Las Vegas Homeowners in Default File Suit Against Bank
Posted: Dec 30, 2009 6:13 PM EST
Las Vegas Homeowners in Default File Suit Against Bank
LAS VEGAS -- A group of homeowners on the brink of foreclosure has formed a class-action lawsuit against their lender Bank of America.
That lawsuit -- which represents 50 homeowners -- accuses the bank of wrongful foreclosure, breach of contract, and unfair lending practices. According to federal law, lenders that accepted government bailout funds are required to take part in good faith negotiations with homeowners who are at imminent risk of default. But after months of getting nowhere with their lender, dozens of homeowners say they are now suing Bank of America in an attempt to force them to follow the law.
"I have an income and I could make some sort of reasonable payment if they would just work with me but they have no intention of working with me. The only way they're gonna work with me is if they're forced to," said Deanna Forsyth, suing her lender.
Forsyth says after she lost nearly half her monthly income due to the recession, she contacted her lender directly to try and modify her mortgage to include a lower monthly payment. Like most of the homeowners involved in the suit, Forsyth says Bank of America has failed to make a good faith effort to help her try and save the home where she and her children live.
Las Vegas attorney Matthew Callister has filed a class-action lawsuit on behalf of more than 50 homeowners against Bank of America.
"We've been compelled to bring a series of class action suits to put a proverbial gun to the head of the lending institutions to force them to do what they are already obligated to do," said Callister.
He is also pushing for a hearing before a judge as soon as possible to get an injunction or stay to postpone any foreclosures and evictions against the homeowners taking part in the class-action suit.
Callister also has a suit against IndyMac on behalf of about 60 homeowners. He also plans to file suits against Chase Bank and Wells Fargo Bank in the near future.
Wednesday, December 30, 2009
Monday, December 21, 2009
$hiti Repays Debt / Whats the Point?
Citi's TARP Repayment: The Downside for a Troubled Bank
By Stephen Gandel Tuesday, Dec. 15, 2009
Can Citigroup survive without a government safety net? Some analysts aren't
sure.
On Monday, Citigroup said it had worked out a deal to repay $20 billion in
government bailout money and terminate a loss-sharing agreement the bank had
with the government for Citi's riskiest assets. Citi CEO Vickram Pandit said the
moves were signs that his company was returning to financial health. The deal
would also remove much of the government's pay restrictions on the bank. "These
actions move us closer to ending a very difficult period for our company," wrote
Pandit in an internal memo to Citi employees. (See 25 people to blame for the
financial crisis.)
But analysts say Citi's rush to repay the assistance it got through the
government's Troubled Asset Relief Program (TARP) will make the bank weaker, not
stronger. The move will reduce Citi's capital ratios and hurt earnings; it may
also accelerate a retreat of foreign investors from the company's shares. Worse,
the government is demanding stricter terms from Citi than it did from Bank of
America on the repayment deal it struck just a week ago. The different treatment
shows that the government remains more concerned about Citi's finances than
those of its rivals.
Veteran analyst Richard Bove of Rochdale Securities, who had been recommending
Citi's shares since the summer, downgraded the stock on news that it was going
to repay TARP from a "buy" to a "sell" rating. "What does it do for the company?
Management can increase [executive] salaries," says Bove, referring to the fact
that Citi will now be free of the government's compensation rules. "What else?
Nothing."
Indeed, Citi's shares fell on the news that it was repaying TARP, down $0.27, or
nearly 7%, to $3.68 a share.
Citi's deal to pay back the government was reportedly hashed out over a week's
worth of marathon negotiations following Bank of America's repayment last week
of $45 billion in government assistance. Citi did not want to be one of the few
remaining big banks still using the government's crutch.(See the worst business
deals of 2009.)
Citi's effort to repay the government will remove some of the stigma surrounding
the firm that has evolved since the start of the financial crisis. Treasury
officials say Citi will no longer be considered one of the companies that have
received "exceptional assistance" from the government. That means pay czar
Kenneth Feinberg will no long have a say over salaries at the company. What's
more, the company will save $1.6 billion in annual preferred-stock dividend
payments it would have owed the government on its TARP loan.
Nonetheless, the deal will be costly for Citi. In order to exit TARP, the bank
will have to sell $20.5 billion in new shares. Analysts estimate the stock sale
will lower the company's earnings per share by about 20%. "One of the basic
problems for [Citigroup's] valuation is that it has too many shares as a result
of its many rounds of capital raising and exchange offers," says analyst David
Hensler, who follows Citi for research firm Creditsights.
But raising all the capital to pay back TARP won't improve Citi's balance sheet
either. In fact, it will do the opposite. Bove estimates that TARP repayment
will lower the company's Tier 1 capital ratio to just over 11%, from a recent
12.8%. What's more, with the elimination of the government guarantee of Citi's
riskiest assets, which could expose the bank to as much as $250 billion in
additional losses, the bank's Tier 1 ratio will sink further, to 10%, according
to Hensler. (See 10 big recession surprises.)
But Christopher Whalen, managing director of research firm Institutional Risk
Analytics, thinks the problem with Citi's repayment has less to do with capital
ratios and more to do with waning confidence in the bank around the world. In
early December, the investment arm of the government of Kuwait sold its entire
investment stake in Citigroup. "Foreign investors like to see the government's
stake in Citi," says Whalen. "If the government gets out, investors around the
world will flee."
Finally, the deal Citi struck with the government may indicate to investors that
the bank is actually in worse shape than many thought. To exit TARP, Bank of
America was required to raise $18.5 billion in new capital, or about 40% of the
$45 billion in capital it repaid the government. Other banks have had to raise
as much as half of the amount they want to pay back the government in new
capital. Citigroup, though, is required to raise more than 100% of what it wants
to pay back — $20.5 billion in new capital, half a billion dollars more than it
will pay Uncle Sam. That suggests the government is still worried that Citi has
significant losses on its books and needs to hold more capital than other banks.
"Letting Bank of America repay its TARP funds was ridiculous, but letting Citi
out is even more problematic," says Whalen.
http://www.time.com/time/business/article/0,8599,1947625,00.html?xid=rss-topstor\
ies
By Stephen Gandel Tuesday, Dec. 15, 2009
Can Citigroup survive without a government safety net? Some analysts aren't
sure.
On Monday, Citigroup said it had worked out a deal to repay $20 billion in
government bailout money and terminate a loss-sharing agreement the bank had
with the government for Citi's riskiest assets. Citi CEO Vickram Pandit said the
moves were signs that his company was returning to financial health. The deal
would also remove much of the government's pay restrictions on the bank. "These
actions move us closer to ending a very difficult period for our company," wrote
Pandit in an internal memo to Citi employees. (See 25 people to blame for the
financial crisis.)
But analysts say Citi's rush to repay the assistance it got through the
government's Troubled Asset Relief Program (TARP) will make the bank weaker, not
stronger. The move will reduce Citi's capital ratios and hurt earnings; it may
also accelerate a retreat of foreign investors from the company's shares. Worse,
the government is demanding stricter terms from Citi than it did from Bank of
America on the repayment deal it struck just a week ago. The different treatment
shows that the government remains more concerned about Citi's finances than
those of its rivals.
Veteran analyst Richard Bove of Rochdale Securities, who had been recommending
Citi's shares since the summer, downgraded the stock on news that it was going
to repay TARP from a "buy" to a "sell" rating. "What does it do for the company?
Management can increase [executive] salaries," says Bove, referring to the fact
that Citi will now be free of the government's compensation rules. "What else?
Nothing."
Indeed, Citi's shares fell on the news that it was repaying TARP, down $0.27, or
nearly 7%, to $3.68 a share.
Citi's deal to pay back the government was reportedly hashed out over a week's
worth of marathon negotiations following Bank of America's repayment last week
of $45 billion in government assistance. Citi did not want to be one of the few
remaining big banks still using the government's crutch.(See the worst business
deals of 2009.)
Citi's effort to repay the government will remove some of the stigma surrounding
the firm that has evolved since the start of the financial crisis. Treasury
officials say Citi will no longer be considered one of the companies that have
received "exceptional assistance" from the government. That means pay czar
Kenneth Feinberg will no long have a say over salaries at the company. What's
more, the company will save $1.6 billion in annual preferred-stock dividend
payments it would have owed the government on its TARP loan.
Nonetheless, the deal will be costly for Citi. In order to exit TARP, the bank
will have to sell $20.5 billion in new shares. Analysts estimate the stock sale
will lower the company's earnings per share by about 20%. "One of the basic
problems for [Citigroup's] valuation is that it has too many shares as a result
of its many rounds of capital raising and exchange offers," says analyst David
Hensler, who follows Citi for research firm Creditsights.
But raising all the capital to pay back TARP won't improve Citi's balance sheet
either. In fact, it will do the opposite. Bove estimates that TARP repayment
will lower the company's Tier 1 capital ratio to just over 11%, from a recent
12.8%. What's more, with the elimination of the government guarantee of Citi's
riskiest assets, which could expose the bank to as much as $250 billion in
additional losses, the bank's Tier 1 ratio will sink further, to 10%, according
to Hensler. (See 10 big recession surprises.)
But Christopher Whalen, managing director of research firm Institutional Risk
Analytics, thinks the problem with Citi's repayment has less to do with capital
ratios and more to do with waning confidence in the bank around the world. In
early December, the investment arm of the government of Kuwait sold its entire
investment stake in Citigroup. "Foreign investors like to see the government's
stake in Citi," says Whalen. "If the government gets out, investors around the
world will flee."
Finally, the deal Citi struck with the government may indicate to investors that
the bank is actually in worse shape than many thought. To exit TARP, Bank of
America was required to raise $18.5 billion in new capital, or about 40% of the
$45 billion in capital it repaid the government. Other banks have had to raise
as much as half of the amount they want to pay back the government in new
capital. Citigroup, though, is required to raise more than 100% of what it wants
to pay back — $20.5 billion in new capital, half a billion dollars more than it
will pay Uncle Sam. That suggests the government is still worried that Citi has
significant losses on its books and needs to hold more capital than other banks.
"Letting Bank of America repay its TARP funds was ridiculous, but letting Citi
out is even more problematic," says Whalen.
http://www.time.com/time/business/article/0,8599,1947625,00.html?xid=rss-topstor\
ies
Wednesday, December 9, 2009
Facing Forclose: Finding Solutions
Facing foreclosure, finding solutionsBy Holden Lewis • Bankrate.com
It may not be apparent from the breakneck pace of foreclosure filings in the first quarter of 2009, but mortgage companies say that the last thing they want to do is foreclose. Seizing a delinquent borrower's house costs a lot of money.
Foreclosure begins to look even less appealing when you factor in that, thanks to the fall in housing prices since they peaked in 2006, the houses mortgage companies will be paying to repossess are probably worth significantly less than the amount left outstanding on the loan. It follows, then, that the key to keeping the house is to make it less expensive for the lender to work with you than to foreclose.
How does one go about working out a plan to keep his or her home?
When you fall behind on payments, your chances of getting cooperation from the mortgage servicer are better if you follow these guidelines.
Step-by-step plan for seeking help:
Respond to the mortgage company's phone calls and letters.
Seek advice and negotiating help from a third party.
Figure out if your problem is short-term or long-term.
Decide what you want and ask for it.
Document income and expenses; keep all correspondence with the servicer.
Be persistent in your quest to talk to the right people at the mortgage company.
Respond to the mortgage company's phone calls and lettersThe mortgage servicer is the company that collects monthly payments, passes along the payments to the homeowner's insurance company and tax collector, and makes phone calls and sends letters when the borrower falls behind.
Academic researchers have found that, in about half of foreclosures, the delinquent borrower never talked to the servicer.
"One of the challenges we have is in actually establishing effective communication with some of our borrowers in distress," says Paul Koches, senior vice president and chief counsel for Ocwen Financial Corp., a large servicer of subprime mortgages based in West Palm Beach, Fla. Fear, embarrassment and shame keep delinquent borrowers from talking to servicers.
"There's a great deal of psychology that swirls around delinquencies," Koches says. "But we have no chance of helping someone if they're not willing to talk to us."
And many homeowners could use the help.
Delinquencies and foreclosures have been rising nationwide for more than two years. As mortgage lenders lay off loan officers, mortgage servicers hire debt collectors and loss-mitigation specialists. Ocwen currently has 560 employees who work with struggling borrowers trying to stay in their homes. Before the real estate bubble burst two and half years ago, Ocwen had just 70 employees working on these issues.
"We train our collectors to have empathy," says Teresa Bratcher, Ocwen's director of foreclosure prevention. "These people, for the most part, didn't choose the circumstances that they're in."
Tip: Answer the phone and open your mail, but don't agree to any terms until you read the next tip.
Seek advice and negotiating help from a third partyRespond to the mortgage servicer, but don't be rushed into making a promise that you can't keep. Before making a deal with the servicer, describe your situation to an attorney, accountant or a knowledgable mortgage person, advises Neil Garfinkel, a lawyer with Abrams Garfinkel Margolis Bergson law firm in New York City.
When you are in danger of foreclosure, "those are perilous waters and you want to make sure you have a good adviser who can maybe serve as an intermediary to the lender," Garfinkel says.
"I urge people to get some kind of help with this process, to the extent that they can," says Michelle Lewis, president of Northwest Counseling Service, an agency in Philadelphia that offers mortgage counseling. "They can go out and do it on their own, but they need to be cautious."
One place to go is a housing counseling agency or a consumer credit counseling service. A good place to start is the NeighborWorks Center for Foreclosure Solutions' Web site. NeighborWorks counselors will make referrals to local agencies. Or you can make a call to (888) 995-HOPE, the hotline established by the nonprofit Homeownership Preservation Foundation. It offers 24/7 access to foreclosure counselors, nationwide.
As the foreclosure crisis has deepened, servicers and counseling agencies have developed closer relationships to facilitate mortgage workouts.
"We've developed very effective relationships with community activist groups – counseling organizations, neighborhood development associations, faith-based groups," says Koches, of Ocwen.
The earlier you contact a counselor, the more likely it is they'll be able to help you.
advertisement
replacecontent-tcm:8-22536
"You don't have to be in default to receive help," says Josh Furman, director of counseling for the Homeownership Preservation Foundation. "If you think your situation is going downhill or if you see kind of an imminent default situation because of a layoff, or a payment adjustment, we want you to reach out early to see what kind of options you have -- the sooner the better."
Tip: Choices for guidance include consulting an attorney, a credit counselor or a housing counseling agency. You can find a counselor through the Hope Now Coalition, a public-private partnership between the federal government and lenders designed to stem foreclosures. You can also find help at the HUD Web site, which maintains an updated database of approved housing counselors.
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It may not be apparent from the breakneck pace of foreclosure filings in the first quarter of 2009, but mortgage companies say that the last thing they want to do is foreclose. Seizing a delinquent borrower's house costs a lot of money.
Foreclosure begins to look even less appealing when you factor in that, thanks to the fall in housing prices since they peaked in 2006, the houses mortgage companies will be paying to repossess are probably worth significantly less than the amount left outstanding on the loan. It follows, then, that the key to keeping the house is to make it less expensive for the lender to work with you than to foreclose.
How does one go about working out a plan to keep his or her home?
When you fall behind on payments, your chances of getting cooperation from the mortgage servicer are better if you follow these guidelines.
Step-by-step plan for seeking help:
Respond to the mortgage company's phone calls and letters.
Seek advice and negotiating help from a third party.
Figure out if your problem is short-term or long-term.
Decide what you want and ask for it.
Document income and expenses; keep all correspondence with the servicer.
Be persistent in your quest to talk to the right people at the mortgage company.
Respond to the mortgage company's phone calls and lettersThe mortgage servicer is the company that collects monthly payments, passes along the payments to the homeowner's insurance company and tax collector, and makes phone calls and sends letters when the borrower falls behind.
Academic researchers have found that, in about half of foreclosures, the delinquent borrower never talked to the servicer.
"One of the challenges we have is in actually establishing effective communication with some of our borrowers in distress," says Paul Koches, senior vice president and chief counsel for Ocwen Financial Corp., a large servicer of subprime mortgages based in West Palm Beach, Fla. Fear, embarrassment and shame keep delinquent borrowers from talking to servicers.
"There's a great deal of psychology that swirls around delinquencies," Koches says. "But we have no chance of helping someone if they're not willing to talk to us."
And many homeowners could use the help.
Delinquencies and foreclosures have been rising nationwide for more than two years. As mortgage lenders lay off loan officers, mortgage servicers hire debt collectors and loss-mitigation specialists. Ocwen currently has 560 employees who work with struggling borrowers trying to stay in their homes. Before the real estate bubble burst two and half years ago, Ocwen had just 70 employees working on these issues.
"We train our collectors to have empathy," says Teresa Bratcher, Ocwen's director of foreclosure prevention. "These people, for the most part, didn't choose the circumstances that they're in."
Tip: Answer the phone and open your mail, but don't agree to any terms until you read the next tip.
Seek advice and negotiating help from a third partyRespond to the mortgage servicer, but don't be rushed into making a promise that you can't keep. Before making a deal with the servicer, describe your situation to an attorney, accountant or a knowledgable mortgage person, advises Neil Garfinkel, a lawyer with Abrams Garfinkel Margolis Bergson law firm in New York City.
When you are in danger of foreclosure, "those are perilous waters and you want to make sure you have a good adviser who can maybe serve as an intermediary to the lender," Garfinkel says.
"I urge people to get some kind of help with this process, to the extent that they can," says Michelle Lewis, president of Northwest Counseling Service, an agency in Philadelphia that offers mortgage counseling. "They can go out and do it on their own, but they need to be cautious."
One place to go is a housing counseling agency or a consumer credit counseling service. A good place to start is the NeighborWorks Center for Foreclosure Solutions' Web site. NeighborWorks counselors will make referrals to local agencies. Or you can make a call to (888) 995-HOPE, the hotline established by the nonprofit Homeownership Preservation Foundation. It offers 24/7 access to foreclosure counselors, nationwide.
As the foreclosure crisis has deepened, servicers and counseling agencies have developed closer relationships to facilitate mortgage workouts.
"We've developed very effective relationships with community activist groups – counseling organizations, neighborhood development associations, faith-based groups," says Koches, of Ocwen.
The earlier you contact a counselor, the more likely it is they'll be able to help you.
advertisement
replacecontent-tcm:8-22536
"You don't have to be in default to receive help," says Josh Furman, director of counseling for the Homeownership Preservation Foundation. "If you think your situation is going downhill or if you see kind of an imminent default situation because of a layoff, or a payment adjustment, we want you to reach out early to see what kind of options you have -- the sooner the better."
Tip: Choices for guidance include consulting an attorney, a credit counselor or a housing counseling agency. You can find a counselor through the Hope Now Coalition, a public-private partnership between the federal government and lenders designed to stem foreclosures. You can also find help at the HUD Web site, which maintains an updated database of approved housing counselors.
«
1
2
3
4
»
Homeowners Frustrated by Mortgage Assistance Program
By Jessica Yellin CNN National Political Correspondent
(CNN) -- The Obama administration's Making Home Affordable program was designed to help homeowners like Mark Kollar and Angela Baca-Kollar keep their homes.
Mark Kollar and Angela Baca-Kollar took part in the Making Home Affordable program.
When the recession hit, the Arizona couple's income plummeted. They tried everything they could think of to hold on to their house: They drained their savings account, sold their 401(k), changed jobs.
It wasn't enough, and foreclosure is set to begin in a week.
The Kollars thought they had one last hope: the Making Home Affordable program, which should have reduced their monthly mortgage to affordable payments. In theory, it'd be a win-win: The Kollars and their two children keep their home, and the nation avoids one more foreclosure.
The problem? The bank hasn't been playing along, and the Kollars have no place to turn.
"I don't want a handout. I want to do the right thing," Mark Kollar said. "I thought this was supposed to give us a chance."
A CNN investigation revealed that the Kollars are far from alone. Housing counselors, homeowners and consumer advocates tell endless stories of banks giving homeowners the runaround: declining apparently eligible applicants; pressuring them into loans they can't afford; placing homes in foreclosure while the owners are being considered for a modified loan; lenders telling homeowners to waive their legal rights, even though the program prohibits it; or banks telling homeowners that they have to be in default to qualify, which isn't true. Watch more about how the program has worked so far »
Call for help
Have a complaint about your bank and Making Home Affordable?
1-888-995-HOPE
When will an agent pass on the complaint to higher-ups?
If you have been told to skip payments to qualify
If you have been told to pay a fee to qualify
If your lender is "improperly applying the program's guidelines"
If a member of Congress or their office makes a complaint on your behalf
Source: U.S. Department of Treasury
According to the Treasury Department's most recent report, only 230,000 of the up to 4 million eligible homeowners have new mortgages under the program.
Treasury Secretary Timothy Geithner has told bankers that he's not happy with the pace. Banks say that it took 90 days to get the program's rules and procedures and that they're still training staff members to handle it.
The most common complaint from those applying for help: banks losing paperwork or dropping calls while the foreclosure clock is ticking. Watch more on home mortgage problems »
Mark Kollar can testify to that.
Since receiving his Making Home Affordable offer, he's spent hours trying to reach someone at his bank who can help. A number of representatives told him that this is his only offer; accept it or lose his house.
After insisting on speaking to a supervisor, he was eventually told to resubmit the documentation he'd been submitting for months.
In return for billions of dollars from the government to help banks recover from bad loans, the banks are supposed to help homeowners make their mortgage payments more affordable. As President Obama said unveiling the program in March, helping "responsible folks who have been making their payments" because it will "leave money in their pockets and leave them more secure in their homes."
Under the Making Home Affordable formula, the Kollars' payment should have been reduced to 31 percent of their $3,000-a-month income.
The bank's offer? A payment of $2,892 a month, or 96 percent of their income.
Diane Thompson of the National Consumer Law Center says this isn't uncommon. "We've seen gross errors of banks putting in wrong income to get ... payments," she said.
Don't Miss
Mortgage help program slow, frustrating
New program yet to help buyers land homes
Bank of America, which holds the Kollars' loan, says the offer it made was based on incorrect information from a government-approved housing counselor.
Bank of America spokesman Rick Simon said it's difficult to determine what the Kollars should pay because Mark Kollar recently started a commission-based job, and his monthly income fluctuates.
The bank plans to watch his earnings for a few more months before it moves ahead "with consideration of a trial modification offer." Simon said the bank is offering the Kollars a temporary new mortgage payment while it watches their earnings.
"Bank of America is committed to the success of the Making Home Affordable program and helping homeowners avoid foreclosure whenever a borrower has the ability to make a reasonable mortgage payment," Simon said.
By one measure, the Kollars are more fortunate than others in the same predicament; the bank hasn't sold their house out from under them. Beth Goodell, a lawyer with the nonprofit Community Legal Services of Philadelphia, says she's seen that happen.
"Its outrageous," said Goodell, who represents low-income families in foreclosure. "It has to be clearer that foreclosure should stop altogether while people are being considered."
She says the only outlet for these homeowners is the courts.
An official with the Treasury Department said that "in all identified instances where loans have been denied to eligible borrowers, the administration has worked with servicers to correct the problem and provide modifications."
And Michael Barr, the Treasury Department's assistant secretary for financial institutions, says the program is "off to a strong start." He admits that "servicer performance has been uneven" but believes that the lenders are on track to make improvements. And he vows that the administration "will hold these institutions accountable for their progress."
But Goodell has seen plenty go wrong, and she said, "There's not adequate recourse."
Frustrated with the bank, Angela Baca-Kollar called the Obama administration's helpline, 1-888-995-HOPE, but the representative told her that the hot line "can't strong-arm the bank" and urged her to call a government-approved housing counselor.
The Kollars had been working with such a counselor for months.
"There is nowhere to go," Angela Baca-Kollar said.
(CNN) -- The Obama administration's Making Home Affordable program was designed to help homeowners like Mark Kollar and Angela Baca-Kollar keep their homes.
Mark Kollar and Angela Baca-Kollar took part in the Making Home Affordable program.
When the recession hit, the Arizona couple's income plummeted. They tried everything they could think of to hold on to their house: They drained their savings account, sold their 401(k), changed jobs.
It wasn't enough, and foreclosure is set to begin in a week.
The Kollars thought they had one last hope: the Making Home Affordable program, which should have reduced their monthly mortgage to affordable payments. In theory, it'd be a win-win: The Kollars and their two children keep their home, and the nation avoids one more foreclosure.
The problem? The bank hasn't been playing along, and the Kollars have no place to turn.
"I don't want a handout. I want to do the right thing," Mark Kollar said. "I thought this was supposed to give us a chance."
A CNN investigation revealed that the Kollars are far from alone. Housing counselors, homeowners and consumer advocates tell endless stories of banks giving homeowners the runaround: declining apparently eligible applicants; pressuring them into loans they can't afford; placing homes in foreclosure while the owners are being considered for a modified loan; lenders telling homeowners to waive their legal rights, even though the program prohibits it; or banks telling homeowners that they have to be in default to qualify, which isn't true. Watch more about how the program has worked so far »
Call for help
Have a complaint about your bank and Making Home Affordable?
1-888-995-HOPE
When will an agent pass on the complaint to higher-ups?
If you have been told to skip payments to qualify
If you have been told to pay a fee to qualify
If your lender is "improperly applying the program's guidelines"
If a member of Congress or their office makes a complaint on your behalf
Source: U.S. Department of Treasury
According to the Treasury Department's most recent report, only 230,000 of the up to 4 million eligible homeowners have new mortgages under the program.
Treasury Secretary Timothy Geithner has told bankers that he's not happy with the pace. Banks say that it took 90 days to get the program's rules and procedures and that they're still training staff members to handle it.
The most common complaint from those applying for help: banks losing paperwork or dropping calls while the foreclosure clock is ticking. Watch more on home mortgage problems »
Mark Kollar can testify to that.
Since receiving his Making Home Affordable offer, he's spent hours trying to reach someone at his bank who can help. A number of representatives told him that this is his only offer; accept it or lose his house.
After insisting on speaking to a supervisor, he was eventually told to resubmit the documentation he'd been submitting for months.
In return for billions of dollars from the government to help banks recover from bad loans, the banks are supposed to help homeowners make their mortgage payments more affordable. As President Obama said unveiling the program in March, helping "responsible folks who have been making their payments" because it will "leave money in their pockets and leave them more secure in their homes."
Under the Making Home Affordable formula, the Kollars' payment should have been reduced to 31 percent of their $3,000-a-month income.
The bank's offer? A payment of $2,892 a month, or 96 percent of their income.
Diane Thompson of the National Consumer Law Center says this isn't uncommon. "We've seen gross errors of banks putting in wrong income to get ... payments," she said.
Don't Miss
Mortgage help program slow, frustrating
New program yet to help buyers land homes
Bank of America, which holds the Kollars' loan, says the offer it made was based on incorrect information from a government-approved housing counselor.
Bank of America spokesman Rick Simon said it's difficult to determine what the Kollars should pay because Mark Kollar recently started a commission-based job, and his monthly income fluctuates.
The bank plans to watch his earnings for a few more months before it moves ahead "with consideration of a trial modification offer." Simon said the bank is offering the Kollars a temporary new mortgage payment while it watches their earnings.
"Bank of America is committed to the success of the Making Home Affordable program and helping homeowners avoid foreclosure whenever a borrower has the ability to make a reasonable mortgage payment," Simon said.
By one measure, the Kollars are more fortunate than others in the same predicament; the bank hasn't sold their house out from under them. Beth Goodell, a lawyer with the nonprofit Community Legal Services of Philadelphia, says she's seen that happen.
"Its outrageous," said Goodell, who represents low-income families in foreclosure. "It has to be clearer that foreclosure should stop altogether while people are being considered."
She says the only outlet for these homeowners is the courts.
An official with the Treasury Department said that "in all identified instances where loans have been denied to eligible borrowers, the administration has worked with servicers to correct the problem and provide modifications."
And Michael Barr, the Treasury Department's assistant secretary for financial institutions, says the program is "off to a strong start." He admits that "servicer performance has been uneven" but believes that the lenders are on track to make improvements. And he vows that the administration "will hold these institutions accountable for their progress."
But Goodell has seen plenty go wrong, and she said, "There's not adequate recourse."
Frustrated with the bank, Angela Baca-Kollar called the Obama administration's helpline, 1-888-995-HOPE, but the representative told her that the hot line "can't strong-arm the bank" and urged her to call a government-approved housing counselor.
The Kollars had been working with such a counselor for months.
"There is nowhere to go," Angela Baca-Kollar said.
GOP in Pact w/Banksters: Agree to Defeat Regulatory Reform
In a little-noticed but potentially explosive remark last Friday, Senator DickDurbin (D-Ill.) accused Republican leadership of signing a political pact withthe banking industry: in exchange for help defeating a measure that would makeit easier for homeowners to restructure failing mortgages, GOP leadership in theSenate would help banks defeat any additional efforts at regulatory reform.The allegation of a quid pro quo was based on an email that Durbin received lastspring after his amendment to allow judges to modify mortgages for homeownerswho enter bankruptcy was defeated on the Senate floor. During a discussion topromote publicly-financed elections on Friday, the Illinois Democrat relayedthat, shortly after the defeat of his "cram-down" amendment, a "banker friend"forwarded him the note from Tanya Wheeless, president & CEO of Arizona BankersAssociation."I have contacted the market presidents for each of the three banks (Chase,Wells and Bank of America) and explained that in my humble opinion it's a bigmistake to cut a deal with Durbin and alienate our (in Arizona) Senator,"Wheeless's email reads. "I also told them that I thought this would drive awedge in our industry. [Senator Jon] Kyl has pointedly told them not to make adeal with Durbin and then come looking to Republicans when they need help onsomething like regulatory restructuring or systemic risk regulation.""I know the (sic) every state association will have to do what's best for itsmembers, but I have told my largest three members that if they cut this deal,AzBA will fight them on it. They may be willing to alienate Republicanleadership, but I'm not quite there yet."The email, pasted below, was passed to the Huffington Post by Durbin's office.The implication seems fairly clear: banks were being warned that if they negotiated with Durbin on cram-down, they were risking GOP support on regulatory reform. That the banking industry would take such a stance isn't entirely surprising, when one considers the narrow financial interests that influence theindustry. But the willingness of the GOP leadership to, apparently, useregulatory reform as a cudgel to pressure banks is illuminating of the horse-trading process that occurs behind the legislative curtains.At the very least, it shows just how stacked the deck is against passing consumer-oriented reforms. In the end, cram-down was defeated not once but twice on the Senate floor.Durbin said on Friday that, back then "I talked about the fact that when it comes to the banking lobby, they own the place. It might have been an overstatement. But not by much. One of the people I ran into afterwards said[the statement] was like a bolt of lightening in a swimming pool. It just woke everybody up that something is going on, on Capitol Hill."The email, he added, "is a total smoking gun as far as I'm concerned. It tells the whole story and it is in writing as to what is happening behind the scenes... So when people say I don't know if we should have public financing because that is my tax dollars, I can tell them that their resources, whether tax dollars or personal wealth, are being impacted every day by decisions being made by the special interest groups."
Click on title above for original article and for READABLE copy of Durbin email;
http://www.huffingtonpost.com/2009/12/08/durbin-banks-and-gop-made_n_383872.html
Click on title above for original article and for READABLE copy of Durbin email;
http://www.huffingtonpost.com/2009/12/08/durbin-banks-and-gop-made_n_383872.html
Sunday, December 6, 2009
UpDate: $hiti-Loan Modification Process
Well today we got a package in the mail from $hiti (Fed Overnight Express) informing us that we have successfully completed the 3 month "probationary" period re: our "application" for a loan modification so we can keep our home which is in danger of foreclosure.....
Well isnt that some very good news. However, we were led to believe that once we completed the 3 mo probationary period, that we would "automatically" be approved for a loan modification and that the next step would be for them ($hiti) to work out an affordable mortgage payment plan for us. NOW, in this packet received today, we are told we must go through a "Mortgage Counseling Service" as a "next step" in the loan modification process.....WTF!!? More loops to jump through and scads more paperwork for us to fill out. I am about ready to tell the CEOs at $hiti that if THEY go to "Money Management Counseling" also, we will go to ours. Why are the consumers being treated like errant children when it is the banksters to blame for this mess?
I think I am going to tell them to SHOVE the "counseling" BS and GET ON with the business of forclosure but will also warn them that they better be able to prove "standing to sue" (ownership)as they havent a copy of the original NOTE as was lost in the ILLEGAL BUNDLING process.
-----------------------
I called $hiti today as instructed (at 1-866-413-4560) but got put on hold for over 20 minutes and was ultimately disconnected before I could speak to anyone.
I tried $hiti again today (Dec. 9) ......at 11:05 am (ET) and keep getting a recording that "all operatiors are busy helping other customers," and asking me to "please hold the line." I am wondering how long they want me to stay on hold.....tic tock tick tick I am waiting on hold now.....tick toc tick toc...good thing my "forclosure clock" aint ticking. They havent even begun forclosure on us yet. Opps. Here is that message again,..."Please continue to hold and thank you for your patience." And yes I am still holding but will wait no longer than the usual 20 minutes. I have other things to do rather than stay on the line waitiing for $hiti all day...tic tock......tic tock,..easy listnin musack in the background...tick toc . Why dont they play "the asshole song" for us as that is what they must think we are for attempting to jump through all their impossible and/or improbable "mortgage assiatance" hoops....like some trained trick dog or pony show act. At the end of this 20 minute wait, I think I shall write them a letter and CC a copy to MICHAEL BARR, Assistant Secretary of Financial Institutions for the US Treasury Dept..... and ask HIm WTF the problem is with getting our loan modified.
Homeownership is almost impossible today for the average working joe, as the taxes are constantly being raised, so what is the sense of fighting to keep your home if you are going to get taxed to death right into the poor-house anyways? The American Dream of Home Ownership has turned into a Nightmare. Thank you very much for nothing Big Banksters, Goldman Sucks and the Federal Reserve.
Well isnt that some very good news. However, we were led to believe that once we completed the 3 mo probationary period, that we would "automatically" be approved for a loan modification and that the next step would be for them ($hiti) to work out an affordable mortgage payment plan for us. NOW, in this packet received today, we are told we must go through a "Mortgage Counseling Service" as a "next step" in the loan modification process.....WTF!!? More loops to jump through and scads more paperwork for us to fill out. I am about ready to tell the CEOs at $hiti that if THEY go to "Money Management Counseling" also, we will go to ours. Why are the consumers being treated like errant children when it is the banksters to blame for this mess?
I think I am going to tell them to SHOVE the "counseling" BS and GET ON with the business of forclosure but will also warn them that they better be able to prove "standing to sue" (ownership)as they havent a copy of the original NOTE as was lost in the ILLEGAL BUNDLING process.
-----------------------
I called $hiti today as instructed (at 1-866-413-4560) but got put on hold for over 20 minutes and was ultimately disconnected before I could speak to anyone.
I tried $hiti again today (Dec. 9) ......at 11:05 am (ET) and keep getting a recording that "all operatiors are busy helping other customers," and asking me to "please hold the line." I am wondering how long they want me to stay on hold.....tic tock tick tick I am waiting on hold now.....tick toc tick toc...good thing my "forclosure clock" aint ticking. They havent even begun forclosure on us yet. Opps. Here is that message again,..."Please continue to hold and thank you for your patience." And yes I am still holding but will wait no longer than the usual 20 minutes. I have other things to do rather than stay on the line waitiing for $hiti all day...tic tock......tic tock,..easy listnin musack in the background...tick toc . Why dont they play "the asshole song" for us as that is what they must think we are for attempting to jump through all their impossible and/or improbable "mortgage assiatance" hoops....like some trained trick dog or pony show act. At the end of this 20 minute wait, I think I shall write them a letter and CC a copy to MICHAEL BARR, Assistant Secretary of Financial Institutions for the US Treasury Dept..... and ask HIm WTF the problem is with getting our loan modified.
Homeownership is almost impossible today for the average working joe, as the taxes are constantly being raised, so what is the sense of fighting to keep your home if you are going to get taxed to death right into the poor-house anyways? The American Dream of Home Ownership has turned into a Nightmare. Thank you very much for nothing Big Banksters, Goldman Sucks and the Federal Reserve.
Monday, November 2, 2009
CIT files for Chapter 11 bankruptcy protection : U.S. to Lose 2.3 Billion Investment
CIT Group seeks prepackaged reorganization in New York bankruptcy court,
By Stephen Manning, AP Business Writer
On 9:28 pm EST, Sunday November 1, 2009
WASHINGTON (AP) -- After struggling for months to avert bankruptcy, lender CIT Group has filed for Chapter 11 protection in an attempt to restructure its debt while trying to keep badly needed loans flowing to thousands of mid-sized and small businesses.
CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders overwhelmingly opted for a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.
The Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. CIT's bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion.
A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could allow it to exit court protection by the end of the year. In addition to reducing its debt, CIT said the plan cuts cash needs over the next three years, which should help it return to profitability more quickly.
"The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy," said Jeffrey M. Peek, chairman and CEO. Peek has said he plans to step down at the end of the year.
CIT's move will wipe out current holders of its common and preferred stock. That means the U.S. government will likely lose the $2.3 billion it sunk into CIT last year in return for preferred shares to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.
Treasury Department spokesman Andrew Williams said the government will be closely monitoring the bankruptcy proceedings, but acknowledged that "recovery to preferred and common equityholders will be minimal."
Common stockholders set to lose their investment include FMR LLC of Boston with a 9.9 percent stake in CIT and San Diego-based Brandes Investment Partners LP with a 9.7 percent equity position, according to CIT's filing.
CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.
The company received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.
Analysts warned that the bankruptcy could add to the uncertainty around loans for the nation's small businesses, especially retailers, which make up a significant portion of CIT's clients and are already struggling with tight credit markets.
CIT is the financier for about 2,000 vendors that supply merchandise to more than 300,000 stores, many of which are gearing up for the critical holiday shopping season. They rely on the lender to cover costs ranging from paying for orders to making payroll. Any disruption caused by bankruptcy could wreak havoc on their operations, Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.
"CIT is the 600-pound gorilla in the industry," Alouf said.
But CIT has already pulled back sharply on its lending to businesses as it tried to preserve cash. According to its most recent quarterly earnings report, the company originated just $4.4 billion worth of new business during the first six months of 2009 compared to $11.3 billion in the first half of 2008.
CIT said Sunday the bankruptcy filing is only for the holding company, and won't affect its operating subsidiaries, such as Utah-based CIT Bank. CIT has filed a number of first-day motions to allow it to continue operations, including requests to keep paying wages and other employee benefits and to pay its vendors and certain other creditors in full.
The company has retained Evercore Partners and FTI Consulting as its financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP as legal counsel in connection with the restructuring plan and Chapter 11 cases.
Houlihan Lokey Howard & Zukin Capital Inc. serves as financial adviser, and Paul, Weiss, Rifkind, Wharton & Garrison LLP serves as legal counsel to the bondholders' committee.
AP Retail Writer Anne D'Innocenzio in New York contributed to this report.
http://finance.yahoo.com/news/CIT-files-for-Chapter-11-apf-1202955938.html?x=0&sec=topStories&pos=main&asset=&ccode=
Thursday, October 29, 2009
$hiti takes to the heartland
October 28, 2009 — 8:36am ET | By Jim Kim
Sheila Bair
It's no secret that Citigroup (C) CEO Vikram Pandit has a media problem. The news has been relentlessly bad, and reporters are all too willing to ask tough questions.
The bank's PR team, to its credit, has tried getting around the mainstream, New York-based business press in some ways. It has tried going to international outlets, for example, with dubious results. Now, it's trying local outlets--and it seems to be working. The Las Vegas Review Journal offered a nice write-up that was quite upbeat, noting Pandit's words: "You should know that we are very strong around the world as a bank."
The news hook was Pandit's meeting with 1,700 workers at a credit card processing center in town. It got into his views on the federal deficit and shadow banking. If anyone asked him about Sheila Bair or about his nearly $11 million in pay in 2008 or whether he should step down, it wasn't evident. Similarly, the Argus Leader noted Pandit's commitment to the South Dakota. They even got a nice shot of the CEO with the mayor of Sioux Falls.
Related Articles:
Favorable report card for Vikram Pandit?
Shareholder meetings only a bit ugly
Vikram Pandit comes out swinging
Read more: http://www.fiercefinance.com/story/citi-takes-heartland/2009-10-28?utm_medium=nl&utm_source=internal#ixzz0VKwNlA8b
http://www.fiercefinance.com/story/citi-takes-heartland/2009-10-28?utm_medium=nl&utm_source=internal
Sheila Bair
It's no secret that Citigroup (C) CEO Vikram Pandit has a media problem. The news has been relentlessly bad, and reporters are all too willing to ask tough questions.
The bank's PR team, to its credit, has tried getting around the mainstream, New York-based business press in some ways. It has tried going to international outlets, for example, with dubious results. Now, it's trying local outlets--and it seems to be working. The Las Vegas Review Journal offered a nice write-up that was quite upbeat, noting Pandit's words: "You should know that we are very strong around the world as a bank."
The news hook was Pandit's meeting with 1,700 workers at a credit card processing center in town. It got into his views on the federal deficit and shadow banking. If anyone asked him about Sheila Bair or about his nearly $11 million in pay in 2008 or whether he should step down, it wasn't evident. Similarly, the Argus Leader noted Pandit's commitment to the South Dakota. They even got a nice shot of the CEO with the mayor of Sioux Falls.
Related Articles:
Favorable report card for Vikram Pandit?
Shareholder meetings only a bit ugly
Vikram Pandit comes out swinging
Read more: http://www.fiercefinance.com/story/citi-takes-heartland/2009-10-28?utm_medium=nl&utm_source=internal#ixzz0VKwNlA8b
http://www.fiercefinance.com/story/citi-takes-heartland/2009-10-28?utm_medium=nl&utm_source=internal
Monday, October 26, 2009
"Standing" to Forclose / Who Really Owns Your Home?
by Jeff Neilson
A thanks to Edward Harrison who publishes the blog “Creditwritedowns.com” for his superb explanation of foreclosure and title issues dealing with “foreclosed” properties;
Click on title above to see Harrisons article; http://seekingalpha.com/instablog/407380-jeff-nielson/32957-who-owns-foreclosed-u-s-properties-part-i-scam-in-the-making
– in his commentary “What are the legal rights of lenders and homeowners in foreclosure?” http://www.creditwritedowns.com/2009/10/what-are-the-legal-rights-of-lenders-and-homeowners-in-foreclosure.html#ixzz0V58C0GR0
It was that article which inspired me to write about some of the legal ramifications, based upon his research and analysis.
There is a lot of material in Mr. Harrison's commentary, so for those interested in this issue, I recommend going to the source to read it in full. I intend to focus on two of the extremely important issues in that piece: the question of who holds title to a securitized mortgage, and (just as important) who has “standing” to initiate and prosecute a foreclosure.
For people with no familiarity with legal jargon, who has “standing” in a legal proceeding is a question of “proximity” to the case before the court. The test for this issue generally being some direct proprietary interest.
The problem for the Wall Street oligarchs, as they began to hatch their schemes to create the U.S. housing bubble (and their own, concurrent Ponzi-scheme) centered on the importance of their new “invention”: mortgage “securitization”. It is this “securitization” which was the key to creating the U.S. housing-bubble from the supply side – rather than most asset-bubbles which are (at least initially) fueled by demand.
Through this process, banks initiate a mortgage – and then immediately sell it to a 3rd-party. If Wall Street didn't initiate the mortgage themselves, then they became the first buyer in the chain. Once holding this mortgage, these “financial wizards” sliced-and-diced these mortgages, mixed them together, and packaged and sold them in such a convoluted manner that even with the resources of the U.S. legal system at their disposal, courts have been unable to determine who holds clear, legal title to these mortgages.
However, the Wizards of Wall Street anticipated this legal dilemma. In 1995, they created a shadowy entity called Mortgage Electronic Registration Systems (MERS). Wikipedia defines MERS in this manner:
Mortgage Electronic Registration Systems is claimed to be a privately held company that controls a confidential [emphasis mine] electronic registry designed to track mortgages and the changes of servicing rights and ownership of mortgage loans in the United States.
Before I explain the role being played by MERS, and the importance of that role, let me get back to securitization. The reasons why it was absolutely essential in creating a housing-bubble, and Wall Street's subsequent scams are relatively straightforward, when laid out step-by-step.
Wall Street pretended they were “reducing risk” by securitizing these mortgages and more or less moving them off of their own balance sheets. At first, this was probably true: by taking a fixed amount of debt, and dividing it amongst more people, the risk to the system as a whole (and the individuals) is reduced.
As a simple, numerical example, if I take $100 dollars of debt and initially divide that amongst 10 people, there is a given level of risk for each of these individuals and for the system as a whole (if too many parties should default). If I then split that same $100 dollars of debt and divide it evenly among 100 people, then that reduces both the individual risk and the systemic risk – since the smaller the individual debt, the lower the probability of default. The problem was that Wall Street (and the other players in this market) never intended for the amount of debt to remain fixed.
If you then take the same numerical example, but repeat that process nine more times you now have $1000 worth of debt (ten times the original amount) – but split amongst a group which is ten times larger. Thus, not only do the risks of each party revert to the original ratios (and risks of default) but the systemic risk is ten times greater because ten times more money and ten times more players are now identically leveraged.
It was through these debt “daisy-chains” that the Wall Street oligarchs were allowed to move from the reckless-but-standard 10:1 average leverage for this sector to an insane average of 30:1.
The problem was that both ratings agencies and regulators still pretended that there had been neither an increase in individual risk nor in systemic risk. To persuade these accomplices to “look the other way” with respect to risk required adding one, more ingredient: “credit default swaps” (CDS).
These were bogus “insurance policies” created by Wall Street to “insure” its entire Ponzi-scheme. This provided the pretext for credit-rating agencies to continue rubber-stamping “AAA” on these toxic securities, and allowed regulators Ben Bernanke and Tim Geithner (head of the New York Fed, at the time) to pretend that “systemic risk” was being “controlled”.
As I say, this was clearly and obviously fake “insurance”. Because everyone was pretending that systemic risk was only a tiny fraction of what it actually was, the same regulators allowed Wall Street to only list a tiny fraction of the necessary collateral/assets to write such “insurance policies”. It was through the willful participation of the ratings agencies and the Federal Reserve that Wall Street oligarchs supposedly “insured” over $50 trillion of credit default swaps – obviously an impossibility.
We need look at only one recent example of a credit default swap which “blew up” to make it clear that most of this market was a complete sham. In “Bankster Sues Bankster – AGAIN”, I referred to a lawsuit between Citigroup and Morgan Stanley.
In this example, it was Morgan Stanley which wrote the phony “insurance”, and Citigroup which was the beneficiary. Even after Morgan Stanley liquidated the collateral which “backed” this “insurance”, it is facing a 300:1 pay-out on this “policy”. With the entire U.S. mortgage market still sitting with a 10% delinquency level in this $50 trillion insurance scheme, and with each and every pay-out at astronomical odds (due to the grossly insufficient “collateral” for this insurance), a large number of pay-outs in this market must bankrupt Wall Street – as a matter of simple arithmetic.
This is yet another reason why Wall Street is hiding millions of already-foreclosed properties on their books – and refusing to sell them. The moment that the foreclosure sale takes place, the loss on the mortgage is “crystallized” and the credit default swaps are triggered. In my commentary on Friday, I explained how/why I estimated that Wall Street is currently hiding at least 5 million foreclosed properties in this manner. Meanwhile, the next big wave of foreclosures is just to about to begin (also covered in Friday's commentary).
Returning to the housing bubble, the conspiracy by U.S. regulators and U.S. ratings agencies to allow Wall Street to leverage the entire U.S. financial system by 30:1 (from 10:1) meant roughly three times as much financing available for the same size of housing market. To accommodate the most rapid and extreme flow of “easy money” in the history of human commerce, many if not most U.S. banks simply erased their “lending standards”. Two years before the U.S. housing bubble officially burst “liars loans” had already become a common term of usage within the financial sector. Again, U.S. regulators were silent accomplices in allowing the eradication of lending standards.
Even without the use of such colourful terms to describe this fraudulently-created housing bubble, it would be obvious to any responsible regulator, rating agency, or banker that if you suddenly lend-out three times as much money to a population whose real incomes are steadily falling that their must be a huge increase in defaults. Thus, not only was this housing bubble a massive fraud on the individual level (through liars loans and other derelictions of duty), but collectively it was also a massive fraud, as it had to be obvious to the U.S. government (and specifically the relevant regulators) that there was an unsustainable “bubble” in the sector, as a whole.
This means that day after day, when Ben Bernanke got in front of the microphone to call the U.S. markets, the U.S. housing sector, and the economy as a whole a “Goldilocks economy” (where everything would keep going up in value) he could not possibly have believed his own words. They were uttered solely to enable the multi-trillion dollar Wall Street Ponzi-scheme to ensnare more victims.
It was thus apparent before the Wall Street-created U.S. housing bubble began that it would end in an unprecedented wave of foreclosures and defaults. In Part II, I will discuss Wall Street's premeditated plan for dealing with these foreclosures, through its new “front man”, MERS.
[Disclosure: I hold no position in Citigroup or Morgan Stanley]
Themes: U.S. housing sector, U.S. financial sector, U.S. corruption
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TeresaE:
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Great thoughts Jeff.
Truthfully, and no one in America understands this, the "homeowners" are not the people paying (or defaulting) on the mortgage. The owners are the banks.
Once you realize this little nugget of truth and then apply the truth to our situation, it should scare your pants off.
EVERY program out of WDC that is "helping homeowners" is not helping citizens, these programs are helping one thing-and one thing only - the banks.
The credits, modifications and stays only help the true owners - the banks.
Yet somehow we citizens believe that Congress is working for us.
bwaaahaaahaaa.
Can't wait to read the rest. Thanks
What are the legal rights of lenders and homeowners in foreclosure?
Posted by Edward Harrison on 23 October 2009 at 11:10 am
After I published the recent story on the case against servicing agent MERS in the Kansas Supreme court, I noticed a lot of chatter about some mortgage servicing line items in Wells Fargo’s earnings report. So I wanted to quote a few blurbs from the Kansas Appeals Court and Supreme Court decisions as background for another post on future mortgage service revenue streams in banking.
The Appeals Court case had a narrow focus as to whether MERS was a ‘necessary party’ in this particular foreclosure case. The finding was that MERS was not. The Kansas Supreme court agreed that MERS was not “contingently necessary.” They went further in concluding that the fact that MERS neither possessed the promissory note or had authority to assign it may mean it cannot file suit.
However, because this is not a comprehensive judgment as to MERS’ role as nominee, clarification is needed. Given the number of foreclosures in the US, I expect this case is going to the Supreme Court.
Here are the facts.
Landmark National Bank v. Boyd A. Kessler summary
My summary of the case is as follows:
A homeowner based in Kansas came into economic difficulty, causing him to fall behind on his mortgage and file for bankruptcy on 13 April 2006. While he could have exempted his house in discharging his personal liabilities in bankruptcy, the homeowner opted instead to surrender the house.
Three months after he filed, on 27 Jul 2006, the bank with his primary mortgage decided to foreclose. It did not inform MERS (the central repository which tracks changes in mortgage ownership and servicing rights). Nor did it inform the bank holding the secondary mortgage.
On 6 September 2006, the district court then entered a default judgment and ordered a sale on 29 September 2006. Notice of the sale went out into newspapers and a couple picked up this foreclosed property on the cheap on 14 November 2006. So far, so good.
Except that very day, a full seven after the bankruptcy filing, the secondary bank filed a petition to set aside the district court opinion, arguing that MERS was a “contingently necessary party.” It wanted the money it was owed. And on 16 January 2007, MERS joined the bank in filing. By 1 February 2007, the district court denied the petition to vacate the original default judgment.
The case was appealed to both the Kansas Appeals and Kansas Supreme Courts
Here are some of the issues:
Is MERS as a mortgage servicing registry a “contingently necessary party” in this particular or any bankruptcy involving a property in its database?
In what instances can MERS act as a nominee for the mortgagees in court to enforce a foreclosure?
If MERS can act as a nominee, does MERS have to produce the original mortgage promissory note in order to foreclose?
If MERS can act as a nominee, can a homeowner sue MERS or the mortgage servicing agent for the original lenders’ alleged predatory lending?
Is the mortgage servicing agent a nominee or agent of the mortgagee or even a principal? If so, what are the obligations of the servicing agent to help affect a mortgage loan modification?
All of these questions arise because of the convoluted process we have for mortgages as a result of the mortgage-backed security market. These questions have only become acute because the rise in foreclosures has made them a serious issue.
Excerpts from the Kansas Appeals Court decision
A party is not contingently necessary in a mortgage-foreclosure lawsuit when that party is called the mortgagee in a mortgage but is not the lender, has no right to the repayment of the underlying debt, and has no role in handling mortgage payments.
In a mortgage-foreclosure lawsuit, a district court does not abuse its discretion when it denies a motion to intervene that is filed by an unrecorded mortgage holder or its agent after the mortgage has been foreclosed and the property has been sold
What is MERS’s interest? MERS claims that it holds the title to the second mortgage, not the real estate. So it does, but only as a nominee. In terms of the roles that we’ve discussed in the mortgage business, MERS holds the mortgage but without rights to the debt. The district court found that MERS was merely an agent for the principal player, Millennia. While MERS objects to its characterization as an agent, it’s a fair one.
MERS had no right to the underlying debt repayment secured by the mortgage; MERS did not even act as the servicing agent to receive the payments and remit them to the lender. MERS’s right to act to enforce the mortgage was strictly limited: if "necessary to comply with law or custom," MERS could foreclose the mortgage or enter a release of the mortgage. MERS certainly could not act at odds to its principal, the lender. Its role fits the classic definition of an agent: one "’authorized by another to act for him, or intrusted with another’s business.’" In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 534, 920 P.2d 947 (1996) (quoting Black’s Law Dictionary 85 [4th ed. 1968]).
Kansas law does require through K.S.A. 58-2309a that a mortgage holder promptly release a mortgage when the debt has been paid; MERS could be required as a matter of law to file a mortgage release after a borrower proved that the debt had been paid. Other than that, however, it is hard to conceive of another act that MERS—instead of the lender—would be required to take by law or custom.
We do not attempt in this opinion to comprehensively determine all of the rights or duties of MERS as a nominee mortgagee. As the mortgage suggests may be done when "necessary to comply with law or custom," courts elsewhere have found that MERS may in some cases bring foreclosure suits in its own name.
Excerpts from the Kansas Supreme Court decision
K.S.A. 60-219(a) defines which parties are to be joined in an action as necessary for just adjudication:
"A person is contingently necessary if (1) complete relief cannot be accorded in his absence among those already parties, or (2) he claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action in his absence may (i) as a practical matter substantially impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest."
The relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is "[o]ne to whom property is mortgaged: the mortgage creditor, or lender." Black’s Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting "solely" as the nominee of the lender.
The Missouri court found that, because MERS was not the original holder of the promissory note and because the record contained no evidence that the original holder of the note authorized MERS to transfer the note, the language of the assignment purporting to transfer the promissory note was ineffective. "MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force."
"MERS does not take applications, underwrite loans, make decisions on whether to extend credit, collect mortgage payments, hold escrows for taxes and insurance, or provide any loan servicing functions whatsoever. MERS merely tracks the ownership of the lien and is paid for its services through membership fees charged to its members. MERS does not receive compensation from consumers." 270 Neb. at 534.
My reading of these statements is that MERS is a nominee and not much more. This should limit its ability to act on behalf of a mortgagee in foreclosure. How much and in what ways due process is at stake has yet to be decided in the courts, the reason I expect this case to receive a look from the Supreme Court.
Sources
Landmark National Bank v. Boyd A. Kessler, Kan 2009, No. 98,489 – Kansas Courts Documents
See my post “Why mortgages aren’t modified and what a ruling stopping foreclosures means” for the Appeals Court decision; http://www.creditwritedowns.com/2009/10/why-mortgages-arent-modified-and-what-a-ruling-stopping-foreclosures-means.html
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A thanks to Edward Harrison who publishes the blog “Creditwritedowns.com” for his superb explanation of foreclosure and title issues dealing with “foreclosed” properties;
Click on title above to see Harrisons article; http://seekingalpha.com/instablog/407380-jeff-nielson/32957-who-owns-foreclosed-u-s-properties-part-i-scam-in-the-making
– in his commentary “What are the legal rights of lenders and homeowners in foreclosure?” http://www.creditwritedowns.com/2009/10/what-are-the-legal-rights-of-lenders-and-homeowners-in-foreclosure.html#ixzz0V58C0GR0
It was that article which inspired me to write about some of the legal ramifications, based upon his research and analysis.
There is a lot of material in Mr. Harrison's commentary, so for those interested in this issue, I recommend going to the source to read it in full. I intend to focus on two of the extremely important issues in that piece: the question of who holds title to a securitized mortgage, and (just as important) who has “standing” to initiate and prosecute a foreclosure.
For people with no familiarity with legal jargon, who has “standing” in a legal proceeding is a question of “proximity” to the case before the court. The test for this issue generally being some direct proprietary interest.
The problem for the Wall Street oligarchs, as they began to hatch their schemes to create the U.S. housing bubble (and their own, concurrent Ponzi-scheme) centered on the importance of their new “invention”: mortgage “securitization”. It is this “securitization” which was the key to creating the U.S. housing-bubble from the supply side – rather than most asset-bubbles which are (at least initially) fueled by demand.
Through this process, banks initiate a mortgage – and then immediately sell it to a 3rd-party. If Wall Street didn't initiate the mortgage themselves, then they became the first buyer in the chain. Once holding this mortgage, these “financial wizards” sliced-and-diced these mortgages, mixed them together, and packaged and sold them in such a convoluted manner that even with the resources of the U.S. legal system at their disposal, courts have been unable to determine who holds clear, legal title to these mortgages.
However, the Wizards of Wall Street anticipated this legal dilemma. In 1995, they created a shadowy entity called Mortgage Electronic Registration Systems (MERS). Wikipedia defines MERS in this manner:
Mortgage Electronic Registration Systems is claimed to be a privately held company that controls a confidential [emphasis mine] electronic registry designed to track mortgages and the changes of servicing rights and ownership of mortgage loans in the United States.
Before I explain the role being played by MERS, and the importance of that role, let me get back to securitization. The reasons why it was absolutely essential in creating a housing-bubble, and Wall Street's subsequent scams are relatively straightforward, when laid out step-by-step.
Wall Street pretended they were “reducing risk” by securitizing these mortgages and more or less moving them off of their own balance sheets. At first, this was probably true: by taking a fixed amount of debt, and dividing it amongst more people, the risk to the system as a whole (and the individuals) is reduced.
As a simple, numerical example, if I take $100 dollars of debt and initially divide that amongst 10 people, there is a given level of risk for each of these individuals and for the system as a whole (if too many parties should default). If I then split that same $100 dollars of debt and divide it evenly among 100 people, then that reduces both the individual risk and the systemic risk – since the smaller the individual debt, the lower the probability of default. The problem was that Wall Street (and the other players in this market) never intended for the amount of debt to remain fixed.
If you then take the same numerical example, but repeat that process nine more times you now have $1000 worth of debt (ten times the original amount) – but split amongst a group which is ten times larger. Thus, not only do the risks of each party revert to the original ratios (and risks of default) but the systemic risk is ten times greater because ten times more money and ten times more players are now identically leveraged.
It was through these debt “daisy-chains” that the Wall Street oligarchs were allowed to move from the reckless-but-standard 10:1 average leverage for this sector to an insane average of 30:1.
The problem was that both ratings agencies and regulators still pretended that there had been neither an increase in individual risk nor in systemic risk. To persuade these accomplices to “look the other way” with respect to risk required adding one, more ingredient: “credit default swaps” (CDS).
These were bogus “insurance policies” created by Wall Street to “insure” its entire Ponzi-scheme. This provided the pretext for credit-rating agencies to continue rubber-stamping “AAA” on these toxic securities, and allowed regulators Ben Bernanke and Tim Geithner (head of the New York Fed, at the time) to pretend that “systemic risk” was being “controlled”.
As I say, this was clearly and obviously fake “insurance”. Because everyone was pretending that systemic risk was only a tiny fraction of what it actually was, the same regulators allowed Wall Street to only list a tiny fraction of the necessary collateral/assets to write such “insurance policies”. It was through the willful participation of the ratings agencies and the Federal Reserve that Wall Street oligarchs supposedly “insured” over $50 trillion of credit default swaps – obviously an impossibility.
We need look at only one recent example of a credit default swap which “blew up” to make it clear that most of this market was a complete sham. In “Bankster Sues Bankster – AGAIN”, I referred to a lawsuit between Citigroup and Morgan Stanley.
In this example, it was Morgan Stanley which wrote the phony “insurance”, and Citigroup which was the beneficiary. Even after Morgan Stanley liquidated the collateral which “backed” this “insurance”, it is facing a 300:1 pay-out on this “policy”. With the entire U.S. mortgage market still sitting with a 10% delinquency level in this $50 trillion insurance scheme, and with each and every pay-out at astronomical odds (due to the grossly insufficient “collateral” for this insurance), a large number of pay-outs in this market must bankrupt Wall Street – as a matter of simple arithmetic.
This is yet another reason why Wall Street is hiding millions of already-foreclosed properties on their books – and refusing to sell them. The moment that the foreclosure sale takes place, the loss on the mortgage is “crystallized” and the credit default swaps are triggered. In my commentary on Friday, I explained how/why I estimated that Wall Street is currently hiding at least 5 million foreclosed properties in this manner. Meanwhile, the next big wave of foreclosures is just to about to begin (also covered in Friday's commentary).
Returning to the housing bubble, the conspiracy by U.S. regulators and U.S. ratings agencies to allow Wall Street to leverage the entire U.S. financial system by 30:1 (from 10:1) meant roughly three times as much financing available for the same size of housing market. To accommodate the most rapid and extreme flow of “easy money” in the history of human commerce, many if not most U.S. banks simply erased their “lending standards”. Two years before the U.S. housing bubble officially burst “liars loans” had already become a common term of usage within the financial sector. Again, U.S. regulators were silent accomplices in allowing the eradication of lending standards.
Even without the use of such colourful terms to describe this fraudulently-created housing bubble, it would be obvious to any responsible regulator, rating agency, or banker that if you suddenly lend-out three times as much money to a population whose real incomes are steadily falling that their must be a huge increase in defaults. Thus, not only was this housing bubble a massive fraud on the individual level (through liars loans and other derelictions of duty), but collectively it was also a massive fraud, as it had to be obvious to the U.S. government (and specifically the relevant regulators) that there was an unsustainable “bubble” in the sector, as a whole.
This means that day after day, when Ben Bernanke got in front of the microphone to call the U.S. markets, the U.S. housing sector, and the economy as a whole a “Goldilocks economy” (where everything would keep going up in value) he could not possibly have believed his own words. They were uttered solely to enable the multi-trillion dollar Wall Street Ponzi-scheme to ensnare more victims.
It was thus apparent before the Wall Street-created U.S. housing bubble began that it would end in an unprecedented wave of foreclosures and defaults. In Part II, I will discuss Wall Street's premeditated plan for dealing with these foreclosures, through its new “front man”, MERS.
[Disclosure: I hold no position in Citigroup or Morgan Stanley]
Themes: U.S. housing sector, U.S. financial sector, U.S. corruption
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TeresaE:
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Great thoughts Jeff.
Truthfully, and no one in America understands this, the "homeowners" are not the people paying (or defaulting) on the mortgage. The owners are the banks.
Once you realize this little nugget of truth and then apply the truth to our situation, it should scare your pants off.
EVERY program out of WDC that is "helping homeowners" is not helping citizens, these programs are helping one thing-and one thing only - the banks.
The credits, modifications and stays only help the true owners - the banks.
Yet somehow we citizens believe that Congress is working for us.
bwaaahaaahaaa.
Can't wait to read the rest. Thanks
What are the legal rights of lenders and homeowners in foreclosure?
Posted by Edward Harrison on 23 October 2009 at 11:10 am
After I published the recent story on the case against servicing agent MERS in the Kansas Supreme court, I noticed a lot of chatter about some mortgage servicing line items in Wells Fargo’s earnings report. So I wanted to quote a few blurbs from the Kansas Appeals Court and Supreme Court decisions as background for another post on future mortgage service revenue streams in banking.
The Appeals Court case had a narrow focus as to whether MERS was a ‘necessary party’ in this particular foreclosure case. The finding was that MERS was not. The Kansas Supreme court agreed that MERS was not “contingently necessary.” They went further in concluding that the fact that MERS neither possessed the promissory note or had authority to assign it may mean it cannot file suit.
However, because this is not a comprehensive judgment as to MERS’ role as nominee, clarification is needed. Given the number of foreclosures in the US, I expect this case is going to the Supreme Court.
Here are the facts.
Landmark National Bank v. Boyd A. Kessler summary
My summary of the case is as follows:
A homeowner based in Kansas came into economic difficulty, causing him to fall behind on his mortgage and file for bankruptcy on 13 April 2006. While he could have exempted his house in discharging his personal liabilities in bankruptcy, the homeowner opted instead to surrender the house.
Three months after he filed, on 27 Jul 2006, the bank with his primary mortgage decided to foreclose. It did not inform MERS (the central repository which tracks changes in mortgage ownership and servicing rights). Nor did it inform the bank holding the secondary mortgage.
On 6 September 2006, the district court then entered a default judgment and ordered a sale on 29 September 2006. Notice of the sale went out into newspapers and a couple picked up this foreclosed property on the cheap on 14 November 2006. So far, so good.
Except that very day, a full seven after the bankruptcy filing, the secondary bank filed a petition to set aside the district court opinion, arguing that MERS was a “contingently necessary party.” It wanted the money it was owed. And on 16 January 2007, MERS joined the bank in filing. By 1 February 2007, the district court denied the petition to vacate the original default judgment.
The case was appealed to both the Kansas Appeals and Kansas Supreme Courts
Here are some of the issues:
Is MERS as a mortgage servicing registry a “contingently necessary party” in this particular or any bankruptcy involving a property in its database?
In what instances can MERS act as a nominee for the mortgagees in court to enforce a foreclosure?
If MERS can act as a nominee, does MERS have to produce the original mortgage promissory note in order to foreclose?
If MERS can act as a nominee, can a homeowner sue MERS or the mortgage servicing agent for the original lenders’ alleged predatory lending?
Is the mortgage servicing agent a nominee or agent of the mortgagee or even a principal? If so, what are the obligations of the servicing agent to help affect a mortgage loan modification?
All of these questions arise because of the convoluted process we have for mortgages as a result of the mortgage-backed security market. These questions have only become acute because the rise in foreclosures has made them a serious issue.
Excerpts from the Kansas Appeals Court decision
A party is not contingently necessary in a mortgage-foreclosure lawsuit when that party is called the mortgagee in a mortgage but is not the lender, has no right to the repayment of the underlying debt, and has no role in handling mortgage payments.
In a mortgage-foreclosure lawsuit, a district court does not abuse its discretion when it denies a motion to intervene that is filed by an unrecorded mortgage holder or its agent after the mortgage has been foreclosed and the property has been sold
What is MERS’s interest? MERS claims that it holds the title to the second mortgage, not the real estate. So it does, but only as a nominee. In terms of the roles that we’ve discussed in the mortgage business, MERS holds the mortgage but without rights to the debt. The district court found that MERS was merely an agent for the principal player, Millennia. While MERS objects to its characterization as an agent, it’s a fair one.
MERS had no right to the underlying debt repayment secured by the mortgage; MERS did not even act as the servicing agent to receive the payments and remit them to the lender. MERS’s right to act to enforce the mortgage was strictly limited: if "necessary to comply with law or custom," MERS could foreclose the mortgage or enter a release of the mortgage. MERS certainly could not act at odds to its principal, the lender. Its role fits the classic definition of an agent: one "’authorized by another to act for him, or intrusted with another’s business.’" In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 534, 920 P.2d 947 (1996) (quoting Black’s Law Dictionary 85 [4th ed. 1968]).
Kansas law does require through K.S.A. 58-2309a that a mortgage holder promptly release a mortgage when the debt has been paid; MERS could be required as a matter of law to file a mortgage release after a borrower proved that the debt had been paid. Other than that, however, it is hard to conceive of another act that MERS—instead of the lender—would be required to take by law or custom.
We do not attempt in this opinion to comprehensively determine all of the rights or duties of MERS as a nominee mortgagee. As the mortgage suggests may be done when "necessary to comply with law or custom," courts elsewhere have found that MERS may in some cases bring foreclosure suits in its own name.
Excerpts from the Kansas Supreme Court decision
K.S.A. 60-219(a) defines which parties are to be joined in an action as necessary for just adjudication:
"A person is contingently necessary if (1) complete relief cannot be accorded in his absence among those already parties, or (2) he claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action in his absence may (i) as a practical matter substantially impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest."
The relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is "[o]ne to whom property is mortgaged: the mortgage creditor, or lender." Black’s Law Dictionary 1034 (8th ed. 2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting "solely" as the nominee of the lender.
The Missouri court found that, because MERS was not the original holder of the promissory note and because the record contained no evidence that the original holder of the note authorized MERS to transfer the note, the language of the assignment purporting to transfer the promissory note was ineffective. "MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force."
"MERS does not take applications, underwrite loans, make decisions on whether to extend credit, collect mortgage payments, hold escrows for taxes and insurance, or provide any loan servicing functions whatsoever. MERS merely tracks the ownership of the lien and is paid for its services through membership fees charged to its members. MERS does not receive compensation from consumers." 270 Neb. at 534.
My reading of these statements is that MERS is a nominee and not much more. This should limit its ability to act on behalf of a mortgagee in foreclosure. How much and in what ways due process is at stake has yet to be decided in the courts, the reason I expect this case to receive a look from the Supreme Court.
Sources
Landmark National Bank v. Boyd A. Kessler, Kan 2009, No. 98,489 – Kansas Courts Documents
See my post “Why mortgages aren’t modified and what a ruling stopping foreclosures means” for the Appeals Court decision; http://www.creditwritedowns.com/2009/10/why-mortgages-arent-modified-and-what-a-ruling-stopping-foreclosures-means.html
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Tuesday, October 6, 2009
Lack of Legal Help: One More Way the Deck Is Stacked Against Homeowners
From HuffPost;
As bad as America's foreclosure crisis is -- and it's very bad, with over 300,000 homes receiving a foreclosure filing every month -- it's being made even more devastating by the lack of legal assistance available to beleaguered homeowners.
According to a new study by the Brennan Center for Justice, set to be released tomorrow, "the nation's massive foreclosure crisis is also, at its heart, a legal crisis" -- with the vast majority of homeowners facing foreclosure doing so without legal counsel.
For example, in New York's Nassau County, in foreclosures involving subprime or non-traditional mortgages (which disproportionately are targeted at minorities), 92 percent of the homeowners did not have a lawyer.
Having legal help can be the difference between people keeping their homes and being evicted. A lawyer can stop foreclosure proceedings or put enough pressure on lenders to get them to rework the terms of the loan. A lawyer can also intervene in other ways, such as enforcing consumer protection laws or spotting legal violations by banks and lenders.
According to the report, the barriers keeping homeowners from obtaining proper legal representation are twofold. The first, not surprisingly, is funding.
In 1996, the budget for the Legal Services Corporation, the primary agency that provides help for low-income Americans in civil cases, had its budget cut by one-third. At this point, to match the funding level the Legal Services Corporation received in 1981 would require an increase of $753 million. If Goldman Sachs or Bank of America needed that kind of cash (or even 10 times that kind of cash), Washington wouldn't think twice. But low-income homeowners have no clout in DC. No wonder the Brennan Center found that legal service programs for the poor are currently "besieged with requests for foreclosure assistance."
The second barrier is that restrictions to adequate legal help have been deliberately built into the system. Remember the "Contract With America"? It turns out one of its provisions severely limited the ability of homeowners to get legal protection from predatory lenders. For instance, homeowners represented by the Legal Services Corporation are barred from bringing class action suits. Nor are they able to make the other side pay attorneys' fees even when the law would normally allow it. As the report states, "the possibility of having to pay attorneys' fees provides a critical incentive to help ensure that a better funded legal adversary does not drag out proceedings in an attempt to exhaust the indigent client's resources."
The Obama administration has called on Congress to remove many of these limitations, but its $789 billion stimulus plan didn't contain a single dollar for foreclosure-related legal help. That's about as "shovel ready" a program as one could ask for, but it somehow didn't make the cut.
I've written before how foreclosures are a gateway calamity, with every foreclosed home creating a whole other set of crises. The Brennan study backs this up with cold hard statistics. According to the report, an estimated 40 million homes are located next door to a foreclosed property. The value of these homes drops an average of $8,667 following a foreclosure. This translates into a total property value loss of $352 billion. And vacant properties take a heavy toll on already strapped local governments: an estimated $20,000 per foreclosure (California is estimated to have lost approximately $4 billion in tax revenue in 2008).
And the negative impact of a foreclosed home can affect the entire community: a one percent increase in foreclosures translates into a 2.3 percent rise in violent crimes.
But even though the collateral damage of the foreclosure crisis is widespread, the crisis continues to get short shrift by the media and by Washington. And as the Brennan Center study powerfully demonstrates, the legal deck is utterly stacked against struggling homeowners. It's time to do the right thing and give at-risk homeowners -- especially those who have been the victims of discriminatory lending practices -- access to at least a tiny fraction of the legal tools at the disposal of the banks forcing them into foreclosure.
Click on title to read the full report in pdf format;
http://www.brennancenter.org/content/resource/foreclosures
As bad as America's foreclosure crisis is -- and it's very bad, with over 300,000 homes receiving a foreclosure filing every month -- it's being made even more devastating by the lack of legal assistance available to beleaguered homeowners.
According to a new study by the Brennan Center for Justice, set to be released tomorrow, "the nation's massive foreclosure crisis is also, at its heart, a legal crisis" -- with the vast majority of homeowners facing foreclosure doing so without legal counsel.
For example, in New York's Nassau County, in foreclosures involving subprime or non-traditional mortgages (which disproportionately are targeted at minorities), 92 percent of the homeowners did not have a lawyer.
Having legal help can be the difference between people keeping their homes and being evicted. A lawyer can stop foreclosure proceedings or put enough pressure on lenders to get them to rework the terms of the loan. A lawyer can also intervene in other ways, such as enforcing consumer protection laws or spotting legal violations by banks and lenders.
According to the report, the barriers keeping homeowners from obtaining proper legal representation are twofold. The first, not surprisingly, is funding.
In 1996, the budget for the Legal Services Corporation, the primary agency that provides help for low-income Americans in civil cases, had its budget cut by one-third. At this point, to match the funding level the Legal Services Corporation received in 1981 would require an increase of $753 million. If Goldman Sachs or Bank of America needed that kind of cash (or even 10 times that kind of cash), Washington wouldn't think twice. But low-income homeowners have no clout in DC. No wonder the Brennan Center found that legal service programs for the poor are currently "besieged with requests for foreclosure assistance."
The second barrier is that restrictions to adequate legal help have been deliberately built into the system. Remember the "Contract With America"? It turns out one of its provisions severely limited the ability of homeowners to get legal protection from predatory lenders. For instance, homeowners represented by the Legal Services Corporation are barred from bringing class action suits. Nor are they able to make the other side pay attorneys' fees even when the law would normally allow it. As the report states, "the possibility of having to pay attorneys' fees provides a critical incentive to help ensure that a better funded legal adversary does not drag out proceedings in an attempt to exhaust the indigent client's resources."
The Obama administration has called on Congress to remove many of these limitations, but its $789 billion stimulus plan didn't contain a single dollar for foreclosure-related legal help. That's about as "shovel ready" a program as one could ask for, but it somehow didn't make the cut.
I've written before how foreclosures are a gateway calamity, with every foreclosed home creating a whole other set of crises. The Brennan study backs this up with cold hard statistics. According to the report, an estimated 40 million homes are located next door to a foreclosed property. The value of these homes drops an average of $8,667 following a foreclosure. This translates into a total property value loss of $352 billion. And vacant properties take a heavy toll on already strapped local governments: an estimated $20,000 per foreclosure (California is estimated to have lost approximately $4 billion in tax revenue in 2008).
And the negative impact of a foreclosed home can affect the entire community: a one percent increase in foreclosures translates into a 2.3 percent rise in violent crimes.
But even though the collateral damage of the foreclosure crisis is widespread, the crisis continues to get short shrift by the media and by Washington. And as the Brennan Center study powerfully demonstrates, the legal deck is utterly stacked against struggling homeowners. It's time to do the right thing and give at-risk homeowners -- especially those who have been the victims of discriminatory lending practices -- access to at least a tiny fraction of the legal tools at the disposal of the banks forcing them into foreclosure.
Click on title to read the full report in pdf format;
http://www.brennancenter.org/content/resource/foreclosures
Thursday, August 6, 2009
Deal falls through for Minneapolis woman fighting eviction
A potential buyer for the home of Rosemary Williams could not complete the deal, but negotiations continue between the mortgage company and the Greater Metropolitan Housing Corp.
By ALLIE SHAH, Star Tribune
Last update: August 4, 2009 - 9:58 PM
Featured comment
I'm a "crazy far left liberal"....
and even I think this is ridiculous. Someone earlier mentioned responsibility, and that poster is correct. My wife and I also took out a small loan against our house to pay off some debt. I'm a social worker and she's a teacher, so it's not like we're rolling in money. What we did was make sure it was a FIXED interest rate loan and that we could afford the payments. I understand that this woman lost her job, but so have millions of other americans. It's time to give up the house and go find an affordable apartment. Sorry, that's the way the world works...
A last-minute deal to stop the eviction of a Minneapolis woman from her foreclosed home has fallen through, but on Tuesday, supporters of Rosemary Williams said discussions continue to find a way for her to stay put.
"There are some continuing negotiations right now. Whether they're fruitful or not, I don't know, " said Minneapolis City Council Member Elizabeth Glidden, who has been involved in the public fight to prevent the eviction.
Last month, Williams, 60, expressed relief and joy when she heard that a deal had been reached that would help her avoid immediate eviction and continue living in the home she and her mother built in south Minneapolis.
Under that tentative agreement -- reached hours after she was served eviction papers on July 24 -- the Greater Metropolitan Housing Corp. (GMHC) would buy the house for $90,000 as an intermediate buyer.
A third party would then purchase the home from GMHC, and Williams would continue to live there under a rental or other arrangement.
But the deal fell apart last week because the buyer, an undisclosed nonprofit agency, couldn't secure the necessary financing.
Jeannine Bruin, a spokeswoman for GMAC Mortgage, which owns the house, said in a written statement that company executives are still in discussions with GMHC and continue to evaluate every alternative.
Authorities, meanwhile, say they're holding off on an eviction.
"The court [eviction] order is still valid. At the same time, the mortgage company is still in talks, so we're not taking any action until we learn more," said Lisa Kiava, a spokeswoman for the Hennepin County Sheriff's Office.
Mick Kelly, an activist with the Minnesota Coalition for a People's Bailout, said supporters of Williams still plan to use civil disobedience tactics if authorities try to evict her.
Williams has become somewhat of a poster child for local and even national activists fighting eviction of poor people from their foreclosed homes. Her troubles began after she took out an adjustable-rate mortgage to get $12,000 to pay some bills.
Her monthly payment rose from $1,200 to $2,200 when the rate increased. She lost her job and stopped making payments. As a result, the house went into foreclosure and was sold at an auction last fall.
She was ordered to leave the house by March 30 but refused to leave. The new owner, GMAC Mortgage, then went to court to have her evicted. The Williams family has lived on Clinton Avenue for more than 50 years.
Allie Shah • 612-673-4488
http://www.startribune.com/local/52480592.html?elr=KArksUUUU
By ALLIE SHAH, Star Tribune
Last update: August 4, 2009 - 9:58 PM
Featured comment
I'm a "crazy far left liberal"....
and even I think this is ridiculous. Someone earlier mentioned responsibility, and that poster is correct. My wife and I also took out a small loan against our house to pay off some debt. I'm a social worker and she's a teacher, so it's not like we're rolling in money. What we did was make sure it was a FIXED interest rate loan and that we could afford the payments. I understand that this woman lost her job, but so have millions of other americans. It's time to give up the house and go find an affordable apartment. Sorry, that's the way the world works...
A last-minute deal to stop the eviction of a Minneapolis woman from her foreclosed home has fallen through, but on Tuesday, supporters of Rosemary Williams said discussions continue to find a way for her to stay put.
"There are some continuing negotiations right now. Whether they're fruitful or not, I don't know, " said Minneapolis City Council Member Elizabeth Glidden, who has been involved in the public fight to prevent the eviction.
Last month, Williams, 60, expressed relief and joy when she heard that a deal had been reached that would help her avoid immediate eviction and continue living in the home she and her mother built in south Minneapolis.
Under that tentative agreement -- reached hours after she was served eviction papers on July 24 -- the Greater Metropolitan Housing Corp. (GMHC) would buy the house for $90,000 as an intermediate buyer.
A third party would then purchase the home from GMHC, and Williams would continue to live there under a rental or other arrangement.
But the deal fell apart last week because the buyer, an undisclosed nonprofit agency, couldn't secure the necessary financing.
Jeannine Bruin, a spokeswoman for GMAC Mortgage, which owns the house, said in a written statement that company executives are still in discussions with GMHC and continue to evaluate every alternative.
Authorities, meanwhile, say they're holding off on an eviction.
"The court [eviction] order is still valid. At the same time, the mortgage company is still in talks, so we're not taking any action until we learn more," said Lisa Kiava, a spokeswoman for the Hennepin County Sheriff's Office.
Mick Kelly, an activist with the Minnesota Coalition for a People's Bailout, said supporters of Williams still plan to use civil disobedience tactics if authorities try to evict her.
Williams has become somewhat of a poster child for local and even national activists fighting eviction of poor people from their foreclosed homes. Her troubles began after she took out an adjustable-rate mortgage to get $12,000 to pay some bills.
Her monthly payment rose from $1,200 to $2,200 when the rate increased. She lost her job and stopped making payments. As a result, the house went into foreclosure and was sold at an auction last fall.
She was ordered to leave the house by March 30 but refused to leave. The new owner, GMAC Mortgage, then went to court to have her evicted. The Williams family has lived on Clinton Avenue for more than 50 years.
Allie Shah • 612-673-4488
http://www.startribune.com/local/52480592.html?elr=KArksUUUU
Federal Mortgage Program Defaulting on a Pledge
A federal program that promised relief to millions of struggling homeowners has fallen far short of expectations.
By CHRIS SERRES, Star Tribune
Last update: August 5, 2009 - 5:25 AM
Bankruptcies climbing in Minnesota, U.S.
For the past year, Nichole Williams has been trying to persuade her lender to modify the mortgage on her Brooklyn Park home.
Three times, the 40-year-old legal assistant has been told she qualifies for an ambitious new federal program that would reduce her payment several hundred dollars a month. But after more than 100 telephone calls and dozens of e-mails to her lender, GMAC Mortgage, Williams is stuck in a mortgage that is technically in default.
"It seems like they just want to wear me down, so I'll just get up and leave," she said. "But this is my home. I did everything necessary to achieve it, and I'm determined to get what I qualified for."
Across the state and the nation, struggling homeowners like Williams are growing frustrated with a $75 billion federal program that was supposed to ease the housing crisis by preventing so-called "avoidable foreclosures" by cutting borrowers' monthly mortgage payments. But, according to a U.S. Treasury report released Tuesday, only a very small percentage of people who qualify for relief under the program are actually getting it. In many cases, borrowers have been strung along for months, only to be told in the end that they don't qualify. And when borrowers are denied, they often are not told why.
As of July, only 9 percent of eligible borrowers had seen their payments reduced under the program, but results varied wildly among the 38 banks that participated in the program. The Treasury report said Wells Fargo only modified 6 percent of eligible loans, while Bank of America modified 4 percent and J.P. Morgan modified 20 percent. All these banks receive incentive payments for each modification they complete, separate from the billions of dollars in federal bailout money they got to shore up their balance sheets.
Wells Fargo, which has the third-highest number of delinquent loans eligible for the program, said the numbers are misleading because the federal program was rolled out in stages, so the San Francisco-based bank has not had the opportunity to modify as many loans as it could have. The report also doesn't include the 220,000 loans Wells modified earlier this year that are not part of the Obama plan. "It's in our best interest to modify every customer that we can," said Mike Heid, co-president of Wells Fargo Home Mortgage.
Yet many borrowers and consumer advocates insist the wheel of mortgage modifications is grinding much too slowly. Last week, the Foreclosure Relief Law Project, a nonprofit law firm in St. Paul, filed a lawsuit on behalf of Williams and Johnson Sendolo, a Woodbury homeowner, who both claim they qualify for federal relief but were turned down by lenders without being given a reason. The lawsuit, which seeks to stop the lenders from foreclosing on more homes until better procedures are put in place, accuses the U.S. Treasury of violating borrowers' due process rights by denying them access to a federal program without proper notice or explanation.
"The smart thing to do for everyone is to press the pause button, to stop the foreclosure factory, and figure out what's wrong," said Mark Ireland, supervising attorney for the Foreclosure Relief Law Project.
Kaitlyn Helmbrecht, 22, a postage clerk from Maple Lake, also says she got a cool response from her lender when she asked if she could participate in the Obama program. She qualified, but when she contacted her lender, SunTrust Mortgage, the person on the phone was not even aware of the program.
"It was like they didn't know what I was talking about," she said.
No permanent relief
Williams said she fell behind on her mortgage payments in June 2007 after she was laid off from her job as a legal assistant and was without work for six months. Eventually, Williams found another job and could make some payments, but she was still about four months behind, she said. In July 2008, she sought a loan modification from GMAC, and on multiple occasions, she was given a "temporary" loan modification of two to three months, but not a permanent one that would reduce her interest rate or monthly payment for the life of the loan, she says.
Early this year, after hearing about the Obama program, Williams called her lender and specifically asked for a modification under the program. She was told she met all eligibility requirements: The loan was delinquent, it was for her primary residence and was made prior to Jan. 1, 2009. Yet GMAC continued to steer her toward its own programs.
Twice since she began asking for a loan modification, a representative of the lender has shown up at her door with foreclosure documents. The visits are "insulting and embarrassing," Williams says, noting she continues to make regular payments.
"It's not like I'm asking to stay in my house for free," she said. "I'm just asking them to do for me what's available to everyone."
A spokeswoman for GMAC Mortgage declined to discuss Williams' loan. However, in a written statement, she said, "GMAC Mortgage is firmly committed to helping borrowers who qualify under the [Obama program's] guidelines achieve affordable, sustainable mortgage payments."
Only 400,000 offers extended
The Treasury report found GMAC Mortgage has modified 20 percent of eligible loans under the program.
So far, banks have extended only 400,000 modification offers among 2.7 million eligible borrowers who are more than two months behind on payments. Some lenders had not changed a single mortgage. Nonetheless, the Obama administration said Tuesday it is still on track to meet its goal of helping up to 4 million borrowers by 2012.
Chris Serres • 612-673-4308
http://www.startribune.com/business/52478547.html?elr=KArksUUUU
By CHRIS SERRES, Star Tribune
Last update: August 5, 2009 - 5:25 AM
Bankruptcies climbing in Minnesota, U.S.
For the past year, Nichole Williams has been trying to persuade her lender to modify the mortgage on her Brooklyn Park home.
Three times, the 40-year-old legal assistant has been told she qualifies for an ambitious new federal program that would reduce her payment several hundred dollars a month. But after more than 100 telephone calls and dozens of e-mails to her lender, GMAC Mortgage, Williams is stuck in a mortgage that is technically in default.
"It seems like they just want to wear me down, so I'll just get up and leave," she said. "But this is my home. I did everything necessary to achieve it, and I'm determined to get what I qualified for."
Across the state and the nation, struggling homeowners like Williams are growing frustrated with a $75 billion federal program that was supposed to ease the housing crisis by preventing so-called "avoidable foreclosures" by cutting borrowers' monthly mortgage payments. But, according to a U.S. Treasury report released Tuesday, only a very small percentage of people who qualify for relief under the program are actually getting it. In many cases, borrowers have been strung along for months, only to be told in the end that they don't qualify. And when borrowers are denied, they often are not told why.
As of July, only 9 percent of eligible borrowers had seen their payments reduced under the program, but results varied wildly among the 38 banks that participated in the program. The Treasury report said Wells Fargo only modified 6 percent of eligible loans, while Bank of America modified 4 percent and J.P. Morgan modified 20 percent. All these banks receive incentive payments for each modification they complete, separate from the billions of dollars in federal bailout money they got to shore up their balance sheets.
Wells Fargo, which has the third-highest number of delinquent loans eligible for the program, said the numbers are misleading because the federal program was rolled out in stages, so the San Francisco-based bank has not had the opportunity to modify as many loans as it could have. The report also doesn't include the 220,000 loans Wells modified earlier this year that are not part of the Obama plan. "It's in our best interest to modify every customer that we can," said Mike Heid, co-president of Wells Fargo Home Mortgage.
Yet many borrowers and consumer advocates insist the wheel of mortgage modifications is grinding much too slowly. Last week, the Foreclosure Relief Law Project, a nonprofit law firm in St. Paul, filed a lawsuit on behalf of Williams and Johnson Sendolo, a Woodbury homeowner, who both claim they qualify for federal relief but were turned down by lenders without being given a reason. The lawsuit, which seeks to stop the lenders from foreclosing on more homes until better procedures are put in place, accuses the U.S. Treasury of violating borrowers' due process rights by denying them access to a federal program without proper notice or explanation.
"The smart thing to do for everyone is to press the pause button, to stop the foreclosure factory, and figure out what's wrong," said Mark Ireland, supervising attorney for the Foreclosure Relief Law Project.
Kaitlyn Helmbrecht, 22, a postage clerk from Maple Lake, also says she got a cool response from her lender when she asked if she could participate in the Obama program. She qualified, but when she contacted her lender, SunTrust Mortgage, the person on the phone was not even aware of the program.
"It was like they didn't know what I was talking about," she said.
No permanent relief
Williams said she fell behind on her mortgage payments in June 2007 after she was laid off from her job as a legal assistant and was without work for six months. Eventually, Williams found another job and could make some payments, but she was still about four months behind, she said. In July 2008, she sought a loan modification from GMAC, and on multiple occasions, she was given a "temporary" loan modification of two to three months, but not a permanent one that would reduce her interest rate or monthly payment for the life of the loan, she says.
Early this year, after hearing about the Obama program, Williams called her lender and specifically asked for a modification under the program. She was told she met all eligibility requirements: The loan was delinquent, it was for her primary residence and was made prior to Jan. 1, 2009. Yet GMAC continued to steer her toward its own programs.
Twice since she began asking for a loan modification, a representative of the lender has shown up at her door with foreclosure documents. The visits are "insulting and embarrassing," Williams says, noting she continues to make regular payments.
"It's not like I'm asking to stay in my house for free," she said. "I'm just asking them to do for me what's available to everyone."
A spokeswoman for GMAC Mortgage declined to discuss Williams' loan. However, in a written statement, she said, "GMAC Mortgage is firmly committed to helping borrowers who qualify under the [Obama program's] guidelines achieve affordable, sustainable mortgage payments."
Only 400,000 offers extended
The Treasury report found GMAC Mortgage has modified 20 percent of eligible loans under the program.
So far, banks have extended only 400,000 modification offers among 2.7 million eligible borrowers who are more than two months behind on payments. Some lenders had not changed a single mortgage. Nonetheless, the Obama administration said Tuesday it is still on track to meet its goal of helping up to 4 million borrowers by 2012.
Chris Serres • 612-673-4308
http://www.startribune.com/business/52478547.html?elr=KArksUUUU
Monday, July 20, 2009
WHERE’S THE NOTE, WHO’S THE HOLDER: ENFORCEMENT OF PROMISSORY NOTE SECURED BY REAL ESTATE
From; http://www.brokencredit.com
April 30, 2009
Filed under: Mortgage, Foreclosure
INTRODUCTION
In an era where a very large portion of mortgage obligations have been securitized, by assignment to a trust indenture trustee, with the resulting pool of assets being then sold as mortgage backed securities, foreclosure becomes an interesting exercise, particularly where judicial process is involved. We are all familiar with the securitization process. The steps, if not the process, is simple. A borrower goes to a mortgage lender. The lender finances the purchase of real estate. The borrower signs a note and mortgage or deed of trust. The original lender sells the note and assigns the mortgage to an entity that securitizes the note by combining the note with hundreds or thousands of similar obligation to create a package of mortgage backed securities, which are then sold to investors.
Unfortunately, unless you represent borrowers, the vast flow of notes into the maw of the securitization industry meant that a lot of mistakes were made. When the borrower defaults, the party seeking to enforce the obligation and foreclose on the underlying collateral sometimes cannot find the note. A lawyer sophisticated in this area has speculated to one of the authors that perhaps a third of the notes “securitized” have been lost or destroyed. The cases we are going to look at reflect the stark fact that the unnamed source’s speculation may be well-founded.
UCC SECTION 3-309
If the issue were as simple as a missing note, UCC §3-309 would provide a simple solution. A person entitled to enforce an instrument which has been lost, destroyed or stolen may enforce the instrument. If the court is concerned that some third party may show up and attempt to enforce the instrument against the payee, it may order adequate protection. But, and however, a person seeking to enforce a missing instrument must be a person entitled to enforce the instrument, and that person must prove the instrument’s terms and that person’s right to enforce the instrument. §3-309 (a)(1) & (b).
WHO’S THE HOLDER
Enforcement of a note always requires that the person seeking to collect show that it is the holder. A holder is an entity that has acquired the note either as the original payor or transfer by endorsement of order paper or physical possession of bearer paper. These requirements are set out in Article 3 of the Uniform Commercial Code, which has been adopted in every state, including Louisiana, and in the District of Columbia. Even in bankruptcy proceedings, State substantive law controls the rights of note and lien holders, as the Supreme Court pointed out almost forty (40) years ago in United States v. Butner, 440 U.S. 48, 54-55 (1979).
However, as Judge Bufford has recently illustrated, in one of the cases discussed below, in the bankruptcy and other federal courts, procedure is governed by the Federal Rules of Bankruptcy and Civil Procedure. And, procedure may just have an impact on the issue of “who,” because, if the holder is unknown, pleading and standing issues arise.
BRIEF REVIEW OF UCC PROVISIONS
Article 3 governs negotiable instruments – it defines what a negotiable instrument is and defines how ownership of those pieces of paper is transferred. For the precise definition, see § 3-104(a) (“an unconditional promise or order to pay a fixed amount of money, with or without interest . . . .”) The instrument may be either payable to order or bearer and payable on demand or at a definite time, with or without interest.
Ordinary negotiable instruments include notes and drafts (a check is a draft drawn on a bank). See § 3-104(e).
Negotiable paper is transferred from the original payor by negotiation. §3-301. “Order paper” must be endorsed; bearer paper need only be delivered. §3-305. However, in either case, for the note to be enforced, the person who asserts the status of the holder must be in possession of the instrument. See UCC § 1-201 (20) and comments.
The original and subsequent transferees are referred to as holders. Holders who take with no notice of defect or default are called “holders in due course,” and take free of many defenses. See §§ 3-305(b).
The UCC says that a payment to a party “entitled to enforce the instrument” is sufficient to extinguish the obligation of the person obligated on the instrument. Clearly, then, only a holder – a person in possession of a note endorsed to it or a holder of bearer paper – may seek satisfaction or enforce rights in collateral such as real estate.
NOTE: Those of us who went through the bank and savings and loan collapse of the 1980’s are familiar with these problems. The FDIC/FSLIC/RTC sold millions of notes secured and unsecured, in bulk transactions. Some notes could not be found and enforcement sometimes became a problem. Of course, sometimes we are forced to repeat history. For a recent FDIC case, see Liberty Savings Bank v. Redus, 2009 WL 41857 (Ohio App. 8 Dist.), January 8, 2009.
THE RULES
Judge Bufford addressed the rules issue this past year. See In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008). First, there are the pleading problems that arise when the holder of the note is unknown. Typically, the issue will arise in a motion for relief from stay in a bankruptcy proceeding.
According F.R.Civ. Pro. 17, “[a]n action must be prosecuted in the name of the real party in interest.” This rule is incorporated into the rules governing bankruptcy procedure in several ways. As Judge Bufford has pointed out, for example, in a motion for relief from stay, filed under F.R.Bankr.Pro. 4001 is a contested matter, governed by F. R. Bankr. P. 9014, which makes F.R. Bankr. Pro. 7017 applicable to such motions. F.R. Bankr. P. 7017 is, of course, a restatement of F.R. Civ. P. 17. In re Hwang, 396 B.R. at 766. The real party in interest in a federal action to enforce a note, whether in bankruptcy court or federal district court, is the owner of a note. (In securitization transactions, this would be the trustee for the “certificate holders.”) When the actual holder of the note is unknown, it is impossible – not difficult but impossible – to plead a cause of action in a federal court (unless the movant simply lies about the ownership of the note). Unless the name of the actual note holder can be stated, the very pleadings are defective.
STANDING
Often, the servicing agent for the loan will appear to enforce the note. Assume that the servicing agent states that it is the authorized agent of the note holder, which is “Trust Number 99.” The servicing agent is certainly a party in interest, since a party in interest in a bankruptcy court is a very broad term or concept. See, e.g., Greer v. O’Dell, 305 F.3d 1297, 1302-03 (11th Cir. 2002). However, the servicing agent may not have standing: “Federal Courts have only the power authorized by Article III of the Constitutions and the statutes enacted by Congress pursuant thereto. … [A] plaintiff must have Constitutional standing in order for a federal court to have jurisdiction.” In re Foreclosure Cases, 521 F.Supp. 3d 650, 653 (S.D. Ohio, 2007) (citations omitted).
But, the servicing agent does not have standing, for only a person who is the holder of the note has standing to enforce the note. See, e.g., In re Hwang, 2008 WL 4899273 at 8.
The servicing agent may have standing if acting as an agent for the holder, assuming that the agent can both show agency status and that the principle is the holder. See, e.g., In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008) at 520.
A BRIEF ASIDE: WHO IS MERS?
For those of you who are not familiar with the entity known as MERS, a frequent participant in these foreclosure proceedings:
MERS is the “Mortgage Electronic Registration System, Inc. “MERS is a mortgage banking ‘utility’ that registers mortgage loans in a book entry system so that … real estate loans can be bought, sold and securitized, just like Wall Street’s book entry utility for stocks and bonds is the Depository Trust and Clearinghouse.” Bastian, “Foreclosure Forms”, State. Bar of Texas 17th Annual Advanced Real Estate Drafting Course, March 9-10, 2007, Dallas, Texas. MERS is enormous. It originates thousands of loans daily and is the mortgagee of record for at least 40 million mortgages and other security documents. Id.
MERS acts as agent for the owner of the note. Its authority to act should be shown by an agency agreement. Of course, if the owner is unknown, MERS cannot show that it is an authorized agent of the owner.
RULES OF EVIDENCE – A PRACTICAL PROBLEM
This structure also possesses practical evidentiary problems where the party asserting a right to foreclose must be able to show a default. Once again, Judge Bufford has addressed this issue. At In re Vargas, 396 B.R. at 517-19. Judge Bufford made a finding that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.
FORECLOSURE OR RELIEF FROM STAY
In a foreclosure proceeding in a judicial foreclosure state, or a request for injunctive relief in a non-judicial foreclosure state, or in a motion for relief proceeding in a bankruptcy court, the courts are dealing with and writing about the problems very frequently.
In many if not almost all cases, the party seeking to exercise the rights of the creditor will be a servicing company. Servicing companies will be asserting the rights of their alleged principal, the note holder, which is, again, often going to be a trustee for a securitization package. The mortgage holder or beneficiary under the deed of trust will, again, very often be MERS.
Even before reaching the practical problem of debt and default, mentioned above, the moving party must show that it holds the note or (1) that it is an agent of the holder and that (2) the holder remains the holder. In addition, the owner of the note, if different from the holder, must join in the motion.
Some states, like Texas, have passed statutes that allow servicing companies to act in foreclosure proceedings as a statutorily recognized agent of the noteholder. See, e.g., Tex. Prop. Code §51.0001. However, that statute refers to the servicer as the last entity to whom the debtor has been instructed to make payments. This status is certainly open to challenge. The statute certainly provides nothing more than prima facie evidence of the ability of the servicer to act. If challenged, the servicing agent must show that the last entity to communicate instructions to the debtor is still the holder of the note. See, e.g., HSBC Bank, N.A. v. Valentin, 2l N.Y. Misc. 3d 1123(A), 2008 WL 4764816 (Table) (N.Y. Sup.), Nov. 3, 2008. In addition, such a statute does not control in federal court where Fed. R. Civ. P. 17 and 19 (and Fed. R. Bankr. P. 7017 and 7019) apply.
SOME RECENT CASE LAW
These cases are arranged by state, for no particular reason.
Massachusetts
In re Schwartz, 366 B.R.265 (Bankr. D. Mass. 2007)
Schwartz concerns a Motion for Relief to pursue an eviction. Movant asserted that the property had been foreclosed upon prior to the date of the bankruptcy petition. The pro se debtor asserted that the Movant was required to show that it had authority to conduct the sale. Movant, and “the party which appears to be the current mortgagee…” provided documents for the court to review, but did not ask for an evidentiary hearing. Judge Rosenthal sifted through the documents and found that the Movant and the current mortgagee had failed to prove that the foreclosure was properly conducted.
Specifically, Judge Rosenthal found that there was no evidence of a proper assignment of the mortgage prior to foreclosure. However, at footnote 5, Id. at 268, the Court also finds that there is no evidence that the note itself was assigned and no evidence as to who the current holder might be.
Nosek v. Ameriquest Mortgage Company (In re Nosek), 286 Br. 374 (Bankr D Mass. 2008).
Almost a year to the day after Schwartz was signed, Judge Rosenthal issued a second opinion. This is an opinion on an order to show cause. Judge Rosenthal specifically found that, although the note and mortgage involved in the case had been transferred from the originator to another party within five days of closing, during the five years in which the chapter 13 proceeding was pending, the note and mortgage and associated claims had been prosecuted by Ameriquest which has represented itself to be the holder of the note and the mortgage. Not until September of 2007 did Ameriquest notify the Court that it was merely the servicer. In fact, only after the chapter 13 bankruptcy had been pending for about three years was there even an assignment of the servicing rights. Id. at 378.
Because these misrepresentations were not simple mistakes: as the Court has noted on more than one occasion, those parties who do not hold the note of mortgage do not service the mortgage do not have standing to pursue motions for leave or other actions arising form the mortgage obligation. Id at 380.
As a result, the Court sanctioned the local law firm that had been prosecuting the claim $25,000. It sanctioned a partner at that firm an additional $25,000. Then the Court sanctioned the national law firm involved $100,000 and ultimately sanctioned Wells Fargo $250,000. Id. at 382-386.
In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008).
Like Judge Rosenthal, Judge Feeney has attacked the problem of standing and authority head on. She has also held that standing must be established before either a claim can be allowed or a motion for relief be granted.
Ohio
In re Foreclosure Cases, 521 F.Supp. 2d (S.D. Ohio 2007).
Perhaps the District Court’s orders in the foreclosure cases in Ohio have received the most press of any of these opinions. Relying almost exclusively on standing, the Judge Rose has determined that a foreclosing party must show standing. “[I]n a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time that the complaint was filed.” Id. at 653.
Judge Rose instructed the parties involved that the willful failure of the movants to comply with the general orders of the Court would in the future result in immediate dismissal of foreclosure actions.
Deutsche Bank Nat’l Trust Co. v. Steele, 2008 WL 111227 (S.D. Ohio) January 8, 2008.
In Steele, Judge Abel followed the lead of Judge Rose and found that Deutsche Bank had filed evidence in support of its motion for default judgment indicating that MERS was the mortgage holder. There was not sufficient evidence to support the claim that Deutsche Bank was the owner and holder of the note as of that date. Following In re Foreclosure Cases, 2007 WL 456586, the Court held that summary judgment would be denied “until such time as Deutsche Bank was able to offer evidence showing, by a preponderance of evidence, that it owned the note and mortgage when the complaint was filed.” 2008 WL 111227 at 2. Deutsche Bank was given twenty-one days to comply. Id.
Illinois
U.S. Bank, N.A. v. Cook, 2009 WL 35286 (N.D. Ill. January 6, 2009).
Not all federal district judges are as concerned with the issues surrounding the transfer of notes and mortgages. Cook is a very pro lender case and, in an order granting a motion for summary judgment, the Court found that Cook had shown no “countervailing evidence to create a genuine issue of facts.” Id. at 3. In fact, a review of the evidence submitted by U.S. Bank showed only that it was the alleged trustee of the securitization pool. U.S. Bank relied exclusively on the “pooling and serving agreement” to show that it was the holder of the note. Id.
Under UCC Article 3, the evidence presented in Cook was clearly insufficient.
New York
HSBC Bank USA, N.A. v. Valentin, 21 Misc. 3D 1124(A), 2008 WL 4764816 (Table) (N.Y. Sup.) November 3, 2008. In Valentin, the New York court found that, even though given an opportunity to, HSBC did not show the ownership of debt and mortgage. The complaint was dismissed with prejudice and the “notice of pendency” against the property was cancelled.
Note that the Valentin case does not involve some sort of ambush. The Court gave every HSBC every opportunity to cure the defects the Court perceived in the pleadings.
California
In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008)
and
In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008)
These two opinions by Judge Bufford have been discussed above. Judge Bufford carefully explores the related issues of standing and ownership under both federal and California law.
Texas
In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008)
and
In re Gilbreath, 395 B.R. 356 (Bankr. S.D. Tex. 2008)
These two recent opinions by Judge Jeff Bohm are not really on point, but illustrate another thread of cases running through the issues of motions for relief from stay in bankruptcy court and the sloppiness of loan servicing agencies. Both of these cases involve motions for relief that were not based upon fact but upon mistakes by servicing agencies. Both opinions deal with the issue of sanctions and, put simply, both cases illustrate that Judge Bohm (and perhaps other members of the bankruptcy bench in the Southern District of Texas) are going to be very strict about motions for relief in consumer cases.
SUMMARY
The cases cited illustrate enormous problems in the loan servicing industry. These problems arise in the context of securitization and illustrate the difficulty of determining the name of the holder, the assignee of the mortgage, and the parties with both the legal right under Article 3 and the standing under the Constitution to enforce notes, whether in state court or federal court.
Interestingly, with the exception of Judge Bufford and a few other judges, there has been less than adequate focus upon the UCC title issues. The next round of cases may and should focus upon the title to debt instrument. The person seeking to enforce the note must show that:
(1) It is the holder of this note original by transfer, with all necessary rounds;
(2) It had possession of the note before it was lost;
(3) If it can show that title to the note runs to it, but the original is lost or destroyed, the holder must be prepared to post a bond;
(4) If the person seeking to enforce is an agent, it must show its agency status and that its principal is the holder of the note (and meets the above requirements).
Then, and only then, do the issues of evidence of debt and default and assignment of mortgage rights become relevant.
HON. SAMUEL L. BUFFORD
UNITED STATES BANKRUPTCY JUDGE
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES, CALIFORNIA
(FORMERLY HON.) R. GLEN AYERS
LANGLEY & BANACK
SAN ANTONIO, TEXAS
AMERICAN BANKRUPTCY INSTUTUTE
APRIL 3, 2009
WASHINGTON, D.C.
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http://www.brokencredit.com/where%E2%80%99s-the-note-who%E2%80%99s-the-holder-enforcement-of-promissory-note-secured-by-real-estate/
April 30, 2009
Filed under: Mortgage, Foreclosure
INTRODUCTION
In an era where a very large portion of mortgage obligations have been securitized, by assignment to a trust indenture trustee, with the resulting pool of assets being then sold as mortgage backed securities, foreclosure becomes an interesting exercise, particularly where judicial process is involved. We are all familiar with the securitization process. The steps, if not the process, is simple. A borrower goes to a mortgage lender. The lender finances the purchase of real estate. The borrower signs a note and mortgage or deed of trust. The original lender sells the note and assigns the mortgage to an entity that securitizes the note by combining the note with hundreds or thousands of similar obligation to create a package of mortgage backed securities, which are then sold to investors.
Unfortunately, unless you represent borrowers, the vast flow of notes into the maw of the securitization industry meant that a lot of mistakes were made. When the borrower defaults, the party seeking to enforce the obligation and foreclose on the underlying collateral sometimes cannot find the note. A lawyer sophisticated in this area has speculated to one of the authors that perhaps a third of the notes “securitized” have been lost or destroyed. The cases we are going to look at reflect the stark fact that the unnamed source’s speculation may be well-founded.
UCC SECTION 3-309
If the issue were as simple as a missing note, UCC §3-309 would provide a simple solution. A person entitled to enforce an instrument which has been lost, destroyed or stolen may enforce the instrument. If the court is concerned that some third party may show up and attempt to enforce the instrument against the payee, it may order adequate protection. But, and however, a person seeking to enforce a missing instrument must be a person entitled to enforce the instrument, and that person must prove the instrument’s terms and that person’s right to enforce the instrument. §3-309 (a)(1) & (b).
WHO’S THE HOLDER
Enforcement of a note always requires that the person seeking to collect show that it is the holder. A holder is an entity that has acquired the note either as the original payor or transfer by endorsement of order paper or physical possession of bearer paper. These requirements are set out in Article 3 of the Uniform Commercial Code, which has been adopted in every state, including Louisiana, and in the District of Columbia. Even in bankruptcy proceedings, State substantive law controls the rights of note and lien holders, as the Supreme Court pointed out almost forty (40) years ago in United States v. Butner, 440 U.S. 48, 54-55 (1979).
However, as Judge Bufford has recently illustrated, in one of the cases discussed below, in the bankruptcy and other federal courts, procedure is governed by the Federal Rules of Bankruptcy and Civil Procedure. And, procedure may just have an impact on the issue of “who,” because, if the holder is unknown, pleading and standing issues arise.
BRIEF REVIEW OF UCC PROVISIONS
Article 3 governs negotiable instruments – it defines what a negotiable instrument is and defines how ownership of those pieces of paper is transferred. For the precise definition, see § 3-104(a) (“an unconditional promise or order to pay a fixed amount of money, with or without interest . . . .”) The instrument may be either payable to order or bearer and payable on demand or at a definite time, with or without interest.
Ordinary negotiable instruments include notes and drafts (a check is a draft drawn on a bank). See § 3-104(e).
Negotiable paper is transferred from the original payor by negotiation. §3-301. “Order paper” must be endorsed; bearer paper need only be delivered. §3-305. However, in either case, for the note to be enforced, the person who asserts the status of the holder must be in possession of the instrument. See UCC § 1-201 (20) and comments.
The original and subsequent transferees are referred to as holders. Holders who take with no notice of defect or default are called “holders in due course,” and take free of many defenses. See §§ 3-305(b).
The UCC says that a payment to a party “entitled to enforce the instrument” is sufficient to extinguish the obligation of the person obligated on the instrument. Clearly, then, only a holder – a person in possession of a note endorsed to it or a holder of bearer paper – may seek satisfaction or enforce rights in collateral such as real estate.
NOTE: Those of us who went through the bank and savings and loan collapse of the 1980’s are familiar with these problems. The FDIC/FSLIC/RTC sold millions of notes secured and unsecured, in bulk transactions. Some notes could not be found and enforcement sometimes became a problem. Of course, sometimes we are forced to repeat history. For a recent FDIC case, see Liberty Savings Bank v. Redus, 2009 WL 41857 (Ohio App. 8 Dist.), January 8, 2009.
THE RULES
Judge Bufford addressed the rules issue this past year. See In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008). First, there are the pleading problems that arise when the holder of the note is unknown. Typically, the issue will arise in a motion for relief from stay in a bankruptcy proceeding.
According F.R.Civ. Pro. 17, “[a]n action must be prosecuted in the name of the real party in interest.” This rule is incorporated into the rules governing bankruptcy procedure in several ways. As Judge Bufford has pointed out, for example, in a motion for relief from stay, filed under F.R.Bankr.Pro. 4001 is a contested matter, governed by F. R. Bankr. P. 9014, which makes F.R. Bankr. Pro. 7017 applicable to such motions. F.R. Bankr. P. 7017 is, of course, a restatement of F.R. Civ. P. 17. In re Hwang, 396 B.R. at 766. The real party in interest in a federal action to enforce a note, whether in bankruptcy court or federal district court, is the owner of a note. (In securitization transactions, this would be the trustee for the “certificate holders.”) When the actual holder of the note is unknown, it is impossible – not difficult but impossible – to plead a cause of action in a federal court (unless the movant simply lies about the ownership of the note). Unless the name of the actual note holder can be stated, the very pleadings are defective.
STANDING
Often, the servicing agent for the loan will appear to enforce the note. Assume that the servicing agent states that it is the authorized agent of the note holder, which is “Trust Number 99.” The servicing agent is certainly a party in interest, since a party in interest in a bankruptcy court is a very broad term or concept. See, e.g., Greer v. O’Dell, 305 F.3d 1297, 1302-03 (11th Cir. 2002). However, the servicing agent may not have standing: “Federal Courts have only the power authorized by Article III of the Constitutions and the statutes enacted by Congress pursuant thereto. … [A] plaintiff must have Constitutional standing in order for a federal court to have jurisdiction.” In re Foreclosure Cases, 521 F.Supp. 3d 650, 653 (S.D. Ohio, 2007) (citations omitted).
But, the servicing agent does not have standing, for only a person who is the holder of the note has standing to enforce the note. See, e.g., In re Hwang, 2008 WL 4899273 at 8.
The servicing agent may have standing if acting as an agent for the holder, assuming that the agent can both show agency status and that the principle is the holder. See, e.g., In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008) at 520.
A BRIEF ASIDE: WHO IS MERS?
For those of you who are not familiar with the entity known as MERS, a frequent participant in these foreclosure proceedings:
MERS is the “Mortgage Electronic Registration System, Inc. “MERS is a mortgage banking ‘utility’ that registers mortgage loans in a book entry system so that … real estate loans can be bought, sold and securitized, just like Wall Street’s book entry utility for stocks and bonds is the Depository Trust and Clearinghouse.” Bastian, “Foreclosure Forms”, State. Bar of Texas 17th Annual Advanced Real Estate Drafting Course, March 9-10, 2007, Dallas, Texas. MERS is enormous. It originates thousands of loans daily and is the mortgagee of record for at least 40 million mortgages and other security documents. Id.
MERS acts as agent for the owner of the note. Its authority to act should be shown by an agency agreement. Of course, if the owner is unknown, MERS cannot show that it is an authorized agent of the owner.
RULES OF EVIDENCE – A PRACTICAL PROBLEM
This structure also possesses practical evidentiary problems where the party asserting a right to foreclose must be able to show a default. Once again, Judge Bufford has addressed this issue. At In re Vargas, 396 B.R. at 517-19. Judge Bufford made a finding that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.
FORECLOSURE OR RELIEF FROM STAY
In a foreclosure proceeding in a judicial foreclosure state, or a request for injunctive relief in a non-judicial foreclosure state, or in a motion for relief proceeding in a bankruptcy court, the courts are dealing with and writing about the problems very frequently.
In many if not almost all cases, the party seeking to exercise the rights of the creditor will be a servicing company. Servicing companies will be asserting the rights of their alleged principal, the note holder, which is, again, often going to be a trustee for a securitization package. The mortgage holder or beneficiary under the deed of trust will, again, very often be MERS.
Even before reaching the practical problem of debt and default, mentioned above, the moving party must show that it holds the note or (1) that it is an agent of the holder and that (2) the holder remains the holder. In addition, the owner of the note, if different from the holder, must join in the motion.
Some states, like Texas, have passed statutes that allow servicing companies to act in foreclosure proceedings as a statutorily recognized agent of the noteholder. See, e.g., Tex. Prop. Code §51.0001. However, that statute refers to the servicer as the last entity to whom the debtor has been instructed to make payments. This status is certainly open to challenge. The statute certainly provides nothing more than prima facie evidence of the ability of the servicer to act. If challenged, the servicing agent must show that the last entity to communicate instructions to the debtor is still the holder of the note. See, e.g., HSBC Bank, N.A. v. Valentin, 2l N.Y. Misc. 3d 1123(A), 2008 WL 4764816 (Table) (N.Y. Sup.), Nov. 3, 2008. In addition, such a statute does not control in federal court where Fed. R. Civ. P. 17 and 19 (and Fed. R. Bankr. P. 7017 and 7019) apply.
SOME RECENT CASE LAW
These cases are arranged by state, for no particular reason.
Massachusetts
In re Schwartz, 366 B.R.265 (Bankr. D. Mass. 2007)
Schwartz concerns a Motion for Relief to pursue an eviction. Movant asserted that the property had been foreclosed upon prior to the date of the bankruptcy petition. The pro se debtor asserted that the Movant was required to show that it had authority to conduct the sale. Movant, and “the party which appears to be the current mortgagee…” provided documents for the court to review, but did not ask for an evidentiary hearing. Judge Rosenthal sifted through the documents and found that the Movant and the current mortgagee had failed to prove that the foreclosure was properly conducted.
Specifically, Judge Rosenthal found that there was no evidence of a proper assignment of the mortgage prior to foreclosure. However, at footnote 5, Id. at 268, the Court also finds that there is no evidence that the note itself was assigned and no evidence as to who the current holder might be.
Nosek v. Ameriquest Mortgage Company (In re Nosek), 286 Br. 374 (Bankr D Mass. 2008).
Almost a year to the day after Schwartz was signed, Judge Rosenthal issued a second opinion. This is an opinion on an order to show cause. Judge Rosenthal specifically found that, although the note and mortgage involved in the case had been transferred from the originator to another party within five days of closing, during the five years in which the chapter 13 proceeding was pending, the note and mortgage and associated claims had been prosecuted by Ameriquest which has represented itself to be the holder of the note and the mortgage. Not until September of 2007 did Ameriquest notify the Court that it was merely the servicer. In fact, only after the chapter 13 bankruptcy had been pending for about three years was there even an assignment of the servicing rights. Id. at 378.
Because these misrepresentations were not simple mistakes: as the Court has noted on more than one occasion, those parties who do not hold the note of mortgage do not service the mortgage do not have standing to pursue motions for leave or other actions arising form the mortgage obligation. Id at 380.
As a result, the Court sanctioned the local law firm that had been prosecuting the claim $25,000. It sanctioned a partner at that firm an additional $25,000. Then the Court sanctioned the national law firm involved $100,000 and ultimately sanctioned Wells Fargo $250,000. Id. at 382-386.
In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008).
Like Judge Rosenthal, Judge Feeney has attacked the problem of standing and authority head on. She has also held that standing must be established before either a claim can be allowed or a motion for relief be granted.
Ohio
In re Foreclosure Cases, 521 F.Supp. 2d (S.D. Ohio 2007).
Perhaps the District Court’s orders in the foreclosure cases in Ohio have received the most press of any of these opinions. Relying almost exclusively on standing, the Judge Rose has determined that a foreclosing party must show standing. “[I]n a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time that the complaint was filed.” Id. at 653.
Judge Rose instructed the parties involved that the willful failure of the movants to comply with the general orders of the Court would in the future result in immediate dismissal of foreclosure actions.
Deutsche Bank Nat’l Trust Co. v. Steele, 2008 WL 111227 (S.D. Ohio) January 8, 2008.
In Steele, Judge Abel followed the lead of Judge Rose and found that Deutsche Bank had filed evidence in support of its motion for default judgment indicating that MERS was the mortgage holder. There was not sufficient evidence to support the claim that Deutsche Bank was the owner and holder of the note as of that date. Following In re Foreclosure Cases, 2007 WL 456586, the Court held that summary judgment would be denied “until such time as Deutsche Bank was able to offer evidence showing, by a preponderance of evidence, that it owned the note and mortgage when the complaint was filed.” 2008 WL 111227 at 2. Deutsche Bank was given twenty-one days to comply. Id.
Illinois
U.S. Bank, N.A. v. Cook, 2009 WL 35286 (N.D. Ill. January 6, 2009).
Not all federal district judges are as concerned with the issues surrounding the transfer of notes and mortgages. Cook is a very pro lender case and, in an order granting a motion for summary judgment, the Court found that Cook had shown no “countervailing evidence to create a genuine issue of facts.” Id. at 3. In fact, a review of the evidence submitted by U.S. Bank showed only that it was the alleged trustee of the securitization pool. U.S. Bank relied exclusively on the “pooling and serving agreement” to show that it was the holder of the note. Id.
Under UCC Article 3, the evidence presented in Cook was clearly insufficient.
New York
HSBC Bank USA, N.A. v. Valentin, 21 Misc. 3D 1124(A), 2008 WL 4764816 (Table) (N.Y. Sup.) November 3, 2008. In Valentin, the New York court found that, even though given an opportunity to, HSBC did not show the ownership of debt and mortgage. The complaint was dismissed with prejudice and the “notice of pendency” against the property was cancelled.
Note that the Valentin case does not involve some sort of ambush. The Court gave every HSBC every opportunity to cure the defects the Court perceived in the pleadings.
California
In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008)
and
In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008)
These two opinions by Judge Bufford have been discussed above. Judge Bufford carefully explores the related issues of standing and ownership under both federal and California law.
Texas
In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008)
and
In re Gilbreath, 395 B.R. 356 (Bankr. S.D. Tex. 2008)
These two recent opinions by Judge Jeff Bohm are not really on point, but illustrate another thread of cases running through the issues of motions for relief from stay in bankruptcy court and the sloppiness of loan servicing agencies. Both of these cases involve motions for relief that were not based upon fact but upon mistakes by servicing agencies. Both opinions deal with the issue of sanctions and, put simply, both cases illustrate that Judge Bohm (and perhaps other members of the bankruptcy bench in the Southern District of Texas) are going to be very strict about motions for relief in consumer cases.
SUMMARY
The cases cited illustrate enormous problems in the loan servicing industry. These problems arise in the context of securitization and illustrate the difficulty of determining the name of the holder, the assignee of the mortgage, and the parties with both the legal right under Article 3 and the standing under the Constitution to enforce notes, whether in state court or federal court.
Interestingly, with the exception of Judge Bufford and a few other judges, there has been less than adequate focus upon the UCC title issues. The next round of cases may and should focus upon the title to debt instrument. The person seeking to enforce the note must show that:
(1) It is the holder of this note original by transfer, with all necessary rounds;
(2) It had possession of the note before it was lost;
(3) If it can show that title to the note runs to it, but the original is lost or destroyed, the holder must be prepared to post a bond;
(4) If the person seeking to enforce is an agent, it must show its agency status and that its principal is the holder of the note (and meets the above requirements).
Then, and only then, do the issues of evidence of debt and default and assignment of mortgage rights become relevant.
HON. SAMUEL L. BUFFORD
UNITED STATES BANKRUPTCY JUDGE
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES, CALIFORNIA
(FORMERLY HON.) R. GLEN AYERS
LANGLEY & BANACK
SAN ANTONIO, TEXAS
AMERICAN BANKRUPTCY INSTUTUTE
APRIL 3, 2009
WASHINGTON, D.C.
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No Note, No Possession, Conn. Ct. Says
Daily Development for Wednesday, June 25, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu
MORTGAGES; ASSIGNMENT; Connecticut court concludes
assignee of mortgage that lacks possession or formal assignment of note
may not foreclose.
Fleet National Bank v. Nazareth, 818 A. 2d 69 (Conn. App. 2003)
In 1994, Nazareth executed a promissory note and mortgage, securing
repayment of $184,000, in favor of Shawmut Mortgage Company.
Later, Shawmut Mortgage merged with, and became known as, Fleet
Mortgage Corporation. Fleet Mortgage assigned its interest in the
mortgage, but not the note, to Fleet National Bank (which appears to
have been a sister corporation to Fleet Mortgage). Fleet National Bank
then assigned the mortgage to R.I. Waterman Properties, Inc. (which was
a subsidiary of Fleet National Bank, responsible for handling the Bank's
foreclosures).
The Nazareth loan became delinquent and Fleet National Bank filed an
action for judicial foreclosure. In due course, Waterman Properties was
substituted as plaintiff in the judicial foreclosure action.
At trial, defendants Nazareth claimed that Waterman Properties lacked
standing to bring the action because it was not a holder of the underlying
note. The court stated that it was "undisputed" that Fleet Mortgage was
still the holder (i.e., owner) of the note, while Waterman Properties was
holder (i.e., owner by assignment) of the mortgage. It appears Waterman
Properties argued that failure to assign the note with the mortgage was
clearly an oversight. The trial court ruled in favor of Waterman
Properties, and defendants appealed.
The Court of Appeals reversed, holding there is no legal authority for the
assignee of a mortgage to foreclose absent proof of assignment of the
underlying note. The court distinguished prior Connecticut cases
upholding enforcement of a mortgage where the holder was shown to
have an interest in the underlying note but, as in one case, the note was
lost.
Likewise, the Court said the Connecticut statute permitting a note holder
to foreclose a related mortgage, even though the mortgage has not been
assigned, did not help Waterman Properties in this 'opposite' situation.
Said the Court, "(w)e conclude, therefore, that the legislature did not
intend to permit the holder of the mortgage, without having been
assigned the note, the ability to foreclose on the property." (See
Connecticut General Statutes section 49-17.)
Reporter's Comment: There's a familiar rule that "the security follows
the debt,"
or the mortgage interest goes with the note, but, as illustrated in this case,
the converse may not always be true.
I'll confess this result doesn't make perfect sense to me. Wouldn't it seem
that assignment of the mortgage evidences an intention to assign at least
some part of the underlying debt? If not, why was the mortgage
assigned? Rhetorical question--or at least one, in Connecticut anyway, to
be put to the legislature rather than a court.
A tough result for mortgage assignees, and their lawyers, who may seek
to enforce mortgages that have been passed through now defunct
corporations, with neither records nor witnesses to explain what was
intended.
Editor's Comment 1: The critical fact to the editor here is the statement
in the opinion that it was "undisputed" that the party bringing the
foreclosure action was not the owner of the obligation.
Editor's Comment 2: The prevailing rule is to assume that the parties
intended to assign the debt along with the mortgage, even if there is no
evidence of anything by the mortgage assignment. Nelson and Whitman
discuss this concept and cite cases in their treatise: Real Estate Finance
Law pp 373-374 (4th Ed. West 2001) They also recommend this approach
in the Restatement of Mortgages, Sec. 5.4b. This presumption solves
most problems. But it does not solve the problem where the holder of
the debt does not agree that it is no longer the owner of the debt and
insists that it assigned the mortgage separately. In that case, then at best
the owner of the debt ought to be an additional party plaintiff in the
mortgage foreclosure action. At worst, the transfer is a nullity and only
the debt holder can foreclose. For this more conservative position that
the transfer is a nullity, the minority rule, Nelson and Whitman cite case
law in Florida, Arizona, New York, California, Indiana, and South
Dakota. Even though a minority rule, when you've got New York and
California following it, you've got a rule with some "legs."
Editor's Comment 3: The lender brought this on itself by establishing a
foreclosure method that seemed quite likely to fail, especially in a title
theory state like Connecticut. The editor wonders why the lender would
take this case up on appeal rather than clean up the ownership problem -
either transferring the note to the foreclosing party or transferring the
mortgage to the note holder and then reforeclosing. Maybe there were
statute of limitations issues or bankruptcy issues, but that does seem to
have been a smoother path.
The reporter for this item was Bert Rush of First American Title in
California, writing in the First American newsletter, Landsakes.
Readers are encouraged to respond to or criticize this posting.
Items reported on DIRT and in the ABA publications related to it are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data provided and opinions expressed by the DIRT editor the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.
Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality
issues.
ABOUT DIRT:
DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5 - 15 messages per work day.
Daily Developments are posted every work day. To
subscribe, send the message
subscribe Dirt [your name]
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listserv@listserv.umkc.edu
To cancel your subscription, send the message
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for information on other commands, send the message
Help to the listserv address.
DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named “BrokerDIRT.” But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as BrokerDIRT carries all DIRT traffic in addition to the residential discussions.
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DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law. Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, DIRT, and its sponsors.
DIRT has a WebPage at:
http://www.umkc.edu/dirt/
Members of the ABA Section on Real Property, Probate
and Trust Law or of the National Association of Realtors can subscribe to a quarterly hardcopy report that includes all DIRT Daily Developments, many other cases, and periodic reviews of real estate oriented literature and state legislation by contacting Antonette Smith at (312) 988 5260 or asmith4@staff.abanet.org
http://dirt.umkc.edu/DD6-25-03.htm
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu
MORTGAGES; ASSIGNMENT; Connecticut court concludes
assignee of mortgage that lacks possession or formal assignment of note
may not foreclose.
Fleet National Bank v. Nazareth, 818 A. 2d 69 (Conn. App. 2003)
In 1994, Nazareth executed a promissory note and mortgage, securing
repayment of $184,000, in favor of Shawmut Mortgage Company.
Later, Shawmut Mortgage merged with, and became known as, Fleet
Mortgage Corporation. Fleet Mortgage assigned its interest in the
mortgage, but not the note, to Fleet National Bank (which appears to
have been a sister corporation to Fleet Mortgage). Fleet National Bank
then assigned the mortgage to R.I. Waterman Properties, Inc. (which was
a subsidiary of Fleet National Bank, responsible for handling the Bank's
foreclosures).
The Nazareth loan became delinquent and Fleet National Bank filed an
action for judicial foreclosure. In due course, Waterman Properties was
substituted as plaintiff in the judicial foreclosure action.
At trial, defendants Nazareth claimed that Waterman Properties lacked
standing to bring the action because it was not a holder of the underlying
note. The court stated that it was "undisputed" that Fleet Mortgage was
still the holder (i.e., owner) of the note, while Waterman Properties was
holder (i.e., owner by assignment) of the mortgage. It appears Waterman
Properties argued that failure to assign the note with the mortgage was
clearly an oversight. The trial court ruled in favor of Waterman
Properties, and defendants appealed.
The Court of Appeals reversed, holding there is no legal authority for the
assignee of a mortgage to foreclose absent proof of assignment of the
underlying note. The court distinguished prior Connecticut cases
upholding enforcement of a mortgage where the holder was shown to
have an interest in the underlying note but, as in one case, the note was
lost.
Likewise, the Court said the Connecticut statute permitting a note holder
to foreclose a related mortgage, even though the mortgage has not been
assigned, did not help Waterman Properties in this 'opposite' situation.
Said the Court, "(w)e conclude, therefore, that the legislature did not
intend to permit the holder of the mortgage, without having been
assigned the note, the ability to foreclose on the property." (See
Connecticut General Statutes section 49-17.)
Reporter's Comment: There's a familiar rule that "the security follows
the debt,"
or the mortgage interest goes with the note, but, as illustrated in this case,
the converse may not always be true.
I'll confess this result doesn't make perfect sense to me. Wouldn't it seem
that assignment of the mortgage evidences an intention to assign at least
some part of the underlying debt? If not, why was the mortgage
assigned? Rhetorical question--or at least one, in Connecticut anyway, to
be put to the legislature rather than a court.
A tough result for mortgage assignees, and their lawyers, who may seek
to enforce mortgages that have been passed through now defunct
corporations, with neither records nor witnesses to explain what was
intended.
Editor's Comment 1: The critical fact to the editor here is the statement
in the opinion that it was "undisputed" that the party bringing the
foreclosure action was not the owner of the obligation.
Editor's Comment 2: The prevailing rule is to assume that the parties
intended to assign the debt along with the mortgage, even if there is no
evidence of anything by the mortgage assignment. Nelson and Whitman
discuss this concept and cite cases in their treatise: Real Estate Finance
Law pp 373-374 (4th Ed. West 2001) They also recommend this approach
in the Restatement of Mortgages, Sec. 5.4b. This presumption solves
most problems. But it does not solve the problem where the holder of
the debt does not agree that it is no longer the owner of the debt and
insists that it assigned the mortgage separately. In that case, then at best
the owner of the debt ought to be an additional party plaintiff in the
mortgage foreclosure action. At worst, the transfer is a nullity and only
the debt holder can foreclose. For this more conservative position that
the transfer is a nullity, the minority rule, Nelson and Whitman cite case
law in Florida, Arizona, New York, California, Indiana, and South
Dakota. Even though a minority rule, when you've got New York and
California following it, you've got a rule with some "legs."
Editor's Comment 3: The lender brought this on itself by establishing a
foreclosure method that seemed quite likely to fail, especially in a title
theory state like Connecticut. The editor wonders why the lender would
take this case up on appeal rather than clean up the ownership problem -
either transferring the note to the foreclosing party or transferring the
mortgage to the note holder and then reforeclosing. Maybe there were
statute of limitations issues or bankruptcy issues, but that does seem to
have been a smoother path.
The reporter for this item was Bert Rush of First American Title in
California, writing in the First American newsletter, Landsakes.
Readers are encouraged to respond to or criticize this posting.
Items reported on DIRT and in the ABA publications related to it are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data provided and opinions expressed by the DIRT editor the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.
Parties posting messages to DIRT are posting to a
source that is readily accessible by members of
the general public, and should take that fact
into account in evaluating confidentiality
issues.
ABOUT DIRT:
DIRT is an internet discussion group for serious
real estate professionals. Message volume varies,
but commonly runs 5 - 15 messages per work day.
Daily Developments are posted every work day. To
subscribe, send the message
subscribe Dirt [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription, send the message
signoff DIRT to the address:
listserv@listserv.umkc.edu
for information on other commands, send the message
Help to the listserv address.
DIRT has an alternate, more extensive coverage that includes not only
commercial and general real estate matters but also focuses upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named “BrokerDIRT.” But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to BrokerDIRT, it is not necessary also to subscribe to DIRT, as BrokerDIRT carries all DIRT traffic in addition to the residential discussions.
To subscribe to BrokerDIRT, send the message
subscribe BrokerDIRT [your name]
to
listserv@listserv.umkc.edu
To cancel your subscription to BrokerDIRT, send the message
signoff BrokerDIRT to the address:
listserv@listserv.umkc.edu
DIRT is a service of the American Bar Association
Section on Real Property, Probate & Trust Law and
the University of Missouri, Kansas City, School
of Law. Daily Developments are copyrighted by
Patrick A. Randolph, Jr., Professor of Law, UMKC
School of Law, but Professor Randolph grants
permission for copying or distribution of Daily
Developments for educational purposes, including
professional continuing education, provided that
no charge is imposed for such distribution and
that appropriate credit is given to Professor
Randolph, DIRT, and its sponsors.
DIRT has a WebPage at:
http://www.umkc.edu/dirt/
Members of the ABA Section on Real Property, Probate
and Trust Law or of the National Association of Realtors can subscribe to a quarterly hardcopy report that includes all DIRT Daily Developments, many other cases, and periodic reviews of real estate oriented literature and state legislation by contacting Antonette Smith at (312) 988 5260 or asmith4@staff.abanet.org
http://dirt.umkc.edu/DD6-25-03.htm
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