Bankruptcy Court Wipes Out Mortgage Debt When Servicer Fails to Document Claim

10/26/2009 By: Darrell Delamaide

A federal bankruptcy judge in New York created new uncertainties for mortgage servicers when he expunged a mortgage debt after the servicer could not provide sufficient documentation that it had a claim on the home.

The ruling came earlier this month in bankruptcy court in the Southern District of New York in a case involving Mount Laurel, New Jersey-based PHH Mortgage and a property in White Plains, the New York Times reported.

Judge Robert Drain wiped out a $461,263 mortgage debt on the property, in another case of how things can go wrong when documentation does not keep up with transfers of mortgages in a world of securitized loans.

A recent ruling by the Kansas Supreme Court similarly denied the Mortgage Electronic Registration Service (MERS) rights to recovery in a foreclosure case, even though MERS often stands in for banks that actually hold the mortgage. As a consequence, the bank holding the mortgage lost out in the foreclosure.

In the PHH case, the homeowner, who was not identified, filed for bankruptcy and PHH claimed its mortgage debt.

When attempts by the homeowner’s lawyer to get PHH to modify the debt met with no success, he asked for proof of PHH’s standing and received a letter stating that PHH was the servicer of the loan but that the holder of the note was U.S. Bank, as trustee of a securitization pool.

When he then asked for proof that U.S. Bank was indeed the holder of the note, he received only an affidavit from an executive at PHH Mortgage, the Times reported.

Among the documents supplied to the court to support PHH’s assertion was a copy of the assignment of the mortgage, but this was signed by the same PHH executive identified this time as an official of MERS, and was dated March 26 of this year, well after the bankruptcy had been filed.

In the hearing, the PHH lawyer argued that in the secondary market, there are many cases where assignment of mortgages or assignment of notes don’t happen at the time they should – that this was standard operating procedure for many years.

Judge Drain rejected that argument, the Times reported. “I think that I have a more than 50 percent doubt that if the debtor paid this claim, it would be paying the wrong person,” the newspaper quoted him as saying. “That’s the problem. And that’s because the claimant has not shown an assignment of a mortgage.”

PHH is appealing Judge Drain’s decision.

The ruling also puts the homeowner in uncharted territory. “Right now I am in bankruptcy court with a house that has no discernible debt on it,” her lawyer told the Times, “yet I have a client with a signed mortgage. We cannot in theory just go out and sell this house because the title company won’t give a clear title on it.”

The lawyer’s options are to file an amended plan or sue to try to get clear title to the property.

Another Kind of Foreclosure Crisis

Posted 2 days ago by livinglies on Livinglies’s Weblog
October 9, 2009
Editorial

The foreclosure crisis is being made substantially worse by a shortage of lawyers for people whose homes are at risk.

According to a new study, an overwhelming number of homeowners who face foreclosure do not have legal help in protecting their rights. As a result, people are losing their homes who do not need to.

In 2008, more than three million foreclosures were filed, and the number keeps growing. By one estimate, more than eight million families may lose their homes in the next four years. Having a home taken away is devastating for the families involved. This churning of people out of their houses, and in some cases into homeless shelters or out on the streets, is also expensive and disruptive for the nation as a whole.

The Brennan Center for Justice at New York University School of Law found that 86 percent of people facing property foreclosure last year in economically challenged Stark County, Ohio, lacked counsel. In Queens County, New York, 84 percent of defendants lacked full legal representation in proceedings involving foreclosures on “subprime,” “high cost” or “non-traditional” mortgages — ones disproportionately targeted to low-income and minority populations.

The law of mortgages and foreclosures is complicated even for many lawyers. It is hard to imagine what it must be like for a poor person with little legal knowledge to have to fight on his or her own to keep a home.

Homeowners often have legal defenses, but laypeople are unlikely to know what they are or how to use them. A lawyer can also persuade lenders to slow down foreclosure proceedings, or to renegotiate terms, by invoking the appropriate federal, state and local laws.

Foreclosures should not be allowed to go forward until, as the Brennan Center recommends, homeowners are at least given enough counseling to know whether they have viable legal claims.

Although budgets are tight these days, Congress and the states need to come up with more money for foreclosure legal assistance.

Class actions can be a powerful tool in challenging practices, like predatory lending, that affected large numbers of homeowners. Right now the Legal Services Corporation, which provides essential civil legal services to low income Americans, is barred by law from representing clients in class action suits. Congress should lift that and other unwarranted restrictions on legal service providers. Too many Americans urgently need help.

Your tags: mortgage meltdown, Eviction, foreclosure

Other Tags: bankruptcy, borrower, disclosure, foreclosure defense, foreclosure offense, Lender Liability, securitization, bubble, CDO, currency, GTC | Honor, Investor, Mortgage

Published: October 9, 2009 4:18 pm

The lawyer is not competend to testify

If the lawyer is not a competent witness with personal knowledge, then he should shut up and sit down.

So you sent a QWR and you know the loan is securitized. The orignating lender says talk to the servicer and the servicer declines to answer all the questions because they didn’t originate the loan. Or you are in court and the lawyer is trying to finesse his way past basic rules of evidence and due process by making representations to the Judge as an officer of the court.

He’s lying of course and if you let it go unchallenged, you will lose the case. Basically opposing counsel is saying “trust me Judge I wouldn’t say it if it wasn’t so.” And your answer is that the lawyer is not a witness, that you don’t trust the lawyer or what he has to say, that if he is a witness he should be sworn in and subject to cross examaintion and if he is not a witness you are entitled to be confronted with a real witness with real testimony based upon real knowledge.

First Questions: When did you first learn of this case? What personal knowledge do you have concerning the payments received from the homeowner or third parties? What personal knowledge do you have as to who providing the actual cash from which the subject loan was funded?

Only when pressed relentlessly by the homeowner, the servicer comes up with a more and more restrictive answer as to what role they play. But they always start with don’t worry about a thing we control everything. Not true. Then later after you thought you worked out a modification they tell the deal is off because the investor declined. The investor is and always was the lender. That is the bottom line and any representation to the contrary is a lie and a fraud upon the court.

So whoever you sent the QWR to, always disclaims your right to ask, or tells you the name of the investor (i.e., your lender) is confidential, or that they have authority (but they won’t show it to you). That doesn’t seem to be a lender, does it? In fact they disclaim even knowing enough to answer your questions.

So AFTER THEY SERVE YOU with something file a motion to compel an immediate full answer to your QWR since under TILA service on the servicer is the same as service on the lender. You argue that everyone seems to be claiming rights to be paid under the original obligation, everyone seems to be claiming the right to enforce the note and mortgage, but nobody is willing to state unequivocally that they are the lender.

You are stuck in the position of being unable to seek modification under federal and State rules, unable to sell the property because you don’t know who can sign a satisfaction of mortgage or a release and reconveyance, unable to do a short-sale, and unable to refinance — all because they won’t give a simple answer to a simple question: who is the lender and what is the balance claimed by the real lender on the obligation? At this point you don’t even know that any of the real lenders wish to make a claim.

This is probably because they received TARP funds and insurance proceeds on defaults of pools that they had purchased multiple insurance policies (credit default swaps). But whether they are paid by someone who acquired rights of subrogation or they were not paid, you have a right to a FULL accounting and to know who they are and whether they received any third party money. If they were paid in part or otherwise sold their interest, then you have multiple additional unknown parties.

The reason is simple. They are not the lender and they know it. The lender is a group of investors who funded the transaction with Petitioner/Homeowner and others who purchased similar financial products from the same group of participants in the securitization chain relating to the subject loan.

The people currently in court do not include all the real parties in interest for you to make claims against the lender. Cite to the Massachusetts case where Wells Fargo and its lawyer were subject to an $850,000 sanction for misrepresenting its status to the court.

It is not enough for them to bluff their way by saying that they have already answered the interrogatories. When they lost and it came time to allocate damages and attorneys fees, Wells suddenly said they were NOT the lender, beneficiary or current holder and that therefore the damages and attorneys fees should be assessed against the real lender — who was not a party to the pending litigation and whom they refused to disclose along with their misrepresentation that they were the true lender.

It is not enough that the lawyer makes a representation to the court as an officer of the court. That is not how evidence works. If the lawyer wants to represent facts, then he/she should be sworn in and be subject to (1) voir dire to establish that he/she is opposing counsel that it came from some company.

The witness must be a competent witness who takes an oath, has personal knowledge regarding the content of the document, states that personal knowledge and whose testimony conforms to what is on the document.

There is no such thing as foundation without a witness. There is no such thing as foundation without a competent witness. So if the lawyer tries to finesse the subject by making blanket representations to the court(e.g. the property is “underwater” by $xxx,xxx and we need a lift of stay…yet, there is no certified appraisal entered into evidence with a certified appraiser that can be cross examined…just a statement from opposing counsel) point to Wells, or even point to other inconsistencies between what counsel has represented and what now appears to be the truth, and demand an evidentiary hearing. If the lawyer is not a competent witness with personal knowledge, then he should shut up and sit down.

File a motion to extend time to file adversary proceeding(in BK situation), answer, affirmative defenses and counterclaim UNTIL YOU GET A FULL AND COMPLETE ANSWER TO YOUR QWR so you can determine the real parties in interest and serve them with process. Otherwise, we will have a partial result wherein the real owner of the loan can and will claim damages and injunctive relief probably against all the current parties to this action including the Homeowner.

In short, the opposing counsel cannot just make statements of “fact” and have them accepted by the court as “fact” if they don’t pass the sniff test of real evidence corroborated by a competent witness. …and with every pleading ask for an evidentiary hearing and attorneys fees. Follow rule 11 procedure in Federal Court or the state law counterpart so you can get them later.

The case is lost when you stip to the commissioner

remember this if you forget everything else you don’t have to agree to take a commissioner in your eviction case he has thirty or so cases per day and therefore does not have time to listen to your defenses to the foreclosure or that the sale was not dully perfected . He will politely say I do not have  jurisdiction to hear these defenses. if they present the Trustees deed,

Trustees Fleming and Huff (Photo credit: dave.cournoyer)

its over.
See Cal. Const. Article 6, §§21; 22
CCP § 259(e)