SEC Corroborates Livinglies Position on Third Party Payment While Texas BKR Judge Disallows Assignments After Cut-Off Date


SEC Corroborates Livinglies Position on Third Party Payment While Texas BKR Judge Disallows Assignments After Cut-Off Date

By Neil Garfield
Garfield Gwaltney Kelley and White | LivingLies

Maybe this should have been divided into three articles:

  1. Saldivar: Texas BKR Judge finds Assignment Void not voidable. It never happened.
  2. Erobobo: NY Judge rules ownership of note is burden of the banks. Not standing but rather capacity to sue without injury.
  3. SEC Orders Credit Suisse to disgorge illegal profits back to investors. Principal balances of borrowers may be reduced. Defaults might not exist because notices contain demands that include money held by banks that should have been paid to investors.

But these decisions are so interrelated and their effect so far-reaching that it seems to me that if you read only one of them you might head off in the wrong direction. Pay careful attention to the Court’s admonition in Erobobo that these defenses can be waived unless timely raised. Use the logic of these decisions and you will find more and more judges listening with increasing care. The turning point is arriving and foreclosures — past, present and future — might finally get the review and remedies that are required in a nation of laws.

Continue reading “SEC Corroborates Livinglies Position on Third Party Payment While Texas BKR Judge Disallows Assignments After Cut-Off Date”

Judge Schack Hammers HSBC for False Paperwork

Judge Schack Hammers HSBC for False Paperwork

By Daniel Edstrom
DTC Systems, Inc.

Here are Neil Garfield’s comments regarding this case from LivingLies (http://livinglies.wordpress.com/2011/12/30/schack-bangs-hsbc-for-false-paperwork/):

Posted on December 30, 2011 by Neil Garfield

EDITOR’S NOTE: Plausible deniability went out the window as HSBC tried to get out of the consequences for submitting false, fabricated papers to the court in support of a fraudulent foreclosure. They tried to say they didn’t know. Schack didn’t buy it and slapped them with a $10,000 fine.

But the real story is yet to be told. We are getting closer to the real question, yet the inquiry into WHY false papers are being submitted on such a widespread basis has not occurred. This is the industry that practically invented dotted i’s and crossed t’s. They processed tens of millions of mortgages just the way they wanted them without error. Now they are claiming that they messed up the paperwork because of the same volume that they processed without a problem. And they are layering the responsibility by outsourcing the fabrication, forgery and fraud. Continue reading “Judge Schack Hammers HSBC for False Paperwork”

The OCC Misses the Point on Toxic Waste

The OCC Misses the Point on Toxic Waste

By Daniel Edstrom
DTC Systems, Inc.
http://www.dtc-systems.net

We all see what we want to see.  But when others control the conversation, it is easy to miss the point.  As a regulator the Office of the Comptroller of the Currency should be taking the lead and controlling the conversation, but in reality, they have been bridled and are being led around by the nose.  Conspiciously absent are numerous issues they as a regulator have the responsibility of dealing with.  This article is timely in response to an article by Neil F. Garfield (http://livinglies.wordpress.com/2011/12/27/the-big-lie-banks-did-nothing-illegal/), which is a response to Yves Smith of Naked Capitalism article (http://www.nakedcapitalism.com/2011/12/more-msm-criticism-of-obama-nothing-illegal-here-move-along-stance-on-foreclosure-fraud.html), which is a response to a Reuters article (http://www.reuters.com/article/2011/12/22/us-foreclosures-idUSTRE7BL0MC20111222).  But I found none of these articles until I was finished writing this post.  Take the following random and critical issues:

  • Are the loans in the pool?  Were the loans ever in the pool?  Does the pool exist?  Did the pool perfect interest in any of the loans?  This issue is very political and the OCC in our opinion will never address this issue or look into this.
  • What loans are in default?  Can a loan be in default?  What comes first, the default or the loss?
  • Are there any compliance issues?

Continue reading “The OCC Misses the Point on Toxic Waste”

OCC Guidance on Potential Issues With Foreclosed Residential Properties

Guidance on Potential Issues With Foreclosed Residential Properties

By Daniel Edstrom
DTC Systems, Inc.

The Office of the Comptroller of the Currency has issued the following guidance in respect to foreclosed properties:

OCC 2011-49
Subject: Foreclosed Properties

Date: December 14, 2011

To: Chief Executive Officers of All National Banks and Federal Savings Associations, Department and Division Heads, and All Examining Personnel

Description: Guidance on Potential Issues With Foreclosed Residential Properties

Background
In the current economic environment, national banks and federal savings associations (collectively, banks) are facing challenges resulting from unprecedented numbers of troubled residential mortgage loans. Foreclosures on residential properties also are occurring in unprecedented numbers and are projected to continue this trend in the near term. Among the many consequences of high levels of foreclosures are growing inventories of foreclosed residential and commercial properties. The Office of the Comptroller of the Currency (OCC) is providing guidance to banks on obligations and risks related to foreclosed property. This guidance highlights legal, safety and soundness, and community impact considerations.1 It primarily focuses on residential foreclosed properties, but many of the same principles apply to commercial properties. Continue reading “OCC Guidance on Potential Issues With Foreclosed Residential Properties”

World Savings Bank Loans Were Securitized – Pooling and Servicing Agreement Uncovered

World Savings Loans Were Securitized – Pooling and Servicing Agreement Uncovered

By Daniel Edstrom
DTC Systems, Inc.

Contrary to what Wells Fargo is saying in court, we have proof that World Savings Bank Securitized loans into REMICs.  We had some evidence of this already, but newly added is a Pooling and Servicing Agreement that we have acquired for World Savings Bank REMIC 12.  The terms are fairly standard that you see in most other securitizations, except that World Savings Bank played nearly all parts in the transaction (the originator, sponsor/seller, depositor, underwriter, etc).  The servicers were required and obligated to make principal and interest payments whether or not they receive them from the homeowners, the notes were required to be endorsed without recourse to the order of Trustee and showing an unbroken chain of endorsements [..] from the originator thereof to the Person endorsing it to Trustee.  It is all here, even the second set of books kept by the master servicer (you know, the true accounting that is concealed, misrepresented and not disclosed to any court of law).

This is a HUGE breakthrough for those looking for evidence that their World Savings Bank loans were securitized.

Download the Pooling and Servicing Agreement here

Securitization Workshop for Attorneys March 19th 2011 in San Francisco

Securitization Workshop for Attorneys March 19th 2011 in San Francisco

By Daniel Edstrom

Join us for our 3rd Securitization Workshop for Attorneys being held in San Francisco on March 19th, 2011.  Visit the event website for more information: http://securedocumentresearch.eventbrite.com

This workshop has been approved for Minimum Continuing Legal Education (MCLE) by the State Bar of California.  Total credit hours approved are 6.75 hours.

Description of event:

SECURITIZATION WORKSHOP FOR ATTORNEYS
March 19th, 2011 – in San Francisco, CALIFORNIA

Continue reading “Securitization Workshop for Attorneys March 19th 2011 in San Francisco”

Irreconcilable Differences… I want a Mortgage Divorce!

Irreconcilable Differences… I want a Mortgage Divorce!

By James Macklin
Secure Document Research

Promissory Note Terms Vs. PSA/Prosectus Terms

When we are handed a voluminous stack of documents at the closing table for our mortgage transaction, a Borrower is expected to make a decision based upon the duty and care that the party who drafted these “investment contracts” has placed into them. However, none of us at the closing table has any idea what most of the words, phrases, and legal terminologies actually means… especially those affecting our rights as a consumer and as a real property owner.
Within the typical language of a Pooling and Servicing Agreement executed by the players of the securitization financing, there are countless references to the “interests” of the asset being conveyed, or, your Note and Deed. Interests are a finicky word of art used. The word simply means this: the asset, along with all of its’ benefits and liabilities. These are the “interests” being conveyed with the sale, set-over, transfer, conveyance, etc. So, under the terms of the Note we signed, look to the section titled: “Who is obligated under the Note” (usually sec. nine (9)). Here you will find that myriad entities may be, and probably are, also obligated under this same Note. These are the terms you have agreed to and bargained for. But the banking intermediaries would have us believe otherwise, as exhibited in the PSA under such language as: “The Depositor, Sponsor/Seller, Swap Counterparty, Master Servicer, Trustee do not intend for any obligation of themselves or their agents or employees to arise as a result of this Agreement”. This is contradictive to the terms and conditions that we have agreed to. Because the intervening assignments are a functional necessity to the bankruptcy remoteness of these assets, the specific substance of the PSA must be followed, including the mandate for the indorsement of each intervening assignment, along with the recordation of those assignment in the proper land title records office within the State of jurisdiction.
Let’s go back to the language of the “Who is Obligated” section of our Note. Notice that anyone who endorses the instrument is also obligated under the Note. Does this create an unknown Obligor at closing? If an un-named Beneficiary is the result of the unilateral agreement known as a Promissory Note”, how do we have the understanding necessary to execute such a critical document? It is the contention of this author, supported by the very agreements signed under oath and filed for record with the SEC, that “interests” and “obligations” are synonomous within the four corners of the agreement we signed…and the agreements signed by the intermediaries. A court of competent jurisdiction shall be posed these foundational questions very soon, and often. Are we a party to these agreements known as PSA/Prospectus? If we do a simple word search on each of these and look for references to: Borrower, Mortgagor, Obligor, we find these terms are typically used in excess of 60-75 times. Yet we were never disclosed the terms and conditions of the actual “loan” transaction as it truly was executed, and the rights, duties and responsibilities of the intermediaries. These are material disclosures relative to fees, expenses and various credit enhancements which are attributed to the Borrowers’ payment stream.
A divorce from this menagerie of deceit is not only appropriate, but a right that is being tried in many courtrooms. I believe that the judiciary will be tested on many platforms and small but visceral victories shall carry the day.

Failure to Allege Lack of Default

Failure to Allege Lack of Default

by Daniel Edstrom
DTC Systems, Inc.

I came across the following on Google Scholar (http://scholar.google.com/scholar_case?case=16055101289176414591&q=Restatement+(Third)+Of+Property+(Mortgages)+%C2%A7+5.4&hl=en&as_sdt=2,5):

A. Failure to Allege Lack of Default

First, Nevada law is clear that “[a]n action for the tort of wrongful foreclosure will lie if the trustor or mortgagor can establish at the time the power of sale was exercised or the foreclosure occurred, no breach of condition or failure of performance existed on the mortgagor or trustor’s part which would have authorized the foreclosure or exercise of the power of sale.Ernestburg v. Mortgage Investors Group, No. 2:08-cv-01304-RCJ-RJJ, 2009 WL 160241, at *6 (D. Nev. Jan. 22, 2009) (internal citations and quotations omitted). The plaintiff must establish that they were not “in default when the power of sale was exercised.Id. (citing Collins v. Union Fed. Sav. & Loan Ass’n, 662 P.2d 610, 623 (Nev. 1983)). Furthermore, a claim for wrongful foreclosure does not arise until the power of sale is exercised. Collins, 662 P.2d at 623.

Continue reading “Failure to Allege Lack of Default”

Securitization Workshop for Attorneys January 29th 2011 in Los Angeles

Securitization Workshop for Attorneys January 29th 2011 in Los Angeles

By Daniel Edstrom

Join us for our 2nd Securitization Workshop for Attorneys being held in Los Angeles on January 29th, 2011.  Visit the event webiste for more information: http://securedocumentresearch.eventbrite.com and visit our product page for a super early registration price if you sign up by December 31, 2010: http://dtc-systems.net/products/securitization-workshop-attorneys-los-angeles-ca-january-29th-2011/

Description of event:

SECURITIZATION WORKSHOP FOR ATTORNEYS
 January 29th, 2010 – in Los Angeles, CALIFORNIA

 [Location will be determined soon]

SECURE DOCUMENT RESEARCH

Auburn, CA 95603; ph: 530.888.9600

DTC Systems, Inc.

[email protected]://www.dtc-systems.net

 Presented by:

Secure Document Research and DTC Systems, Inc.in Association with the Garfield Continuum and Neil F. Garfield, Esq.
http://livinglies.wordpress.com
REGISTER EARLY, LIMITED SEATING IS AVAILABLE

Continue reading “Securitization Workshop for Attorneys January 29th 2011 in Los Angeles”

Professor Adam Levitin Shreds American Securitization Forum Defenses

Sunday, December 5, 2010

[From Naked Capitalism: http://www.nakedcapitalism.com/2010/12/adam-levitin-shreds-the-american-securitization-forum-defense-of.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29]

Adam Levitin Shreds American Securitization Forum Defenses

It isn’t clear why the American Securitization Forum decided to walk into a buzzsaw, but the carnage is proving to be an amusing spectacle.

For readers who have not followed this wee saga, mortgage securitization abuses are increasingly looking to be a mess of Titanic proportions. The securitization industry created complex and specific procedures for getting the loans into the securitization legal vehicle, a trust. (The loan, meaning the borrower IOU, is called the note; confusingly, the lien is separate and called a mortgage or in some states, a deed of trust).

These procedures were complex for very good legal reasons. These securitizations had to pick their way very carefully through a thicket of issues: state-based real estate law; the Uniform Commercial Code; the desire to create bankruptcy remoteness (so if the originator went bust, the investors would not be exposed to the risk of lenders to the originator trying to get the notes back out of the trust); securities regulations; tax law; trust law.

These provisions were adhered to for nearly two decades. But sometime in the early 2000s, it appears that the industry simply quit observing the requirements of its own contracts, called pooling and servicing agreements. And the worst is that there are no simple fixes for the resulting mess.

If the breakdown was as widespread as it appears to be, at a minimum, in the overwhelming majority of states, it will become more and more difficult to foreclose as consumer lawyers and judges wise up to these issues. And in a worst case scenario, it is entirely possible in some, perhaps many cases, no assets got the the trusts by closing, which would make them void under New York law, which governs virtually all mortgage securitization trusts (even if true, investors may choose not to pursue that theory in a lawsuit, but more evidence of pervasive problems may lead investors use related theories to press to have the deal unwound, which is still a pretty dire outcome).

The American Securitization Forum which represents originators (it also has investors as members, but investors and independent observers see the ASF as very much originator-oriented) has decided to come out guns-a-blazing against critics. The problem is, however, that it has neither the law or facts on its side. Its strident attacks are looking a wee bit desperate.

In recent Congressional hearings, the ASF executive director Tom Deutsch provided testimony that was truly astonishing (see here and here). It asserted, in effect, that extremely clear and easy to interpret language in the PSA about how the notes were to be conveyed to the securitization meant the opposite of what they said. The contracts call for a “complete” or “unbroken” chain of endorsements. The ASF testimony argued that that very same language meant the very opposite, that no such thing needed to happen. And the testimony peculiarly personalized the attack, fixating on Georgetown law professor Adam Levitin. Even though he has almost become a fixture on Congressional panels on this topic, he is far from the only expert to have argued for this interpretation.

Levitin deigned to address the ASF argument, and his post, “Fisking the American Securitization Forum’s Congressional Testimony,” is engaging. I suggest you read it in its entirely. Here are some of the key bits:

My first thought was “gosh, ASF’s awfully defensive. They sure seem spooked.” And on looking at the details of the ASF’s rebuttal, my sense is they’re on very shaky ground if these are the best arguments they have….

ASF takes me to task because the argument I make about PSAs is not supported by caselaw. Duh. Of course it isn’t. These issues have never been litigated. The whole point I’ve been making is that there are a bunch of unresolved legal issues. I’m not the one who decides what the outcome is. I can only offer my semi-learned opinion. But just as my argument lacks caselaw support, so too does that of the ASF. At least I’m not the one who built a $1.2 trillion dollar private label residential mortgage securitization industry hinging on uncertain law…..

ASF argues that the language in many PSAs requiring a “complete” or “unbroken” chain of endorsements only means that there must be a chain of endorsements legally sufficient to effectuate the transfer of the note to the trust…

There are a few problems with this argument. First, if the ASF is correct in its claim that the loans are transferred by sale under Article 9 of the UCC, the legal sufficiency of the endorsements should simply be irrelevant. In making this claim, ASF seems to be conceding that PSAs are the governing law for RMBS transactions.

Second, it’s worth looking at the entire language used in PSAs, not the selectively quoted language referred to by the ASF. For example, consider the PSA for Securities Asset Backed Receivables LLC Trust 2005-FR3, dated July 1, 2005, § 2.01(b), July 1, 2005. It provides that the depositor will deliver to the trust:

“the original Mortgage Note bearing all intervening endorsements showing a complete chain of endorsement from the originator to the last endorsee, endorsed ‘Pay to the order of _____________, without recourse’ and signed (which may be by facsimile signature) in the name of the last endorsee by an authorized officer.”

Note the bold language (my emphasis; the italics are original). There can be no question that this language is calling for every endorsement from the originator to the trust, and cannot be satisfied with a single endorsement in blank. For deals with this language, at least, ASF’s testimony is demonstrably wrong.

Now, it is important to note that not every PSA has such language…The incidence of various PSA language is unknown, but certainly there are a good number of PSAs where there has to be a complete chain of endorsements.

Another inconvenient fact is, contrary to the ASF assertions, that judges are also looking for the chain of endorsements to make sense, without reference to the PSA. By happenstance, April Charney sent a Florida decision today which illustrates how the lack of proper endorsements derailed a foreclosure (April has graciously included me in her frequent updates to various groups of lawyers involved in foreclosure defense).

Order for BAC Home Loans Servicing v. Stentz

This order is short and make for instructive reading. The note in question was indorsed (bankruptcy courts use “indorse” for “endorse”) in blank, something the ASF says is perfectly kosher. The Florida judge is not entirely comfortable with that, noting that Florida law requires that the party prosecuting a foreclosure both own and be the holder of the note. He dismissed the case without prejudice, but notice the requirements he stipulates for any amended complaint (boldface mine):

1. Allege additional facts, not conclusions of law, that specifically set forth the and identify the present owner of the note and mortgage and the present holder of the note and mortgage and in so doing deraign the chain of ownership/holdership since the loan’s inception.

2. Allege additional facts why the note is indorsed in blank and specifically deny, if that be the case, that it or an interest has been pledged to another….

5. Allege and identify all documents, by attachment, upon which Plaintiff relies to establish ownership of the note and mortgage.

Now look at the mess we have here. How, pray tell, are the plaintiffs going to prove how the note traveled from originator to its purported current owner in the absence of having the note endorsed with a full and unbroken chain of assignments? How are they going to prove a negative (as in 2, that it wasn’t pledged to another party? How will the plaintiffs prove the transfers? A basic feature of negotiable instruments like mortgage notes is that they are transferred by delivery, not by contract or assignment, AND that the party making the transfer must endorse the instrument so that it is payable to the recipient (or it can be endorsed in blank).

Oh, and if the borrower’s attorney is at all savvy, he will find the PSA for this loan. If the plaintiffs try to claim the conveyance chain was different than that stipulated in the PSA (something the ASF also tried to argue was fine), and the borrower’s counsel points out the discrepancy. This judge looks to be the sort that would find it troubling.

Here, again by virtue of synchronicity via April Charney yesterday, is another example of a judge, this time in Ohio, refusing to foreclose. One of the reasons is the chain of assignments is broken (see the part I boldfaced):

Case: CV-09-706959
Case Caption: PROVIDENT FUNDING ASSOCIATES, L.P. vs. TAMARA TURNER, ET AL
Judge: TIMOTHY MCCORMICK
Room: 20C JUSTICE CENTER
Docket Date: 11/09/2010
Notice Type: (JEPC) JOURNAL ENTRY NOTICE
Notice ID/Batch: 16552802 – 875214

To: JAMES R DOUGLASS

MOTION OF THE DEFENDANTS PHILLIP TURNER AND TAMARA TURNER TO DISMISS FOR PLAINTIFF’S LACK OF STANDING TO FILE THE FORECLOSURE IS GRANTED. PLAINTIFF DID NOT PRESENT EVIDENCE TO THE COURT THAT IT OWNED THE SUBJECT PROMISSORY NOTE AS OF THE DATE OF THE FILING OF ITS COMPLAINT IN THIS CASE AND COULD NOT, THEREFORE, PROVE THAT IT HAD STANDING TO FILE THIS CASE. SEE WELLS FARGO BANK V. JORDAN, 2009 OHIO 1092 (8TH DIST. CT. APP., MAR. 12, 2009). MERS COULD NOT ASSIGN THE NOTE AS IT NEVER HELD THE PROMISSORY NOTE. THERE IS NO EVIDENCE THAT THE ALLONGE WAS EVER AFFIXED TO THE NOTE. VIRTUAL BANK PURPORTS TO INDORSE THE NOTE TO THE PLAINTIFF, BUT THERE IS NO EVIDENCE THAT VIRTUAL BANK HELD THE NOTE AT THE TIME OF THE INDORSEMENT. VIRTUAL BANK IS ALSO NOT THE PAYEE ON THE NOTE. COMPLAINT DISMISSED WITHOUT PREJUDICE. AS PLAINTIFF DID NOT HAVE STANDING TO FILE THIS CASE, THE COUNTERCLAIM IS ALSO DISMISSED WITHOUT PREJUDICE. (FINAL)
COURT COST ASSESSED TO THE PLAINTIFF(S).

CLDLJ 11/09/2010
NOTICE ISSUED

Ohio and Florida require that the party foreclosing be the owner of the note. But even in states like California, which appear merely to require that the foreclosing party be a holder, “holder” signifies more than mere possession. In IndyMac Federal v. Hwang, the judge cites the California Commercial Code (3301 (a) and 1201 (20)) and UCC (3-301 (a) and 1-201 (20)):

For an instrument payable to an identified person (such as a note in this case), there are two requirements for a person to qualify as a holder: (a), the person must be in possession of the instrument and (b) the instrument must be payable to that person.

These examples prove a basic point. There is good reason why the PSAs stipulated a complete, unbroken chain of endorsements. The absence of them creates huge problems, independent of the requirements of the PSA, in enforcing the note.

As we said in our New York Times op-ed,

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed — and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.

The ASF, perversely or perhaps predictably, is persisting in being part of the problem rather than part of the solution.

More on this topic (What’s this?)

Never Trust a CEO Who Does This… (Investment U, 11/4/10)

Set to Go Off (Financial Armageddon, 10/25/10)

Read more on Trust, Securitization at Wikinvest

Topics: Banana republic, Banking industry, Credit markets, Legal, Real estate

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