation in American Bank of the South, one must admit there is inherent tension between §701.02 and Article 9. The tension is demonstrated in Rucker v. State Exchange Bank, 355 So. 2d 171 (Fla. 1st DCA 1978). In that case, South 41 Corp. gave a mortgage to Harrell and deeded the land to Rucker. Harrell assigned the mortgage to the bank as collateral, which recorded the assignment, but did not notify Rucker. Rucker then paid the mortgage to Harrell. After not receiving payment, the bank foreclosed on Rucker. On appeal, Rucker argued the collateral assignment was not perfected under Article 9. The court erroneously said that Article 9 does not govern a collateral assignment, but came to an arguably correct result, affirming the judgment of foreclosure.

A threshold issue not discussed was whether Rucker, having acquired the real estate from South 41 Corp., was entitled to rely on the real estate records, or whether she simply paid the mortgage pursuant to the UCC. Clearly, Rucker did acquire the real estate, but that was months earlier, so perhaps by the time of payment, the real estate records were no longer relevant.

The Rucker court seemed to rely on both problems one through five and problem six rules. The court said that Rucker did not demand surrender of the mortgage,⁵¹ which is irrelevant under §701.02. However, the court also relied on the assignment recorded in the real estate records, which is not important to problems one through five, but is important to problem six. Even though the court did not clearly state which rules applied, it came to the correct result. Rucker lost because she did not comply with either set of rules. She would have become aware of the assignment to the bank if she had checked the real estate records, and she would have (presumably) discovered that Harrell did not have the note, if she had demanded surrender of the note. The court did not discuss when it is that a person acquiring an interest in the land (entitled to rely on the real estate records) ceases to be such a person and becomes instead a person acquiring or paying the promissory note who must follow the UCC, but the case shows the issue will inevitably arise, creating tension between §701.02 and the UCC.

Summarizing, the UCC attempts to solve problems one through five and §701.02 attempts to solve problem six. There is some overlap and potential for conflict, causing confusion in the cases. Courts should interpret those statutes so that they are consistent, limiting the protection of §701.02 to persons taking an interest in the real estate, and the protection of the UCC to persons taking an interest in the promissory note and mortgage.

Conclusion
Ironically, while the drafters of Article 9 sought to make mortgage assignments as simple and foolproof as possible, the handling of mortgage assignments is now at the center of the foreclosure crisis that has gripped the nation’s financial system. To be fair, the changes to Article 9 did not really cause the problem. In fact, the changes mostly codified existing case law and served to lessen the chaos by eliminating uncertainty. However, the revisions to Article 9 fostered confidence that the “simple, foolproof” rules intended to protect parties’ rights in mortgages would in fact do so. The false sense of certainty led to an increase in the number of transactions accomplished with minimal documentation designed to meet the attachment and perfection requirements of Article 9, but not the standing requirements in foreclosures. Moreover, missing or irregular indorsements or lost instruments compounded the problem by leaving gaps even in this minimal documentation. The result was a deluge of disputed cases fortuitously stopping or delaying foreclosures while the mortgagees struggled to reconstruct a document trail proving ownership.

Despite the sloppy practices of the mortgage industry, attorneys practicing in this area should not find themselves on the losing end of a court decision holding that their client does not have standing to foreclose. The question of whether the client has standing should be addressed before filing the case. If the documentation is inadequate, then missing documents should be located, or if necessary, re-executed before filing suit. An attorney unavoidably faced with ambiguous documentation might take comfort that, as shown by Johns v. Gillian and the UCC, Florida law concerning standing is not very demanding. Nevertheless, the requirements for standing must be proved, and the attorney should determine before filing that these requirements can be met.

¹SeeFla. Stat. §673.2041 (2010).

²See National Bank of Sarasota v. Dugger, 335 So. 2d 859, 860-861 (Fla. 2d D.C.A. 1976), cert. den., 342 So. 2d 1101 (Fla. 1976) (citing Comments as interpretive guide).

³ Florida has long held an assignment of a note includes an assignment of the mortgage. See Taylor v. American Nat. Bank, 57 So. 678, 685 (Fla. 1912); First Nat. Bank of Quincy v. Guyton, 72 So. 460 (Fla. 1916); Collins v. W.C. Briggs, Inc., 123 So. 833 (Fla. 1929); Miami Mortgage & Guaranty Co. v. Drawdy, 127 So. 323 (Fla. 1930); and Warren v. Seminole Bond & Mortgage Co., 172 So. 696, 697 (Fla. 1937). Thus, a recorded assignment seemed surplusage. By contrast, a mortgage assignment without the note has been held ineffectual. Sobel v. Mutual Development, Inc., 313 So. 2d 77, 78 (Fla. 1st D.C.A. 1975).

⁴Johns v. Gillian, 184 So. 140, 143 (Fla. 1938).

⁵Fla. Stat. §679.1091(4)(k)(1) (2010) (Article 9 extends to a transfer of a lien in real property).

⁶Fla. Stat. §679.1091(1) (2010).

⁷See UCC §9-109, Comment 5.

⁸Fla. Stat. §679.1021(1)(sss) (2010).

⁹Fla. Stat. §679.1021(1)(bb) (2010).

¹⁰Fla. Stat. §679.2031(2) (2010).

¹¹Fla. Stat. §679.1021(1)(l) (2010).

¹²Fla. Stat. §679.1021(1)(ttt) (2010) and §671.201(38) (2010) (“security interest” includes the interest of a buyer of a promissory note).

¹³Fla. Stat. §679.2031(7) (2010).

¹⁴Fla. Stat. §673.2041(1) (2010), defining “indorsement.” Fla. Stat. §673.2011 (2010) requires an indorsement for a transferee to become a “holder,” if the instrument is payable to a specific person, but even a nonholder transferee may often enforce the instrument. SeeFla. Stat. §673.2031(2) (2010).

¹⁵ The delivery requirement has also been weakened by some cases. See Beaty v. Inlet Beach, 9 So. 2d 735 (Fla. 1942); Harmony Homes, Inc. v. United States, 936 F. Supp. 907, 913 (M.D. Fla. 1996), aff’d,124 F.3d 1299 (11th Cir. 1997).

¹⁶Fla. Stat. §679.3081(5) (2010).

¹⁷Fla. Stat. §679.1021(1)(zz) (2010).

¹⁸Fla. Stat. §679.3131(1) (2010). Florida law applies to a security interest perfected by possession if the promissory note is located in Florida. SeeFla. Stat. §679.3011(2) (2010).

¹⁹Fla. Stat. §679.3121(1) (2010) (perfection by filing where the collateral is instruments). The term “instrument” under Article 9 includes non-negotiable promissory notes, unlike the same term defined in Article 3. CompareFla. Stat. §679.1021(1)(uu) (2010) withFla. Stat. §673.1041(2) (2010), and see Comment 5(c) to UCC §9-102.

²⁰Fla. Stat. §679.5011(1)(b) (2010). A registered organization organized in Florida is deemed “located” in Florida. SeeFla. Stat. §679.3071(5) (2010).

²¹Fla. Stat. §679.3131(3) (2010).

²²Fla. Stat. §679.3171(1)(b) (2010) (security interest is junior to the rights of a person who became a lien creditor prior to perfection).

²³Fla. Stat. §679.3091(4) (2010). This is one of the few areas wherein collateral assignments and sales are different. Purchasers of promissory notes had not in the past been required to file financing statements, and the drafters of Article 9 wanted to continue that practice. See Comment 4 to UCC §9-309.

²⁴ First, the priority rules determine if the assignee prevails over another assignee, and possession is more protective than automatic perfection. Second, courts may find what appears to be a sale is actually security that cannot be perfected automatically. See, e.g., Torreyson v. Dutton, 198 So. 796 (Fla. 1940); Hulet v. Denison, 1 So. 2d 467 (Fla. 1941); Howard v. Goodspeed, 135 So. 294 (Fla. 1931). Also, the assignee usually wants possession to ensure standing to foreclose. See Abbott v. Penrith, 693 So. 2d 67 (Fla. 5th D.C.A. 1997); Pastore-Borroto Development, Inc. v. Marevista Apartments, M.B., Inc., 596 So. 2d 526 (Fla. 3d D.C.A. 1992); Figueredo v. Bank Espirito Santo, 537 So. 2d 1113 (Fla. 3d D.C.A. 1989).

²⁵See definitions of “purchase” and “purchaser” at Fla. Stat. §§671.201(32) and (33) (2010).

²⁶See Comment 7 to UCC §9-330 (“a purchaser who takes even with knowledge of the security interest qualifies for priority under subsection (d) if it takes without knowledge that the purchase violates the rights of the holder of the security interest”). Fla. Stat. §679.3171(2) (2010) seems to adopt a different rule, saying that a “buyer, other than a secured party” takes free of a security interest if the buyer gives value and takes delivery “without knowledge of the security interest” and before it is perfected. However, a “buyer, other than a secured party” under Fla. Stat. §679.3171(2) (2010) is not a “purchaser” under Fla. Stat. §679.330(4) (2010). Comment 6 to UCC §9-317 says that unless the sale is excluded from Article 9, the buyer is a “secured party,” and §679.3171(2) does not apply, adding “[r]ather, the priority rules generally applicable to competing security interests apply.”

²⁷Fla. Stat. §671.201(21)(a) (2010).

²⁸C.f., Ederer v. Fisher, 183 So. 2d 39, 42 (Fla. 2d D.C.A. 1965) (unauthorized indorsement deprived plaintiff of holder in due course status, thus, permitting defense on instrument). As in Ederer, inability to prove holder status does not necessarily mean the plaintiff lacks standing under Fla. Stat. §673.3011 (2010), but may expose the plaintiff to additional defenses.

²⁹SeeFla. Stat. §673.5011(2)(b)(1) (2010), permitting the maker to make such demand.

³⁰SeeFla. Stat. §673.5041(1) (2010), giving effect to such waivers.

³¹See, e.g., Scott v. Taylor, 58 So. 30 (Fla. 1912) (payment effective if made to authorized agent); McChesney v. Herman, 176 So. 565 (Fla. 1937); Posey v. Hunt Furniture Co., Inc., 43 So. 2d 343 (Fla. 1949); Fla. Stat. §671.103 (2010) (UCC does not displace law of agency).

³²Fla. Stat. §673.1041 (2010) determines negotiability. See, e.g., Locke v. Aetna Acceptance Corp., 309 So. 2d 43 (Fla. 1st D.C.A. 1975) (note stating “pay to seller” not negotiable because not payable to order of seller); City Bank, N.A. v. Erickson, 18 FLW Supp. 283 (Fla. Cir. Ct. 2011) (home equity agreement not negotiable where amount not fixed); Holly Hill Acres, Ltd. v. Charter Bank, 314 So. 2d 209 (Fla. 2d D.C.A. 1975) (note incorporating terms of mortgage not negotiable).

³³Johnston v. Allen, 22 Fla. 224 (Fla. 1886).

³⁴Philogene v. ABN AMRO Mortgage Group, Inc., 948 So. 2d 45 (Fla. 4th D.C.A. 2006); Fla. Stat. §673.3011(1) (2010).

³⁵Juega v. Davidson, 8 So. 3d 488 (Fla. 3d D.C.A. 2009); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34, fn. 2 (Fla. 3d D.C.A. 2007) (stating that MERS was holder, but not owner and “We simply don’t think that this makes any difference. See Fla. R.Civ. P. 1.210(a) (action may be prosecuted in name of authorized person without joining party for whose benefit action is brought)”).

³⁶Laing v. Gainey Builders, Inc., 184 So. 2d 897 (Fla. 5th D.C.A. 1966) (collateral assignee was a holder); Cullison v. Dees, 90 So. 2d 620 (Fla. 1956) (same, except involving validity of payments rather than standing to foreclose).

³⁷See Fla. Stat. §673.3091(2) (2010); Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105 (Fla. 4th D.C.A. 2010).

³⁸BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d at 938-939 (Fla. 2d D.C.A. 2010). See also Verizzo v. Bank of New York, 28 So. 3d 976 (Fla. 2d D.C.A. 2010) (Bank filed original note, but indorsement was to a different bank). But seeLizio v. McCullom, 36 So. 3d 927 (Fla. 4th D.C.A. 2010) (possession of note is prima facie evidence of ownership).

³⁹See also Glynn v. First Union Nat. Bank, 912 So. 2d 357 (Fla. 4th D.C.A. 2005), rev. den., 933 So. 2d 521 (Fla. 2006) (note transferred before lawsuit, even though assignment was after).

⁴⁰Fla. Stat. §673.3091(2) (2010); Fla. Stat. §69.061 (2010).

⁴¹See Comment 6 to UCC §9-308.

⁴²Shavers v. Duval County, 73 So. 2d 684 (Fla. 1954); City of Gainesville v. Charter Leasing Corp., 483 So. 2d 465 (Fla. 1st D.C.A. 1986); Southern Colonial Mortgage Company, Inc. v. Medeiros, 347 So. 2d 736 (Fla. 4th D.C.A. 1977).

⁴³See, e.g.,Thomas E. Baynes, Jr., Florida Mortgages (Harrison Co. 1999), §7-2 (West pocket part for 2009), stating “[s]ection 4 was added to establish that perfection of a security interest in a mortgage…would be governed by the Florida Uniform Commercial Code…. This type of assignment of mortgage, sometimes characterized as a ‘collateral assignment,’ does not need to be recorded under F.S. §701.02.”

⁴⁴Fla. Stat. §671.201(38) (2010).

⁴⁵See, e.g., Gardner v. McPherson, 151 So. 390 (Fla. 1933) (dismissing foreclosure by unrecorded collateral assignee where mortgage had been satisfied by record mortgagee); Williams, Salomon, Kanner & Damian, as Trustee v. American Bankers Life Assurance Co., 379 So. 2d 119 (Fla. 3d D.C.A. 1979) (subordination unenforceable where recorded collateral assignee had not agreed). However, these cases predated subsection (4).

⁴⁶See, e.g., Manufacturers’ Trust Co. v. People’s Holding Co., 149 So. 5 (Fla. 1933).

⁴⁷American Bank of the South v. Rothenberg, 598 So. 2d at 290 (Fla. 5th D.C.A. 1992).

⁴⁸See also Chandler v. Davis, 190 So. 873 (Fla. 1939) (assignee from record mortgagee took subject to holder in possession of note); Karn v. Munroe, 6 So. 2d 529 (Fla. 1942) (subsequent assignee with possession prevailed over first); Vance v. Fields, 172 So. 2d 613 (Fla. 1st D.C.A. 1965) (first assignee recorded first, but took possession of wrong note; court correctly ruled for the second assignee with possession without discussing distinction between a real estate transaction and note sale). CompareTamiami Abstract & Title Co. v. Berman, 324 So. 2d 137 (Fla. 3d D.C.A. 1976), cert. den., 336 So. 2d 604 (Fla. 1976) (purchaser of original mortgagee’s assets did not own mortgage assigned of record to another by collateral assignment that later became absolute upon default). Because the buyer purchased the mortgage (not the real estate), the court should have applied rules regarding transfer of the mortgage as personal property, but focused instead on the land records. Yet the court said the defendant “claimed outright possession of said mortgage,” which left the possibility that his claim also arose from possession. Otherwise, it seems at odds with Cullison, cited in fn. 36.

⁴⁹ The court cited Kapila v. Atlantic Mortgage & Investment Corp. (In re Halabi), 184 F.3d 1335 (11th Cir. 1999), and Bradley v. Forbs, 156 So. 716 (Fla. 1934). In Kapila, 184 F.3d at 1338, the court held the assignee’s failure to record did not render the mortgage unperfected in the mortgagor’s bankruptcy. The court said §701.02 protects only an assignee of the mortgagee, not a person acquiring the real estate. However, the question of who owns a mortgage is distinct from whether it is perfected against grantees of the real estate owner. Bradley includes some ambiguous language, but stands primarily for the proposition that a purchaser cannot rely on informal assurances by the record mortgagee, but must obtain a satisfaction. See Bradley, 156 So. at 717. The Kapila court also said the Florida Supreme Court may have implicitly receded from Bradley in Hulet v. Denison, 1 So. 2d 467, 468-469 (Fla. 1941), presumably because it discussed the statute as though it applied to persons acquiring the land, even though its decision was on other grounds, i.e., actual notice. The purchasers relied on a satisfaction by the mortgage assignee of record. However, the original mortgagee’s surviving widow claimed the assignment was for collateral and had been discharged. The court said the purchasers had “actual notice,” but cited the failure of the purchaser to demand surrender of the note as the basis. If that is what is meant by “actual notice,” then what is the point of the recording statute?

⁵⁰ In addition to American Bank of the South v. Rothenberg, Gardner v. McPherson, Bradley v. Forbs, and Manufacturers’ Trust Co. v. People’s Holding Co., see Housing Authority v. Macho, 181 So. 2d 680 (Fla. 3d D.C.A. 1966).

⁵¹Rucker v. State Exchange Bank, 355 So. 2d at 172 (Fla. 1st D.C.A. 1978). The court spoke of surrender of the mortgage, but it is surrender of the promissory note that is important under the UCC. See also Perry v. Fairbanks Capital Corp., 888 So. 2d 725, 726 (Fla. 5th D.C.A. 2004).

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, visit: http://www.fightforeclosure.net

How Homeowners Can Spot Fraudulent Mortgage Documents

02 Monday Dec 2013

Posted by BNG in Affirmative Defenses, Fraud, Judicial States, Non-Judicial States, Pro Se Litigation, Trial Strategies, Your Legal Rights

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Florida, MERS, Mortgage Electronic Registration System, National City Bank, Texas, Trust deed (real estate), United States, Wall Street

This post is designed to assist struggling homeowners who find themselves in an unfortunate situation of wrongful foreclosure by illegal entities who are foreclosing without legitimate documents. Most securitized loans are being wrongfully foreclosed by entities who does not have any interest in the properties they are foreclosing.

If MERS is listed on your Deed of Trust there’s a better chance than not that there is fraud involved in your mortgage documents. MERS was used by the Wall Street Banks to avoid paying county recorder fees and real estate transfer tax fees. You will need to visit your County Recorder’s office to obtain copies of all of your real property records from the first filing on your current loan up to today.

1. The Mortgage or Deed of Trust is assigned from the Originator directly to the Trustee for the Securitized Trust.

2. The Mortgage or Deed of Trust is assigned months and sometimes years after the date of the origination of the underlying mortgage note.

3. The Mortgage or Deed of Trust is assigned from the initial aggregator directly to the Securitized Trust with no assignments to the Depositor or the Sponsor for the Trust.

4. The Mortgage or Deed of Trust is executed, dated or assigned in a manner inconsistent with the mandatory governing rules of Section 2.01 of the Pooling and Servicing Agreement.

5. The assignment of the Mortgage or Deed of Trust is executed by a legal entity that was no longer in existence on the date the document was executed.

6. The assignment of the mortgage or Deed of Trust is executed by an entity whose name is different than the entity named in the original document (i.e., National City Bank Corporation in lieu of ABC Corporation as a division of National City Bank).

7. The assignment was executed by a party pursuant to a Power of Attorney but no Power of Attorney is attached to the instrument or filed with the instrument or otherwise recorded with local land registry.

8. The mortgage note is allegedly transferred in a single document along with the Mortgage or Deed of Trust (i.e., “Assignment of the Note and Mortgage”). You cannot “assign” a mortgage note. You can only “negotiate” a mortgage note under Article 3 of the UCC.

9. The assignment is executed by a party who claims to be an “attorney in fact” for the assignor.

10. The assignment is notarized by a notary in Dakota County, Minnesota.

11. The assignment is notarized by a notary in Hennepin County, Minnesota.

12. The assignment is notarized by a notary in Duval County, Florida.

13. The assignment is executed by an officer or secretary of MERS.

14. The assignment is notarized by a secretary or paralegal employed by the attorney for the mortgage servicer.

15. The assignment is executed or notarized by an employee of MR Default Services, Promiss Solutions LLC, National Default Exchange, LP, LOGS Financial Services, or some similar third-party.

16. The endorsement on the note is actually on an allonge affixed to the note. In most states, an allonge cannot be used if there is a sufficient amount of room at the “foot” or the “bottom” of the original note for the endorsement.

17. The allonge is not “permanently” affixed to the original note. The term permanent excludes the use of staples and tape and as a result you must use a sold fastener such as glue. Allonges are commonly referred to “in the business” as “tear-off fraud papers.”

18. The note proffered in evidence is not the original but a copy of the “certified copy” provided to the debtors at the closing.

19. The note is endorsed in blank with no transfer and delivery receipts. It is fine to endorse a note in blank, in which case it becomes “bearer” paper under the UCC. However, in order to prove a true sale from the Sponsor to the Depositor you must have written delivery and transfer receipts and proof of pay outs and pay in transactions.

20. The note proffered in evidence is not endorsed at the foot of the note or on an affixed allonge.

21. The assignment of the mortgage or deed of trust post-dates the filing of the court pleading.

22. The assignment of the mortgage or deed of trust is executed after the filing of the court pleadings but claims to be “legally effective” before the filing. For example, the deed of trust is assigned on June 1, 2009, with an effective date of May 1, 2007.

23. The parties who executed the assignment and who notarized the signature are in fact the same parties.

24. The signor states that he or she is an “agent” for the executing entity.

25. The signor states that he or she is an “attorney in fact” for the executing entity.

26. The signor states that he or she is an employee of the executing entity but claims to have custody and control of the records of the entity.

27. The signor of the document makes statements about the status of the mortgage debt based on his or her review of the “records of the plaintiff” or the “records of the moving party.”

28. The proponent of the original note files an Affidavit of Lost Note.

29. The signor claims that the allegations in the court pleading are correct but the assignment of the mortgage and/or delivery and transfer of the note occurs after the law suit or the motion for relief from stay was filed.

30. One or more of the operative documents in the case is signed by one of the attorneys for the mortgage servicer.

31. The default payment history filed in the case is prepared by the attorney for the mortgage servicer or a member of his or her staff.

32. The affidavit filed in support of legal fees is not signed by an attorney with the firm involved in the case.

33. The name of one or more of the signors is stamped on the document.

34. The document is a form with standard “fill-in-the-blanks” for names and amounts.

35. The signature of one or more parties on the document is not legible and looks like something a three year old might have done.

36. The document is dated and signed years before the document is actually filed with the register of real estate documents or deeds or mortgages.

37. The proffered document has the word C O P Y stamped on or embedded in the document.

38. The document is executed by a notary in Denton County, Texas.

39. The document is executed by a notary in Collin County, Texas.

40. The document includes a legend “Hold for” a named law firm after recording.

41. The document was drafted by a law firm representing the mortgage servicer in the pending case.

42. The document includes any type of bar code that was not added by the local register or filing clerk for such instruments.

43. The document includes a reference to an “instrument number.”

44. The document includes a reference to a “form number.”

45. The document does not include any reference to a Master Document Custodian.

46. The document is not authenticated by any officer or authorized agent of a Master Document Custodian.

47. The paragraph numbers on the document are not consistent (the last paragraph on page one is 7 and the first paragraph on page two starts with number 9).

48. The endorsement of the note is not at the “foot” or “bottom” of the last page of the note. For example, a few states allow an endorsement on the back of the last page of the note but the majority requires it at the foot of the note.

49. The document purports to assign the mortgage or the deed of trust to the Trustee for the Securitized Trust before the Trust was registered with the Securities and Exchange Commission. This type of registration is normally referred to as a “shelf registration.”

50. The document purports to transfer the note to the Trustee for the Securitized Trust before the date the Trust provides for the origination date of instruments in the Trust. The Prospectus, the Prospectus Supplement and the Pooling and Servicing Agreement will clearly state that the pool of notes includes those originated between date X and date Y.

51. The document purports to transfer the note to the Trustee for the Securitized Trust after the cut-off date for the creating of such instruments for the Trust.

52. The origination date on the mortgage note is not within the origination and cut-off dates provided for the by terms of the Pooling and Servicing Agreement.

53. The “Affidavit of a Lost Note” is not filed by the Master Document Custodian for the Trust but by the Servicer or some other third-party.

54. The document is signed by a “bank officer” without any designation of the office held by the said officer.

55. The affidavit includes the following language on the bottom of each page: ”This is an attempt to collect a debt. Any information obtained will be used for that purpose.”

56. The document is signed by a person who identifies himself or herself as a “media supervisor” for the proponent.

57. The document is signed by a person who identifies himself or herself as a “media coordinator” for the proponent.

58. The document is signed by a person who identifies himself or herself as a “legal coordinator” for the movant.

59. The date of the signature on the document and the date the signature was notarized are not the same.

60. The parties who signed the assignment and who notarized the signature are located in different states or counties.

61. The transferor and the transferee have the same physical address including the same street and post office box numbers.

62. The assignor and the assignee have the same physical address including the same street and post office box numbers.

63. The signor of the document states that he or she is acting “solely as nominee” for some other party.

64. The document refers to a power of attorney but no power of attorney is attached.

65. The document bears the following legend: ”This is not a certified copy.”

66. The document is signed by: (these are just a few names, do site search from more robo-signers)

Jose Aguilar

Joseph Alvarado

Felix Amenumey

Natalie Anderson

Pam Anderson

Scott Anderson or by Scott W. Anderson

Pamela Ariano

Leticia Arias

Chris Arndt

Aimee Austin

Gina Avila

Katrina Bailey

Fern Baker

Janice M. Baker

Lorraine Balara

Steve Ballman

Steve Bashmakov

Michael Bender

Jamie Bilot

Marnessa Birckett

Sarah Block

Janette Boatman

Michele Boiko

Sheri Bongaarts

Beth Borse

Christie Bouchard

Diane Bowser

Christopher Bray

Tammy Brooks-Saleh or Tammy Saleh

Sandy Broughton

Jenny Brouwer

Jacqueline Brown

Paul Bruha

Lins Bryce

Rita Bucolo

Judy Buseman

Butler & Hosch, P.A.

Becky Byrne

Rodney Cadwell

Robin Callahan

Carolyn Cari

Jeffrey P. Carlson

Nancy L. Carlson

Richard J. Carlson

Robin Carmody

Marvell Carmouche

Amy Jo Cauthern-Munoz

Kristi M. Caya

Kim Chambers

Carol Chapman

Keith Chapman

Hari Charagundla

Debra Chieffe

Christina Ching

Dave Chiodo

Jim Clark

Tara Clayton

John Cody

Robyn Colburn

Rebecca Colgan

Karen Cook

Frank Coon

Julie Coon

Julie Cordova

Jeremy Cox

Cathy Crawford

Kevin Crecco

Dave Cunningham

Michael Curry

Nanci Danekar

Amie Davis

Vickie Day

Yvette Day

Teresa DeBaker

Jody Delfs

Richard Delgado

Mike Dian

Dulce Diaz

Larry Dingmann

Kathleen Doherty

Jason Dreher

Jennifer Duncan

Kimbretta Duncan

Ronald Durant

Neil E. Dyson

Shirley Eads

Salena Edwards

Judy Faber

Sue Filiczkowski

Donna Fitton

Sean Flanagan

Angela L. Freckman

Verdine A. Freeman

Eric Friedman

Fedelis Fondungallah

Barb Frost

LeAllen Frost

Fanessa Fuller

Laura Furrick

Sarah Gacek

Judi Gambrel

Elizabeth Geretschlaeger

Peggy Glass

Dory or Dorey Goebel

Alma Gonzales

Eileen J. Gonzales

Kathleen Gowan

Kelly Graham

Steven Y. Green

Steven Grout

Cathy Hagstrom

Michelle Halyard

Craig Hanlon

Michael Hanna

Donna Harkness

Michael Hebling

Renee L. Hensley

May Her

Jim Herman

Laura Hescott

Dave Hillen

Joseph P. Hillery

Craig Hinson

Bob Hora

Teddi Horan

Robert L. Horn

Chrys Houston

JK Huey

Paul Hunt

Vickie Ingamells

Cassandra Inouye

Andrea Jenkins

Ashley Johnson

Mary B. Johnson

Janet Jones

Tina Jones

Peggy Jordon

Etsuko Kabeya

Jamil Kahin

Robert E. Kaltenbach

Pam Kammerer

Gloria Karau

Vishal Karingada

Rhonda Kastli

Andrew Keardy

Patricia Kelleher

Scott Keller

Bryan Kerr

John Kerr

Kim Kinney

Sandy Kinnunen

LeeAnne Kramer

Mutru Kumar

Martha Kunkle

Margie Kwaitanowski

Vicki Kyle

Sukhada Lad

Brian J. LaForest

Diane LaFrance

Patricia Lambengco

Kyurstina Lawton

Toccoa Lenair

Bharati Lengade

Lindsey Lesch

Whitney Lewis

Marie Lockwood

Stephanie Lowe

Todd Luckey

Michele Luszcz

Joseph Lutz

Hang Luu

Frank Madden

Lisa Magnuson

William Maguire

Michael G. Mand

Silvia Marchan

Charmaine Marchesi

Brock Martin

Joel Martinson

Denise A. Marvel

Mary Maxwell

Christopher Mayall

Patrick McClain

Mary McGrath

Hattie McLaughlin

Noel McNally

Donna McNaught

Michael Mead

Marcia Medley

Susan Meier

Marisa Menza

Pamela Michael

Linda Miller

Steve Moe

Nancy Mooney

Joanne Moore

Melody Moore

Taylor Moore

Ruth Morgan

Michael H. Moreland

Treva Moreland

Annmarie Morrison

Melissa Mosloski

Kim Mullins

Patricia Murray

Ginny Neidert

Steve A. Nielsen

Susan Nightingale

Colleen O’Donnell

Richard Olasande

Mitchell Oringer

Clothilde Ortega

Amy Payment

Dawn Peck

Bonnie Pelletier

Patte Peloquin

Joseph Pensabene

Kenneth R. Perkins

Jennifer Peters

Charity Peterson

Joyce Petty

Ann Pinto

Ingrid Pittman

Bernadette Polux

Tamara Price

Erika Puentes

Beverly Quaresima

Shivani L. Ram

Antonia Ramirez

Rona Ramos

Myron Ravelo

Peter Read

Keith S. Reno

Anthony N. Renzi

Dawn L. Reynolds

Jeff Rivas

Jose Rivera

Bill Rizzo

Paula Rosato

Margery A. Rotundo

Sarah Rubin or Sara Rubin

Paige Sahr

Tammy Saleh

Kendall Sanders

Cindy Sandoval

Dianna Sandoval

Kimberly Sanford

Josephine Sciarrino

Stephanie Scott

Jenee Simon

Laura Siess

Gregory Smallwood

Rosalie Solano

Erika Spencer

Joseph Spicer

Renae Stanton

Jeffrey Stephan

Maya Stevenson

Richard Stires

Judith Stone

September Stoudemire

Roy Stringfellow

Anne Sutcliffe

Rachel Switzer

Emmanuel Tabot

Mary Taylor

Varsha Thakkar

Bernice Thell

Keith Torok

Deb Twining

Kenneth Ugwuadu

R.P. Umali

Keo Maney Kue Vang

Jason Vecchio

Rebecca Verdeja

Vinod Vishwakarma

Fifi Volgarakis

Janet Vollmer

Kim Waldroff

Linda Walton

Lisa Watson

John Wesley

Katrina Whitfield-Bailey or by Katrina Whitfield or by Katrina Bailey

Joanne Wight

Cathy Williams

Paul Williams

Kristine Wilson

Mary Winbauer

Rebecca Wirtz

Danielle Woods

Janine Yamoah

Jerry Yang

Elizabeth Yeranosian

Mellisa Ziertman

Jan Zimmerman

Stephen Zindler

Katie Zrust

If you find yourself in an unfortunate situation of losing or about to your home to wrongful fraudulent foreclosure, visit: http://www.fightforeclosure.net

Why Homeowners Lose on Appeal – A Review of Wrongful Foreclosure Appeal Case

02 Monday Dec 2013

Posted by BNG in Appeal, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, MERS, Pleadings, Pro Se Litigation

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Tags

Arizona, Bank of America, Florida, MERS, Mortgage Electronic Registration System, New York, Washington, Wells Fargo

A CASE IN REVIEW (1)

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

No. 09-17364 D.C. No. 2:09-cv-00517-JAT

OLGA CERVANTES, an unmarried
woman; CARLOS ALMENDAREZ, a
married man; ARTURO MAXIMO, a
married man, individually and on
behalf of a class of similarly
situated individuals,
Plaintiffs-Appellants,
v.

OPINION
COUNTRYWIDE HOME LOANS, INC., a
New York corporation; MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS,
INC., a subsidiary of MERSCORP,
INC., a Delaware corporation; ý MERSCORP, INC.; FEDERAL HOME
LOAN MORTGAGE CORPORATION, a
foreign corporation, AKA Freddie
Mac; FEDERAL NATIONAL
MORTGAGE ASSOCIATION, a foreign
corporation; GMAC MORTGAGE,
LLC, a Delaware corporation;
NATIONAL CITY MORTGAGE, a
foreign company and a division of
National City Bank, a foreign
company; J.P. MORGAN CHASE
BANK, N.A., a New York
corporation; CITIMORTGAGE, INC., a
New York corporation;

HSBC MORTGAGE CORPORATION,
U.S.A., a Delaware corporation;
AIG UNITED GUARANTY
CORPORATION, a foreign
corporation; WELLS FARGO BANK,
N.A., a California corporation,
DBA Wells Fargo Home Equity;
BANK OF AMERICA, N.A., a foreign
corporation; GE MONEY BANK, a
foreign company; PNC FINANCIAL
SERVICES GROUP, INC., a
Pennsylvania corporation; No. 09-17364
NATIONAL CITY CORPORATION, a D.C. No. subsidiary of PNC Financial Services Group; N 2:09-cv-00517-JAT ATIONAL CITY
BANK, a subsidiary of National OPINION
City Corporation; MERRILL LYNCH
& COMPANY, INC., a subsidiary of
Bank of America Corporation;
FIRST FRANKLIN FINANCIAL
CORPORATION, a subsidiary of
Merrill Lynch & Company, Inc.;
LASALLE BANK, N.A., a subsidiary
of Bank of America; TIFFANY &
BOSCO P.A., an Arizona
professional association,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Arizona
James A. Teilborg, District Judge, Presiding
Argued and Submitted
February 16, 2011—San Francisco, California
Filed September 7, 2011

Before: Richard C. Tallman, Johnnie B. Rawlinson,* and
Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Callahan

*Due to the death of the Honorable David R. Thompson, the Honorable
Johnnie B. Rawlinson, United States Circuit Judge for the Ninth Circuit,
has been drawn to replace him on this panel. Judge Rawlinson has read
the briefs, reviewed the record, and listened to the audio recording of oral
argument held on February 16, 2011.

COUNSEL
William A. Nebeker and Valerie R. Edwards, Koeller
Nebeker Carlson & Haluck, LLP, Phoenix, Arizona, and Robert
Hager and Treva Hearne, Hager & Hearne, Reno, Nevada,
for the appellants.
Timothy J. Thomason, Mariscal Weeks McIntyre & Friedlander,
P.A., Phoenix, Arizona, Thomas M. Hefferon, Goodwin
Procter, LLP, Washington, DC, Howard N. Cayne,
Arnold & Porter, LLP, Washington, DC, Stephen E. Hart,
Federal Housing Finance Agency, Washington, DC, Mark S.
Landman, Landman Corsini Ballaine & Ford P.C., New York,
New York, and Robert M. Brochin, Morgan, Lewis & Bockius,
LLP, Miami, Florida, for the appellees.

OPINION

CALLAHAN, Circuit Judge:
This is a putative class action challenging origination and
foreclosure procedures for home loans maintained within the
Mortgage Electronic Registration System (MERS). The plaintiffs
appeal from the dismissal of their First Amended Complaint
for failure to state a claim. In their complaint, the
plaintiffs allege conspiracies by their lenders and others to use
MERS to commit fraud. They also allege that their lenders
violated the Truth in Lending Act (TILA), 15 U.S.C. § 1601
et seq., and the Arizona Consumer Fraud Act, Ariz. Rev. Stat.
§ 44-1522, and committed the tort of intentional infliction of
emotional distress by targeting the plaintiffs for loans they
could not repay. The plaintiffs were denied leave to file their
proposed Second Amended Complaint, and to add a new
claim for wrongful foreclosure based upon the operation of
the MERS system.

On appeal, the plaintiffs stand by the sufficiency of some
of their claims, but primarily contend that they could cure any
pleading deficiencies with a newly amended complaint, which
would include a claim for wrongful foreclosure. We are
unpersuaded that the plaintiffs’ allegations are sufficient to
support their claims. Although the plaintiffs allege that
aspects of the MERS system are fraudulent, they cannot
establish that they were misinformed about the MERS system,
relied on any misinformation in entering into their home
loans, or were injured as a result of the misinformation. If
anything, the allegations suggest that the plaintiffs were
informed of the exact aspects of the MERS system that they
now complain about when they agreed to enter into their
home loans. Further, although the plaintiffs contend that they
can state a claim for wrongful foreclosure, Arizona state law
does not currently recognize this cause of action, and their
claim is, in any case, without a basis. The plaintiffs’ claim
depends upon the conclusion that any home loan within the MERS system is unenforceable through a foreclosure sale, but
that conclusion is unsupported by the facts and law on which
they rely. Because the plaintiffs fail to establish a plausible
basis for relief on these and their other claims raised on
appeal, we affirm the district court’s dismissal of the complaint
without leave to amend.

I.
The focus of this lawsuit—and many others around the
country—is the MERS system.

1. How MERS works
MERS is a private electronic database, operated by MERSCORP,
Inc., that tracks the transfer of the “beneficial interest”
in home loans, as well as any changes in loan servicers. After
a borrower takes out a home loan, the original lender may sell
all or a portion of its beneficial interest in the loan and change
loan servicers. The owner of the beneficial interest is entitled
to repayment of the loan. For simplicity, we will refer to the
owner of the beneficial interest as the “lender.” The servicer
of the loan collects payments from the borrower, sends payments
to the lender, and handles administrative aspects of the
loan. Many of the companies that participate in the mortgage
industry—by originating loans, buying or investing in the
beneficial interest in loans, or servicing loans—are members
of MERS and pay a fee to use the tracking system. See Jackson
v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487,
490 (Minn. 2009).

When a borrower takes out a home loan, the borrower executes
two documents in favor of the lender: (1) a promissory
note to repay the loan, and (2) a deed of trust, or mortgage,
that transfers legal title in the property as collateral to secure
the loan in the event of default. State laws require the lender
to record the deed in the county in which the property is located. Any subsequent sale or assignment of the deed must
be recorded in the county records, as well.

This recording process became cumbersome to the mortgage
industry, particularly as the trading of loans increased.
See Robert E. Dordan, Mortgage Electronic Registration Systems
(MERS), Its Recent Legal Battles, and the Chance for a
Peaceful Existence, 12 Loy. J. Pub. Int. L. 177, 178 (2010).
It has become common for original lenders to bundle the beneficial
interest in individual loans and sell them to investors
as mortgage-backed securities, which may themselves be
traded. See id. at 180; Jackson, 770 N.W.2d at 490. MERS
was designed to avoid the need to record multiple transfers of
the deed by serving as the nominal record holder of the deed
on behalf of the original lender and any subsequent lender.
Jackson, 770 N.W.2d at 490.

At the origination of the loan, MERS is designated in the
deed of trust as a nominee for the lender and the lender’s
“successors and assigns,” and as the deed’s “beneficiary”
which holds legal title to the security interest conveyed. If the
lender sells or assigns the beneficial interest in the loan to
another MERS member, the change is recorded only in the
MERS database, not in county records, because MERS continues
to hold the deed on the new lender’s behalf. If the beneficial
interest in the loan is sold to a non-MERS member, the
transfer of the deed from MERS to the new lender is recorded
in county records and the loan is no longer tracked in the
MERS system.
In the event of a default on the loan, the lender may initiate
foreclosure in its own name, or may appoint a trustee to initiate
foreclosure on the lender’s behalf. However, to have the
legal power to foreclose, the trustee must have authority to act
as the holder, or agent of the holder, of both the deed and the
note together. See Landmark Nat’l Bank v. Kesler, 216 P.3d
158, 167 (Kan. 2009). The deed and note must be held
together because the holder of the note is only entitled to repayment, and does not have the right under the deed to use
the property as a means of satisfying repayment. Id. Conversely,
the holder of the deed alone does not have a right to
repayment and, thus, does not have an interest in foreclosing
on the property to satisfy repayment. Id. One of the main
premises of the plaintiffs’ lawsuit here is that the MERS system
impermissibly “splits” the note and deed by facilitating
the transfer of the beneficial interest in the loan among lenders
while maintaining MERS as the nominal holder of the
deed.
The plaintiffs’ lawsuit is also premised on the fact that
MERS does not have a financial interest in the loans, which,
according to the plaintiffs, renders MERS’s status as a beneficiary
a sham. MERS is not involved in originating the loan,
does not have any right to payments on the loan, and does not
service the loan. MERS relies on its members to have someone
on their own staff become a MERS officer with the
authority to sign documents on behalf of MERS. See Dordan,
12 Loy. J. Pub. Int. L. at 182; Jackson, 770 N.W.2d at 491.
As a result, most of the actions taken in MERS’s own name
are carried out by staff at the companies that sell and buy the
beneficial interest in the loans. Id.

2. The named plaintiffs
The three named plaintiffs in this case, Olga Cervantes,
Carlos Almendarez, and Arturo Maximo, obtained home
loans or refinanced existing loans in 2006. All three signed
promissory notes with their lenders—Cervantes with Countrywide
Home Loans, and Almendarez and Maximo with First
Franklin. Each executed a deed of trust in favor of his or her
lender, naming MERS as the “beneficiary” and as the “nominee”
for the lender and lender’s “successors and assigns.”
All three plaintiffs are Hispanic, and Almendarez and Maximo
do not speak or read English. Almendarez and Maximo
negotiated the mortgage loans with their lenders in Spanish, but were provided with, and signed, copies of their loan documents
written in English.
The plaintiffs subsequently defaulted on their loans. Following
Cervantes’s default, trustee Recontrust Company initiated
non-judicial foreclosure proceedings by recording a
notice of a trustee’s sale in the county records. The parties
have not addressed the status of the noticed sale. Following
defaults by Almendarez and Maximo, their lender, First
Franklin, appointed LaSalle Bank as its trustee to initiate nonjudicial
foreclosure proceedings. MERS recorded documents
with the county assigning its beneficial interest in the deeds
of trust to La Salle Bank. Later, Michael Bosco of Tiffany &
Bosco was substituted in as First Franklin’s trustee. Michael
Bosco sold Almendarez’s house at public auction in February
2009. The sale of Maximo’s property was cancelled in April
2009.

3. Procedural history
Cervantes filed suit in March 2009. Almendarez and Maximo
joined the lawsuit, and the plaintiffs filed their First
Amended Complaint a few days later. The First Amended
Complaint names several defendants, including the plaintiffs’
lenders, the trustees for the lenders, MERS, and MERS members
who are named only as co-conspirators based on their
role in using the MERS system. The defendants filed several
motions to dismiss, prompting the plaintiffs to file a motion
for leave to amend, along with a proposed Second Amended
Complaint. The district court held a hearing on the various
motions, at which the plaintiffs orally proposed to amend their
complaint with a wrongful foreclosure claim. The district
court granted the motions to dismiss the First Amended Complaint,
and denied the motion for leave to amend on the
ground that amendment would be futile. The plaintiffs appeal.

II.
We have jurisdiction under 28 U.S.C. § 1291. We review
de novo the district court’s dismissal for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).
Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097,
1102 (9th Cir. 2008). “To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true,
to state a claim to relief that is plausible on its face.” Ashcroft
v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal quotation
marks omitted). Dismissal is proper when the complaint does
not make out a cognizable legal theory or does not allege sufficient
facts to support a cognizable legal theory. Mendiondo,
521 F.3d at 1104. A complaint that alleges only “labels and
conclusions” or a “formulaic recitation of the elements of the
cause of action” will not survive dismissal. Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007).

The district court’s denial of leave to amend the complaint
is reviewed for an abuse of discretion. Gompper v. VISX, Inc.,
298 F.3d 893, 898 (9th Cir. 2002). Although leave to amend
should be given freely, a district court may dismiss without
leave where a plaintiff ’s proposed amendments would fail to
cure the pleading deficiencies and amendment would be
futile. See Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection
Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990) (per curiam).1

1The plaintiffs have requested that we take judicial notice of orders of
the United States District Court for the District of Arizona dismissing
complaints without prejudice in pending multidistrict litigation concerning
MERS. The plaintiffs imply that it was inconsistent for the same district
court to deny leave to amend here. We deny the requests because the
orders are not relevant.

III.
The plaintiffs challenge the dismissal of their complaint
without leave to amend but, on appeal, only address the district
court’s: (1) dismissal of their claim for conspiracy to
commit fraud through the MERS system; (2) failure to
address their oral request for leave to add a wrongful foreclosure
claim; (3) dismissal of trustee Tiffany & Bosco from the suit; (4) denial of leave to amend their pleadings regarding equitable tolling of their TILA and Arizona Consumer Fraud Act claims; and (5) dismissal of their claim for intentional infliction of emotional distress. We address these claims in
turn, and do not consider the dismissed claims that are not
raised on appeal. Entm’t Research Group v. Genesis Creative
Group, 122 F.3d 1211, 1217 (9th Cir. 1997) (“We will not
consider any claims that were not actually argued in [appellant’s]
opening brief.”).

1. Conspiracy to commit fraud through the MERS
system
On appeal, the plaintiffs contend that they sufficiently
alleged a conspiracy among MERS members to commit fraud.
In count seven of the First Amended Complaint, they allege
that MERS members conspired to commit fraud by using
MERS as a sham beneficiary, promoting and facilitating predatory
lending practices through the use of MERS, and making
it impossible for borrowers or regulators to track the changes
in lenders.

[1] Under Arizona law, a claim of civil conspiracy must be
based on an underlying tort, such as fraud in this instance.
Baker ex rel. Hall Brake Supply, Inc. v. Stewart Title & Trust
of Phoenix, Inc., 5 P.3d 249, 256 (Ariz. Ct. App. 2000). To
show fraud, a plaintiff must identify “(1) a representation; (2)
its falsity; (3) its materiality; (4) the speaker’s knowledge of
its falsity or ignorance of its truth; (5) the speaker’s intent that
it be acted upon by the recipient in the manner reasonably
contemplated; (6) the hearer’s ignorance of its falsity; (7) the
hearer’s reliance on its truth; (8) the right to rely on it; [and]
(9) his consequent and proximate injury.” Echols v. Beauty
Built Homes, Inc., 647 P.2d 629, 631 (Ariz. 1982).

[2] The plaintiffs’ allegations fail to address several of
these necessary elements for a fraud claim. The plaintiffs have
not identified any representations made to them about the MERS system and its role in their home loans that were false
and material. None of their allegations indicate that the plaintiffs
were misinformed about MERS’s role as a beneficiary,
or the possibility that their loans would be resold and tracked
through the MERS system. Similarly, the plaintiffs have not
alleged that they relied on any misrepresentations about
MERS in deciding to enter into their home loans, or that they
would not have entered into the loans if they had more information
about how MERS worked. Finally, the plaintiffs have
failed to show that the designation of MERS as a beneficiary
caused them any injury by, for example, affecting the terms
of their loans, their ability to repay the loans, or their obligations
as borrowers. Although the plaintiffs allege that they
were “deprived of the right to attempt to modify their toxic
loans, as the true identity of the actual beneficial owner was
intentionally hidden” from them, they do not support this bare
assertion with any explanation as to how the operation of the
MERS system actually stymied their efforts to identify and
contact the relevant party to modify their loans. Thus, the
plaintiffs fail to state a claim for conspiracy to commit fraud
through the MERS system, and dismissal of the claim was
proper.

[3] While the plaintiffs’ allegations alone fail to raise a
plausible fraud claim, we also note that their claim is undercut
by the terms in Cervantes’s standard deed of trust, which
describe MERS’s role in the home loan.2 For example, the
plaintiffs allege they were defrauded because MERS is a
“sham” beneficiary without a financial interest in the loan, yet
the disclosures in the deed indicate that MERS is acting
“solely as a nominee for Lender and Lender’s successors and
assigns” and holds “only legal title to the interest granted by Borrower in this Security Instrument.” Further, while the
plaintiffs indicate that MERS was used to hide who owned the
loan, the deed states that the loan or a partial interest in it “can
be sold one or more times without prior notice to Borrower,”
but that “[i]f there is a change in Loan Servicer, Borrower will
be given written notice of the change” as required by consumer
protection laws. Finally, the deed indicates that MERS
has “the right to foreclose and sell the property.” By signing
the deeds of trust, the plaintiffs agreed to the terms and were
on notice of the contents. See Kenly v. Miracle Props., 412 F.
Supp. 1072, 1075 (D. Ariz. 1976) (explaining that a deed of
trust is “an essentially private contractual arrangement”). In
light of the explicit terms of the standard deed signed by Cervantes,
it does not appear that the plaintiffs were misinformed
about MERS’s role in their home loans.

2Cervantes’s deed of trust, attached to MERSCORP’s reply in support
of its motion to dismiss, may be considered at the pleadings stage because the complaint references and relies on the deed, and its authenticity is unquestioned. See Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007) (per curiam).

[4] Moreover, amendment would be futile. In their proposed
Second Amended Complaint, the plaintiffs seek to add
further detail concerning how MERS works in general and
how it has facilitated the trade in mortgage-backed securities.
But none of the new allegations cure the First Amended Complaint’s
deficiencies: the plaintiffs have not shown that they
received material misrepresentations about MERS that they
detrimentally relied upon. Accordingly, we affirm the district
court’s dismissal, without leave to amend, of the claim for
conspiracy to commit fraud through the MERS system.

2. Wrongful foreclosure
The plaintiffs contend that the district court abused its discretion
by dismissing their complaint without leave to add a
wrongful foreclosure claim. The only mention of a wrongful
foreclosure claim was during the hearing on the plaintiffs’
motion for leave to amend and the defendants’ motions to dismiss.
Although the plaintiffs expressed their intention to add
a wrongful foreclosure claim, they failed to include it in their
proposed Second Amended Complaint. Moreover, during the
hearing, the plaintiffs stated only a general theory of the claim: they posited that any foreclosure on a home loan tracked in the MERS system is “wrongful” because MERS is not a true beneficiary. As the plaintiffs describe it on appeal, their claim is that “the MERS system was used to facilitate wrongful foreclosure based on the naming of MERS as the
beneficiary on the deed of trust, which results in the note and
deed of trust being split and unenforceable.”

[5] The plaintiffs’ oral request to add a wrongful foreclosure
claim was procedurally improper and substantively
unsupported. The district court’s local rules require the plaintiffs
to submit a copy of the proposed amended pleadings
along with a motion for leave to amend. See D. Ariz. Civ. L.
R. 15.1. The plaintiffs failed to do so. Further, they failed to
provide the district court with an explanation of the legal and
factual grounds for adding the claim. It is particularly notable
here that Arizona state courts have not yet recognized a
wrongful foreclosure cause of action. Although a federal court
exercising diversity jurisdiction is “at liberty to predict the
future course of [a state’s] law,” plaintiffs choosing “the federal
forum . . . [are] not entitled to trailblazing initiatives
under [state law].” Ed Peters Jewelry Co. v. C & J Jewelry
Co., Inc., 124 F.3d 252, 262- 63 (1st Cir. 1997) (affirming
dismissal of a wrongful foreclosure claim when no such
action existed under state law). Under the circumstances, we
conclude that it was not an abuse of discretion for the district
court to deny leave to amend without addressing the plaintiffs’
proposed claim for wrongful foreclosure. See Gardner
v. Martino (In re Gardner), 563 F.3d 981, 991 (9th Cir. 2009)
(concluding that the district court did not abuse its discretion
by denying leave to amend where the party seeking leave
failed to attach a proposed amended complaint in violation of
local rules and failed to articulate a factual and legal basis for
amendment).

[6] In any event, leave to amend would be futile because
the plaintiffs cannot state a plausible basis for relief. Looking
to states that have recognized substantive wrongful foreclosure claims, we note that such claims typically are available
after foreclosure and are premised on allegations that the borrower
was not in default, or on procedural issues that resulted
in damages to the borrower. See, e.g., Ed Peters Jewelry Co.,
124 F.3d at 263 n.8 (noting that the Massachusetts Supreme
Court recognized a claim for wrongful foreclosure where no
default had occurred in Mechanics Nat’l Bank of Worcester v.
Killeen, 384 N.E.2d 1231, 1236 (Mass. 1979)); Fields v. Millsap
& Singer, P.C., 295 S.W.3d 567, 571 (Mo. Ct. App.
2009) (stating that “a plaintiff seeking damages in a wrongful
foreclosure action must plead and prove that when the foreclosure
proceeding was begun, there was no default on its part
that would give rise to a right to foreclose” (internal alteration
and citation omitted)); Gregorakos v. Wells Fargo Nat’l
Ass’n, 647 S.E.2d 289, 292 (Ga. App. 2007) (“In Georgia, a
plaintiff asserting a claim of wrongful foreclosure must establish
a legal duty owed to it by the foreclosing party, a breach
of that duty, a causal connection between the breach of that
duty and the injury it sustained, and damages.” (internal quotation
marks and alteration omitted)); Collins v. Union Fed.
Sav. & Loan Ass’n, 662 P.2d 610, 623 (Nev. 1983) (“[T]he
material issue of fact in a wrongful foreclosure claim is
whether the trustor was in default when the power of sale was
exercised.”). Similarly, the case that the plaintiffs cite for the
availability of a wrongful foreclosure claim under Arizona
law, Herring v. Countrywide Home Loans, Inc., No. 06-2622,
2007 WL 2051394, at *6 (D. Ariz. July 13, 2007), recognized
such a claim where the borrower was not in default at the time
of foreclosure. The plaintiffs have not alleged that Cervantes’s
or Maximo’s homes were sold and, in any event, all are
in default and have not identified damages. Thus, under the
established theories of wrongful foreclosure, the plaintiffs
have failed to state a claim.

Instead, the plaintiffs advance a novel theory of wrongful
foreclosure. They contend that all transfers of the interests in
the home loans within the MERS system are invalid because
the designation of MERS as a beneficiary is a sham and the system splits the deed from the note, and, thus, no party is in
a position to foreclose.

[7] Even if we were to accept the plaintiffs’ premises that
MERS is a sham beneficiary and the note is split from the
deed, we would reject the plaintiffs’ conclusion that, as a necessary
consequence, no party has the power to foreclose. The
legality of MERS’s role as a beneficiary may be at issue
where MERS initiates foreclosure in its own name, or where
the plaintiffs allege a violation of state recording and foreclosure
statutes based on the designation. See, e.g., Mortgage
Elec. Registration Sys. v. Saunders, 2 A.3d 289, 294-97 (Me.
2010) (concluding that MERS cannot foreclose because it
does not have an independent interest in the loan because it
functions solely as a nominee); Landmark Nat’l Bank, 216
P.3d at 165-69 (same); Hooker v. Northwest Tr. Servs., No.
10-3111, 2011 WL 2119103, at *4 (D. Or. May 25, 2011)
(concluding that the defendants’ failure to register all assignments
of the deed of trust violated the Oregon recording laws
so as to prevent non-judicial foreclosure). But see Jackson,
770 N.W.2d at 501 (concluding that defendants’ failure to
register assignments of the beneficial interest in the mortgage
loan did not violate Minnesota recording laws so as to prevent
non-judicial foreclosure). This case does not present either of
these circumstances and, thus, we do not consider them.

[8] Here, MERS did not initiate foreclosure: the trustees
initiated foreclosure in the name of the lenders. Even if
MERS were a sham beneficiary, the lenders would still be
entitled to repayment of the loans and would be the proper
parties to initiate foreclosure after the plaintiffs defaulted on
their loans. The plaintiffs’ allegations do not call into question
whether the trustees were agents of the lenders. Rather, the
foreclosures against Almendarez and Maximo were initiated
by the trustee Tiffany & Bosco on behalf of First Franklin,
who is the original lender and holder of Almendarez’s and
Maximo’s promissory notes. Although it is unclear from the
pleadings who the current lender is on plaintiff Cervantes’s loan, the allegations do not raise any inference that the trustee
Recontrust Company lacks the authority to act on behalf of
the lender.

Further, the notes and deeds are not irreparably split: the
split only renders the mortgage unenforceable if MERS or the
trustee, as nominal holders of the deeds, are not agents of the
lenders. See Landmark Nat’l Bank, 216 P.3d at 167. Moreover,
the plaintiffs have not alleged violations of Arizona
recording and foreclosure statutes related to the purported
splitting of the notes and deeds.

[9] Accordingly, the plaintiffs have not raised a plausible
claim for wrongful foreclosure, and we conclude that dismissal
of the complaint without leave to add such a claim was
not an abuse of discretion.

3. Injunctive relief against Tiffany & Bosco
[10] The plaintiffs contend that the district court improperly
dismissed the trustee Tiffany & Bosco from this suit
under Arizona Revised Statute 33-807(E). Section 33-807(E)
provides that a “trustee is entitled to be immediately dismissed”
from any action other than one “pertaining to a
breach of the trustee’s obligations,” because the trustee is otherwise
bound by an order entered against a beneficiary for
actions that the trustee took on its behalf. The only breach that
the plaintiffs allege against Tiffany & Bosco is that it failed
to recognize that its appointment was invalid. According to
the plaintiffs, the appointment was invalid because MERS is
a sham beneficiary and lacks power to “appoint” a trustee.
However, a trustee such as Tiffany & Bosco has the “absolute
right” under Arizona law “to rely upon any written direction
or information furnished to him by the beneficiary.” Ariz.
Rev. Stat. § 33-820(A). Thus, Tiffany & Bosco did not have
an obligation to consider whether its presumptively legal
appointment as trustee, which was recorded in the county
records, was invalid based on the original designation of MERS as a beneficiary. Accordingly, Tiffany & Bosco was
properly dismissed.

4. Equitable Tolling and Estoppel
The plaintiffs contend that the district court failed to
address the equitable tolling of their claims under TILA and
the Arizona Consumer Fraud Act and, in any event, abused its
discretion by denying the plaintiffs leave to amend their allegations
in support of equitable tolling and estoppel. A district
court may dismiss a claim “[i]f the running of the statute is
apparent on the face of the complaint.” Jablon v. Dean Witter
& Co., 614 F.2d 677, 682 (9th Cir. 1980). However, a district
court may do so “only if the assertions of the complaint, read
with the required liberality, would not permit the plaintiff to
prove that the statute was tolled.” Id.

[11] The plaintiffs’ claims under TILA and the Arizona
Consumer Fraud Act are subject to one-year statutes of limitations.
15 U.S.C. § 1640(e); Ariz. Rev. Stat. § 12-541(5). Both
limitations periods began to run when the plaintiffs executed
their loan documents, because they could have discovered the
alleged disclosure violations and discrepancies at that time.
See 15 U.S.C. § 1640(e) (the one-year limitations period for
a TILA claim begins when the violation occurred); Alaface v.
Nat’l Inv. Co., 892 P.2d 1375, 1379 (Ariz. Ct. App. 1994) (a
cause of action for consumer fraud under Arizona law accrues
“ ‘when the defrauded party discovers or with reasonable diligence
could have discovered the fraud’ ”). The running of the
limitations periods on both claims is apparent on the face of
the complaint because the plaintiffs obtained their loans in
2006, but commenced their action in 2009.

[12] The plaintiffs have not demonstrated a basis for equitable
tolling of their claims. “We will apply equitable tolling
in situations where, despite all due diligence, the party invoking
equitable tolling is unable to obtain vital information bearing
on the existence of the claim.” Socop-Gonzalez v. I.N.S., 272 F.3d 1176, 1193 (9th Cir. 2001) (internal quotation marks
and alterations omitted). The plaintiffs suggest that their
TILA claim should have been tolled because Almendarez and
Maximo speak only Spanish, but received loan documents
written in English. However, the plaintiffs have not alleged
circumstances beyond their control that prevented them from
seeking a translation of the loan documents that they signed
and received. Thus, the plaintiffs have not stated a basis for
equitable tolling. See Hubbard v. Fidelity Fed. Bank, 91 F.3d
75, 79 (9th Cir. 1996) (per curiam) (declining to toll TILA’s
statute of limitations when “nothing prevented [the mortgagor]
from comparing the loan contract, [the lender’s] initial
disclosures, and TILA’s statutory and regulatory requirements”).

[13] In addition, the plaintiffs have not demonstrated a
basis for equitable estoppel. Equitable estoppel “halts the statute
of limitations when there is active conduct by a defendant,
above and beyond the wrongdoing upon which the plaintiff ’s
claim is filed, to prevent the plaintiff from suing in time.” See
Guerrero v. Gates, 442 F.3d 697, 706 (9th Cir. 2006) (internal
quotation marks omitted). The First Amended Complaint
alleges only that the defendants “fraudulently misrepresented
and concealed the true facts related to the items subject to disclosure.”
The plaintiffs, however, have failed to specify what
true facts are at issue, or to establish that the alleged misrepresentation
and concealment of facts is “above and beyond the
wrongdoing” that forms the basis for their TILA and Arizona
Consumer Fraud Act claims. Guerrero, 442 F.3d at 706.

[14] The district court therefore properly dismissed the
plaintiffs’ claims under both TILA and the Arizona Consumer
Fraud Act as barred by a one-year statute of limitations. The
plaintiffs did not add any new facts to the proposed Second
Amended Complaint, and do not suggest any on appeal, that
would support applying either equitable tolling or equitable
estoppel to their claims. Thus, the district court also did not
abuse its discretion by denying leave to amend.

5. Intentional Infliction of Emotional Distress
The plaintiffs contend that they sufficiently stated a claim
for intentional infliction of emotional distress. When ruling on
a motion to dismiss such a claim under Arizona law, a district
court may determine whether the alleged conduct rises to the
level of “extreme and outrageous.” See Cluff v. Farmers Ins.
Exch., 460 P.2d 666, 668 (Ariz. Ct. App. 1969), overruled on
other grounds by Godbehere v. Phoenix Newspapers, Inc.,
783 P.2d 781 (Ariz. 1989).

[15] Here, the plaintiffs fail to meet that threshold. They
allege that the lenders’ “actions in targeting Plaintiffs for a
loan, misrepresenting the terms and conditions of the loan,
negotiating the loan, and closing the loan” were “extreme and
outrageous because of the Plaintiffs’ vulnerability” and “because
the subject of the loan was each Plaintiff ’s primary residence.”
This conduct, though arguably offensive if true, is
not so outrageous as to go “beyond all possible bounds of
decency.” Lucchesi v. Frederic N. Stimmell, M.D., Ltd., 716
P.2d 1013, 1015 (Ariz. 1986) (en banc). The plaintiffs essentially
allege that the lenders offered them loans that the lenders
knew they could not repay; this is not inherently “extreme
and outrageous.” Moreover, the plaintiffs do not allege any
additional support for their claim in their proposed Second
Amended Complaint. Accordingly, the district court properly
dismissed, without leave to amend, the plaintiffs’ claim for
intentional infliction of emotional distress.

IV.
The district court properly dismissed the plaintiffs’ First
Amended Complaint without leave to amend. The plaintiffs’
claims that focus on the operation of the MERS system ultimately
fail because the plaintiffs have not shown that the
alleged illegalities associated with the MERS system injured
them or violated state law. As part of their fraud claim, the
plaintiffs have not shown that they detrimentally relied upon any misrepresentations about MERS’s role in their loans. Further,
even if we were to accept the plaintiffs’ contention that
MERS is a sham beneficiary and the note is split from the
deed in the MERS system, it does not follow that any attempt
to foreclose after the plaintiffs defaulted on their loans is necessarily
“wrongful.” The plaintiffs’ claims against their original
lenders fail because they have not stated a basis for
equitable tolling or estoppel of the statutes of limitations on
their TILA and Arizona Consumer Fraud Act claims, and
have not identified extreme and outrageous conduct in support
of their claim for intentional infliction of emotional distress.

Thus, we AFFIRM the decision of the district court.

If you have been a victim of wrongful foreclosure and need help in saving your home from fraudulent foreclosure, you need to know the Foreclosure Fundamentals that will ensure that you stick it to these illegal entities rather than having your case thrown out by the courts that favors the deep pockets. To get the real arsenals that will blow the lids off of these crime pots – visit: http://www.fightforeclosure.net

California Broker Receives 10-Year Prison Sentence for Mortgage Fraud

18 Sunday Aug 2013

Posted by BNG in Foreclosure Defense, Fraud, Judicial States, Non-Judicial States, Pro Se Litigation, Your Legal Rights

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California, Federal Bureau of Investigation, Foreclosure, Justice Department, Mortgage fraud, Real estate, Special agent, United States Department of Justice

In California, a real estate broker out of Elk Grove was sentenced to 10 years in prison for her role in a mortgage fraud scheme that led to more than $5.5 million in losses, the Justice Department announced in a statement.

Hoda Samuel, 62, owned and operated Liberty Real Estate & Investment Company and Liberty Mortgage Company.

Out of 30 fraudulent sales transactions that occurred between April 2006 and February 2007, Samuel serve as the real estate agent for the buyer in 29 of the home sales, according to the statement. All the properties involved in the transactions went into foreclosure.

The transactions included false statements pertaining to income, employment, and rental history. To back the fabricated information, false documents were created and presented to lenders, and people were paid to answer calls from lenders and affirm the false statements.

Samuel also exaggerated the value of the collateral securing the loans, often exceeding the actual asking prices by $15,000 to $40,000. Repairs and costs for disability access modifications were also included in the prices, but were rarely done. According to the statement, at times, children of buyers were named as building contractors so money could go to the buyers.

“Greed-based crimes such as these can undermine the stability of our financial institutions and the economy, resulting in devastating consequences for homeowners, businesses and the communities in which the properties are located,” said special agent in charge Monica M. Miller of the Sacramento division of the FBI.

For More Information How to Save Your Home From Foreclosure as a Result of Mortgage Fraud Like this Visit http://www.fightforeclosure.net

What Homeowners in Foreclosure Defense Needs to Know About the Issues of “Standing vs. Capacity to Sue”

18 Sunday Aug 2013

Posted by BNG in Affirmative Defenses, Case Laws, Case Study, Federal Court, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Court, Lawsuit, Mastropaolo, Motion (legal), New York, Plaintiff, Wells Fargo, Wells Fargo Bank

Homeowners in Judicial foreclosure states need to realize that Banks claim of ownership of the note is not an issue of standing but an element of its cause of action which it must plead and prove

The term “standing” has been applied by the courts to two legally distinct concepts. The first is legal capacity, or authority to sue. The second is whether a party has asserted a sufficient interest in the outcome of a dispute.

Standing and capacity to sue are related, but distinguishable legal concepts. Capacity requires an inquiry into the litigant’s status, i.e., its “power to appear and bring its grievance before the court”, while standing requires an inquiry into whether the litigant has “an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue.”

Wells Fargo Bank Minnesota, Nat. Ass’n v Mastropaolo, 42 AD3d239, 242 (2d Dept 2007) (internal citations omitted). Both concepts can result in dismissal on a pre answer motion by the defendant and are waived if not raised in a timely manner.

In some Jurisdictions such as New York, an action may be dismissed based on the grounds that the Plaintiff lacks the legal capacity to sue. CPLR 3211(a)(3) It governs no other basis for dismissal. CPLR 3211(e) provides that a motion to dismiss pursuant to CPLR 3211(a)(3) is waived if not raised in a pre-answer motion or a responsive pleading.

Many decisions treat the question of whether the Plaintiff in a foreclosure action owns the note and mortgage as if it were a question of standing and governed by CPLR 3211(e).

Citigroup Global Markets Realty Corp. v. Randolph Bowling , 25 Misc 3d 1244(A), 906 N.Y.S.2d 778 (Sup. Ct. Kings Cty 2009); Federal Natl. Mtge. Assn. v. Youkelsone, 303 AD2d546, 546—547 (2d Dept 2003);
Nat’l Mtge. Consultants v. Elizaitis, 23 AD3d 630, 631 (2dDept 2005);
Wells Fargo Bank, N.A. v. Marchione, 2009 NY Slip Op 7624, (2d Dept 2009)

There is a difference between the capacity to sue which gives the right to come into court, and possession of a cause of action which gives the right to relief. Kittinger v Churchill Evangelistic Assn Inc., 239 AD 253, 267 NYS 719 (4th Dept 1933). Incapacity to sue is not the same as insufficiency of facts to sue upon. Ward v Petri, 157 NY3d 301 (1898)

In the case of Ohlstein v Hillcrest, a defendant moved to dismiss a complaint in part based on lack of legal capacity to sue where plaintiff had assigned her stock. The Court denied that branch of the motion holding that even if plaintiff had assigned her stock, “the defect to be urged is that the complaint does not estate [sic] a cause of action in favor of the one who is suing, the alleged assignor – not that the plaintiff does not have the legal capacityto sue. Legal incapacity, as properly understood, generally envisages a defect in legal status,not lack of a cause of action in one who is sui juris.” Ohlstein v Hillcrest, 24 Misc 2d 212,214, 195 NYS2d 920, 922 (Sup Ct NY Co 1959).

The difference was articulated by the Court in the case of Hebrew Home for Orphans v Freund, 208 Misc. 658, 144 N.Y.S.2d 608 (Sup Ct Bx 1955). The plaintiff in that case sought a judgment declaring that an assignment of a mortgage it held was valid. The defendants moved to dismiss the complaint on the grounds that since the assignment was not accompanied by delivery of the bond and mortgage to plaintiff, plaintiff did not own the bond and mortgage and thus had no legal capacity to sue or standing to maintain the action. The Court denied the motion, stating:

The application to dismiss the complaint on the alleged ground that the plaintiff lacks legal capacity to sue rests upon a misapprehension of the meaning of the term. See Gargiulo v.Gargiulo, 207 Misc. 427, 137 N.Y.S.2d 886. Rule 107(2) of the Rules of Civil Practice relates to a plaintiff’s right to come into Court, and not to his possessing a cause of action. Idat 660-661, 610.

The Court then quotes Kittinger v Churchill for the principle that,

“The provision for dismissal of the complaint where the plaintiff has not the capacity to sue (Rules of Civil Practice, rules 106, 107) has reference to some legal disability, such as infancy, or lunacy, or want of title in the plaintiff to the character in which he sues. There is a difference between capacity to sue, which gives the right to come into court, and possession of a cause of action, which gives the right to relief in court.
Ward v. Petrie, 157 NY 301, 51 N.E. 1002; Bank of Havana v. Magee,
20 NY 355; Ullman v. Cameron, 186 NY 339, 78 N.E.1074. The plaintiff is an individual suing as such. He is under no disability, and sues in norepresentative capacity. He is entitled to bring his suits before the court, and to cause a summons to be issued, the service of which upon the defendants brings the defendants in to court. There is no lack of capacity to sue.

The other meaning of standing involves whether the party bringing the suit has a sufficient interest in the dispute. Some cases have held that in this context, standing is jurisdictional, reasoning that where there is no aggrieved party, there is no genuine controversy, and where there is no genuine controversy, there is no subject matter jurisdiction.
Stark v Goldberg, 297 AD2d 203, 204(1st Dept 2002); xelrod v New York StateTeachers’ Retirement Sys., 154 AD2d 827, 828 (3rd Dept 1989).

Some courts have held that the jurisdiction of the court to hear the controversy is not affected by whether the party pursuing the action is, in fact, a proper party.They have held that if not raised in the answer or pre-answer motion to dismiss, the defense that the a party lacks standing is waived. Wells Fargo Bank Minnesota, Nat. Ass’n v. Perez,70 AD3d 817, 818, 894 N.Y.S.2d 509, 510 (2nd Dept 2010), Countrywide Home Loans, Inc.v. Delphonse, 64 AD3d 624, 625, 883 N.Y.S.2d 135 (2nd Dept 2009),
HSBC Bank, USA v. Dammond, 59 AD3d 679, 680, 875 N.Y.S.2d 490 (2nd Dept 2009)

The issue of whether a Plaintiff owns the mortgage and note is a different question from whether it has an interest in the dispute. Whether a party has a sufficient interest in the dispute is determined by the facts alleged in the complaint, not whether Plaintiff can prove the allegations.
Wall St. Associates v. Brodsky, 257 AD2d 526, 684 N.Y.S.2d 244 (1st Dept1999), Kempf v. Magida, 37 AD3d 763, 764, 832 N.Y.S.2d 47, 49 (2nd Dept 2007). For the purpose of determining whether a party has sufficient interest in the case the allegations areassumed to be true.

It is important to note that This issue is not analogous to the issue of whether citizens have standing to seek judicial intervention in response to what they believe to be governmental actions which would impair the rights of members of society, or a particular group of citizens, (e.g. Schulz v. State, 81 NY2d 336, 343, 615 N.E.2d 953, 954 (1993), or whether registered voters have standing to challenge the denial of the right to vote in a referendum pursuant to Section 11 of Article VII of the State Constitution, or whether commercial fishermen have standing to complain of the pollution of the waters from which they derive their living, see also Leo v. Gen. Elec. Co., 145 AD2d 291, 294, 538 N.Y.S.2d 844, 847 (2nd Dept 1989). The issue of standing in these types of cases turn on whether the claimants have an interest sufficiently distinct from societyin general.

Foreclosure actions implicate a concrete interest specific to a plaintiff, and the determination must be made as to whether it has been aggrieved and is therefore entitled to receive monetary damages for the alleged breach of the law.

Therefore homeowners needs to realize that when Banks pled that it owns the note and mortgage and asserts the right to foreclose on the mortgage which it asserts is in default. If it is successful in proving its claims, then usually it is entitled to receive the proceeds of the sale of the mortgaged property. Homeowners should understand that the objection that the Plaintiff in fact does not own the note and mortgage is not a defense based on a lack of standing. Courts will usually claim homeowners “does not say” (insufficient facts were alleged). But that the homeowner’s argument is that the facts alleged are not true. It is not a question of whether the Bank has alleged a sufficient interest in the dispute, but of whether the Bank can prove its prima facie case.

In Judicial States where the Banks are the plaintiff; unlike standing, denial of the Plaintiff’s claim that it owns the note and mortgage is not an affirmative defense because it is usually a denial of an allegation in the complaint that is an element of the Plaintiff’s cause of action.

In a Judicial foreclosure case, the Plaintiff must plead and prove as part of its prima facie case that it owns the note and mortgage and has the right to foreclose. Wells Fargo Bank, N.A., 80AD3d 753, 915 N.Y.S.2d 569 (2d Dept 2011); Argent Mtge. Co., LLC v. Mentesana, 79AD3d 1079, 915 N.Y.S.2d 591 (2d Dept 2010); Campaign v Barba , 23 AD3d 327, 805 NYS2d 86 (2nd Dept 2005).

However, it is usually not enough for the Defendant (Homeowner) to filed a pro se “answer” containing a “general denial”, which is a denial of all of “Plaintiff’s allegations”.

In Hoffstaedter v. Lichtenstein , 203 App.Div. 494, 496, 196 N.Y.S. 577 (1st Dept 1922),the First Department held that the general denial put the allegations in the plaintiff’scomplaint in issue. In that case, the defendant executed a note in favor of the plaintiff as a promise to pay for certain goods. When plaintiff brought an action to recover on the note, the defendant answered with a general denial. It went on to state that “[i]t is elementary that under a general denial a defendant may disprove any fact which the plaintiff is required to prove to establish a prima facie cause of action.” Id., at 578.

The Court of Appeals cited Hoffstaedter v. Lichtenstein in holding that a general denial puts in issue those matters already pled.
Munson v. New York Seed Imp. Co-op., Inc., 64 NY2d 985, 987, 478 N.E.2d 180, 181 (1985).The general denials contained in the answer enable defendant to controvert the facts upon which the plaintiff bases her right to recover. Strook Plush Company v. Talcott, 129 AD 14, 113 NYS 214 (2nd Dept 1908). A generaldenial is sufficient to challenge all of the allegations in a complaint. Bodine v. White , 98 NYS232, 233 (App. Term 1906).The Second Department in Gulati v. Gulati, 60 AD3d 810, 811-12, 876 N.Y.S.2d 430, 432-33 (2nd Dept 2009), held it was that where a claim would not take the plaintiff by surprise and “does not raise issues of fact not appearing on the face of the complaint”, a denial of the allegations in the plaintiff’s complaint was sufficient. It heldthat where the plaintiff alleged as an element of her prima facie case that the defendant abandoned the marital residence without cause or provocation, and the defendant denied these allegations in his answer, defendant did not need to further allege abandonment as an affirmative defense

The Fourth Department in Stevens v. N. Lights Associates, 229 AD2d 1001, 645 N.Y.S.2d 193, 194 (4th Dept 1996), found that a denial by defendant that it was in control of the premises where plaintiff fell did not need to be separately pled as a defense, as the denialof control did not raise any issue of fact which had not already been pled in the complaint.See also
Scully v. Wolff, 56 Misc. 468, 107 N.Y.S. 181 (App. Term 1907), Bodine v. White,98 N.Y.S. 232 (App. Term 1906).

In this case, Defendant’s contesting Plaintiff’s claim in the complaint that it owns the note and mortgage could not take the Plaintiff by surprise as a general denial contests Plaintiff’s factual allegations in the complaint itself, and does not rely upon extrinsic facts. Since ownership of the note was pled in the complaint and is an element of the Plaintiff’s cause of action, Defendant did not waive the defense that Plaintiff did not own the note, because he made a general denial to the factual allegations contained in the complaint.

In fact, the identity of the owner of the note and mortgage is information that is often in the exclusive possession of the party seeking to foreclose. Mortgages are routinely transferred through MERS, without being recorded. The notes underlying the mortgages, as negotiable instruments, are negotiated by mere delivery without a recorded assignment or notice to the borrower. A defendant has no method to reliably ascertain who in fact owns the note, within the narrow time frame allotted to file an answer.

In jurisdictions such as New York, CPLR 3018(b) provides that an affirmative defense is any matter “which if not pleaded would be likely to take the adverse party by surprise” or “would raise issues of fact not appearing on the face of a prior pleading”.

CPLR 3018(b) also lists some common affirmative defenses, although the list is not exhaustive. The list of affirmative defenses in CPLR 3018(b) are those which raise issues such as res judicata or statute of limitations which are based on facts not previously alleged in the pleadings.

“The defendant has the burden of proof of affirmative defenses, which in effect assume the truth of the allegations of the complaint and present new matter in avoidance thereof.” 57 NY Jur. 2d Evidence and Witnesses 165″.

To survive motion to dismiss or Summary Judgement, it is important that Pro Se Homeowners using “Standing” as a foreclosure defense also review their PSA in order to include missing or lack of assignments.

This defense will be based on “Conveyance from the Depositor to the Trust”.

Homeowners arguments under these defense will be based that the Trustee violated the terms of the trust by acquiring the note directly from the sponsor’s successor in interest rather than from the Depositor, for instance ABC, as required by the PSA.

In Article II, section 2.01 Conveyance of Mortgage Loans, the PSA requires that the Depositor deliver and deposit with the Trustee the original note, the original mortgage and an original assignment . The Trustee is then obligated to provide to the Depositor an acknowledgment of receipt of the assets before the closing date. PSA Article II, Section 2.01.

The rationale behind this requirement is to provide at least two intermediate levels of transfer to ensure the assets are protected from the possible bankruptcy by the originator which permits the security to be provided with the rating required for the securitization to be saleable.
Deconstructing the Black Magic of Securitized Trusts, Roy D. Oppenheim Jacquelyn K. Trask-Rahn 41 Stetson L. Rev. 745 Stetson Law Review (Spring 2012).

So to further the arguement, homeowners should argue that the assignment of the note and mortgage from original lender to Trustee which is called (A-D), rather than from the Depositor ABC violates section 2.01 of the PSA which requires that the Depositor deliver to and deposit the original note, mortgage and assignments to the Trustee.

In most cases, “if homeowner’s pleadings are in order”, meaning (The evidence submitted by homeowner that the note was acquired after the closing date and that assignment was not made by the Depositor), is sufficient to raise questions of fact in the court as to whether the Bank owns the note and mortgage, and usually will Deny motion to Dismiss(in non-juidical States) or preclude granting Bank’s summary judgment (in Judicial States).

The courts will usually find and conclude that the assignment of the homeowner’s note and mortgage, having not been assigned from the Depositor to the Trust, is therefore void as in being in contravention of the PSA.

For More Info How You Can Use Well Structured Pleadings Containing Facts and Case Laws Necessary To Win Your Foreclosure Defense Visit: http://www.fightforeclosure.net

How Homeowners in Wrongful Foreclosure Can Identify Faulty Documents or If They Have Been Victims of Foreclosure Fraud

17 Saturday Aug 2013

Posted by BNG in Affirmative Defenses, Federal Court, Foreclosure Defense, Fraud, Judicial States, Loan Modification, MERS, Non-Judicial States, Note - Deed of Trust - Mortgage, Your Legal Rights

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1. Any document signed by an officer of MERS. MERS states at http://www.mersinc.org that:
Employees of the servicer will be certifying officers of MERS. This means they are authorized to sign any necessary documents as an officer of MERS. The certifying officer is granted this power by a corporate resolution from MERS. In other words, the same individual that signs the documents for the servicer will continue to sign the documents, but now as an officer of MERS. MERS Consent to Cease and Desist Order by the Comptroller of the Currency (OCC)

3. The signor of the document states that they are acting “solely as nominee” for some other party.
4. The document was notarized in Dakota County, Minnesota
5. The document was notarized in Hinnepin County, Minnesota
6. The document was notarized in Duval County, Florida
7. The document was notarized in Palm Beach County, Florida
8. The document was notarized in Pinellas CountyFlorida
9. The document was notarized in San Diego County, CA
10. The document was notarized in Fulton County, GA
11. The document was notarized in Polk County, IA
12. The document was notarized in Travis County, Texas
13. The document was notarized in Harris County, Texas
14. The document was notarized in Salt Lake County, Utah
15. The document was execute the same day it was filed with the Court
16. The party who signed the document executed it as “an authorized agent” for the servicer or the Plaintiff.
17. The party who signed the document executed it as “an attorney in fact” for the servicer or the Plaintiff.
18. The name of the signing party is stamped on the documents in block letters.
19. The name of the servicer or Plaintiff is stamped on the document in block letters.
20. The document appears to be a standard form with “fill-in-the-blanks” for the names of the signors and entities.
21. The paragraph numbers are not consistent (for example the first page may end with paragraph 7 and the second page may start with paragraph 10)
22. The party who signed the document and the notary are the same person.
23. You cannot read the signature of the signor and the name is not printed out on the document. (some people refer to these a “squiggle marks”) The bottom line is you cannot decipher any name or word on the document.
24. The signature on the document consists of one loop in the shape of an “S” or something that looks like an “8”.
25. The date of the signature and the date of the notarization are not the same.
26. The same “officer” or Vice President” of a mortgage company or lender is also the “Vice President” or “officer” of many other entities or lenders in the chain of assignments or endorsements.
27. The same “officer” or “ Vice President” of a lender signing the documents is located in various cities throughout the United States.
28. The document includes numerous pre-stamped names and signatures.
29. The document includes a second page or last page notarization that does not conform in type font, style, format, texture, age, from the primary pages of the document.
30. Backdating effective dates on assignments.
31. Signatures of officers are dated years after an entity has been out of business, merged with another company or filed for bankruptcy.
32. The party who signed the document executed it as a representative of the servicer.
33. The notary failed to attach a notarial seal.
34. The notary failed to sign the notarization.
35. The name of the party appearing before the notary is blank.
36. The name of the party appearing before the notary is block stamped.
37. The endorsement is not at the foot of the note, but on a separate page or allonge to the note. (if there is room at the foot of the note, the endorsement must appear there. An allonge may only be used if there is insufficient room at the foot of the note for the endorsement)
38. The document purports to assign the mortgage or the deed of trust from the originator directly to the trust.
39. The document that purports to assign the mortgage of deed of trust to the Trust is dated BEFORE the Trust was registered with the SEC.
40. The document that purports to assign the mortgage of deed of trust to the Trust was signed AFTER the cut-off date for the transfer of all such to the Trust pursuant to the Pooling and Servicing Agreement.
41. The origination date on the mortgage note is not within the origination and cut-off dates provided for by the terms of the Pooling and Servicing Agreement.
42. The mortgage note is assigned rather than endorsed from Party “A” to Party “B” or from any party to another party or entity.
43. The mortgage note is endorsed from the originator to the securitized Trust.
44. The mortgage note is endorsed from the originator to the current mortgage servicer.
45. The mortgage note is endorsed from the originator to the depositor for the securitized trust.
46. The affidavit is a “Lost Note Affidavit” filed by the mortgage servicer.
47. The affidavit is a “Lost Note Affidavit” filed by the Trustee for the securitized Trust and claims they never received the original Note. ( You can only file a lost note affidavit under the UCC if you possessed the Note before it was lost)
48. The assignment of mortgage or deed of trust was filed or signed after the filing of the bankruptcy case.
49. The assignment of mortgage or deed of trust was filed or signed after the foreclosure proceeding began/was filed.
50. The assignment of mortgage or deed of trust was filed or signed after the filing of the Motion for Relief from Stay in Bankruptcy Court.
51. The affidavit was signed by an employee MR Default Servicers or has the MR Default Servicers information on the document as an identification number.
52. The affidavit was signed by an employee Promiss Solutions or has the Promiss Solutions information on the document as an identification number.
53. The affidavit was signed by an employee NDEx Technologies, LLC or has the NDEx information on the document as an identification number.
54. The affidavit was signed by the same attorney that signed the foreclosure complaint.
55. The affidavit was filed by an employee of the attorney that filed the foreclosure complaint.
63. The return address on the Assignment or affidavit is to a third party provider, such as Financial Dimensions, Inc, FANDO or FNFS.
64. The transferor and the transferee have the exact same physical address including the same street and/or P.O. box numbers.
65. The document bears the image: “This is not a certified copy”
66. The document refers to a Power of Attorney, but no such document is attached or filed and recorded.

Quiet Title Action ~ What Florida Home Owners Need to Know

14 Wednesday Aug 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Loan Modification, MERS, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, State Court, Trial Strategies, Your Legal Rights

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Center for Housing Policy, Florida, Foreclosure, MER, Mortgage Electronic Registration System, RealtyTrac, Securitization, United States

Quiet Title Actions: How to Force the Banks To Prove Up

The Foreclosure Crisis

I. THE FORECLOSURE CRISIS

• ISSUE ONE: Who Owns Your Note?

1. The Securitization Process:
– A. Originator Sells To Nominee (First Sale)
– B. The Nominee Sells To Depositor (Second Sale)
– C. The Depositor Sells to the REMIC Trust
• The REMIC Trust created to hold “pool” of mortgages and sell “shares” in
the REMIC Trust to investors.
• A Trustee is designated to operate the trust (typically a bank).
• The REMIC Trust operates through “Bylaws” and “Pooling and Servicing
Agreements”.
• The Pooling and Servicing Agreement outlines how the income from the
mortgages will be managed and the Servicing Agent who will collect income
and foreclose in the event of default.

The Foreclosure Crisis

• One in every 365 housing units in the United States was branded with a foreclosure notice recorded in December 2011, according to RealtyTrac.com. That means 850,000 Americans got a big lump of coal in their stocking from Uncle Scrooge.
• Over 2,076,764 American homes are now in foreclosure.
• One in every 165 housing units in California (more that twice the national average) received a foreclosure notice in December, for a total of 80,488 properties. In Nevada, the figure was one in every 93 houses.
• USA Today reports that almost 1 in 5 children in Nevada lived or live in owneroccupied homes that were lost to foreclosure or are at risk of being lost. The percentages are 15% in Florida, 14% for Arizona, and 12% for California. That’s about one in eight children in California. Five years into the foreclosure crisis, an estimated 2.3 million children have lived in homes lost to foreclosure.
• RealtyTrac reports that foreclosure and REO (real estate-owned) homes accounted for 24 percent of all residential sales during the fourth quarter of 2011.
• Here in relatively affluent Palm Beach County, homeowners are No. 1 in the state for the average number of loans in foreclosure that are delinquent. It has the fourth highest number of foreclosures, 45,829 with an average delinquency of 623 days.

Florida’s Foreclosure Statistics

• Florida is leading the country in foreclosure rates.
• Florida metro areas dominate the top 25 list for cities with the worst foreclosure rates — including the eight highest in the nation, according to a report released Tuesday.#
• In all, 17 of the top 25 cities with the highest foreclosure rates as of March are Florida cities, according to the Center for Housing Policy, the research arm of the Washington, D.C.-based National Housing Conference. #
• With a 10.9 percent foreclosure rate, Jacksonville is ranked 18th overall, but 14 other Florida cities had higher rates. Miami topped the list with the nation’s highest rate of 18.2 percent. #
• Miami’s conventional mortgage foreclosure rate in March was 14.2 percent, while its subprime rate was 39.1 percent. Jacksonville’s conventional foreclosure rate was 7.8 percent while its subprime rate was 29 percent.
• But given the fact that Florida cities made up 15 of the 25 cities with the highest “serious” mortgage delinquency rates — either behind by 90 days behind or more or now in foreclosure, there could be more foreclosures in the state’s future. And just like on the foreclosure list, Miami was also first, with a delinquency rate of 23.6 percent; and Jacksonville was 18th, with a rate of 15.6 percent.

Who Owns Your House?

• ISSUE ONE: WHO OWNS YOUR HOUSE?
– Promissory Note (the “Note”): Loan Agreement
– Mortgage/Deed of Trust: Power of Sale Document
– Grant Deed: You own until you breach the Promissory Note and
your Lender (or Others) use the Power of Sale Document to
Foreclose
– Before Securitization: Your Lender held your Note was always
the Foreclosing Entity.
– After Securitization: No One Knows Who Owns Your Note

Who Owns Your Note?

ISSUE TWO: Who Owns Your Note?
1. The Securitization Process:
– A. Originator Sells To Nominee (First Sale)
– B. The Nominee Sells To Depositor (Second Sale)
– C. The Depositor Sells to the REMIC Trust
• The REMIC Trust created to hold “pool” of mortgages and sell “shares” in
the REMIC Trust to investors.
• A Trustee is designated to operate the trust (typically a bank).
• The REMIC Trust operates through “Bylaws” and “Pooling and Servicing
Agreements”.
• The Pooling and Servicing Agreement outlines how the income from the
mortgages will be managed and the Servicing Agent who will collect income
and foreclose in the event of default.

• Why Is There a Question?
1. The Securitization Process: No One Knows Who Owns Your
Note
– The Original Lenders Failed to Properly Assign Your Note to
Subsequent Purchasers
– Incompetent Personnel
– No Training: No One Trained to Sell Notes Properly
– Never Occurred Before: Prior to Securitization Didn’t
Transfer or Sell Notes
– Thousands of Assignments Left Blank
– Remic Trusts Never Receive Assignments or Possession of
Notes: Current litigation

2. Mortgage Electronic Registration System, Inc
1. Created by over 44 Financial Institutions in 1998 to Avoid the
Registration of Securitized Mortgages : Saves Millions of
Dollars in Recordation fees;
2. Presently Being Sued in (5) States for Unlawfully failing to pay
Recording Fees on Securitized Mortgage Transactions
• WHAT IS MERS FUNCTION?
– TO CAMOUFLAGE THE SALE OF YOUR LOAN TO MULTIPLE
ENTITIES IN THE SECURITIZATION PROCESS;
– AVOID RECORDING FEES ON EVERY SALE OF YOUR LOAN
TO SUBSEQUENT PURCHASERS.
– ACT AS “BENEFICIARY” OF YOUR DEED OF TRUST OR
“NOMINEE” OF YOUR MORTGAGE

What is MERS?

• “MERS is a mortgage banking ‘utility’ that registers
mortgage loans in a book entry system so that … real
estate loans can be bought, sold and securitized (Similar
to Wall Street’s book entry utility for stocks and bonds is
the Depository Trust and Clearinghouse.”
• MERS is enormous. It originates thousands of loans
daily and is the mortgagee of record for at least 40
million mortgages and other security documents.
• MERS acts as agent for the owner of the note. Its
authority to act should be shown by an agency
agreement. Of course, if the owner is unknown, MERS
cannot show that it is an authorized agent of the owner.

Result: BANKS CAN’T PROVE THEY OWN YOUR LOAN

• The Wall Street Journal Picks Up the Scent
• An article by Nick Timiraos appeared in The Wall Street Journal on June 1, 2011 – “Banks Hit Hurdle to Foreclosures.”
• “Banks trying to foreclose on homeowners are hitting another roadblock,” Timiraos writes, “as some delinquent borrowers are successfully arguing that their mortgage companies can’t prove they own the loans and therefore don’t have the right to foreclose.”
• If you (or I) try to boot a homeowner into the street without any proof that we’re entitled to the property, the cops will lock us up. Stealing is stealing, whether it is somebody’s wallet or their 3-bedroom 2-bath in the suburbs with two dogs and a kid. When a bank tries to steal the bungalow without proof that they have a right to foreclose, it’s a “hurdle” or “another roadblock.”
• Semantics aside, this is good news for all people holding grant deeds. This year, the Journal reports, cases in California, North Carolina, Alabama, Florida, Maine, New York, New Jersey, Texas, Massachusetts and other states have raised questions about whether banks properly demonstrated ownership.
• In some cases, borrowers are showing courts that banks failed to properly assign ownership of mortgages after they were pooled into mortgage-backed securities. In other cases, borrowers say that lenders backdated or fabricated documents to fix those errors.
• “Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages against these operations could be significant and take years to materialize,” said Sheila Bair, chairman of
the Federal Deposit Insurance Corp., in testimony to a Senate committee last month.
• In March, an Alabama court said J.P. Morgan Chase & Co. couldn’t foreclose on Phyllis Horace, a delinquent homeowner in Phenix City, Ala., because her loan hadn’t been properly assigned to its owners
– a trust that represents investors – when it was securitized by Bear Stearns Cos. The mortgage assignment showed that the loan hadn’t been transferred to the trust from the subprime lender that originated it.

The Problem With MERS

• Federal bankruptcy courts and state courts have found that MERS and its member banks often confused and misrepresented who owned mortgage notes. In thousands of cases, they apparently lost or mistakenly destroyed loan documents.
• The problems, at MERS and elsewhere, became so severe last fall that many banks temporarily suspended foreclosures.
• Not even the mortgage giant Fannie Mae, an investor in MERS, depends on it these days.
• “We would never rely on it to find ownership,” says Janis Smith, a Fannie Mae spokeswoman, noting it has its own records.
• Apparently with good reason. Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS’s ownership records against those in the public domain.
• The results were not encouraging. “Fewer than 30 percent of the mortgages had an accurate record in
MERS,” Mr. White says. “I kind of assumed that MERS at least kept an accurate list of current ownership.
They don’t. MERS is going to make solving the foreclosure problem vastly more expensive.”
• The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-lessstriking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.
• And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an “agent” for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.
• But this, Judge Robert E Grossman said, was not his fault.
• “This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country,” he wrote, “that is reason enough for this court to turn a blind eye to
the fact that this process does not comply with the law.”

Legal Issues

1. SEPARATION OF THE NOTE AND THE DEED
• In the case of MERS, the Note and the Deed of Trust are held by separate entities. This can pose a unique problem dependent upon the court. The prevailing case law illustrates the issue:
• “The Deed of Trust is a mere incident of the debt it secures and an assignment of the debt carries with it the security instrument. Therefore, a Deed Of Trust is inseparable from the debt and always abides with the debt. It has no market or ascertainable value apart from the obligation it secures.
• A Deed of Trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the Deed Of Trust without a transfer of the debt is without effect. “
• This very “simple” statement poses major issues. To easily understand, if the Deed of Trust and the Note are not together with the same entity, then there can be no enforcement of the Note. The Deed of Trust enforces the Note. It provides the capability for the lender to foreclose on a property. If the Deed is separate from the Note, then enforcement, i.e. foreclosure cannot occur.
The following ruling summarizes this nicely.
• In Saxon vs Hillery, CA, Dec 2008, Contra Costa County Superior Court, an action by Saxon to foreclose on a property by lawsuit was dismissed due to lack of legal standing. This was because the Note and the Deed of Trust were “owned” by separate entities. The Court ruled that when the Note and Deed of Trust were separated, the enforceability of the Note was negated until rejoined.

2. MERS IS A NOMINEE AND NOT THE HOLDER OF THE NOTE
• The question now becomes as to whether a Note Endorsed in Blank and transferred to different entities does allow for foreclosure. If MERS is the foreclosing authority but has no entitlement to payment of the money, how could they foreclose? This is especially true if the true beneficiary
is not known. Why do I raise the question of who the true beneficiary is?
• THE MERS WEBSITE STATES…..
• “On MERS loans, MERS will show as the beneficiary of record. Foreclosures should be commenced in the name of MERS. To effectuate this process, MERS has allowed each servicer to choose a select number of its own employees to act as officers for MERS.
Through this process, appropriate documents may be executed at the servicer’s site on behalf of MERS by the same servicing employee that signs foreclosure documents for non-MERS loans. Until the time of sale, the foreclosure is handled in same manner as non-MERS foreclosures. At the time of sale, if the property reverts, the Trustee’s Deed Upon Sale will follow
a different procedure. Since MERS acts as nominee for the true beneficiary, it is important that the Trustee’s Deed Upon Sale be made in the name of the true beneficiary and not MERS. Your title company or MERS officer can easily determine the true beneficiary. Title companies have indicated that they will insure subsequent title when these procedures are followed.”

3. MERS IS THE NOMINEE AND NOT THE BENEFICIARY
• To further reinforce that MERS is not the true beneficiary of the loan, one need only look at the following Nevada Bankruptcy case, Hawkins, Case No. BK-S-07-13593-LBR (Bankr.Nev. 3/31/2009) (Bankr.Nev., 2009) – “A “beneficiary” is defined as “one designated to benefit from an appointment, disposition, or assignment . . . or to receive something as a result of
a legal arrangement or instrument.” BLACK’S LAW DICTIONARY 165 (8th ed. 2004). But it is obvious from the MERS’ “Terms and Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans. To reverse an old adage, if it doesn’t walk like a duck, talk like a duck, and quack like a duck, then it’s not a duck.”
• When the initial Deed of Trust is made out in the name of MERS as Nominee for the Beneficiary and the Note is made to AB Lender, there should be no issues with MERS acting as an Agent for AB Lender. Hawkins even recognizes this as fact.
• The issue does arise when the Note transfers possession. Though the Deed of Trust states “beneficiary and/or successors”, the question can arise as to who the successor is, and whether Agency is any longer in effect. MERS makes the argument that the successor Trustee is a MERS
member and therefore Agency is still effective, and there does appear to be merit to the argument on the face of it.The original Note Holder, AB Lender, no longer holds the note, nor is entitled to payment. Therefore, that Agency relationship is terminated. However, the Note is endorsed in blank, and no Assignment has been made to any other entity, so who is the true
beneficiary? And without the Assignment of the Note, is the Agency relationship intact?

4. MERS FORECLOSURE PROCEDURES
• There, you have it. Direct from the MERS website. They admit that they
name people to sign documents in the name of MERS. Often, these are
Title Company employees or others that have no knowledge of the actual
loan and whether it is in default or not.
• Even worse, MERS admits that they are not the true beneficiary of the loan.
In fact, it is likely that MERS has no knowledge of the true beneficiary of the
loan for whom they are representing in an “Agency” relationship. They
admit to this when they say “Your title company or MERS officer can
easily determine the true beneficiary.
• Why are the Courts Accepting MERS as a Nominee or Agent of the
“Lenders”? The “beneficiary” term is erroneous. Even MERS states it
is not a “beneficiary”.
• If so, MERS cannot assign deeds of trust or mortgages to third parties
legally.

• ISSUE THREE: Does MERS have the Right to Participate in Your
Foreclosure?
– NO. According to the Majority of Federal Court Opinions and Every State Supreme Court decision which has addressed this Issue: Oregon and Washington Supreme Ct Decisions Pending
– Every Attorney General who has examined the legality of MERS has determined it is illegal business enterprise: New York; Delaware; Oregon, Washington, Idaho; with more to come.
_ Declared Unlawful Business Organization : ( In re: Agard, No. 10-77338, 2011 Bankr. LEXIS 488, at 58-59 (Bankr. E.D.N.Y. Feb 10, 2011)
_ In California, the federal court determined that MERS has to have a written contract with the new noteholder in order to have the authority to appoint or assign the beneficial interest in the note sufficient to foreclose (In re: Vargas: US Dist Ct, Central Dist of Calif; Case No LA 08-107036-SB).
– Judge Michael Simon of the Oregon Federal Court has found that MERS cannot assign its beneficiary status in a deed of trust to a third party for foreclosure purposes due to the fact that MERS does not under Oregon law have the legal authority to do so (James, et al v Reconstruct Trust, et al: US Dist Ct. Case No: 3:11-cv-00324-ST).

Solutions

QUIET TITLE ACTIONS: Definition
• quiet title action n. a lawsuit to establish a party’s title to real property
against anyone and everyone, and thus “quiet” any challenges or claims to
the title. Such a suit usually arises when there is some question about clear
title, there exists some recorded problem (such as an old lease or failure to
clear title after payment of a mortgage), an error in description which casts
doubt on the amount of property owned, or an easement used for years
without a recorded description. An action for quiet title requires description
of the property to be “quieted,” naming as defendants anyone who might
have an interest (including descendants—known or unknown—of prior
owners), and the factual and legal basis for the claim of title. Notice
must be given to all potentially interested parties, including known and
unknown, by publication. If the court is convinced title is in the plaintiff (the
plaintiff owns the title), a quiet title judgment will be granted which can be
recorded and thus provide legal “good title.“

• QUIET TITLE ACTIONS:
– Purpose: Require All Adverse Claims to Title to Prove to the Court the
Worthiness of Their Claim:
– Mortgages/Deeds Of Trust:
• Who is the Owner of Your Note? Prove It
• Who is the Beneficiary of Your Deed of Trust/Mortgage? The Owner of the
Note
• Who has the Legal Right to Foreclose?
– ONLY THE OWNER OF THE NOTE IS A TRUE BENEFICIARY
– ONLY THE BENEFICIARY OF THE MORTGAGE OR DEED OF
TRUST OR ITS LEGAL REPRESENTATIVE CAN FORECLOSE
– MERS IS NOT A BENEFICIARY-According to its own Website
– MERS IS NOT A LEGAL REPRESENTATIVE OF ANY REMIC TRUST
» No Contract
» At Best MERS has a Contractual Relationship with Original Lender

• FLORIDA QUIET TITLE STATUTES-Civil Practice and Procedure
• 65.061 Quieting title; additional remedy.—
• (1) JURISDICTION.–Chancery courts have jurisdiction of actions by any person or corporation claiming legal or equitable title to any land…. and shall determine the title of plaintiff and may enter judgment quieting the title and awarding possession to the party entitled thereto….
• (2) GROUNDS.–When a person or corporation not the rightful owner of land has any conveyance or other evidence of title thereto, or asserts any claim, or pretends to have any right or title thereto, any person or corporation is the true and equitable owner of land the record title to which is not in the person or corporation because of the defective execution of any deed or mortgage because of the omission of a seal thereon, the lack of witnesses, or any defect or omission in the wording of the acknowledgment of a party or parties thereto, when the person or corporation claims title thereto by the defective instrument and the defective instrument was apparently made and delivered by the grantor to convey or mortgage the real estate and was recorded in the county where the land lies which may cast a cloud on the title of the real owner….
• (4) JUDGMENT.–If it appears that plaintiff has legal title to the land or is the equitable owner thereof based on one or more of the grounds mentioned in subsection (2), or if a default is entered against defendant (in which case no evidence need be taken), the court shall enter judgment removing the alleged cloud from the title to the land and forever quieting the title in plaintiff and those claiming under him or her since the commencement of the action and adjudging plaintiff to have a good fee simple title to said land or the interest thereby cleared of cloud.

DECLARATORY RELIEF
• WHO OWNS THE NOTE? WHO IS ENTITLED TO FORECLOSE?
• FEDERAL RULES OF CIVIL PROCEDURE: RULE 57. DECLARATORY JUDGMENT
• 28 U.S.C. §2201. Rules 38 and 39 govern a demand for a jury trial. The existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate. The court may order a speedy hearing of a declaratory-judgment action.
• The fact that a declaratory judgment may be granted “whether or not further relief is or could be prayed” indicates that declaratory relief is alternative or cumulative and not exclusive or extraordinary. A declaratory judgment is appropriate when it will “terminate the controversy” giving rise to the proceeding. Inasmuch as it often involves only an issue of law
on undisputed or relatively undisputed facts, it operates frequently as a summary proceeding, justifying docketing the case for early hearing as on a motion, as provided for in California (Code Civ.Proc. (Deering, 1937) §1062a), Michigan (3 Comp.Laws (1929) §13904), and Kentucky
(Codes (Carroll, 1932) Civ.Pract. §639a–3).
• The “controversy” must necessarily be “of a justiciable nature, thus excluding an advisory decree upon a hypothetical state of facts.” Ashwander v. Tennessee Valley Authority, 297 U.S. 288, 325, 56 S.Ct. 466, 473, 80 L.Ed. 688, 699 (1936). The existence or nonexistence of any right, duty, power, liability, privilege, disability, or immunity or of any fact upon which such legal relations depend, or of a status, may be declared.

• WRONGFUL FORECLOSURE:
• What is a Wrongful Foreclosure Action?
• A wrongful foreclosure action typically occurs when the lender starts a
judicial foreclosure action when it simply has no legal cause. Wrongful
foreclosure actions are also brought when the service providers accept
partial payments after initiation of the wrongful foreclosure process, and
then continue on w i t h the f o r e c l o s u r e process. These
predatory lending strategies, as well as other forms of misleading
homeowners, are illegal.
• The borrower is the one that files a wrongful disclosure action with the court against the service provider, the holder of the note and if it is a non-judicial foreclosure, against the trustee complaining that there was an illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed or court judicial proceeding. The borrower can also allege emotional distress and ask for punitive damages in a wrongful foreclosure action.

• FRAUD CLAIMS
• Mortgage Payments: Have you been paying mortgage payments to the
wrong financial institution?
• JP Morgan Chase: Bought “Assets” of WAMU from FDIC in 2008
– All Mortgage Loans from 2003-2008 were already sold to REMIC Trusts
– What Did Chase Bank Buy? Servicing Contracts?
– Can Chase Bank Foreclose on Notes It Does Not Own?
• One West Bank: Bought “Assets” of IndyMac from FDIC in 2008
– All Mortgage Loans from 2003-2008 were already sold to REMIC Trusts
– What did One West Bank Buy? Servicing Contracts?
– Can One West Foreclose on Notes It Does Not Own?
• Bank of America: Bought “Servicing Contracts” from Countrywide in 2008
– All Mortgage Loans from 2003-2008 were already sold to REMIC Trusts
– What Did Bank of America Buy? Servicing Contracts
– Can Bank of America Foreclose on Notes It Does Not Own?

• QUIET TITLE LITIGATION:
– Potential Outcomes:
• Actual Quiet Title: Removal of All Liens, Encumbrances,
Mortgages:
• Principal Reduction: Mediation or Arbitration Resulting in
Substantial Reduction in Your Mortgage Balance
• Damage Claims against Financial Institutions: Punitive Damages?
• TROS and Injunctions: Stopping the Foreclosure Process
• Did Default Insurance Pay Off My Mortgage
• Declaratory Relief:
– Who Do I Pay My Mortgage To?
– Who Can Foreclose on My House?

Credit Rehabilitation
• Credit Rehabilitation
• The Fair Credit Reporting Act (FCRA) gives you the right to contact credit bureaus directly and dispute items on your credit reports. You can dispute any and all items that are inaccurate, untimely, misleading, biased, incomplete or unverifiable (questionable items). If the bureaus cannot verify that the information on their reports is indeed correct, then those items must be deleted.
• PeabodyLaw has created the “Mortgage Audit Plan”:
– Obtain a Securitization Audit from Audit Pros, Inc.
– Peabody Law will utilize the results of your Securitization Audit to file a
court action seeking a court order removing all negative credit reporting
items from your credit history based upon the findings of the audit.
– Upon receipt of Court Judgment rendering the nullification of unlawful
and erroneous credit references, Peabody Law will send a Demand
Letter with the Judgment attachment to each Credit Reporting Agency
demanding retraction and removal of all negative credit references
relating to mortgage payments, foreclosures, short sales, etc.

For a Complete Pro Se “Do It Yourself” Foreclosure Defense Kit With Well Drafted Pleadings and Step By Step Guide For Saving Your Home Visit: http://www.fightforeclosure.net

How Homeoweners Can Use Various Forms of Mortgage Fraud Schemes For Wrongful Foreclosure Defense

12 Monday Aug 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Defense, Fraud, Judicial States, Litigation Strategies, Loan Modification, Non-Judicial States, Notary, Note - Deed of Trust - Mortgage, Pleadings, Pro Se Litigation, Scam Artists, Title Companies, Your Legal Rights

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Business, Finance, Financial Services, Loan origination, mortgage, Mortgage fraud, Mortgage loan, United States

Over the past few years, mortgage fraud continues to result in significant losses for both financial institutions and homeowners.

Mortgage fraud has continued to increase over the past few years. Declining economic conditions, liberal underwriting standards, and declining housing values contributed to the increased level of fraud. Market participants are perpetrating mortgage fraud by modifying old schemes, such as property flip, builder-bailout, and short sale fraud, as well as employing newer schemes, such as buy and bail, reverse mortgage fraud, loan modification and refinance fraud, and mortgage servicing fraud.

It is imperative that homeowners understand the nature of the various schemes involving mortgage frauds as this will help you to build rock solid defense when fighting your wrongful foreclosure to save your home.

Various individuals participate in mortgage fraud schemes. The following list consists of common participants in such schemes.

Appraiser                                Processor
Borrower                              Real Estate Agent
Buyer                                       Seller
Closing/Settlement Agent    Title Agent
Loan Servicer Underwriter
Originator    Warehouse Lender

BASIC MORTGAGE TRANSACTIONS

Basic mortgage transactions are generally the same whether the purpose of the loan is to purchase a property, refinance an existing loan, or obtain a loan against a property that is unencumbered and may be offered through one of the channels described below:

Retail

In retail transactions, the borrower makes an application directly with a financial institution loan officer. These mortgage transactions are the most basic and involve the fewest number of third parties, which may include appraisers and closing agents. Usually, the application package consisting of financial information, credit report, a collateral valuation report such as an appraisal or evaluation, title information, and various other credit-related documents, is compiled and forwarded to an underwriter for a credit decision. Upon approval, the financial institution then releases funds to a closing agent, who disburses funds to the various parties. The loan package is returned to the financial institution and reviewed for quality and accuracy. The loan is either held on the financial institution’s books or sold into the secondary market. Retail originations only include loans closed in the financial institution’s name.

Broker Origination

A broker-originated loan is similar to the retail transaction, except that the borrower makes an application with a mortgage broker. A broker is a firm or individual, acting on behalf of either the financial institution or the borrower, who matches a borrower’s financing needs with an institution’s mortgage origination programs. Brokers are compensated by receiving a commission expressed as a percentage of the total loan amount (e.g., 1 percent origination fee) from the borrower or through a yield-spread premium from the lender when the loan closes.

Brokers have played a critical role in the wholesale loan origination process and have significant influence on the total loan transaction. Brokers have served as the point of contact for the borrower and the lender, and coordinated the involvement of other parties to complete the transaction. A broker can perform some or most of the loan processing functions including, but not limited to, taking loan applications; ordering credit and title reports; verifying a borrower’s income and employment; etc.

Once the broker has gathered the necessary information, the application is submitted along with supporting documentation to one or more financial institutions for underwriting. The financial institution’s underwriter reviews the information and makes a credit decision. The financial institution also may perform pre-funding quality assurance activities, such as re-verification of income and employment.

A copy of the loan approval package, with documents prepared in the name of the financial institution, is then returned to the broker. Once the loan has closed, the completed package should be returned directly to the financial institution. Again, the financial institution may review the loan for quality and either retain the loan in its own portfolio or sell it.

Mortgage Loan Purchased from a Correspondent

In this transaction, the borrower applies for and closes a loan with a correspondent of the financial institution, which can be a mortgage company, another depository institution, finance company, or credit union service organization. The correspondent can close the loan with internally-generated funds in its own name or with funds borrowed from a warehouse lender. Without the capacity or desire to hold the loan in its own portfolio, the correspondent sells the loan to a financial institution. The purchasing financial institution is frequently not involved in the origination aspects of the transaction, and relies upon the correspondent to comply with the financial institution’s approved underwriting, documentation, and loan delivery standards. The purchasing financial institution may perform a quality control review prior to purchase. Also, the purchasing financial institution must review the appraisal or evaluation report and determine conformity with the Agencies’ appraisal standards, regulations, and supervisory guidance, as well as the financial institution’s requirements.

The loan can be booked in the financial institution’s own portfolio or sold.

In “delegated underwriting” relationships, the financial institution grants approval to the correspondent to process, underwrite, and close loans according to the financial institution’s processing and underwriting requirements. Proper due diligence, internal controls, approvals, quality control audits, and ongoing monitoring are warranted for these higher-risk relationships.

Each of the Agencies has issued detailed guidance on a financial institution’s management of its arrangements with third parties, including brokers, and associated risk. Examiners are encouraged to review and consider the guidance issued by their Agency in evaluating broker arrangements. Additionally, the Secure and Fair Enforcement Mortgage Licensing Act of 2008 (S.A.F.E. Act) requires licensing and/or registration for all residential mortgage loan originators. The system is also used for state-licensed mortgage companies. More information is available at the website at http://www.stateregulatoryregistry.org and contains comprehensive licensing, registration, enforcement action that is expected to be made available to the public through the website in the near future.

COMMON MORTGAGE FRAUD SCHEMES

This post defines schemes as the big picture or secret plan of action used to perpetrate a fraud. There are a variety of “schemes” by which mortgage fraud can take place. These schemes can involve individuals inside the financial institution or third parties. Various combinations of these schemes may be implemented in a single fraud. The descriptions provided below are examples of traditional and emerging schemes that are used to facilitate mortgage fraud. Click on the link for each fraud scheme to learn more about that particular scheme.

Builder Bailout

This scheme is used when a builder, who has unsold units in a tract, subdivision, or condominium complex, employs various fraudulent schemes to sell the remaining properties.

Buy and Bail

Chunking

Chunking occurs when a third party convinces an uninformed borrower to invest in a property (or properties), with no money down and with the third party acting as the borrower’s agent. The third party is also typically the owner of the property or part of a larger group organizing the scheme. Without the borrower’s knowledge, the third party submits loan applications to multiple financial institutions for various properties. The third party retains the loan proceeds, leaving the borrower with multiple loans that cannot be repaid. The financial institutions are forced to foreclose on the properties.

Double Selling

Double selling occurs when a mortgage loan originator accepts a legitimate application and documentation from a buyer, reproduces or copies the loan file, and sends the loan package to separate warehouse lenders to each fund the loan.

Equity Skimming

Equity skimming is the use of a fraudulent appraisal that over-values a property, creating phantom equity, which is subsequently stripped out through various schemes.

Fictitious Loan

A fictitious loan is the fabrication of loan documents or use of a real person’s information to apply for a loan which the applicant typically has no intention of paying. A fictitious loan can be perpetrated by an insider of the financial institution or by external parties such as loan originators, real estate agents, title companies, and/or appraisers.

Loan Modification and Refinance Fraud

This scheme occurs when a borrower submits false income information and/or false credit reports to persuade the financial institution to modify or refinance the loan on more favorable terms.

Mortgage Servicing Fraud

This fraud is perpetrated by the loan servicer and generally involves the diversion or misuse of loan payments, proceeds from loan prepayments, and/or escrow funds for the benefit of the service provider.

Phantom Sale

This scheme generally involves an individual or individuals who falsely transfer title to a property or properties and fraudulently obtain funds via mortgage loans or sales to third parties.

Property Flip Fraud

A fraudulent property flip is a scheme in which individuals, businesses, and/or straw borrowers, buy and sell properties among themselves to artificially inflate the value of the property.

Reverse Mortgage Fraud

Reverse Mortgage Fraud involves a scheme using a reverse mortgage loan to defraud a financial institution by stripping legitimate or fictitious equity from the collateral property.

Short Sale Fraud

Fraud occurs in a short sale when a borrower purposely withholds mortgage payments, forcing the loan into default, so that an accomplice can submit a “straw” short-sale offer at a purchase price less than the borrower’s loan balance. Sometimes the borrower is truly having financial difficulty and is approached by a fraudster to commit the scheme. In all cases, a fraud is committed if the financial institution is misled into approving the short-sale offer, when the price is not reasonable and/or when conflicts of interest are not properly disclosed.

Two additional fraud schemes, which are briefly addressed below, are debt elimination and foreclosure rescue schemes. While these schemes are typically not perpetrated directly on financial institutions, and therefore not expanded upon to the same degree as the above-mentioned schemes, the end result of the scheme can have a negative impact on the financial institution.

DEBT ELIMINATION SCHEME

Debt elimination schemes are illegal schemes that offer to eliminate a borrower’s debt for an up-front fee. The organizers of these schemes create phony legal documents based on the borrower’s loan(s) for presentment to the borrower’s financial institution or other lending institution in an attempt to falsely satisfy the loans.

The threat this fraud scheme presents to a financial institution is the borrower’s cessation of loan payments. Financial institutions may find that the use of the false documents complicates the collection process and may temporarily prevent any final action against the borrower.

FORECLOSURE RESCUE SCHEME

Foreclosure rescue schemes prey upon homeowners in financial distress or facing foreclosure, with the promise to help save their home. There are multiple variations of this scheme, often charging up-front fees and/or convincing the homeowner to deed the property to the fraudster, with the premise that the homeowner can rent or buy the property back once the individual’s credit has improved. The goal of the fraudster is to collect fees or mortgage payments that are intended for the lender, but are not delivered, usually resulting in the loan going into default and ultimately foreclosure, causing loss to the financial institution.

COMMON MECHANISMS OF MORTGAGE FRAUD SCHEMES

This post defines mechanism as the process by which fraud is perpetrated. A single mortgage fraud scheme can often include one or more mechanisms and may involve collusion between two or more individuals working in unison to implement a fraud. Click on the links to learn more about that particular mechanism. The following is a list of common mechanisms used to perpetrate mortgage fraud schemes:

Asset Rental: Cash or other assets are temporarily placed in the borrower’s account/possession in order to qualify for a mortgage loan. The borrower usually pays a “rental” fee for the temporary “use” of the assets.

Fake Down Payment: In order to meet loan-to-value requirements, a fake down payment through fictitious, forged, falsified, or altered documents is used to mislead the lender.

Fraudulent Appraisal: Appraisal fraud can occur when an appraiser, for various reasons, falsifies information on an appraisal or falsely provides an inaccurate valuation on the appraisal with the intent to mislead a third party.

Fraudulent Documentation: Fraudulent documentation consists of any forged, falsified, incomplete, or altered document that the financial institution relied upon in making a credit decision.

Fraudulent Use of Shell Company: A business entity that typically has no physical presence, has nominal assets, and generates little or no income is a shell company. Shell companies in themselves are not illegal and may be formed by individuals or business for legitimate purposes. However, due to lack of transparency regarding beneficial ownership, ease of formation, and inconsistent reporting requirements from state to state, shell companies have become a preferred vehicle for financial fraud schemes.

Identify Theft: Identity theft can be defined as assuming the use of another person’s personal information (e.g., name, SSN, credit card number, etc.) without the person’s knowledge and the fraudulent use of such knowledge to obtain credit.

Straw/Nominee Borrower: An individual used to serve as a cover for a questionable loan transaction.

EXAMPLES OF MORTGAGE FRAUD SCHEMES

– – – – Builder Bailout – – – –

A builder bailout occurs when a builder, who has unsold units in a tract, subdivision, or condominium complex, employs various fraudulent schemes to sell the remaining properties. In stressed economic or financial conditions, a builder may be pressured to liquidate remaining inventory to cover financial obligations. To sell the remaining properties, the builder may use a variety of tools including, but not limited to, hidden down payment assistance or excessive seller concessions to elevate the sales price. As a result of the scheme, the unsuspecting financial institution is often left with a loan secured by inflated collateral value and the “real” loan-to-value is greater than 100 percent.

Examples:

– A builder convinces buyers to purchase property by offering to pay excessive incentives that are undisclosed to the lender, including down payments, “no money down promotions”, and/or closing cost assistance.

– In an effort to attract participants, a builder promises to manage properties as rentals and absorb any negative cash flow for the first 12 to 18 months.

– A builder forms one or more companies to purchase the builder’s inventory at inflated market values. The affiliated company finances 100 percent of the purchase amount and funnels the excess cash back to the builder. This scheme falsely inflates the property value, clouds the builder’s true ability to move the inventory, and disguises the fact that the builder is ultimately responsible for repayment of the loan.

– A builder forms a mortgage origination affiliate to originate fraudulent loans. The loan files contain credit discrepancies, fraudulent appraisals, and/or erroneous certificates of occupancy and completion.

– When the builder can no longer lure investors/speculators, the builder may employ straw buyers to purchase the properties.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Excessive or unsubstantiated down payment.
• Unexplained large or multiple deposits reflected on deposit account statements.
• Borrower states that the property will be owner-occupied, but the property is located in a market dominated by investment properties or second homes (beach properties, duplexes, apartment buildings).
• Use of gift funds or grant funds.
• The HUD-1 shows disbursements from the builder’s (as seller) funds to persons or entities not reflected as lien-holders or vendors on the title commitment.
• Robust condominium sales in a slow market.
• All comparable properties are from the same project.
• Many loans to one applicant (credit report).
• No-money-down sales pitch (noted in marketing brochures or website).
• Reference to secondary financing on purchase contract, but not on the loan application.

• Parties to the transaction appear affiliated based on file documentation (personally/professionally).
• Incentives that include pre-paid condominium fees, principal and interest payments for a year, buy-down, free furniture, automobiles, parking spaces, boat slips, etc.

Companion Frauds

• Straw/Nominee Borrower

• Documentation Fraud (associated with income and assets)

• Fraudulent Appraisal

– – – – Buy and Bail – – – –

This scheme typically involves a borrower who is current on a mortgage loan, but the value of the house has fallen below the amount owed. The borrower continues to make loan payments, while applying for a purchase money mortgage loan on a similar but less expensive house because its value has declined. Alternatively, the borrower currently has good credit, but pending events are such that the borrower will soon be unable to afford monthly payments on the existing loan (e.g. loan term adjustments, job loss, debt accumulation, etc.) or qualify for a new loan. In either case, after the new property has been obtained, the borrower “walks” or “bails” on the first loan.

Examples:

A self-employed child-care service provider is living in a house purchased for $500,000 two years ago that is now worth approximately $350,000. Monthly payments on the adjustable rate mortgage loan are $3,000. In a few months the payments will adjust upward, as a result of the rate change, to $3,700, an amount the homeowner cannot afford. The homeowner finds a home selling for $200,000 and obtains a loan on that property by falsely claiming to rent the existing property. After moving into the second house, the borrower defaults on the initial mortgage loan.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Second home is substantially less in value and/or loan amount than the existing home.
• Borrower has minimal or no equity.
• Borrower is a first-time landlord (renting out the original property).
• Limited documentation is available to validate lease terms with the purported tenant.
• Purported tenant has a pre-existing relationship with the homeowner.

• Rental agreement appears suspect or projected rental cash flows appear unreasonable.
• Borrower defaults on the original mortgage loan shortly after purchasing a second property (only likely to be detected if the same lender holds both mortgages and loans).

Companion Fraud

• Fraudulent Documentation

– – – – Chunking – – – –

A third party convinces an uninformed borrower to invest in a property (or properties), with no money down, with the third party acting as the borrower’s agent. The third party is also typically the owner of the property, or is part of a larger group organizing the scheme. Without the borrower’s knowledge, the third party submits loan applications on the borrower’s behalf to multiple financial institutions for various properties. These applications are submitted as owner-occupied or as an investment property with a falsified lease. The scheme usually requires the assistance of an appraiser, broker, and/or title company representative to ensure that the third party, as agent for the borrower, does not have to bring any money to the multiple closings. The third party retains the loan proceeds, leaving the borrower with multiple loans that cannot be repaid. The financial institutions are forced to foreclose on the properties and suffer sizable losses.

Examples:

A borrower attended a seminar that outlined how to get rich by investing in real estate with no money down. A third party, a presenter at the seminar, encouraged the borrower to invest in three real estate properties. Under the third party’s guidance, the borrower completed the required application and provided documentation for the loans. The borrower was unaware that the third party owned numerous properties in the name of a Limited Liability Company and submitted applications on not just the three properties known to the borrower, but on a total of 15 different properties. Each application was sent to a different lender, and all were scheduled to close within a one-week timeframe. The borrower attended three of the closings with a different representative of the LLC as the seller. The third party then acted as an agent for the borrower, with power of attorney, at the other 12 closings. The borrower ended up with 15 mortgage loans instead of the three for which he had knowledge, and the lenders were stuck with loans to a borrower without the ability to repay the debts and were forced to foreclose on the properties.

Fraudsters approached nominees (straw borrowers) and enticed the nominees into allowing the fraudsters to apply for mortgage loans in the nominees’ names in order to buy houses. The fraudsters paid the nominees a small amount for allowing the fraudsters to use the nominees’ names to apply for the mortgage loans. The fraudsters completed the loan application paperwork with falsified information in order for the nominees to qualify for the loans. The fraudsters then received inflated property appraisals and obtained two mortgages on each home, one for the purchase price and another for the balance of the appraisal value.

According to the fraudster, the nominee will have no involvement beyond the mortgage application and the fraudster will manage the properties, find tenants, collect monthly payments, and pay the mortgage loans. The tenants, with insufficient credit, are placed in the homes under proposed lease/option-to-buy contracts. The fraudster fails to make a majority of the nominee’s mortgage loan payments, causing many of the mortgage loans to go into default. In some instances, the fraudster steals the tenants’ deposit money. Ultimately, lenders foreclose on the properties.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Multiple mortgage applications by one borrower.
• Credit report that reflects numerous mortgage inquiries.
• Out-of-state borrower.
• Seller that is a corporation or LLC.
• Seller that owns property for a short period of time.
• Previous transfer price that is much lower than current contract price.
• Incomplete lease agreements.
• Payoffs from seller’s funds to non-lien holders and vendors on the title commitment.

Companion Frauds

• Fraudulent Documentation

• Fraudulent Appraisal
• Identity Theft
• Property Flip Fraud
• Double Selling

– – – – Double Selling – – – –

A mortgage loan originator accepts a legitimate application and related documentation from a borrower, reproduces or copies the loan file, and sends the loan package to separate warehouse lenders to each fund the same loan. In some instances, double selling is self-perpetuating because, to keep the scheme going, different loans must be substituted for the ones on which documents cannot be provided. Under this scheme, the broker has to make payments to the investor who received the copied documents or first payment default occurs.

Examples:

– A borrower colluded with a mortgage broker to use the borrower’s property as collateral for numerous home equity lines of credit (HELOCs) at different financial institutions. The scheme was executed by closing on multiple HELOCs in a short period of time to take advantage of the delay in recording the mortgages. In addition, the mortgage broker misrepresented the borrower’s financial information in order to increase the borrower’s debt capacity. The property with less than $125,000 in equity was used to obtain over $1 million in credit from several financial institutions.

– A mortgage company used a group of financial institutions (referred to as warehouse lenders) to temporarily fund mortgage loans, which were then sold to another group of financial institutions as long-term investments. The scheme was accomplished by reselling the same loans to multiple investors. Accumulated losses associated with this scheme were in the millions of dollars.

Red Flags

• Discrepancies between underwriting and closing instructions.
• Outstanding trailing documents (e.g., executed note, deed, truth-in-lending, settlement statement, etc.)
• Missing or illegible insured closing letter in the name of the originator from the title company.
• Recent and numerous changes in the wiring instructions.
• Incorrectly named insured and loss payee on the hazard insurance policy.
• Missing mortgage insurance or guaranty, certificate of eligibility.
• Missing purchase commitment from investor – investor lock.

Companion Frauds

• Fraudulent Documentation
• Identity Theft

– – – – Equity Skimming – – – –

The use of a fraudulent appraisal, unrecorded liens or other means to create phantom equity, which is subsequently stripped out through either of the following methods:

Purchase Money Transaction

An inflated appraisal and sales contract allows the purchaser to obtain property with little or no down payment. The parties agree to raise the selling price to cover the buyer’s closing costs and/or down payment, or to obtain cash back at closing. As a result, the loan amount is higher than what the house is worth, effectively skimming all of the phantom equity out of the property.

Cash-Out Refinance Transaction

In the case of a refinance, the inflated appraisal or lack of recordation allows the borrower to extract cash in an amount greater than the actual value of the property.

Examples:

– A good example of an equity skimming scheme required a two-step process. In the first step, a loan officer and real estate agent colluded to purchase houses using false information on applications to qualify for loans. The second stage required the collusion of an appraiser to overstate the value allowing equity to be skimmed through the cash-out refinance process. Once no more equity could be extracted, the houses were allowed to go into foreclosure.

– A skimmer/purchaser convinces a property seller to provide a second mortgage loan with payments to begin later, perhaps in 6-12 months. During this period, the skimmer makes no payments on either the first or the second mortgage loan. In situations where the second mortgage is unrecorded, the skimmer will obtain a home equity or closed-end second mortgage, causing a loss to the issuing financial institution. By the time the seller realizes that they will not receive payments, the first mortgagee has begun foreclosure proceedings.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Borrower receiving cash back at closing in a purchase transaction.
• Title to property recently transferred.
• Cash-out refinance shortly after the property has been purchased (reference application, appraisal, and title commitment).
• Purpose for cash-out is not well documented.

Companion Frauds

• Fraudulent Appraisal
• Fraudulent Documentation (employment and income)

– – – – Fictitious Loan – – – –

Examples:

A mortgage broker created loan applications by using names, addresses, and phone numbers out of the telephone book. These loans were subsequently funded by various financial institutions. As the loans were fabricated and no properties existed, the loans went into default and were charged off.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Signatures are not consistent throughout the file.
• No real estate agent is employed.
• SSN was recently issued, or there is a death claim filed under SSN.
• Format of the passport number is not consistent with country of issuance.
• Employment and/or address on credit report do not match borrower’s application or there is an absence of credit history.
• Credit history is inconsistent with the borrower’s age.
• Returned mortgage loan payment coupons and/or monthly statements.
• Early payment default.

Companion Frauds
• Straw/Nominee Borrower
• Fraudulent Documentation
• Fraudulent Appraisal

– – – – Loan Modification and Refinance Fraud – – – –

Borrower submits false income information and/or false credit reports to persuade a financial institution to modify or refinance a loan on more favorable terms.

With respect to any mortgage loan, a loan modification is a revision to the contractual payment terms of the related of the related mortgage note, agreed to by the servicer and borrower, including, without limitation, the following:

1. Capitalization of any amounts owed by adding such amount to the outstanding principal balance.
2. Extension of the maturity.
3. Change in amortization schedule.
4. Reduction or other revision to the mortgage note interest rate.
5. Extension of the fixed-rate payment period of any adjustable rate mortgage loan.
6. Reduction or other revision to the note interest rate index, gross margin, initial or periodic interest rate cap, or maximum or minimum rate of any adjustable rate mortgage loan.
7. Forgiveness of any amount of interest and/or principal owed by the related borrower.
8. Forgiveness of any principal and/or interest advances that are reimbursed to the servicer from the securitization trust.

9. Forgiveness of any escrow advances of taxes and insurance and/or any other servicing advances that are reimbursed to the servicer from the securitization trust.
10. Forbearance of principal whereby the servicer “moves” a certain interest free portion of the principal to the “back-end” of the loan, lowering the amortizing balance and the monthly payment.

Refinancing is the process of paying off an existing loan by taking a new loan and using the same property as security. A homeowner may refinance for the following legitimate reasons:
• In a declining interest rate environment a refinance generally will lower monthly payments.
• In a rising interest rate environment a refinance to a fixed rate loan from an adjustable rate loan will generally allow the borrower to lock in the lower rate for the life of the loan.
• In a period of rising home prices the refinance allows the borrower to withdraw equity.

Examples:

– Two years after the origination of a mortgage loan, a borrower contacted the lender, claiming a need to modify the loan. In an attempt to deceive the lender into modifying the loan, the borrower stopped making loan payments. The borrower’s original loan application indicated that the borrower earned $7,500 per month; however, the borrower subsequently claimed income of only $1,200 per month. While evaluating the need for the modification, the bank reviewed the borrower’s credit report and determined that the customer’s supposed annual income of $14,400, was insufficient in comparison to the reported $40,000 per year servicing other debt, which was current. The bank stopped the modification process, as the borrower had intentionally understated income in an attempt to defraud the financial institution.

– A borrower contacted the lender claiming a reduction in income and trouble with making loan payments. The borrower provided the lender with a copy of his most recent tax return, which showed an adjusted gross income (AGI) of $45,000, down from the previous year’s $96,897. The borrower signed Form 4506-T, authorizing the lender to access tax returns filed with the IRS. In reviewing the tax information obtained from the IRS, the lender found that the borrower had recently amended the most recent return, lowering the AGI from $105,670 to $45,000. In this scenario, the borrower had purposely amended the return to reflect a lower AGI, possibly with the intent of amending it a second time to reflect the true amount of income.

– A borrower requests a loan modification for a property that he claims to occupy. Based on the various facts provided to the lender, it appears that the borrower is eligible for a modification. When underwriting the modification, the lender verifies the borrower’s income with the IRS. During the verification process, the lender recognizes two potential problems with the information provided. The address on the tax return is different than the address of the house collateralizing the loan, and the return reflects rental income from real property. After additional investigation, the lender concludes that the customer was trying to modify the loan on rental property and not on the primary residence.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Borrower states that the property is his primary residence and is therefore owner-occupied but the mailing address and telephone number are not for the subject property (e.g., property is located in North Carolina; mailing address and telephone number are in New York).
• Vague and/or unrealistic hardship (“the national economy”).
• No documented resolution of hardship.
• No or limited financial analysis in file.
• No employment/income verification.
• Credit Report inconsistent with borrower’s stated hardship.

• Financial reports that reflect low delinquencies that are inconsistent with local economic conditions or the bank’s loan portfolio composition.

Companion Frauds

• Fraudulent Documentation
• Fraudulent Appraisal (refinance)

– – – – Mortgage Servicing Fraud – – – –

Mortgage servicing typically includes, but is not limited to, billing the borrower; collecting principal, interest, and escrow payments; management of escrow accounts; disbursing funds from the escrow account to pay taxes and insurance premiums; and forwarding funds to an owner or investor (if the loan has been sold in the secondary market). A mortgage service provider is typically paid on a fee basis. Mortgage servicing can be performed by a financial institution or outsourced to a third party servicer or sub-servicer.

Mortgage servicing fraud generally involves the diversion or misuse of principal and interest payments, loan prepayments, and/or escrow funds for the benefit of the service provider. Mortgage servicing fraud can take many forms, including the following:

• A mortgage servicer sells a loan it services, but fails to forward funds to the owner of the loan following the sale. The servicer continues to make principal and interest payments on the loan so the owner is not aware that the loan had been sold.

• A mortgage servicer diverts escrow payments for taxes and insurance for its own use. This action would jeopardize a financial institution’s collateral protection.

• A mortgage servicer that fails to forward principal and interest payments to an institution that holds the note and mortgage, could report that loan as past due for a short period of time, and then use proceeds from other loans to bring that loan current. This would be similar to a lapping scheme involving accounts receivable. Deliberately failing to post payments in a timely manner causes late fees to increase which directly elevates the servicers’ income.

• A mortgage servicer makes payments on loans originated for or on behalf of a financial institution as a means to avoid repurchase pursuant to first payment default provisions.

Examples:

– Several insiders of a mortgage company fraudulently sold serviced loans belonging to other financial institutions and kept the proceeds. An insider modified data in the servicing system to make it appear the loans were still being serviced and were current.

– Two executive officers of a mortgage company took out personal mortgage loans in their names which were subsequently sold to an investor, with servicing retained by the mortgage company. The executives did not make any payments on their loans and suppressed delinquency reporting to the investor, allowing them to “live free” for a period of time until the investor performed a servicing audit and discovered the fraud.

Red Flags

• Failure of the financial institution to perform an on-site review of the servicer (loan documents, servicing records, etc.)
• A review of remittance reports provided to the financial institution by servicer finds a:
o Lack of detail within the remittance reports (principal reduction, interest paid, late fees charged and paid).
o Remittance reports that fail to reconcile with bank records.
• A review of delinquency reports provided to the financial institution by the servicer finds a:
o Lack of detail within delinquency reports.
o High volume of delinquent loans.
• A review of portfolio reports provided to the financial institution by the servicer finds a:
o Lack of detail within portfolio reports (listing of loans owned by the financial institution being serviced by the servicer including current balance).
o Portfolio reports that fail to reconcile with bank records.
• Annual review reveals detrimental information or deteriorating financial condition of the servicer.
• County records indicating lien holders are unknown to the financial institution.
• Excessive delay in a servicer’s remittance of principal and interest payments, escrow payments, or prepayments.
• Cancellation or reductions in coverage on servicer’s insurance policies, including errors and omissions policies.
• Failure of the servicer to maintain copies of original payment documents (e.g., loan payment checks) verifying borrower as the source of payments.
• Excessive errors related to payment calculations on adjustable rate loans or escrow calculations.

Companion Fraud
• Fraudulent Documentation

– – – – Phantom Sale – – – –

Phantom sales typically involve an individual or individuals who falsely transfer title to a property or properties and fraudulently obtain funds via mortgage loans or sales to third parties.

Examples:

– The perpetrator identifies an apparently abandoned or vacant property and records a fictitious quit claim deed to transfer the property into the perpetrator’s name. Once the perpetrator has recorded the necessary document, he has several options:

• Apply for and execute a loan secured by the property. He pockets the loan proceeds and disappears.
• Transfer the property to a co-conspirator. The new owner applies for a loan, splits the proceeds with the original perpetrator, and both disappear with the money.
• Transfer the property to a false name, apply for a loan in the false name, pocket the proceeds and disappear.
• Sell the property to an uninvolved third party, pocket the proceeds, and disappear.

In the first three scenarios the financial institution is left with a mortgage loan that has no payment source and is collateralized by fraudulently obtained property. This results in a 100 percent loss to the financial institution once the fraud is exposed. In the last example, both the purchaser and financial institution are defrauded.

Red Flags

• Title search reveals a recent ownership transfer via quit claim deed.
• Ownership transfers via quit claim deeds in an area where such is not normal.
• Quit claim deed owner is not from subject area.
• Quit claim deed owner is unrelated to former owner.

• Quick sale to third party after quit claim deed owner acquires property.

Companion Frauds

• Fraudulent Appraisal
• Identity Theft
• Straw/Nominee Borrower

– – – – Property Flip Fraud – – – –

A fraudulent property flip is a scheme in which individuals, businesses, and/or straw borrowers buy and sell properties amongst themselves, normally within a short time frame, to artificially inflate the value of the properties. This scheme is designed to extract as much cash as possible from the property, and the loan proceeds are often used for purposes not stated on the application.

There are a number of variations of the fraudulent property flip, some of which are more prevalent than others depending on the current economic conditions. Some schemes occur in geographic areas experiencing significant property value appreciation or in stagnant markets, where properties have been on the market for extended periods of time. An essential party in this scheme is a complicit appraiser, who fraudulently provides an inflated opinion of the property’s market value. The following are two variations of fraudulent property flips:

• A buyer purchases a property at market value and on the same day sells the property, at an inflated price in excess of the true market value to a straw buyer who has been paid to act as a buyer. The financial institution lending to the straw buyer typically is unaware of the prior purchase by the fraudster earlier that same day.

• A seller, whose property has been on the market for an extended period of time, is approached by a buyer/borrower who makes an offer on the property that is substantially higher than the market value. A financial institution funds the loan based on a fraudulent appraisal that inflates the value of the property. In some cases, the inflated value is supported by non-existent home improvements that were to be made. For example, a seller lists a property for $250,000 and a buyer/borrower offers $299,000. At closing, the seller receives the net proceeds of $250,000 on the original asking price of the home and the surplus of $49,000 is disbursed to the fraudsters through a payoff from the seller’s funds on the HUD-1 Settlement Statement at closing.

Examples:

– A group of individuals was organized by a real estate agent to flip properties. Each participant acquired a property with 100 percent financing, prior to the real estate market peak. The properties were then sold repeatedly amongst the individuals and /or their spouses to increase the market value. Title to some of the properties is held in trusts, obscuring ownership.

However, once the group obtained the requisite amount of cash, the loans were allowed to go into default. The participants split the loan proceeds in excess of the true market value for perpetrating the scheme.

Red Flags

• Property listed for extended period of time and sells for higher than list price.

• Property has been transferred or sold within the last six months.
• The property is advertised as “For Sale by Owner”.
• Value of the property has notably increased with no improvements or improvements are insufficient to justify the increase.
• Borrower has limited capacity to repay (e.g., high debt-to-income ratio)
• The property seller is not the owner of record.
• Purchase is disguised as refinances to circumvent down payment.
• Seller is an entity/corporation.
• Power of attorney used without explanation.
• Borrower owns excessive amount of real estate.
• Similarities on multiple applications received from a specific seller or broker.
• Notes in loan file suggest borrower pushed for a quick closing.
• Appraiser is not on list of approved appraisers.
• Appraisal was ordered by a party to the transaction or before the sales contract, or appraisal is a fax.
• Borrower named on the appraisal is different from applicant.
• Appreciation is noted in an area with stable or declining real estate prices.

• Comparables on the appraisal are unusual.
• Inconsistencies in VOE or VOD.
• Violation of the lender’s closing instructions.
• Same individuals involved as buyers and/or sellers in multiple transactions, which may be noted on the deed, title abstract, or other real estate documents found in file.
• Unusual credits or disbursements on settlement statements or discrepancies between the HUD-1 and escrow instructions.
• First payment default on loan.

Companion Frauds
• Fraudulent Appraisal
• Fraudulent Documentation
• Identity Theft
• Straw/Nominee Borrower

– – – – Reverse Mortgage Fraud – – – –

The rapid growth in and changes to the reverse mortgage market have created a lucrative environment for fraudulent activities. The vast majority of reverse mortgage loans are offered through HUD and are FHA-insured; the products are commonly referred to as Home Equity Conversion Mortgages (HECMs). According to data maintained by HUD and other sources, the reverse mortgage loan market increased over the last 5 years from approximately “$5.4 billion a year to more than $17.3 billion in 2008.”4
In addition, recent legislation increased the dollar amount of HECMs to $625,000, and purchase money transactions became effective in 2009. The primary requirements imposed by HUD are that the borrower has attained age 62 and that the collateral value supports the loan amount. There is no requirement to have owned the property for any minimum amount of time, and the loans do not require monthly repayment. Therefore, the loans are primarily underwritten based on the age of the youngest borrower and value of the home being used as collateral.

Reverse mortgage fraud is a scheme where legitimate or fictitious equity is stripped from the collateral. The lump-sum cash-out option will yield the greatest amount of loan proceeds, and likely will be where most fraud occurs. However, fraud may occur in other reverse mortgage loan products. For example, under the term program, where a borrower receives equal monthly payments for a fixed period of time, older borrowers will receive higher payments due to a shorter payment stream, creating a direct incentive to falsify age. Due to the structure of the HECMs, there are no warnings, such as past-due status or default, to raise suspicions, and possibly limit losses, as repayment is only required upon the borrower moving out of the property; upon death; default of property taxes or hazard insurance; or the property is in unreasonable disrepair.

Examples:

Property title is transferred into the perpetrator’s name and quickly re-titled into a straw buyer’s name. A lump-sum cash-out reverse mortgage loan is obtained and is premised on collusion of an appraiser who provides an “as if” renovated appraised value to fraudulently increase the market value. The perpetrator also places fictitious liens on the property to divert loan proceeds to himself.

Red Flags
A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.

• No notes in loan file pertaining to how the proceeds will be used, or notes indicate that proceeds will be used for unspecified monthly living expenses, but the loan is a lump-sum cash-out option.
• File notes indicate that the borrower does not exhibit any knowledge of the property, such as location, number of rooms, etc.
• The property title may have been “abandoned” by the local government and then transferred into the perpetrator’s name. The property may then be re-titled into the borrower’s name via either a warranty deed or a quit claim deed.
• Files contain notices that property taxes are delinquent, indicating default under the terms.
• Files contain notices that property insurance has lapsed, indicating default under the terms.
• Loan file information shows mail as returned to sender, possibly indicating the “owner” is no longer occupying the property and did not provide a forwarding address. An event of default occurs, when the owner no longer lives in the property.
• The title search (if performed) showed that the property title recently transferred to the borrower’s name, following a very short ownership by the seller, indicating the possibility of a flip transaction.
• Lender search of public records for either assessed value or sales prices show that the neighborhood is valued at substantially less than the subject property.
• Problems with the appraisal report may include:

– The report was prepared for a third party and not ordered by the financial institution.

– Comparable properties are not in the same neighborhood.

– Prior sales history is inconsistent with title search results.

• Refer to Fraudulent Appraisal for further details on potential appraisal fraud red flags.

Companion Frauds

• Fraudulent Appraisal
• Fraudulent Documentation
• Property Flip Fraud

– – – – Short Sale Fraud – – – –

A short sale is a sale of real estate in which the proceeds from the sale are less than the balance owed on the loan. The borrower may claim to have financial hardship and offers to sell the property so the financial institution will not have to foreclose. The financial institution and all interested parties, including other lien holders and any mortgage insurer, must approve the transaction. Some institutions may be motivated to approve a short sale because it is faster, results in a smaller loss than the prospect of a foreclosure, and does not increase the level of Other Real Estate Owned. Depending on the settlement and the state where the property is located, the deficiency balance may be forgiven by the financial institution.

Not all short sales are fraudulent. However, fraud occurs when a borrower withholds mortgage loan payments, forcing the loan into default so that an accomplice can submit a “straw” short-sale offer at a purchase price less than the borrower’s loan balance. Sometimes the borrower is truly having financial difficulty and is approached by a fraudster to commit the scheme. In all cases, a fraud is committed if the financial institution is misled into approving the short-sale offer when the price is not reasonable and/or when conflicts of interest are not properly disclosed.

Examples:

– A fraudster uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage loan. The straw buyer makes no payments on the loan and the property goes into default. Prior to foreclosure the fraudster makes an offer to purchase the property from the lender in a short sale agreement below market value. The lender agrees without knowing that the short sale was premeditated.

Red Flags

• Sudden default with no workout discussions and immediate request for short sale.
• Loan file documentation suggests ambiguous or conflicting reasons for default.
• Mortgage loan delinquency is inconsistent with the borrower’s spending, savings, and other credit patterns as indicated in the credit report.
• Short-sale offer is from a related party, which is sometimes not disclosed, or straw buyer.
• Short-sale offering price is less than current market value.
• HUD-1 Settlement statement shows cash-back at closing to the delinquent borrower, or other disbursements that have not been expressly approved by the servicer (sometimes disguised as “repairs” or other payouts).
• Fraudulent appraisal to support below market price.
• Seller intentionally lowers value of property by causing excessive, but cosmetic, damage or hiding dead animals to produce offensive odors. Adjustment to value is exaggerated downward even though costs for rehabilitation are low.
• Seller feigns financial hardship and hides assets – large volume of assets on original loan application have dissipated without explanation.
• County records show that the property was flipped soon after short sale with a higher price.
• County records show ownership is transferred back to the seller after short sale.
• Site visit or registered mail is not returned indicates seller continues to reside in the property.
• Real estate agent is in collusion with seller and withholds competitive/higher offers.
• Unusually high commission is paid to real estate agent.

Companion Fraud
• Fraudulent Documentation

*********** Fraud Mechanisms **********

Asset Rental

Asset rental is the rental of bank deposits or other assets, which are temporarily placed in a borrower’s account, in order for a borrower to qualify for a loan. The borrower usually pays some fee, such as a rental fee, for the temporary “use” of the asset. Asset rental programs have been generally described as tools to help borrowers whose financial condition poses a roadblock to being approved for a loan. Most often, the rental involves deposits or credit histories. Asset rental is a tool that can be used to commit mortgage fraud.

Deposit rental is a means to inflate an individual’s assets. An individual typically pays an origination fee of 5 percent of the amount of the deposit to be rented and a monthly fee of 1 percent to 1¾ percent of the deposit amount. The rented deposit can be owned by a third party that purports to be a financial institution or adds the borrower’s name to a real deposit account without granting access. The third party agrees to verify the deposit to any party authorized by the borrower. Written statements and verifications of deposit are available for an extra fee.

Credit histories are rented in an effort to raise an individual’s credit score. An individual typically pays a fee and is added to another individual’s credit card account as a non-user. The borrower has no access to or use of the credit card but benefits from the actual credit card holder’s timely payments.

In addition to asset rental, some companies also have advertised verification of employment and income services. Individuals fill out a form listing annual and monthly income and sources. Upon receipt of fees, the company verifies income and employment to lenders or others as authorized by the borrower.

Examples:

– A borrower would like to purchase a $450,000 house. Unfortunately, his $71,000 bookkeeper salary and $13,000 in a savings account do not meet the underwriting standards for the amount of the loan. The borrower, however, is certain that his salary will continue to increase at a minimum of 10 percent per year.

The borrower rented a $40,000 deposit account, for a fee of $2,000; the loan application reflected the $40,000 account as an asset. In addition, the borrower expected a raise the following year to $78,000, and enlisted an entity to verify that salary amount. The $78,000 was shown on the loan application as his current income. The loan file contained a verification of deposit for the $40,000 account, a verification of employment form verifying his job as an accountant, and a verification of income form for his $78,000 salary.

Red Flags

• Verification of Deposit (VOD), Verification of Employment (VOE) and Verification of Income (VOI) from a common source that is not the employer or the financial institution where the deposit is held.

• Information on credit report that is not consistent with information on VODs, VOEs and VOIs.
• Even numbers only appearing on the VODs and VOIs. Discrepancies between the deposit account establishment date and the date the borrower says it was established in the loan application process.

Fake Down Payment

In order to meet loan-to-value requirements, a fake down payment through fictitious, forged, falsified, or altered documents is used to mislead the lender. Collusion with a third party, such as a broker, closing agent, appraiser, etc. often exists to raise the purchase price and make it appear that the buyer is making a down payment to cover the difference between the purchase price and proposed loan. A fake down payment reduces the financial institution’s collateral position and in some cases, a financial institution may be financing over 100 percent of the purchase. Without the fake down payment, the financial institution would not have otherwise made the loan.

Examples:

A borrower wants to purchase property but does not have the money for a down payment. He offers the seller more than the asking price to give the appearance that the buyer is putting money down in order to get the loan. The seller agrees to amend the contract to reflect the increased price. The increase in sales price is not disbursed to the seller. Instead, a false payoff from the seller’s funds is reflected on the HUD-1 Settlement Statement when in reality, the seller provides the funds to the borrower for the down payment.

– A third party broker has a borrower interested in a loan to finance the purchase of a home. The borrower does not have sufficient funds available to meet the lender’s LTV requirements. Therefore, the broker loans the borrower $10,000 to use as a down payment, and the funds are represented to be a gift from family. The borrower and broker then enter into a loan agreement. The loan is to be secured by a lien against the house. Approximately ten days after closing of the purchase transaction, the broker records the second lien against the house to secure the down payment loan.

Red Flags

• Source of funds for down payment cannot be verified.
• Down payment appears to be accumulated suddenly instead of over time.
• Deposit is a rented account (refer to asset rental) or has a round dollar balance.
• Down payment source is held in a non-financial institution such as an escrow trust account, title company, etc.
• Market value of property is inflated.
• Property sells above asking price even though on the market for an extended period of time.

Fraudulent Appraisal

Appraisal fraud can occur when an appraiser for various reasons falsifies information on an appraisal or falsely provides an inaccurate valuation on the appraisal with the intent to mislead a third party. In addition, appraisal fraud occurs when a person falsely represents himself as a State-licensed or State-certified appraiser or uses the identity of an appraiser as his own.

One common form of appraisal fraud relies on overvalued or undervalued property values, also known as artificial inflation/deflation using one or more valuation approaches. A buyer and a real estate professional will use a willing appraiser to artificially modify the value of a property. The property’s false inflated value can be used to secure a second mortgage, place the property on the market at a greatly inflated price, or secure an initial mortgage loan that will be defaulted upon at a later time. An undervalued appraisal can be used to assist in a short sale or loan modification fraud scheme.

Examples:

– A couple obtains financing for the purchase of their first house, contingent upon the house value. The couple plan to use the $8,000 tax credit for the down payment and closing costs and only have nominal cash available, so there is no possibility that the couple could cover the difference if the house doesn’t appraise. The couple’s loan officer arranges for an appraisal of the property, but sends the appraiser the standardized form with the final market value section completed. The appraiser wants to continue his relationship with the mortgage broker, so he agrees to develop an appraisal report to support the value provided. The property is compared to properties outside of the general area where the subject house is located. Without knowledge of that area, it appears, to anyone reviewing the appraisal report, that the comparable properties provide support for the value. However, no adjustments have been made for the facts that the comparable properties are newer, larger, in better condition, and in a better location than the subject property.

– A house being appraised has materially less square footage than the comparable properties. To boost the square footage of the subject property, the appraiser doubles the square footage of the unheated out-building, that is used for lawn equipment, and adds that square footage to the square footage of the house. No adjustments are made to the comparable properties, since now the subject and comparable properties have similar square footage. A review of the square footage of the house and out-building clearly shows that the appraiser intentionally misrepresented the property value.

Red Flags

There are various red flag indicators that can be used to identify the possibility of appraisal fraud. The identification of red flags could suggest individual fraud activities or more complex fraud schemes. Such red flag indicators for appraisal fraud are subdivided into categories below:

Appraisal Engagement Letter/Appraisal Ordering

• There is no appraisal engagement letter in file or the appraisal does not correspond to the engagement letter.
• The appraisal was ordered or provided by the buyer, seller, or an unidentified third party to the transaction rather than the financial institution or its agent.
• The appraisal was order by the financial institution loan production staff rather than from an independent office within the institution.

The Appraiser/Appraiser Compensation

• Appraiser was not located in reasonable proximity of the subject property and it is unclear that the appraiser has appropriate knowledge of the local market.
• Appraiser licensing/certification information is missing or appraiser information is clouded in some way.
• Appraisal fee is based on market value of subject property.
• Appraiser has had enforcement action taken against him or is not otherwise eligible to perform appraisals for federally related transactions (www.ASC.gov).

Property Comparables

• Comparable properties are materially different from subject property.
• Comparable properties are outside a reasonable radius of the subject property (except for rural properties).
• Comparable property sales are stale without an explanation.
• Appraiser makes large value adjustments to comparable properties without adequate explanation.
• Recent and multiple sales for subject and/or comparables are shown in the appraisal without adequate explanation as to the circumstances.

Appraisal Information and Narrative

• The market value in the appraisal report is lower than purchase price.
• Listing rather than sales information was used to determine value.
• Evidence of appraisal tampering (e.g., different font style, handwritten changes).
• Refinance transaction shows property recently listed “for sale”.
• Market rent is significantly less than rent amounts indicated on lease agreement.
• Income approach is not used on a tenant-occupied, or rented single-family dwelling.
• Significant appreciation or devaluation in short period of time.
• Appraisal indicates transaction is a refinance when it is a purchase.
• Appraised value is contingent upon property improvements or curing of property defects.
• Abnormal capitalization or discount rates without explanation.
• Appraisal dated before loan application date.
• Significant variances in property value among the Cost, Income, and Sales approach.
• Appraisal excludes one or more valuation approaches when such an approach is pivotal to the loan underwriting decision.
• Owner is someone other than seller shown on sales contract.
• Unusual or frequent prior sales are listed for subject and/or comparables without adequate explanation.
• Occupant noted as “tenant” or “unknown” for owner-occupied refinances.

Appraisal Photographs and Mapping (Comparable and Subject)

• Photos missing, non-viewable, or blurry.

• A “For Rent” or “For Sale” sign shows in the photos of the subject property for an owner-occupied refinance.
• Photos do not match property description.
• Photo background image is inconsistent with the date or season of the appraisal.
• Photos of subject property taken from odd angles to mask unfavorable conditions.
• Negative valuation factors are not disclosed in appraisal (e.g., commercial property next door, railroad tracks, or another structure on premises).
• Photos for the subject property and comparables appear to be from different photo source (e.g., internet photos).
• Appraisal maps showing location of subject and comparables is either absent or shows wide geographical separation from subject property.

Other Appraisal Information

• Documentation in loan file suggests a re-appraisal due to appraisal results or the stated value of subject property without an explanation.
• Loan file contains more than one recent appraisal with significant variance in value without an explanation.
• House number of property in photo does not match the subject property address.
• A fax or an electronic version of the appraisal is used in lieu of the original containing signature and certification of appraiser.
• The appraisal was not reviewed prior to loan funding or appraisal was reviewed by loan production rather than an independent office within the institution.

Fraudulent Documentation

Documentation fraud occurs when any document relied upon by the financial institution to make a credit decision, is forged, falsified, or altered. Fraud can also occur if proper due diligence and verification practices are not consistently applied. Similarly, obtaining documents to satisfy a checklist is not the same as having verified the authenticity of the document.

Documentation Types

1. Sales Contract

Sales contracts may be falsified to reflect higher sales prices. These higher sales prices are intended to produce higher comparables for appraisal purposes and result in artificially inflated values. The inflated values result in a higher loan amount than would otherwise be justified. Additionally, falsified seller identity may be used to perpetrate frauds, such as transferring property via falsified deeds or listing property for sale that the seller does not legally own. The identity of the buyer and/or seller may also be falsified in order to disguise a flip transaction or the use of a straw borrower.

Red Flags

• Borrower is not listed as purchaser on the sales contract.
• Seller listed on contract is not the owner listed on title or appraisal.
• All parties did not sign the sales contract and/or addendum.
• Sales contract is not dated or dated after other file documents (unless it is a pre-qualification.)
• Sales contract is received at the last minute or has been changed from the previously submitted contract.

2. Loan Application

Parts of or the entire application may be falsified.

Red Flags

• Application states purpose is for refinance, but the credit report and/or tax records do not indicate the borrower owns the property.
• Purchase amount of the property differs from the sales contract.
• Borrower claims the property will be owner-occupied, when the intent is for investment/rental purposes.
• Application shows all assets, but liabilities are inconsistent with those reported on the credit report.
• Assets are inconsistent with job position and income.
• Omission of some or all properties owned by the borrower in the real estate section of the application.
• Borrower declarations are inconsistent with credit report.
• Debt-to-Income ratios are exactly at maximum approval limits
• Misrepresentation of employment and income.

3. Credit Report

The credit report contains significant information reflective of the borrower’s ability and desire to repay debt obligations. Credit reports are sometimes altered so that a borrower can meet specific loan requirements. For example, credit scores can be changed (increased) through scanning and alteration of information.

Red Flags

• The absence of credit history indicating the possible use of an alias and/or multiple social security numbers.
• Borrower recently pays many or all accounts in full, possibly indicating an undisclosed debt consolidation loan.
• Indebtedness disclosed on the application differs from the credit report.
• The length of time trade lines were opened is inconsistent with the buyer’s age.
• The borrower claims substantial income but only has credit experience with finance companies.
• All trade lines opened at the same time with no explanation.
• Recent inquiries from other mortgage lenders are noted.
• AKA (also known as) or DBA (doing business as) are indicated.

4. Driver’s License

Government issued driver’s licenses can be partially verified through entities that can identify whether the licensing number sequence complies with the state’s system. However, state issued identification cards do not always have the same quality.

Red Flags

• No hologram.
• No photograph.
• Name, address, physical characteristics do not match.
• Expired driver’s license.
• Illegible driver’s license.

5. Social Security Number

The first five digits of a Social Security Number (SSN) signify the state and the date range in which it was issued. SSNs should be compared to numbers associated with deceased taxpayers. Identity alerts are also a useful tool if accessed via the credit reporting system.

Red Flags

• Credit report alert states that SSN has not been issued.
• Credit report alert states that SSN is on the master death index.
• Format and digits are not correct.
• Improper color and weight of the social security card.
• Highly unlikely series of digits (999-99-9999 or 123-45-6789).

• Ink smudges, poorly aligned, and odd fonts.

6. Bank Statement

Deposit account statements may include legitimate financial institution names and addresses, but can be fraudulently modified to include falsified telephone numbers that are answered by a party to the scheme.

Red Flags

• Altered copies.
• Missing pages.
• Application information (name and address) does not match the account holders.
• Inconsistency in the color of original bank statements.

7. Deposit Verification (VOD)

A party to the scheme may verify deposits held at a depository institution, even though no such financial institution, account, or deposits in that name exist.

Red Flags

• The VOD is completed on the same day it is ordered.
• Deletions or cross outs exist on the VOD.
• No date stamp receipt affixed to the VOD by the depository to indicate the date of receipt.
• The buyer has no deposit accounts, but a VOD is in the file.
• The deposit account is not in the borrower’s name or is a joint account with a third party.
• The borrower’s account balance at the financial institution is insufficient to close the transaction.
• The deposit account is new or has a round dollar balance.
• The closing check is drawn on a different financial institution.
• An illegible signature exists with no further identification provided.
• Significant balance changes are noted in depository accounts during the two months prior to the date of verification.
• The checking account’s average two-month balance exactly equals the present balance.
• Funds for the down payment are only on deposit for a short period.
• An IRA is shown as a source of down payment funds.
• Account balances are inconsistent with application information.
• The down payment source is held in a non-depository “depository,” such as an escrow trust account, title company, etc.
• An escrow receipt is used as verification which may have been from a personal check not yet cleared or a check returned due to insufficient funds.
• The VOD is not folded indicating it may have been hand carried.
• The VOD is not on original financial institution letterhead or a recognized form.

8. Employment Verification (VOE)

Fake employment verification can be used by those who collude in mortgage fraud. This is usually associated with an organized scheme.

Red Flags

• The seller and applicant have similar names.
• Borrower’s employer does not know borrower or borrower was terminated from employment prior to the closing date.
• The VOE is not on original letterhead or a standard Federal National Mortgage Association (FNMA)/Federal Home Loan Mortgage Corporation (FHLMC) form.
• The VOE is completed the same day it is ordered, indicating it may have been hand-carried or completed before the initial application date.
• An illegible signature exists with no further identification provided.
• The employer uses only a mail drop or post office box address.
• The business entity is not in good standing with the State or registered with applicable regulatory agencies.
• An overlap exists with current and prior employment.
• Excessive praise is noted in the remarks section of response.
• Round dollar amounts are used in year-to-date or past earnings.
• Income is not commensurate with stated employment, years of experience, or type of employment.
• Income is primarily commission based, although borrower claims he is a salaried employee.
• The borrower’s interest in the property is not reasonable given its distance from the place of employment.
• The borrower has a recent large increase in income or started a new job.
• Faxes are used in lieu of originals documents.
• CPA letter is used to validate employment.
• Leases are used to evidence additional income.

9. W-2 Statement or Paystub

Off-the-shelf software and internet sites make the creation of fake W-2 statements and paystubs relatively easy.

Red Flags

• Borrower income is inconsistent with type of employment.
• Social security number on W2 or paystub is invalid, differs from loan application, or has been recently issued.
• Name misspelled.
• Variances in employment data with other file documentation.
• Commission-type position with “base” salary only (and vice versa).
• Round dollar amounts for year-to-date or prior year’s earnings.
• Numbers that appear to be “squeezed in”.
• Document alterations, such as white-outs or cross-outs or inconsistent fonts.
• Not computer-generated, especially from large employer.
• W-2 is typed, but paystubs are computer-generated.
• Check numbers do not increase chronologically.
• Amounts withheld for Social Security, Medicare and other government programs are inconsistent with the level required.
• Debts reflected as deduction from pay (credit union loans, etc.) not disclosed on application.
• Year-to-date totals do not total accurately from paycheck to paycheck.
• An employer identification number that is not in the XX-XXXXXXX (two digits, hyphen, seven digits) format, or is not all numeric.
• Employer and employee names or addresses are inaccurate.

• Income reflected on W-2 statements is different than income reported on mortgage loan application, VOE, and tax returns.
• Federal Insurance Contribution Act (FICA) and Medicare wages/taxes and local taxes, where applicable, exceed ceilings/set percentages.
• Copy submitted is not “Employee’s Copy” (Copy C).

10. Tax Return/Amended Tax Return

Fake tax returns may be provided to the underwriter as the borrower believes that no verification will occur. In other instances, amendments to tax returns may be made to further the scheme, regardless of whether the income amount increases or decreases.

Red Flags

• Address and/or profession do not agree with other information submitted on the mortgage loan application.
• Type of handwriting varies within return.
• Evidence of “white-out” or other alterations.
• Unemployment compensation reported, but no gap in employment is disclosed.
• Estimated tax payments by self-employed borrower (Schedule SE required); or self-employment tax claimed, but self-employment not disclosed.
• Tax returns are not signed/dated by borrower.
• IRS Form 1040 – Schedule A:

– Real estate taxes and/or mortgage loan interest is paid but no property is owned, or vice versa.

– Tax preparation fee is deducted, yet prior year’s return is prepared by borrower.

– Minimal or no deductions for a high-income borrower.

• IRS Form 1040 – Schedule B:

– Borrower with substantial cash in the bank shows little or no related interest income.

– No dividends are earned on stocks owned.

– Amount or source of income does not agree with the information submitted on the mortgage loan application.

• IRS Form 1040 – Schedule C:

– Business code is inconsistent with type of business.

– Gross income does not agree with total income on Form 1099s.

– No “cost of goods sold” on retail or similar type of business.

– Borrower takes a depreciation deduction for investment real estate not disclosed, or vice versa.

– Borrower shows interest expense but no related loan, such as a business loan with personal liability.

– No deductions for taxes and licenses.

– Wages are paid, but no tax expense is claimed.

– Wages are paid, but there is no employer identification number.

– Salaries paid are inconsistent with the type of business.

– Business expenses are inconsistent with type of business (e.g., truck driver with no vehicle expense).

– Income significantly higher than previous years.

• IRS Form 1040 – Schedule E:

– Additional properties are listed, but not shown on the mortgage loan application.

– Mortgage loan interest is deducted but no mortgage is disclosed.

– Borrower shows partnership income (may be liable as a general partner for partnership’s debts).

11. Deed

Quit Claim and Warranty Deeds may be used by someone who is transferring the property’s title, but is not the owner or the owners’ representative. The purpose of such transactions is to sell the property outright or to refinance the debt in a cash-out transaction to collect loan proceeds. A fake Power of Attorney may be used as authorizing the deed transfer.

Red Flags

• Recent ownership transfer or multiple transfers in a short period of time via quit claim or warranty deed.
• Representative not local or from out of state.
• Deeds involving individuals not party to the transactions.
• Deeds where parties share common names/hyphenated names, suggesting family relationships.
• Obvious errors, such as misspelled names, or other items.

12. Title or Escrow Company/Title Commitment

Fraudulent loan schemes may involve the use of a fake title company or may involve an employee of the title company. The company appears to provide legitimate documentation, which was possibly stolen from a legitimate title company (such as a falsified closing protection letter). Employees of legitimate title companies may be part of a scheme, where they either fabricate title commitments or delete information that would help identify fraudulent activity, such as flipping.

Red Flags

• The seller either is not on the title or is not the same as shown on the appraisal or sales contract.
• The seller owned the property for a short time with cash out on sale.

• The buyer had a pre-existing financial interest in the property.
• The chain of title includes the buyer, real estate agent, or broker.
• The title insurance or opinion was prepared for and/or mailed to a party other than the lender.
• Income tax or similar liens are noted against the borrower on refinances.
• Non-lien holders are shown on HUD-l.
• The title policy is not issued on the property with the lien or on the whole property.
• Faxed documents are used rather than originals or certified copies.
• Title commitment and final title policy reflect two different title insurers.
• Closing instructions are not followed.
• Delinquent property tax exists and does not appear on the title commitment.
• A notice of default is recorded and does not appear on the title commitment.

13. Business License

Business licenses may be fabricated to show that a supposed self-employed borrower owns a business. In this instance, the borrower owns no such business. Others may actually formally incorporate with the state office to conceal the fact that no such business operates.

Red Flags

• No physical address (P.O. Box only) or physical address belongs to mail box rental company. Various search engines can help determine if disclosed physical address belongs to mail box rental.
• No telephone number or email address.
• No state franchise or other required annual filings.

14. Notary stamps

Notary stamps may be stolen and used in fraudulent transactions. In addition, notaries may be participants in furthering a scheme and receive funds for their participation. While e-notary will prevent stealing of physical stamps, it will not necessarily eliminate the coercion of notaries. Also, the fact that e-notary does not require the log to be downloaded daily to an impartial party that maintains a database of transactions, can allow for information to be changed after-the-fact. This would be the equivalent of changing the hand-written log.

Red Flags

• Seal is not embossed.
• Seal appears to be photocopied, rather than original.
• Notary is either related to or has a business relationship with a party to the transaction.

15. Power of Attorney

Powers of Attorney (POA) are legal documents authorizing another party to act on the first party’s behalf. POAs can be Limited, General, or Durable. Durable POAs have the longest duration, as they cease upon the death of the authorizing person, whereas General POAs cease upon a pre-established date, competency, or incapacitation. Limited POAs are identified with a specific timeframe or certain acts. Documents can be easily fabricated to show that one party has a legal right to enter into financial transactions on behalf of another. POAs may or may not be filed with the appropriate governmental office.

Red Flags

• A General or Durable POA is dated at approximately the same date as the transaction.
• Person, who supposedly authorized the Limited or General POA, is unaware of the document.
• In those areas where all POAs are recorded documents, the document is not recorded.
• The POA is not prepared by an attorney, but by using off-the-shelf software.
• POA is used in cash-out refinances or reverse mortgage loans.

16. HUD-1 Settlement Statement

The HUD-1 settlement statement is an accounting of the transaction from both the borrower’s and seller’s standpoint. This form is often falsified to withhold information from the lender, or there are often two distinctly different HUD-1 forms in fraudulent transactions.

Red Flags

• Borrower receives cash-back at closing.
• Payoff of non-lien holders typically reflected as marketing fees, payment for repairs, or renovations.
• Existence of multiple, different HUD-1’s.
• Items paid outside of closing (outside of normal appraisal and credit report fees).
• Overpayment of fees and commissions to realtor, broker, etc.
• Signatures on the HUD-1 do not match other signatures throughout the file.

Fraudulent Use of a Shell Company

A shell company is a business entity that typically has no physical presence, has nominal assets, and generates little or no income. Shell companies in themselves are not illegal and may be formed by individuals or businesses for legitimate purposes. However, due to lack of transparency regarding beneficial ownership, ease of formation, and inconsistent reporting requirements from state to state, shell companies have become a preferred vehicle for financial fraud schemes.

Both the U.S. Government Accountability Office (GAO) and FinCEN have reported on shell companies and their role in facilitating criminal activity. These reports have focused on limited liability corporations (LLCs) due to their dominance and growth in popularity. However, any type of business entity can be a shell company. To further obscure ownership and activity, there are numerous businesses that can provide a shell company with a registered agent and mail forwarding service, or offer nominee services, such as nominee officers, directors, shareholders, or nominee bank signatory. Other businesses sell established shell companies for the purpose of giving the appearance of longevity of a business, and a history of creditworthiness which may be required when obtaining leases, credit, or bank loans.

Examples:

– Several individuals with the intent of committing fraud formed a shell company as a way of disguising their identities. The individuals purchased properties in the name of the shell company and at the same time recruited straw borrowers to purchase the properties from the shell company at inflated prices. Owners of the shell company provided the straw borrowers with fake documents in order to qualify for the loans. The shell company owners profited from the difference between the original purchase price and the mortgage loan proceeds, less the fee paid to the straw borrower. The straw borrower defaulted on the loan, forcing the financial institutions to foreclose on the houses.

Red Flags

• Entity has no telephone number or email address.
• No physical address (P.O. Box only) or physical address belongs to mail box rental company.
• No company logo.
• No website, if one would be expected.
• No domestic address/contact if a foreign company.
• Newly-formed entity.
• Registered agent recently changed.
• Transacting businesses share the same address; provide only a registered agent’s address; or other address inconsistencies.
• Unusual cash withdrawals from business accounts.

Identity Theft

Identity theft can be defined as assuming the use of another person’s personal information (e.g., name, SSN, credit card number, etc.) without the person’s knowledge and the fraudulent use of such knowledge to obtain credit. Perpetrators commit identity theft to execute schemes using fake documents and false information to obtain mortgage loans. These individuals obtain someone’s legitimate personal information through various means, (e.g., obituaries, mail theft, pretext calling, employment or credit applications, computer hacking, trash retrieval, etc.) With this information, they are able to impersonate homebuyers and sellers using actual, verifiable identities that give the mortgage transactions the appearance of legitimacy.

Examples:

– A university student database, which included social security numbers and other personal identifying information, is compromised by a computer hacker. The investigation revealed that the hacker subsequently sold the personal identification information to a third party, who then proceeds to submit falsified mortgage loan applications to numerous financial institutions which resulted in approximately $5 million in losses to the financial institutions. Law enforcement stated that the third party, in collusion with a notary, appraiser, and other industry insiders, used the student information to purchase homes owned by the third party and other collaborators at highly inflated prices. In addition to identity theft, the loan files also included misrepresentations of employment, falsified down payments, and inflated appraisals.

Red Flags

A red flag is an indicator that calls for further scrutiny. One red flag by itself may not be significant; however, multiple red flags may indicate an operating environment that is conducive to fraud.
• Credit report contains a fraud alert or consumer-driven freeze on their credit report, which means no credit reports can be pulled until the consumer lifts the freeze.
• Credit report indicates that the social security number was not yet issued.
• Recently-opened accounts.
• Employment and residence history on the credit report and application do not match.
• Copy of driver’s license does not match profile on the application.
• Recently issued SSN.
• Current address on the application does not match other documents in the file (e.g., bank statements, W-2’s, utility bills, etc.)
• Additional red flags may be found in the FCRA under Appendix J of 12 CFR 41 (Subpart J – Identity Red Flags)

Straw Borrower / Nominee Borrower

A straw (nominee) borrower is an individual used to intentionally disguise the true beneficiary of the loan proceeds. Straws can be willing participants in the transaction or victims whose identity is being used without their knowledge. Often a willing straw borrower does not think the transaction is dishonest because they believe the recipient of the loan proceeds will make the payments. Reasons why a beneficiary of the loan proceeds may use a straw borrower are because the beneficiary:

• Does not qualify for the mortgage loan,
• Has no intent to occupy the property as a primary residence, or
• Is not eligible for a particular loan program.

Also straw borrower activities are commonly used with family members who step in for the purchase or refinance when the true home owner (family member) does not qualify for a loan.

Examples:

– A couple wanted to buy a home but did not qualify because their debt ratio was much too high. They also had very little cash to use as a down payment. To “help” them, one of their parents applied for the loan and was approved for a 97 percent LTV product. The couple moved into the house, and could not make the monthly payments. The servicer called the straw borrower, who informed the servicer that he did not live in the home and that his daughter and son-in-law were supposed to be making the payments. Despite, being contractually obligated, the straw borrower parent refused to bring the loan current. The lender was forced to foreclose and took a loss on the sale of the REO.

– A fraud ring acquired 25 properties, all of which were in various stages of disrepair. Some were even uninhabitable and slated for condemnation by the city. The ring then recruited individuals through their church, clubs, and other associations to each buy a property sight unseen. Each borrower was told they would not need to live in the property, and each borrower was also promised payment of $7500. The fraud ring arranged for inflated appraisals to be performed by promising the appraiser the job of appraising all 25 properties. The applications were submitted to several different lenders with numerous misrepresentations surrounding not only the true property values, but occupancy intent, borrower employment, income, and assets as well. The loans closed and resulted in first payment defaults, as the straw borrowers were told that their properties were passive investments that would not require any monthly payments due to tenants already being in the properties. A handful of the straw borrowers did receive their $7500 as promised, but most did not. Upon receiving collection calls, the straw borrowers determined they had been misled. The lenders ultimately foreclosed on the properties, discovered the true condition of the properties, and suffered losses upon the sale of the REO.

Red Flags

• The application is unsigned or undated.
• Borrower’s income is inconsistent with job or position.
• A quit claim deed was used either right before or soon after the loan was closed.
• Investment property is represented as owner-occupied on loan application.
• Loan documents show someone signed on the borrower’s behalf.
• Names were added to the purchase contract.
• Sale involves a relative or related party.
• No sales agent or realtor was involved.
• The name and address of borrower on credit report does not correspond with information on the loan application.
• Appraisal irregularities exist regarding property valuation and documentation. (See Fraudulent Appraisal.)
• Power of attorney was used in place of borrower.
• Good assets, but “gifting” was used as all or part of down payment.
• Repository alerts on credit report.

Glossary:

Appraisal Management Company (AMC): A business entity that administers a network of certified and licensed appraisers to fulfill real estate appraisal assignments on behalf of mortgage lending institutions and other entities. The company recruits, qualifies, verifies licensing, and negotiates fees and service-level expectations with a network of third-party appraisers. It also provides administrative duties like order entry and assignment, tracking and status updates, pre-delivery quality control, and preliminary and hard copy report delivery. Furthermore, the AMC oversees ongoing quality control, accounts payable and receivable, market value dispute resolution, warranty administration, and record retention.

Appraiser: One who is expected to perform valuation services competently and in a manner that is independent, impartial, and objective.

Borrower: One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest. The borrower may be purchasing property, refinancing an existing mortgage loan, or borrowing against the equity of the property for other purposes.

Buyer: A buyer is a person who is acquiring property.

Closing: The culmination of any RE transaction in which the interested parties or their representatives meet to execute documents, exchange funds, and transfer title to a property.

Closing Costs: Moneys expended by a party in completing a RE transaction, over and above the purchase price, including: legal fees, taxes, origination fees, discount points, mortgage insurance premium, interest adjustments, registration fees, appraisal fees, title insurance premium, etc.

Closing/Settlement/Escrow Agent: An individual or company that oversees the consummation of a mortgage transaction at which the note and other legal documents are signed and the loan proceeds are disbursed. Title companies, attorneys, settlement agents, and escrow agents can perform this service. Local RE law may dictate the party conducting the closing.

Concessions: Benefits or discounts given by the seller or landlord of a property to help close a sale or lease. Common concessions include absorption of moving expenses, space remodeling, upgrades (also called “build-outs”), and reduced rent for the initial term of the lease.

Collusion: An agreement, usually secretive, which occurs between two or more persons to deceive, mislead, or defraud others of their legal rights, or to obtain an objective forbidden by law, typically involving fraud or gaining an unfair advantage.

Correspondent: A mortgage originator who underwrites and/or sells mortgage loans to other mortgage bankers or financial institutions.

Credit Report Fraud Alert: A notation at the bottom of a credit report indicating that some items of identification, i.e., Social Security number, address, etc., are associated with past fraudulent activities. For example, an address may be flagged because the previous occupant allegedly used the property for financial misbehavior. Each credit reporting agency has different names for these alerts: TransUnion – HAWK Alerts, Experian – Fraud Shield, and Equifax – Safescan.
Deed: The document by which title to real property is transferred or conveyed from one party to another. (See Quitclaim Deed and Warranty Deed.)

Deed of Trust: A type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender, with the provision that the trustee shall re convey the title upon the payment of the debt. Conversely, the third party will sell the land and pay the debt in the event of default by the borrower. (See Mortgage.)

Developer: A person or entity, who prepares raw land for building sites, constructs buildings, creates residential subdivisions or commercial centers, rehabilitates existing buildings, or performs similar activities.

eNotary: An electronic notary that may include the use of a digital seal to notarize digital documents. (See also Notary.)

Escrow Instructions: Instructions prepared by a lender and/or underwriter to direct the progression of a mortgage closing transaction from start to finish.

Evaluation: A valuation required by the Agencies’ appraisal regulations for certain transactions that are exempt from the regulations.

Federal Home Loan Mortgage Corporation (Freddie Mac): Commonly used name for the Federal Home Loan Mortgage Corporation (FHLMC), a government sponsored entity that provides a secondary market for conforming conventional residential mortgage loans by purchasing them from primary lenders.

Federal Housing Administration (FHA): A federal agency established to advance homeownership opportunities. The FHA provides mortgage insurance to approved lending institutions.

Federal National Mortgage Association (Fannie Mae): A government sponsored entity that, as a secondary mortgage loan institution, is the largest single holder of residential mortgage loans in the United States. Fannie Mae primarily buys conforming conventional residential loans from primary lenders.

Federally related transaction: Means any real estate-related financial transactions entered into after the effective date hereof that:
(1) The FDIC or any regulated institution engages in or contracts for; and
(2) Requires the services of an appraiser.

Foreclosure: A legal proceeding following a default by a borrower in which real estate secured by a mortgage or deed of trust is sold to satisfy the underlying debt. Foreclosure statutes are enacted by state government.

Form 1003: The standardized loan application form used in residential mortgage loan transactions.

Form 4506T: An IRS form that taxpayers execute to authorize the IRS to release past tax returns to a third party. Many lenders require mortgage loan applicants to execute this form in order to verify income.

Fraud: A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to their detriment.

Government National Mortgage Association (Ginnie Mae): A government-owned corporation that provides sources of funds for residential mortgage loans, insured or guaranteed by the FHA or VA.

HUD-l Form: A standardized form prescribed by the Department of Housing and Urban Development that provides an itemization listing of funds paid at closing. Items that appear on the statement include RE commissions, loan fees, points, taxes, initial escrow amounts, and other parties receiving distributions. The HUD-l statement is also known as the “closing statement” or “settlement sheet.”

Lapping: A fraud that involves stealing one customer’s payment and then crediting that customer’s account with a subsequent customer’s payment.

Loan Servicer: A loan servicer is a public or private entity or individual engaged to collect and process payments on mortgage loans.

Loan-to-Value Ratio (LTV): Relationship of loan amount to collateral value, expressed as a percentage.

Market Value: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and acting in what they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Modification Agreement: A document that evidences a change in the terms of a mortgage loan, without refinancing the loan. Commonly, changes are made to the interest rate, repayment terms, guarantors, or property securing the loan.

Mortgage: A lien on the property that secures a loan. The borrower is the mortgagor; the lender is the mortgagee.

Mortgage Banker: An individual or firm that originates, purchases, sells, and/or services loans secured by mortgages on real property.

Mortgage Broker: An individual or firm that receives a commission for matching borrowers with lenders. Mortgage brokers typically do not fund the loans they help originate.

Mortgage Fraud: A knowing misrepresentation of the truth or concealment of a material fact in a mortgage loan application to induce another to approve the granting of a mortgage loan. For the purpose of this paper, mortgage fraud refers solely to fraudulent schemes pertaining to residential mortgage loans.

Nominee Loan: A loan made to one individual in which the proceeds of the loan benefit another individual without the knowledge of the lender.

Notary: A person who certifies the authenticity of required signatures on a document, by signing and stamping the document. (See also eNotary.)

Originator: The individual or entity that gathers application data from the borrower. Alternatively, a person or entity, such as a loan officer, broker, or correspondent, who assists a borrower with the loan application.

Power-of-Attorney: A legal document that authorizes a person to act on another’s behalf. A power-of-attorney can grant complete authority or can be limited to certain acts (closing on a property) or timeframes (from date granted until a termination date). A durable power-of-attorney continues until the grantor’s death.

Pretext Calling: A scheme associated with identity theft in which a fraudster, pretending to represent a legitimate entity, calls an unsuspecting party seeking personal identification data, such as social security numbers, passwords, or other forms of account information. The fraudster then uses this information to assume the identity of the unsuspecting victim. Among other things, the fraudster can obtain a mortgage loan in the name of the unsuspecting victim.

Processor: The processor is an individual who assembles all the necessary documents to be included in the loan package.

Quitclaim Deed: A deed that transfers without warranty whatever interest or title, if any, a grantor may have at the time the conveyance is made. A grantor need not have an interest in the property to execute a quitclaim deed.

Real Estate Agent: An individual or firm that receives a commission for representing the buyer or seller, in a RE purchase transaction.

Reverse Mortgage: A reverse mortgage loan converts the equity in the home into cash. Unlike a traditional loan, no repayment is required until the borrower no longer uses the house as a principal residence. To be eligible under FHA’s program, Home Equity Conversion Mortgage (HECM), the homeowner must be at least 62 years old, and live in the house. The program was expanded in 2009 so that HECMs can be used to purchase a primary residence.

Secure and Fair Enforcement Mortgage Licensing Act of 2008 (S.A.F.E. Act): Legislation designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and for the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry. The S.A.F.E. Act further requires the federal agencies to establish similar requirements for the registration of depository institution loan originators.

Secondary Market: The buying and selling of existing mortgage loans, usually as part of a “pool” of loans.

Seller: Person offering to sell a piece of real estate.

Short Sale: Sale of the mortgaged property at a price that nets less than the total amount due on the mortgage loan. Servicers and borrowers negotiate repayment programs, forbearance, and/or forgiveness for any remaining deficiency on the debt to lessen the adverse impact on borrowers’ credit records.

Straw Buyer/Borrower: A person used to buy property or borrow against property in order to conceal the actual owner. The straw buyer does not intend to occupy the property or make payments and often deeds the property to the other individual immediately after closing. The straw buyer is usually compensated for use of his identity.

Third Party: The parties necessary to execute a residential mortgage transaction other than a financial institution and a legitimate borrower. Third parties include, but are not limited to, mortgage brokers, correspondents, RE appraisers, and settlement agents.

Title Agent: The title agent is a person or firm that is authorized on behalf of a title insurer to conduct a title search and issue a title insurance report or title insurance policy.

Title Company/Abstract Company: Entity that researches recorded ownership of and liens filed against real property and then issues a title insurance policy guaranteeing the lien position of the lender or provides a title opinion. Some states also require an attorney opinion supported by an abstract.

Title Insurance: An insurance policy that indemnifies the lien position of a lender against losses associated with property interests not disclosed in the title opinion. The borrower can also obtain this coverage by purchasing a separate policy.

Title Opinion/Commitment/Binder: An examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property.

Underwriting: The credit decision-making process which can be automated, manual or a combination of both. In an automated process, application information is entered into a decision-making model that makes a credit determination based on pre-determined criteria. In a manual process an individual underwriter, usually an employee of the financial institution, makes the credit decision after evaluating all of the information in the loan package, including the credit report, appraisal, and verifications of deposit, income, and employment. Financial institutions often use a combination of both, with the automated decision representing one element of the overall credit decision. In each case, the decision may include stipulations or conditions that must be met before the loan can close.

Verification of Deposit (VOD): Written document sent to the borrower’s depository institution to confirm the existence of a down payment or cash reserves.

Verification of Employment (VOE): Written document sent to the borrower’s employer to confirm employment/income. Employment is often reconfirmed by calling the employer prior to funding.

Verification of Income (VOI): Written documentation supporting the borrower’s income level and income stream.

Warehouse Lender: A short-term lender for mortgage bankers. Using mortgage loans as collateral, the warehouse lender provides interim financing until the loans are sold to a permanent investor.

Warehouse (Loan): In mortgage lending, warehouse loans are loans that are funded and awaiting sale or delivery to an investor.

Warehouse Financing: Short-term borrowing of funds by a mortgage banker based on the collateral of warehoused loans. This form of interim financing is used until the warehoused loans are sold to a permanent investor.

Warranty Deed: A deed warranting that the grantor has a title free and clear of all encumbrances and will defend the grantee against all claims against the property.

For More Information How Your Can Use Well Structured Litigation Pleadings Designed Around These Fraudulent Schemes In Order To Effectively Challenge Your Wrongful Foreclosure and Successfully Save Your “American Dream” Home Visit: http://www.fightforeclosure.net

What Homeowners Need to Know About Federal Laws that Govern Mortgage Origination and Servicing

10 Saturday Aug 2013

Posted by BNG in Affirmative Defenses, Banks and Lenders, Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Mortgage Laws, Non-Judicial States, Pleadings, Pro Se Litigation, RESPA, Your Legal Rights

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Adjustable-rate mortgage, Closed End Credit, Finance, Finance charge, Loan, Security interest, Statute of Limitations, Truth in Lending Act

There are eight (8) major federal laws pertinent to mortgage origination and servicing.

Truth-in-Lending Act (TILA); 15 U.S.C. § 1638.

Purpose. TILA is largely a disclosure statute that requires that lenders make certain disclosures to borrowers and potential borrowers. The Act is meant to insure that borrowers are informed of all of the terms of the loan before they take out the loan and can make an informed decision.

Scope. TILA applies to consumer credit – both closed end credit (like mortgages) and open ended credit (like credit cards) – extended by a creditor.

To constitute as “consumer credit” under the statute:
• The consumer must be a natural person.

• Credit is the right to defer payment of debt or to
incur debt and defer payment.

• The credit must be payable, by written agreement, by more than four
installments or subject to finance charges.

Under TILA, a “creditor” is:

• An entity that regularly extends consumer credit. Regularly means six or
more real estate secured loans, two or more high cost loans (or one or
more if made through a broker), or 26 or more in other cases per year.

• The creditor is the entity to which the obligation is payable to on its face.
Arrangers, like brokers, are not covered by TILA.

Exceptions.

• Business, agricultural, organizational and commercial credit.
• Credit over $25,000 unless secured by real estate or a dwelling.
• Public utility credit in some instances.
• Securities or commodities accounts.
• Certain student loans.
• Home fuel budget plans if no finance charge is imposed.

Protections.

Fundamentals. Lenders must disclose the following terms and conditions:

1. Amount Financed The amount financed is the amount of money that the borrower receives for his own benefit. Generally, this would include the proceeds of the loan, the purchase price of the goods/services being purchased, and the amount of pre-existing debts being paid off by consolidation or refinancing. Amount financed is roughly the same as the concept of “principle” but it is distinct from how principle is construed under state usury laws.

2. Finance Charge. Any charge that a consumer pays, directly or indirectly,
that is charged by the creditor, directly or indirectly, as incident to or a condition of the extension of credit. Examples include interest, service charges, points, origination fees, and many other costs associated with credit.

3. Annual Percentage Rate (APR). The cost of credit as a yearly rate.

Required Disclosures for Closed End Credit – Failure to disclose the following terms and conditions gives rise to Statutory Claims.

1. Total Finance Charge. Consists of all finance charges as defined above.

Exceptions
a. Under certain conditions, charges by third parties, closing agent fees,
debt cancellation coverage, and overdraft fees.
b.Application fees so long as they are charged to all applicants, whether or
not credit is extended.
c. Late fees.
d.Certain closing costs, so long as they are bona fide and reasonable.
e. Voluntary credit life, health, accident and loss of income insurance so
long as the voluntary nature, cost and term are disclosed and the consumer
separately agrees to the insurance in writing.
f. Credit property insurance premiums so long as the consumer is aware
that he can purchase insurance elsewhere.
g. Certain security interest related charges.
h.Annual fees or fees periodically charged as a condition to credit.
i. Seller’s points.
j. Interest reductions in time deposits.

2. Amount Financed. The principle part of the loan minus all charges
deemed to be finance charges.

3. Annual Percentage Rate.
4. Payment Schedule.
5. Total Number of Payments.
6. Security Interests.
7. Special Formatting Rules.

The disclosures must be clear, obvious, separate from other information and in a form that the borrower can keep. Disclosures must be provided in a timely manner, in a way that the borrower can keep before the consummation of the loan.

Lenders must also give the borrower a Notice of Right to Cancel, which informs the borrower of his right to rescind and contains the forms that the borrower needs to exercise that right.

Relief and Statute of Limitations. Under TILA, the borrower has an absolute right to rescind for three business days after the consummationof the loan. After three business days, a borrower may have the right to rescind up to three years if the disclosures were not made to the client. Damages and attorney’s fees are recoverable under the statute.

Home Ownership and Equity Protection Act (HOEPA); 15 U.S.C. § 1639

Purpose. HOEPA is designed to protect all borrowers, but especially
borrowers that apply for and take out high cost loans. HOPEA is
associated with TILA and is often considered a part of TILA.

Scope. Same as TILA.

Protections. Special Disclosures for Variable Rate Closed End Loans (like
ARMS)

1. The lender must disclose the maximum interest rate that could be charged over the life of the loan in the loan note.

2. The lender must give the borrower a copy of the ARM brochure that contains generic information about ARMs as well as more specific explanations of the aspects of each variable rate plan that the borrower is considering.

3. These disclosures must be given when the application is furnished
or before the payment of a nonrefundable fee, which ever is first.

4. During the life of the loan, the lender must send rate adjustment
or change notices before the loan rate will change.

HOEPA prohibits prepayment charges and balloon payments in a limited amount of cases, higher interest rates after default, negative amortization, more than two payments being made from the loan proceeds, pattern/practice of extending credit without taking into consideration the borrower’s ability to pay, and payments directly to home improvement contractors.

Relief and Statute of Limitations. A party can recover damages and rescind under HOEPA. Attorney’s fees and costs are also available. The Statutes of limitations for affirmative actions is one year. For rescission, the statutes of limitation is three years.

Equal Credit Opportunity Act (ECOA); 15 U.S.C. § 1691

Purpose. The purpose of the ECOA is to stop discrimination in the lending industry.

Protections. ECOA has three important aspects:

1. First, it prohibits discrimination in any aspect of credit based on race, color, religion, national origin, sex, marital status, age, assistance income.

2. Second, the ECOA requires creditors to take specific actions when approving or denying credit, prevents certain factors from being used to determine creditworthiness, mandates when an existing account may be closed, and restricts the ways that information is reported to credit reporting agencies concerning spouses.

3. Third, the Act imposes certain notice requirements on the credit issuer
when a loan application is approved or denied. If the creditor makes a counter offer (for more or less credit), then it must notify the borrower in writing of the new terms.

How ECOA Protection Can Be Applied to Foreclosure Fraud

Bait and switch tactics may give rise to a claim under the ECOA. If a creditor gives credit in a much larger amount than the borrower requested and never gives the borrower an opportunity to deny the additional amount, then the creditor violated the procedural terms of the ECOA by failing to provide the borrower with written notice of all action taken on the original loan application. This tactic is often used in predatory lending. A creditor will give more credit to pay borrower’s debts that the borrower expressed no interest in paying. The new amount is often disclosed too late in the process for the borrower to feel as if he can object.

Relief and Statute of Limitations. The ECOA allows home owners to pursue relief higher on the food chain than the original lender, and provides for actual and punitive damages (up to $10,000 in an individual action), equitable relief and attorney’s fees. The statute of limitations is one year.

Real Estate Settlement and Procedures Act (RESPA); 12 U.S.C. § 2601 et seq.

Purpose. The purpose of RESPA is to protect home buyers from
abusive practices in the residential real estate industry. The Act controls
the manner in which settlement services for a residential real estate loan are provided and compensated.

Scope. RESPA applies to federally related mortgages, meaning those made by federally-insured depository lenders, HUD-related loans, loans intendedto be sold on the secondary market to Fannie Mae or Freddie Mac or to creditors who make or invest more than a million dollars per year in residentially secured loans. Most home equity loans (as well as refinancings), mobile home purchase loans and construction loans are covered by RESPA. A loan for vacant land is excluded unless a structure will be constructed or a manufactured home will be placed on the property within two years of settlement of the loan. There are some exceptions to RESPA. If a lender makes a loan from its own funds, holds the loan for varying periods of time and then sells the loan on the open market, it is not covered. Also, certain lenders that originate loans through a computer system are generally exempt from RESPA’s requirements.

Protections. RESPA requires that no later than three business days after the application, the consumer must receive a “good faith estimate” of settlement costs (usually via the HUD-1 settlement statement) along with a booklet explaining the costs. At closing, all settlement agents must use the HUD-1 settlement kickbacks and unearned fees. No person shall give or accept any fee, kickback or gift for a referral of a settlement service. Additionally, RESPA requires servicers to notify consumers about the possibility that their mortgages may be transferred and when one is imminent, and to have a mechanism that allows borrowers to make inquiries about their account to a servicer and to have corrections made to
their accounts, if necessary. Servicers have a substantive duty to pay the property taxes, homeowner’s insurance and other escrowed monies to the appropriate recipients as long as the borrower is current. Further, RESPA limits the amount that a lender can require that a borrower place in escrow, and prohibits a lender or servicer from charging the borrower for the preparation of statements required by TILA, the HUD-1 settlement statement, or escrow account statement.

Statute of Limitations. The statute of limitations is one year except for servicer violations which has a 3 year limitation.

Fair Housing Act (FHA); 42 U.S.C. § 3605

Purpose. The FHA prohibits discrimination on the basis of race, color,
religion, sex, handicap, familial status, or national origin in the making of
or purchasing of residential real estate loans and any other related financial assistance.

Scope. The FHA applies to loan brokers, financing consultants and anyone else providing financial assistance related to the making of the loan as well as the secondary market in the purchasing of loans, debts or securities, thepooling or packaging of these instruments, and the marketing or the sale of securities issued on the basis of loans or debts.

Protection. To prove discrimination, the consumer must show that the defendants intentionally targeted on the basis of a protected class when trying to obtain credit or that there was a credit-grant policy that had a disparate impact on that basis.

Relief and Statute of Limitations. Under the FHA, the court can award actual and punitive damages, attorney’s fees and costs. The statute of limitations is two years from the occurrence or from the termination of the discriminatory practice for affirmative claims.

Federal Trade Commission “Holder” Rule

The FTC’s “Holder” rule, or the FTC Rule on Preservation of Consumers’ Claims and Defenses, allows a consumer to make a claim against a subsequent holder of a loan for the acts of the original lender. The original lender may be judgment proof, and it is unlikely that a consumer would effectively be able to defend against a collection action and bring an affirmative suit against the original lender. The rule creates an incentive for the lending industry to police itself and subsequent holders of a debt are in a better position to sue the original lender than the borrower.

Fair Debt Collection Practices Act (FDCPA); 15 U.S.C. § 1692 et seq.

Purpose. FDCPA restricts debt collector’s efforts to obtain payment and
to choose venue. The Act protects debtors from abusive or harassing
debt collection practices.

Scope. The Act is generally used in the non-mortgage context because mortgage servicers are exempt because they usually acquire servicing rights before the mortgage goes into default. A debt collector generally includes collection agencies, creditors using false names or collecting for other creditors, collection attorneys, purchasers of delinquent debts, repossession companies, and suppliers or designers of deceptive forms, but generally excludes companies collecting their own debts.

Protections. The Act protects the consumer from an invasion of privacy, harassment, abuse, false or deceptive representations, and unfair or unconscionable collection methods. Specific acts that are prohibited include late night or repetitive phone calls, false threats of legal action or criminal prosecution and communications with most third parties regarding the debt.

FDCPA provides the consumer the ability to stop all debt collection action with a letter, makes the collector deal with the consumer’s attorney if the consumer has one, and gives the consumer the right to dispute the existence, legality or amount of the disputed debt.

Relief and Statute of Limitations. The plaintiff can recover actual damages, statutory damages (up to $1000), attorney’s fees and costs and perhaps punitive damages and injunctive relief. Class actions are also authorized and the statute of limitations for all actions is one year for affirmative claims.

Racketeer Influence and Corrupt Organizations Act (RICO); 18 U.S.C. §§ 1961-1968

Purpose. RICO can be used to provide a civil remedy to abusive
consumer credit practices.

Scope. Any cause of action under RICO must have the following elements: the existence of an enterprise, the enterprise is engaged in interstate or foreign commerce, the defendant has engaged in one or more of four prohibited activities in section 1962, and the prohibited conduct cased injury to the plaintiff’s business or property.

Protections. Every RICO violation involves a collection of an unlawful debt (gambling debts or usury under state or federal law, at a rate at least twice the enforceable usury rate) or a pattern of racketeering activity. RICO can provide a remedy when a lender misrepresents that its rates are better than other lenders’ rates or that its loan will pay off other debts when it will
not. A well-plead allegation may state a claim for mail fraud in a loan flipping case under RICO. A borrower may also successfully plead a claim under RICO when there is a spread premium case where the payment of the premium is not revealed and the cost of the premium is passed onto the borrower in the form of a higher interest rate and where the broker represented that it would provide the lowest available rate, money was exchanged between the broker, the assignee, the funding lender and the title company and mail was used in furtherance of the scheme.

Remedy and Statute of Limitations. A person injured in his business or property can sue for treble damages but no physical or emotional damage claim can be made. The statute of limitations is four years in affirmative cases.

For More Information on How You Can Effectively Use Solid Arguments that are Structured on Your Lender’s Violations of Federal Laws, Which to Your Advantage, Will Subsequently Reduce Your Mortgage Payments and Save Your Home from Foreclosure Visit: http://www.fightforeclosure.net

FightForeclosure.net

~ Your "Pro Se" Foreclosure Fight Solution!

Category Archives: Fraud

Why Homeowners Need to Shift the Burden of Proof To Foreclosure Mills

OPINION

FootNotes

What Florida Homeowners Need to Know About Mortgage Assignments

How Homeowners Can Spot Fraudulent Mortgage Documents

Why Homeowners Lose on Appeal – A Review of Wrongful Foreclosure Appeal Case

California Broker Receives 10-Year Prison Sentence for Mortgage Fraud

What Homeowners in Foreclosure Defense Needs to Know About the Issues of “Standing vs. Capacity to Sue”

How Homeowners in Wrongful Foreclosure Can Identify Faulty Documents or If They Have Been Victims of Foreclosure Fraud

Quiet Title Action ~ What Florida Home Owners Need to Know

How Homeoweners Can Use Various Forms of Mortgage Fraud Schemes For Wrongful Foreclosure Defense

What Homeowners Need to Know About Federal Laws that Govern Mortgage Origination and Servicing

OPINION

FootNotes

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