Letting yourself become a victim

Over the last few months there has been very little in the way of progress in terms of real consumer protections - he who has the gold is timing the dribble of rules to ensure it doesn't seriously impede their control; most of what is going on is window dressing in preparation for the 2010 elections.

But I've finally reached a boiling point with messages from people who are literally letting themselves be abused by completely bogus debt collection schemes. If I had time to respond to them I'd need a staff.

Let me make this simple: You have no legal obligation to answer your phone. That seemingly all-powerful need to respond to the ringing of a phone is nothing more than a tool of predators.

What is it that drives people to need to not only answer the phone, but have an answering machine?

This isn't legal advice but I haven't found any case law that says an allegedly unanswered phone call has any legitimate bearing on the facts of a collection case. In fact, when no verbal exchange occurs between the alleged parties any allegedly recorded attempt at a call to you is meaningless. Any collection scammer can produce a supposedly computer-generated list of their system's alleged calls to phone numbers.

Given today's communication environment, the solution to NOT being harassed is available to anyone - don't answer the damn phone and don't have an answering machine. If you think you need to get calls from really important people set up a system where you only answer or respond within a minute or two to their calls - this isn't rocket science, folks.

In fact, to make it perfectly simple, connect a fax machine to the phone line. Or forward your primary phone (busy or no answer) to a fax machine somewhere - anywhere. Who cares where it goes? The predators are using machines to call you and when no human answers they will eventually move on.

Yes, if you owe a debt you owe it, but given the utterly specious and insidious nature of a huge percentage of alleged debts and the vultures that try to scam people into paying what they really don't owe, letting them put you in a position of being distressed via the phone is only preying on your long-held conditioned discomfort of letting the damn thing ring.

You don't have to be a slave to a noise.

Not to keep kicking a dog on the ground but . . .

Senator Dodd is putting up a well-crafted "talking points" smokescreen about his involvement in the Countrywide "Friends of Angelo" fiasco with the almost effective feint that he wouldn't jeopardize his long-standing service to his constituents with some kind of influence scandal. But he's following a dog that won't hunt. He's getting more bad advice.

And that's not the worst of it.

It's still nothing more than an elaborate feint; the real issue is how a Senator, especially a committee chair with the kind of power he wielded in financial legislation could be so utterly dense in regard to the millions of people (including his constituents) that were being abused by Countrywide over the years.

It's simply beyond belief that he wasn't aware of what Countrywide was doing to consumers; you'd have to be in a cave somewhere to not know what was happening. Thus, if he was actually ignorant, his staff should be summarily dismissed and he should resign for having kept them on the government payroll. If he wasn't ignorant, he's not only utterly incompetent to serve as a senator on a committee that deals with mortgage issues, he's nothing more than a criminal enabler (or worse) and he should resign.

Why his he still a Senator?

The Honorable Judge Roy Bean

Senator Dodd is shocked - shocked I tell you!

One of the chief architects of the mortgage disaster has the chutzpa to feign surprise at the dismal results from the administration's much ballyhooed mortgage modification program.

"This is disgraceful," he said. "Why am I still reading about lost files, under-staffed and under-trained servicers, and hours spent on hold on the phone?"

If it weren't so blatantly disingenuous it might be funny as he attempts to ignore the history of predatory mortgage servicing.

Dodd wants us to believe the same people running predatory servicing operations are going to be able to change their modus operandi just because they've told him (wink, wink, nodd, nodd) that they'll modify bad loans to try and avoid foreclosures.

News flash for the Senator: The reason you're still reading about lost files, understaffed and under-trained servicers and hours spent on hold on the phone should be obvious to anyone other than the people who have supposedly been overseeing the financial services industry: They do what is in their best interests, nothing more.

Treasury's Herbert Allison said at Dodd's committee hearing that the servicers who are [allegedly] participating have extended 325,000 loan modification offers and have 160,000 three-month trial adjustments underway. Of course what isn't known (and wasn't asked) is how many of the alleged 325,000 offers were viable, let alone acceptable. Nor do we know if the 160,000 are part of the 325,000. And of course no mention is made of the servicers who aren't participating.

What Dodd and his little band of actors don't want to admit is that the program is nothing more than window dressing for one very big reason - if it doesn't make financial sense for them to offer a forbearance agreement (which is what these "modifications" really are) they won't, and they are the only ones who have a say in that process.

Dodd also doesn't want to admit that he and everyone else knows that the real purpose for most of these newly-named forbearance agreements is to indemnify the servicer from any potential liability for any actions they've taken or will take.

So, Senator Dodd - spare us the shocked act.

The Honorable Judge Roy Bean

Another collection Squaliforme gets a slap on the wrist

So much for enforcement having any effect.

Richard and Peter Pinto along with Charles Harris run something called "Oxford Management Services" which to their victims is known as "Oxford Collection Agency."

All collection Squaliformes need an attorney, and Salvatore Spinelli, Esq., was caught in the FTC's net along with Oxford. Spinelli allegedly can't pay his half of the $2.12M penalty so it was suspended. The Pintos and Harris allegedly can't pay their half either, so the FTC let them off by suspending all but $225,000.

And while the FTC will supposedly be keeping an eye on Oxford, the typical abuses by other collectors will go on - in part because of settlements like this.

The "new" FTC just put up the surrender flag.

The Honorable Judge Roy Bean

Is anybody sick of this yet?

Making homes affordable?

Just so no record of the absurdity gets disposed of, there’s a list of the squaliforme mortgage servicers who are getting money to allegedly modify loans – while they’re really doing little more than luring people into signing agreements that indemnify the servicer from ANY wrongdoing.

Here’s the breakdown of our tax dollars going to ensure these giant squaliformes can get away with covering their legal liabilities by allegedly modifying loans:

The amounts below are incentive payments for mortgage modifications as part of the administration's Making Home Affordable program.

B of A (Countrywide) $5.2 billion
Chase Home Finance $3.6 billion
Wells Fargo Bank, NA $2.4 billion
CitiMortgage $1.1 billion
GMAC Mortgage $1 billion
Bank of America, NA $804.4 million
Credit Suisse (Select Portfolio Servicing) $660.6 million
Morgan Stanley (Saxon Mortgage Servicing) $632 million
Ocwen Financial Corporation $553.4 million
Lehman Brothers (Aurora Loan Services) $459.6 million
Wilshire Credit Corporation $453.1 million
Home Loan Services, Inc. $447.3 million

So the administration would have us believe that these billions are actually keeping people in homes?

Sorry. Reality will eventually catch up to the media reporting. These alleged “modifications” are failing at disasterous levels.

Why? Because they're not really modifications. They're barely concealed forbearance agreements. The whole strategy is to conceal wrongdoing and indemnify the parties involved – and the government’s program is pouring BILLIONS of dollars into allowing predatory servicers to lure people into giving up their rights to sue the perpetrators of schemes.

Just another example of “change” you can believe in.

Nothing has changed except how more tax dollars are spread around to keep the right people in positions of power and influence.

The Honorable Judge Roy Bean

The new Government Motors product direction!

The Honorable Judge Roy Bean

So you decide to buy a Goverment Motors vehicle ... "Doh!"

Hey - want to take a chance?

Looking for a real bargain?

How 'bout ol' Bean offers you a truck deal you can't refuse? How 'bout you run right down to your (for now) local GM dealer and get in on a steal of a deal. Hey - how can you go wrong if you're buying a vehicle from none other than the United States Government?

You know, the people in Washington who can't find their ass with both hands? Hey - take advantage of the situation before the next election. They'll never find you if you do it right - but there are some things you might want to check into when you walk into a GM dealer.

First, when was the last time you bought anything from the United States Government?

Chances are if you're the average consumer looking for a vehicle you've never bought anything from Uncle Sam. There are good reasons for this. Uncle Sam isn't accustomed to being paid based on what something is really worth. In fact, Uncle Sam will take $5.00 dollars one day and $5,000.00 the next for the very same thing. It all depends on - well, no one really knows what it depends on.

So when you walk in to what used to be a General Motors dealership and want one of the cars on the lot that seems to be what you're looking for, you're going to be faced with some things that no other car buyer in the history of United States commerce has had to deal with.

First, you used to be able to rely on the warranty terms and conditions that were specified in the proposed sales agreement. Well, sorry, those might not really apply because the government may not even have to honor contracts that they didn't offer you. See, there's this really creative gibberish that will eventually override your purchase contract because the United States is about to become the majority stockholder in General Motors and will, of course, control the Board of Directors and guess what - you can't sue the United States without their permission. Wanna gamble on who loses in that game?

And let's not forget how the innumerable state "lemon law" statutes will soon become meaningless. After all, a federally-owned company cannot be subject to state laws.

I hate to say it, but current GM dealers should kiss the marque goodbye. Anyone who spends a dime on advertising the sale of Government Motors vehicles is tossing good money after bad. Not to mention anyone who accepts a dime of advertising - which means the next step from the administration will be to subsidize advertising of their brand so the media keeps the scam going.

The Honorable Judge Roy Bean

He Who Has the Gold isn't going to take it lying down

With all the cheering going on among the consumer advocates you'd think the new credit card law is the answer to borrower's prayers.

It is, but it isn't. Washington would love us to believe they're standing up to He Who Has the Gold but the reality of the current show of force is that we're all going to be paying for it, one way or the other.

In the first place, the law doesn't go into affect for nine months. The Squaliformes have plenty of time to slap consumers and Washington around a bit.

Consumers will be pounded with more and more fees, usurious interest and manufactured situations that punish even responsible customers. And why would they do that? Why would they try to drive off customers?

Because they're patient. It's their money and it will go elsewhere until their minions in Washington snap out of their giddy victory swoon.

See, a huge chunk of the US economy is retail driven. When He Who Has the Gold balks at retail credit under the new rules next year, all those retailers who have handed their highly profitable CC operations off to He Who Has the Gold are going to find armies of irate FORMER customers.

Here's a graphic of what's going to be happening:

We're going to be transitioning back to an economic model that requires more and more consumers to have the money to buy something before they actually acquire it. In a sense, that's a good thing - but not for the Squaliformes or the economy as a whole. But instead of letting the lenders suck huge percentages of the economy onto their balance sheets as receivables, consumers will accumulate (as in, save) their own funds to acquire things at a future date.

And what will the Squaliformes do in order to prevent this from lasting too long or letting it get too far out of their control?

Simple - hold their breath and stomp their feet. They'll continue to hold back credit for all kinds of commercial needs. They will toss back the TARP and PPIP money. The economy will stagnate further and eventually this new administration and the socialists on the hill will return to their rightful place at the feet of the Squaliformes or face being run out of office because of utter economic stupidity.

If we could ride this out to the point where there is actually competition among Squaliformes and they really need consumers to trust them, we'll regain the upper hand. But we'll need an entirely new set of faces in Washington to make that happen.

The Honorable Judge Roy Bean

New York Squaliforme enabler faces criminal charges

Attorney's General have a tendency to take action on behalf of consumers when there is a political opportunity in the making, and New York's have been famous for it.

Andrew Cuomo is sure to be running for Governor of New York and he's decided to get tough with a company called American Legal Process and its CEO William Singler.

The process server was hired by debt collection mills in New York to serve summons and complaint papers to notify individuals that they were being sued. Problem is, a large number of those alleged servings were not performed, leaving the field ripe for law firms to obtain default judgments as fast as they could be processed.

Some victims didn't even know they had been sued until their wages were garnished or their bank accounts raided. Stories include victims suddenly not being able to get money out of their ATM or use their debit cards.

Singler also covered up his scheme by falsifying documents that were filed in courts across the state, swearing that proper legal notification had been duly served upon the victims. The AG's investigation uncovered instances where ALP's servers falsified dates and times, including being stupid enough to report serving papers at four different addresses at the same moment and having somehow traveled over 10,000 miles in a single day.

ALP and Singler now face civil and criminal charges including criminal possession of a forged instrument, offering a false instrument for filing, operating a scheme to defraud and committing fraud through being a notary public.

Better yet, Cuomo's office is also going after one of ALP’s largest customers, Forster & Garbus, who used ALP to serve over 28,000 summons and complaints even though it knew or should have known they hadn't been properly served.

All in all, Cuomo's office believes 98,000 people in New York were probably denied their right to respond to a suit against them between January of 2007 and October of 2008. No one knows at this point in time what percentage of those cases were utterly bogus. There's the smell of a class-action suit in the air.

Problem is, that's the tip of the iceberg; one state over a period of just twenty-two months.

The Honorable Judge Roy Bean

Stefancik / Beringer scam loses on appeal

John Stefancik's "Wealth Without Boundaries" book and his multi-thousand dollar training program on how to get rich in private real estate mortgage notes have taken another, perhaps final blow.

The FTC charged him with deceptive trade practices and last year obtained an injunction as well as a fine of over $17M. Stefancik appealed and as of this month the 9th Circuit has upheld the ruling of the lower court.

Stefancik, using a sales organization out of Salt Lake City, convinced nearly 8,000 people to buy the book. Some number of those were sold the additional training materials and engaged in trying the program. The investigator found that the notes showed 153 customers had submitted deals to potential paper buyers. Out of that total, 68 had their deals rejected, 77 did not have conclusive comments regarding either acceptance or rejection, and only 8 customers had successfully completed a deal.

Like so many of these kinds of businesses, the chances of success for anyone but the promoter are slim.

The Honorable Judge Roy Bean

Jim Cramer just doesn't get it.

Jim Cramer has come out and complained about the way he’s being assailed by the Obama faithful for his telling the truth on live morning television (NBC) about the administration’s advancement of wealth destruction as a lever to advance the socialist agenda.

The problem is, Cramer is a major Democrat supporter – including financially (until recent contract limitations precluded any further donations). He admits to six figure contributions. He voted for Obama and admits that he wants most of what Obama is all about, just not while the stock market is in such bad shape.

You can’t have it both ways, Jim. At the risk of using a catch phrase, elections have consequences, and your political mindset is ludicrous given your alleged dogmatic support for stockholders and their financial well-being.

Jim, what part of socialism do you believe contributes to accumulation of wealth for individuals? And why, if you support the Obama agenda would anyone believe what you have to say about stocks – other than you predicted the earlier declines? Given the realization on the part of investors that Obama was going to be the next President, the declines were a no-brainer. And right after the election there was another collapse. Then come the stories about just how far into a managed economy the Democrats are willing to let Obama take us and here we all are. Knowledgeable wealth has fled the stock market and regular folks, the ones you so adamantly claim to want to protect, are facing the consequences of not getting out or being agile enough to get out in time.

Methinks you doth protest too much.

The Honorable Judge Roy Bean

Be Prepared for a Backlash - Part II.

He who has the gold is not going to view the “produce the note” defensive maneuvers of borrowers lightly, and because in so many cases the additional legal expenses cannot be recovered, the rules are going to have to change. And if (more likely when) the BK rules allow judges to modify loans, the squaliformes will use the onslaught of filings as a rationale for pushing their changes. The quid-pro-quo for allowing Washington to change the rules will include getting things like:

- More aggressive action to get more states into the “non-judicial” foreclosure camp and to prevent those with non-judicial processes from bowing to local pressure to make it more difficult to foreclose.

- Less interference from regulators looking into abusive servicing practices that are designed to eliminate the modified loans as rapidly as possible.

- Accommodation of document imaging technology for mortgage notes just as the industry has done with checks.

- Efforts to limit or impede the use of MERS will be legislated out of existence.

- Blackballing anyone using bankruptcy to force a modification. BK filers will become a financial pariah. If you thought it was hard restoring your credit score post-discharge, this new scarlet letter will at least ensure you will never get back into debt.

Finally, and worst of all, we’re seeing the media rally to the squaliforme's backlash against anyone who is having trouble with their mortgage no matter who caused the trouble. The squaliforme’s professionally-managed media strategy has succeeded in twisting public opinion against people who have been abused instead of focusing attention on the abusers and the responsible parties in Washington. Certain politicians are more than happy to let the squaliformes handle this for them and things will only worsen as victims are assigned more and more blame for everyone’s declining circumstances.

As I have recommended on another forum, I suggest everyone should pull that old copy of George Orwell's Animal Farm off the shelf and read it.

The Honorable Judge Roy Bean

Be Prepared for a Backlash - Part I.

For those jumping up and down in glee hollering about the “produce the note” strategy I would like to first say use it if you think you can pull it off. It can and will buy you some time in some circumstances. Chances are there will be some people who find several months of breathing room.

But I would offer a word of caution – remember “The Golden Rule:” He who has the gold makes the rules. And as legitimate as this emerging strategy is, He who has the gold is not going to sit by and let a handful of what will be painted as “squatters” turn the system upside-down and keep it that way. The creditor's bar can and will learn from their mistakes in most cases unless trial counsel is a complete buffoon.

If you believe you’re judgment-proof (no equity, no assets or no income that could be garnished) you may not have a lot to worry about except for some research, writing and trips to the courthouse. But if you do have some equity you’re trying to protect and are working, any additional costs they face in a prolonged court battle (some utterly contrived but some, such as their cost of a bond if required by the court) are going to be slapped onto a judgment against you if you lose. And if a court sees your defense as nothing but an abuse of the process to keep you in a home without paying for it, you may get an ugly surprise at the end.

He who has the gold isn’t liking having the ugly mess behind the hide-the-note scheme brought to light, and you can bet there will be some cases put up to be lessons to borrowers.

And there's more going on behind the scenes - more on that later.

The Honorable Judge Roy Bean

The Saga of Missing Notes Continues

A tip of the gavel to "Prof" at the Quatloos forums (Click the title to see the original post), a paper to be presented at the American Bankruptcy Institute annual meting this April:

WHERE’S THE NOTE, WHO’S THE HOLDER: ENFORCEMENT OF PROMISSORY NOTE SECURED BY REAL ESTATE

HON. SAMUEL L. BUFFORD
UNITED STATES BANKRUPTCY JUDGE
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES, CALIFORNIA

(FORMERLY HON.) R. GLEN AYERS
LANGLEY & BANACK
SAN ANTONIO, TEXAS


AMERICAN BANKRUPTCY INSTUTUTE
APRIL 3, 2009
WASHINGTON, D.C.


WHERE’S THE NOTE, WHO’S THE HOLDER

INTRODUCTION

In an era where a very large portion of mortgage obligations have been securitized, by assignment to a trust indenture trustee, with the resulting pool of assets being then sold as mortgage backed securities, foreclosure becomes an interesting exercise, particularly where judicial process is involved. We are all familiar with the securitization process. The steps, if not the process, is simple. A borrower goes to a mortgage lender. The lender finances the purchase of real estate. The borrower signs a note and mortgage or deed of trust. The original lender sells the note and assigns the mortgage to an entity that securitizes the note by combining the note with hundreds or thousands of similar obligation to create a package of mortgage backed securities, which are then sold to investors.

Unfortunately, unless you represent borrowers, the vast flow of notes into the maw of the securitization industry meant that a lot of mistakes were made. When the borrower defaults, the party seeking to enforce the obligation and foreclose on the underlying collateral sometimes cannot find the note. A lawyer sophisticated in this area has speculated to one of the authors that perhaps a third of the notes “securitized” have been lost or destroyed. The cases we are going to look at reflect the stark fact that the unnamed source’s speculation may be well-founded.

UCC SECTION 3-309

If the issue were as simple as a missing note, UCC §3-309 would provide a simple solution. A person entitled to enforce an instrument which has been lost, destroyed or stolen may enforce the instrument. If the court is concerned that some third party may show up and attempt to enforce the instrument against the payee, it may order adequate protection. But, and however, a person seeking to enforce a missing instrument must be a person entitled to enforce the instrument, and that person must prove the instrument’s terms and that person’s right to enforce the instrument. §3-309 (a)(1) & (b).

WHO’S THE HOLDER

Enforcement of a note always requires that the person seeking to collect show that it is the holder. A holder is an entity that has acquired the note either as the original payor or transfer by endorsement of order paper or physical possession of bearer paper. These requirements are set out in Article 3 of the Uniform Commercial Code, which has been adopted in every state, including Louisiana, and in the District of Columbia. Even in bankruptcy proceedings, State substantive law controls the rights of note and lien holders, as the Supreme Court pointed out almost forty (40) years ago in United States v. Butner, 440 U.S. 48, 54-55 (1979).

However, as Judge Bufford has recently illustrated, in one of the cases discussed below, in the bankruptcy and other federal courts, procedure is governed by the Federal Rules of Bankruptcy and Civil Procedure. And, procedure may just have an impact on the issue of “who,” because, if the holder is unknown, pleading and standing issues arise.

BRIEF REVIEW OF UCC PROVISIONS

Article 3 governs negotiable instruments – it defines what a negotiable instrument is and defines how ownership of those pieces of paper is transferred. For the precise definition, see § 3-104(a) (“an unconditional promise or order to pay a fixed amount of money, with or without interest . . . .”) The instrument may be either payable to order or bearer and payable on demand or at a definite time, with or without interest.

Ordinary negotiable instruments include notes and drafts (a check is a draft drawn on a bank). See § 3-104(e).

Negotiable paper is transferred from the original payor by negotiation. §3-301. “Order paper” must be endorsed; bearer paper need only be delivered. §3-305. However, in either case, for the note to be enforced, the person who asserts the status of the holder must be in possession of the instrument. See UCC § 1-201 (20) and comments.

The original and subsequent transferees are referred to as holders. Holders who take with no notice of defect or default are called “holders in due course,” and take free of many defenses. See §§ 3-305(b).

The UCC says that a payment to a party “entitled to enforce the instrument” is sufficient to extinguish the obligation of the person obligated on the instrument. Clearly, then, only a holder – a person in possession of a note endorsed to it or a holder of bearer paper – may seek satisfaction or enforce rights in collateral such as real estate.

NOTE: Those of us who went through the bank and savings and loan collapse of the 1980’s are familiar with these problems. The FDIC/FSLIC/RTC sold millions of notes secured and unsecured, in bulk transactions. Some notes could not be found and enforcement sometimes became a problem. Of course, sometimes we are forced to repeat history. For a recent FDIC case, see Liberty Savings Bank v. Redus, 2009 WL 41857 (Ohio App. 8 Dist.), January 8, 2009.

THE RULES

Judge Bufford addressed the rules issue this past year. See In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008). First, there are the pleading problems that arise when the holder of the note is unknown. Typically, the issue will arise in a motion for relief from stay in a bankruptcy proceeding.

According F.R.Civ. Pro. 17, “[a]n action must be prosecuted in the name of the real party in interest.” This rule is incorporated into the rules governing bankruptcy procedure in several ways. As Judge Bufford has pointed out, for example, in a motion for relief from stay, filed under F.R.Bankr.Pro. 4001 is a contested matter, governed by F. R. Bankr. P. 9014, which makes F.R. Bankr. Pro. 7017 applicable to such motions. F.R. Bankr. P. 7017 is, of course, a restatement of F.R. Civ. P. 17. In re Hwang, 396 B.R. at 766. The real party in interest in a federal action to enforce a note, whether in bankruptcy court or federal district court, is the owner of a note. (In securitization transactions, this would be the trustee for the “certificate holders.”) When the actual holder of the note is unknown, it is impossible – not difficult but impossible – to plead a cause of action in a federal court (unless the movant simply lies about the ownership of the note). Unless the name of the actual note holder can be stated, the very pleadings are defective.

STANDING

Often, the servicing agent for the loan will appear to enforce the note. Assume that the servicing agent states that it is the authorized agent of the note holder, which is “Trust Number 99.” The servicing agent is certainly a party in interest, since a party in interest in a bankruptcy court is a very broad term or concept. See, e.g., Greer v. O’Dell, 305 F.3d 1297, 1302-03 (11th Cir. 2002). However, the servicing agent may not have standing: “Federal Courts have only the power authorized by Article III of the Constitutions and the statutes enacted by Congress pursuant thereto. ... [A] plaintiff must have Constitutional standing in order for a federal court to have jurisdiction.” In re Foreclosure Cases, 521 F.Supp. 3d 650, 653 (S.D. Ohio, 2007) (citations omitted).

But, the servicing agent does not have standing, for only a person who is the holder of the note has standing to enforce the note. See, e.g., In re Hwang, 2008 WL 4899273 at 8.

The servicing agent may have standing if acting as an agent for the holder, assuming that the agent can both show agency status and that the principle is the holder. See, e.g., In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008) at 520.

A BRIEF ASIDE: WHO IS MERS?

For those of you who are not familiar with the entity known as MERS, a frequent participant in these foreclosure proceedings:

MERS is the “Mortgage Electronic Registration System, Inc. “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, just like Wall Street’s book entry utility for stocks and bonds is the Depository Trust and Clearinghouse.” Bastian, “Foreclosure Forms”, State. Bar of Texas 17th Annual Advanced Real Estate Drafting Course, March 9-10, 2007, Dallas, Texas. 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. Id.

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.

RULES OF EVIDENCE – A PRACTICAL PROBLEM

This structure also possesses practical evidentiary problems where the party asserting a right to foreclose must be able to show a default. Once again, Judge Bufford has addressed this issue. At In re Vargas, 396 B.R. at 517-19. Judge Bufford made a finding that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.

FORECLOSURE OR RELIEF FROM STAY

In a foreclosure proceeding in a judicial foreclosure state, or a request for injunctive relief in a non-judicial foreclosure state, or in a motion for relief proceeding in a bankruptcy court, the courts are dealing with and writing about the problems very frequently.

In many if not almost all cases, the party seeking to exercise the rights of the creditor will be a servicing company. Servicing companies will be asserting the rights of their alleged principal, the note holder, which is, again, often going to be a trustee for a securitization package. The mortgage holder or beneficiary under the deed of trust will, again, very often be MERS.

Even before reaching the practical problem of debt and default, mentioned above, the moving party must show that it holds the note or (1) that it is an agent of the holder and that (2) the holder remains the holder. In addition, the owner of the note, if different from the holder, must join in the motion.

Some states, like Texas, have passed statutes that allow servicing companies to act in foreclosure proceedings as a statutorily recognized agent of the noteholder. See, e.g., Tex. Prop. Code §51.0001. However, that statute refers to the servicer as the last entity to whom the debtor has been instructed to make payments. This status is certainly open to challenge. The statute certainly provides nothing more than prima facie evidence of the ability of the servicer to act. If challenged, the servicing agent must show that the last entity to communicate instructions to the debtor is still the holder of the note. See, e.g., HSBC Bank, N.A. v. Valentin, 2l N.Y. Misc. 3d 1123(A), 2008 WL 4764816 (Table) (N.Y. Sup.), Nov. 3, 2008. In addition, such a statute does not control in federal court where Fed. R. Civ. P. 17 and 19 (and Fed. R. Bankr. P. 7017 and 7019) apply.

SOME RECENT CASE LAW

These cases are arranged by state, for no particular reason.

Massachusetts, In re Schwartz, 366 B.R.265 (Bankr. D. Mass. 2007)
Schwartz concerns a Motion for Relief to pursue an eviction. Movant asserted that the property had been foreclosed upon prior to the date of the bankruptcy petition. The pro se debtor asserted that the Movant was required to show that it had authority to conduct the sale. Movant, and “the party which appears to be the current mortgagee…” provided documents for the court to review, but did not ask for an evidentiary hearing. Judge Rosenthal sifted through the documents and found that the Movant and the current mortgagee had failed to prove that the foreclosure was properly conducted.

Specifically, Judge Rosenthal found that there was no evidence of a proper assignment of the mortgage prior to foreclosure. However, at footnote 5, Id. at 268, the Court also finds that there is no evidence that the note itself was assigned and no evidence as to who the current holder might be.

Nosek v. Ameriquest Mortgage Company (In re Nosek), 286 Br. 374 (Bankr D Mass. 2008).
Almost a year to the day after Schwartz was signed, Judge Rosenthal issued a second opinion. This is an opinion on an order to show cause. Judge Rosenthal specifically found that, although the note and mortgage involved in the case had been transferred from the originator to another party within five days of closing, during the five years in which the chapter 13 proceeding was pending, the note and mortgage and associated claims had been prosecuted by Ameriquest which has represented itself to be the holder of the note and the mortgage. Not until September of 2007 did Ameriquest notify the Court that it was merely the servicer. In fact, only after the chapter 13 bankruptcy had been pending for about three years was there even an assignment of the servicing rights. Id. at 378.

Because these misrepresentations were not simple mistakes: as the Court has noted on more than one occasion, those parties who do not hold the note of mortgage do not service the mortgage do not have standing to pursue motions for leave or other actions arising form the mortgage obligation. Id at 380.

As a result, the Court sanctioned the local law firm that had been prosecuting the claim $25,000. It sanctioned a partner at that firm an additional $25,000. Then the Court sanctioned the national law firm involved $100,000 and ultimately sanctioned Wells Fargo $250,000. Id. at 382-386.

In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008).
Like Judge Rosenthal, Judge Feeney has attacked the problem of standing and authority head on. She has also held that standing must be established before either a claim can be allowed or a motion for relief be granted.


Ohio

In re Foreclosure Cases, 521 F.Supp. 2d (S.D. Ohio 2007).
Perhaps the District Court’s orders in the foreclosure cases in Ohio have received the most press of any of these opinions. Relying almost exclusively on standing, the Judge Rose has determined that a foreclosing party must show standing. “[I]n a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time that the complaint was filed.” Id. at 653.

Judge Rose instructed the parties involved that the willful failure of the movants to comply with the general orders of the Court would in the future result in immediate dismissal of foreclosure actions.

Deutsche Bank Nat’l Trust Co. v. Steele, 2008 WL 111227 (S.D. Ohio) January 8, 2008.
In Steele, Judge Abel followed the lead of Judge Rose and found that Deutsche Bank had filed evidence in support of its motion for default judgment indicating that MERS was the mortgage holder. There was not sufficient evidence to support the claim that Deutsche Bank was the owner and holder of the note as of that date. Following In re Foreclosure Cases, 2007 WL 456586, the Court held that summary judgment would be denied “until such time as Deutsche Bank was able to offer evidence showing, by a preponderance of evidence, that it owned the note and mortgage when the complaint was filed.” 2008 WL 111227 at 2. Deutsche Bank was given twenty-one days to comply. Id.

Illinois

U.S. Bank, N.A. v. Cook, 2009 WL 35286 (N.D. Ill. January 6, 2009).
Not all federal district judges are as concerned with the issues surrounding the transfer of notes and mortgages. Cook is a very pro lender case and, in an order granting a motion for summary judgment, the Court found that Cook had shown no “countervailing evidence to create a genuine issue of facts.” Id. at 3. In fact, a review of the evidence submitted by U.S. Bank showed only that it was the alleged trustee of the securitization pool. U.S. Bank relied exclusively on the “pooling and serving agreement” to show that it was the holder of the note. Id.

Under UCC Article 3, the evidence presented in Cook was clearly insufficient.

New York

HSBC Bank USA, N.A. v. Valentin, 21 Misc. 3D 1124(A), 2008 WL 4764816 (Table) (N.Y. Sup.) November 3, 2008. In Valentin, the New York court found that, even though given an opportunity to, HSBC did not show the ownership of debt and mortgage. The complaint was dismissed with prejudice and the “notice of pendency” against the property was cancelled.

Note that the Valentin case does not involve some sort of ambush. The Court gave every HSBC every opportunity to cure the defects the Court perceived in the pleadings.

California

In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008)

and

In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008)

These two opinions by Judge Bufford have been discussed above. Judge Bufford carefully explores the related issues of standing and ownership under both federal and California law.

Texas

In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008)

and

In re Gilbreath, 395 B.R. 356 (Bankr. S.D. Tex. 2008)
These two recent opinions by Judge Jeff Bohm are not really on point, but illustrate another thread of cases running through the issues of motions for relief from stay in bankruptcy court and the sloppiness of loan servicing agencies. Both of these cases involve motions for relief that were not based upon fact but upon mistakes by servicing agencies. Both opinions deal with the issue of sanctions and, put simply, both cases illustrate that Judge Bohm (and perhaps other members of the bankruptcy bench in the Southern District of Texas) are going to be very strict about motions for relief in consumer cases.

SUMMARY

The cases cited illustrate enormous problems in the loan servicing industry. These problems arise in the context of securitization and illustrate the difficulty of determining the name of the holder, the assignee of the mortgage, and the parties with both the legal right under Article 3 and the standing under the Constitution to enforce notes, whether in state court or federal court.

Interestingly, with the exception of Judge Bufford and a few other judges, there has been less than adequate focus upon the UCC title issues. The next round of cases may and should focus upon the title to debt instrument. The person seeking to enforce the note must show that:

(1) It is the holder of this note original by transfer, with all necessary rounds;
(2) It had possession of the note before it was lost;
(3) If it can show that title to the note runs to it, but the original is lost or destroyed, the holder must be prepared to post a bond;
(4) If the person seeking to enforce is an agent, it must show its agency status and that its principal is the holder of the note (and meets the above requirements).

Then, and only then, do the issues of evidence of debt and default and assignment of mortgage rights become relevant.

Not to say I told you so, but....

If anyone really believes the squaliformes are making some kind of massive effort to actually modify existing loans, Countrywide's response in a New Hampshire lawsuit should finally put an end to the mythology that ol' Bean has been hollering about. (Click on the title link, above to see MSNBC's coverage.)

Loan "modifications" aren't being done. Period. Additional agreements primarily designed to protect lenders are being foisted on desperate borrowers in a public-relations effort to protect a handful of key players and the Congresspeople and Senators who are desperately trying to avoid taking responsibility.

So let's see this for what it really is - squaliformes are getting billions from the funny-farm that is Washington who let the squaliformes get away with murder in the first place. And instead of doing the right thing and punishing those responsible, they're waiting for the squaliformes to act responsibly. And lying through their teeth about how much good they're doing. And asking for more. And trying to shift the blame elsewhere.

I'll be up at the Fort Worth Stock Show for a few days; the air there smells a lot less like BS than what's coming out of Washington. FYI - if you can, join us to watching the bull riding; a friend's son-in-law is in the competition.

Finally, the holidays are over

With work and family schedules the months of November and December are almost impossible to conduct court business 'round these parts.

But obviously, that doesn't stop the scammers and squaliformes from working harder than ever, especially with all the doom and gloom hype from the media putting people in a panic.

The major networks and their kin need to take some responsibility for making this the greatest market ever for the promoters of scams - some of which are in the guise of stopping the squaliformes. In the mean time, the squaliformes are getting billions of tax dollars to keep their schemes in operation, supposedly to keep the economy afloat.

They are so powerful and so arrogant that they have pulled the strings of Congress to keep their seats at the gaming tables using OUR TAX DOLLARS and our children and grandchildren's financial futures.

As I have often said, their power is unchecked, and this maneuvering is simply another demonstration of the power they hold over Washington.

And while Washington dances to the tune of Wall Street, less and less attention will be paid to not only the known squaliformes in the financial services industry but the people who keep promoting utterly bogus quick-fixes for the victims of the lenders.

And the lenders are touting their own "self-preservation" loan modifications - more on that shortly, other than to say DON'T SIGN SOMETHING THAT TAKES AWAY YOUR LEGAL RIGHTS! They are using the loan mod programs to shield themselves from being held responsible for illegal acts against consumers.

And there's more to come on this utterly bogus maneuver to make bankruptcy the appropriate place to force lenders and servicers to modify loans - it's yet another way to cover their collective *sses.

In short, 2009 is going to be even worse for the typical, uninformed consumer and borrower, but court will be back in session soon.

The Honorable Judge Roy Bean