Tuesday, November 30, 2010

Mainstream Media Continue to Pick Up On the FraudClosure Issue

Foreclosure Foul-up: Tracking Down Those 'Lost' Mortgages

Trevor Douglas, 54, may soon lose his Orlando house. Sure, Douglas hasn't paid his mortgage in more than two years, which is what a Bank of America spokesperson tells me "is important to remember." It is. Still, if it happens, I will feel partially responsible. I helped push Douglas closer to eviction.
Like many other home loans, Douglas' IOU was bought and sold numerous times and finally packed into a bond. So when his foreclosure notice finally arrived, the entity trying to kick him out was one he had never heard of, something called GSAMP 2005-HE3. Worse, GSAMP said it had lost the original document — called a promissory note — to prove they owned his loan. Douglas hired a lawyer, who got the foreclosure put on hold. And that's when I showed up. Much of the ire focused on the banks recently has been on their use of robo-signers — low-wage workers hired by banks to witness and sign hundreds of thousands of foreclosure notices without verifying that the grounds for the evictions were valid. On Thursday, a Federal Reserve official told lawmakers on a House Financial Service subcommittee that U.S. bank regulators are conducting a review of the banks' foreclosure practices. In hundreds of thousand of cases, the promissory note that proves a bank owns a borrower mortgage is now gone. Vanished. Some borrowers may walk away scot free. In other instances, banks may be forced to dramatically reduce what a borrower owes. Many foreclosures have already been halted by the courts or by the banks themselves. Still, bank officials say, even if they are missing the original promissory note, they have the paperwork to prove they own the mortgages.(See pictures of Americans in their homes.)
Just how bad is the problem? TIME dug into the mortgage of one troubled borrower. What we found suggests that many promissory notes are not lost. In an effort to rush homeowners to foreclosure, and hide damaging information, bankers' have needlessly created a huge legal mess that once again questions the financial industry's credibility and ethics. "They [banks] don't comply with the law when they're taking people's homes," says Michael Olenick, who owns Legalprise, a legal research firm.
Douglas' mortgage broker got him a loan from subprime lender Fremont General, which before it went bankrupt in 2008, was based in Brea, California. In mid-2005, Fremont sold the loan to New York-based Goldman Sachs, which packaged it up with other loans and sold it off to investors. In June, Iris Owens, an official in the servicing arm of Bank of Amerca, signed an affidavit attesting that after a "diligent search," Douglas' original note could not be recovered. But even without the bank's internal record it took me about four hours to find Douglas' loan.(See pictures of TIME's Wall Street covers.)
Where is it? About five miles east of downtown Minneapolis, in a warehouse owned by Wells Fargo. A simple search of public documents on the Securities and Exchange Commissions website was able to produce the address and telephone number of the building it was in. Bank of America now concedes it made a mistake. Instead of calling Wells Fargo, an associate in Bank of America's mortgage-servicing division requested Douglas' note from Deutsche Bank, which runs the mortgage trust Douglas' loan is in, but is not the document custodian. Wells, as the SEC documents say, has that job. What's less clear is why Deutsche didn't tell the associate to call Wells or why someone at Bank of America didn't look up the same SEC filing I did. Instead, Owens, based on the information from her associate and doing no checking of her own, signed the lost-note affidavit. Douglas' loan had officially disappeared.(See 10 big recession surprises.)
In early November, based on my research, Bank of America retrieved Douglas' original promissory note from Wells Fargo. The bank spokeswoman says it plans to soon file the note with the court. Bank of America says it is reviewing Douglas for a loan modification. But if he doesn't qualify, now that Bank of America has the original note, Douglas is sure to lose his house. If Douglas' mortgage is any indication of what's out there, while embarrassing for the banks, it suggests the cleanup will be less costly than feared. Still, it's not going to end soon. Multiply the four hours it took me to find Douglas' loan by 400,000 — one professor's estimate of the number of missing notes. Banks will be at this for a while.
This is an abridged version of an article that appears in the Nov. 29, 2010, print and iPad editions of TIME magazine.

Read more: http://www.time.com/time/magazine/article/0,9171,2032110,00.html#ixzz16ogmCjzZ

Saturday, November 27, 2010

Who caused the 2008 financial crisis?

As can be seen from John Stossel's article below about the Lesson of Thanksgiving, the difference between capitalism and socialism lies in the built-in economic incentives.  Everything starts with the nature and propensity of the individual, which can be studied and used as a starting point.  And in such studies it is not a secret that people have always acted in what they perceive to be their own self-interest and will continue to do so.

In light of that, I wanted to do a quick and simple analysis of the housing and MBS markets along the same lines: what were the economic incentives within these markets during 2001-2008, and have those incentives changed?

We all know now that during the period leading up to the crisis, lots of "toxic" mortgage loans were issued, whereby loan brokers and originators pretended that everyone earned enough to buy a house, that they should buy a house for the maximum possible monthly payment, while individual borrowers allowed themselves to be convinced of the same lie.  After all, why not do it if you're told you can always refinance and get more cash out every few months or so?

Why would financial professionals all of a sudden make loans they knew would be likely (and often, definitely) to fail?  Did they all of a sudden stop acting in their own self-interest?  Of course not.  We all know by now that they were making toxic loans like crazy because they got to keep all the profit and none of the liability.  If I can by a car that is a "lemon" and immediately resell it at a profit, why wouldn't I?  I don't care if the car is a lemon, especially if there is enough ignorance going around allowing me as the seller to take the position that maybe the car isn't really a lemon, no one really knows that 100 percent, so let the buyer figure that out for themselves...

So how did the system allowing one to buy junk, resell it, and make a profit without any liability come into play?  For one, the financial industry developed financial instruments backed by income streams from mortgage payments, that could be sold to consumer-investors, making the ultimate purchaser of the mortgage income stream far removed from the mortgage borrower.  But I submit that even this new "securitiztion system" would not have led to the crisis that we now face without another and much more important component: complete elimination of the risk for certain players in the mortgage loan market.  Yes, read that again. Not some diversification or spreading of the risk, but complete and artificial elimination of the risk.

Who were the originators selling the loans to? -- The investment banks.  Who were the investment banks selling the pools of loans to? – The federal government.  Where does the federal government get the money to buy stuff? The tax payer. Us!  And the loans that were not sold directly to the federal government were also sold to the taxpayer.  They were sold to consumer-investors -- pension account holders, 401k account holders, etc.

Banksters were making enormous profits from toxic and fraudulent loans by dumping all the losses on the taxpayer through Fannie and Freddie (and the rest on the same taxpayer through pension funds).  And as if that wasn't enough, when they ran out of investor money to make more toxic loans and keep the pyramid going, they got a bail-out from the same federal government to keep doing what they are doing (or invent a new Ponzi scheme) and keep paying themselves enormous bonuses.

So my answer to who caused the 2008 financial crisis is simple: the federal government.  By using "market inventions" such as mortgage purchase programs, FDIC insurance, and other tools amounting to complete insurance and guarantee against banksters' losses, the fed completely undermined one of the most important checks on the free market: the risk of failure.  Once you take away the risk of failure, anything goes.  No wonder banksters take our money, gamble with it, and then dump the losses on us as taxpayers while we remain passive and comatose.

Wednesday, November 24, 2010

Lesson of Thanksgiving: Why property rights are important, including clear titles to homes

JOHN STOSSEL: The Lost Lesson of Thanksgiving
By John Stossel
Published November 24, 2010

Had today's political class been in power in 1623, tomorrow's holiday would have been called "Starvation Day" instead of Thanksgiving. Of course, most of us wouldn't be alive to celebrate it.
Every year around this time, schoolchildren are taught about that wonderful day when Pilgrims and Native Americans shared the fruits of the harvest. But the first Thanksgiving in 1623 almost didn't happen.
Long before the failure of modern socialism, the earliest European settlers gave us a dramatic demonstration of the fatal flaws of collectivism. Unfortunately, few Americans today know it.
The Pilgrims at Plymouth Colony organized their farm economy along communal lines. The goal was to share the work and produce equally.
That's why they nearly all starved.

When people can get the same return with less effort, most people make less effort. Plymouth settlers faked illness rather than working the common property. Some even stole, despite their Puritan convictions. Total production was too meager to support the population, and famine resulted. This went on for two years.
"So as it well appeared that famine must still ensue the next year also, if not some way prevented," wrote Gov. William Bradford in his diary. The colonists, he said, "began to think how they might raise as much corn as they could, and obtain a better crop than they had done, that they might not still thus languish in misery. At length after much debate of things, [I] [with the advice of the chiefest among them] gave way that they should set corn every man for his own particular, and in that regard trust to themselves. And so assigned to every family a parcel of land."
In other words, the people of Plymouth moved from socialism to private farming. The results were dramatic.
"This had very good success," Bradford wrote, "for it made all hands very industrious, so as much more corn was planted than otherwise would have been. By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many."
Because of the change, the first Thanksgiving could be held in November 1623.
What Plymouth suffered under communalism was what economists today call the tragedy of the commons. The problem has been known since ancient Greece. As Aristotle noted, "That which is common to the greatest number has the least care bestowed upon it."
If individuals can take from a common pot regardless of how much they put in it, each person has an incentive to be a free-rider, to do as little as possible and take as much as possible because what one fails to take will be taken by someone else. Soon, the pot is empty.
What private property does -- as the Pilgrims discovered -- is connect effort to reward, creating an incentive for people to produce far more. Then, if there's a free market, people will trade their surpluses to others for the things they lack. Mutual exchange for mutual benefit makes the community richer.
Here's the biggest irony of all: The U.S. government has yet to apply the lesson to its first conquest, Native Americans.
The U.S. government has held most Indian land in trust since the 19th century. This discourages initiative and risk-taking because, among other reasons, it can't be used as collateral for loans.
On Indian reservations, "private land is 40 to 90 percent more productive than land owned through the Bureau of Indian Affairs," says economist Terry Anderson, executive director of PERC. "If you drive through western reservations, you will see on one side cultivated fields, irrigation, and on the other side, overgrazed pasture, run-down pastures and homes. One is a simple commons; the other side is private property. You have Indians on both sides. The important thing is someone owns one side."
Secure property rights are the key. When producers know their future products are safe from confiscation, they take risks and invest. But when they fear they will be deprived of the fruits of their labor, they will do as little as possible.
That's the lost lesson of Thanksgiving.
John Stossel is host of "Stossel" on the Fox Business Network. The show airs Thursdays at 9 p.m. and midnight ET. It re-airs Fridays at 10 p.m., Saturdays at 9 p.m. and 12 midnight, and Sundays at 10 p.m. (all times eastern). He's also the author of "Give Me a Break" and of "Myth, Lies, and Downright Stupidity."
To find out more about John Stossel, visit his site at johnstossel.com. To read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

In re Kemp: a landmark case on (non-) enforceability of most securitized mortgages

This case is covered in an excellent article by Daily Finance, which can be read at http://www.dailyfinance.com/story/credit/bank-of-america-mortgage-document-errors-trouble-countrywide/19728402/, as was also reported by Neil Garfield on his LivingLies blog.

To my knowledge, this is the first decision that mentions (albeit does not address) the issues of (non-) transfer of notes into securitzation trusts in violation of Pooling and Servicing Agreements (PSAs).  In this case, the judge was able to deny the bank's claim for other reasons (complete lack of possession of the note at any time since the note's inception), but expect more decisions shortly addressing non-enforceability of securitized mortgages.
The opinion can be found at http://www.scribd.com/doc/43582702/101116-Kemp-v-CountryWide-NJ  

Congressional Oversight Panel Issues Report on Fraud-Closures


Homeowners get their house free and clear after failed negotiations with the bank

Here is a NY case where the judge ordered complete discharge of the mortgage after failed loan modification negotiations based on outrageously inequitable (bad faith) conduct by the bank.  Since at least in judicial states like New York foreclosure is an equitable remedy, obtaining such a remedy requires "clean hands."  Since banks do not have anything even close to clean hands in most cases involving the bogus bubble loans, foreclosure should not be available to the banks in most cases.

The opinion can be read here: http://www.scribd.com/doc/43893334/Yano-Horoski-Mortgage-Cancelled

Sunday, November 21, 2010

Use bankruptcy rules to preserve automatic stay where bank not cooperating

Rule 4004(c)(2) remains a tool in a debtor's toolbox to preserve the automatic stay during mortgage modification negotiations and possibly other events necessitating the continuance of a stay beyond the regular statutory limits (generally 60 days).  In In re Roderick, Case No. 09-22866-C-7 (Bankr. E.D. Cal. 2010), the federal bankruptcy court held that Bankruptcy Rule 4004(c)(2) is "eligible to be employed during the pendency of loan modification negotiations."  The court noted the inconsistency in the alleged creditor's position in its urgent stay relief motion filed at the outset of the case and the same creditor's "lackadaisical approach to considering whether to agree to modify the mortgage" and noted that Rule 4004(c)(2) could be sued to address that inconsistency.

Those interested in the highly technical opinion of In re Roderick can check it out here: http://www.scribd.com/doc/43513158/Roderick-Defer-Discharge

Thursday, November 18, 2010

Judge Schack's latest masterpiece on robo-signing

It only took two judicial foreclosure states: Florida and New York to unravel the shoddy foreclosure practices by financial institutions that got all the bail-out money, yet did not invest a dime in the mortgages upon which they are now foreclosing. Kudos to Judge Schack in NY and Thomas Ice, Esq. in FL.  This opinion presents a good list of things and documents many homeowners will want to request in defending against a foreclosure.

Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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2010 NY Slip Op 20429 Onewest Bank, F.S.B., Plaintiff, v. Covan Drayton, et al., Defendants. 15183/09 Supreme Court Of New York Kings County Decided on October 21, 2010

Plaintiff Gerald Roth, Esq. Stein Wiener and Roth, LLP Carle Place NY
Defendant did not answer
Arthur M. Schack, J.

In this foreclosure action, plaintiff ONEWEST BANK, F.S.B. (ONEWEST), moved for an order of reference and related relief for the premises located at 962 Hemlock Street, Brooklyn, New York (Block 4529, Lot 116, County of Kings), upon the default of all defendants. The Kings County Supreme Court Foreclosure Department forwarded the motion papers to me on August 30, 2010. While drafting this decision and order, I received on October 14, 2010, in the midst of the present national media attention about "robo-signers," an October 13, 2010-letter from plaintiff's counsel, by which "[i]t is respectfully requested that plaintiff's application be withdrawn at this time." There was no explanation or reason given by plaintiff's counsel for his request to withdraw the motion for an order of reference other than "[i]t is our intention that a new application containing updated information will be re-submitted shortly."
The Court grants the request of plaintiff's counsel to withdraw the instant motion for an order of reference. However, to prevent the waste of judicial resources, the instant foreclosure action is dismissed without prejudice, with leave to renew the instant motion for an order of Page 2 reference within sixty (60) days of this decision and order, by providing the Court with necessary and additional documentation. First, the Court requires proof of the grant of authority from the original mortgagee, CAMBRIDGE HOME CAPITAL, LLC (CAMBRIDGE), to its nominee, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (MERS), to assign the subject mortgage and note on March 16, 2009 to INDYMAC FEDERAL BANK, FSB (INDYMAC). INDYMAC subsequently assigned the subject mortgage and note to its successor, ONEWEST, on May 14, 2009.
Second, the Court requires an affidavit from Erica A. Johnson-Seck, a conflicted "robo-signer," explaining her employment status. A "robo-signer" is a person who quickly signs hundreds or thousands of foreclosure documents in a month, despite swearing that he or she has personally reviewed the mortgage documents and has not done so. Ms. Johnson-Seck, in a July 9, 2010 deposition taken in a Palm Beach County, Florida foreclosure case, admitted that she: is a "robo-signer" who executes about 750 mortgage documents a week, without a notary public present; does not spend more than 30 seconds signing each document; does not read the documents before signing them; and, did not provide me with affidavits about her employment in two prior cases. (See Stephanie Armour, "Mistakes Widespread on Foreclosures, Lawyers Say," USA Today, Sept. 27, 2010; Ariana Eunjung Cha, "OneWest Bank
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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Employee: Not More Than 30 Seconds' to Sign Each Foreclosure Document, " Washington Post, Sept. 30, 2010). In the instant action, Ms. Johnson-Seck claims to be: a Vice President of MERS in the March 16, 2009 MERS to INDYMAC assignment; a Vice President of INDYMAC in the May 14, 2009 INDYMAC to ONEWEST assignment; and, a Vice President of ONEWEST in her June 30, 2009-affidavit of merit. Ms. Johnson-Seck must explain to the Court, in her affidavit: her employment history for the past three years; and, why a conflict of interest does not exist in the instant action with her acting as a Vice President of assignor MERS, a Vice President of assignee/assignor INDYMAC, and a Vice President of assignee/plaintiff ONEWEST. Further, Ms. Johnson-Seck must explain: why she was a Vice President of both assignor MERS and assignee DEUTSCHE BANK in a second case before me, Deutsche Bank v Maraj, 18 Misc 3d 1123 (A) (Sup Ct, Kings County 2008); why she was a Vice President of both assignor MERS and assignee INDYMAC in a third case before me, Indymac Bank, FSB, v Bethley, 22 Misc 3d 1119 (A) (Sup Ct, Kings County 2009); and, why she executed an affidavit of merit as a Vice President of DEUTSCHE BANK in a fourth case before me, Deutsche Bank v Harris (Sup Ct, Kings County, Feb. 5, 2008, Index No. 35549/07).
Third, plaintiff's counsel must comply with the new Court filing requirement, announced yesterday by Chief Judge Jonathan Lippman, which was promulgated to preserve the integrity of the foreclosure process. Plaintiff's counsel must submit an affirmation, using the new standard Court form, that he has personally reviewed plaintiff's documents and records in the instant action and has confirmed the factual accuracy of the court filings and the notarizations in these documents. Counsel is reminded that the new standard Court affirmation form states that "[t]he wrongful filing and prosecution of foreclosure proceedings which are discovered to suffer from these defects may be cause for disciplinary and other sanctions upon participating counsel."
Defendant COVAN DRAYTON (DRAYTON) executed the subject Page 3 mortgage and note on January 12, 2007, borrowing $492,000.00 from CAMBRIDGE. MERS "acting solely as a nominee for Lender [CAMBRIDGE]" and "FOR PURPOSES OF RECORDING THIS MORTGAGE, MERS IS THE MORTGAGEE OF RECORD," recorded the instant mortgage and note on March 19, 2007, in the Office of the City Register of the City of New York, at City Register File Number (CRFN) 2007000143961. Plaintiff DRAYTON allegedly defaulted in his mortgage loan payment on September 1, 2008. Then, MERS, as nominee for CAMBRIDGE, assigned the instant nonperforming mortgage and note to INDYMAC, on March 16, 2009. Erica A. Johnson-Seck executed the assignment as a Vice President of MERS, as nominee for CAMBRIDGE. This assignment was recorded in the Office of the City Register of the City of New York, on March 24, 2009, at CRFN 200900084809. However, as will be discussed below, there is an issue whether MERS, as CAMBRIDGE's nominee, was authorized by CAMBRIDGE, its principal, to assign the subject DRAYTON mortgage and note to plaintiff INDYMAC. Subsequently, almost two months later, Ms. Johnson-Seck, now as a Vice President of INDYMAC, on May 14, 2009, assigned the subject mortgage and note to ONEWEST. This assignment was recorded in the Office of the City Register of the City of New York, on May 22, 2009, at CRFN 2009000155018.
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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Plaintiff ONEWEST commenced the instant foreclosure action on June 18, 2009 with the filing of the summons, complaint and notice of pendency. On August 6, 2009, plaintiff ONEWEST filed the instant motion for an order of reference. Attached to plaintiff ONEWEST's moving papers is an affidavit of merit by Erica A. Johnson-Seck, dated June 30, 2009, in which she claims to be a Vice President of plaintiff ONEWEST. She states, in ¶ 1, that "[t]he facts recited herein are from my own knowledge and from review of the documents and records kept in the ordinary course of business with respect to the servicing of this mortgage." There are outstanding questions about Ms. Johnson-Seck's employment, whether she executed sworn documents without a notary public present and whether she actually read and personally reviewed the information in the documents that she executed. July 9, 2010 deposition of Erica A. Johnson-Seck in the Machado case On July 9, 2010, nine days after executing the affidavit of merit in the instant action, Ms. Johnson-Seck was deposed in a Florida foreclosure action, Indymac Federal Bank, FSB, v Machado (Fifteenth Circuit Court in and for Palm Beach County, Florida, Case No. 50 2008 CA 037322XXXX MB AW), by defendant Machado's counsel, Thomas E. Ice, Esq. Ms. Johnson-Seck admitted to being a "robo-signer," executing sworn documents outside the presence of a notary public, not reading the documents before signing them and not complying with my prior orders in the Maraj and Bethley decisions.
Ms. Johnson-Seck admitted in her Machado deposition testimony that she was not employed by INDYMAC on May 14, 2009, the day she assigned the subject mortgage and note to ONEWEST, even though she stated in the May 14, 2009 assignment that she was a Vice President of INDYMAC. According to her testimony she was employed on May 14, 2010 by assignee ONEWEST. The following questions were asked and then answered by Ms. Johnson Seck, at p. 4, line 11-p. 5, line 4: Q. Could you state your full name for the record, please. A. Erica Antoinette Johnson-Seck. Page 4
Q. And what is your business address? A. 7700 West Parmer Lane, P-A-R-M-E-R, Building D, Austin, Texas 78729. Q. And who is your employer? A. OneWest Bank. Q. How long have you been employed by OneWest Bank? A. Since March 19th, 2009. Q. Prior to that you were employed by IndyMac Federal Bank, FSB? A. Yes. Q. And prior to that you were employed by IndyMac Bank, FSB? A. Yes. Q. Your title with OneWest Bank is what? A. Vice president, bankruptcy and foreclosure. Despite executing, on March 16, 2009, the MERS, as nominee for CAMBRIDGE, assignment to INDYMAC, as Vice President of MERS, she admitted that she is not an officer of MERS. Further, she claimed to have "signing authority" from several major banking institutions and the Federal Deposit Insurance Corporation (FDIC). The following questions were asked and then answered by Ms. Johnson-Seck, at p. 6, lines 5-21: Q. Are you also an officer of
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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Mortgage Electronic Registration Systems? A. No. Q. You have signing authority to sign on behalf of Mortgage Electronic Registration Systems as a vice president, correct? A. Yes. Q. Are you an officer of any other corporation? A. No. Q. Do you have signing authority for any other corporation? A. Yes. Q. What corporations are those? A. IndyMac Federal Bank, Indymac Bank, FSB, FDIC as receiver for Indymac Bank, FDIC as conservator for Indymac, Deutsche Bank, Bank of New York, U.S. Bank. And that's all I can think of off the top of my head. Then, she answered the following question about her "signing authority," at page 7, lines 3-10: Q. When you say you have signing authority, is your authority to sign as an officer of those corporations? A. Some. Deutsche Bank I have a POA [power of attorney] to sign as attorney-in-fact. Others I sign as an officer. The FDIC I sign as attorney-in-fact. IndyMac Bank and IndyMac Federal Bank I now sign as attorney-in-fact. I only sign as a vice president for OneWest.
Ms. Johnson-Seck admitted that she is not an officer of MERS, has no idea how MERS is organized and does not know why she signs assignments as a MERS officer. Further, she admitted that the MERS assignments she executes are prepared by an outside vendor, Lender Processing Services, Inc. (LPS), which ships the documents to her Austin, Texas office from Minnesota. Moreover, she admitted executing MERS assignments without a notary public Page 5 present. She also testified that after the MERS assignments are notarized they are shipped back to LPS in Minnesota. LPS, in its 2009 Form 10-K, filed with the U.S. Securities and Exchange Commission, states that it is "a provider of integrated technology and services to the mortgage lending industry, with market leading positions in mortgage processing and default management services in the U.S. [p. 1]"; "we offer lenders, servicers and attorneys certain administrative and support services in connection with managing foreclosures [p. 4]"; "[a] significant focus of our marketing efforts is on the top 50 U.S. banks [p. 5]"; and, "our two largest customers, Wells Fargo Bank, N.A. and JP Morgan Chase Bank, N.A., each accounted for more than 10% of our aggregate revenue [p. 5]."LPS is now the subject of a federal criminal investigation related to its foreclosure document preparation. (See Ariana Eunjung Cha. "Lender Processing Services Acknowledges Employees Allowed to Sign for Managers on Foreclosure Paperwork," Washington Post, Oct. 5, 2010). Last week, on October 13, 2010, the Florida Attorney-General issued to LPS an "Economic Crimes Investigative Subpoena Duces Tecum," seeking various foreclosure documents prepared by LPS and employment records for various "robo-signers." The following answers to questions were given by Ms. Johnson-Seck in the Machado deposition, at p. 116, line 4-p. 119, line 16:
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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Q. Now, given our last exchange, I'm sure you will agree that you are not a vice president of MERS in any sense of the word other than being authorized to sign as one? A. Yes. Q. You are not-- A. Sorry. Q. That's all right. You are not paid by MERS? A. No. Q. You have no job duties as vice president of MERS? A. No. Q. You don't attend any board meetings of MERS? A. No. Q. You don't attend any meetings at all of MERS? A. No. Q. You don't report to the president of MERS? A. No. Q. Who is the president of MERS? A. I have no idea. Q. You're not involved in any governance of MERS? A. No. Q. The authority you have says that you can be an assistant secretary, right? A. Yes. Q. And yet you don't report to the secretary-- A. No. Q.--of MERS. You don't have any MERS' employees who report to you? Page 6
A. No. Q. You don't have any vote or say in any corporate decisions of MERS? A. No. Q. Do you know where the MERS' offices are located? A. No. Q. Do you know how many offices they have? A. No. Q. Do you know where they are headquartered? A. No. Q. I take it then you're never been to their headquarters? A. No. Q. Do you know how many employees they have? A. No. Q. But you know that you have counterparts all over the country signing as MERS's vice-presidents and assistant secretaries? A. Yes. Q. Some of them are employees of third-party foreclosure service companies, like LPS? A. Yes. Q. Why does MERS appoint you as a vice president or assistant secretary as opposed to a manager or an authorized agent to sign in that capacity? A. I don't know. Q. Why does MERS give you any kind of a title?
A. I don't know. Q. Take me through the procedure for drafting and--the drafting and execution of this Assignment of Mortgage which is Exhibit E. A. It is drafted by our forms, uploaded into process management, downloaded by LPS staff in Minnesota, shipped to Austin where we sign and notarize it, and hand it back to an LPS employee, who then ships it back to Minnesota, up uploads a copy
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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and mails the original to the firm. Q. Very similar to all the other document, preparation of all the other documents. A. (Nods head.) Q. Was that a yes? You were shaking your head. A. Yes. Q. As with the other documents, you personally don't review any of the information that's on here-- A. No. Q.--other than to make sure that you are authorized to sign as the person you're signing for? A. Yes. Page 7
Q. Okay. As with the other documents, you signed these and took them to be notarized just to a Notary that's outside your office? A. Yes. Q. And they will get notarized as soon as they can. It may or may not be the same day that you executed it? A. That's true. Further, with respect to MERS, Ms. Johnson-Seck testified in answering questions, at p. 138, line 2-p. 139, line 17: Q. Do you have an understanding that MERS is a membership organization? A. Yes, yes. Q. And the members are-- A. Yes. Q.--banking entities such as OneWest? A. Yes. Q. In fact, OneWest is a member of MERS? A. Yes. Q. Is Deutsche Bank National Trust Company a member of MERS? A. I don't know. Q. Most of the major banking institutions in the Untied States, at least, are members of MERS, correct? A. That sounds right. Q. It's owned and operated by banking institutions? A. I'm not a big--I don't, I don't know that much about the ins and outs of MERS. I'm sorry. I understand what it's for, but I don't understand the nitty-gritty. Q. What is it for?
A. To track the transfer of doc--of interest from one entity to another. I know that it was initially created so that a servicer did not have to record the assignments, or if they didn't, there was still a system to keep track of the transfer of property. Q. Does it also have a function to hold the mortgage separate and apart from the note so that note can be transferred from entity to entity to entity, bank to bank to bank-- A. That sounds right. Q.--without ever having to rerecord the mortgage? A. That sounds right. Q. So it's a savings device. It makes it more efficient to transfer notes? A. Yes. Q. And cheaper? A. Yes. Moreover, Ms. Johnson-Seck testified that one of her job duties was to sign documents, which at that time took her
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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about ten minutes per day [p. 11]. Further, she admitted, at p. 13, line Page 8
11-p. 14, line 15, that she signs about 750 documents per week and doesn't read each document. Q. Okay. How many documents would you say that you sign on aweek on average, in a week on average? A. I could have given you that number if you had that question in there because I would brought the report. However, I'm going to guess, today I saw an e-mail that 1, 073 docs are in the office for signing. So if we just--and there's about that a day. So let's say 6, 000 a week and I do probably--let's see. There's eight of us signing documents, so what's the math? Q. Six thousand divided by eight, that gives me 750. A. That sounds, that sounds about right. Q. Okay. That would be a reasonable estimate of how many you sign, you personally sign per week? A. Yes. Q. And that would include Lost Note Affidavits, Affidavits of Debt? A. Yes. Q. What other kinds of documents would be included in that? A. Assignments, declarations. I can sign anything related to a bankruptcy or a foreclosure. Q. How long do you spend executing each document? A. have changed my signature considerably. It's just an E now.So not more than 30 seconds. Q. Is it true that you don't read each document before you sign it? A. That's true. [Emphasis added]
Ms. Johnson-Seck, in the instant action, signed her full name on the March 16, 2009 MERS, as nominee for CAMBRIDGE, assignment to INDYMAC. She switched to the letter E in signing the May 14, 2009 INDYMAC to ONEWEST assignment and the June 30, 2009 affidavit of merit on behalf of ONEWEST. Additionally. she testified about how LPS prepares the documents in Minnesota and ships them to her Austin office, with LPS personnel present in her Austin office [pp. 16-17]. Ms. Johnson-Seck described the document signing process, at p. 17, line 6-p. 18, line 18: Q. Take me through the procedure for getting your actual signature on the documents once they've gone through this quality control process? A. The documents are delivered to me for signature and I do a quick purview to make sure that I'm not signing for an entity that I cannot sign for. And I sign the document and I hand it to the Notary, who notarizes it, who then hands it back to LPS who uploads the document so that the firms know it's available and they send an original. Q. "They" being LPS? A. Yes. Q. Are all the documents physically, that you were
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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supposed to sign, are they physically on your desk? A. Yes. Page 9
Q. You don't go somewhere else to sign documents? A. No. Q. When you sign them, there's no one else in your office? A. Sometimes. Q. Well, the Notaries are not in your office, correct? A. They don't sit in my office, no. Q. And the witnesses who, if you need witnesses on the document, are not sitting in your office? A. That's right. Q. So you take your ten minutes and you sign them and then you give them to the supervisor of the Notaries, correct? A. I supervise the Notaries, so I just give them to a Notary. Q. You give all, you give the whole group that you just signed to one Notary? A. Yes. [Emphasis added] Ms. Johnson-Seck testified, at p. 20, line 1-p. 21, line 4 about notaries not witnessing her signature: Q. I'm mostly interested in how long it takes for the Notary to notarize your signature. A. I can't say categorically because the Notary, that's not the only job they do, so. Q. In any event, it doesn't have to be the same day? A. No. Q. When they notarize it and they put a date that they're notarizing it, is it the date that you signed it or is it the date that they're notarizing it? A. I don't know.
Q. When you execute a sworn document, do you make any kindof a verbal acknowledgment or oath to anyone? A. I don't know if I know what you're talking about. What's a sworn document? Q. Well, an affidavit. A. Oh. No. Q. In any event, there's no Notary in the room for you to-- A. Right. Q. --take an oath with you, correct? A. No there is not. Q. In fact, the Notaries can't see you sign the documents; is that correct? A. Not unless that made it their business to do so? Q. To peek into your office? A. Yes. [Emphasis added] As noted above, I found Ms. Johnson-Seck engaged in "robo-signing" in Deutsche Bank v Maraj and Indymac Bank, FSB, v Bethley. In both foreclosure cases I denied plaintiffs' motions Page 10 for orders of reference without prejudice with leave to renew if, among other things, Ms. Johnson-Seck could explain in affidavits: her employment history for the past three years; why she was a Vice President of both assignor MERS and assignee Deutsche Bank National Trust Company in Maraj; and, Vice President of INDYMAC in Bethley. Mr. Ice questioned Ms. Johnson-Seck about my Maraj decision and showed her the Maraj decision as exhibit M in the Machado deposition. The following colloquy at the Maraj deposition took place at p. 153, line 15-p. 156, line 9.
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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Q. Exhibit M is a document that you saw before in your last deposition, correct? A. Yes. Q. It's an opinion from Judge Schack up in New York-- A. Yes. Q.--correct? You're familiar with that? A. Yes. Q. In it, he says that you signed an Assignment of Mortgage as the vice president of MERS, correct-- A. Yes. Q.--just as you did in this case? Judge Schack also says that you executed an affidavit as an officer of Deutsche Bank National Trust Company, correct? A. Yes. Q. And is that true, you executed an affidavit for Deutsche Bank in that case? A. That is not true. Q. You never executed a document as an officer of Deutsche Bank National Trust Company in that case, Judge Schack's case? A. Let me just read it so I can--I have to refresh my memory completely. Q. Okay. A. I don't remember. Most likely. Q. That you did? A. It sounds reasonable that I may have. I don't remember, and since it's not attached, I can't say. Q. And as a result, Judge Schack wanted to know if you were engaged in self-dealing by wearing two corporate hats? A. Yes. Q. And the court was concerned that there may be fraud on the part of the bank? A. I guess. Q. I mean he said that, right? A. Oh, okay. I didn't read the whole thing. Okay. Q. Okay. The court ordered Deutsche Bank to produce an affidavit from you describing your employment history for the past three years, correct? Page 11 A. That's what this says. Q. Did you do that? A. No, because we were never--no affidavit ever existed and no request ever came to produce such a document. The last time we spoke, I told you that in-house counsel was reviewing the whole issue and that's kind of where--and we still haven't received any communication to produce an affidavit. Q. From your counsel? A. From anywhere. Q. Well, you're reading Judge Schack's opinion. He seems to want one. Isn't that pretty clear on its face. A. We didn't get--we never even got a copy of this. Q. Okay. But now you have it-- A. And-- Q. And you had it when we met at our deposition back in February 5th. A. And our in-house counsel's response to this is we were never--this was never requested of me and it was his recommendation not to comply. Q. What has become of that case? A. I don't know. Q. Was it settled? A. I don't know.
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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After a break in the Machado deposition proceedings, Mr. Ice questioned Ms. Johnson-Seck about various documents that were subpoenaed for the July 9, 2010 deposition, including her employment affidavits that I required in both Maraj and Bethley. Ms. Johnson-Seck answered the following questions at p. 159, line 19-p. 161, line 9: Q. So let's start with the duces tecum part of you notice, which is the list of documents. No. 1 was: The affidavit of the last three years of deponent's employment provided to Judge Schack in response to the order dated January 31st, 2008 in the case of Deutsche Bank National Trust Company vs. Maraj, Case No. 25981-07, Supreme Court of New York. We talked about that earlier. There is no such affidavit, correct? A. Correct. Q. By the way, why was IndyMac permitted to bring the case in Deutsche Bank's name in that case? A. I don't--I don't know. Now, errors have been made. Q. No. 2: The affidavit of the deponent provided to Judge Schack in response to the order dated February 6th, 2009 in the case of IndyMac Bank, FSB vs, Bethley, New York Slip Opinion 50186, New York Supreme Court 2/5/09, "explaining," and this is in quotes, "her employment history for the past three years; and, why a conflict of interest does not exist in how she acted as vice president of assignee Page 12
IndyMac Bank, FSB in the instant action, and vice president of both Mortgage Electronic Registrations Systems, Inc. and Deutsche Bank in Deutsche Bank vs. Maraj," and it gives the citation and that's the case referred to in item 1 of our request. Do you have that affidavit with you here today? A. No. Q. Were you aware of that second opinion where Judge Schack asks for a second affidavit? A. Nope. Where is Judge Schack sending these? Q. Presumably to your counsel. A. I wonder if he has the right address. Maybe that's what we should do, send Judge Schack the most recent, and I will gladly show up in his court and provide him everything he wants. Q. Okay. Well, I sent you this back in March. Have your or your counsel or in-house counsel at IndyMac pursued that? A. No. [Emphasis added] Counsel for plaintiff ONEWEST has leave to produce Ms. Johnson-Seck in my courtroom to "gladly show up... and provide [me]... everything he wants."
Real Property Actions and Proceedings Law (RPAPL) § 1321 allows the Court in a foreclosure action, upon the default of the defendant or defendant's admission of mortgage payment arrears, to appoint a referee "to compute the amount due to the plaintiff." In the instant action, plaintiff ONEWEST's application for an order of reference is a preliminary step to obtaining a default judgment of foreclosure and sale against defendant DRAYTON. (Home Sav. of Am., F.A. v Gkanios, 230 AD2d 770 [2d Dept 1996]). Plaintiff's request to withdraw its application for an order of reference is granted.
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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However, to allow this action to continue without seeking the ultimate purpose of a foreclosure action, to obtain a judgment of foreclosure and sale, makes a mockery of and wastes the resources of the judicial system. Continuing the instant action without moving for an order of reference is the judicial equivalent of a "timeout." Granting a "timeout" to plaintiff ONEWEST to allow it to re-submit "a new application containing new information... shortly" is a waste of judicial resources. Therefore, the instant action is dismissed without prejudice, with leave granted to plaintiff ONEWEST to renew its motion for an order of reference within sixty (60) days of this decision and order, if plaintiff ONEWEST and plaintiff ONEWEST's counsel can satisfactorily address the various issues previously enumerated. Further, the dismissal of the instant foreclosure action requires the cancellation of the notice of pendency. CPLR § 6501 provides that the filing of a notice of pendency against a property is to give constructive notice to any purchaser of real property or encumbrancer against real property of an action that "would affect the title to, or the possession, use or enjoyment of real property, except in a summary proceeding brought to recover the possession of real property." The Court of Appeals, in 5308 Realty Corp. v O & Y Equity Corp. (64 NY2d 313, 319 [1984]), commented that "[t]he purpose of the doctrine was to assure that a court retained its ability to effect justice by preserving its power over the property, regardless of Page 13 whether a purchaser had any notice of the pending suit," and, at 320, that "the statutory scheme permits a party to effectively retard the alienability of real property without any prior judicial review." CPLR § 6514 (a) provides for the mandatory cancellation of a notice of pendency by:
The Court, upon motion of any person aggrieved and upon such notice as it may require, shall direct any county clerk to cancel a notice of pendency, if service of a summons has not been completed within the time limited by section 6512; or if the action has been settled, discontinued or abated; or if the time to appeal from a final judgment against the plaintiff has expired; or if enforcement of a final judgment against the plaintiff has not been stayed pursuant to section 551. [emphasis added] The plain meaning of the word "abated," as used in CPLR § 6514 (a) is the ending of an action. "Abatement" is defined as "the act of eliminating or nullifying." (Black's Law Dictionary 3 [7th ed 1999]). "An action which has been abated is dead, and any further enforcement of the cause of action requires the bringing of a new action, provided that a cause of action remains (2A Carmody-Wait 2d § 11.1)." (Nastasi v Nastasi, 26 AD3d 32, 40 [2d Dept 2005]). Further, Nastasi at 36, held that the "[c]ancellation of a notice of pendency can be granted in the exercise of the inherent power of the court where its filing fails to comply with CPLR § 6501 (see 5303 Realty Corp. v O & Y Equity Corp., supra at 320-321; Rose v Montt Assets, 250 AD2d 451, 451-452 [1d Dept 1998]; Siegel, NY Prac § 336 [4th ed])." Thus, the dismissal of the instant complaint must result in the mandatory cancellation of plaintiff ONEWEST's notice of pendency against the subject property "in the exercise of the inherent power of the court." Moreover, "[t]o have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage." (HSBC Bank, USA v Yeasmin, 27 Misc 3d 1227 [A], *3 [Sup Ct, Kings County 2010]). "No special form or language is necessary to effect an assignment as long as the language shows the intention of the owner of a right to transfer it [Emphasis added]." (Tawil v Finkelstein Bruckman Wohl Most & Rothman, 223 AD2d 52, 55 [1d Dept 1996]). (See Suraleb, Inc. v International Trade Club, Inc., 13 AD3d 612 [2d Dept 2004]).
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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MERS, as described above, recorded the subject mortgage as "nominee" for CAMBRIDGE. The word "nominee" is defined as "[a] person designated to act in place of another, usu. in a very limited way" or "[a] party who holds bare legal title for the benefit of others." (Black's Law Dictionary 1076 [8th ed 2004]). "This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves." (Landmark National Bank v Kesler, 289 Kan 528, 538 [2009]). The Supreme Court of Kansas, in Landmark National Bank, 289 Kan at 539, observed that: The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. See In re Sheridan, 2009 WL631355, at *4 (Bankr. D. Idaho, March 12, 2009) (MERS "acts not on its own account. Its Page 14 capacity is representative."); Mortgage Elec. Registrations Systems, Inc. v Southwest, 2009 Ark. 152 ___, ___SW3d___, 2009 WL 723182 (March 19, 2009) ("MERS, by the terms of the deed of trust, and its own stated purposes, was the lender's agent"); La Salle Nat. Bank v Lamy, 12 Misc 3d 1191 [A], at *2 [Sup Ct, Suffolk County 2006])... ("A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.") The New York Court of Appeals in MERSCORP, Inc. v Romaine (8 NY3d 90 [2006]), explained how MERS acts as the agent of mortgagees, holding at 96:
In 1993, the MERS system was created by several large participants in the real estate mortgage industry to track ownership interests in residential mortgages. Mortgage lenders and other entities, known as MERS members, subscribe to the MERS system and pay annual fees for the electronic processing and tracking of ownership and transfers of mortgages. Members contractually agree to appointMERS to act as their common agent on all mortgages they register in the MERS system. [Emphasis added] Thus, it is clear that MERS's relationship with its member lenders is that of agent with principal. This is a fiduciary relationship, resulting from the manifestation of consent by one person to another, allowing the other to act on his behalf, subject to his control and consent. The principal is the one for whom action is to be taken, and the agent is the one who acts.It has been held that the agent, who has a fiduciary relationship with the principal, "is a party who acts on behalf of the principal with the latter's express, implied, or apparent authority." (Maurillo v Park Slope U-Haul, 194 AD2d 142, 146 [2d Dept 1992]). "Agents are bound at all times to exercise the utmost good faith toward their principals. They must act in accordance with the highest and truest principles of morality." (Elco Shoe Mfrs. v Sisk, 260 NY 100, 103 [1932]). (See Sokoloff v Harriman Estates Development Corp., 96 NY 409 [2001]); Wechsler v Bowman, 285 NY 284 [1941]; Lamdin v Broadway Surface Advertising Corp., 272 NY 133 [1936]). An agent "is prohibited from acting in any manner inconsistent with his agency or trust and is at all times bound to exercise the utmost good faith and loyalty in the performance of his duties." (Lamdin, at 136). Therefore, in the instant action, MERS, as nominee for CAMBRIDGE, is an agent of CAMBRIDGE for limited purposes. It can only have those powers given to it and authorized by its principal, CAMBRIDGE. Plaintiff ONEWEST has not submitted any documents demonstrating how CAMBRIDGE authorized MERS, as nominee for CAMBRIDGE, to assign the subject DRAYTON mortgage and note to INDYMAC, which subsequently assigned the subject mortgage and note to plaintiff ONEWEST.
Recently, in Bank of New York v Alderazi, 28 Misc 3d at 379-380, my learned colleague,
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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Kings County Supreme Court Justice Wayne Saitta explained that: A party who claims to be the agent of another bears the burden of proving the agency relationship by a preponderance of the evidence (Lippincott v East River Mill & Lumber Co., 79 Misc 559 [1913]) Page 15 and "[t]he declarations of an alleged agent may not be shown for the purpose of proving the fact of agency." (Lexow & Jenkins, P.C. v Hertz Commercial Leasing Corp., 122 AD2d 25 [2d Dept 1986]; see also Siegel v Kentucky Fried Chicken of Long Is. 108 AD2d 218 [2d Dept 1985]; Moore v Leaseway Transp/ Corp., 65 AD2d 697 [1st Dept 1978].) "[T]he acts of a person assuming to be the representative of another are not competent to prove the agency in the absence of evidence tending to show the principal's knowledge of such acts or assent to them." (Lexow & Jenkins, P.C. v Hertz Commercial Leasing Corp., 122 AD2d at 26, quoting 2 NY Jur 2d, Agency and Independent Contractors § 26). Plaintiff has submitted no evidence to demonstrate that the original lender, the mortgagee America's Wholesale Lender, authorized MERS to assign the secured debt to plaintiff. Therefore, in the instant action, plaintiff ONEWEST failed to demonstrate how MERS, as nominee for CAMBRIDGE, had authority from CAMBRIDGE to assign the DRAYTON mortgage to INDYMAC. The Court grants plaintiff ONEWEST leave to renew its motion for an order of reference, if plaintiff ONEWEST can demonstrate how MERS had authority from CAMBRIDGE to assign the DRAYTON mortgage and note to INDYMAC.
Then, plaintiff ONEWEST must address the tangled employment situation of "robo-signer" Erica A. Johnson-Seck. She admitted in her July 9, 2010 deposition in the Machado case that she never provided me with affidavits of her employment for the prior three years and an explanation of why she wore so-many corporate hats in Maraj and Bethley. Further, in Deutsche Bank v Harris, Ms. Johnson-Seck executed an affidavit of merit as Vice President of Deutsche Bank. If plaintiff renews its motion for an order of reference, the Court must get to the bottom of Ms. Johnson-Seck's employment status and her "robo-signing." The Court reminds plaintiff ONEWEST's counsel that Ms. Johnson-Seck, at p. 161 of the Machado deposition, volunteered, at lines 4-5 to "gladly show up in his court and provide him everything he wants." Lastly, if plaintiff ONEWEST'S counsel moves to renew its application for an order of reference, plaintiff's counsel must comply with the new filing requirement to submit, under penalties of perjury, an affirmation that he has taken reasonable steps, including inquiring of plaintiff ONEWEST, the lender, and reviewing all papers, to verify the accuracy of the submitted documents in support of the instant foreclosure action. According to yesterday's Office of Court Administration press release, Chief Judge Lippman said: We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs — such as a family home — during this period of economic crisis. This new filing requirement will play a vital role in ensuring that the documents judges rely on will be thoroughly examined, accurate, and error-free before any judge is asked Page 16 to take the drastic step of foreclosure. (See Gretchen Morgenson and Andrew Martin, Big Legal Clash on Foreclosure is Taking Shape, New York Times, Oct. 21, 2010; Andrew Keshner, New Court Rules Says Attorneys Must Verify Foreclosure Papers, NYLJ, Oct. 21, 2010).
Accordingly, it is
Onewest Bank v. Drayton, 2010 NY Slip Op 20429 (N.Y. Sup. Ct., 2010)
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ORDERED, that the request of plaintiff ONEWEST BANK, F.S.B., to withdraw its motion for an order of reference, for the premises located at 962 Hemlock Street, Brooklyn, New York (Block 4529, Lot 116, County of Kings), is granted; and it is further ORDERED, that the instant action, Index Number 15183/09, is dismissed without prejudice; and it is further ORDERED, that the notice of pendency in the instant action, filed with the Kings County Clerk on June 18, 2009, by plaintiff ONEWEST BANK, F.S.B., to foreclose a mortgage for real property located at 962 Hemlock Street, Brooklyn, New York (Block 4529, Lot 116, County of Kings), is cancelled; and it is further ORDERED, that leave is granted to plaintiff, ONEWEST BANK, F.S.B., to renew, within sixty (60) days of this decision and order, its motion for an order of reference for the premises located at 962 Hemlock Street, Brooklyn, New York (Block 4529, Lot 116, County of Kings), provided that plaintiff, ONEWEST BANK, F.S.B., submits to the Court: (1) proof of the grant of authority from the original mortgagee, CAMBRIDGE CAPITAL, LLC, to its nominee, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., to assign the subject mortgage and note to INDYMAC FEDERAL BANK, FSB; and
(2) an affidavit by Erica A. Johnson-Seck, Vice President of plaintiff ONEWEST BANK, F.S.B., explaining: her employment history for the past three years; why a conflict of interest does not exist in how she acted as a Vice President of assignor MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Vice President of assignee/assignor INDYMAC FEDERAL BANK, FSB, and a Vice President of assignee/plaintiff ONEWEST BANK, F.S.B. in this action; why she was a Vice President of both assignor MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. and assignee DEUTSCHE BANK in Deutsche Bank v Maraj, 18 Misc 3d 1123 (A) (Sup Ct, Kings County 2008); why she was a Vice President of both assignor MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. and assignee INDYMAC BANK, FSB in Indymac Bank, FSB, v Bethley, 22 Misc 3d 1119 (A) (Sup Ct, Kings County 2009); and, why she executed an affidavit of merit as a Vice President of DEUTSCHE BANK inDeutsche Bank v Harris (Sup Ct, Kings County, Feb. 5, 2008, Index No. 35549/07); and (3) counsel for plaintiff ONEWEST BANK, F.S.B. must comply with the new Court filing requirement, announced by Chief Judge Page 17 Jonathan Lippman on October 20, 2010, by submitting an affirmation, using the new standard Court form, pursuant to CPLR Rule 2106 and under the penalties of perjury, that counsel for plaintiff ONEWEST BANK, F.S.B. has personally reviewed plaintiff ONEWEST BANK, F.S.B.'s documents and records in the instant action and counsel for plaintiff ONEWEST BANK, F.S.B. confirms the factual accuracy of plaintiff ONEWEST BANK, F.S.B.'s court filings and the accuracy of the notarizations in plaintiff ONEWEST BANK, F.S.B.'s documents. This constitutes the Decision and Order of the Court. ENTER HON. ARTHUR M. SCHACK
J. S. C.

Judge Posner explains securitization in simple terms

I believe that one of the best ways to educate yourself, even for non-lawyers, is to read court opinions on the subject issues.  One such seminal issue lately has been "securitization" of mortgage loans.  There is still much to be learned about securitization by most of those outside the financial industry.  Notably, Judge Posner is one the most prolific judges on the federal bench today and is a preeminent figure in the sphere of Law and Economics.  His widely regarded works in this area include The Economics of Justice, Economic Analysis of Law, Antitrust Law, The Economic Structure of Intellectual Property Law, and A Failure of Capitalism: The Crisis of '08 and the Descent into Depression.

Without further ado, here is the latest from Ponser on securitization:

Wednesday, November 17, 2010

Technical Defenses Are Growing For Securitized Loans

Mortgage-bond issuers and investors moved to quell questions about whether banks properly assigned loans made during the securitization boom, arguing that such transfers are valid even if the loan's owner isn't identified in certain records.

Editors' Deep Dive: Financial Regulation Watch

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The American Securitization Forum, a trade group for the securitization industry, is set to release on Tuesday a 28-page defense of widely used practices for bundling mortgages into securities. The securitization process and foreclosure-documentation practices are likely to face criticism from lawmakers at a Senate Banking Committee hearing Tuesday.
A separate report from the Congressional Oversight Panel, also being released Tuesday, raises questions about whether improper document transfers could create additional liabilities for the biggest U.S. banks. The consequences could be "severe," the report said, "if documentation problems prove to be pervasive and, more importantly, throw into doubt the ownership of not only foreclosed properties but also pooled mortgages."
The securitization-industry defense doesn't address the problem of "robo-signing," in which employees falsely asserted that they had personally reviewed the details of foreclosure cases.
Still, the report is aimed at countering claims made by critics that the rush to feed demand for securities led banks to cut corners in assigning and tracking ownership of mortgages, just as they did, critics claim, when buying and making mortgage loans.
Tom Deutsch, the executive director of the American Securitization Forum, said the group decided to issue the report after "novel theories" challenged whether mortgages were properly sold as securities.
Some critics contend that loans weren't properly transferred at each stage in the securitization process. That could have consequences for the authority of mortgage trusts to foreclose and for the tax-free status of certain investments.
One particular practice called into question recently is the use of "blank assignments." Because notes were transferred at several steps throughout the securitization process, banks often endorsed those loans in blank, without specifying the owner.
According to the American Securitization Forum, under real-estate law known as the Uniform Commercial Code, loans are assigned to the owner, even if the endorsement is blank, simply through the transfer of the loan itself.
Some analysts argue that logic isn't necessarily relevant because individual pooling-and-servicing agreements that govern respective securitizations supersede real-estate law and might have set down more specific steps that needed to be followed.
"What constitutes a correct transfer is a gray area. We need more direction from courts and legislatures on this subject," Katherine Porter, a law professor at the University of Iowa, told a congressional panel last month.
Mr. Deutsch said he is unaware of any legal challenges of loan transfers. "Nearly all of the [pooling-and-servicing agreements] that we have reviewed do allow for transfers in blank," he said.
Separately, lawyers in several states have challenged the electronic lien-registry system known as the Mortgage Electronic Registration System, or MERS, which was devised by banks in 1997 to facilitate the securitization of loans.
To avoid rerecording a loan in county records every time a loan changes hands, banks designated MERS as either the lien-holder or its nominee. Lawyers have challenged MERS's standing to foreclose because it doesn't actually own the loans, while others contend that companies that relied on MERS became sloppy in tracking their paperwork.
The American Securitization Forum cited case law in dozens of states to press its case that a third party such as MERS can foreclose on behalf of the servicer. To avoid legal challenges, some investors and servicers have begun moving loans loan out of MERS's name before foreclosing.
In testimony prepared for Tuesday's hearing, Adam Levitin, a professor of law at Georgetown University, will warn that "evidence is mounting" that such flaws are "not limited to one-off cases, but that there may be pervasive defects throughout the foreclosure and securitization processes." At worse, such "highly technical" but "extremely serious" problems represent a "systemic risk of liabilities in the trillions of dollars, greatly exceeding the capital of the U.S.'s greatest financial institutions," he said.
Also at the hearing, Bank of America Corp. executive Barbara Desoer is expected to acknowledge some weaknesses were found in the Charlotte, N.C., bank's internal review of foreclosure practices.
"We have not found a perfect process," Ms. Desoer said in written testimony submitted to the committee. "There are areas where we clearly must improve, and we are committed to making needed changes." She reiterated that the bank has found no evidence of wrongful foreclosures.
Ms. Desoer also wrote that "many investors limit Bank of America's discretion to take certain actions," a reference to the different agendas by investors who own loans serviced by the bank. Some investors want Bank of America to modify loans, while others push for foreclosure.
David Lowman, the top home-loan executive at J.P. Morgan Chase & Co., said in written testimony that the bank is "committed to addressing" any foreclosure problems "as thoroughly and quickly as possible."
Also testifying at Tuesday's hearing is Iowa Attorney General Tom Miller, who leads the nationwide investigation into the foreclosure problems that erupted in September. The attorneys general are scrutinizing whether home-loan servicers violated state laws against deceptive practices by submitting affidavits and foreclosure documents without confirming the paperwork's accuracy.
Mr. Miller is expected to tell lawmakers that many loan servicers lacked adequate systems to deal with the simultaneous crush of foreclosures and loan modifications, according to a person familiar with his testimony. Mr. Miller also is expected to say that, while state attorneys general are investigating the paperwork, their bigger concern is the loan-modification system. A spokesman for Mr. Miller said he had no immediate comment..
—Dan Fitzpatrick, Alan Zibel and Vanessa O'Connell contributed to this article.
Write to Nick Timiraos at nick.timiraos@wsj.com

Principal Reduction is really Principal CORRECTION (credit: Neil Garfield)

California foreclosure aid fund swells, but banks hesitate
The state’s Keep Your Home plan has grown to $2 billion from $700 million. However, mortgage servicers haven’t officially agreed to participate in the principal reduction part of the program.
By Alejandro Lazo and E. Scott Reckard, Los Angeles Times
November 10, 2010
Federal funding for a California plan that helps borrowers facing foreclosure has snowballed to $2 billion, enough to potentially help more than 100,000 homeowners.
But the program lacks formal agreements with the nation’s largest banks and investors, and their cooperation is needed to make the proposed effort broadly successful.
Out of the three major mortgage servicers — Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. — only Bank of America has told the state that it will participate in a central part of its Keep Your Home program that would reduce the principal balance of certain troubled mortgages, and even BofA has yet to sign an agreement. Fannie Mae and Freddie Mac have declined to participate in the principal reduction part of the plan.
The Keep Your Home program, which uses federal funds reserved for the 2008 rescue of the financial system, is intended for low- and moderate-income people who own only one property. To qualify in Los Angeles County, a family of four couldn’t earn more than $75,600. The maximum benefit for any household participating in the program is $50,000.
The biggest part of the plan gives $875 million in temporary financial help to homeowners who have seen their paychecks cut or have lost their jobs. The program would provide as much as $3,000 a month for six months to cover home payments, including principal, interest, insurance and homeowner association dues.
Another piece would provide as much as $15,000 to help homeowners get current on their mortgages, and another would provide assistance to move for those people who can’t afford to remain in their homes. Most of the big banks and Fannie and Freddie have signaled that they’re willing to participate with these parts of the plan.
But the most controversial part of the program, and the one most difficult for banks and investors to sign on to, dedicates $790 million to principal reduction. This would write down the value of an estimated 25,135 “underwater” mortgages, which are loans in which homeowners owe more on their properties than what they are worth.
The California plan — as well as programs created by Nevada and Arizona — would pay lenders $1 for every dollar of mortgage debt forgiven. Experts say reducing principal on such underwater loans would go far to reducing foreclosures in the three states because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.
But the financial industry has been reluctant to participate in government-administered programs that would require them to reduce the amount that borrowers owe them.
“If you can’t do the principal write-down, you are limited in what you can do,” said Dan Immergluck, an associate professor at the Georgia Institute of Technology, who studied the different state plans developed with the federal bailout money.
“It is one thing for them to agree not to write down principal when they are being asked to foot the whole bill,” he said, “but when the states are agreeing to match this 50-50, it seems rather ridiculous of the servicers and the investors not to agree to this.”
Diane Richardson, director of legislation for the state’s housing finance agency, which created the California plan, said she expects other lenders to follow Bank of America’s lead once the program is underway.
“Once the program gets going, and other lenders see how successful it is, I think others will come aboard,” she said. The Keep Your Home program was slated to begin Nov. 1, but the launch was pushed back until early next year because the effort grew in complexity and size from when it was announced in February.
Originally, five states in which home values had dropped more than 20% since 2006 were selected to receive $1.5 billion from the Treasury Department’s Troubled Asset Relief Program. The program grew to cover states with high unemployment, which included California, and more federal money was added. California was initially slated to receive $700 million when the Treasury approved the state’s plan in July. Then even more money was added, resulting in a $7.6-billion program involving 18 states and the District of Columbia.
California, which accounts for 21% of the nation’s foreclosure activity, is the largest recipient of the bailout money. Homeowners in the Golden State also remain deeply underwater, according to recent data. In California, 27.9% of homeowners who owned single-family residences were underwater at the end of the third quarter, according to data released Wednesday by real estate information site Zillow.com. In Los Angeles County, 17.4% of borrowers owed more on their mortgages than what their homes were worth.
Even as the state struggles to get big lenders to sign on, the program has provoked complaints that it’s a giveaway to the banks. Critics say property values have fallen so steeply that much troubled mortgage debt is not worth 50 cents on the dollar. Foreclosures on these homes are so costly that the banks will come out ahead financially by writing down loan balances to keep borrowers in the homes, they contend.
“I don’t think we should have to be paying the lenders,” said Prentiss Cox, a professor at the University of Minnesota Law School Clinic. “We have already paid them in the form of the bailout, and it seems to me what we need is enforced loan modification, because that is in everyone’s interest.”
Critics also are unhappy that homeowners who refinanced their homes to take cash out of their properties will not be allowed to participate in the program. That will exclude many African American and Latino borrowers in low-income communities who were hustled into loans they did not understand or could not afford, said Yvonne Mariajimenez, deputy director of Neighborhood Legal Services of Los Angeles County.
These borrowers were “enticed by predatory lenders to refinance and pull out equity to pay medical debt, fix their houses and the like,” Mariajimenez said. “A disproportionate number were people of color that live in minority communities.”
Getting banks to write down principal has proved difficult through government programs, though some lenders have done it through their own proprietary initiatives. The federal government’s loan modification program, which is also funded by money from TARP, has always allowed loan servicers to forgive principal on troubled mortgages, but has never required them to do so.
Proponents of forgiving principal say this is a serious flaw. They contend that debt forgiveness is the only workable way to address the problem created by underwater loans.