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Tag Archives: Securitization

What Homeowners Should Know About Foreclosure Defense

10 Friday May 2019

Posted by BNG in Banks and Lenders, Case Study, Credit, Federal Court, Foreclosure, Foreclosure Crisis, Foreclosure Defense, Fraud, Judicial States, Loan Modification, Mortgage fraud, Mortgage Laws, Non-Judicial States, Pro Se Litigation, State Court, Your Legal Rights

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adversary proceeding, affidavits, Bankruptcy, bankruptcy adversary proceeding, Banks and Lenders, Consequences of a Foreclosure, Court, Deed of Trust, defaulting on a mortgage, False notary signatures, Forbearance, Foreclosure, foreclosure defense, foreclosure defense strategy, Foreclosure in California, foreclosure in Florida, foreclosure process, homeowners, judicial foreclosures, lender, Loan Modification, MERS, mortgage, Mortgage Electronic Registration System, Mortgage fraud, Mortgage law, Mortgage loan, Mortgage note, mortgages, non-judicial foreclosures, Promissory note, Robo-signing, Securitization, securitized, UCC, Uniform Commercial Code

Over the past few years, a growing number of homeowners in the foreclosure process have begun to fight back, by stalling foreclosure proceedings or stopping them altogether. The legal strategy employed by these homeowners is known as foreclosure defense.

Since 2007, nearly 4.2 million people in the United States have lost their homes to foreclosure. By early 2014, that number is expected to climb to 6 million. Historically, the legal process of foreclosure, one that requires a homeowner to return his or her house to a lender after defaulting on a mortgage, has tilted in favor of the banks and lenders — who are well-versed in the law and practice of foreclosure.

The simplest way to avoid foreclosure is by modifying the mortgage. In a mortgage modification, the homeowner convinces the lender to renegotiate the terms of the mortgage in order to make the payments more affordable.

A mortgage modification can include:

  • A reduction or change in the loan’s interest rate.
  • A reduction in the loan’s principal.
  • A reduction or elimination of late fees and penalties for non-payment.
  • A reduction in your monthly payment.
  • Forbearance, to temporarily stop making payments, or extend the time for making payments.

The goal of the foreclosure defense strategy is to prove that the bank does not have a right to foreclose. The chances of success rest on an attorney’s ability to challenge how the mortgage industry operates. The strategy aims to take advantage of flaws in the system, and presumes illegal or unethical behavior on the part of lenders.

Foreclosure defense is a new concept that continues to grow alongside the rising tide of foreclosure cases. While some courts accept foreclosure defense arguments, others find them specious and hand down decisions more beneficial to banks than to homeowners.

A growing number of victories by homeowners in state and federal courts have altered the foreclosure landscape dramatically, giving optimism to tens of thousands of other homeowners in similar situations. And because many of America’s large banks have acknowledged unorthodox, unaccepted or even illegal practices in the areas of mortgages, loan modifications and foreclosures, they inadvertently have given homeowners additional ammunition with which to fight.

Foreclosure Defense Varies by State

A major strategy of foreclosure defense is to make a bank substantiate clear chains of title for a mortgage and a promissory note. If any link in either chain is questionable, it can nullify a lender’s ability to make a valid claim on a property.

The foreclosure process varies somewhat from state to state, depending on whether your state uses mortgages or deeds of trust for the purchase of real property. A mortgage or deed of trust outlines a transfer of an interest in a property; it is not, in itself, a promise to pay a debt. Instead, it contains language that gives the lender the right to take the property if the borrower breaches the terms of the promissory note.

If you signed a mortgage, it generally means you live in a state that conducts judicial foreclosures, meaning that a lender has to sue in court in order to get a judgment to foreclose. If you signed a deed of trust, you live in a state that conducts non-judicial foreclosures, which means that a lender does not have to go to court to initiate a foreclosure action.

In a judicial state, homeowners have the advantage because they can require that the lender produce proof and perfection of claim, at the initial court hearing. In a non-judicial state, the lender does not have to prove anything because the state’s civil code gives it the right to foreclose after a notice of default has been sent. So in non-judicial states, a homeowner must file a civil action against the lender to compel it to provide proof of claim.

Regardless of whether you signed a mortgage or a deed of trust, you also signed a promissory note — a promise to pay back a specified amount over a set period of time. The note goes directly to the lender and is held on its books as an asset for the amount of the promised repayment. The mortgage or deed of trust is a public record and, by law, must be recorded in a county or town office. Each time a promissory note is assigned, i.e. sold to another party, the note itself must be endorsed with the name of the note’s new owner. Each time a deed of trust or mortgage is assigned to another entity, that transaction must be recorded in the town or county records office.

Foreclosure Defense and Chain of Title

Here is where foreclosure defense can begin to chip away at a bank’s claim on your property. In order for a mortgage, deed of trust or promissory note to be valid, it must have what is known as “perfection” of the chain of title. In other words, there must be a clear, unambiguous record of ownership from the time you signed your papers at closing, to the present moment. Any lapse in the chain of title causes a “defect” in the instrument, making it invalid.

In reality, lapses occur frequently. As mortgages and deeds began to routinely be bought and sold, the sheer magnitude of those transfers made it difficult, costly and time-consuming for institutions to record every transaction in a county records office. But in order to have some method of record-keeping, the banks created the Mortgage Electronic Registration System (MERS), a privately held company that tracks the servicing rights and ownership of the nation’s mortgages. The MERS holds more than 66 million American mortgages in its database.

When a foreclosure is imminent, MERS appoints a party to foreclose, based on its records of who owns the mortgage or deed of trust. But some courts have rejected the notion that MERS has the legal authority to assign title to a particular party in the first place. A court can decide MERS has no “standing,” meaning that the court does not recognize its right to initiate foreclosure since MERS does not have any financial interest in either the property or the promissory note.

And since MERS has essentially bypassed the county record-keeping system, the perfection of chain of title cannot be independently verified. This is where a foreclosure defense can gain traction, by questioning the perfection of the chain of title and challenging MERS’ legal authority to assign title.

Promissory Notes are Key to Foreclosure Defense

Some courts may also challenge MERS’ ability to transfer the promissory note, since it likely has been sold to a different entity, or in most cases, securitized (pooled with other loans) and sold to an unknown number of entities. In the U.S. Supreme Court case Carpenter v. Longan, it was ruled that where a promissory note goes, a deed of trust must follow. In other words, the deed and the note cannot be separated.

If your note has been securitized, it now belongs to someone other than the holder of your mortgage. This is known as bifurcation — the deed of trust points to one party, while the promissory note points to another. Thus, a foreclosure defense claims that since the relationship between the deed and the note has become defective, it renders the deed of trust unenforceable.

Your promissory note must also have a clear chain of title, according to the nation’s Uniform Commercial Code (UCC), the body of regulations that governs these types of financial instruments. But over and over again, borrowers have been able to demonstrate that subsequent assignments of promissory notes have gone unendorsed.

In fact, it has been standard practice for banks to leave the assignment blank when loans are sold and/or securitized and, customarily, the courts have allowed blank assignment to be an acceptable form of proof of ownership. However, when the Massachusetts Supreme Court in U.S. Bank v. Ibenez ruled that blank assignment is not sufficient to claim perfection, it provided another way in which a foreclosure can be challenged.

In their most egregious attempts to remedy these glaring omissions, some banks have actually tried to reverse-engineer chains of title, using fraudulent means such as:

  • Robo-signing of documents.
  • False notary signatures.
  • Submission of questionable, inaccurate or patently counterfeit affidavits.

Exposure of these dishonest methods halted many foreclosures in their tracks and helped increase governmental scrutiny of banks’ foreclosure procedures.

Other Foreclosure Defense Strategies

Another option for a homeowner who wishes to expose a lender’s insufficient perfection of title is to file for bankruptcy. In a Chapter 7 filing, you can declare your home an “unsecured asset” and wait for the lender to object. This puts the burden of proof on the lender to show a valid chain of assignment. In a Chapter 13 bankruptcy, you can file an Adversary Proceeding, wherein you sue your lender to compel it to produce valid proof of claim. The Bankruptcy Code requires that your lender provide evidence of “perfected title.”

Another foreclosure defense argument explores the notion of whether the bank is a real party of interest. If it’s not, it doesn’t have the right to foreclose. For example, if your loan has been securitized, your original lender has already been paid. At that point, the debt was written off and the debt should be considered settled. In order to prove that your original lender has profited from the securitization of your mortgage, it is advised that you obtain a securitization audit. The audit is completed by a third-party researcher who tracks down your loan, and then provides you with a court-admissible document showing that your loan has been securitized.

A foreclosure defense can also argue that once a loan has been securitized, or converted to stock, it is no longer a loan and cannot be converted back into a loan. That means that your promissory note no longer exists, as such. And if that is true, then your mortgage or deed of trust is no longer securing anything. Instead of the bank insisting that you have breached the contract specified in the promissory note, foreclosure defense argues that the bank has actually destroyed that agreement itself. And if the agreement doesn’t exist, how can it be enforced? A corollary to this argument states that your loan is no longer enforceable because it is now owned by many shareholders and a promissory note is only enforceable in its whole entirety. How can thousands of people foreclose on your house?

While the foreclosure defense strategy is legal in nature, and can be handled differently by different courts, it should not be ignored when preparing a case.

The tactic of attacking a lender’s shoddy or illegal practices has proven to be the most successful strategy of foreclosure defense, since most courts are loathe to accept unlawful or unethical behavior, even from banks. If a homeowner can present clear instances of lost or missed paperwork, demonstrate that notes were misplaced or improperly endorsed, or prove that documents were forged, robo-signed, or reversed-engineered, the more likely a court will rule in his or her favor.

If you are considering a foreclosure defense, you have two options, you can either represent yourself in the Court as a Pro Se Litigant, (USING OUR FORECLOSURE DEFENSE PACKAGE), if you cannot afford to pay Attorneys Fees, as foreclosure proceeding can take years while you are living in your home WITHOUT PAYING ANY MORTGAGE. Or You may retain a Legal Counsel to Defend you. If you chose the second option, it is imperative that you retain the services of professional legal counsel. Regardless of how educated you are about the process, this is an area of law that requires a well-thought-out, competent presentation in a State or Federal court. Nonetheless, the Attorneys fees for foreclosure defense can accumulate over the years to thousands and even tens of thousands of dollars, that is why most homeowners, opt to represent themselves in the proceedings which can take anywhere between 1-7 years, while homeowners are living in their homes Mortgage-Free. The good news is that most foreclosure defense Attorneys equally use the same materials found in our foreclosure defense package to defend homeowner’s properties, and with these same materials, you can equally  represent yourself as a Pro Se (Self Representing), litigant.

A successful foreclosure defense may prohibit or delay the foreclosure process or it simply may induce a lending institution to negotiate a loan modification that allows you to stay in your home — which, of course, was the goal in the first place. You can equally be awarded damages by the courts for mortgage law violations by the lenders, in addition to loan modification.

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

Home owners should wake up TODAY! before it’s too late by mustering enough courage for “Pro Se” Litigation (Self Representation – Do it Yourself) against the Lender – for Mortgage Fraud and other State and Federal law violations using foreclosure defense package found at https://fightforeclosure.net/foreclosure-defense-package/ “Pro Se” litigation will allow Homeowners to preserved their home equity, saves Attorneys fees by doing it “Pro Se” and pursuing a litigation for Mortgage Fraud, Unjust Enrichment, Quiet Title and Slander of Title; among other causes of action. This option allow the homeowner to stay in their home for 3-5 years for FREE without making a red cent in mortgage payment, until the “Pretender Lender” loses a fortune in litigation costs to high priced Attorneys which will force the “Pretender Lender” to early settlement in order to modify the loan; reducing principal and interest in order to arrive at a decent figure of the monthly amount the struggling homeowner could afford to pay.

If you find yourself in an unfortunate situation of losing or about to lose your home to wrongful fraudulent foreclosure, and need a complete package that will show you step-by-step litigation solutions helping you challenge these fraudsters and ultimately saving your home from foreclosure either through loan modification or “Pro Se” litigation visit: https://fightforeclosure.net/foreclosure-defense-package/

If you have received a Notice of Default “NOD”, take a deep breath, as this the time to start the FIGHT! and Protect your EQUITY!

If you do Nothing, you will see the WRONG parties WITHOUT standing STEAL your home right under your nose, and by the time you realize it, it might be too late! If your property has been foreclosed, use the available options on our package to reverse already foreclosed home and reclaim your most prized possession! You can do it by yourself! START Today — STOP Foreclosure Tomorrow!

If you are a homeowner already in Chapter 13 Bankruptcy and needs to proceed with Adversary Proceeding to challenge the validity of Security Interest or Lien on your home, Our Adversary Proceeding package may be just what you need.

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How Homeowners Can Find Who Owns Their Mortgage Loans

17 Tuesday Jul 2018

Posted by BNG in Banks and Lenders, Judicial States, Loan Modification, MERS, Mortgage Laws, Mortgage Servicing, Non-Judicial States, RESPA, Securitization, Your Legal Rights

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Fannie Mae, Finance, Freddie Mac, HAMP, homeowners, Loan servicing, MERS, mortgage, Mortgage Electronic Registration System, Mortgage loan, Mortgage modification, Mortgage servicer, Promissory note, Real Estate Settlement Procedures Act, RESPA, Securitization

A mortgage loan is typically assigned several times during its term, and may be held by one entity but serviced by another. Different disclosure requirements apply depending upon whether information is sought about the ownership of the mortgage loan or its servicing. Knowing exactly who owns and services the mortgage is a critical first step to negotiating a binding workout or loan modification. The information is needed to send a notice of rescission under the Truth in Lending Act, to identify the proper party to name and serve in a lien avoidance proceeding, and to identify other potential parties in litigation. This information may also provide a defense to foreclosure or stay relief in bankruptcy if these proceedings are not initiated by a proper party. 

1. Send a TILA § 1641(f)(2) Request to the Servicer

The Truth in Lending Act requires the loan servicer to tell the borrower who the actual holder of the mortgage really is.3 Upon written request from the borrower, the servicer must state the name, address, and telephone number of the owner of the obligation or the master servicer of the obligation.

One problem with this provision’s enforcement had been the lack of a clear remedy for the servicer’s non-compliance. However, the Helping Families Save Their HomesAct of 20095 amends TILA to explicitly provide that violations may be remedied byTILA’s private right of action found in § 1640(a), which includes recovery of actualdamages, statutory damages, costs and attorney fees.6 The amendment adds the ownerdisclosure provision found in § 1641(f)(2) to the list of TILA requirements that give rise to a cause of action against the creditor if there is a failure to comply.

See NCLC Foreclosures (2d ed. 2007 and Supp.), § 4.3.4.  

15 U.S.C. § 1641(f)(2). The provision should require disclosure to the borrower’s advocate with a properly signed release form. See NCLC Foreclosures, Appx. A, Form 3, infra.

If the servicer provides information about the master servicer, a follow-up requestshould be made to the master servicer to provide the name, address, and telephone number of the owner of the obligation. Pub. L. No. 111-22, § 404 (May 20, 2009). See 15 U.S.C. § 1640(a).

1640(a) refers to “any creditor who fails to comply,” by specifically adding as an actionable requirement a disclosure provision which Congress knew is directed toservicers and therefore involves compliance by creditors through their servicers,

Congress chose to make creditors liable to borrowers for noncompliance by servicers.The TILA provision does not specify how long the servicer has to respond to the request. Perhaps because no parties were directly liable under § 1640(a) for violations of the disclosure requirement before the 2009 amendment, no case law had developed on what is a reasonable response time. In the future, courts may be guided by recent regulations issued by the Federal Reserve Board requiring servicers to provide payoff statements within a reasonable time after request by the borrower. In most circumstances, a reasonable response time is within five business days of receipt.

Applying this benchmark to § 1641(f)(2) requests would seem appropriate since surely no more time is involved in responding to a request for ownership information than preparing a payoff statement. Alternatively, a 30-day response period should be the outer limit for timeliness since that is the time period Congress used in § 1641(g).

2. Review Transfer of Ownership Notices

The Helping Families Save Their Homes Act of 2009 also added a new provision in TILA which requires that whenever ownership of a mortgage loan securing a consumer’s principal dwelling is transferred, the creditor that is the new owner or assignee must notify the borrower in writing, within 30 days after the loan is sold or assigned, of the following information:

• the new creditor’s identity, address, and telephone number;

• the date of transfer;

• location where the transfer is recorded;

• how the borrower may reach an agent or party with authority to act on

behalf of the new creditor; and

• any other relevant information regarding the new owner.9

The new law applies to any transfers made after the Act’s effective date, which was

May 20, 2009. The Mortgage Electronic Registration System (MERS) recently

announced a program to implement the new law.

Reg Z § 226.36(c)(1(iii); NCLC Truth in Lending, § 9.9.3 (6th ed. 2007 and

2008  Supp.).

Official Staff Commentary § 226.36(c)(1)(iii)-1.

See 15 U.S.C. § 1641(g)(1)(A)–(E).

Under “MERS InvestorID,” notices will be automatically generated whenever a“Transfer of Beneficial Rights” occurs on the MERS system. A sample Transfer Noticeand “Training Bulletin” are available for download at http://www.mersinc.org/news. MERS is taking the position, based on the wording of the statute (which refers to “place where ownership of the debt is recorded”), that it can comply by disclosing only the location where the original security instrument is recorded because the note is not a “recordable Attorneys should request that clients provide copies of any ownership notices they have received based on this new law. Assuming that there has been compliance with the statute, the attorney may be able to piece together a chain of title as to ownership of the mortgage loan (for transfers after May 20, 2009) and verify whether any representations made in court pleadings or foreclosure documents are accurate. Failure to comply with the disclosure requirement gives rise to a private right of action against the creditor/new owner that failed to notify the borrower.

3. Send a “Qualified Written Request” under RESPA

Any written request for identification of the mortgage owner sent to the servicer will not only trigger rights under 15 U.S.C. § 1641(f) discussed earlier, but will also be a “qualified written request” under the Real Estate Settlement Procedures Act. Under RESPA, a borrower may submit a “qualified written request” to request information concerning the servicing of the loan or to dispute account errors. Because the servicer acts as an agent for the mortgage owner in its relationship with the borrower, a request for information about the owner should satisfy the requirement that the request be related to loan servicing. The request may be sent by the borrower’s agent, and this has been construed to include a trustee in a bankruptcy case filed by the borrower. Details about how to send the request are covered in § 8.2.2 of NCLC Foreclosures. The servicer has 20 business days after receipt to acknowledge the request, and must comply within 60 business days of receipt. Damages, costs and attorneys fees are available for violations, as well as statutory damages up to $1,000 in the case of a pattern and practice of noncompliance. 

4. Review the RESPA Transfer of Servicing Notices

Finding the loan servicer is generally easier because the borrower is likely getting regular correspondence from that entity. Still, the law requires that formal servicing transfer notices are to be provided to borrowers, and reviewing these can provide helpful information. RESPA provides that the originating lender must disclose at the time of loan application whether servicing of the loan may be assigned during the term of the mortgage. In addition, the borrower must be notified when loan servicing is transferred document.” If MERS members do not agree with this interpretation, they can opt out of MERS InvestorID and presumably send their own notice.

See 15 U.S.C. § 1640(a).

12 U.S.C. § 2605(e). See also NCLC Foreclosures, § 8.2.2.

12 U.S.C. § 2605(e)(1)(A); In re Laskowski, 384 B.R. 518 (Bankr.N.D.Ind. 2008

(chapter 13 trustee, as agent of consumer debtor, and the debtor each have standing to send a qualified written request).

12 U.S.C. § 2605(e)(2).

12 U.S.C. § 2605(f).

12 U.S.C. § 2650(a). See NCLC Foreclosures, § 8.2.3.

after the loan is made. Failure of the servicer to comply with the servicing transfer requirements subjects the servicer to liability for actual damages, statutory damages, costs and attorney fees.18 Unlike the TILA requirement discussed earlier, RESPA is limited to the transfer of servicing; it does not require notice of any transfers of ownership of the note and mortgage. 

5. Go to Fannie and Freddie’s Web Portals

To facilitate several voluntary loan modification programs implemented by the U.S.Treasury, both Fannie Mae and Freddie Mac allow borrowers to contact them to determine if they own a loan. Borrowers and advocates can either call a toll-free number or enter the property’s street address, unit, city, state, and ZIP code on a website. The website information, however, sometimes refers to Fannie Mae or Freddie Mac as “owners” when in fact their participation may have been as the party that had initially purchased the loans on the secondary market and later arranged for their securitization and transfer to a trust entity which ultimately holds the loan. 

6. Check the Local Registry of Deeds

Checking the local registry where deeds and assignments are recorded is another way to identify the actual owner. But do not rely solely on the registry of deeds to identify the obligation’s current holder of the obligation, as many assignments are not recorded. In fact, if MERS is named as the mortgagee, typically as “nominee” for the lender and its assigns, then mortgage assignments will not be recorded in the registry of deeds. A call to MERS is not helpful as MERS currently will only disclose the name of the servicer and not the owner. In addition, some assignments may be solely for the administrative convenience of the servicer, in which case the servicer may appear as the owner of the mortgage loan.

12 U.S.C. § 2650(b). See NCLC Foreclosures, § 8.2.3.

12 U.S.C. § 2650(f). See NCLC Foreclosures, § 8.2.6.

See, e.g., Daw v. Peoples Bank & Trust Co., 5 Fed.Appx. 504 (7th Cir. 2001).

See 27 NCLC REPORTS, Bankruptcy and Foreclosures Ed., Mar/Apr 2009.

For Fannie Mae call 1-800-7FANNIE (8 a.m. to 8 p.m. EST); Freddie Mac call 1-800-

FREDDIE (8 a.m. to 8 p.m. EST).

Fannie Mae Loan Lookup, at http://www.fanniemae.com/homeaffordable; Freddie Mac Self-

Service Lookup, at http://www.freddiemac.com/corporate.

See NCLC Foreclosures, § 4.3.4A.

The telephone number for the automated system is 888-679-6377. When calling MERS to obtain information on a loan, you must supply MERS with the MIN number or a Social Security number. The MIN number should appear on the face of the mortgage.

You may also search by property address or by other mortgage identification numbers by using MERS’s online search tool at http://www.mers-servicerid.org. 68700-001

When Homeowner’s good faith attempts to amicably work with the Bank in order to resolve the issue fails;

Home owners should wake up TODAY! before it’s too late by mustering enough courage for “Pro Se” Litigation (Self Representation – Do it Yourself) against the Lender – for Mortgage Fraud and other State and Federal law violations using foreclosure defense package found at https://fightforeclosure.net/foreclosure-defense-package/ “Pro Se” litigation will allow Homeowners to preserved their home equity, saves Attorneys fees by doing it “Pro Se” and pursuing a litigation for Mortgage Fraud, Unjust Enrichment, Quiet Title and Slander of Title; among other causes of action. This option allow the homeowner to stay in their home for 3-5 years for FREE without making a red cent in mortgage payment, until the “Pretender Lender” loses a fortune in litigation costs to high priced Attorneys which will force the “Pretender Lender” to early settlement in order to modify the loan; reducing principal and interest in order to arrive at a decent figure of the monthly amount the struggling homeowner could afford to pay.

If you find yourself in an unfortunate situation of losing or about to lose your home to wrongful fraudulent foreclosure, and need a complete package that will show you step-by-step litigation solutions helping you challenge these fraudsters and ultimately saving your home from foreclosure either through loan modification or “Pro Se” litigation visit: https://fightforeclosure.net/foreclosure-defense-package/

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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.

1 SeeFla. 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

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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

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Understanding Mortgage Fraud ~ A Comprehensive Guide For Homeowners

31 Wednesday Jul 2013

Posted by BNG in Affirmative Defenses, Appeal, Banks and Lenders, Federal Court, Foreclosure Defense, Fraud, Judicial States, MERS, Mortgage Laws, Non-Judicial States, Notary, Note - Deed of Trust - Mortgage, Pro Se Litigation, Scam Artists, Securitization, State Court, Your Legal Rights

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Tags

Blank endorsement, Business, MER, mortgage, Mortgage loan, Negotiable instrument, Real estate, Securitization

How Homeowners Can Effectively Determine Various Forms of Fraud in their Mortgage Loan With Defective mortgage documents.

A) Why Titles of Home Foreclosure Sale To Buyers Are Often Defective.

                    How Can We Deal With the Problem?

Securitization Flow Chart and Structure

sec1

sec2

B) Transfer of Promissory Note

 – –   Negotiable instrument under Article 3 of the UCC

–  Transferred by:

•   Endorsement

•   Delivery of the instrument

•   Acceptance of delivery

•   Negotiation = Endorsement + Delivery + Acceptance

C) Transfer of Mortgage

– – Mortgage is a real estate instrument

Subject to the statute of frauds

Must comply local real estate law

– Transferred by:

•   Written assignment

•   Delivery of the instrument

•   Acceptance of delivery

•   Recording of transferred mortgage

•   “Assignment” = Written Transfer/Assignment + Delivery + Acceptance + Recording

D)  Notarization Requirements

•   Most state laws require “strict” compliance

•   Signer must admit, by oath or affirmation, in the PRESENCE of notary to having voluntarily signed the document, and signer’s capacity

•   Signer must make the OATH or AFFIRMATION before signing

•   Must identify the signer by a federal or state issued photographic ID

•   Penalties include civil and criminal

•   Felony in most states to take a false acknowledgement

•   Document is invalid with improper notarization

E) The Alphabet Problem With Securitized Transfers

•   The loan closed in the name of the Broker/Lender

•   Broker is funded by Warehouse Line of Credit
Warehouse Lender then sells paper to a Special Investment Vehicle (SIV)

•   SIV then sells paper the Sponsor/Depositor

•   Sponsor or Depositor then transfers to Trust

F)  How Many Transfers

•   A-Transfer: Consumer to Broker

•   B-Transfer: Broker to Warehouse Lender

•   C-Transfer: Warehouse Lender to SIV

•   D-Transfer: SIV to the Depositor or Sponsor

•   E-Transfer: Depositor or Sponsor to Trust

G) How Many Documents

•   Four assignments and deliveries and acceptances of the Mortgage

•   Four endorsements and deliveries of the Note

•   Eight separate notarizations

•   Eight UCC-1 financing statements

•   Four recordings

•   Four filing and transfer fees

H) The Allonge

•   A paper attached to a negotiable note

•   Purpose is to provide written endorsement

•   Only used when back of negotiable instrument is FULL (no room)

•   No need for notarization

•   Simple signature and title sufficient,as with endorsement on note

I) Similar ABCDE Problem With the Mortgage Instrument

•   A. Consumer must sign and deliver to Broker

•   B. Broker must assign and deliver to the Warehouse Lender

•   C. Warehouse Lender must assign and deliver to the SIV

•   D. SIV must assign and deliver to the Depositor

•   E. Depositor must assign and deliver to the Trust

•   And all these assignments must be recorded!

J)  Who Holds the Bearer Paper and Mortgages for the Trust?

•   Normally a third-party bank that provides document custody services to the trust

•   Provides trailing document filings

•   Provides custody chambers for all members

•   Executes assignments for members

•   Execute endorsements for members

•   Executes deliveries and acceptances

•   Provide on-line document status certifications

K) What Does Trust Really Hold?

•   Electronic data with loan numbers & collateral descriptions

•   Electronic image of the original deed of trust

•   Electronic image of the original mortgage note

•   Rights in the documents by way of UCC-1 financing statements and the pooling & servicing agreements

L) The 3d-PartyOutsource Providers

•   Fidelity National Default Services

•   First American National Default Services

•   National Default Exchange, LP(Barrett Burke Owned Entity

•   Promiss Default Solutions(McCalla Raymer Owned Entity)

•   National Trustee Services(Morris Schneider Owned Entity)

•   LOGS Financial Services(Gerald Shapiro Owned Entity)

M) What Do the Outsource Providers Do for the Servicers?

•   Create Assignments

•   Create Allonges

•   Create Endorsements

•   Sign documents as if they were the VP or Secretary of a Bank, SIV, Depositor, Sponsor or the Trust

•   Notarize these documents

•   Create Lost Note Affidavits

•   Create Lost Assignment Affidavits

•   Create Lost Allonge Affidavits

•   Draft court pleadings and notices

•   Draft default correspondence, reports, etc.

N) How to Identify a Defective Endorsement or Allonge

•   Allonge can never be used to transfer a mortgage

•   Allonge can never be used if there is enough room on the original mortgage note for the written endorsement

•   Note is endorsed and not assigned

•   Date of the endorsement is before or after the date of the registration of trust

•   And much more …

O) Defective Endorsements

•   Notary is from Dakota County, Minnesota

•   Notary is from Hennepin County, Minnesota

•   Notary is from Jacksonville, Florida

•   Signor’s company has no offices in notary’s state

•   Date of endorsement and date of notarization are different

•   Signor’s name is stamped –not written in script

•   Signor claims to have signing authority but no authority attached

P) What About the Mortgages?

•   Assignments and delivery follow same model as with the notes

•   MERS is used to avoid registration of each assignment with local register of deeds

•   MERS claims no beneficial interest in the note

•   MERS claims no ownership rights in note or mortgage

•   MERS claims it is nominee for true owner

•   MERS delegates signing authority to all MERS members to sign documents as officers of MERS

•   MERS does not supervise any of it’s designated signors

•   MERS is not registered as a foreign corporation in most states

Q) How Does Trust Establish Lawful Ownership?

•   Unbroken chain of note endorsements and acceptances from A to B, B to C, C to D, and D to E

•   Unbroken chain of mortgage assignments and deliveries and acceptances from A to B, B to C, C to D, and D to E

•   Unbroken chain of UCC-1 financing filings throughout the chain

•   Unbroken chain of recorded mortgage assignments

R) But What Is Filed In a Typical Foreclosure?

•   Complaint alleging that the borrower (A) executed a note and mortgage in favor of the plaintiff (E)

•   Note and mortgage from borrower (A) to originating lender (B) attached

•   Sometimes a purported mortgage assignment from (B) to (E) attached, also purporting to assign the note

•   This assignment always defective, often not recorded

S) The Paper Trail and The Lack of Truth in Labeling

•   Electronic data

•   Fake dates & forged signatures

•   False notarization

•   False assignments

•   Fake endorsements

•   Fraudulent lost note affidavits

•   Recreated documents & records

•   Allonges and more

T)  Is the Trust Really Secured?

•   MAYBE –But it would be very difficult for any securitized trust to produce a valid set of original and unbroken assignments and endorsements

•   Even if the trust produces ALLof the required documents, there is still the issue of the legality of the role of MERS on all required documents for recording

To Learn How You Can Effectively Use Some of These As Solid Arguments to Effectively Defend and Save Your Home Visit: http://www.fightforeclosure.net

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Using Securitization Audits As An Effective Tool For Foreclosure Defense

30 Sunday Jun 2013

Posted by BNG in Affirmative Defenses, Appeal, Federal Court, Foreclosure Defense, Fraud, Litigation Strategies, MERS, Non-Judicial States, Securitization

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Business, Creditor, Foreclosure, MERS, Mortgage Electronic Registration System, Mortgage loan, Real estate, Securitization

By now, most homeowners in foreclosure proceedings were suddenly realizing that most loans originated in between 2000 and 2010 were securitized without the borrower’s knowledge. This means the lenders pooled the mortgage with thousands of others and sold these pooled loans to investors immediately or very shortly after loan origination. They were paid in full but retained loan “servicing”, the day to day loan administration operations, for which they now received between $25 and $45 per year for each $1,000 of loan value. This may have been on top of a profit in the sale. On a $400,000 loan the servicer’s financial interest is now only $10,000, not the $400,000 they are trying to foreclose on.

What’s more, in the process of investors purchasing the loan, the originating lender had to guarantee that all transfers were as laid out in pooling and servicing agreements which are on file with the Securities and Exchange Commission. Any violation and the now “master servicing lender” is under obligation to buy back the loan at full price, a guaranteed loss on a now non-performing loan facing foreclosure.

Based on default servicing agreements the servicing lender can use creative loan accounting to essentially position a defaulted loan to where the servicer receives most of all of the property in a foreclosure and the investor owner gets little or nothing, but the loans were insured and T.A.R.P. monies make the investor whole so they don’t miss the property. The servicer sold the loan for payment in full and now gets the property free and clear because the mortgage was not to them, it was to the investor. Is this fair? No, but it is happening every 15 to 20 seconds in the USA.

So how does an attorney you stop this? They use the evidence process in court to introduce findings of a highly qualified expert that is willing to stand behind the issuance and be an expert witness. To keep those costs down in foreclosure and bankruptcy most judges all expert witnesses to appear in a virtual manner, by phone conference or video conference and in so doing enable this type of support in a case at nominal prices.

The evidential findings are based in undisputed facts that are not objectionable because they address genuine material facts pertinent to the case. These facts include showing many defects that prevent foreclosure and bring to light issues the lender foreclosing wants to hide and has misrepresented. Ownership, improper endorsements, subsequent sales, now bankrupt parties, not including real owners as parties in interest, fraudulent use of MERS, fraudulent and collusion on affidavits, robo-signed documents, illegal deed and trustee assignments underlying improper deed enforcement and much more. Basically anything by which the lender can foreclose because that is the only way to sever the risk of lawsuit by the investors. That is why the investors are not being included in the lawsuit. Should they become aware, there could be a class action and because they bought hundreds of thousands of similar problematic loans, the servicer can inherit tremendous risk and potential losses.

The evidence usually turns up facts that conclude the first party ownership is just not there according to law, at least not a secured mortgage anyway. Unsecured the mortgage debt can be crammed down by a bankruptcy Judge or completely discharged after some years in a quiet title action. Those are the legal aspects left up to lawyers and courts.

Faced with losing in court, lenders typically settle and move on. The number of cases winning in this way is a relatively small number. Settlements include loan modifications of terms, acceptance of short sales, waivers of deficiency judgments and having the case dismissed entirely or crammed down by a bankruptcy judge.

The solution? Simple, affordable and fast. – To find out how you can effectively challenge and win your foreclosure defense using Securitization Audit visit: http://www.fightforeclosure.net

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Issues Involving Mortgage-Backed Securities

19 Sunday May 2013

Posted by BNG in Foreclosure Defense, Legal Research, Litigation Strategies, Mortgage Laws, Pleadings, Securitization, Trial Strategies

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Adam Levitin, Alabama, Bank of America, Foreclosure, Horace, PSA, Securitization, Uniform Commercial Code

This topic examines how you can effectively use Securitization Issues to your advantage when challenging your wrongful foreclosure.

CASE STUDY 1:

Two years ago, an Alabama judge issued a short, conclusory order that stopped foreclosure on the home of a beleaguered family, and also prevents the same bank in the case from trying to foreclose against that couple, ever again. This may not seem like big news — but upon review of the underlying documents, the extraordinarily important nature of the decision and the case becomes obvious.

No Securitization, No Foreclosure

The couple involved, the Horaces, took out a predatory mortgage with Encore Credit Corp in November, 2005. Apparently Encore sold their loan to EMC Mortgage Corp, who then tried to securitize it in a Bear Stearns deal. If the securitization had been done properly, in February 2006 the trust created to hold the loans would have acquired the Horace loan. Once the Horaces defaulted, as they did in 2007, the trustee would have been able to foreclose on the Horaces.

And that’s why this case is so big: the judge found the securitization of the Horace loan wasn’t done properly, so the trustee — LaSalle National Bank Association, now part of Bank of America (BAC) — couldn’t foreclose. In making that decision, the judge is the first to really address the issue, head-on: If a screwed-up securitization process meant a loan never got securitized, can a bank foreclose under the state versions of the Uniform Commercial Code anyway? This judge says no, finding that since the securitization was busted, the trust didn’t have the right to foreclose, period.

Since the judge’s order doesn’t explain, how should people understand his decision? Luckily, the underlying documents make the judge’s decision obvious.

No Endorsements

The key contract creating the securitization is called a “Pooling and Servicing Agreement” (pooling as in creating a pool of mortgages, and servicing as in servicing those mortgages.) The PSA for the deal involving the Horace mortgage is here and has very specific requirements about how the trust can acquire loans. One of the easiest requirements to check is the way the loan’s promissory note is supposed to be endorsed — just look at the note.

According to Section 2.01 of the PSA, the note should have been endorsed from Encore to EMC to a Bear Stearns entity. At that point, Bear could either endorse the note specifically to the trustee, or endorse it “in blank.” But the note produced was simply endorsed in blank by Encore. As a result, the trust never got the Horace loan, explained securitization expert Tom Adams in his affidavit.

But wait, argued the bank, it doesn’t matter if if the trust owns the loan — it just has to be a “holder” under the Alabama version of the UCC (Uniform Commercial Code), and the trust is a holder. The problem with that argument is securitization trusts aren’t allowed to simply take property willy-nilly. In fact, to preserve their special tax status, they are forbidden from taking property after their cut-off dates, which in this case was February 28, 2006. As a result, if the trust doesn’t own the loan according to the PSA it can’t receive the proceeds of the foreclosure or the title to the home, even if it’s allowed to foreclose as a holder.

Holder Status Can’t Solve Standing Problem

Allowing a trust to foreclose based on holder status when it doesn’t own the loan would seem to create yet another type of clouded title issue. I mean, it’s absurd to say the trust foreclosed and took title as a matter of the UCC, but to also have it be true that the trust can’t take title as a matter of its own formational documents. And what would happen to the proceeds of the foreclosure sale? That’s why people making this type of argument keep pointing out that the UCC allows people to contract around it and PSAs are properly viewed as such a contracting around agreement.

I’m sure the bank’s side will claim the judge was wrong, that he disagreed with another recent Alabama case that’s been heavily covered, US Bank vs. Congress. And there is a superficial if flat disagreement: In this case, the judge said the Horaces were beneficiaries of the PSA and so could raise the issue of the loan’s ownership; in Congress the judge said the homeowners weren’t party to the PSA and so couldn’t raise the issue.

But as Adam Levitin explained, the Congress decision was procedurally weird, and as a result the PSA argument wasn’t about standing, as it was in Horace and generally would be in foreclosure cases (as opposed to eviction cases, like Congress). And what did happen to the Congress proceeds? How solid is that securitization trust’s tax status now anyway?

In short, in the only case I can find that has ruled squarely on the issue, a busted securitization prevents foreclosure by the trust that thinks it owns the loan. Yes, it’s just one case, and an Alabama trial level one at that. But it’s still significant.

Homeowners Right to Raise Securitization Issue

As far as right-to-raise-the-ownership issue, I think the Horace judge was just being “belt and suspenders” in finding the homeowners were beneficiaries of the PSA. Why do homeowners have to be beneficiaries of the PSA to raise the issue of the trust’s ownership of their loans? The homeowners aren’t trying to enforce the agreement, they’re simply trying to show the foreclosing trust doesn’t have standing. Standing is a threshold issue to any litigation and the homeowners axiomatically have the right to raise it.

As Nick Wooten, the Horaces’ attorney, said:

“This is just one example of hundreds I have seen where servicers were trying to force through a foreclosure in the name of a trust that clearly had no interest in the underlying loan according to the terms of the pooling and servicing agreement. This conduct is a fraud on the borrower, a fraud on the investors and a fraud on the court. Thankfully Judge Johnson recognized the utter failure of the securitization transaction and would not overlook the fact that the trust had no interest in this loan.”

All that remains for the Horaces, a couple with a special needs child and whose default was triggered not only by the predatory nature of the loan, but also by Mrs. Horace’s temporary illness and Mr. Horace’s loss of overtime, is to ask a jury to compensate them for the mental anguish caused by the wrongful foreclosure.

Perhaps BofA will just want to cut a check now, rather than wait for that verdict. (As of publication BofA had not returned a request for comment.)

No one is suggesting the Horaces get a free house; they still owe their debt, and whomever they owe it to has the right to foreclose on it. Wooten explained to me that the depositor –in this case, the Bear Stearns entity –i s probably that party. Moreover if the Horaces wanted to sell and move, they’d have to quiet title and would be wise to escrow the mortgage pay off amount, if that amount can be figured out. But for now the Horaces get some real peace, even if a larger mess remains.

Much Bigger Than A Single Foreclosure

The Horaces aren’t the only ones affected by the issues in this case.

Homeowners everywhere that are being foreclosed on by securitization trusts — many, many people — can start making these arguments. And if their loan’s PSA is like the Horaces, they should win. At least, Wooten hopes so:

“Judge Johnson stopped a fraud in progress. I am hopeful that other courts will consider more seriously the very serious issues that are easily obscured in the flood of foreclosures that are overwhelming our Courts and reject the systemic and ongoing fraud that is being perpetrated by the mortgage servicers. Until Courts actively push back against the massive documentary fraud being shoveled at them by mortgage servicers this fraudulent conduct will not end.”

The issues stretch past homeowners to investors, too.

Investors in this particular mortgage-backed security, take note: What are the odds that the Horace note is the only one that wasn’t properly endorsed? I’d say nil, and not just because evidence in other cases, such as Kemp from New Jersey, suggests the practice was common. This securitization deal was done by Bear Stearns, which other litigation reveals was far from careful with its securitizations. So the original investors in this deal should speed dial their lawyers.

And investors in bubble-vintage mortgage backed securities, the ones that went from AAA gold to junk overnight, might want to call their attorneys too; this deal was in 2006, and in the securitization frenzy that followed processes can only have gotten worse.

Some investors are already suing, but the cases are at very early stages. Nonetheless, as cases like the Horaces’ come to light, the odds seem to tilt in investors’ favor — meaning they seem increasingly likely to ultimately succeed in forcing banks to buy back securities or pay damages for securities fraud connected with their sale. And that makes the Bank Bailout II scenario detailed by the Congressional Oversight Panel more possible.

The final, very striking feature of this case is what didn’t happen: No piece of paper covered in the proper endorsements –an allonge — magically appeared at the eleventh hour. The magical appearance of endorsements, whether on notes or on allonges, has been a hallmark of foreclosures done in the robosigning era. And investors, as you pursue your suits based on busted securitizations, that’s something to watch out for.

My, but the banks made a mess when they forced the fee-machine of mortgage securitizations into overdrive. The consequences are still unfolding, but one consequence just might be a whole lot of properties that securitization trusts can’t foreclose on.

CASE STUDY 2:

In the fall of 2012, a Michigan state court issued an important decision that may affect thousands of foreclosures, HSBC Bank, USA v. Young, No 11-693 (Cir. Ct. Mich. Oct. 16, 2012). HSBC filed an action for possession of Mary Young’s home after a mortgage foreclosure by advertisement. The district court granted HSBC’s motion for summary disposition and defendant Young was granted leave to appeal. The Court reversed the trial court’s summary disposition order and remanded for further proceedings. HSBC filed a motion for reconsideration.

     Young refinanced her home with Wells Fargo Home Mortgage on April 22, 2004. Young defaulted and received notices of default from Wells Fargo in February, April and August of 2008.  In January 0f 2009, Wells Fargo and Young entered into a Loan Modification Agreement.  The Agreement was on Wells Fargo letterhead and signed by an officer of Wells Fargo which was described as the lender.

     Young did not keep up with her payments.  On March 11, 2010, HSBC commenced foreclosure by advertisement and bought the house at sheriff’s sale.  On November 8, 2010, HSBC filed a complaint for possession in the district court.

     Young argued that HSBC lacked standing because neither the mortgage nor the note had been validly and effectively transferred to HSBC.

     Young claimed that a purported mortgage assignment to HSBC as Trustee for Wells Fargo Home Equity Loan Trust 2004-2, dated October 8, 2008, was void because it did not agree with the terms of the Pooling and Servicing Agreement (“PSA”) that governed the trust and because HSBC also did not have an ownership interest in the note.

     Young argued that HSBC did not own the note because HSBC produced a copy of the note in discovery on February 14, 2011, that showed the note was payable to Wells Fargo as lender and there were no endorsements or allonges.  About one month later, HSBC produced another copy of the same note, this one with a stamped and typed endorsement to Wells Fargo, with no date indicating when the endorsement occurred.

     HSBC argued that Young lacked standing to challenge the assignment because Young was not a party to the PSA or a third-party beneficiary, arguing that Michigan law was well-settled. But Circuit Court Judge Melinda Morris found that argument to be erroneous, and the issue undecided by the Michigan Court of Appeals or Supreme Court.  Noting conflicting authority in other jurisdictions, Judge Morris relied on the decision in Butler v. Deutsche Bank Trust Co. Americas, ___F Supp 2d___, ___; 2012 WL 3518560, *6-7 (D Mass 2012):

Courts in this district are in agreement that a mortgagor lacks standing to challenge the assignment of his mortgage directly if he is neither a party to nor a third-party beneficiary of the assignment contract…

     However, “the question of whether [a mortgagor has] standing to challenge [an] assignment is different form the question of whether [he has] standing to challenge the foreclosure on the basis that [the foreclosing entity] did not properly hold the mortgage at the time of the foreclosure.” …A number of decisions have held that mortgagors have standing to challenge a foreclosure sale as void due to an allegedly invalid assignment…

                                       *       *       *

     Mortgagors challenging foreclosure sales that are void due to invalid assignments have standing to do so because they have demonstrated “a concrete and particularized injury in fact, a causal connection that permits tracing the claimed injury to the defendant’s actions, and likelihood that prevailing in the action will afford some redress for the injury.” …

     I do not, however, hold that a mortgagor has standing to challenge a foreclosure on the basis of just any potentially invalidating deficiency in an assignment.  Massachusetts case law distinguishes between void and voidable assignments…If an assignment is voidable, but has not been avoided, then the assignee has legal title to convey to the purchaser at a foreclosure sale. If an assignment is void, then the assignee was assigned nothing and has nothing to convey to the purchaser at the foreclosure sale.  Where a “grantor has nothing to convey…[t]he purported conveyance is a nullity, notwithstanding the parties’ intent.”…

     Here, however, Butler fails to allege facts or present legal argument sufficient to establish that the assignments to Deutsche Bank were void due to their failure to comply with the Pooling and Servicing Agreement…

     This distinction is very important because in most foreclosure cases, the homeowner is not trying to enforce the PSA, but to present evidence that an assignment was invalid.  The vast majority of foreclosures involve cases with unendorsed notes or with endorsements that are not dated.  Like the Young case, the vast majority of foreclosures by trusts also involve mortgage assignments created years after the trust closing date and an assignment of a non-performing loan.  Assignments after the closing date and assignments of non-performing loans, and particularly the combination – assignment of a non-performing loan after the closing date – are almost always violations of trust PSAs.

     The simple truth is that trusts were established (and sold) with rules to protect investors from such foolhardy action on the part of a trustee such as suddenly acquiring non-performing loans years after the trust closing date.  When trust rules are violated, there can be serious negative tax consequences for the trust: the IRS could decide that the trust does not qualify for favorable REMIC status.

In the vast majority of cases, there is no real underlying financial transaction as reported in the mortgage assignment.  If the records of the loans entering and leaving the loan pool of the trust are examined, they simply do not match up with the assignments.  These later dated assignments were almost always made by document mills, mortgage servicers and foreclosure law firm employees solely to provide some proof to the courts that the trustee has standing to foreclose.  In other words, these later dated assignments are almost always fraudulent.

It is also important to note that these assignments are not just robo-signed, that is, signed by someone with no knowledge of the underlying facts, or signed by someone who is signing his or her (or someone else’s name) several thousand times a day.  These assignments falsely state the date on which the trust acquired the mortgage.

Because most note endorsements are non-existent or non-dated, the only date in most cases involving mortgages claimed by mortgage-backed trusts is the false date on these assignments.

For More Info on How To Challenge Your Wrongful Foreclosure Using Mortgage Securitization Arguments Visit http://www.fightforeclosure.net

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