View Full Version : Landmark decision promises massive relief for homeowners and trouble for banks
Bottom line - some 60,000,000 home mortgages may be flawed - so badly flawed that they cannot be foreclosed upon by anyone.
This has implications for home owners, for the banking industry, the securities markets, and for anyone who wants to get a home loan in the future.
LINK (http://www.opednews.com/articles/LANDMARK-DECISION-PROMISES-by-Ellen-Brown-090921-894.html)
Landmark decision promises massive relief for homeowners and trouble for banks
A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose – on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.
Eliminating the “Straw Man” Shielding Lenders and Investors from Liability
The development of “electronic” mortgages managed by MERS went hand in hand with the “securitization” of mortgage loans – chopping them into pieces and selling them off to investors. In the heyday of mortgage securitizations, before investors got wise to their risks, lenders would slice up loans, bundle them into “financial products” called “collateralized debt obligations” (CDOs), ostensibly insure them against default by wrapping them in derivatives called “credit default swaps,” and sell them to pension funds, municipal funds, foreign investment funds, and so forth. There were many secured parties, and the pieces kept changing hands; but MERS supposedly kept track of all these changes electronically. MERS would register and record mortgage loans in its name, and it would bring foreclosure actions in its name. MERS not only facilitated the rapid turnover of mortgages and mortgage-backed securities, but it has served as a sort of “corporate shield” that protects investors from claims by borrowers concerning predatory lending practices. California attorney Timothy McCandless describes the problem like this:
“[MERS] has reduced transparency in the mortgage market in two ways. First, consumers and their counsel can no longer turn to the public recording systems to learn the identity of the holder of their note. Today, county recording systems are increasingly full of one meaningless name, MERS, repeated over and over again. But more importantly, all across the country, MERS now brings foreclosure proceedings in its own name – even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers' discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer's home. . . . So imposing is this opaque corporate wall, that in a “vast” number of foreclosures, MERS actually succeeds in foreclosing without producing the original note – the legal sine qua non of foreclosure – much less documentation that could support predatory lending defenses.”
The real parties in interest concealed behind MERS have been made so faceless, however, that there is now no party with standing to foreclose. The Kansas Supreme Court stated that MERS' relationship “is more akin to that of a straw man than to a party possessing all the rights given a buyer.” The court opined:
“By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” [Citations omitted; emphasis added.]
MERS as straw man lacks standing to foreclose, but so does original lender, although it was a signatory to the deal. The lender lacks standing because title had to pass to the secured parties for the arrangement to legally qualify as a “security.” The lender has been paid in full and has no further legal interest in the claim. Only the securities holders have skin in the game; but they have no standing to foreclose, because they were not signatories to the original agreement. They cannot satisfy the basic requirement of contract law that a plaintiff suing on a written contract must produce a signed contract proving he is entitled to relief.
The Potential Impact of 60 Million Fatally Flawed Mortgages
The banks arranging these mortgage-backed securities have typically served as trustees for the investors. When the trustees could not present timely written proof of ownership entitling them to foreclose, they would in the past file “lost-note affidavits” with the court; and judges usually let these foreclosures proceed without objection. But in October 2007, an intrepid federal judge in Cleveland put a halt to the practice. U.S. District Court Judge Christopher Boyko ruled that Deutsche Bank had not filed the proper paperwork to establish its right to foreclose on fourteen homes it was suing to repossess as trustee. Judges in many other states then came out with similar rulings.
Following the Boyko decision, in December 2007 attorney Sean Olender suggested in an article in The San Francisco Chronicle that the real reason for the bailout schemes being proposed by then-Treasury Secretary Henry Paulson was not to keep strapped borrowers in their homes so much as to stave off a spate of lawsuits against the banks. Olender wrote:
“The sole goal of the [bailout schemes] is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value – right now almost 10 times their market worth. The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
“. . . The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC . . . .
“What would be prudent and logical is for the banks that sold this toxic waste to buy it back and for a lot of people to go to prison. If they knew about the fraud, they should have to buy the bonds back.”
Needless to say, however, the banks did not buy back their toxic waste, and no bank officials went to jail. As Olender predicted, in the fall of 2008, massive taxpayer-funded bailouts of Fannie and Freddie were pushed through by Henry Paulson, whose former firm Goldman Sachs was an active player in creating CDOs when he was at its helm as CEO. Paulson also hastily engineered the $85 billion bailout of insurer American International Group (AIG), a major counterparty to Goldmans' massive holdings of CDOs. The insolvency of AIG was a huge crisis for Goldman, a principal beneficiary of the AIG bailout.
In a December 2007 New York Times article titled “The Long and Short of It at Goldman Sachs,” Ben Stein wrote:
“For decades now, . . . I have been receiving letters [warning] me about the dangers of a secret government running the world . . . . [T]he closest I have recently seen to such a world-running body would have to be a certain large investment bank, whose alums are routinely Treasury secretaries, high advisers to presidents, and occasionally a governor or United States senator.”
The pirates seem to have captured the ship, and until now there has been no one to stop them. But 60 million mortgages with fatal defects in title could give aggrieved homeowners and securities holders the crowbar they need to exert some serious leverage on Congress – serious enough perhaps even to pry the legislature loose from the powerful banking lobbies that now hold it in thrall.
alright4u
09-21-2009, 21:46
Wonder if they foresaw this and decided to operate like rent to own/lease purchase types?
I'm under the impression that this is a very big surprise to all concerned.
Homeowners who have failed to pay their mortgages can't be foreclosed on in Kansas - and other states may follow Kansas' lead.
Those who own mortgage backed securities - pension funds, for example - may find those securities are nearly worthless.
The entities who sold the securities to others - like the pension funds - may face civil litigation for fraud.
Future mortgage backed securities may not be something anyone wants to buy - which could lead to more expensive mortgages in future.
I'm under the impression that this is a very big surprise to all concerned.
Homeowners who have failed to pay their mortgages can't be foreclosed on in Kansas - and other states may follow Kansas' lead.
Those who own mortgage backed securities - pension funds, for example - may find those securities are nearly worthless.
The entities who sold the securities to others - like the pension funds - may face civil litigation for fraud.
Future mortgage backed securities may not be something anyone wants to buy - which could lead to more expensive mortgages in future.
So how can one tell if their falls into this category?
bravo22b
09-22-2009, 07:01
This was not completely unforeseen. I remember reading an article a while back describing how some homeowners were thwarting threatened foreclosures by demanding that the bank (or other entity) produce the note. The gist of that article was that some of these loans had changed hands so many times that the paperwork had never caught up to the entity that now owned the loan. Unable to produce the actual note, they were unable to foreclose on the house.
At the time, I got a chuckle out of it, because it seemed like fitting justice for entities that were too lazy to actually do the work of administering these loans. I had never heard of MERS, but now that I read this article, I can see how this is a logical extension of this problem.
This could get interesting.
I don't think this will offer a out for those you decide not to pay their loans off. A key phrase is; "MERS now brings foreclosure proceedings in its own name – even though it is not the financial party in interest."
Seems MERS also reduces risk to the loan holders. In some cases, especially in "toxic waste clean up", the cost of the clean up can be passed on to the loan holder.
The Idea of MERS makes investment sense, in that it allows smaller investors to participate in the mortgage business. It will be interesting to see what the spin offs will be or how this is remedied.
So how can one tell if their falls into this category?
As I understand it, one can go here: http://www.mersinc.org/homeowners/index.aspx
If one searches the page, there is a link: https://www.mers-servicerid.org/sis/
I've put the entire link up so it is possible to view the full address.
Please understand that it requires the borrower's SSN - so caution is advised.
If one goes here: http://www.tickerforum.org/cgi-ticker/akcs-www?post=111695 you can read where some individuals tried the system and, apparently, succeeded. In addition, there are various opinions on the impact of the decision.
Reading through, it sounds as if judges in Florida are not requiring MERS to produce the mortgage, and have given the banks "standing". But for Kansas, and perhaps some other states, matters are in flux.
Homeowners may get some mortgage relief. Some speculate they may get a free house, though I doubt it.
Those who hold the bonds may wind up with nothing but an unpleasant memory.
http://www.webofdebt.com/articles/homeowners.php
HOMEOWNERS' REBELLION:
COULD 62 MILLION HOMES BE FORECLOSURE-PROOF?
Ellen Brown, August 18th, 2010
http://www.webofdebt.com/articles/homeowners.php
Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles—and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof.
Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.
MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”—an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.
That means hordes of victims of predatory lending could end up owning their homes free and clear—while the financial industry could end up skewered on its own sword.
California Precedent
The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E–11. The court held that MERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank could not collect on its claim. The judge opined:
Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.
In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:
Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.
The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:
This opinion . . . serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.
While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.
What Could This Mean for Homeowners?
Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS’ technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance, MERS insisted that it had no actionable interest in title, and the court agreed.
An August 2010 article in Mother Jones titled “Fannie and Freddie’s Foreclosure Barons” exposes a widespread practice of “foreclosure mills” in backdating assignments after foreclosures have been filed. Not only is this perjury, a prosecutable offense, but if MERS was never the title holder, there is nothing to assign. The defaulting homeowners could wind up with free and clear title.
-CONTD-
In Jacksonville, Florida, legal aid attorney April Charney has been using the missing-note argument ever since she first identified that weakness in the lenders’ case in 2004. Five years later, she says, some of the homeowners she’s helped are still in their homes. According to a Huffington Post article titled “‘Produce the Note’ Movement Helps Stall Foreclosures”:
Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action ‘quiets’ all other claims). Charney says she’s helped thousands of homeowners delay or prevent foreclosure, and trained thousands of lawyers across the country on how to protect homeowners and battle in court.
Criminal Charges?
Other suits go beyond merely challenging title to alleging criminal activity. On July 26, 2010, a class action was filed in Florida seeking relief against MERS and an associated legal firm for racketeering and mail fraud. It alleges that the defendants used “the artifice of MERS to sabotage the judicial process to the detriment of borrowers;” that “to perpetuate the scheme, MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments;” that the scheme depended on “the MERS artifice and the ability to generate any necessary ‘assignment’ which flowed from it;” and that “by engaging in a pattern of racketeering activity, specifically ‘mail or wire fraud,’ the Defendants . . . participated in a criminal enterprise affecting interstate commerce.”
Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or “whistle blower” to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates, filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America, JPMorgan Chase and Wells Fargo, for “wrongfully bypass[ing] the counties’ recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note . . .; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located.” The complaint notes that “MERS claims to have ‘saved’ at least $2.4 billion dollars in recording costs,” meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.
By Their Own Sword: MERS’ Role in the Financial Crisis
MERS is, according to its website, “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” Or as Karl Denninger puts it, “MERS’ own website claims that it exists for the purpose of circumventing assignments and documenting ownership!”
MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans. That did not actually happen, but what MERS did allow was the securitization and shuffling around of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees but to defeat the purpose of the recording laws, which was to guarantee purchasers clean title. Worse, MERS facilitated an explosion of predatory lending in which lenders could not be held to account because they could not be identified, either by the preyed-upon borrowers or by the investors seduced into buying bundles of worthless mortgages. As alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al.:
Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans. Before MERS, the actual beneficiary of every Deed of Trust on every parcel in the United States and the State of Nevada could be readily ascertained by merely reviewing the public records at the local recorder’s office where documents reflecting any ownership interest in real property are kept....
After MERS, . . . the servicing rights were transferred after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible .... The servicer was interested in only one thing – making a profit from the foreclosure of the borrower’s residence – so that the entire predatory cycle of fraudulent origination, resale, and securitization of yet another predatory loan could occur again. This is the legacy of MERS, and the entire scheme was predicated upon the fraudulent designation of MERS as the ‘beneficiary’ under millions of deeds of trust in Nevada and other states.
Axing the Bankers’ Money Tree
.
Ret10Echo
08-21-2010, 18:02
I'm under the impression that this is a very big surprise to all concerned.
Homeowners who have failed to pay their mortgages can't be foreclosed on in Kansas - and other states may follow Kansas' lead.
Those who own mortgage backed securities - pension funds, for example - may find those securities are nearly worthless.
The entities who sold the securities to others - like the pension funds - may face civil litigation for fraud.
Future mortgage backed securities may not be something anyone wants to buy - which could lead to more expensive mortgages in future.
Additional fallout.
Existing, vacant, foreclosed properties are NOT moving (in our area). The ask prices are ridiculously low, yet in our disucssions with the realtors (My home is flanked by forclosed properties) even at this extreme, they can not get potential buyers financed so one contract after another falls through. The HOA has picked up the lawn care to keep it in check, but eventually there are going to be real issues with these homes should they continue to remain vacant (it has been over 18 months already). I have already taken on minor repair work (fences and such) just to keep it from looking like a slum.
Not good.
incarcerated
08-21-2010, 19:43
http://www.latimes.com/business/la-fi-obama-foreclosures-20100821,0,3901237.story?track=rss
Federal foreclosure prevention program is struggling
Under the main Obama administration program to ease foreclosures, fewer than 37,000 homeowners received permanently lowered mortgage payments in July. Modification cancellations are up.
By Jim Puzzanghera, Los Angeles Times
August 21, 2010
Reporting from Washington — Just as the housing market recovery has stalled, so has the Obama administration's main program to ease home foreclosures.
Only 36,695 homeowners received permanently lowered mortgage payments in July through the much-criticized Home Affordable Modification Program, the smallest increase since December, administration officials said Friday.
And the number of people dropping out of the program continued to soar. Overall, nearly half the homeowners who entered the program since it launched in March of last year have dropped out.
Many had hoped the $75-billion program would be a silver bullet to the foreclosure problem, but it's turned out to be a dud, said independent banking analyst Bert Ely. That's not surprising, he said, given the depth of the housing market crash and recession, combined with a slow recovery....
alright4u
08-21-2010, 22:33
So how can one tell if their falls into this category?
This has to be a boatload of NINJA/CRA paper.
This has to be a boatload of NINJA/CRA paper.
I can only imagine. From recollection when I refinanced the house the mortgage was sold to another company before the first payment was due, then the second sold it to another, that company went under or was bought out by a large bank.
There were times I had two payment coupons with the same due date, from two different banks and I wasn't sure who to pay.
I have no idea who holds the title.
Based on the local radio ads and mailers, the mortgage refinance industry is still playing this game.
alright4u
08-22-2010, 20:54
Twenty plus years ago I had a VA loan. Then I had three loan servicers in a two year period like many have had. Once I went 15 year conv with well over 50 % down in 2003, that bank will not sell the note. Hell, they hope I screw up.
craigepo
08-22-2010, 21:50
I am presently seeing a similar issue in a lot of credit card collection cases. Once people default on their credit card payments, credit card company sells the account as an accounts-receivable to some debt-collecting company. Debt-collecting company files a suit to get a money judgment. (Credit card company sells the debt for XX cents on the dollar, and probably comes out ahead).
The debt collectors have problems winning their case that the credit card company wouldn't have had. (1) The debt collector company is not a party to the original credit card contract, and can very rarely prove that they have been assigned the account. So, they can't prove a breach-of-contract case; (2) The debt collecting company also can't win a "suit on account" type case, as such a case necessitates evidence showing the reasonable value of each purchase. As the credit card company has no clue what a reasonable value was for any purchase, they lose again. ("Suits on account" were set up for a suit for an instance when, say, a feed store had to sue a farmer who didn't pay his bills. The feed store knows the value of each purchase on the account; not so for a credit-card company trying to sue a credit-card holder).
http://news.yahoo.com/s/ap/20101001/ap_on_bi_ge/us_bank_of_america_foreclosures
By ALAN ZIBEL, AP Real Estate Writer Alan Zibel, Ap Real Estate Writer Fri Oct 1, 7:46 pm ET
WASHINGTON – Bank of America is delaying foreclosures in 23 states as it examines whether it rushed the foreclosure process for thousands of homeowners without reading the documents.
The move adds the nation's largest bank to a growing list of mortgage companies whose employees signed documents in foreclosure cases without verifying the information in them.
Bank of America isn't able to estimate how many homeowners' cases will be affected, Dan Frahm, a spokesman for the Charlotte, N.C.-based bank, said Friday. He said the bank plans to resubmit corrected documents within several weeks.
Two other companies, Ally Financial Inc.'s GMAC Mortgage unit and JPMorgan Chase, have halted tens of thousands of foreclosure cases after similar problems became public.
The document problems could cause thousands of homeowners to contest foreclosures that are in the works or have been completed. If the problems turn up at other lenders, a foreclosure crisis that's already likely to drag on for several more years could persist even longer. Analysts caution that most homeowners facing foreclosure are still likely to lose their homes.
State attorneys general, who enforce foreclosure laws, are stepping up pressure on the industry.
On Friday, Connecticut Attorney General Richard Blumenthal asked a state court to freeze all home foreclosures for 60 days. Doing so "should stop a foreclosure steamroller based on defective documents," he said.
And California Attorney General Jerry Brown called on JPMorgan to suspend foreclosures unless it could show it complied with a state consumer protection law. The law requires lenders to contact borrowers at risk of foreclosure to determine whether they qualify for mortgage assistance.
In Florida, the state attorney general is investigating four law firms, two with ties to GMAC, for allegedly providing fraudulent documents in foreclosure cases .The Ohio attorney general this week asked judges to review GMAC foreclosure cases.
Mark Paustenbach, a Treasury Department spokesman, said the Treasury has asked federal regulators "to look into these troubling developments."
A document obtained Friday by the Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed up to 8,000 foreclosure documents a month and typically didn't read them.
The official, Renee Hertzler, said in a February deposition that she signed 7,000 to 8,000 foreclosure documents a month.
"I typically don't read them because of the volume that we sign," Hertzler said.
She also acknowledged identifying herself as a representative of a different bank, Bank of New York Mellon, that she didn't work for. Bank of New York Mellon served as a trustee for the investors holding the homeowner's loan.
Hertzler could not be reached for comment.
A lawyer for the homeowner in the case, James O'Connor of Fitchburg, Mass., said such problems are rampant throughout the industry.
"We have had thousands, maybe hundreds of thousands of foreclosures around the country by entities that did not have the right to foreclose," O'Connor said.
The disclosure comes two days after JPMorgan said it would temporarily stop foreclosing on more than 50,000 homes so it could review documents that might contain errors. Last week, GMAC halted certain evictions and sales of foreclosed homes in 23 states to review those cases after finding procedural errors in some foreclosure affidavits.
Consumer advocates say the problems are widespread across the lending industry.
"The general level of sloppiness is pervasive around the industry," said Diane Thompson, counsel at the National Consumer Law Center.
Vickee Adams, a spokeswoman for Wells Fargo & Co., said Wells' "policies, procedures and practices satisfy us that the affidavits we sign are accurate."
Mark Rodgers, a spokesman for Citigroup Inc., said the bank "reviews document handling processes in our foreclosure group on an ongoing basis, and we have strong training to ensure that appropriate employees are fully aware of the proper procedures."
Mortgage finance companies Fannie Mae and Freddie Mac said Friday they're directing companies they work with that collect loan payments to follow proper procedures.
In some states, lenders can foreclose quickly on delinquent mortgage borrowers. By contrast, the 23 states in which Bank of America is delaying foreclosures use a lengthy court process. They require documents to verify information on the mortgage, including who owns it.
Those states are:
Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.
__
AP Business Writer Christopher S. Rugaber contributed to this report.
Dozer523
10-04-2010, 08:33
"Two other companies, Ally Financial Inc.'s GMAC Mortgage unit and JPMorgan Chase, have halted tens of thousands of foreclosure cases after similar problems became public."
Chase bought Washington Mutual who, at the time of their demise, was the largest Savings and Loan (Mortgage Bank) in America. Pretty sure that Kerry Killinger thought his bank would be classified "to big to fail" as they were buying mortgage portfolios lock - stock - and - barrel from any bank who would sell them. One of the reasons PNC is probably still standing and WM is not.
The word mortgage comes from a French word that means "Death Pledge"
When I was learning mortgages at WM in the early 90's foreclosure was explained to me this way, "we don't do bad loans because the last thing we want is to take a house back. Everyone loses . . . Foreclosure is an act of desperation."
I still say when you sign on the dotted line saying you'll pay X amount a month - you need to pay X amount - to somebody.
Either that or I'm a fool making my house payments.
Dozer523
10-04-2010, 09:17
I still say when you sign on the dotted line saying you'll pay X amount a month - you need to pay X amount - to somebody.
Either that or I'm a fool making my house payments. Well that is the expectation I learned. A good loan was based on five criteria.
1) Income: does the borrower make enough money and Length of Income Stream: does the borrower have a reasonable expectation that income will continue based on a proven track record of steady employment with (preferably) the same employer or (at least) in the same field.
2) Credit History / Credit Score: Buying a house will not change people for the better, People do not change. If anything the fist thing a person notices after buying a house is how much more thet now have to spend. (While we were waiting to close I always warned people not to buy a new car. "it's easier to buy a new car for a new garage then a new garage for a new car".
3) Debt to income ratio: regardless of the proven income will the borrower have enough money to pay all other debts with this additional mortgage burden. traditionally a good mortgage will consume less then 17% of total income (front end) and the total debt (outstanding loans and credit cards) should not exceed 36% (IIRC back-end debt) FHA and VA allowed total debt to go to 45%.
4) Down payment (Loan to value): how committed to this house and this loan are the Borrowers.
5 Appraised Value: Reasonable and honest appraisal by a dis-interested, third party, professional. To ensure the borrower is being fairly treated and the bank is assuming an honest risk to value.
In my opinion, things started to go south when Originators were no longer referred to as Loan Officers. We became more beholden to the Real Estate agents then the bank -- before it was 'salary plus', now it became straight commission. (Originators relied on fickle third parties who had no stake in what happened after the loan closed and commissions were paid.
By banking law I still had to accept/take every application but now the value of my time (my pay) depended on the loan closing. And if it didn't I also had a pissed off agent and broker who generally had no clue about lending. They would say "I sold them that house." They weren't interested in hearing "They can't own what that can't or won't pay for." I always believed that turning a person down for a loan was one of the nicest things I ever did because I pointed them toward watthey could afford,. Oddly enough they always found a house they liked that they could afford.
That coincided with Countrywide finding it's own money to buy houses for people. Countrywide established it's own secondary market with investment money. Previously, Banks made loans with their deposits they needed to put to work safely. Countrywide had money investors were willing to risk.
And now we see some consequences...
Do people have an obligation to pay when the process is tainted with fraud? More pointedly, does such an obligation exist if another party was in the wrong from the beginning? An interesting question, certainly. I am under the impression that many businesses default routinely if they perceive an advantage in doing so. If that's true, then I cannot help wondering if individuals should be held to a higher standard than are corporations and businesses.
One theory suggests that the purpose of a down market, whether in stocks, houses, or anything else, is to reveal the various bad practices that developed - and, critically, to liquidate all the defaulted debt. I suppose we are quite some way from that point. Years, at least. Decades, maybe.
LINK (http://www.thestreet.com/story/10877730/1/title-shares-suffer-foreclosure-fallout.html)
Excerpt: Title insurers' stock took hits on Friday after reports that they are backing away from doing business with JPMorgan's foreclosed properties due to rising concerns that faulty documentation on a foreclosed property could lead to the new owners facing legal action by the former owners over the property title.
LINK (http://www.usmoneytalk.com/finance/house-and-home-foreclosures-stopped-title-insurance-follows-910/)
House And Home: Foreclosures Stopped, Title Insurance Follows
We reported last week on the housing markets legal woes, and that some of the lenders are stopping foreclosures in 23 states. Well, now adding to their woes, is the fact that people purchasing their repossessed homes may not be able to get title insurance. This insurance protects the buyer from just the practices that are being disputed nationwide in courts.
Stopping The Foreclosures
GMAC’s (GMA) subsidiary, Allied Financial Inc., along with J.P. Morgan Chase (JPM), and Wells Fargo are answering in court to allegations of robo-signing. One company official testified that he had signed over 150 evictions, or foreclosures every day for more than a month. The law says that the official representative signing these documents review every case on an individual basis. Also being disputed are title chain procedures, and notary issues.
Foreclosure Sales Threatened
Further adding to the issue is companies like Fidelity National Financial Inc., (FNF) that insure the buyer is getting a clean title, are starting to deny insurance to people buying foreclosed properties from these companies. A memo from the company Old Republic said “The company will not insure title to any property which has been foreclosed by Ally Financial, Ally Bank or GMAC until further notice.” Other insurers are expected to follow suit.
Foreclosure Crisis
The recession has hit deep and hard in every economic area, starting with the housing market. With all the bad lending that has went on for the last 10 years, there are lots of buyers losing what they couldn’t afford to begin with. And this has served to flood the foreclosure market, to the point that there are foreclosure factories, and as expected, with little time to process the thousands of loans, mistakes had to be made, but some of these issues are more than just a “mistake,” it’s on the borderline of being criminal, and is over the line as far as morality goes
In my opinion, things started to go south when Originators were no longer referred to as Loan Officers.
Perhaps before that - perhaps it began with a false assumption and a flawed policy.
The false assumption: Housing prices will always go up.
The flawed policy: Everyone should own their home as we become an ownership society.
From these twin errors, much followed. (MOO, YMMV)
Dozer523
10-04-2010, 17:33
Perhaps before that - perhaps it began with a false assumption and a flawed policy. The false assumption: Housing prices will always go up. The flawed policy: Everyone should own their home as we become an ownership society.
From these twin errors, much followed. (MOO, YMMV) Assuredly.
The 80-10-10 Loan was IMO the first of the deceptive loans. It was a loan based on a 10% down payment with an 80% first mortgage followed by a simultaneous second mortgage for 10%. The purpose of this loan combination was to circumvent the required mortgage insurance for a less then 20% down loan. People complained that banks required an insurance policy guaranteeing the Borrower would not default on the loan.
It was assumed that when a home owner put in a cash payment at closing of 20% of the value of the house they were financially and emotionally invested in the house and would not walk.
It in interesting that the first tiny scoop of poop in the cookie mix was a loan designed by the bank to circumvent their own protection. Of course, since we sold nearly everything on the secondary market it was believed the originating bank would not have to eat those cookies.
GratefulCitizen
10-05-2010, 20:49
Assuredly.
The 80-10-10 Loan was IMO the first of the deceptive loans. It was a loan based on a 10% down payment with an 80% first mortgage followed by a simultaneous second mortgage for 10%. The purpose of this loan combination was to circumvent the required mortgage insurance for a less then 20% down loan. People complained that banks required an insurance policy guaranteeing the Borrower would not default on the loan.
It was assumed that when a home owner put in a cash payment at closing of 20% of the value of the house they were financially and emotionally invested in the house and would not walk.
Those options are potentially useful tools.
They spread the risk between the primary mortgage holder and the secondary.
The interest rates should reflect the level of risk.
So long as there is no deception involved regarding the borrower's ability to pay, it shouldn't be an issue.
(Enter Nmap's flawed policy observation, and government meddling.)
Politicians tried to repeal economic laws, with predictable consequences.
It in interesting that the first tiny scoop of poop in the cookie mix was a loan designed by the bank to circumvent their own protection. Of course, since we sold nearly everything on the secondary market it was believed the originating bank would not have to eat those cookies.
Enter more government meddling.
Some banks/businesses are being saved from the problem, others are not.
Using the power of the state to pick economic winners and losers also has predictable consequences.
It serves to encourage some types of risk-taking while discouraging other types.
Economic laws cannot be repealed.
Roguish Lawyer
10-06-2010, 16:11
I usually just ignore threads like this, but I need to call BS. I practice in this area. The suggestion that this is a "landmark" case or that tens of millions of mortgage loans are not enforceable is absolutely absurd.
nmap, you are like an airsofter posting about ambush tactics. You are free to post what you want here, but you don't know what you are talking about and I urge anyone with a mortgage not to do anything stupid based on your ignorant posts.
I usually just ignore threads like this, but I need to call BS. I practice in this area. The suggestion that this is a "landmark" case or that tens of millions of mortgage loans are not enforceable is absolutely absurd.
nmap, you are like an airsofter posting about ambush tactics. You are free to post what you want here, but you don't know what you are talking about and I urge anyone with a mortgage not to do anything stupid based on your ignorant posts.
Perhaps you could provide a link or other information such that I can mitigate my ignorance?
Here's an article from Bloomberg. No doubt a veritable nexus of airsofters, every one of them. Little known fact: most state attorney generals are airsofters, too.
LINK (http://www.bloomberg.com/news/2010-10-06/jpmorgan-bank-of-america-face-hydra-of-state-foreclosure-investigations.html)
JPMorgan, Bank of America Face `Hydra' of Foreclosure Probes
By Margaret Cronin Fisk - Oct 6, 2010
JPMorgan Chase & Co., Bank of America Corp. and Ally Financial Inc., defending allegations of fraudulent home foreclosures from customers and Congress, may face the most financial peril from investigations by state attorneys general.
Authorities in at least seven states are probing whether lenders used false documents and signatures to justify hundreds of thousands of foreclosures, and the number of these inquiries will grow, according to state officials and legal experts.
“You’re going to see a tremendous amount of activity with all the AGs in the U.S.,” Ohio Attorney General Richard Cordray said in an interview. “We have a high degree of skepticism that the corners that were cut are truly legal.”
Cordray announced today that he filed a lawsuit against Ally in state court, claiming its GMAC unit committed fraud and violated state consumer law by filing false affidavits in foreclosure proceedings.
JPMorgan, Bank of America and Ally have curtailed foreclosures or evictions in 23 states where courts have jurisdiction over home seizures.
While homeowners in those states and elsewhere must usually show damages to win a lawsuit, “attorneys general can just sue over deceptive sales practices and get penalties,” said Christopher Peterson, a University of Utah law professor who specializes in commercial and contract law.
Ohio Penalties
In Ohio, penalties include fines of up to $25,000 per violation, with each false affidavit or document considered a violation, according to state law enforcement officials. In Iowa, fines rise to a maximum of $40,000 for each violation.
This penalty would apply to “every instance of an affidavit that was filed improperly or every time facts were attested to that weren’t true,” Cordray said. His counterpart in Connecticut, Richard Blumenthal, has called for a freeze on foreclosures and said the submissions are a “possible fraud on the court.”
Officials in Ohio and Connecticut, along with Florida, Texas, North Carolina, Iowa and Illinois, said they are investigating mortgage foreclosure practices.
Attorneys general in Colorado and California asked Ally’s GMAC unit to halt foreclosures in their states. GMAC and Colorado Attorney General John W. Suthers plan to meet to discuss the matter, said Mike Saccone, spokesman for Suthers.
‘Talking to Them’
“We’re talking to them,” Jim Finefrock, spokesman for California Attorney General Jerry Brown, said in a telephone interview about Detroit-based Ally.
Massachusetts Attorney General Martha Coakley yesterday asked GMAC, JPMorgan, Bank of America and Wells Fargo & Co. to suspend foreclosures and evictions in that state.
North Carolina Attorney General Roy Cooper said today he was expanding his investigation into questionable foreclosure tactics to include 14 more lenders. Cooper, who announced earlier he was looking into allegations about GMAC, also asked lenders to stop foreclosures in his state until they can confirm they are complying with laws.
In addition to the investigation of Ally which began last month, Texas Attorney General Greg Abbott on Oct. 4 asked 30 loan servicers operating in his state -- including Charlotte, North Carolina-based Bank of America and New York-based JPMorgan -- to stop foreclosures pending a review of business practices. Abbott also asked lenders and servicers to halt “all sales of properties previously foreclosed upon” and stop all evictions.
Multiple Fronts
Lenders took possession of a record 95,364 U.S. homes in August and issued foreclosure filings to 338,836 homeowners, or one of every 381 U.S. households, according to RealtyTrac Inc., an Irvine, California-based data seller.
Lenders, loan servicers and even title insurance companies are facing litigation on multiple fronts, said Peter Henning, a law professor at Wayne State University in Detroit and a former federal prosecutor who worked on cases involving bank fraud.
“This is going to become a hydra,” he said in an interview. “You’ve got so many potential avenues of liability. You don’t even know the parameters of this yet.”
Reviews of affidavits and other loan documents that may have been signed without personal examination by the signers should be completed in a few weeks, JPMorgan and Bank of America said last week.
“We believe the accuracy of the factual loan information contained in the affidavits was not affected by whether or not the signer had personal knowledge of the precise details,” JPMorgan said in its statement. “The affidavits were prepared by appropriate personnel with knowledge of the relevant facts.”
JPMorgan Spokesman
Tom Kelly, a spokesman for JPMorgan, declined to comment further yesterday and a call to Dan Frahm, a spokesman for Bank of America, wasn’t immediately returned.
“We don’t believe the procedural errors in these affidavits led to inappropriate foreclosures,” Gina Proia, a spokeswoman for Ally, said in a telephone interview.
Some lenders have acknowledged that employees may have completed court affidavits without confirming their accuracy. In December, a GMAC employee said in a deposition in a foreclosure case filed in West Palm Beach, Florida, that his team of 13 people signed about 10,000 documents a month without verifying their accuracy.
“My suspicion is that this will wind up being an industrywide issue,” said Patrick Madigan, an Iowa assistant attorney general. “Many companies were using robo-signers.”
Iowa Probe
His boss, Iowa Attorney General Tom Miller, is investigating GMAC, JPMorgan, Bank of America and OneWest Bank, the successor to IndyMac.
“We would intend to pursue any company that is engaged in this behavior,” Madigan said in an interview.
Homeowners in multiple lawsuits claim lenders have been using falsified documents to foreclose on homes, at times when they don’t even hold titles to the properties.
Reports of false affidavits will stall foreclosures for months and will aid homeowners fighting to retain their properties, University of Utah’s Peterson said.
“That’s what we’re seeing right now,” he said. “It’s making it harder to foreclose and recover costs for a bad loan.”
Lawyers for some homeowners blame Reston, Virginia-based Mortgage Electronic Registration Systems Inc., or MERS, which handles mortgage transfers between member banks. Multiple lawsuits claim that the system allows false foreclosures and muddies ownership of titles. MERS has denied any wrongdoing.
Kentucky Homeowners
In a lawsuit filed on behalf of Kentucky homeowners last week, plaintiffs claimed banks, MERS and loan servicers filed mortgages with forged signatures, submitted foreclosure actions months before they acquired any legal interest in the properties and falsely claimed to own notes executed with mortgages.
Karmela Lejarde, a spokeswoman for MERS, declined to comment.
“The banks have to be very concerned about class-action lawsuits,” Peterson said. “I guarantee there are all sorts of class-action lawyers brainstorming, trying to figure out ways to file these lawsuits.”
Borrowers in the average foreclosure case haven’t made a payment in more than a year, said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication. More than 5 million homes are in the process of foreclosure, so millions of people are living mortgage-free right now, he said.
‘Screwed Up’ Paperwork
“The question is what kind of deals the plaintiffs’ attorneys will reach with lenders,” Cecala said. “If someone hasn’t made any mortgage payments in a year, are we really going to give them a home just because someone screwed up the paperwork?”
Title insurers will also face -- and file -- lawsuits, Wayne State’s Henning said.
“If you foreclose on a house and sell it,” the title should be certain, he said.
Title insurers will be “on the hook if foreclosures are reopened,” Henning said. “The title insurers will be going after the banks or whoever assured them there was a clear title.”
Fidelity National Financial Corp., the largest U.S. title insurer, and First American Financial Co., the second-largest, have declined more than 5 percent since Sept. 30 over concerns that investigations into foreclosures would cause legal problems affecting title companies. The Standard & Poor’s 500 index of large U.S. stocks has gained about 1.7 percent in that period.
(Cont'd below)
(cont'd from previous post)
Adverse Impact
“Questionable foreclosures will ultimately have little adverse impact” on new owners of properties or title insurance claims, the American Land Title Association said in an Oct. 1 statement.
“If a new homeowner’s title is challenged because of a faulty foreclosure, the title insurer may have an obligation to defend the challenge,” Kurt Pfotenhauer, chief executive officer of the trade group, said in the release. “However, it is unlikely that a court will take property from an innocent current homeowner and return it to a previous homeowner who failed to make payments.”
Individuals who signed false affidavits or falsely claimed clear titles to properties can be subject to criminal prosecution, including perjury charges, Peterson said.
Corporations would probably face obstruction charges rather than perjury, according to legal experts.
“Did they know about gaps in the system and lie about it,” Henning said, referring to companies. “This is certainly a concern for MERS but it could be, too, for the banks. Any action of any employee can be looked at, but what they’re looking at is the volume of transactions and the involvement of senior level management.”
More civil litigation is a certainty, Henning said.
“The sandstorm is coming,” he said. “You can see it off in the distance and know it’s about to hit, but no one knows how long it’s going to last.”
Roguish Lawyer
10-06-2010, 17:42
Perhaps you could provide a link or other information such that I can mitigate my ignorance?
This is a Special Forces message board. I am here principally to discuss military and international relations issues and other things of interest to my friends here. I am not here to converse with you or to attempt to explain things to you. My post was directed to anyone who might do something stupid, like decide not to pay their mortgage in the hope it might not be enforceable. Have a nice day.