Debtor Without Lawyer Defeats Motion for Relief from Stay, Based on Lack of Standing

Posted: 29 Mar 2009 01:45 PM PDT

Do I Get a Free House?

By Stephen Otto, Pittsburgh Consumer Attorney on Mar 30, 2009

In certain cases, mortgage foreclosure defense can be so effective that the Plaintiff prosecuting the foreclosure is unable to successfully foreclose.  This has been known to happen in cases involving “lost promissory notes” where the foreclosing Plaintiff is unable to prove standing sufficient to enforce the mortgage.

So what happens to the borrower’s status with regard to the home when the lender’s (or entities purporting to be the lender) foreclosure efforts prove unfruitful?  This is a difficult question to answer by reference to traditionally applicable legal authorities to which lawyers are accustomed to referring, like common law precedent, rules of procedure, as well as statutory law like the Uniform Commercial Code.  This is likely due to the fact that such authorities have generally not kept pace with developments in finance like securitization and “MERS originated mortgages”.

What is clear in the law is that even if the borrower in default escapes the foreclosure proceedings to live another day, there is, at minimum, a cloud on the title to the home which will prevent the borrower from being able to successfully sell, refinance or bequeath the home, and the law has no clear answer about what the borrower should do to resolve the issue.   Some real estate practicioners have suggested “Quiet Title” actions in which the homeowner would file a lawsuit that names all purported lienholders defendants and seeks to “quiet” the title, i.e., extinguish all claims of the named defendants to the property.

WHO OWNS THE NOTE?

Your goal is to make certain the institution suing you is, in fact, the owner of the note (see steps to follow below). There is only one original note for your mortgage that has your signature on it. This is the document that proves you owe the debt.

During the lending boom, most mortgages were flipped and sold to another lender or servicer or sliced up and sold to investors as securitized packages on Wall Street. In the rush to turn these over as fast as possible to make the most money, many of the new lenders did not get the proper paperwork to show they own the note and mortgage. This is the key to the produce the note strategy. Now, many lenders are moving to foreclose on homeowners, resulting in part from problems they created, and don’t have the proper paperwork to prove they have a right to foreclose.

THE HARM

If you don’t challenge your lender, the court will simply allow the foreclosure to proceed. It’s important to hold lenders accountable for their carelessness. This is the biggest asset in your life. It’s just a piece of paper to them, and one they likely either lost or destroyed.

When you get a copy of the foreclosure suit, many lenders now automatically include a count to re-establish the note. It often reads like this: “…the Mortgage note has either been lost or destroyed and the Plaintiff is unable to state the manner in which this occurred.” In other words, they are admitting they don’t have the note that proves they have a right to foreclose.

If the lender is allowed to proceed without that proof, there is a possibility another institution, which may have bought your note along the way, will also try to collect the same debt from you again.

A Tennessee borrower recently had precisely that happen to her. Her lender, Ameriquest, foreclosed on her in July of 2007. About three months later, another bank sent her a default notice for the mortgage on the house she just lost. She called to find out what was going on. After being transferred from place to place and left on hold for lengthy periods of time, no one could explain what happened. They said they would get back to her, but never did. Now, she faces the risk of having her credit continually damaged for a debt she no longer owes.

FIGHT FOR FAIRNESS

This process is not intended to help you get your house for free. The primary goal is to delay the foreclosure and put pressure on the lender to negotiate. Despite all the hype about lenders wanting to help homeowners avoid foreclosure, most borrowers know that’s not the reality.

Too many homeowners have experienced lender resistance to their efforts to work out a payment structure to keep them in their homes. Many lenders bear responsibility for these defaults, because they put borrowers into unfair loans using deceptive, hard-sell practices and then made the problem worse with predatory servicing.

Most homeowners just want these lenders to give them reasonable terms on their mortgages, many of which were predatory to begin with. With the help of judges who see through these predatory practices, lenders will feel the pressure to work with borrowers to keep them in their homes. Don’t forget lenders made incredible amounts of money by using irresponsible practices to issue and service these loans. That greed led to the foreclosure crisis we’re in today. Allowing lenders to continue foreclosing on home after home, destroying our neighborhoods and our economy hurts us all. So, make it hard for your lender to take your home. Make ‘em produce the note!

STEPS TO FOLLOW

A. If your lender has already filed suit to foreclose on your home:

1. Use the first form. It’s a fill-in-the-blank legal request to your lender asking that the original note be produced, before it can proceed with the foreclosure. In some jurisdictions, the courts require the original request to be filed with the clerk of court and a copy of the request to be sent to the attorney representing the lender. To find out the rules where you live, call the Clerk of Court in your jurisdiction.
2. If the lender’s attorney does not respond within 30 days, file a motion to compel with the court and request that the court set a hearing on your motion. That, in effect, asks the judge to order the lender to produce the documents.
3. The judge will issue a ruling at your hearing. Many judges around the country are becoming more sympathetic to homeowners, because of the prevalence of predatory lending and servicing. In the past, many lenders have relied upon using lost note affidavits, but in many cases, that’s no longer enough to satisfy the judge. They are holding the lender to the letter of the law, requiring them to produce evidence that they are the true owners of the note. For example:

• In October 2007, Ohio Federal Court Judge Christopher Boyko dismissed 14 foreclosure cases brought by investors, ruling they failed to prove they owned the properties they were trying to seize.

B. If you are in default, but your lender has not yet filed suit against you:

1. Use the second form. It’s a fill-in-the-blank letter to your lender which also requests they produce the original note, before taking foreclosure action against you.
2. If the lender does not respond and files suit against you to foreclose, follow the steps above.

'Angel' of foreclosure defense bedevils lenders

Florida attorney trains hundreds of others to help troubled borrowers

"She's an angel," says one client of Jacksonville, Fla., foreclosure defense attorney April Charney.

By Mike Stuckey

Senior news editor

msnbc.com

updated 3:39 a.m. PT, Fri., Dec. 19, 2008

JACKSONVILLE, Fla. - Talking about what she sees as one of America’s darkest hours, attorney April Charney uses some pretty colorful language.

 

“You ever look into a place where snakes hang out?” she asks in the middle of a conversation about the loan officers, appraisers, investment bankers, attorneys and others that she believes are responsible for the nation’s worsening financial crisis. “That’s what I see here. They’re writhing and oozing and morphing into creepy stuff with slime all over it.”

Then in her quiet, gentle drawl — the kind of voice that could get you invited to afternoon drinks on the finest porches in South Florida, where she grew up — she leans forward and says quite earnestly, “Not to discredit snakes or anything.”

Charney, a lawyer with the Jacksonville Area Legal Aid agency, is quickly developing a national reputation as a champion of homeowners facing foreclosure and a serious adversary for those attempting to take possession of those homes. Her encyclopedic knowledge of contract law, debt-collection practice, securitized mortgages, the trusts that hold them and the agreements that govern the trusts have put her at the forefront of the rapidly expanding specialty of foreclosure defense.

While carrying her own load of 70 to 100 foreclosure cases as a legal aid attorney, Charney, 51, also has become one of the nation’s top trainers of other lawyers eager to learn how to serve the growing clientele spawned by America’s mortgage meltdown.

About 1,500 lawyers have attended her daylong classes on foreclosure law so far, 80 to 200 at a time. She has taught in Ohio, California, Minnesota, South Carolina, Missouri and throughout Florida. She offers the classes at cost with the help of local bar associations and aid groups and requires that all students perform 20 hours of pro bono legal work in their communities.

A trail of trouble
Charney said her crusade was born out of experience. Over and over again, she said, in her cases and those of other attorneys she met, she found sloppiness, fraud and outright criminality in the nation’s mortgage lending industry. Regardless of why her clients have been unable to pay their mortgages, she maintains that nobody deserves to lose a home to the unethical and illegal foreclosure procedures that she claims are now being used by many banks and loan servicers.

Her work has earned her the enmity of many a lender and high praise from consumer advocates. “She is definitely a woman who walks the talk and carries a big stick that will crush those who defy consumer laws,” wrote Moe Bedard, president of Loan Safe Solutions, a company that tries to help homeowners prevent foreclosure.

The Mortgage Bankers Association, the trade group that represents 2,400 companies from all sectors of real estate finance, did not respond to msnbc.com’s invitation to comment about Charney and her sweeping indictment of the industry and its business practices.

And the American Bankers Association, unfamiliar with her work, had no comment.

But clients like Vickie Lewis of Jacksonville, for whom Charney has staved off foreclosure for more than four years, adore her. “She’s an angel,” said Lewis. “Without Miss Charney, I would have been out a long time ago.”

Long days, even on 'vacation'
Charney pursues her calling with energy and enthusiasm. On a recent “vacation day,” she met for hours with a reporter, then saw clients until 8:30 p.m. in her downtown Jacksonville office, which is so crammed with case files, law books and other materials she hasn’t been able to shut the door or hold a meeting there for quite some time.

She has no sacred cows, and is currently taking on the Jacksonville area Habitat for Humanity, a darling of many liberal social activists, over construction quality and other issues.

Charney, separated from her husband, is often at her desk preparing briefs after midnight but manages to maintain close contact with a daughter, 25, a third-year law student, and a son, 23, who received a degree in anthropology last year and is now interning with the U.S. Park Service. She prefers sweaters and jeans to suits, and dreams about being able to spend more time running rivers and hiking wilderness trails.

A University of Miami law school graduate who spent years in private practice in Arkansas and worked in other legal aid offices before coming to Jacksonville four years ago, Charney said she became an expert on lending law when her caseload of foreclosures increased and she began to notice a number of disturbing trends that have yielded her key defense strategies.

First, because of the way mortgages have been securitized, it’s often unclear who actually owns the debt, she said. “What we see is that systematically, the originating lenders only pledged these loans and didn’t actually transfer them” to the trusts that are supposed to hold them and issue the securities, she explained.

But only the true debt owner has the legal standing to be a plaintiff in a foreclosure, she continued. “That’s first-year law school stuff. If you’re Joe and the debt doesn’t belong to you, it belongs to Marjorie, then Marjorie better be in court, not Joe. Don’t come in as Joe and tell me you have the right to be there when you know full well you don’t.”

Sketchy documentation
Yet, time and again, loan servicers and others have sought plaintiff status, often by using affidavits stating that the actual notes had been lost, she said. “I’ve seen paperwork filed by lawyers saying, ‘We anticipate assignment’” of the debt, she said with a scoff.

And the loan originators can’t appear in court and claim the right to foreclose because they would be in violation of securities laws for not transferring the loan to the trust when they were supposed to, she said.

Making an issue out of the actual ownership of the securitized title might strike some as a shameless stalling tactic aimed at abetting a debtor who, after all, owes the money. But Charney said that if such basic legalities aren’t adhered to, a homeowner could pay his or her way out of a foreclosure jam only to wind up in another when a new plaintiff emerges claiming to own the debt. She described cases in which homeowners have been sued for foreclosure by two different trusts, each claiming they owned their house, and cases where trusts have been sent documents on the same case by two different servicers.

Charney has a number of other defenses that focus on other sloppy and illegal practices by lenders and mortgage servicers. Some homeowners in foreclosure, such as those with FHA-insured loans like her client Vickie Lewis, were “entitled to very special default case management, and they didn’t get it,” she said. These people might not be in foreclosure if they had, she said.

Trouble is in the stock
The FHA loan program exists to enable low- and moderate-income Americans, including many with poor credit, to buy homes. FHA anticipates that borrowers in its programs will have more difficulty staying current on their loans than so-called prime borrowers, and therefore requires lenders to offer a range of options to troubled clients.

“I think that they are entitled to relief" because they didn't get the help they were supposed to, Charney said.

Still other clients wind up in foreclosure because they were the victims of predatory lending practices and outright fraud when they got their loans, Charney said. If that can be shown in court, the foreclosure may be tossed out.

Charney prefers to settle cases, often using the flaws she exposes in debt ownership and loan servicing to gain reworked, more manageable mortgages for her clients.

“Where we were settling cases at 7 percent interest, I’m now wanting to settle them at 4 percent interest or 3 percent interest,” she said. “I’m now settling for tenants where the lender, in lieu of rent, has them maintain the property. You have to adjust to the circumstances.”

Charney said that in a number of her cases, once there is no longer an ability for the loan servicer to profit, the foreclosure “just goes to sleep, and unless I’m going to pursue it, nobody’s setting hearings, nobody’s pursuing anything to get it to trial.”

After five years, which is the statute of limitations to enforce a contract in Florida, she can try to help her clients own their homes mortgage-free, Charney said. The first opportunity for her to help clients do that may arise next year.

Most cases remain in limbo
And that legal limbo is where the lion’s share of her cases stand now, Charney said. So far this year, she has achieved two “workouts” and lost two cases. “Many, many, many” of the rest are in sleep mode or getting a single filing each year by plaintiffs’ attorneys just to keep them alive.

Bert Ely, a longtime analyst of the financial services industry and a scholar at the conservative Cato Institute who was among the first to predict the S&L scandal of the 1980s, said lenders may detest tactics like the ones Charney employs, but “this is well-established in bankruptcy practice, that you have to properly perfect the security interest, and if you haven’t, you’re screwed. … Debtors’ lawyers immediately start looking for flaws in how the debt is protected. Creditor attorneys always worry about this.”

“It kind of boggles my mind that this is even an issue” in the nation’s current mortgage mess, he said. “I don’t understand how lawyers let this happen in the first place.” Mortgage-lending and servicing is “a matter of dotting the I’s and crossing the T’s. … That’s what puts the discipline in the process.”

Dozens of Cases Rolling in from Bankruptcy and Civil Courts Reversing Foreclosures, Evictions

Posted on April 17, 2009 by livinglies

The whole thing is unraveling just we predicted 18 months ago. The largest transfer of wealth in world history is starting. The question is who is going to be behind the curve and who is going to be ahead of it?

We are getting daily reports of many cases in which cases that have gone as far as a writ of possession being completely reversed, putting the homeowner not only in possession of the house, but free from the threat of foreclosure. In many cases we are seeing quiet title actions being granted. They won’t be publicized until after the time for appeal has run. It would seem that the foreclosing parties are not likely to appeal because the result, if negative, will apply not only to the case they appealed but to all their cases, past, present and future. The cases differ in procedural and substantive facts, so don’t be thinking that there is a single magic wand to waive over all the cases at one time. The Federal government programs won’t provide any relief for the majority of people injured by the predatory and fraudulent financial, securities and lending practices sponsored by the Wall Street barbarians.

The tide is turning. Dozens of Judges in courts of all jurisdictions are questioning the right of MERS, servicers or other “nominees” to even be present in court much less initiate the foreclosure action. It is basic black letter law that you can’t’ go to court and ask for relief unless you are the person who was injured. No matter how they mince the words, the only parties with any potential to apply for relief in non-judicial or judicial states are the investors. ALL the rest of the would-be foreclosers and parties who actually foreclosed are impostors seeking to get around due process requirements by invoking non-judicial procedure or by outright lying in judicial actions. In a securitized loan situation non-judicial procedure is unavailable and improper. Invoking it doesn’t make it right. It should be challenged from the start. Every non-judicial state has a judicial procedure as well. ALL these cases can ONLY be processed by satisfying the requirements of pleading, notice and hearing on the merits at which real witnesses with personal knowledge must account for the securitized transaction from one end to the other.

Many homeowners are now considering filing damage actions for abuse of process and lawyers are getting the point. Several actions have shown the inherent conflict between the apparent authority of the Trustee on the Deed of trust, the trustee of the pooled assets and the trustee for the holders of mortgage backed securities. Similar conflict exists between MERS, the “depositor” (custodian of the alleged mortgages and notes that were securitized), the Trustees, and the certificate holders (investors).

Mortgage Backed Security Holders Avoid Direct Confrontation with Borrowers

Posted on April 23, 2009 by livinglies

You have to read between the lines. This getting really interesting. Investors are the ONLY people with a potential claim to being a holder in due course and who could then seek to enforce the note, mortgage or obligation. As predicted on these pages, they will not and have not filed any legal actions against borrowers. Any legal actions filed have been against intermediaries (servicers, administrators like Countrywide, MERS et al) claiming, of all things, FRAUD. Well if fraud was involved so be it — but that means there is NO holder in due course by definition. And remember if anyone succeeds in establishing themselves as the holder in due course, then they are by definition the “lender.” If they are the lender then they are liable for all damages, fines, penalties, treble damages, claims, affirmative defenses etc. of the borrower. Their potential liability exceeds their potential recovery.

So why are the intermediaries being allowed to foreclose even though they have no interest in the loan? The investors obviously KNOW that U.S. bank, Wells Fargo, MERS et al are filing foreclosures without having any legal standing to do so. It isn’t a secret. And why are they allowing these intermediaries (IMPOSTORS — pretender lenders) to KEEP the property? Only one possible answer comes to my mind: they have a deal: “If you can get these properties or the sale proceeds we will give you money as our collection agent, but you must agree that you are acting for us and not for yourselves.” This avoids the real lender (Investor) raising the deadly holder in due course issue. It continues to hide and shield the real investor’s identity. And as for those trillions in bailout, loans, purchases of preferred stock and common stock by the US Treasury, Federal Reserve, AIG et al, it conceals a scheme to defraud taxpayers, to wit: where the taxpayers have already paid for the loan, these intermediaries are getting the money AGAIN and splitting it….

How One Borrower Beat the Foreclosure Machine

By GRETCHEN MORGENSON

Published: July 27, 2008

MAMIE RUTH PALMER isn’t a celebrity. People magazine doesn’t chronicle her every move. The paparazzi don’t wait for a photo op outside of the modest Atlanta home where she has lived since 1987.

Skip to next paragraphBut in some mortgage circles, Ms. Palmer, a 74-year-old former housekeeper, has earned her moment of fame. After enduring six years in foreclosure hell, almost losing her home twice, Ms. Palmer has escaped intact.

Last month she received a settlement from the Bank of New York, the trustee for a vast pool of mortgages that included hers. Under the terms of the deal, the bank reduced Ms. Palmer’s loan balance to $59,000 from about $100,000 and has agreed to accept the proceeds of a reverse mortgage in full satisfaction of her obligation.

The settlement also eliminated about $12,000 in foreclosure fees added to her debt and called for the installation of central air-conditioning in Ms. Palmer’s home.

Roughly $10,000 in legal fees billed over five years by Ms. Palmer’s lawyer, Howard D. Rothbloom, will be covered by payments she has made toward her mortgage while she was battling foreclosure.

“I feel good,” Ms. Palmer said last week. “It’s been a long time coming.” To celebrate, she said, she is going to Florida to fish with her nephew.

Ms. Palmer’s case is hardly unique. It’s just one of a swelling number that revolve around the thorny issue of who owns the note on a home when it’s forced into foreclosure proceedings.

In the seemingly long-ago era when banks held on to the mortgage loans they made, this was a straightforward matter. But today, amid the freewheeling packaging of mortgage loans into securities that are sold off to investors, it’s much less clear who controls the note — all of which promises to cause banks enormous legal and financial headaches as foreclosures mount.

The added twist is that some judges are taking the borrowers’ side in foreclosure disputes, precisely because of murkiness surrounding notes.

In 2002, Ms. Palmer filed for bankruptcy protection to protect her home from a quick sale on the courthouse steps. She continued to make mortgage payments, to the bankruptcy court.

Mr. Rothbloom took her case in 2003, suing the Bank of New York for levying fees on Ms. Palmer that had not been authorized by the bankruptcy court. The note securing the property was assigned to Bank of New York in September 2002, two months after it had begun foreclosure proceedings against Ms. Palmer. As a result, Mr. Rothbloom maintained, the bank had no standing to foreclose.

The two sides battled for five years, until last month.

“The Ms. Palmers of the world can’t afford to resolve these types of disputes,” Mr. Rothbloom said. “So they usually wind up losing their homes.”

Bank of New York declined to comment on the settlement.

The problems associated with banks that begin foreclosure proceedings when they do not have proper legal standing are now looming larger in the mortgage meltdown. Loans were heaped into trusts with little documentation of ownership or proper loan assignments — it was all about volume and the fees that came with it — and now that sloppiness is hurting both lenders and borrowers.

Mr. Rothbloom said he had another case in which the lender’s representative has been unable to prove ownership for two and a half years.

Meanwhile, consumer lawyers fear that borrowers are being pushed out of their homes by companies that have no right to do so. Such a prospect is particularly worrisome for residents in states that allow lenders to foreclose without court supervision, known as nonjudicial foreclosure states.

Georgia is one; its borrowers can lose their homes on the courthouse steps less than a month after foreclosure notices have been posted.

To try to protect its borrowers, Georgia just instituted a law requiring that lenders moving to foreclose on a borrower must file proof in county records that they own the underlying property before the home goes to foreclosure sale.

“We believe that many of these companies can’t find the assignments,” said William J. Brennan Jr., director of the Home Defense Program of the Atlanta Legal Aid Society. “If they can never prove ownership, then they can never foreclose.”

Another provision in the Georgia law requires that troubled borrowers know whom to call if a foreclosure is imminent. Lenders must send a warning letter that lists the name, address and phone number of the financial entity involved in the foreclosure that has full authority to modify loans or work out repayment.

Not knowing whom to call is another effect of securitization. In the past, lenders knew their borrowers and vice versa; today the holder of the note securing the property is a faceless investor represented by a trustee, like the Bank of New York.

Yet another middle man is the company servicing the loan; it has an obligation to the investor to extract all the money it can from the borrower. And because the foreclosure process can generate lucrative fees, servicers have an incentive to drag out the process, experts say.

April Charney, a consumer lawyer at Jacksonville Area Legal Aid in Florida, said she was happy to see judges across the country demanding more of lenders and their representatives. In addition to demonstrating that they have the right to foreclose, they are also being asked to certify the accuracy of documents outlining such things as amounts owed by a borrower.

When lenders cannot prove that they have the standing to foreclose, Ms. Charney said, offers of settlements or loan workouts often follow. But if the lenders don’t have the standing to foreclose, they may not be able to settle either.

“I ask them to show me some authority to settle, and they don’t have an ability to show that,” Ms. Charney said. “If you realize the loans were not transferred in compliance with the securitization trust, then who does own the loan? As a lawyer I am perplexed.”

Arthur M. Schack, a justice on New York State Supreme Court in Brooklyn, is one of the judges who is putting lenders’ feet to the fire. In 14 published foreclosure decisions handed down since Jan. 1, Justice Schack has granted only one lender the right to foreclose. Of the 13 other cases, he dismissed one outright and dismissed 12 without prejudice. That means if the banks can cure the problems identified by the judge, they can bring the cases back to his courtroom.

“If you are going to take away somebody’s house, you have to do it the right way,” Justice Schack said. “You have to have due process, and the law has to be followed.”

Now that’s a concept.

Fair Game

Guess What Got Lost in the Loan Pool?

By GRETCHEN MORGENSON

Published: February 28, 2009

WE are all learning, to our deep distress, how the perpetual pursuit of profits drove so many of the bad decisions that financial institutions made during the mortgage mania.

But while investors tally the losses that were generated by loose lending so far, the impact of another lax practice is only beginning to be seen. That is the big banks’ minimalist approach to meeting legal requirements — bookkeeping matters, really — when pooling thousands of loans into securitization trusts.

Stated simply, the notes that underlie mortgages placed in securitization trusts must be assigned to those trusts soon after the firms create them. And any transfers of these notes must also be recorded.

But this seems not to have been a priority with many big banks. The result is that bankruptcy judges are finding that institutions claiming to hold the notes that back specific mortgages often cannot prove it.

On Feb. 11, a circuit court judge in Miami-Dade County in Florida set aside a judgment against Ana L. Fernandez, a borrower whose home had been foreclosed and repurchased on Jan. 21 by Chevy Chase Bank, the institution claiming to hold the note. But the bank had been unable to produce evidence that the original lender had assigned the note, which was in the amount of $225,000, to Chevy Chase.

With the sale set aside, Ms. Fernandez remains in the home. “We believe this loan was never assigned,” said Ray Garcia, the lawyer in Miami who represented the borrower. Now, he said, it is up to whoever can produce the underlying note to litigate the case. The statute of limitations on such a matter runs for five years, he said.

A spokeswoman for Capital One, which is in the process of acquiring Chevy Chase, did not return a phone call on Friday seeking comment.

Mr. Garcia has another case in which a borrower tried to sell his home but could not because the note underlying a $60,000 second mortgage cannot be found. The statute of limitations on the matter will expire in October, he said, and if the note holder has not come forward by then, the borrower will be free of his obligation on the second mortgage.

No one knows how many loans went into securitization trusts with defective documentation. But as messes go, this one has, ahem, potential. According to Inside Mortgage Finance, some eight million nonprime mortgages were put into securities pools in 2005 and 2006 and sold to investors. The value of these loans was $797 billion in 2005 and $815 billion in 2006.

If notes underlying even some of these mortgages were improperly assigned or lost, that will surely complicate pending legislation intended to allow bankruptcy judges to modify mortgage terms for troubled borrowers. A so-called cram-down provision in the law would let judges reduce the size of a loan, forcing whoever holds the security interest in it to take a loss.

But if the holder of the note is in doubt, how can these loans be modified?

Bookkeeping is such a bore, especially when there are billions to be made shoveling loans into trusts like coal into the Titanic’s boilers. You can imagine the thought process: Assigning notes takes time and costs money, why bother? Who’s going to ask for proof of ownership of these notes anyhow?

But as the Fernandez case and others indicate, bankruptcy judges across the country are increasingly asking these pesky questions. Two judges in California — one in state court, another in federal court — issued temporary restraining orders last month stopping foreclosures because proper documentation was not produced by lenders or their representatives. And in another California case, a borrower’s lawyer was awarded $8,800 in attorney’s fees relating to costs spent litigating against a lender that could not prove it had the right to foreclose.

California cases are especially interesting because foreclosures in that state can be conducted without the oversight of a judge. Borrowers who do not have a lawyer representing them can be turned out of their homes in four months.

Samuel L. Bufford, a federal bankruptcy judge in Los Angeles since 1985, has overseen some 100,000 bankruptcy cases. He said that in previous years, he rarely asked for documentation in a foreclosure case but that problems encountered in mortgage securitizations have made him become more demanding.

In a recent case, Judge Bufford said, he asked a lender to produce the original of the note and it turned out to be different from the copy that had been previously submitted to the court. The original had been assigned to a bank that had then transferred it to Freddie Mac, the judge explained. “They had no clue what happened after that,” he said. “Now somebody’s got to go find that note.”

“My guess is it’s because in the secondary mortgage market they have been sloppy,” Judge Bufford added. “The people who put the deals together get paid for the deals, but they don’t get paid for the paperwork.”

A small but spirited group of consumer lawyers has argued for years that the process of pooling residential mortgages into securities was so haphazard that proper documentation of the loans was never made in many cases. Leading the brigade is April Charney, a foreclosure lawyer at Jacksonville Legal Aid in Florida; she now trains consumer lawyers around the country to litigate these cases.

Depending on the documentation defect, lawyers say, investors in the trust could try to force the institution that sold the loan to the trust to buy it back. Many of these institutions would be unable to do so, however, because they are defunct. In the meantime, when judges are not persuaded that the documentation is proper, troubled borrowers can remain in their homes even if they are delinquent.

THE woes brought on by sloppy bookkeeping in securitizations will be on the agenda at the American Bankruptcy Institute’s annual spring meeting on April 3. An article titled “Where’s the Note, Who’s the Holder,” co-written by Judge Bufford and R. Glen Ayers, a former federal bankruptcy judge in Texas, will be the basis of a discussion at the meeting.

Mr. Ayers, who is a lawyer at Langley & Banack in San Antonio, said he expects that these documentation problems will halt a lot of foreclosures. That will mean pain for investors who hold the securities. The problem for those who expect to receive the benefit of the note, Mr. Ayers said, is that they “may not be able to show to the judge they have a right to foreclose.”

“It’s a huge problem,” he added. “It’s going to be expensive, I don’t know how expensive, ultimately to the bondholders.”

Are Courts in California Truly Limited by Non-Judicial Foreclosure Statutes?

By Michael Doan on May 2, 2009 in Foreclosure Defense, Foreclosure News

Recently, many California Courts have been dismissing lawsuits filed to stop non-judicial foreclosures, ruling that the non-judicial foreclosure statutes occupy the field and are exclusive as long as they are complied with.  Thus, in the case where a notice of default is recorded and a lawsuit then filed in response to stop the foreclosure since the foreclosing party does not possess the underlying note, all too often the Court will simply dismiss the case and claim “2924 has no requirement to produce the note.”

Thus, these Courts view the statutes that regulate non-judicial foreclosures as all inclusive of all the requirements and remedies in foreclosure proceedings.  Indeed, California Civil Code sections 2924 through 2924k provide a comprehensive framework for the regulation of a nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust. This comprehensive statutory scheme has three purposes: ‘“(1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.” [Citations.]’ [Citation.]” (Melendrez v. D & I Investment, Inc. (2005) 127 Cal.App.4th 1238, 1249–1250 [26 Cal. Rptr. 3d 413].)

Notwithstanding, the foreclosure statutes are not exclusive.  If someone commits murder during an auction taking place under Civil Code 2924, that does not automatically mean they are immune from criminal and civil liability.  Perhaps this is where some of these courts are “missing the boat.”

 For example, in Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th 1226, 1231 [44 Cal. Rptr. 2d 352, 900 P.2d 601], the California Supreme Court concluded that a lender who obtained the property with a full credit bid at a foreclosure sale was not precluded from suing a third party who had fraudulently induced it to make the loan. The court concluded that “ ‘the antideficiency laws were not intended to immunize wrongdoers from the consequences of their fraudulent acts’ ” and that, if the court applies a proper measure of damages, “ ‘fraud suits do not frustrate the antideficiency policies because there should be no double recovery for the beneficiary.’ ” (Id. at p. 1238.)

Likewise, in South Bay Building Enterprises, Inc. v. Riviera Lend-Lease, Inc. [*1071]  (1999) 72 Cal.App.4th 1111, 1121 [85 Cal. Rptr. 2d 647], the court held that a junior lienor retains the right to recover damages from the trustee and the beneficiary of the foreclosing lien if there have been material irregularities in the conduct of the foreclosure sale. (See also Melendrez v. D & I Investment, Inc., supra, 127 Cal.App.4th at pp. 1257–1258; Lo v. Jensen (2001) 88 Cal.App.4th 1093, 1095 [106 Cal. Rptr. 2d 443] [a trustee's sale tainted by fraud may be set aside].)

In looking past the comprehensive statutory framework, these other Courts also considered the policies advanced by the statutory scheme, and whether those policies would be frustrated by other laws.  Recently, in the case of California Golf, L.L.C. v. Cooper, 163 Cal. App. 4th 1053, 78 Cal. Rptr. 3d 153, 2008 Cal. App. LEXIS 850 (Cal. App. 2d Dist. 2008), the Appellate Court held that the remedies of 2924h were not exclusive.  Of greater importance is that the Appellate Court reversed the lower court and specifically held that provisions in UCC Article 3 were allowed in the foreclosure context:

Considering the policy interests advanced by the statutory scheme governing nonjudicial foreclosure sales, and the policy interests advanced by Commercial Code section 3312, it is clear that allowing a remedy under the latter does not undermine the former. Indeed, the two remedies are complementary and advance the same goals. The first two goals of the nonjudicial foreclosure statutes: (1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor and (2) to protect the debtor/trustor from a wrongful loss of the property, are not impacted by the decision that we reach. This case most certainly, however, involves the third policy interest: to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.

This is very significant since it provides further support to lawsuits brought against foreclosing parties lacking the ability to enforce the underlying note, since those laws also arise under Article 3.  Under California Commercial Code 3301, a note may only be enforced if one has actual possession of the note as a holder, or has possession of the note not as a non-holder but with holder rights.  

Just like in California Golf, enforcing 3301 operates to protect the debtor/trustor from a wrongful loss of the property.  To the extent that a foreclosing party might argue that such lawsuits disrupt a quick, inexpensive, and efficient remedy against a defaulting debtor/trustor, the response is that “since there is no enforceable obligation,  the foreclosing entity is not a party/creditor/beneficiary entitled to a quick, inexpensive, and efficient remedy,” but simply a declarant that recorded false documents.

This is primarily because being entitled to foreclose non-judicially under 2924 can only take place “after a breach of the obligation for which that mortgage or transfer is a security.”   Thus, 2924 by its own terms, looks outside of the statute to the actual obligation to see if there was a breach, and if the note is unenforceable under Article 3, there can simply be no breach.  End of story.

Accordingly, if there is no possession of the note or possession was not obtained until after the notice of sale was recorded, it is impossible to trigger 2924, and simple compliance with the notice requirements in 2924 does not suddenly bless the felony of grand theft of the unknown foreclosing entity.  To hold otherwise would create absurd results since it would allow any person or company the right to take another persons’ home by simply recording a false notice of default and notice of sale.  

Indeed, such absurdity would allow you to foreclose on your own home again to get it back should you simply record the same false documents.  Thus it is obvious that these courts improperly assume the allegations contained in the notice of default and notice of sale are truthful.   Perhaps these courts simply cannot or choose not to believe such frauds are taking place due to the magnitude and volume of foreclosures in this Country at this time.  One can only image the chaos that would ensue in America if the truth is known that millions of foreclosures took place unlawfully and millions more are now on hold as a result of not having the ability to enforce the underlying obligation pursuant to Article 3.

So if you are in litigation to stop a foreclosure, you can probably expect the Court will want to immediately dismiss your case.  These Courts just cannot understand how the law would allow someone to stay in a home without paying.  Notwithstanding, laws cannot be broken, and Courts are not allowed to join with the foreclosing parties in breaking laws simply because “not paying doesn’t seem right.”

 Accordingly, at least for appeal purposes, be sure to argue that 2924 was never triggered since there was never any “breach of the obligation” and that Appellate Courts throughout California have routinely held that other laws do in fact apply in the non-judicial foreclosure process since the policies advanced by the statutory non-judicial foreclosure scheme are not frustrated by these other laws.

 Written by Michael G. Doan

Most plaintiffs never “hold” the original mortgage note

By Chip Parker, Jacksonville Consumer Attorney on May 3, 2009 in Foreclosure Defense

In the state of Florida, mill law firms file 11,000 foreclosure complaints per month, and the vast majority of those complaints are filed with the knowledge that the plaintiff does not have the right to foreclose.

What do I mean by that?  It’s simple.  The plaintiff must own or “hold” the mortgage and original mortgage note BEFORE the foreclosure case is filed.  Ownership of a mortgage note is complete only after the following three things occur:

1.    Indorsement of the original note by the originator
2.    Delivery of the original indorsed note to the plaintiff
3.    Acceptance of delivery of the note by the plaintiff

The problem is that the plaintiff rarely ever takes physical possession of the note unless or until a defendant fights the foreclosure.

In reality, the original promissory note was “sold” to the plaintiff, which is usually a tax-free trust known as a REMIC, but the original note actually never leaves the originator or the servicer.  Therefore, even if the note was indorsed by the originator, the originator still owns it until the actual delivery.

Would you buy a car without getting the title?  Of course not, but then again, you’re not a high-powered banking executive whose brains were sucked out of his nose while he slept.  I suggest banking executives had their brains removed because why else would they not get the original note when they acted as trustees for these REMICs?

Actually, the answer is simple.  These mortgage companies were closing on loans in every nook and crannie throughout the country.  Centralizing 10,000 of these notes (the average number of loans in a single REMIC) in one location, indorsing them and shipping them to the trust bank was time consuming.  Actual delivery of the original note was . . . like . . . so yesterday.

Since only 1% or so of all foreclosures are contested, does any of this really matter?  Why fix a machine that works 99% of the time?

So, the mill firms file these fatally flawed foreclosure complaints because they get away with it almost every time.  Quite frankly, all it takes is knowing what questions to ask, and most foreclosures can be brought to a screeching halt.

However, there’s a bigger issue here.  If the mortgage industry, as a rule, files foreclosure after foreclosure, knowing that the transfer of ownership of the note was not completed prior to the commencement of the case, isn’t that some kind of large-scale fraud?

Uh, yeah. . .

So, what happens if the plaintiff produces the original note after the case is filed?  Stay tuned.

WHY SHOULD I FIGHT MY FORECLOSURE?

If you have been served with a complaint to foreclosure on your home, your options are limited.  First, you can negotiate with your mortgage company to reinstate the mortgage.  Secondly, you can file a Chapter 13 bankruptcy.  Thirdly, you can sell your home or attempt to refinance.  Fourthly, you can give up and get out of your home.  Finally, you can fight the foreclosure.

The first two options assume that you can afford your current monthly payment, and selling or refinancing your home may be impossible if you have little equity or even negative equity.

Many homeowners, especially those with subprime mortgages, can no longer afford the mortgage payments, even if the mortgage were current.  That makes a Chapter 13 bankruptcy impossible. 

While you are litigating the foreclosure case, you are not required to make your normal monthly mortgage payments.  The legal process will afford you time to reinstate the mortgage, sell your home, file a bankruptcy or move out.  You may be able to force the lender to completely rewrite the terms of your note and mortgage, enabling you to keep your home.

This may sound too good to be true, but you may actually have valuable defenses and counterclaims against your mortgage company that could actually prevent foreclosure and even require your lender to pay you damages.  Across the country, judges are punishing mortgage companies for incomplete record keeping and for violations of the Truth In Lending Act.  You may be able to allege valid defenses including fraud and Truth In Lending Act violations.

Are you aware that your mortgage company is probably not the same company that actually loaned you the money to buy or refinance your home?  How do you know if the mortgage company suing you has been properly assigned your note and mortgage?  Your mortgage company may have failed to properly assign the note and mortgage before initiating the foreclosure.  Does your foreclosure complaint even have copies of the note, mortgage and purported assignment attached? 

Most likely, these documents are not attached, and may not even be in the possession of your mortgage company.  Your mortgage company may be attempting to substitute your original note and/or mortgage with a purported copy.  This is called a “Count to Establish Lost Documents."  There are strict legal requirements to establish a lost note or mortgage, and your mortgage company may be unable to meet the requirements if challenged.  

CHECK OUT THIS RECENT NEWS REPORT!

If your current mortgage company is not your original lender, it probably has never read your mortgage.  Your mortgage may require that the plaintiff accelerate (i.e. demand) the entire balance of the note.  Your mortgage company may have failed to do that, which may entitle you the opportunity to cure the mortgage by paying the reinstatement amount.  It is also common for mortgage companies to inflate the balance due on the mortgage by charging homeowners junk fees, such as Broker Price Opinions (BPO), property inspections and other "property preservation expenses."

So, essentially, your mortgage company may have filed an improper foreclosure lawsuit, but your time is limited.  You have or will be served a copy of the foreclosure complaint by a process server.  You typically have only 20 days to respond to the mortgage company's complaint, so you need to see an attorney immediately if you wish to defend against the foreclosure.  If you are beyond the twenty days, there are still defenses that can be raised.

Chip Parker of Parker & DuFresne

Why can’t I get a short sale closed? Ask your Senator. Bankruptcy to follow

By David Leibowitz, Illinois and Wisconsin Bankruptcy Attorney on May 16, 2009