Archive | February, 2011

Foreclosure and too big to Fail – Bank Of America vs Wikileaks

28 Feb

TBR News February 20, 2011
Feb 20 2011
The Voice of the White House
Washinigton, D.C., February 20, 2011: “The most hated person today in Washington is Julian Assange, head of the WikiLeaks

An overall view of the Bank of America material now held by WikiLeaks reveals that starting in 2008, the Bank of America acquired Countrywide Mortgage, a very aggressive mortgage company that specialized in creating fraudulent loans to individuals that were unable to make continuing payments on their mortgages. Countrywide then sold these fraudulent mortgages to larger banking houses like Bank of America, JP Morgan Chase, Goldman Sachs and others. The results of this takeover of Countrywide? The Bank of America now has over 1.3 mortgage holders in foreclosure.

Bank of America was subsequently sued by California, Illinois and eight other states over its predatory lending policies. The bank was forced to produce a settlement of over $8.4 billion in loan relief plans for those victims holding Countrywide mortgages.

In June of 2010, Bank of America had to pay out $108 million because of a suit by the Federal Trade Commission (FTC) for “having extracted excessive fees” from their borrowers facing foreclosure. In August of 2010, Bank of America was forced to pay out $600 million to settle shareholder lawsuits which claimed that Bank of America’s Countrywide Mortgage had “concealed the riskiness” of its lending standards. In June of 2010, the State of Illinois once more had to sue the Bank of America for “racial discrimination” in its lending practices. The WikiLeaks documentation shows thousands of in-house emails circulating among top Bank of American personnel showing with shocking clarity that the bank was not only fully cognizant of the illegality of their actions but were, in fact, continuing these actions because of the assurance of protection by “senior American legislators and officials.”

Additional material in the WikiLeaks fundus concerns the brokerage house of Merrill Lynch which Bank of America acquired for $50 billion in January of 2009. The aforesaid “senior American legislators and officials: quicklyi loaned the Bank of America $20 billion in loans to facilitate this purchase. Subsequently, it was revealed that Merrill Lynch had lost over $16 billion at the end of 2008 but had paid out over $4 billion in bonuses to all the top Merrill Lynch personnel. In sum, the Merrill Lynch people, secure in the knowledge of a connived Federal bailout, took the funds for personal gain. The WikiLeaks documents clearly show all of this in detail, complete with boasting emails on the part of the recipients of the monies.

As another aspect of this enormous financial scandal furthered purely for gain, corporate and personal, the Bank of America has been the instigator of the so-called “robo-signing” scandal As a single example of this illegal conduct, in February of 2010, a Bank of American employee testified on deposition that they had personally signed over 8,000 official foreclosure documents without ever reading any of them. This is a clearcut violation of the law but there are so many such examples of this, not limited to the Bank of America alone, that there is not sufficient space to list them all. The WikiLeaks documents clearly show that these illegal actions were fully known to senior Bank of America officials and that extensive cover-ups were ordered from the very top levels of that bank.

WikiLeaks documentation shows clearly that the “senior American legislators and officials.” Who connived with the Bank of America include the leadership of the Federal Reserve, top Congressional leaders (mostly Republican) and even senior members of the White House staff, both in the Bush and Obama administrations.
With this pending dam collapse release to the public, it is no wonder that the government itself, the officials of the Bank of America and the U.S. Chamber of Commerce, the most powerful, arch-conservative business cabal would all join forces in an attempt to discredit or permanently silence Assange and his organization.

The front organization, HBGary Federal, a specialist in computer manipulations, was hired by the U.S. Chamber of Commerce and the Bank of America to attempt to plant false information with WikiLeaks, double-heading frantic government attempts to get Assange physically into their hands. When WiliLeaks struck back and, in turn, infiltrated the government and private sector’s attempts to infiltrate them, it was discovered that HBGary Federal was involved with Stuxtnet, a very sophisticated computer virus developed by Israeli and American experts and designed to infiltrate and destroy computer systems deemed “unacceptable” to Washington.

Bank of American officials have been warning Washington that if they crash, the damage to the American ecnomoy wouild be catastrophic because of their size and pervasiveness and this message has resonated very clearly in official circles, prompting frantic but clumsy attacks on Assange and his organization.”

Find Your Home’s Pooling And Servicing Agreement

28 Feb

Critical Information: How to Find Your Home’s Pooling And Servicing Agreement

February 28th, 2011 • Foreclosure

The pooling and servicing agreement (PSA) is a contract that should govern the terms under which trillions of dollars-worth of equity in the land of the United States of America was flung around the world. These contracts should govern how disputes over ownership and interest in the land that was the United States of America should be resolved. Pretty simple stuff, right? I mean if I’m a millionaire big shot New York Lawyer working for big shot billionaire Wall Street Investors and banks, then I’d do my job as a lawyer to make sure the contract was right and that all the i’s were dotted and the t’s were crossed right?

But that’s not at all what’s happened. In our scraggly street level offices, far below the big fancy marble encased towers of American law and finance, simple dirt lawyers defending homeowners started actually reading these contracts. We ask lots of questions about just what all those fancy words in their big shot contracts mean. Invariably, the big shot lawyers and the foreclosure mills tell us, “Don’t you worry about all them words you scraggly, simple dirt lawyer. Those words aren’t important to you.”

But increasingly judges recognize that the words really do mean something. Take note of the following statements from the recent Ibanez Ruling:

I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets.

The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the under-lying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments.

The Ibanez decision underscores the fact that it is important for all of us to know and understand how the pooling and servicing agreements directly impact what is occurring in the courtroom. And for assistance with understanding the PSA and how to find it, more commentary from Michael Olenick at Legalprise:

Overview of PSA’s

Securitized loans are built into securities, which happen to look and function virtually identically to bonds but are categorized and called securities because of some legal restrictions on bonds that nobody seems to know about.

The securities start with one or more investment banks, called the Underwriter (should be called the Undertaker), that seems to disappear right after cashing in lots of fees. They create a prospectus that has different parts of the security that they are proposing. Each of these parts is called a tranche. There are anywhere from a half-dozen to a couple dozen tranches. Each one is considered riskier.

Each tranche is actually a separate sub-security, that can and is traded differently, but governed by the same PSA, listed in the Prospectus. Similar tranches from multiple loans were often bundled together into something called a Collateralized Debt Obligation, or CDO. So besides the MBS there might also be one or more CDO’s made up of, say, one middle tranche of each MBS. Each tranche is considered riskier, usually based a combination of the credit-scores of the people in the tranche and the type of loans (ex: full/partial/no doc, traditional/interest-only/neg am, first or secondary lien, etc…).

CDO’s were eligible for a type of “insurance” in case their price went down called a Credit Default Swap, or CDS (also known as “synthetic CDO’s”). There was actually no need to own the CDO to buy the
insurance and many companies purchased the insurance, that paid out handsomely. [That’s what the AIG bailout was for, because they didn’t keep adequate reserves to pay out the insurance policies.]

Later, investors could also purchase securities made up of multiple CDO’s, much the same way that CDO’s were made up of tranches of multiple MBS’s. These were called “CDO’s squared.” Not surprisingly,
there were also a few “CDO’s cubed,” CDO’s of CDO’s squared. CDO’s were virtually all written offshore so little is known about who owns them, except that they were premised on the idea that since there was
collateralized mortgage debt at their base they could not collapse. Their purpose was to spread the various of risks of mortgages which, back then, meant prepayment of high interest debt and default.

Investors were actually way more obsessed with prepayment because they thought the whole country could not default; to make sure of that MBS’s and all their gobbly gook were spread around the country; you
can see where in the prospectus. They were almost more concerned with geographic dispersion than credit dispersion.

After that it’s the servicers/trustee/document custodian scheme we’re all familiar with. OK .. with that too-strange-to-make-up explanation means let’s dive into how to find one’s loan:

1. Find the security name: it will be a year (usually the year of origination), a dash, two letters, then a number. It will be somewhere in one of your filings. For this we’ll use a random First Franklin loan, 2005-FF1. [Note; they would just sequentially number them, so the first security First Franklin floated in 2005 would be FF1, then FF2, etc…]
2. Go to the SEC’s new search engine: http://www.sec.gov/edgar/searchedgar/companysearch.html
3. Click the first link, Company or fund name…
4. Choose the radio button marked “contains” and type in the ticker; that is 2005-FF1
5. There will be multiple filings but one of them will be marked 424B5. Click that, it’s the prospectus.

If you really want to have fun, and want to know what happened after 2008 when these all disappeared, type the ticker (again, 2005-FF1) into the full text link from the first search page. There you’ll see lots and lots of filings as pieces and parts of the security are blasted everywhere. To track yours you have to find which tranche you ended up in. Sometimes it’s in the filing but, if not, you can usually figure it out from the prospectus if you know basic origination info (credit-score, type of loan, where the house is, etc…); some even list loan amounts.

One warning on those secondary filings, servicers and trusts both break them out as assets. How one loan can be reported as an asset in two places is a mystery, but considering this doesn’t even cover the CDO’s and CDS’s dual reporting doesn’t seem to strange. You’ll see your loan keep wandering through the financial system, with one exception (next paragraph), right up to the present day. You can even see how much the investment banks thinks that its worth over time since they report out both original amount and fair market value.

The exception — when your loan really does disappear — is when it was eaten up by the Federal Reserve’s Toxic Loan Asset Facility, TALF. But you can look that up to and see how the government purchased your
loan for full-price, when investors on the open market were only willing to pay a few cents on the dollar. If your loan went to TALF you can find it in the spreadsheet here: http://www.federalreserve.gov/newsevents/reform_talf.htm Your loan will be in the top spreadsheet and the genuine lender in the bottom.

Now they have to admit it they violated the law and will be liable for Billions

26 Feb

BofA, Wells, Citi see foreclosure probe fines

By Joe Rauch and Clare Baldwin
CHARLOTTE, N.C./NEW YORK | Fri Feb 25, 2011 9:20pm EST
CHARLOTTE, N.C./NEW YORK (Reuters) – Bank of America, Citigroup and Wells Fargo — three of the biggest banks in the United States — said they could face fines from a regulatory probe into the industry’s foreclosure practices.
The statements, made in regulatory filings on Friday, are the most direct admission yet from major banks that they could have to pay significant amounts of money to settle probes and lawsuits alleging that they improperly foreclosed on homes.
Bank of America Corp (BAC.N), the largest U.S. bank by assets, said the probe could lead to “material fines” and “significant” legal expenses in 2011.
Wells Fargo & Co (WFC.N), the largest U.S. mortgage lender, said it is likely to face fines or sanctions, such as a foreclosure moratorium or suspension, imposed by federal or state regulators. It said some government agency enforcement action was likely and could include civil money penalties.
Citigroup Inc (C.N) said it could pay fines or set up principal reduction programs.
The biggest U.S. mortgage lenders are being investigated by 50 state attorneys general and U.S. regulators for foreclosing on homes without having proper paperwork in place or without having properly reviewed paperwork before signing it.
The bad documentation threatens to slow down the foreclosure process and invalidate some repossessions.
Sources familiar with discussions among federal authorities have said they could seek as much as $20 billion in total from lenders to settle the foreclosure probe, which began last fall.
Analysts said the acknowledgment of potential foreclosure liabilities highlights the continuing struggles of the largest U.S. banks after the world financial crisis.
“Are they trying? Sure, but this is not an easy fix and these kinds of problems are going to hang around the banks for years,” said Matt McCormick, a portfolio manager with Cincinnati-based Bahl & Gaynor Investment Counsel.
McCormick said he has sold nearly all of his U.S. bank holdings because of concerns over foreclosures and other losses.
Beyond direct fines due to regulators, banks may also end up paying government-controlled mortgage giants Freddie Mac and Fannie Mae for the foreclosure delays.
Bank of America said it recorded $230 million in compensatory fees in the fourth quarter that it expects to owe the government mortgage companies.
The bank said its projected costs for settlements for all legal matters it is facing, including mortgage issues, could be $145 million to $1.5 billion beyond what it has already reserved.
Wells Fargo said that in the worst-case scenario, as of the end of 2010, it could have to pay $1.2 billion more than it has set aside to cover legal matters.
Citigroup said it could face up to about $4 billion more in losses from all sorts of lawsuits, including but not limited to those relating to mortgages and foreclosures.
Wells Fargo said in October that it plans to amend 55,000 foreclosure filings nationwide, amid signs that documentation for some foreclosures was incomplete or incorrect. Other banks made similar moves.
Other banks echoed the concern over foreclosures in a wave of annual report filings with the Securities and Exchange Commission on Friday.
Atlanta-based SunTrust said it expects regulators may issue a consent order, which will require the largest mortgage lenders to fix problems with their foreclosure processes, and potentially levy fines.
Wells Fargo shares closed 3.1 percent higher at $32.40 on the New York Stock Exchange. Bank of America shares closed 1.6 percent higher at $14.20 and Citi shares closed 0.2 percent higher at $4.70, also on the New York Stock Exchange.
(Reporting by Joe Rauch, Clare Baldwin and Maria Aspan; Editing by Gary Hill)

Arizona’s Republican Dominated Senate Passing Chain of Title Bill, 28-2 Bankers Apoplectic

26 Feb

Frankly, I don’t know where to begin. There’s just so much to say. It’s like a cornucopia of… well, lots of stuff to say. Bankers everywhere must be walking in circles, muttering to themselves, perhaps breaking out in hives. And I have to imagine that banking industry lobbyists are in some kind of trouble with their masters today, with phones being slammed down after CEOs have screamed:

“Damn it, how could you have let this happen? We gave you an open checkbook filled with blank checks… and you couldn’t even scare off, or buy off, the Arizona Senate… the Republican controlled Senate? And you call yourselves lobbyists?”
SLAM!

You see, the Arizona State Senate has passed Senate Bill 1259, sponsored by Michele Reagan, which would require the lenders that didn’t originate a loan to produce the full chain of title, or risk the foreclosure sale being voided. The bill now goes to the House for a vote, but with the Senate having passed it by an overwhelming margin of 28-2, it would seem that its passage is a fait accompli.

According to the Arizona Senate’s FACT SHEET FOR S.B.1259, foreclosures; proof of ownership, the Bill’s purpose is as follows:

“Provides a chain of ownership during foreclosure proceedings and allows reimbursement of lawyer fees for injunctions or court cases that fail to prove ownership.”

Well, I’ll be a monkey’s uncle. A Republican dominated Senate, you say?

You don’t say. Are you sure?

Quite sure.

So, are these Republicans in any way related to the Republicans in Washington D.C. or is the word “Republican” pronounced differently in Arizona and there’s no relation between the two groups?

(That was originally intended to be a rhetorical question, but if anyone feels capable of actually answering it, please… by all means… write to me… because I’m so confused.)

And attorneys fees to be awarded to the victor as well? Well, I’ll say… so, very good then. That means that homeowners who believe there is cause for a challenge to the servicer’s chain of title assertions, will have a much easier time finding and funding their legal representation, I would think that would be the case, anyway, don’t quote me…. or, no… go ahead and quote me, why the heck not?

And, in a related story… Arizona’s foreclosure defense plaintiff’s attorneys have been spotted across the state dancing in the streets with some of the state’s distressed homeowners. Many observers of this admittedly unusual phenomenon claim that for the most part, the attorneys and homeowners were doing the Hokey Pokey, with several people reporting that after rolling down their windows as they drove by, they heard the dancers exclaim: “That’s what it’s all about!”

The Senate’s S.B. 1259 FACT SHEET also listed five key “Provisions” of the bill:

1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.

2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.

3. Stipulates that failure to properly record the summary document that demonstrates evidence of title for the foreclosing beneficiary as of the date of the trustee’s sale will result in a voidable sale.

4. Allows any person with an interest in the trust property to file an action to void the trustee’s sale for failure to comply and is entitled to an award of attorney fees and damages, to include an award of attorney fees for any injunction or other provisional remedy related to the claim.

5. Becomes effective on the general effective date.

So, get this… I’m as curious as the bankers must be as to how in the world something like this happened. I mean, I’ve been accusing our country’s politicians of perpetual kowtowing to the banking lobby, and of having no first hand knowledge of what’s going on in real life, as far as the foreclosure crisis goes… and then the Arizona’s political types go and pass something like this? I mean… go figure, right?

So… how did it happen?

Well, funny story… it seems that State Senator Michele Reagan, a Republican of all things, who was first elected to serve in the Arizona House of Representatives in 2002, and in 2010 was elected to the Arizona State Senate… and who is Vice-Chairman of the Banking and Insurance Committee, and Chairman of the Committee on Economic Development and Jobs Creation… well it seems that she and her husband were sued by their servicer, Texas-based Colonial Savings FA, when they sent the bank a letter last July stating that they were planning to rescind their loan due to violations of the Truth in Lending Act or TILA .

According to Bloomberg’s story on the bill’s passage:

“They claim that the bank failed to disclose certain fees, and that the underwriter of their loan inflated their income by 12%, which violates the Truth in Lending Act.”

Colonial Savings then asked the court to declare that the couple were not entitled to rescind the loan, it should go without saying.

Reagan and her husband, David Gulino filed their own counter claim type lawsuit, in which they argued that they were manipulated into accepting an adjustable-rate mortgage, and that Colonial Savings, in true servicer-style, won’t tell them who owns their loan.

According to Bloomberg, Janet Walter, a spokeswoman for Colonial Savings, declined to comment, so I see no point in ringing her myself. And, Reagan’s attorney Beth Findsen, who told Bloomberg that she also helped write the bill, said the following:

“It makes Michele mad that the bank servicers will not disclose to a borrower the true noteholders,”

Findsen said. “She was taken aback that such basic information was not readily available.”

And I can imagine she would be taken aback. I know I would be… and in fact was… when I was first exposed to the problems being caused by Servicers, and I remain taken aback to this day.

Again, quoting from the Bloomberg story…

“If you foreclose on somebody you should have to tell them who owns the property,” Michele Reagan, who sponsored Senate Bill 1259, said in a telephone interview. “People have the right in this country to face their accusers.”

I like the way she thinks, don’t you? Even though, if I were to be picky about it, I’m not entirely sure that the reason for passing a law that requires the banksters to produce or report on all of the specific beneficiaries comprised in the Chain of Title has anything to do with our right to confront one’s accuser, as described in the Sixth Amendment to the U.S. Constitution, but if that’s what works, then let’s by all means run with it.

Strong opposition to the bill’s passage is coming from the Arizona Bankers Association, the Arizona Trustees Association, and Merscorp Inc., three great tastes that taste great together. MERS, in case you’ve been incarcerated in a Turkish prison over this past year, is an industry-owned organization that maintains a database containing more than 50% of all mortgages, that claims to be able to represent the trustees that conduct foreclosure auctions on behalf of lenders. Many vehemently disagree.

Paul Hickman, chief executive officer of the Arizona Bankers Association in Phoenix, showed up in the Bloomberg article, to issue the banking industry’s standard WARNING & THREAT package… the one they draw like a gun every time anything might change that affects them in any way.

“If Arizona passes this, it will be the only state in the union that will require a production of chain of title. States that pass these types of laws will be riskier environments to lend in and more difficult environments to get a loan in.”

Or, in other words… pass this bill and none of you in AZ will ever buy a home again because there will be no credit available to you. Hickman didn’t add the popular refrain about how the change will also paralyze the housing market, which will derail the recovery and basically end the world as we know it. Oooooo… scary bedtime stories for legislators.

And by the way, Mr. Hickman… the whole chain of title thing is already the law in Arizona and elsewhere. This new law just requires your membership to follow the existing laws and actually make sure the chain of title is not destroyed by banker incompetence or blatant disregard for the law.

So, why would your banker buddies having to follow the law transform a geographic locale into a “riskier environment?” Riskier for whom, exactly? Just tell the bankers that they may have to work past three and actually care about doing things in compliance with the law from now on, and everything will be fine… see… risk gone. Happy now?

Also, appearing alongside Hickman, the president of the Arizona Trustees Association in Phoenix, Richard Chambliss… I prefer to call him “Dick,” echoed the industry’s message as well:

“Reagan’s bill has both technical and conceptual problems, and could add to uncertainty over title.

Lenders that don’t file mortgage assignments with county recorders offices could face borrower challenges if the bill passes, even though the assignments weren’t required by state law.”

Dick Chambliss went on… sounding to me like he was getting a bit hot under the collar as he did…

“Is this bill intended to punish the lenders and screw up the process or address the problem that needs to be solved?”

Actually, two out of three, Dicky my boy… it’s definitely intended to punish the lenders, although nowhere near as severely as they should be punished, and now that we can all see how it upsets you and your peer group, we’re more confident than ever that it will also go a long way towards solving a couple of key problems inherent to the foreclosure crisis to-date as a result of servicer practices…

1. That servicers and lenders will actually have to follow the laws related to the chain of title, and therefore won’t be bringing fraudulent documents into court anymore.

2. That servicers that haven’t followed the laws and therefore that have broken the chain of title will now have an incentive to modify loans, instead of perpetuating illegal foreclosures.

But, look at the bright side… think of the money you’ll save on robo-signers, depositions, the creation of garbage alonges… you’ll come out ahead, I just know it.

Dick had yet another question to pose…

“What is it accomplishing by requiring that the history from the birth of the deed of trust to 20 assignments down the road have to be fully identified?”

Ooohh.. ohoo… I know this one, can I answer this one?

It’s a law to make sure that bankers tell the truth and follow our state and federal laws when foreclosing on someone’s home. Is that not an easy thing to see and understand? Even the banksters see the writing on the proverbial wall this time out, which is undoubtedly why they are so distressed at the prospect of the bill passing the House of Representatives and becoming law in Arizona.

See what I mean? Doesn’t “Dick” fit him better than Richard. For sure, right? I don’t even know the guy and I can tell from the way he talks that he’s definitely a “Dick”.

With Arizona being a non-judicial foreclosure state, meaning that property can be legally repossessed there without a court order, the banksters are not used to being asked such questions related to foreclosure and therefore are likely to be nowhere near as prepared to create fraudulent documents as they have been in the judicial foreclosure states where they appear to have a rich history of forgery going back many years.

Most mortgages that were originated during the last ten years were securitized and therefore supposedly assigned to trusts, with “pass-through certificates” entitling their holders to receive a percentage of the payment streams generated by the mortgages in the pool offered for sale to investors. As a result, many, many of these loans were sold more than three times before ever getting into the trust, assuming they ever arrived.

Banks using the Merscorp’s system typically don’t file assignments because the says that the ownership information is tracked electronically, whatever that actually means. Numerous judges don’t agree, most notably of late, Federal Bankruptcy Court Judge Grossman in New York whose opinion a few weeks ago, although non-binding for several reasons, removed all uncertainty as the argument as to whether MERS should be allowed to foreclose. He says, clearly… not a chance.

Walter E. Moak, who is apparently a bankruptcy attorney in Chandler, Arizona, was quoted in the Bloomberg story, saying that this Arizona legislation would make it easier for borrowers to negotiate loan workouts, and depending on the details, I might even agree. But, then the story quotes this bankruptcy lawyer as saying something that I would have to take issue with…

“Servicers often reject modification requests because the borrower doesn’t meet investor guidelines, even as they refuse to identify the investors,” Moak said.

“The person who has decision-making power is not the servicer, it’s the investors,” he said.

I realize that servicers say this a lot… I realize that many people believe this to be the case… I know that intellectually it may even makes sense … and I’ll even allow for some small percentage of cases where this statement is accurate to whatever degree… BUT… for the most part, Mr. Moak’s statements are at best incomplete, and in many instances wrong.

When a servicer tells a homeowner that they are unable to modify their loan due to something about not meeting investor guidelines or because the investor said they won’t modify loans… well, I’m sorry Mr. Moak, but assuming the loan has been securitized… it’s almost never true. At least nine times out of ten, they’re just plain old lying… or shall we say they’re embroidering… or perhaps we should call it, embellishing… no, let’s go back to just plain lying.

Pooling and Servicing Agreements, in the vast majority of cases, do not prohibit servicers from modifying a loan that is at risk of imminent default, and besides that… servicers don’t have a relationship with the investors… they report to a Master Servicer, who in turn reports to a Trustee, and that trustee could theoretically contact investors, but even that is extremely unlikely as the investors we’re talking about are often pension plans, insurance companies and sovereign wealth funds… not exactly the kind of investors you just pick up the phone and call… and then you would have to reach some sort of a majority… I mean… it’s just a ridiculous proposition.

Georgetown Law Professor, Adam Levitin, in conjunction with Tara Twomey of National Consumer Law Center, two of the country’s leading experts in the intricacies of mortgage servicing as related to loan modifications, have just published a 90-page research paper that represents “the first comprehensive overview of the residential mortgage servicing business,” and although the subject is nothing if not complex, some things are clear.

(I actually know Tara from the judicial conference held last April for the 9th Circuit judges… she and I were on the same panel speaking to the judges about the foreclosure crisis and the impacts of securitization.)

From the Levitin/Twomey research paper on mortgage servicing:

Mortgage servicing has begun to receive increased scholarly, popular, and political attention as a result of the difficulties faced by financially distressed homeowners when attempting to restructure their mortgages amid the home foreclosure crisis. In particular, the mortgage servicing industry has been identified as a central factor in the failure of the various government loan modification programs.

No one has a firm sense of the frequency of contractual limitations to modification for PLS. A small and unrepresentative sampling by Credit Suisse indicates that nearly all PLS PSAs permit modification when a loan is in default or default is reasonably foreseeable. Almost 60% of the sampled PSAs had no other restrictions to modification. Of the PSAs with additional restrictions, 27% capped loan modifications at 5% of the loan pool, either by count or balance.

The PSA sets forth two exceptions to this general limitation on loan modification. First, for defaulted loans, the PSA provides that the servicer may write down principal or extend the term of the loan. Thus, it appears that the servicer may write down the principal on a defaulted or distressed loan or may extend the term of the loan.

Look, the fact is that servicers lie all the time to the homeowners who apply to have their loans modified, and I’ve got a front row seat to that behavior almost every single day. They want to foreclose because they make more money when they foreclose, and if they can say something to get a homeowner to give up, they will… and they do… all the time. I can’t count the number of times when I’ve told a homeowner to not give up and the result has been a modified loan.

If a servicer tells me that the sky is blue, I go outside and check for myself… and that’s all I have to say about that.

See why I have to check for myself?

Here’s the conslusion from the Levitin/Twomey paper…

Conclusion

This Article presents the first comprehensive overview of the residential mortgage servicing business and shows that mortgage servicing suffers from an endemic principal-agent conflict between investors and servicers.

Securitization separates the ownership interest in a mortgage loan and the management of the loan. Securitization structures incentivize servicers to act in ways that do not track investors‘ interests, and these structures limit investors‘ ability to monitor servicer behavior. Monitoring proxies, such as ratings agencies and trustees, are themselves subject to perverse incentives and are limited in their ability to monitor servicer behavior.

As a result, servicers are frequently incentivized to foreclose on defaulted loans rather than restructure the loan, even when the restructuring would be in the investors‘ interest. The costs of this principal-agent conflict are not borne solely by MBS investors. The principal-agent conflict in residential mortgage servicing also has an enormous negative externality for homeowners, communities, and the housing market.

The principal-agent problem in residential mortgage servicing could be addressed by restructuring servicing compensation. Other types of securitizations use measures that mitigate the principal-agent conflict between servicers and investors.

There are costs to applying these measures to residential mortgage securitization, which are likely to be borne partly by borrowers in the form of higher mortgage costs. Yet, correcting the principal agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.

And if I can wrap that conclusion up in a tidy little package with a bow on top, it says that it’s the mortgage servicers who are letting our nation down and causing unfathomable amounts of pain to our country’s homeowners across all socio-economic demographic segments.

The Bloomberg story also quoted Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City, who said that he thought the legislation would, “test the completeness and accuracy of bank records. The law could also have the unintended consequence of pushing more lenders to modify loans rather than face a voided sale.”

“I like it because it forces the financial institution into providing information about who owns loans and rebuild transparency,” Peterson said. “It makes it significantly more difficult to foreclose if they don’t have good records of the history of ownership of the loan.”

A FEW CLOSING THOUGHTS I HOPE YOU’LL CONSIDER…

1. In its simplest form, this is a bill that would create a law that would say that bankers have to follow our existing laws before foreclosing on someone’s home. And yet the bankers don’t like it and say that if they were forced to follow our laws, we would have a harder time getting loans.

2. And to that I would say: Fine… if we have a harder time getting loans, then it occurs to me that we’ll owe less money and you bankers will have a harder time making as much money. So who’s really going to suffer here if this becomes a law?

3. Bankers argued throughout the last 20 years that no laws should restrict sub-prime lending because then lower income Americans wouldn’t have access to credit, which is a lot like saying that poor neighborhoods need access to LOAN SHARKS.

4. Why wouldn’t every state in the country have a law like this one on the books? It’s a law that makes banks follow the law. How could that be a bad thing? I’d like to encourage everyone to write to their state representatives and tell them that you want them to enact such a law.

5. The only reason this bill is being pushed through the Arizona legislature is that one of that state’s senators actually tried to rescind her own predatory loan and found out first hand what it’s like to have to deal with a servicer. Is she an irresponsible borrower? I don’t hear anyone calling her names, asking her if she’s living beyond her means. WHY NOT?

6. What should we do, wait for more of our elected representatives to fall fare enough down the economic ladder so that they too have the experience of dealing with a servicer? And only then we should stop the pain and suffering being caused by the foreclosure crisis. I’ve said it before, but our elected representatives have long-since forgotten what it’s like to not be rich. They need to be reminded…

I have a call in to Sen. Michele Reagan’s office in Phoenix and I hope to hear back from her. But until I do, there’s only one thing that’s making me feel uneasy about S.B. 1259… and here it is…

Remember the first and second provisions I listed, from the FACT SHEET:

1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.

2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.

Yeah, well you see the 800lb. gorilla now, right? Is this bill saying that all the bankers will be required to do under the new law is type up a list of what shouldn’t happen but didn’t… without having to prove anything? Because if that’s the case, then I just wasted a huge amount of time writing about something that will soon be proven useless, and I’m not happy about that possibility at all.

I mean, typing up a chronology of what was supposed to happen and when, even though it didn’t… strikes me as being much easier than having a robo-signer sign 10,000 lost note affidavits each month

So, all I can say is… I’m going to find out for sure tomorrow by talking to the Senator’s office, and until then I’m going to pretend that I never even noticed that little issue, and pray like hell that this isn’t just another Charlie Brown run at that same stupid football.

From the Bloomberg article:

fraud shouldn’t pay

25 Feb

Do you want to get more involved in fighting for a fair economy? Do you want to stop the big banks from profiting from their crimes? From faith-based to community-based, we have more than 30 groups in over a dozen states working locally and nationally on this issue and they would love to hear from you! Check out the list below (organized by state) to learn and connect with the group best for you.

Week of Feb. 21: Join the delegations of homeowners and community leaders delivering the Crime Shouldn’t Pay petition to the Attorneys Generals this week! 9 states are participating, including: California, Connecticut, Florida, Hawaii, Iowa, Massachusetts, Michigan, New York, North Carolina and Ohio. If you live in one of these states and want to join, scroll down below. Groups working on organizing the delegation in your state will be marked with a red star. * Call or email the group to get exact time and location information. Let them know, “I want to join the petition delegation this week.”

California

* Alliance of Californians for Community Empowerment (State-wide)
* Los Angeles: 213-863-4548
Sacramento: 916-288-8829
Oakland/Bay Area: 510-269-4692
San Jose: 408-549-1230
San Mateo: 650-515-3155
San Diego: 619-754-9407

* PICO California (State-wide)
Sacramento, CA
(916) 447-7959

* Contra Costa Interfaith Sponsoring Committee
Contra Costa County, CA
(925) 313-0206

Inland Congregations United for Change
San Bernardino & Riverside Counties, CA
(909) 383-1134

L.A. Voice
Los Angeles, CA
(213) 384-7404

* Oakland Community Organizations
Oakland, CA
(510) 639-1444

Peninsula Interfaith Action
San Mateo County, CA
(650) 592-9181

Colorado
Colorado Progressive Coalition (State-wide)
Offices in Denver, Greeley, and Pueblo, CO
Denver: 303-866-0908
Pueblo:719-406-3716
Greeley: 970-378-6560

Florida
* PICO United Florida (State-wide)
Orlando, FL
(407) 241-0605

Federation of Congregations United to Serve
Orange County, FL
(407) 849-5031

Congregations for Community Action
Melbourne & Palm Bay, FL
(321) 254-1595

Iowa

* Iowa Citizens for Community Improvement (State-wide)
Des Moines, IA
515-255-0800

Idaho
Idaho Community Action Network
Boise, ID
208-385-9146

Illinois
Illinois People’s Action (State-wide)
Bloomington, IL
309-827-9627

Lakeview Action Coalition
Chicago, IL
773-549-1947

South Austin Coalition Community Council
Chicago, IL
773-287-4570/9957

Kansas
Sunflower Community Action (State-wide)
Wichita, KS
316-264-9972

Massachusetts
* Alliance to Develop Power (State-wide)
Springfield, MA
413-739-7233

Brockton Interfaith Community
Brockton, MA
(508) 587-9550

* Massachusetts Communities Action Network (State-wide)
Boston, MA
(617) 822-1499

Maine
Maine Peoples Alliance (State-wide)
Offices in Portland, Bangor, and Lewiston, ME
Portland: 207-797-0967
Bangor: 207-990-0672
Lewiston: 207-782-7876

Michigan

Michigan Organizing Project (State-wide)
Kalamazoo, MI
269-344-1967

Harriet Tubman Center
Detroit, MI
(313) 549-0421

Minnesota
Take Action Minnesota (State-wide)
Saint Paul, MN
651-641-6199

Missouri
Grass Roots Organizing (State-wide)
Mexico, MO
573-581-9595

Communities Creating Opportunity
Kansas City, MO
(816) 444-5585

Montana
Montana Organizing Project (State-wide)
Missoula and Billings, MT
Email: sheena@nwfco.org

Nevada
Progressive Leadership Alliance of Nevada (State-wide)
Las Vegas and Reno, NV
Reno:
775-348-7557
Las Vegas V:
702-791-1965

New York
Northwest Bronx Community & Clergy Coalition
Bronx, NY
718-584-0515

Brooklyn Congregations United
Brooklyn, NY
718 287-4334

People United for Sustainable Housing
Buffalo, NY
716-884-0356

* Syracuse United Neighbors
Syracuse, NY
315-476-7475

Ohio
* Citizens United For Action (State-wide)
Cincinnati, OH
513-541-4109

Northeast Ohio Alliance for Hope
Cleveland, OH
216-834-2324

Working In Neighborhoods Action Organizing Project (State-wide)
Cincinnati, OH
513-541-4109

Oregon
Oregon Action (State-wide)
Portland and Medford, OR
Portland: 503-282-6588
Medford: 541-772-4029

Washington
Washington Community Action Network (State-wide)
Seattle, WA
206-389-0050 begin_of_the_skype_highlighting 206-389-0050

Litigation with HUD and FHA Insured Mortgage Loans and Foreclosure

25 Feb


When a mortgage is insured or guaranteed by the Federal Housing Administration (FHA), an agency overseen by the Department of Housing and Urban Development (HUD), servicing companies must follow HUD servicing guidelines. Some of these regulations involve the foreclosure process on a such a property, and failure to follow the guidelines may be used by homeowners to defend their foreclosure in court.

The following is a list and brief description of some of the court cases that have involved HUD and FHA loans that were improperly serviced, ones that were decided in favor of homeowners, and ones in which borrowers facing foreclosure were denied claims. Knowing some of the background of these cases may help homeowners decide if their loan is being properly serviced, or if it is worth their time to apply for an FHA loan.

One of the requirements to foreclose on a HUD loan is that the servicer must attempt to hold a face-to-face meeting with the homeowners before three payments have been missed. In Banker’s Life v. Denton, homeowners raised the failure to hold the meeting as a defense against foreclosure. Also, the servicer did not send the request for the meeting via certified mail or attempt to visit the borrowers at the property. The court found for the owners in this case.

Notices of default must also be sent to delinquent borrowers in accordance with the HUD regulations. In Federal National Mortgage Ass’n v. Moore, homeowners raised the argument that the lender had not sent out a notice of default that was in compliance with HUD’s regulations. The notice sent, according to the borrowers, was not valid because it was on a form that was not “approved by the Secretary” of HUD and was not sent in a timely manner as the regulations require.

Since these two cases had been decided, HUD’s regulations have changed, but the language of the preforeclosure servicing, including notice requirements and review guidelines, have remained the same. In fact, another court case, Mellon Mortgage Co. v. Larios, decided that the requirements are the same now as they were before the statue was revised. Lenders failing to comply with these guidelines can still be used as a defense against foreclosure.

The face-to-face meeting with homeowners is also an important aspect of foreclosing on a mortgage backed by HUD. The minimum requirement to comply with this regulation is visiting the borrowers at home and sending at least one letter via certified mail. The issue came up in Washington Mutual Bank v. Mahaffey, and the lender was denied summary judgment because it had not sent the letter, even though someone had been sent to the property to visit the homeowners.

Of course, this is not to imply that every homeowner will win a case and successfully defend against foreclosure. Courts have also ruled against borrowers who raised issues regarding servicing. In Miller v. G.E. Capital Mortgage Servs., Inc., the court ruled that private citizens have no right to sue for violations of HUD’s loss mitigation provisions. The law, according to the court, is meant to focus on regulation of lenders — not creating rights for borrowers facing foreclosure.

Also, courts have found that the language included in deeds of trust insured by the FHA are not negotiated contractual terms. Instead, they are imposed by the FHA on both the borrowers and lenders, and the borrowers may not raise defenses in relation to breach of contract if lenders fail to follow the FHA guidelines. This case was decided in Wells Fargo Home Mortgage, Inc. v. Neal. If the homeowners and mortgage company can not bargain for that aspect of the contract, there can be no breach of the contract.

Homeowners, their loss mitigation professionals, and their foreclosure attorneys should become aware of some of the issues involved with HUD loans if they have a mortgage insured by the FHA or are considering taking advantage of the new government programs. While some protections may be offered to borrowers, others seem to be taken away by the courts if there is a question about a foreclosure. Knowing the issues through previously-decided court cases can help educate borrowers.

The FHA Short Refinance Option—Help For Non-FHA Borrowers

25 Feb

Starting September 7, 2010, the FHA offers help to qualifying non-FHA borrowers who are “underwater” on their home loans. The FHA Short Refinance option is open to those who are current on their existing mortgage—but the lender must agree to forgive at least 10% of the unpaid principal on the original note to bring the combined loan-to-value ratio to a maximum 115%. The new FHA-guaranteed loan must have a loan-to-value ratio of no more than 97.75%.

Non-FHA borrowers who meet these guidelines and additional credit qualifications (see below) are allowed to apply to refinance into new FHA-insured home loan. The program is not open-ended—the original FHA press release announcing the start date of the FHA Short Refinance option says the program is expected to help as many as four million homeowners through the end of 2012.

The FHA press release says the FHA Short Refinance program is voluntary and “requires the cooperation of all lien holders”. This program is not automatically open to any homeowner who is underwater on a conventional home loan; as stated previously, there is a requirement that the borrower be current on all mortgage payments. They must also qualify for the FHA Short Refinance program by having a credit score of 500 or better and meet other typical FHA loan
prerequisites.

FHA Short Refinancing is only for borrowers who are underwater on properties that are considered the borrower’s primary residence, and is intended only for those with non-FHA guaranteed home loans. A borrower said to be “underwater” on a conventional home loan is basically stuck with a property that isn’t worth as much as the amount owed on the note—usually because of declining property values.

Commercial Bailout property values down 3 Trillion

23 Feb

The financial disaster of continuing to bailout commercial real estate through the shadows of Federal Reserve jargon. Why you haven’t heard of this trillion dollar bailout.

The financial disaster of continuing to bailout commercial real estate through the shadows of Federal Reserve jargon. Why you haven’t heard of this trillion dollar bailout.

The media has done a fantastic job painting over the enormous sinkhole of a problem that is commercial real estate (CRE). U.S. banks hold over $3 trillion in commercial real estate loans on properties that were once valued at over $6 trillion. Today those values are down to roughly $3 to $3.5 trillion depending on what metric you believe. How is it possible for a market that has lost $2.5 to $3 trillion to become largely hidden in the dark from the mainstream media? We constantly hear about $3 billion deficits or other issues but is the trillion dollar figure just so enormous that they don’t even bother investigating? It is probably more likely that the Federal Reserve has concealed massive failures in CRE by allowing banks to play a game of extend and pretend that continues today. The shadowy problems of empty shopping centers, vacant car dealership lots, and misplaced strip malls is largely a taxpayer problem now. Banks made these irresponsible loans but had the Fed hand over taxpayer loot in exchange for worthless real estate.

empty strip mall

“Another empty strip mall”

CRE bringing down FDIC banks

commercial real estate mit

Source: MIT

CRE values are still hovering near their trough and are likely to move lower. The only reason these prices haven’t moved lower is because banks are more generous with the borrowers of CRE debt since these holders are grappling with multi-million dollar cuts in each deal. Banks would rather pretend a mall is valued at $100 million instead of marking it to a real value of $40 million or less. The fact that the Federal Reserve allows this to happen is financial chicanery. Can you pretend to the government that you really don’t make $100,000 a year so instead you will act as if you make $30,000 a year and act accordingly? This is what is happening here. Banks are essentially allowing these toxic loans to be laundered through the system in exchange for taxpayer dollars. The Fed is betting that the public doesn’t wake up to this scam.

CRE is a giant and pernicious problem. With residential real estate it hits directly home and many American families are considered home owners. This bubble has garnered most media attention as it should. Yet CRE debt is enormous, larger than every state budget deficit combined by many times! In fact, the losses on CRE loans is larger than the state budget issues. Of course the Fed wants the public to look away from the real culprit behind the decline of the American middle class. The scheme was to build junk and pawn off the loans to average Americans whether they wanted to accept the debt or not.

The cost of CRE problems

commercial loans

Banks have no faith in this recovery. Look at the above regarding commercial loans. Banks continue to claim that the reason for the taxpayer bailouts was to help the American public weather the economic storm and for banks to continue lending to average Americans. Instead, as you can see above, commercial loan lending has collapsed and banks have hoarded money and speculated on the stock market casino on the taxpayer dime. This money was used to shore up bad balance sheet problems and for gambling on the stock market to boost profits. In short it was one giant swindle perpetrated on the public.

And think about the supposed recovery we are experiencing. If we were truly growing and expanding don’t you think there would be healthy demand for loans as businesses expand their workforce? Wouldn’t it be logical to conclude that commercial loans would reflect the supposed increased demand from a booming American economy? Of course the only boom occurring is for the top 1 percent who are siphoning off the wealth from average Americans to spin their continuing speculation in the stock market. Many are starting to wake up from this collective sleepwalk where taxpayers were robbed in open daylight.

The problems are coming up

Source: ZeroHedge

What is even more problematic is many of the CRE loans are going bad in the next few years. Just like residential real estate is now experiencing a second collapse, CRE will have another move lower. Banks can only carry fantasy paper for so long. So far we have been paying for it through QE1, QE2, TARP, and other convoluted programs to launder money and devalue the U.S. dollar and decrease the quality of life of average Americans. The public did not sign up for this. The banks talk about shared responsibility and many are paying for it by losing their homes and going bankrupt. Millions are facing this economic “responsibility” on a daily basis. What penalty for the banks? Instead, they get bailouts and continue to pretend the junk loans they made on concrete disasters are worth inflated values only to shovel them off to taxpayers. How is it that there are no buyers for these supposedly highly priced items?

CRE debt exposes the worst aspect of the bubble. Pure profit motive by supposed sophisticated investors on both sides of the coin with no financial responsibility or ownership. This isn’t some poor family in a low-income neighborhood taking out a subprime loan. This is actually a supposed responsible bank and a supposed financially savvy investor. There is no justification for one penny of a bailout here. Yet the Federal Reserve continues with their hidden bailout where they support malls in Oklahoma to Chick-fil-A. Don’t expect to hear about this on your nightly news

Arizona SB1259 on Foreclosures; Proof of Ownership Passes Senate 28 Ayes 2 Nays (via Foreclosureblues)

23 Feb

Arizona SB1259 on Foreclosures; Proof of Ownership Passes Senate 28 Ayes 2 Nays Arizona SB1259 on Foreclosures; Proof of Ownership Passes Senate 28 Ayes 2 Nays Today, February 23, 2011, 4 hours ago | Foreclosure Fraud Remember SB1259? Goodnight Banks: Arizona Well what do we have here? A. FOR ANY BENEFICIARY WHO IS NOT THE ORIGINATING BENEFICIARY ON THE DEED OF TRUST, THE BENEFICIARY SHALL RECORD A SUMMARY DOCUMENT REGARDING THE BENEFICIARY’S LEGAL INTEREST IN THE DEED OF TRUST THAT CONTAINS THE FOLLOWING INFORMATION IN CHRO … Read More

via Foreclosureblues

Agard MERS a nominee is not an agent

23 Feb

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
—————————————————————–x
In re:
Case No. 810-77338-reg
FERREL L. AGARD,
Chapter 7
Debtor.
—————————————————————–x
MEMORANDUM DECISION
Before the Court is a motion (the “Motion”) seeking relief from the automatic stay
pursuant to 11 U.S.C. § 362(d)(1) and (2), to foreclose on a secured interest in the Debtor’s real
property located in Westbury, New York (the “Property”). The movant is Select Portfolio
Servicing, Inc. (“Select Portfolio” or “Movant”), as servicer for U.S. Bank National Association,
as Trustee for First Franklin Mortgage Loan Trust 2006-FF12, Mortgage Pass-Through
Certificates, Series 2006-FF12 (“U.S. Bank”). The Debtor filed limited opposition to the Motion
contesting the Movant’s standing to seek relief from stay. The Debtor argues that the only
interest U.S. Bank holds in the underlying mortgage was received by way of an assignment from
the Mortgage Electronic Registration System a/k/a MERS, as a “nominee” for the original
lender. The Debtor’s argument raises a fundamental question as to whether MERS had the legal
authority to assign a valid and enforceable interest in the subject mortgage. Because U.S. Bank’s
rights can be no greater than the rights as transferred by its assignor – MERS – the Debtor argues
that the Movant, acting on behalf of U.S. Bank, has failed to establish that it holds an
enforceable
Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10
right against the Property.1 The Movant’s initial response to the Debtor’s opposition was that
MERS’s authority to assign the mortgage to U.S. Bank is derived from the mortgage itself which
allegedly grants to MERS its status as both “nominee” of the mortgagee and “mortgagee of
record.” The Movant later supplemented its papers taking the position that U.S. Bank is a
creditor with standing to seek relief from stay by virtue of a judgment of foreclosure and sale
entered in its favor by the state court prior to the filing of the bankruptcy. The Movant argues
that the judgment of foreclosure is a final adjudication as to U.S. Bank’s status as a secured
creditor and therefore the Rooker-Feldman doctrine prohibits this Court from looking behind the
judgment and questioning whether U.S. Bank has proper standing before this Court by virtue of a
valid assignment of the mortgage from MERS.
The Court received extensive briefing and oral argument from MERS, as an intervenor in
these proceedings which go beyond the arguments presented by the Movant. In addition to the
rights created by the mortgage documents themselves, MERS argues that the terms of its
membership agreement with the original lender and its successors in interest, as well as New
York state agency laws, give MERS the authority to assign the mortgage. MERS argues that it
holds legal title to mortgages for its member/lenders as both “nominee” and “mortgagee of
1 The Debtor also questions whether Select Portfolio has the authority and the standing to
seek relief from the automatic stay. The Movant argues that Select Portfolio has standing
to bring the Motion based upon its status as “servicer” of the Mortgage, and attaches an
affidavit of a vice president of Select Portfolio attesting to that servicing relationship.
Caselaw has established that a mortgage servicer has standing to seek relief from the
automatic stay as a party in interest. See, e.g., Greer v. O’Dell, 305 F.3d 1297
(11th Cir. 2002); In re Woodberry, 383 B.R. 373 (Bankr. D.S.C. 2008). This presumes,
however, that the lender for whom the servicer acts validly holds the subject note and
mortgage. Thus, this Decision will focus on whether U.S. Bank validly holds the subject
note and mortgage.
Page 2 of 37
Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10
record.” As such, it argues that any member/lender which holds a note secured by real property,
that assigns that note to another member by way of entry into the MERS database, need not also
assign the mortgage because legal title to the mortgage remains in the name of MERS, as agent
for any member/lender which holds the corresponding note. MERS’s position is that if a MERS
member directs it to provide a written assignment of the mortgage, MERS has the legal
authority, as an agent for each of its members, to assign mortgages to the member/lender
currently holding the note as reflected in the MERS database.
For the reasons that follow, the Debtor’s objection to the Motion is overruled and the
Motion is granted. The Debtor’s objection is overruled by application of either the Rooker-
Feldman doctrine, or res judicata. Under those doctrines, this Court must accept the state court
judgment of foreclosure as evidence of U.S. Bank’s status as a creditor secured by the Property.
Such status is sufficient to establish the Movant’s standing to seek relief from the automatic stay.
The Motion is granted on the merits because the Movant has shown, and the Debtor has not
disputed, sufficient basis to lift the stay under Section 362(d).
Although the Court is constrained in this case to give full force and effect to the state
court judgment of foreclosure, there are numerous other cases before this Court which present
identical issues with respect to MERS and in which there have been no prior dispositive state
court decisions. This Court has deferred rulings on dozens of other motions for relief from stay
pending the resolution of the issue of whether an entity which acquires its interests in a mortgage
by way of assignment from MERS, as nominee, is a valid secured creditor with standing to seek
relief from the automatic stay. It is for this reason that the Court’s decision in this matter will
address the issue of whether the Movant has established standing in this case notwithstanding the
Page 3 of 37
Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10
existence of the foreclosure judgment. The Court believes this analysis is necessary for the
precedential effect it will have on other cases pending before this Court.
The Court recognizes that an adverse ruling regarding MERS’s authority to assign
mortgages or act on behalf of its member/lenders could have a significant impact on MERS and
upon the lenders which do business with MERS throughout the United States. However, the
Court must resolve the instant matter by applying the laws as they exist today. It is up to the
legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite
authority to assign mortgages under its current business practices. MERS and its partners made
the decision to create and operate under a business model that was designed in large part to avoid
the requirements of the traditional mortgage recording process. This Court does not accept the
argument that because MERS may be involved with 50% of all residential mortgages in the
country, that is reason enough for this Court to turn a blind eye to the fact that this process does
not comply with the law.
Facts
Procedural Background
On September 20, 2010, the Debtor filed for relief under Chapter 7 of the Bankruptcy
Code. In Schedule A to the petition, the Debtor lists a joint ownership interest in the Property
described as follows:
A “[s]ingle family home owned with son, deed in son’s name since 2007; used as
primary residence . . .. Debtor was on original deed and is liable on the mortgage,
therefore has equitable title. Debtor is in default of the mortgage with a principal
balance of over $450,000.00. The house is worth approximately $350,000. A
Page 4 of 37
Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10
foreclosure sale was scheduled 9/21/10.”
According to Schedule D, the Property is valued at $350,000 and is encumbered by a mortgage
in the amount of $536,920.67 held by “SPS Select Portfolio Servicing.”
On October 14, 2010, the Movant filed the Motion seeking relief from the automatic stay
pursuant to 11 U.S.C. §362(d) to foreclose on the Property. The Motion does not state that a
foreclosure proceeding had been commenced or that a judgment of foreclosure was granted prior
to the filing of the bankruptcy petition. Nor does it mention that the Debtor holds only equitable
title and does not hold legal title to the Property. Instead, Movant alleges that U.S. Bank is the
“holder” of the Mortgage; that the last mortgage payment it received from the Debtor was
applied to the July, 2008 payment; and that the Debtor has failed to make any post-petition
payments to the Movant. Movant also asserts that as of September 24, 2010, the total
indebtedness on the Note and Mortgage was $542,902.33 and the Debtor lists the value of the
Property at $350,000 in its schedules. On that basis, Movant seeks entry of an order vacating the
stay pursuant to 11 U.S.C. § 362(d)(1) and (d)(2).
Annexed to the Motion are copies of the following documents:
• Adjustable Rate Note, dated June 9, 2006, executed by the Debtor as borrower and listing
First Franklin a Division of Na. City Bank of In. (“First Franklin”) as the lender
(“Note”);
• Balloon Note Addendum to the Note, dated June 9, 2006;
• Mortgage, dated June 9, 2006 executed by the Debtor and listing First Franklin as lender,
and MERS as nominee for First Franklin and First Franklin’s successors and assigns
(“Mortgage”);
• Adjustable Rate and Balloon Rider, dated June 9, 2006;
• Addendum to Promissory Note and Security Agreement executed by the Debtor; and
Page 5 of 37
Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10
• Assignment of Mortgage, dated February 1, 2008, listing MERS as nominee for First
Franklin as assignor, and the Movant, U.S. Bank National Association, as Trustee for
First Franklin Mortgage Loan Trust 2006- FF12, Mortgage Pass-through Certificates,
Series 2006-FF12, as assignee (“Assignment of Mortgage”).
The Arguments of the Parties
On October 27, 2010, the Debtor filed “limited opposition” to the Motion, alleging that
the Movant lacks standing to seek the relief requested because MERS, the purported assignor to
the Movant, did not have authority to assign the Mortgage and therefore the Movant cannot
establish that it is a bona fide holder of a valid secured interest in the Property.
The Movant responded to the Debtor’s limited opposition regarding MERS’s authority to
assign by referring to the provisions of the Mortgage which purport to create a “nominee”
relationship between MERS and First Franklin. In conclusory fashion, the Movant states that it
therefore follows that MERS’s standing to assign is based upon its nominee status.
On November 15, 2010, a hearing was held and the Court gave both the Debtor and
Movant the opportunity to file supplemental briefs on the issues raised by the Debtor’s limited
opposition.
On December 8, 2010, the Movant filed a memorandum of law in support of the Motion
arguing that this Court lacks jurisdiction to adjudicate the issue of whether MERS had authority
to assign the Mortgage, and even assuming the Court did have jurisdiction to decide this issue,
under New York law the MERS assignment was valid. In support of its jurisdictional argument,
the Movant advises the Court (for the first time) that a Judgement of Foreclosure and Sale
(“Judgment of Foreclosure”) was entered by the state court in favor of the Movant on November
24, 2008, and any judicial review of the Judgment of Foreclosure is barred by the doctrines of
Page 6 of 37
Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10
res judicata, Rooker-Feldman, and judicial estoppel.2 The Movant argues that the Debtor had a
full and fair opportunity to litigate these issues in state court, but chose to default, and cannot
now challenge the state court’s adjudication as to the Movant’s status as a secured creditor or
holder of the Note and Mortgage, or its standing to seek relief from the automatic stay in this
Court. The Movant also notes that the Debtor admits in her petition and schedules that she is
liable on the Mortgage, that it was in default and the subject of a foreclosure sale, and thus
judicial estoppel bars her arguments to the contrary.
In addition to its preclusion arguments, on the underlying merits of its position the
Movant cites to caselaw holding that MERS assignments similar to the assignment in this case,
are valid and enforceable. See U.S. Bank, N.A. v. Flynn, 897 N.Y.S. 2d 855, 858 (N.Y. Sup. Ct.
2010); Kiah v. Aurora Loan Services, LLC, 2010 U.S. Dist. LEXIS 121252, at *1 (D. Mass. Nov.
16, 2010); Perry v. Nat’l Default Servicing Corp., 2010 U.S. Dist. LEXIS 92907, at *1 (Dist.
N.D. Cal. Aug. 20, 2010). It is the Movant’s position that the provisions of the Mortgage grant
to MERS the right to assign the Mortgage as “nominee,” or agent, on behalf of the lender, First
Franklin. Specifically, Movant relies on the recitations of the Mortgage pursuant to which the
“Borrower” acknowledges that MERS holds bare legal title to the Mortgage, but has the right
“(A) to exercise any or all those rights, including, but not limited to, the right to foreclose and
2
The Judgment of Foreclosure names the Debtor and an individual, Shelly English, as
defendants. Shelly English is the Debtor’s daughter-in-law. At a hearing held on
December 13, 2010, the Debtor’s counsel stated that he “believed” the Debtor transferred
title to the Property to her son, Leroy English, in 2007. This is consistent with
information provided by the Debtor in her petition and schedules. Leroy English,
however, was not named in the foreclosure action. No one in this case has addressed the
issue of whether the proper parties were named in the foreclosure action. However,
absent an argument to the contrary, this Court can only presume that the Judgment of
Foreclosure is a binding final judgment by a court of competent jurisdiction.
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sell the Property; and (B) to take any action required of Lender including, but not limited to,
releasing and canceling [the Mortgage].” In addition, the Movant argues that MERS’s status as a
“mortgagee” and thus its authority to assign the Mortgage is supported by the New York Real
Property Actions and Proceedings Law (“RPAPL”) and New York Real Property Law (“RPL”).
Movant cites to RPAPL § 1921-a which allows a “mortgagee” to execute and deliver partial
releases of lien, and argues that MERS falls within the definition of “mortgagee” which includes
the “current holder of the mortgage of record . . . or . . . their . . . agents, successors or assigns.”
N.Y. Real Prop. Acts. Law § 1921(9)(a) (McKinney 2011). Although the definition of
“mortgagee” cited to by the Movant only applies to RPAPL § 1921, Movant argues that it is a
“mortgagee” vested with the authority to execute and deliver a loan payoff statement; execute
and deliver a discharge of mortgage and assign a mortgage pursuant to RPL §§ 274 and 275.
In addition to its status as “mortgagee,” Movant also argues that the assignment is valid
because MERS is an “agent” of each of its member banks under the general laws of agency in
New York, see N.Y. Gen. Oblig. Law § 5-1501(1) (McKinney 2011),3 and public policy requires
the liberal interpretation and judicial recognition of the principal-agent relationship. See Arens v.
Shainswitt, 37 A.D.2d 274 (N.Y. App. Div. 1971), aff’d 29 N.Y.2d 663 (1971). In the instant
case, Movant argues, the Mortgage appoints MERS as “nominee,” read “agent,” for the original
3 Movant cites to New York General Obligations Law for the proposition that “an agency
agreement may take any form ‘desired by the parties concerned.’” The direct quote
“desired by the parties concerned” seems to be attributed to the General Obligations Law
citation, however, the Court could find no such language in the current version of § 5-
1501(1). That provision, rather, defines an agent as “a person granted authority to act as
attorney-in-fact for the principal under a power of attorney, and includes the original
agent and any co-agent or successor agent. Unless the context indicates otherwise, an
‘agent’ designated in a power of attorney shall mean ‘attorney-in-fact’ for the purposes of
this title. An agent acting under a power of attorney has a fiduciary relationship with the
principal.” N.Y. Gen. Oblig. Law § 5-1501(1) (McKinney 2011) (emphasis added).
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lender and the original lender’s successors and assigns. As nominee/agent for the lender, and as
mortgagee of record, Movant argues MERS had the authority to assign the Mortgage to the
Movant, U.S. Bank, “in accordance with the principal’s instruction to its nominee MERS, to
assign the mortgage lien to U.S. Bank . . . .”
Finally, Movant argues that even absent a legally enforceable assignment of the
Mortgage, it is entitled to enforce the lien because U.S. Bank holds the Note. The Movant
argues that if it can establish that U.S. Bank is the legal holder the Note, the Mortgage by
operation of law passes to the Movant because the Note and the Mortgage are deemed to be
inseparable. See In re Conde-Dedonato, 391 B.R. 247 (Bankr. E.D.N.Y. 2008). The Movant
represents, but has not proven, that U.S. Bank is the rightful holder of the Note, and further
argues that the assignment of the Note has to this point not been contested in this proceeding.
MERS moved to intervene in this matter pursuant to Fed. R. Bankr. P. 7024 because:
12. The Court’s determination of the MERS Issue directly affects the
business model of MERS. Additionally, approximately 50% of all consumer
mortgages in the United States are held in the name of MERS, as the mortgagee
of record.
13. The Court’s determination of the MERS Issue will have a
significant impact on MERS as well as the mortgage industry in New York and
the United States.
14. MERS has a direct financial stake in the outcome of this contested
matter, and any determination of the MERS Issue has a direct impact on MERS.
(Motion to Intervene, ¶¶12-14).
Permission to intervene was granted at a hearing held on December 13, 2010.
In addition to adopting the arguments asserted by the Movant, MERS strenuously
defends its authority to act as mortgagee pursuant to the procedures for processing this and other
mortgages under the MERS “system.” First, MERS points out that the Mortgage itself
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designates MERS as the “nominee” for the original lender, First Franklin, and its successors and
assigns. In addition, the lender designates, and the Debtor agrees to recognize, MERS “as the
mortgagee of record and as nominee for ‘Lender and Lender’s successors and assigns’” and as
such the Debtor “expressly agreed without qualification that MERS had the right to foreclose
upon the premises as well as exercise any and all rights as nominee for the Lender.” (MERS
Memorandum of Law at 7). These designations as “nominee,” and “mortgagee of record,” and
the Debtor’s recognition thereof, it argues, leads to the conclusion that MERS was authorized as
a matter of law to assign the Mortgage to U.S. Bank.
Although MERS believes that the mortgage documents alone provide it with authority to
effectuate the assignment at issue, they also urge the Court to broaden its analysis and read the
documents in the context of the overall “MERS System.” According to MERS, each
participating bank/lender agrees to be bound by the terms of a membership agreement pursuant
to which the member appoints MERS to act as its authorized agent with authority to, among
other things, hold legal title to mortgages and as a result, MERS is empowered to execute
assignments of mortgage on behalf of all its member banks. In this particular case, MERS
maintains that as a member of MERS and pursuant to the MERS membership agreement, the
loan originator in this case, First Franklin, appointed MERS “to act as its agent to hold the
Mortgage as nominee on First Franklin’s behalf, and on behalf of First Franklin’s successors and
assigns.” MERS explains that subsequent to the mortgage’s inception, First Franklin assigned
the Note to Aurora Bank FSB f/k/a Lehman Brothers Bank (“Aurora”), another MERS member.
According to MERS, note assignments among MERS members are tracked via self-effectuated
and self-monitored computer entries into the MERS database. As a MERS member, by
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operation of the MERS membership rules, Aurora is deemed to have appointed MERS to act as
its agent to hold the Mortgage as nominee. Aurora subsequently assigned the Note to U.S. Bank,
also a MERS member. By operation of the MERS membership agreement, U.S. Bank is deemed
to have appointed MERS to act as its agent to hold the Mortgage as nominee. Then, according to
MERS, “U.S. Bank, as the holder of the note, under the MERS Membership Rules, chose to
instruct MERS to assign the Mortgage to U.S. Bank prior to commencing the foreclosure
proceedings by U.S. Bank.” (Affirmation of William C. Hultman, ¶12).
MERS argues that the express terms of the mortgage coupled with the provisions of the
MERS membership agreement, is “more than sufficient to create an agency relationship between
MERS and lender and the lender’s successors in interest” under New York law and as a result
establish MERS’s authority to assign the Mortgage. (MERS Memorandum of Law at 7).
On December 20, 2010, the Debtor filed supplemental opposition to the Motion. The
Debtor argues that the Rooker-Feldman doctrine should not preclude judicial review in this case
because the Debtor’s objection to the Motion raises issues that could not have been raised in the
state court foreclosure action, namely the validity of the assignment and standing to lift the stay.
The Debtor also argues that the Rooker-Feldman doctrine does not apply because the Judgment
of Foreclosure was entered by default. Finally, she also argues that the bankruptcy court can
review matters “which are void or fraudulent on its face.” See In re Ward, 423 B.R. 22 (Bankr.
E.D.N.Y. 2010). The Debtor says that she is “alleging questionable, even possibly fraudulent
conduct by MERS in regards to transferring notes and lifting the stay.” (Debtor’s Supplemental
Opposition at 3).
The Movant filed supplemental papers on December 23, 2010 arguing that the Motion is
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moot because the Property is no longer an asset of the estate as a result of the Chapter 7
Trustee’s “report of no distribution,” and as such, the Section 362(a) automatic stay was
dissolved upon the entry of a discharge on December 14, 2010. See Brooks v. Bank of New York
Mellon, No. DKC 09-1408, 2009 WL 3379928, at *2 (D. Md. Oct. 16, 2009); Riggs Nat’l Bank
of Washington, D.C. v. Perry, 729 F.2d 982, 986 (4th Cir. 1984).
The Movant also maintains that Rooker-Feldman does apply to default judgments
because that doctrine does not require that the prior judgment be a judgment “on the merits.”
Charchenko v. City of Stillwater, 47 F.3d 981, 983 n.1 (8th Cir. 1995); see also Kafele v. Lerner,
Sampson & Rothfuss, L.P.A., No. 04-3659, 2005 WL 3528921, at *2-3 (6th Cir. Dec. 22, 2005);
In re Dahlgren, No. 09-18982, 2010 WL 5287400, at *1 (D.N.J. Dec. 17, 2010). The Movant
points out that the Debtor seems to be confusing the Rooker-Feldman doctrine with issue and
claim preclusion and that the Debtor has misapplied Chief Judge Craig’s ruling in In re Ward.
Discussion
As a threshold matter, this Court will address the Movant’s argument that this Motion has
been mooted by the entry of the discharge order.
Effect of the Chapter 7 discharge on the automatic stay
Section 362(c) provides that:
Except as provided in subsections (d), (e), (f), and (h) of this section–
(1) the stay of an act against property of the estate under subsection (a) of this
section continues until such property is no longer property of the estate;
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(2) the stay of any other act under subsection (a) of this section continues until the
earliest of–
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under chapter 7 of this title concerning an individual or a case
under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied;
11 U.S.C. § 362(c) (emphasis added).
Pursuant to Section 362(c)(1), the automatic stay which protects “property of the estate,”
as opposed to property of the debtor, continues until the property is no longer property of the
estate regardless of the entry of the discharge. The provision of the statute relied upon by the
Movant for the proposition that the automatic stay terminates upon the entry of a discharge,
relates only to the stay of “any other act under subsection(a),”, i.e., an act against property that is
not property of the estate, i.e., is property “of the debtor.” The relationship between property of
the estate and property of the debtor is succinctly stated as follows:
Property of the estate consists of all property of the debtor as of the date of the
filing of the petition. 11 U.S.C. § 541. It remains property of the estate until it has
been exempted by the debtor under § 522, abandoned by the trustee under §
554(a), or sold by the trustee under § 363. If property of the estate is not claimed
exempt, sold, or abandoned by the trustee, it is abandoned to the debtor at the
time the case is closed if the property was scheduled under § 521(1). If the
property is not scheduled by the debtor and is not otherwise administered, it
remains property of the estate even after the case has been closed.
If the property in question is property of the estate, it remains subject to the
automatic stay until it becomes property of the debtor and until the earlier of the
time the case was closed, the case is dismissed, or a discharge is granted or denied
in a chapter 7 case.
In re Pullman, 319 B.R. 443, 445 (Bankr. E.D. Va. 2004).
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Movant’s position seems to be that the Chapter 7 Trustee’s filing of a “report of no
distribution,” otherwise known as a “no asset report,” effectuated an abandonment of the real
property at issue in this case, and therefore the Property has reverted back to the Debtor.
However, Movant fails to cite the relevant statute. Section 554(c) provides that “[u]nless the
court orders otherwise, any property scheduled under section 521(1) of this title not otherwise
administered at the time of the closing of a case is abandoned to the debtor and administered for
purposes of section 350 of this title.” 11 U.S.C. § 554(c) (emphasis added); Fed. R. Bankr. P.
6007. Cases interpreting Section 554(c) hold that the filing of a report of no distribution does
not effectuate an abandonment of estate property. See, e.g., In re Israel, 112 B.R. 481, 482 n.3
(Bankr. D. Conn. 1990) (“The filing of a no-asset report does not close a case and therefore does
not constitute an abandonment of property of the estate.”) (citing e.g., Zlogar v. Internal Revenue
Serv. (In re Zlogar), 101 B.R. 1, 3 n.3 (Bankr. N.D. Ill. 1989); Schwaber v. Reed (In re Reed), 89
B.R. 100, 104 (Bankr. C.D. Cal. 1988); 11 U.S.C. § 554(c)).
Because the real property at issue in this case has not been abandoned it remains property
of the estate subject to Section 362(a) unless and until relief is granted under Section 362(d).
Rooker-Feldman and res judicata4
The Movant argues that U.S. Bank’s status as a secured creditor, which is the basis for its
standing in this case, already has been determined by the state court and that determination
cannot be revisited here. The Movant relies on both the Rooker-Feldman doctrine and res
4 Because the Debtor’s objection is overruled under Rooker-Feldman and res judicata, the
Court will not address the merits of the Movant’s judicial estoppel arguments.
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judicata principles to support this position.
The Rooker-Feldman doctrine is derived from two Supreme Court cases, Rooker v.
Fidelity Trust Co., 263 U.S. 413 (1923), and D.C. Court of Appeals v. Feldman, 460 U.S. 462
(1983), which together stand for the proposition that lower federal courts lack subject matter
jurisdiction to sit in direct appellate review of state court judgments. The Rooker-Feldman
doctrine is a narrow jurisdictional doctrine which is distinct from federal preclusion doctrines.
See McKithen v. Brown, 481 F.3d 89, 96-97 (2d Cir. 2007) (citing Exxon Mobil Corp. v. Saudi
Basic Indus. Corp., 544 U.S. 280, 284 (2005), and Hoblock v. Albany County Board of Elections,
422 F.3d 77, 85 (2d Cir. 2005)). In essence, the doctrine bars “cases brought by state-court
losers complaining of injuries caused by state-court judgments rendered before the district court
proceedings commenced and inviting district court review and rejection of those judgments.
Rooker-Feldman does not otherwise override or supplant preclusion doctrine or augment the
circumscribed doctrines that allow federal courts to stay or dismiss proceedings in deference to
state-court actions.” Exxon Mobil, 544 U.S. at 283.
The Second Circuit has delineated four elements that must be satisfied in order for
Rooker-Feldman to apply:
First, the federal-court plaintiff must have lost in state court. Second, the plaintiff
must “complain [ ] of injuries caused by [a] state-court judgment[.]” Third, the
plaintiff must “invit[e] district court review and rejection of [that] judgment [ ].”
Fourth, the state-court judgment must have been “rendered before the district
court proceedings commenced”-i.e., Rooker-Feldman has no application to
federal-court suits proceeding in parallel with ongoing state-court litigation. The
first and fourth of these requirements may be loosely termed procedural; the
second and third may be termed substantive.
McKithen, 481 F.3d at 97 (internal citation omitted and alteration in original) (quoting Hoblock,
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422 F.3d at 85).
In a case with facts similar to the instant case, Chief Judge Craig applied the Rooker-
Feldman doctrine to overrule a debtor’s objection to a motion for relief from the automatic stay.
See In re Ward, 423 B.R. 22 (Bankr. E.D.N.Y. 2010). In In re Ward, a foreclosure sale was
conducted prior to the filing of the bankruptcy petition. When the successful purchaser sought
relief from stay in the bankruptcy case to proceed to evict the debtor, the debtor opposed the
motion. The debtor argued that the foreclosure judgment was flawed because “no original note
was produced”, “the mortgage was rescinded”, “the plaintiff in the action doesn’t exist” or “was
not a proper party to the foreclosure action”, and that “everything was done irregularly and
underneath [the] table.” In re Ward, 423 B.R. at 27. Chief Judge Craig overruled the debtor’s
opposition and found that each of the elements of the Rooker-Feldman doctrine were satisfied:
The Rooker-Feldman doctrine applies in this case because the Debtor lost in the
state court foreclosure action, the Foreclosure Judgment was rendered before the
Debtor commenced this case, and the Debtor seeks this Court’s review of the
Foreclosure Judgment in the context of her opposition to the Purchaser’s motion
for relief from the automatic stay. The injury complained of, i.e., the foreclosure
sale to the Purchaser, was “caused by” the Foreclosure Judgment because “the
foreclosure [sale] would not have occurred but-for” the Foreclosure Judgment.
Accordingly, the Rooker-Feldman doctrine does not permit this Court to
disregard the Foreclosure Judgment.
In re Ward, 423 B.R. at 28 (citations omitted and alteration in original).
In the instant case, the Debtor argues that the Rooker-Feldman doctrine does not apply
because the Judgment of Foreclosure was entered on default, not on the merits. She also argues
that Rooker-Feldman should not apply because she is alleging that the Judgment of Foreclosure
was procured by fraud in that the MERS system of mortgage assignments was fraudulent in
nature or void. However, this Court is not aware of any exception to the Rooker-Feldman
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doctrine for default judgments, or judgments procured by fraud and the Court will not read those
exceptions into the rule. See Salem v. Paroli, 260 B.R. 246, 254 (S.D.N.Y. 2001) (applying
Rooker-Feldman to preclude review of state court default judgment); see also Lombard v.
Lombard, No. 00-CIV-6703 (SAS), 2001 WL 548725, at *3-4 (S.D.N.Y. May 23, 2001)
(applying Rooker-Feldman to preclude review of stipulation of settlement executed in
connection with state court proceeding even though applicant argued that the stipulation should
be declared null and void because he was under duress at the time it was executed).
The Debtor also argues that Rooker-Feldman does not apply in this case because she is
not asking this Court to set aside the Judgment of Foreclosure, but rather is asking this Court to
make a determination as to the Movant’s standing to seek relief from stay. The Debtor argues
that notwithstanding the Rooker-Feldman doctrine, the bankruptcy court must have the ability to
determine the standing of the parties before it.
Although the Debtor says she is not seeking affirmative relief from this Court, the net
effect of upholding the Debtor’s jurisdictional objection in this case would be to deny U.S. Bank
rights that were lawfully granted to U.S. Bank by the state court. This would be tantamount to a
reversal which is prohibited by Rooker-Feldman.
Even if Rooker-Feldman were found not to apply to this determination, the Court still
would find that the Debtor is precluded from questioning U.S. Bank’s standing as a secured
creditor under the doctrine of res judicata. The state court already has determined that U.S.
Bank is a secured creditor with standing to foreclose and this Court cannot alter that
determination in order to deny U.S. Bank standing to seek relief from the automatic stay.
The doctrine of res judicata is grounded in the Full Faith and Credit Clause of the United
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States Constitution. U.S. Const. art. IV, § 1. It prevents a party from re-litigating any issue or
defense that was decided by a court of competent jurisdiction and which could have been raised
or decided in the prior action. See Burgos v. Hopkins, 14 F.3d 787, 789 (2d Cir. 1994) (applying
New York preclusion rules); Swiatkowski v. Citibank, No. 10-CV-114, 2010 WL 3951212, at
*14 (E.D.N.Y. Oct. 7, 2010) (citing Waldman v. Vill. of Kiryas Joel, 39 F.Supp.2d 370, 377
(S.D.N.Y. 1999)). Res judicata applies to judgments that were obtained by default, see Kelleran
v. Andrijevic, 825 F.2d 692, 694-95 (2d Cir. 1987), but it may not apply if the judgment was
obtained by extrinsic fraud or collusion. “Extrinsic fraud involves the parties’ ‘opportunity to
have a full and fair hearing,’ while intrinsic fraud, on the other hand, involves the ‘underlying
issue in the original lawsuit.’” In re Ward, 423 B.R. at 29. The Debtor’s assertions that the
MERS system of assignments may have been fraudulent is more appropriately deemed an
intrinsic fraud argument. The Debtor has not alleged any extrinsic fraud in the procurement of
the Judgment of Foreclosure which prevented a full and fair hearing before the state court.
As a result, the Court finds that the Judgment of Foreclosure alone is sufficient evidence
of the Movant’s status as a secured creditor and therefore its standing to seek relief from the
automatic stay. On that basis, and because the Movant has established grounds for relief from
stay under Section 362(d), the Motion will be granted.
MERS
Because of the broad applicability of the issues raised in this case the Court believes that
it is appropriate to set forth its analysis on the issue of whether the Movant, absent the Judgment
of Foreclosure, would have standing to bring the instant motion. Specifically MERS’s role in
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the ownership and transfer of real property notes and mortgages is at issue in dozens of cases
before this Court. As a result, the Court has deferred ruling on motions for relief from stay
where the movants’ standing may be affected by MERS’s participation in the transfer of the real
property notes and mortgages. In the instant case, the issues were resolved under the Rooker-
Feldman doctrine and the application of res judicata. Most, if not all, of the remainder of the
“MERS cases” before the Court cannot be resolved on the same basis. For that reason, and
because MERS has intervened in this proceeding arguing that the validity of MERS assignments
directly affects its business model and will have a significant impact on the national mortgage
industry, this Court will give a reasoned opinion as to the Movant’s standing to seek relief from
the stay and how that standing is affected by the fact that U.S. Bank acquired its rights in the
Mortgage by way of assignment from MERS.
Standing to seek relief from the automatic stay
The Debtor has challenged the Movant’s standing to seek relief from the automatic stay.
Standing is a threshold issue for a court to resolve. Section 362(d) states that relief from stay
may be granted “[o]n request of a party in interest and after notice and a hearing.” 11 U.S.C. §
362(d). The term “party in interest” is not defined in the Bankruptcy Code, however the Court
of Appeals for the Second Circuit has stated that “[g]enerally the ‘real party in interest’ is the
one who, under the applicable substantive law, has the legal right which is sought to be enforced
or is the party entitled to bring suit.” See Roslyn Savings Bank v. Comcoach (In re Comcoach),
698 F.2d 571, 573 (2d Cir. 1983). The legislative history of Section 362 “suggests that,
notwithstanding the use of the term ‘party in interest’, it is only creditors who may obtain relief
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from the automatic stay.” Id. at 573-74. (citing H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 175,
reprinted in 1978 U.S.Code Cong. & Ad. News 5787, 6136); see also Greg Restaurant Equip.
And Supplies v. Toar Train P’ship (In re Toar Train P’ship), 15 B.R. 401, 402 (Bankr. D.
Vt.1981) (finding that a judgment creditor of the debtor was not a “party in interest” because the
judgment creditor was not itself a direct creditor of the bankrupt).
Using the standard established by the Second Circuit, this Court must determine whether
the Movant is the “one who, under applicable substantive law, has the legal right” to enforce the
subject Note and Mortgage, and is therefore a “creditor” of this Debtor. See In re Toar, 15 B.R.
at 402; see also In re Mims, 438 B.R. 52, 55 (Bankr. S.D.N.Y. 2010). The Bankruptcy Code
defines a “creditor” as an “entity that has a claim against the debtor that arose at the time of or
before the order for relief . . . .” 11 U.S.C. § 101(10). “Claim” is defined as the “right to
payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured . . .
.” 11 U.S.C. § 101(5)(A). In the context of a lift stay motion where the movant is seeking to
commence or continue with an action to foreclose a mortgage against real property, the movant
must show that it is a “party in interest” by showing that it is a creditor with a security interest in
the subject real property. See Mims, 438 B.R. at 57 (finding that as movant “failed to prove it
owns the Note, it has failed to establish that it has standing to pursue its state law remedies with
regard to the Mortgage and Property”). Cf. Brown Bark I L.P. v. Ebersole (In re Ebersole), 440
B.R. 690, 694 (Bankr. W.D. Va. 2010) (finding that movant seeking relief from stay must prove
that it is the holder of the subject note in order to establish a ‘colorable claim’ which would
establish standing to seek relief from stay).
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Noteholder status
In the Motion, the Movant asserts U.S. Bank’s status as the “holder” of the Mortgage.
However, in order to have standing to seek relief from stay, Movant, which acts as the
representative of U.S. Bank, must show that U.S. Bank holds both the Mortgage and the Note.
Mims, 438 B.R. at 56. Although the Motion does not explicitly state that U.S. Bank is the holder
of the Note, it is implicit in the Motion and the arguments presented by the Movant at the
hearing. However, the record demonstrates that the Movant has produced no evidence,
documentary or otherwise, that U.S. Bank is the rightful holder of the Note. Movant’s reliance
on the fact that U.S. Bank’s noteholder status has not been challenged thus far does not alter or
diminish the Movant’s burden to show that it is the holder of the Note as well as the Mortgage.
Under New York law, Movant can prove that U.S. Bank is the holder of the Note by
providing the Court with proof of a written assignment of the Note, or by demonstrating that
U.S. Bank has physical possession of the Note endorsed over to it. See, eg., LaSalle Bank N.A. v.
Lamy, 824 N.Y.S.2d 769, 2006 WL 2251721, at *1 (N.Y. Sup. Ct. Aug. 7, 2006). The only
written assignment presented to the Court is not an assignment of the Note but rather an
“Assignment of Mortgage” which contains a vague reference to the Note. Tagged to the end of
the provisions which purport to assign the Mortgage, there is language in the Assignment stating
“To Have and to Hold the said Mortgage and Note, and also the said property until the said
Assignee forever, subject to the terms contained in said Mortgage and Note.” (Assignment of
Mortgage (emphasis added)). Not only is the language vague and insufficient to prove an intent
to assign the Note, but MERS is not a party to the Note and the record is barren of any
representation that MERS, the purported assignee, had any authority to take any action with
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respect to the Note. Therefore, the Court finds that the Assignment of Mortgage is not sufficient
to establish an effective assignment of the Note.
By MERS’s own account, it took no part in the assignment of the Note in this case, but
merely provided a database which allowed its members to electronically self-report transfers of
the Note. MERS does not confirm that the Note was properly transferred or in fact whether
anyone including agents of MERS had or have physical possession of the Note. What remains
undisputed is that MERS did not have any rights with respect to the Note and other than as
described above, MERS played no role in the transfer of the Note.
Absent a showing of a valid assignment of the Note, Movant can demonstrate that U.S.
Bank is the holder of the Note if it can show that U.S. Bank has physical possession of the Note
endorsed to its name. See In re Mims, 423 B.R. at 56-57. According to the evidence presented
in this matter the manner in which the MERS system is structured provides that, “[w]hen the
beneficial interest in a loan is sold, the promissory note is [] transferred by an endorsement and
delivery from the buyer to the seller [sic], but MERS Members are obligated to update the
MERS® System to reflect the change in ownership of the promissory note. . . .” (MERS
Supplemental Memorandum of Law at 6). However, there is nothing in the record to prove that
the Note in this case was transferred according to the processes described above other than
MERS’s representation that its computer database reflects that the Note was transferred to U.S.
Bank. The Court has no evidentiary basis to find that the Note was endorsed to U.S. Bank or
that U.S. Bank has physical possession of the Note. Therefore, the Court finds that Movant has
not satisfied its burden of showing that U.S. Bank, the party on whose behalf Movant seeks relief
from stay, is the holder of the Note.
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Mortgagee status
The Movant’s failure to show that U.S. Bank holds the Note should be fatal to the
Movant’s standing. However, even if the Movant could show that U.S. Bank is the holder of the
Note, it still would have to establish that it holds the Mortgage in order to prove that it is a
secured creditor with standing to bring this Motion before this Court. The Movant urges the
Court to adhere to the adage that a mortgage necessarily follows the same path as the note for
which it stands as collateral. See Wells Fargo Bank, N.A. v. Perry, 875 N.Y.S.2d 853, 856 (N.Y.
Sup. Ct. 2009). In simple terms the Movant relies on the argument that a note and mortgage are
inseparable. See Carpenter v. Longan, 83 U.S. 271, 274 (1872). While it is generally true that a
mortgage travels a parallel path with its corresponding debt obligation, the parties in this case
have adopted a process which by its very terms alters this practice where mortgages are held by
MERS as “mortgagee of record.” By MERS’s own account, the Note in this case was
transferred among its members, while the Mortgage remained in MERS’s name. MERS admits
that the very foundation of its business model as described herein requires that the Note and
Mortgage travel on divergent paths. Because the Note and Mortgage did not travel together,
Movant must prove not only that it is acting on behalf of a valid assignee of the Note, but also
that it is acting on behalf of the valid assignee of the Mortgage.5
5 MERS argues that notes and mortgages processed through the MERS System are never
“separated” because beneficial ownership of the notes and mortgages are always held by
the same entity. The Court will not address that issue in this Decision, but leaves open
the issue as to whether mortgages processed through the MERS system are properly
perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an
assignment of the mortgage without the note is a nullity); Landmark Nat’l Bank v. Kesler,
216 P.3d 158, 166-67 (Kan. 2009) (“[I]n the event that a mortgage loan somehow
separates interests of the note and the deed of trust, with the deed of trust lying with some
independent entity, the mortgage may become unenforceable”).
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MERS asserts that its right to assign the Mortgage to U.S. Bank in this case, and in what
it estimates to be literally millions of other cases, stems from three sources: the Mortgage
documents; the MERS membership agreement; and state law. In order to provide some context
to this discussion, the Court will begin its analysis with an overview of mortgage and loan
processing within the MERS network of lenders as set forth in the record of this case.
In the most common residential lending scenario, there are two parties to a real property
mortgage – a mortgagee, i.e., a lender, and a mortgagor, i.e., a borrower. With some nuances
and allowances for the needs of modern finance this model has been followed for hundreds of
years. The MERS business plan, as envisioned and implemented by lenders and others involved
in what has become known as the mortgage finance industry, is based in large part on amending
this traditional model and introducing a third party into the equation. MERS is, in fact, neither a
borrower nor a lender, but rather purports to be both “mortgagee of record” and a “nominee” for
the mortgagee. MERS was created to alleviate problems created by, what was determined by the
financial community to be, slow and burdensome recording processes adopted by virtually every
state and locality. In effect the MERS system was designed to circumvent these procedures.
MERS, as envisioned by its originators, operates as a replacement for our traditional system of
public recordation of mortgages.
Caselaw and commentary addressing MERS’s role in the mortgage recording and
foreclosure process abound. See Christopher L. Peterson, Foreclosure, Subprime Mortgage
Lending, and the Mortgage Electronic Registration System, 78 U. Cin. L. Rev. 1359 (2010). In a
2006 published opinion, the New York Court of Appeals described MERS system as follows:
In 1993, the MERS system was created by several large participants in the real
estate mortgage industry to track ownership interests in residential mortgages.
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Mortgage lenders and other entities, known as MERS members, subscribe to the
MERS system and pay annual fees for the electronic processing and tracking of
ownership and transfers of mortgages. Members contractually agree to appoint
MERS to act as their common agent on all mortgages they register in the MERS
system.
The initial MERS mortgage is recorded in the County Clerk’s office with
‘Mortgage Electronic Registration Systems, Inc.’ named as the lender’s nominee
or mortgagee of record on the instrument. During the lifetime of the mortgage,
the beneficial ownership interest or servicing rights may be transferred among
MERS members (MERS assignments), but these assignments are not publicly
recorded; instead they are tracked electronically in MERS’s private system. In the
MERS system, the mortgagor is notified of transfers of servicing rights pursuant
to the Truth in Lending Act, but not necessarily of assignments of the beneficial
interest in the mortgage.
Merscorp, Inc., v. Romaine, 8 N.Y.3d 90 (N.Y. 2006) (footnotes omitted).
In the words of MERS’s legal counsel, “[t]he essence of MERS’ business is to hold legal
title to beneficial interests under mortgages and deeds of trust in the land records. The MERS®
System is designed to allow its members, which include originators, lenders, servicers, and
investors, to accurately and efficiently track transfers of servicing rights and beneficial
ownership.” (MERS Memorandum of Law at 5). The MERS® System “. . . eliminate[s] the
need for frequent, recorded assignments of subsequent transfers.” (MERS Supplemental
Memorandum of Law at 4). “Prior to MERS, every time a loan secured by a mortgage was sold,
the assignee would need to record the assignment to protect the security interest. If a servicing
company serviced the loan and the servicing rights were sold, – an event that could occur
multiple times during the life of a single mortgage loan – multiple assignments were recorded to
ensure that the proper servicer appeared in the land records in the County Clerk’s office.”
(MERS Supplemental Memorandum of Law at 4-5).
“When the beneficial interest in a loan is sold, the promissory note is still transferred by
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an endorsement and delivery from the buyer to the seller, but MERS Members are obligated to
update the MERS® System to reflect the change in ownership of the promissory note. . . . So
long as the sale of the note involves a MERS Member, MERS remains the named mortgagee of
record, and continues to act as the mortgagee, as the nominee for the new beneficial owner of the
note (and MERS’ Member). The seller of the note does not and need not assign the mortgage
because under the terms of that security instrument, MERS remains the holder of title to the
mortgage, that is, the mortgagee, as the nominee for the purchaser of the note, who is then the
lender’s successor and/or assign.” (MERS Supplemental Memorandum of Law at 6). “At all
times during this process, the original mortgage or an assignment of the mortgage to MERS
remains of record in the public land records where the security real estate is located, providing
notice of MERS’s disclosed role as the agent for the MERS Member lender and the lender’s
successors and assigns.” (Declaration of William C. Hultman, ¶9).
MERS asserts that it has authority to act as agent for each and every MERS member
which claims ownership of a note and mortgage registered in its system. This authority is based
not in the statutes or caselaw, but rather derives from the terms and conditions of a MERS
membership agreement. Those terms and conditions provide that “MERS shall serve as
mortgagee of record with respect to all such mortgage loans solely as a nominee, in an
administrative capacity, for the beneficial owner or owners thereof from time to time.”
(Declaration of William C. Hultman, ¶5). MERS “holds the legal title to the mortgage and acts
as the agent or nominee for the MERS Member lender, or owner of the mortgage loan.”
(Declaration of William C. Hultman, ¶6). According to MERS, it is the “intent of the parties . . .
for MERS to serve as the common nominee or agent for MERS Member lenders and their
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successors and assigns.” (MERS Supplemental Memorandum of Law at 19) (emphasis added by
the Court). “Because MERS holds the mortgage lien for the lender who may freely transfer its
interest in the note, without the need for a recorded assignment document in the land records,
MERS holds the mortgage lien for any intended transferee of the note.” (MERS Supplemental
Memorandum of Law at 15) (emphasis added by the Court). If a MERS member subsequently
assigns the note to a non-MERS member, or if the MERS member which holds the note decides
to foreclose, only then is an assignment of the mortgage from MERS to the noteholder
documented and recorded in the public land records where the property is located. (Declaration
of William C. Hultman, ¶12).
Before commenting on the legal effect of the MERS membership rules or the alleged
“common agency” agreement created among MERS members, the Court will review the relevant
portions of the documents presented in this case to evaluate whether the documentation, on its
face, is sufficient to prove a valid assignment of the Mortgage to U.S. Bank.
The Mortgage
First Franklin is the “Lender” named in the Mortgage. With reference to MERS’s role in
the transaction, the Mortgage states:
MERS is a separate corporation that is acting solely as a nominee for Lender and
Lender’s successors and assigns. MERS is organized and existing under the laws
of Delaware, and has an address and telephone number of P.O. Box 2026, Flint,
MI 48501-2026, tel. (888) 679 MERS. FOR PURPOSES OF RECORDING
THIS MORTGAGE, MERS IS THE MORTGAGEE OF RECORD.
(Mortgage at 1 (emphasis added by the Court)).
The Mortgage also purports to contain a transfer to MERS of the Borrower’s (i.e., the
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Debtor’s) rights in the subject Property as follows:
BORROWER’S TRANSFER TO LENDER OF RIGHTS IN THE PROPERTY
[The Borrower] mortgage[s], grant[s] and convey[s] the Property to MERS
(solely as nominee for Lender and Lender’s successors in interest) and its
successors in interest subject to the terms of this Security Instrument. This means
that, by signing this Security Instrument, [the Borrower is] giving Lender those
rights that are stated in this Security Instrument and also those rights that
Applicable Law gives to lenders who hold mortgage on real property. [The
Borrower is] giving Lender these rights to protect Lender from possible losses
that might result if [the Borrower] fail[s] to [comply with certain obligations
under the Security Instrument and accompanying Note.]
[The Borrower] understand[s] and agree[s] that MERS holds only legal title to the
rights granted by [the Borrower] in this Security Instrument, but, if necessary to
comply with law or custom, MERS (as nominee for Lender and Lenders’s
successors and assigns) has the right: (A) to exercise any or all those rights,
including, but not limited to, the right to foreclose and sell the Property; and (B)
to take any action required of Lender including, but not limited to, releasing and
canceling this Security Instrument.
[The Borrower gives] MERS (solely as nominee for Lender and Lender’s
successors in interest), rights in the Property . . .
(Mortgage at 3) (emphasis added).
The Assignment of Mortgage references the Mortgage and defines the “Assignor” as
“‘Mers’ Mortgage Electronic Registration Systems, Inc., 2150 North First Street, San Jose,
California 95131, as nominee for First Franklin, a division of National City Bank of IN, 2150
North First Street San Jose, California 95153.” (Emphasis added by the Court). The “Assignee”
is U.S. Bank.
Premised on the foregoing documentation, MERS argues that it had full authority to
validly execute the Assignment of Mortgage to U.S. Bank on February 1, 2008, and that as of the
date the foreclosure proceeding was commenced U.S. Bank held both the Note and the
Mortgage. However, without more, this Court finds that MERS’s “nominee” status and the
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rights bestowed upon MERS within the Mortgage itself, are insufficient to empower MERS to
effectuate a valid assignment of mortgage.
There are several published New York state trial level decisions holding that the status of
“nominee” or “mortgagee of record” bestowed upon MERS in the mortgage documents, by
itself, does not empower MERS to effectuate an assignment of the mortgage. These cases hold
that MERS may not validly assign a mortgage based on its nominee status, absent some evidence
of specific authority to assign the mortgage. See Bank of New York v. Mulligan, No. 29399/07,
2010 WL 3339452, at *7 (N.Y. Sup. Ct. Aug. 25, 2010); One West Bank, F.S.B. v. Drayton, 910
N.Y.S.2d 857, 871 (N.Y. Sup. Ct. 2010); Bank of New York v. Alderazi, 900 N.Y.S.2d 821, 824
(N.Y. Sup. Ct. 2010) (the “party who claims to be the agent of another bears the burden of
proving the agency relationship by a preponderance of the evidence”); HSBC Bank USA v.
Yeasmin, No. 34142/07, 2010 WL 2089273, at *3 (N.Y. Sup. Ct. May 24, 2010); HSBC Bank
USA v. Vasquez, No. 37410/07, 2009 WL 2581672, at *3 (N.Y. Sup. Ct. Aug. 21, 2010); LaSalle
Bank N.A. v. Lamy, 824 N.Y.S.2d 769, 2006 WL 2251721, at *2 (N.Y. Sup. Ct. Aug. 7, 2006)
(“A nominee of the owner of a note and mortgage may not effectively assign the note and
mortgage to another for want of an ownership interest in said note and mortgage by the
nominee.”). See also MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (“MERS’s only right is to
record the mortgage. Its designation as the ‘mortgagee of record’ in the document does not
change or expand that right…”). But see US Bank, N.A. v. Flynn, 897 N.Y.S.2d 855 (N.Y. Sup.
Ct. 2010) (finding that MERS’s “nominee” status and the mortgage documents give MERS
authority to assign); Crum v. LaSalle Bank, N.A., No. 2080110, 2009 WL 2986655, at *3 (Ala.
Civ. App., Sept. 18, 2009) (finding MERS validly assigned its and the lender’s rights to
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assignee); Blau v. America’s Servicing Company, et al., No. CV-08-773-PHX-MHM, 2009 WL
3174823, at *8 (D. Ariz. Sept. 29, 2009) (finding that assignee of MERS had standing to
foreclose).
In LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2 (N.Y. Sup.
Aug. 26, 2010), the court analyzed the relationship between MERS and the original lender and
concluded that a nominee possesses few or no legally enforceable rights beyond those of a
principal whom the nominee serves. The court stated:
MERS . . . recorded the subject mortgage as “nominee” for FFFC. The word
“nominee” is defined as “[a] person designated to act in place of another, usu. in a
very limited way” or “[a] party who holds bare legal title for the benefit of
others.” (Black’s Law Dictionary 1076 [8th ed 2004] ). “This definition suggests
that a nominee possesses few or no legally enforceable rights beyond those of a
principal whom the nominee serves.” (Landmark National Bank v. Kesler, 289
Kan 528, 538 [2009] ). The Supreme Court of Kansas, in Landmark National
Bank, 289 Kan at 539, observed that:
The legal status of a nominee, then, depends on the context of the
relationship of the nominee to its principal. Various courts have
interpreted the relationship of MERS and the lender as an agency
relationship. See In re Sheridan, 2009 WL631355, at *4 (Bankr. D. Idaho,
March 12, 2009) (MERS “acts not on its own account. Its capacity is
representative.”); Mortgage Elec. Registrations Systems, Inc. v. Southwest,
2009 Ark. 152 —-, 301 SW3d 1, 2009 WL 723182 (March 19, 2009)
(“MERS, by the terms of the deed of trust, and its own stated purposes,
was the lender’s agent”); La Salle Nat. Bank v. Lamy, 12 Misc.3d 1191[A],
at *2 [Sup Ct, Suffolk County 2006] ) … (“A nominee of the owner of a
note and mortgage may not effectively assign the note and mortgage to
another for want of an ownership interest in said note and mortgage by the
nominee.”).
LaSalle Bank, N.A. v. Bouloute, No. 41583/07, 2010 WL 3359552, at *2; see also Bank of New
York v. Alderazi, 900 N.Y.S.2d 821, 823 (N.Y. Sup. Ct. 2010) (nominee is “‘[a] person
designated to act in place of another, usually in a very limited way.’”) (quoting Black’s Law
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Dictionary)).
In LaSalle Bank, N.A. v. Bouloute the court concluded that MERS must have some
evidence of authority to assign the mortgage in order for an assignment of a mortgage by MERS
to be effective. Evidence of MERS’s authority to assign could be by way of a power of attorney
or some other document executed by the original lender. See Bouloute, 2010 WL 3359552, at
*1; Alderazi, 900 N.Y.S.2d at 823 (“‘To have a proper assignment of a mortgage by an
authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with
the authority to assign the mortgage.’”) (quoting HSBC Bank USA, NA v. Yeasmin, 866 N.Y.S.2d
92 (N.Y. Sup. Ct. 2008)).
Other than naming MERS as “nominee”, the Mortgage also provides that the Borrower
transfers legal title to the subject property to MERS, as the Lender’s nominee, and acknowledges
MERS’s rights to exercise certain of the Lender’s rights under state law. This too, is insufficient
to bestow any authority upon MERS to assign the mortgage. In Bank of New York v. Alderazi,
the court found “[t]he fact that the borrower acknowledged and consented to MERS acting as
nominee of the lender has no bearing on what specific powers and authority the lender granted
MERS.” Alderazi, 900 N.Y.S.2d at 824. Even if it did bestow some authority upon MERS, the
court in Alderazi found that the mortgage did not convey the specific right to assign the
mortgage.
The Court agrees with the reasoning and the analysis in Bouloute and Alderazi, and the
other cases cited herein and finds that the Mortgage, by naming MERS a “nominee,” and/or
“mortgagee of record” did not bestow authority upon MERS to assign the Mortgage.
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The MERS membership rules
According to MERS, in addition to the alleged authority granted to it in the Mortgage
itself, the documentation of the Assignment of Mortgage comports with all the legal
requirements of agency when read in conjunction with the overall MERS System. MERS’s
argument requires that this Court disregard the specific words of the Assignment of Mortgage or,
at the very least, interpret the Assignment in light of the overall MERS System of tracking the
beneficial interests in mortgage securities. MERS urges the Court to look beyond the four
corners of the Mortgage and take into consideration the agency relationship created by the
agreements entered into by the lenders participating in the MERS System, including their
agreement to be bound by the terms and conditions of membership.
MERS has asserted that each of its member/lenders agrees to appoint MERS to act as its
agent. In this particular case, the Treasurer of MERS, William C. Hultman, declared under
penalty of perjury that “pursuant to the MERS’s Rules of Membership, Rule 2, Section 5. . . First
Franklin appointed MERS to act as its agent to hold the Mortgage as nominee on First Franklin’s
behalf, and on behalf of First Franklin’s successors and assigns.” (Affirmation of William C.
Hultman, ¶7). However, Section 5 of Rule 2, which was attached to the Hultman Affirmation as
an exhibit, contains no explicit reference to the creation of an agency or nominee relationship.
Consistent with this failure to explicitly refer to the creation of an agency agreement, the rules of
membership do not grant any clear authority to MERS to take any action with respect to the
mortgages held by MERS members, including but not limited to executing assignments. The
rules of membership do require that MERS members name MERS as “mortgagee of record” and
that MERS appears in the public land records as such. Section 6 of Rule 2 states that “MERS
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shall at all times comply with the instructions of the holder of mortgage loan promissory notes,”
but this does not confer any specific power or authority to MERS.
State law
Under New York agency laws, an agency relationship can be created by a “manifestation
of consent by one person to another that the other shall act on his behalf and subject to his
control, and the consent by the other to act.” Meisel v. Grunberg, 651 F.Supp.2d 98, 110
(S.D.N.Y. 2009) (citing N.Y. Marine & Gen. Ins. Co. v. Tradeline, L.L.C., 266 F.3d 112, 122 (2d
Cir.2001)).
‘Such authority to act for a principal may be actual or apparent.’ . . . Actual
authority arises from a direct manifestation of consent from the principal to the
agent. . . . . The existence of actual authority ‘depends upon the actual interaction
between the putative principal and agent, not on any perception a third party may
have of the relationship.’
Meisel v. Grunberg, 651 F.Supp.2d at 110 (citations omitted).
Because MERS’s members, the beneficial noteholders, purported to bestow upon MERS
interests in real property sufficient to authorize the assignments of mortgage, the alleged agency
relationship must be committed to writing by application of the statute of frauds. Section 5-
703(2) of the New York General Obligations Law states that:
An estate or interest in real property, other than a lease for a term not exceeding
one year, or any trust or power, over or concerning real property, or in any
manner relating thereto, cannot be created, granted, assigned, surrendered or
declared, unless by act or operation of law, or by a deed or conveyance in writing,
subscribed by the person creating, granting, assigning, surrendering or declaring
the same, or by his lawful agent, thereunto authorized by writing.
See N.Y. Gen. Oblig. Law § 5-703(1) (McKinney 2011); Republic of Benin v. Mezei, No. 06 Civ.
870 (JGK), 2010 WL 3564270, at *3 (S.D.N.Y. Sept. 9, 2010); Urgo v. Patel, 746 N.Y.S.2d 733
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(N.Y. App. Div. 2002) (finding that unwritten apparent authority is insufficient to satisfy the
statute of frauds) (citing Diocese of Buffalo v. McCarthy, 91 A.D.2d 1210 (4th Dept. 1983)); see
also N.Y. Gen. Oblig. Law § 5-1501 (McKinney 2011) (“‘agent’ means a person granted
authority to act as attorney-in-fact for the principal under a power of attorney. . .”). MERS asks
this Court to liberally interpret the laws of agency and find that an agency agreement may take
any form “desired by the parties concerned.” However, this does not free MERS from the
constraints of applicable agency laws.
The Court finds that the record of this case is insufficient to prove that an agency
relationship exists under the laws of the state of New York between MERS and its members.
According to MERS, the principal/agent relationship among itself and its members is created by
the MERS rules of membership and terms and conditions, as well as the Mortgage itself.
However, none of the documents expressly creates an agency relationship or even mentions the
word “agency.” MERS would have this Court cobble together the documents and draw
inferences from the words contained in those documents. For example, MERS argues that its
agent status can be found in the Mortgage which states that MERS is a “nominee” and a
“mortgagee of record.” However, the fact that MERS is named “nominee” in the Mortgage is
not dispositive of the existence of an agency relationship and does not, in and of itself, give
MERS any “authority to act.” See Steinbeck v. Steinbeck Heritage Foundation, No. 09-18360cv,
2010 WL 3995982, at *2 (2d Cir. Oct. 13, 2010) (finding that use of the words “attorney in fact”
in documents can constitute evidence of agency but finding that such labels are not dispositive);
MERS v. Saunders, 2 A.3d 289, 295 (Me. 2010) (designation as the ‘mortgagee of record’ does
not qualify MERS as a “mortgagee”). MERS also relies on its rules of membership as evidence
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of the agency relationship. However, the rules lack any specific mention of an agency
relationship, and do not bestow upon MERS any authority to act. Rather, the rules are
ambiguous as to MERS’s authority to take affirmative actions with respect to mortgages
registered on its system.
In addition to casting itself as nominee/agent, MERS seems to argue that its role as
“mortgagee of record” gives it the rights of a mortgagee in its own right. MERS relies on the
definition of “mortgagee” in the New York Real Property Actions and Proceedings Law Section
1921 which states that a “mortgagee” when used in the context of Section 1921, means the
“current holder of the mortgage of record . . . or their agents, successors or assigns.” N.Y. Real
Prop. Acts. L. § 1921 (McKinney 2011). The provisions of Section 1921 relate solely to the
discharge of mortgages and the Court will not apply that definition beyond the provisions of that
section in order to find that MERS is a “mortgagee” with full authority to perform the duties of
mortgagee in its own right. Aside from the inappropriate reliance upon the statutory definition
of “mortgagee,” MERS’s position that it can be both the mortgagee and an agent of the
mortgagee is absurd, at best.
Adding to this absurdity, it is notable in this case that the Assignment of Mortgage was
by MERS, as nominee for First Franklin, the original lender. By the Movant’s and MERS’s
own admission, at the time the assignment was effectuated, First Franklin no longer held any
interest in the Note. Both the Movant and MERS have represented to the Court that subsequent
to the origination of the loan, the Note was assigned, through the MERS tracking system, from
First Franklin to Aurora, and then from Aurora to U.S. Bank. Accordingly, at the time that
MERS, as nominee of First Franklin, assigned the interest in the Mortgage to U.S. Bank, U.S.
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Bank allegedly already held the Note and it was at U.S. Bank’s direction, not First Franklin’s,
that the Mortgage was assigned to U.S. Bank. Said another way, when MERS assigned the
Mortgage to U.S. Bank on First Franklin’s behalf, it took its direction from U.S. Bank, not First
Franklin, to provide documentation of an assignment from an entity that no longer had any rights
to the Note or the Mortgage. The documentation provided to the Court in this case (and the
Court has no reason to believe that any further documentation exists), is stunningly inconsistent
with what the parties define as the facts of this case.
However, even if MERS had assigned the Mortgage acting on behalf of the entity which
held the Note at the time of the assignment, this Court finds that MERS did not have authority,
as “nominee” or agent, to assign the Mortgage absent a showing that it was given specific
written directions by its principal.
This Court finds that MERS’s theory that it can act as a “common agent” for undisclosed
principals is not support by the law. The relationship between MERS and its lenders and its
distortion of its alleged “nominee” status was appropriately described by the Supreme Court of
Kansas as follows: “The parties appear to have defined the word [nominee] in much the same
way that the blind men of Indian legend described an elephant – their description depended on
which part they were touching at any given time.” Landmark Nat’l Bank v. Kesler, 216 P.3d
158, 166-67 (Kan. 2010).
Conclusion
For all of the foregoing reasons, the Court finds that the Motion in this case should be
granted. However, in all future cases which involve MERS, the moving party must show that it
Page 36 of 37
Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10
validly holds both the mortgage and the underlying note in order to prove standing before this
Court.
Dated: Central Islip, New York
February 10, 2011 /s/ Robert E. Grossman
Hon. Robert E. Grossman
United States Bankruptcy Judge
Page 37 of 37
Case 8-10-77338-reg Doc 41 Filed 02/10/11 Entered 02/10/11 14:13:10

bad day for the MERS argument in California

16 Feb

COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
NANCY G. JIMENEZ,
Plaintiff and Appellant,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., et al.,
Defendants and Respondents.
D056325
(Super. Ct. No. 37-2009-00088881-CU-OR-CTL)
APPEAL from judgments of the Superior Court of San Diego County, William R. Nevitt, Jr., Judge. Affirmed.
Plaintiff Nancy Jimenez appeals from judgments of dismissal in favor of defendants Mortgage Electronic Registration Systems, Inc. (MERS) and California Reconveyance Company (CRC) on her complaint in which she alleged, inter alia, MERS, CRC and JPMorgan Chase Bank, N.A., (Chase) lacked authority to conduct a nonjudicial foreclosure on a deed of trust for her property, which identified MERS as the “nominee” for the lender and its successors and assigns as well as the beneficiary of the deed.
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Taking judicial notice of the “legal effect of” certain recorded documents, the trial court sustained the defendants’ demurrers to all but one cause of action and thereafter entered judgments of dismissal as to MERS and CRC. On appeal, Jimenez contends CRC lacked authority to foreclose on her property due to the void nature of the purported assignment of the deed by MERS; that as a result, CRC was not acting in the interest of the true holder of Jimenez’s note. She further contends the court erred by judicially noticing the legal effect of the documents submitted by defendants with their papers. Though we agree with Jimenez’s latter contention, we nevertheless affirm the judgments.
FACTUAL AND PROCEDURAL BACKGROUND
In November 2006, Jimenez executed a promissory note in The Mortgage Store’s favor for a $232,000 loan secured by real property on Florida Street in San Diego, California. The deed of trust securing the note defines the lender as The Mortgage Store and the trustee as First American Title Company. The deed of trust identifies MERS as a “separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns” and provides that MERS “is the beneficiary under this Security Instrument.”
After CRC recorded a notice of trustee’s sale notifying Jimenez of her default under the deed of trust and the possible sale of her property, Jimenez sued MERS, CRC and Chase for “wrongful initiation of foreclosure,” declaratory relief and quiet title. In
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her complaint, she also alleged a cause of action against Chase and CRC for violation of the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act or Act, Civ. Code,1
§ 1788 et seq.), and causes of action against Chase alone for violations of section 2943 and the Unfair Competition Law (UCL; Bus. & Prof. Code, § 17200 et seq.).
Jimenez alleges on information and belief that at all times relevant, “MERS has existed only to maintain a database of mortgages registered by its member lenders and to serve as nominee beneficiary under their deeds of trust, sparing the true beneficiaries the trouble and expense of recording assignments of mortgages from the original lender to assigns as the notes are sold in the secondary mortgage market.” She alleges, “MERS does not own the promissory notes secured by the mortgages and has no right to payments made on the notes, nor does MERS service mortgage loans or make any decisions regarding them. MERS merely attempts to immobilize the mortgage lien while transfers of the promissory notes and servicing rights continue to occur.” According to Jimenez, The Mortgage Store acquired the note for resale and resold it into the secondary mortgage market, where it was sold and resold until it landed in a pool of mortgages that constituted the assets of a “special purpose entity” administered by a trustee, who held legal title to the assets. Jimenez alleges that at all times relevant, the “secondary mortgage market was marked by endemic failures to validly assign and properly document the assignments of mortgages, including mortgages in which MERS was the
1 All statutory references are to the Civil Code unless otherwise indicated.
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nominal beneficiary, so that the actual ownership of beneficial interests in many mortgages became, and remains, difficult or impossible to determine.”
Jimenez further alleges that in January 2009, she sought documents concerning her loan from Chase via Washington Mutual,2 including a copy of the note; documents reflecting the note’s sale, transfer or assignment; and a beneficiary statement and payoff demand statement under section 2943. Two days later, CRC recorded a notice of default and election to sell under Jimenez’s trust deed, stating she was in default and it could exercise the power of sale in the trust deed without further notice. Thereafter Jimenez sent several additional requests for the same documents to Chase but did not obtain all of them. Jimenez alleges she “does not know the identity of the Note’s beneficial owner, that is, the ‘beneficiary’ as that term is used in . . . the California Civil Code relating to mortgages and deeds of trust . . . .” but she is “informed and believes that a person purporting to be the rightful current beneficiary by virtue of a purported assignment from MERS authorized an agent to cause the above-mentioned Notices to be recorded.” Jimenez alleges that The Mortgage Store did not assign the note to MERS and did not authorize MERS or any other person to assign the note to anyone on its behalf; that “the person or entity who directed the initiation of the foreclosure process was not the rightful
2 Jimenez alleged that defendant JPMorgan Chase Bank, N.A. “does business in California as Chase and as of September 28, 2008, also as Washington Mutual . . . .”
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owner of the Note and was acting without the rightful owner’s authority.”3 Jimenez sought a judicial declaration concerning the interpretation of section 2924 as well as a determination that her interest in the property was free of the lien of the deed of trust.
As to Chase and CRC, Jimenez alleges Chase identified itself to her as a debt collector in a March 2009 letter and that letter, together with CRC’s notice of default, constituted attempts to collect a debt in violation of the Rosenthal Act. As to Chase, Jimenez alleges it violated section 2943 by intentionally failing to respond to her requests for documents.
MERS generally demurred on grounds Jimenez’s complaint failed to state a cause of action. In part, MERS argued it was a duly appointed beneficiary under the trust deed and as a result had authority to assign the deed of trust in January 2007 to another entity,
3 Defendants criticize Jimenez’s allegations made on information and belief as “conclusory suppositions” and an “unarticulated guise” for pleading facts. But it is permissible for a pleader to allege on information and belief facts not within his or
her actual or presumed personal knowledge. (See Dey v. Continental Cent. Credit
(2008) 170 Cal.App.4th 721, 725, fn. 1; North v. Cecil B. DeMille Productions, Inc. (1934) 2 Cal.2d 55, 58; 4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, §§ 398, 399, pp. 537-539.) We will, however, disregard as argument, contention or legal conclusions Jimenez’s allegations that MERS “spar[es] the true beneficiaries the trouble and expense of recording assignments of mortgages from the original lender to assigns . . . “; MERS “has no right to payments made on the notes”; the “secondary mortgage market was marked by endemic failures to validly assign and properly document the assignments of mortgages . . . so that the actual ownership of beneficial interests in many mortgages became, and remains, difficult or impossible to determine”; and MERS “was not the rightful owner of the Note and was acting without the rightful owner’s authority.” (E.g., Foerst v. Hobro (1932) 125 Cal.App. 476, 478; Spaulding v. Wesson (1890) 84 Cal. 141, 142; Metzenbaum v. Metzenbaum (1948) 86 Cal.App.2d 750, 754; 4 Witkin, Cal. Procedure, supra, § 384, pp. 521-522.)
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La Salle Bank,4 which in turn recorded a substitution of trustee naming CRC as the new trustee. It asked the court to take judicial notice of the grant deed, deed of trust, notice of default, and a January 27, 2009 assignment providing that MERS “grants, assigns and transfers . . . all beneficial interest under” the deed of trust to La Salle Bank “together with the note or notes therein described and secured thereby . . . .” It also asked the court to judicially notice a substitution of trustee recorded on January 27, 2009, in which La Salle Bank, identified as the trust deed’s beneficiary, purported to substitute CRC as the trustee. It argued foreclosure was lawfully initiated under sections 2924 to 2924i, permitting the “trustee, mortgagee or beneficiary or any of their authorized agents” to conduct the foreclosure process and allowing a substituted trustee or its agent to record the notice of default and notice of sale. MERS argued Jimenez’s quiet title cause of action failed for the absence of a verified complaint and the fact its allegations were contradicted by the judicially noticeable documents.
CRC and Chase generally demurred on the same grounds as MERS and requested that the court take judicial notice of the same documents. They additionally argued Jimenez’s Rosenthal Act cause of action failed because Chase, as the trust deed’s beneficiary, had the authority to instruct the foreclosure trustee to commence foreclosure and when the beneficial interest was assigned to CRC, CRC possessed the same authority.
4 The entity is alleged to be La Salle Bank, N.A., as trustee for Washington Mutual Mortgage Pass Through Certificates WMALT Series 2007-OC1Trust. We shall refer to that entity as La Salle Bank.
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In opposition to the demurrers, Jimenez argued her case centered on the validity and effect of the assignment and substitution of trustee that were the subject of defendants’ requests for judicial notice. She maintained a key factual dispute was whether CRC in fact held a beneficial interest in the promissory note secured by the deed of trust, and the documents were not judicially noticeable official records or findings, but merely documents created by the defendants. She argued the court could not take judicial notice of the documents’ contents and absent anything to contradict her pleadings it was required to overrule the demurrers to all but the quiet title and section 2943 causes of action. Jimenez sought leave to amend to cure the lack of verification and to “add any such allegations as may be appropriate, if the court sustains the demurrer.”
Granting judicial notice “as to the legal effect of the recorded documents,” the court tentatively sustained the defendants’ demurrers to all but the UCL cause of action without leave to amend. As to those causes of action, it ruled the documents contradicted essential allegations of Jimenez’s complaint and Jimenez did not show she could cure the defects by further amendment. It granted Jimenez leave to amend her UCL cause of action. The court thereafter entered judgments of dismissal in favor of MERS and CRC. This appeal followed.
DISCUSSION
I. Standard of Review
The applicable appellate review standards are settled: ” ‘A demurrer tests the sufficiency of a complaint as a matter of law.’ [Citation.] In reviewing the propriety of the sustaining of a demurrer, the ‘court gives the complaint a reasonable interpretation,
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and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed “if any one of the several grounds of demurrer is well taken. [Citations.]” [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.’ ” (Dey v. Continental Cent. Credit, supra, 170 Cal.App.4th at pp. 725-726.) Plaintiffs bear the burden of proving a reasonable possibility any defects can be cured by amendment. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) The reviewing court independently examines the complaint under this standard. (McCall v. PacificCare of California, Inc. (2001) 25 Cal.4th 412, 415; Dey, at p. 726.)
If judicially noticeable facts render an otherwise facially valid complaint defective, the complaint is subject to demurrer. (See Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6.) This rule discourages plaintiffs from filing sham pleadings: “Under the doctrine of truthful pleading, the courts ‘will not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts that are judicially noticed.’ [Citation.] ‘False allegations of fact, inconsistent with annexed documentary exhibits [citation] or contrary to facts judicially noticed [citation], may be disregarded . . . .’ ” (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400; accord, C.R. v. Tenet Healthcare Corp.
9
(2009) 169 Cal.App.4th 1094, 1102 [allegations contrary to the law or to a fact of which judicial notice may be taken will be treated as a nullity].) However, our review should reflect no concern for whether Jimenez can prove the facts alleged in her complaint. (California Golf, LLC v. Cooper (2008) 163 Cal.App.4th 1053, 1064.) ” ‘The hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of documents whose truthfulness or proper interpretation are disputable.’ ” (See Silguero v. Creteguard, Inc. (2010) 187 Cal.App.4th 60, 64.)
Jimenez makes lengthy arguments as to MERS’s role in non-judicial foreclosures without citation to the record. These arguments are unhelpful on our review of the sufficiency of her complaint, given our focus on Jimenez’s properly pleaded material facts and exhibits attached to her complaint. (Zelig v. County of Los Angeles, supra, 27 Cal.4th at p. 1126; Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.).
II. Propriety of Taking Judicial Notice of the “Effect” of the Recorded Documents
We begin with Jimenez’s challenge to the propriety of taking judicial notice of the “effect” of MERS’s recorded assignment to La Salle Bank and La Salle Bank’s substitution of CRC as trustee. Defendants sought judicial notice under Evidence Code section 451, subdivision (f), mandating notice of “[f]acts and propositions of generalized knowledge that are so universally known that they cannot reasonably be the subject of dispute,” and subdivisions of Evidence Code section 452 permitting judicial notice of court records (Evid. Code, § 452, subd. (d)), facts and propositions of such common knowledge that they cannot reasonably be the subject of dispute (Evid. Code, § 452,
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subd. (g)), and facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination “by resort to sources of reasonably indisputable accuracy.” (Evid. Code, § 452, subd. (h).)
” ‘ “Judicial notice is the recognition and acceptance by the court, for use by the trier of fact or by the court, of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.” [Citation.]’ [Citation.]
‘ “Judicial notice may not be taken of any matter unless authorized or required by law.” (Evid. Code, § 450.) . . . A matter ordinarily is subject to judicial notice only if the matter is reasonably beyond dispute. [Citation.] Although the existence of a document may be judicially noticeable, the truth of statements contained in the document and its proper interpretation are not subject to judicial notice if those matters are reasonably disputable.’ ” (Unruh-Hazton v. Regents of University of California (2008) 162 Cal.App.4th 343, 364-365; accord, StorMedia Inc. v. Superior Court (1999) 20 Cal.4th 449, 457, fn. 9 [“When judicial notice is taken of a document . . . the truthfulness and proper interpretation of the document are disputable”]; C.R. v. Tenet Healthcare Corp., supra, 169 Cal.App.4th at pp. 1103-1104.)
Jimenez argues the statutes cited by defendants do not permit judicial notice of the assignment and trust deed; that none of the statutory grounds were present. We agree. The recorded documents are not court records (Evid. Code, § 452, subd. (d)), and the contents of the documents, purporting to evidence particular transactions, neither constitute nor include “facts and propositions” that would be the subject of Evidence Code sections 451, subdivision (f), and 452, subdivisions (g) or (h). (Compare with In re
11
Marriage of Tammen (1976) 63 Cal.App.3d 927, 931 [taking judicial notice, as a matter of common knowledge, of the proposition that deeds of trust are bought and sold in the course of ordinary business].)
Accordingly, we reject defendants’ assertion that judicial notice lies under section 452, subdivision (h), which involves facts that are “widely accepted as established by experts and specialists in the natural, physical, and social sciences which can be verified by reference to treatises, encyclopedias, almanacs and the like. . . . .” (Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4th 1137, 1145.) Defendants argue the assignment from MERS to La Salle Bank and La Salle Bank’s substitution of trustee demonstrate facts that are not reasonably subject to dispute and capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy, so as to contradict allegations of Jimenez’s complaint, including her allegation that “as of April 30, 2009, no assignment of the Note and no Substitution of Trustee had been recorded and . . . none has been recorded since that time.” Defendants point also to Jimenez’s allegation that “CRC has not been duly appointed or duly substituted as trustee by the true beneficiary of the Deed of Trust and therefore has no authority to conduct a sale of the property.” They argue the recording of the documents accomplished that substitution, and the “facts may be considered as business records and an exception to the hearsay rule” that fall within the scope of the sort of facts and propositions included in Evidence Code section 452, subdivision h. Defendants cite no authority for the latter proposition.
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Jimenez concedes the propriety of taking judicial notice of the fact of recording. She maintains the court cannot, however, take judicial notice of the key issue here: whether the documents reflect a valid assignment of the promissory note from the original lender (The Mortgage Store) to any of the defendants, a claim that involves the truth of the documents’ contents. She argues recordation is not a substitute for evidentiary proof of the truth of the facts asserted in a recorded document. Specifically, she points to her allegation that there is no assignment of the promissory note from the original lender (The Mortgage Store) to any of the defendants, and to the fact that none of the recorded documents show any such assignment. Jimenez further argues the trial court’s taking of judicial notice was not harmless error, as these documents were the sole support for its ruling dismissing her causes of action. She emphasizes that our review in any event is de novo, and we are not bound by the trial court’s reasoning.
There is authority for the proposition that a court may take judicial notice of “recorded deeds.” (Evans v. California Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 549, citing Maryland Casualty Co. v. Reeder (1990) 221 Cal.App.3d 961, 977 (Maryland Casualty) & Cal-American Income Property Fund II v. County of Los Angeles (1989) 208 Cal.App.3d 109, 112, fn. 2; Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106 (Poseidon).) In Evans, the plaintiffs did not object to the request and further conceded the truth of the matters evidenced by the deed, and under those circumstances the appellate court upheld the trial court’s evidentiary ruling taking judicial notice of a trustee’s deed. (Evans, at p. 549.) In Maryland Casualty, this court, reviewing a summary judgment on an insurance company’s declaratory relief complaint,
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asked the parties to identify evidence of ownership and took judicial notice of recorded deeds purporting to establish a chain of title so as to decide whether certain entities held interests in property and were subject to an exclusion against insurance coverage. (Maryland Casualty, 221 Cal.App.3d at pp. 976-977.) There is no indication in that case that any party objected to the request or disputed the validity of the deeds. Maryland Casualty in turn relied on B & P Development Corp. v. City of Saratoga (1986) 185 Cal.App.3d 949, in which the appellate court took judicial notice under Evidence Code sections 459 and 452, subdivisions (g) and (h) only of the fact that the plaintiff had filed and recorded its final subdivision map. (Id. at p. 960.) The Court of Appeal in Cal-American Income Property Fund II granted the request to judicially notice the Los Angeles County Recorder’s recordation of trust deeds as official acts of the executive department under Evidence Code section 452, subdivision (c), a provision not relied upon by defendants here. (Cal-American Income Property Fund II, at p. 112, fn. 2.) The appellate court in Cal-American did so in view of the fact that the plaintiff, who opposed the request on grounds the documents were not introduced in the lower court, did not question the authenticity of the documents and the parties made reference to the trust deeds and foreclosure proceedings in the proceedings below. (Ibid.)
In Poseidon, the appellate court observed that under Maryland Casualty, judicial notice may be taken of recorded deeds, but cautioned that “the fact a court may take judicial notice of a recorded deed, or similar document, does not mean it may take judicial notice of factual matters stated therein. [Citation.] For example, the First Substitution [a substitution of trustee document recorded on July 16, 2004] recites that
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Shanley ‘is the present holder of beneficial interest under said Deed of Trust.’ By taking judicial notice of the First Substitution, the court does not take judicial notice of this fact, because it is hearsay and it cannot be considered not reasonably subject to dispute.” (Poseidon, supra, 152 Cal.App.4th at p. 1117.) Poseidon involved plaintiff Poseidon Development, Inc.’s complaint for breach of a promissory note in which Poseidon sought to recover, inter alia, expenses associated with its initiation of a nonjudicial foreclosure proceeding. (Id. at p. 1109.) The trial court sustained the defendant’s demurrers without leave to amend, finding that certain documents, including assignments of the trust deed and note from Poseidon to another mortgage company, showed Poseidon was not entitled to recover fees incurred for the foreclosure because it had assigned the deed of trust and had no right to initiate foreclosure proceedings. (Id. at p. 1116.) On appeal, Poseidon challenged the trial court’s taking of judicial notice of the fact that the document transferred beneficial interest in the note and trust deed and argued that matter remained subject to dispute. (Id. at p. 1117.) The Court of Appeal rejected that argument, noting that the assignment contradicted Poseidon’s allegations that it ” ‘remained the true and rightful owner of the note with the power to foreclose on the deed of trust . . . .’ ” (Id. at p. 1118.) It held the “legal effect [of the assignment] could not be clearer” in that it was “not reasonably subject to dispute that, whatever else occurred, Poseidon gave up and no longer held the beneficial interest under the deed of trust” and thus no longer had the power to substitute the trustee of the deed of trust. (Ibid.) Importantly, the Court of Appeal observed that on appeal, Poseidon did not dispute the validity of the assignment, only its effect. (Ibid.) We take from Poseidon that had the plaintiff disputed the validity
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of the assignment, judicial notice as to whether Poseidon retained the beneficial interest would be a contested factual matter not subject to judicial notice.
Here, we may judicially notice the fact that on January 27, 2009, MERS recorded an assignment of the deed of trust and note to La Salle, which in turn recorded a substitution of trustee document stating it was substituting CRC as the trustee. This would contradict Jimenez’s allegation that no assignment of the deed of trust or substitution of trustee had been recorded as of April 30, 2009. However, unlike the plaintiff in Poseidon, the gravamen of Jimenez’s complaint — reasonably and liberally construing its allegations — challenges the validity of the assignments and substitutions. In opposition to the demurrer, she questioned whether CRC in fact held a beneficial interest in the deed of trust and pointed out her complaint challenged the validity of MERS’s purported assignment of the note based on factual allegations — which we must accept as true — that The Mortgage Store did not assign the note to MERS or authorize MERS to assign the note to anyone on its behalf, and that MERS is not the note’s holder. Because Jimenez disputes MERS’s status and its ability to assign the note and also CRC’s status as the legitimate trustee, we conclude it is not proper to judicially notice the validity or legal effect of the assignment to La Salle Bank and substitution of trustee to CRC. (Poseidon, 152 Cal.App.4th at p. 1117.)
III. The Complaint Fails to State a Cause of Action Even Assuming the Truth of Jimenez’s Allegation That MERS Does Not Hold the Promissory Note
Though we disregard the truth of the contents of the assignment and substitution of trustee submitted by defendants in support of their demurrer, we nevertheless conclude
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Jimenez cannot state causes of action for “wrongful initiation” of foreclosure, declaratory relief, and violations of the Rosenthal Act. Our conclusion mainly turns on the recitals in the deed of trust executed by Jimenez and attached to her complaint, which give precedence to any contrary factual allegations. (Qualcomm, Inc. v. Certain Underwriters At Lloyd’s, London (2008) 161 Cal.App.4th 184, 191; Performance Plastering v. Richmond American Homes of California (2007) 153 Cal.App.4th 659, 665; Dodd v. Citizen’s Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627.)
A. Wrongful Initiation of Foreclosure
We have found no California state authority, and Jimenez cites none, identifying or describing the elements of a purported cause of action for “wrongful initiation” of foreclosure.5 Her allegations charge in a conclusory fashion that she does not know the note’s “beneficial owner”; that the person who directed initiation of the foreclosure is not the “rightful” owner of the note, that CRC is without authority to foreclose, and she has suffered damage “[a]s a result of defendant’s wrongful actions . . . .” Jimenez admits that the essence of her complaint is that under California law, “only the holder of a beneficial interest in a note can foreclose on the security for that note.”
We could reject Jimenez’s attempted cause of action merely by disregarding her conclusory pleading. But Jimenez’s assertions about the note are unavailing in any event.
5 Jimenez does not allege that her property was in fact sold at a foreclosure sale, and her cause of action does not seek to set aside such a sale. In Hulse v. Ocwen Federal Bank, FSB (D.Or. 2002) 195 F.Supp.2d 1188, the court suggested that without an actual foreclosure sale, the plaintiff in that case might have no remedy for an alleged initiation of the foreclosure process by the wrong entity. (Id. at p. 1204, fn. 5.)
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In California, the regulation of nonjudicial foreclosures pursuant to a power of sale is governed by the ” ‘comprehensive framework’ ” of sections 2924 through 2924k. (Melendrez v. D&I Investment, Inc. (2005) 127 Cal.App.4th 1238, quoting Moeller v. Lien (1994) 25 Cal.App.4th 822, 830; see also Ung v. Koehler (2005) 135 Cal.App.4th 186, 202 [exercise of power of sale in a deed of trust ” ‘is carefully circumscribed by statute’ “]; Knapp v. Doherty (2004) 123 Cal.App.4th 76, 86.) The statutory scheme is intended to be “exhaustive” and courts will not incorporate unrelated provisions into statutory nonjudicial foreclosure proceedings. (See Moeller, at p. 834.) Under the scheme, a “trustee, mortgagee or beneficiary or any of their authorized agents” may record the notice of default — the document that initiates the non-judicial foreclosure process. (§§ 2924, subd. (a)(1); see also 2924b(b)(4) [“A ‘person authorized to record the notice of default or notice of sale’ shall include an agent for the mortgagee or beneficiary, an agent of the named trustee, any person designated in an executed substitution of trustee, or an agent of that substituted trustee”].) There is abundant federal authority in accord. (Morgera v. Countrywide Home Loans (E.D.Cal. 2010) 2010 WL 160348, *7 [citing cases]; Linkhart v. US. Bank Nat. Assn. (S.D.Cal. 2010) 2010 WL 1996895; Perlas v. Mortgage Elec. Registration Systems, Inc. (N.D.Cal. 2010) 2010 WL 3079262 [“There is no requirement in California that the foreclosure be initiated by the lender itself”].) Jimenez points to nothing in the framework requiring that the person initiating non-judicial foreclosure proceedings possess a beneficial interest in the note, or be the lender or original note holder.
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Jimenez attacks MERS’s ability to validly assign the note on grounds it is a nominal beneficiary only of the deed of trust, and is not the holder of the note.6 But that allegation is contradicted by the recorded deed of trust attached to her complaint, executed by Jimenez, in which Jimenez agreed that MERS, the designated beneficiary, was also broadly granted the right as the lender’s nominee to “exercise any or all of [the lender’s] interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender . . . .”7 (Italics added.) This language empowers MERS to take any actions within the lender’s authority, including making assignments of the note (as well as the trust deed), contrary to Jimenez’s allegations. Because Jimenez’s cause of action is premised on MERS’s asserted lack of power or authority to assign the promissory note, it fails on grounds her assertion is
6 It is true, as Jimenez emphasizes, that a valid assignment requires more than just assignment of the deed; the note must also be assigned. (See Carpenter v. Longan (1872) 83 U.S. 271, 274 [“[t]he note and mortgage are inseparable; the former as essential, the latter as an incident”; “[a]n assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity”]; Kelley v. Upshaw (1952) 39 Cal.2d 179, 192 [assignment of only the deed without a transfer of the promissory note is completely ineffective]; see also Restatement (3d) of Property (Mortgages) § 5.4 [“[a] mortgage may be enforced only by, or in behalf of, a person who is entitled to enforce the obligation that the mortgage secures,” italics added].) Here, the face of MERS’s assignment to La Salle Bank shows MERS identified not just the deed of trust, but also the promissory note.
7 More fully, the deed of trust provides: “Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.”
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belied by the recitals in the deed of trust, which take precedence over the contrary factual allegations.
B. Declaratory Relief
Jimenez seeks a judicial declaration as to whether, “by necessary implication, [section] 2924[, subdivision] (a) allows a borrower, before his or her property is sold, to bring a civil action in order to test whether the person electing to sell the property is, or is duly authorized to do so by, the owner of a beneficial interest in it.” She specifically points to section 2924, subdivision (a)(1)(C), which requires, as part of a notice of default, “[a] statement setting forth the nature of each breach actually known to the beneficiary and of his or her election to sell or cause to be sold the property to satisfy that obligation and any other obligation secured by the deed of trust or mortgage that is in default.”
But this statute merely governs the contents of the notice of default for purposes of allowing a default to be cured and obtain reinstatement. (See Ung v. Koehler, supra, 135 Cal.App.4th 186, 202.) There are no ” ‘ “clear, understandable, unmistakable terms” ‘ ” within the statute that evidences legislative intent to create a private cause of action as Jimenez suggests. (See Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592, 597.) We conclude Jimenez has not alleged an actual controversy to maintain a cause of action for her requested declaratory relief.
C. Violation of Rosenthal Act Cause of Action (as to CRC)
The Rosenthal Act protects consumers from unfair or deceptive debt collection acts and practices for “consumer debts,” created through transactions in which “property,
20
services or money is acquired on credit . . . primarily for personal, family, or household purposes.” (§§ 1788.1, 1788.2 subds. (e)-(f).) Under the Act, a “debt collector” is defined as “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.” (§ 1788.2, subd. (c).)
In support of her Rosenthal Act cause of action, Jimenez alleges CRC and Chase are “debt collectors within the meaning of the [Act]” and that Chase’s March 31, 2009 letter and CRC’s Notice of Default were attempts to collect a debt in violation of section 1788.10, subdivision (e)8 “in that they constitute an implied threat to sell the property, which is not permitted by law because, on information and belief, defendants were not authorized by the Note’s rightful owner to foreclose on the property.” Jimenez alleges the violations were willful and knowing. In its demurrer, CRC argued Jimenez failed to allege any harassing or threatening conduct, obscenity, misleading or false communications or any communications to third parties such as employers. It argued Jimenez’s allegations as to the absence of CRC’s authority to foreclose were contrary to the documents it sought to judicially notice.
On appeal, Jimenez apparently rests her argument on the impropriety of taking judicial notice of CRC’s status as the beneficial holder of the promissory note. She does not otherwise describe the Rosenthal Act’s elements or explain how her allegations state a
8 Section 1788.10, subdivision (e) prohibits any debt collector from collecting or attempting to collect a consumer debt by means of the following conduct: “The threat to any person that nonpayment of the consumer debt may result in the arrest of the debtor or the seizure, garnishment, attachment or sale of any property or the garnishment or attachment of wages of the debtor, unless such action is in fact contemplated by the debt collector and permitted by law . . . .” (§ 1788.10, subd. (e).)
21
cause of action under the Act. For its part, CRC responds for the first time on appeal that foreclosure of a loan is not “debt collection” under the Act. It cites federal cases involving the federal Fair Debt Collection Practices Act (FFDCPA, 15 U.S.C. §§ 1692-1692).
Jimenez’s Rosenthal Act claim falls on the premise alleged in her complaint that MERS had no authority to assign the promissory note, which assertedly invalidated CRC’s beneficial interest and ability to initiate foreclosure proceedings. As we have held, that premise is contradicted by the deed of trust granting MERS broad powers. Because the absence of MERS’s authority is the underlying basis for her cause of action under the Act, we conclude she cannot state a cause of action under the Act as a matter of law.
DISPOSITION
The judgments are affirmed.
O’ROURKE, J.
WE CONCUR:
BENKE, Acting P. J.
AARON, J.

The law of capitalism

16 Feb

The Impact of Citizens United on Judicial Elections. Further why can’t I find a judge willing to follow the law. It is clear that the concerned citizen or dispossessed homeowner has no dog in the fight. The result is clear judges will support the banks the FDIC because there support and bias is now tied to the law of Capitalism. As can be seen in the sweetheart deal that One West Bank gets when they agree to buy Inymac Bank they get 90% buyback guarantee for paper they only pay a fraction of face value. Then we look to see who the major stockholders are and it becomes clear who benefits at the expense of the taxpayer. Oh whops i went to find the major stock holders where on yahoo only to find they are not publicly held that explains a lot.It’s privately held by a “consortium of private investors.” That means there’s no public stock, and presumably no stock symbol. This privacy is presumably why it gets away with being one of only four major mortgage companies who have not signed on to the “Making Home Affordable” Plan, as of 6/30/09.Read more: http://wiki.answers.com Q/OneWest_Bank_Group_LLC_stock_symbol#ixzz1E8b8GmYj
In enforcing its rights under the loans purchased from IndyMac, OneWest Bank has taken a much more aggressive approach to foreclosing on properties.

In Citizens United v. FEC,[1] the United States Supreme Court struck down the long-standing federal ban on corporate independent expenditures in elections.[ii] The transformational effect that unrestricted corporate and union spending will have on elections for legislative and executive offices has been widely denounced.[iii] But the most severe impact of Citizens United may be felt in state judicial elections.

Just last year, the Supreme Court ordered a West Virginia judge disqualified from hearing the case of a campaign supporter who had spent extravagantly to elect the judge. It did so after concluding that, by refusing to step aside from hearing his benefactor’s case, the judge had violated the opposing party’s constitutional right to a fair hearing before an impartial court.[iv] Yet, by opening the door to expanded corporate spending in judicial races, Citizens United is likely to make this type of conflict of interest more common, and to increase pressures on judges who seek to remain independent and impartial.

Equally important, heightened spending in judicial races will almost certainly exacerbate existing public concerns that justice is for sale to the highest bidder. As Justice John Paul Stevens noted in dissent, the Citizens United decision came at a time “when concerns about the conduct of judicial elections have reached a fever pitch.”[v] And after Citizens United, if retired Justice Sandra Day O’Connor’s predictions are correct, “the problem of campaign contributions in judicial elections might get considerably worse and quite soon.”[vi]

This paper examines the damage that runaway spending in judicial elections is having on our state judiciaries, and offers several policy recommendations that states should consider in responding to the threat that outsized campaign spending poses to fair and independent courts. It first summarizes recent trends in judicial election spending and documents the impact that escalating spending is having on public confidence in the courts. Next, the paper highlights seven states in which Citizens United’s impact on judicial campaigns is likely to be significant, and explains why the decision is likely to spur increased special interest spending in judicial elections. The paper concludes with proposals for responding to our increasingly expensive judicial elections: public financing for judicial campaigns; enhanced disclosure and disqualification rules; and replacing judicial elections with merit selection systems in which bipartisan committees nominate the most qualified applicants, governors appoint judges from the nominees, and voters choose whether to retain the judges at the ballot box.
Introduction

Retired Justice Sandra Day O’Connor recently explained the risks that unlimited campaign spending poses to fair and independent courts — and the likelihood that Citizens United will intensify these risks:

If you’re a litigant appearing before a judge, it makes sense to invest in that judge’s campaign. No states can possibly benefit from having that much money injected into a political judicial campaign. The appearance of bias is high, and it destroys any credibility in the courts.

[After Citizens United], we can anticipate labor unions’ trial lawyers might have the means to win one kind of an election, and that a tobacco company or other corporation might win in another election. If both sides open up their spending, mutually assured destruction is probably the most likely outcome. It would end both judicial impartiality and public perception of impartiality.[vii]

The threat to our state courts is real — and serious. Thirty-nine states use elections to select some or all of their judges.[viii] According to the National Center on State Courts, nearly 9 in 10 — fully 87% — of all state judges run in elections, either to gain a seat on the bench in the first place, or to keep the seat once there.[ix] In a 2001 poll of state and local judges, more than 90% of all elected judges nationwide said they are under pressure to raise money in election years, and almost every elected judge on a state high court — 97% — said they were under a “great deal” or at least some pressure to raise money in the years they faced election.[x]

Corporations and special interests are already major spenders in judicial campaigns. As repeat players in high-stakes litigation, these groups have strong incentives to support judges they believe are likely to favor their interests. This is particularly true on state high courts, where electing a majority or a crucial swing vote can make the difference in litigation involving multi-million dollar claims. As a result, business interests and lawyers account for nearly two-thirds of all contributions to state supreme court candidates. Pro-business groups have a distinct advantage: in 2005-2006, for example, they were responsible for 44% of all contributions to supreme court candidates, compared with 21% for lawyers.[xi] In 2006, pro-business groups were responsible for more than 90% of all spending by interest groups on television advertising in supreme court campaigns.[xii]

This special interest spending has occurred in judicial elections despite the fact that approximately half the states previously banned or sharply restricted corporations from using treasury funds for campaign advocacy. None of these restrictions is permissible after Citizens United. The inevitable result will be increased corporate spending in judicial elections — and increased threats to independent and impartial courts.

Standing and Bozo

15 Feb

Were the motion to be amended to properly name the movant to be the UD plaintiff and the purported titleholder – “U S BANK NATIONAL ASSOCIATION, as Trustee,” any such movant would still have no standing to bring this motion without naming the trust for whose benefit they are purporting to act as trustee. If there is a trust, it must be named. There is no trust.

This nuance has been too difficult for other judges to grasp and clearly beyond the abilities of the debtor’s attorney to communicate. Esteemed bankruptcy judges have shown no interest in the identity of, or the existence of, the trust purporting to hold title to the subject property. The unlawful detainer commissioners who ruled in summary judgment while debtor’s counsel was on vacation were similarly unconcerned.

By way of illustration, debtor’s counsel suggests that the court substitute the hypothetical name “BOZO THE CLOWN” for “U S BANK NATIONAL ASSOCIATION.” If “BOZO THE CLOWN, as Trustee” were to have acquired the subject property by trustee’s deed upon sale, one may wonder aloud that it was not “BOZO THE CLOWN” that acquired the subject property, but rather “BOZO THE CLOWN, as Trustee” for another entity – a trust. Indeed, it would be ridiculous to say that “BOZO THE CLOWN” owned the property. Instead, it would be imminently reasonable to inquire as to the identity of the trust on whose behalf “BOZO THE CLOWN” was acting as trustee. One might expect some courts to make such an inquiry sua sponte. One would readily expect any court to take some interest in the issue were a party to object to a motion filed by “BOZO THE CLOWN” – as trustee or otherwise – for failing to identify the trust purporting to own the subject property.

In the motion before the court, there are no clowns, just a bank acting as trustee for an unnamed trust. A trust that debtor’s counsel contends does not exist. It’s one thing to lose one’s home to a bank that cheats. It’s quite another to lose it to a bank or a trust that doesn’t exist

Paying Off The Wrong Party? Nationwide Title Clearinghouse Issues Satisfactions to Parties Who Long Since Sold The Note (via Foreclosureblues)

14 Feb

Paying Off The Wrong Party? Nationwide Title Clearinghouse Issues Satisfactions to Parties Who Long Since Sold The Note Paying Off The Wrong Party? Nationwide Title Clearinghouse Issues Satisfactions to Parties Who Long Since Sold The Note Today, February 13, 2011, 26 minutes ago | L Satisfaction of Mortagage to third party NOT the investor or the servicer.  PAID OFF THE WRONG PARTY?  STILL LEGALLY OWE HSBC?  Did the pension fund or municipality get the pay off?  A little research will show that we're talking about billions of dollars here!   WHERE ARE THE PR … Read More

via Foreclosureblues

In Re FERREL L. AGARD | Time To Put A Fork In MERS (via Foreclosureblues)

14 Feb

In Re FERREL L. AGARD | Time To Put A Fork In MERS In Re FERREL L. AGARD | Time To Put A Fork In MERS Today, February 13, 2011, 6 hours ago | Foreclosure Fraud The Market Ticker – Time To Put A Fork In MERS? I was wondering how long this would take…. it appears that all the crooners that have appeared in front of Congress and elsewhere have finally had their heads cut off by…. as I expected….. a bankruptcy Judge. Bankruptcy Judges are federal judges. The Federal bench tends to have a very low tol … Read More

via Foreclosureblues

Oregon Dist. Court Grants T.R.O. For “Failure To Record Assignments, TILA Violation” EKERSON v. Mortgage Electronic Registration System (MERS) (via Foreclosureblues)

14 Feb

Oregon Dist. Court Grants T.R.O. For “Failure To Record Assignments, TILA Violation” EKERSON v. Mortgage Electronic Registration System (MERS) Oregon Dist. Court Grants T.R.O. For “Failure To Record Assignments, TILA Violation” EKERSON v. Mortgage Electronic Registration System (MERS) Today, February 14, 2011, 3 hours ago | dinsfla IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON PORTLAND DIVISION DAVID EKERSON, Plaintiff, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEM, a foreign corporation; CITIMORTGAGE, INC., a foreign corporation; and CAL-WESTERN RECONVEYANCE, a foreign co … Read More

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LPS Foreclosure Document Mill Faces Scrutiny For Allegedly Committing Perjury In Consumer Bankruptcy Case (via Foreclosureblues)

14 Feb

Monday, February 14, 2011 Foreclosure Document Mill Faces Scrutiny For Allegedly Committing Perjury In Consumer Bankruptcy Case AOL's Daily Finance reports: Lender Processing Service, is "the nation's leading provider" of "default solutions" to mortgage servicers, meaning it manages every aspect of foreclosure, whether in bankruptcy or state court. However, LPS is facing investigations and lawsuits that challenge its existence because they focus … Read More

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JPMorgan Based Foreclosures on Faulty Documents

13 Feb

Lawyers Claim
By Lorraine Woellert and Dakin Campbell – Sep 27, 2010
JPMorgan Chase & Co. faces a legal challenge next month that could cast doubt on thousands of
foreclosures after a mortgage executive at the bank said she didn’t verify documents used to justify
home seizures.
Lawyers for a Palm Beach County, Florida, homeowner asked a judge to throw out a foreclosure as
a penalty for misleading the court, according to attorney Tom Ice of Ice Legal PA. They’re citing a
May 17 deposition in which the JPMorgan executive said she signed thousands of affidavits and
documents supporting the New York-based bank’s claims without personally checking loan
records. The court is scheduled to hear arguments Oct. 19.
The Chase Home Finance operation supervisor, Beth Ann Cottrell, said in May she was among
eight managers who together sign about 18,000 documents a month, according to a transcript of
her sworn deposition provided by Ice. Asked how they were prepared, she said she relied on other
people at the firm.
“My review is more or less signing the document unless it’s questionable,” she said. That means,
“somebody has a question and brings it to me and says, ‘Beth, can you take a look at this?’”
Inaccurate statements by banks in foreclosure documents may give borrowers who have lost their
homes a legal basis to challenge the seizures, derailing resales and casting doubts on property
titles. A Florida court sanctioned Ally Financial Inc.’s GMAC Mortgage unit for faulty affidavits in
2006, and the firm suspended evictions in 23 states this month after finding employees still
signing affidavits without checking the data.
Titles in Doubt
JPMorgan spokesman Tom Kelly declined requests for comment. Cottrell didn’t return phone calls
to her office requesting comment. A lawyer representing her at the deposition, Joseph Mancilla of
the Florida Default Law Group PL, didn’t return calls. Cottrell isn’t named as a defendant.
JPMorgan Based Foreclosures on Faulty Documents, Lawyers Claim – Bloomberg Page 1 of 3
http://www.bloomberg.com/news/print/2010-09-27/jpmorgan-based-home-foreclosures-on… 9/27/2010
Cottrell signed the affidavit at issue in the case, dated June 2009, while at her previous employer,
an outside servicing firm working for JPMorgan, according to court documents. When signing
documents there for the JPMorgan unit, she used the title “assistant secretary and vice president”
of Chase Home Finance, according to the transcript. She became a JPMorgan employee about
three months after signing the affidavit. Document signers sometimes endorse affidavits on behalf
of other firms as a way to streamline the foreclosure process, said Dustin Zacks, an attorney at Ice’s
firm.
JPMorgan was the third-largest U.S. servicer of home mortgages as of June 30, with $1.35 trillion
or almost 13 percent of the market, according to industry newsletter Inside Mortgage Finance. Ally
is the fifth-biggest mortgage servicer, with $349.1 billion. The other three in the top five are Bank
of America Corp., Wells Fargo & Co., and Citigroup Inc.
Foreclosures Averted
Servicers perform billing and collections on home loans. When borrowers default, the firms handle
the foreclosure process. Affidavits lay the legal foundation for a foreclosure by attesting that the
borrower is delinquent and that the lender is entitled to seize the home. Details of the JPMorgan
case were reported earlier last week by the Financial Times.
Lawyers in Florida and New York, among other states, have halted foreclosures and evictions by
showing affidavits were faulty. Attorneys general in Texas, Iowa and Illinois have started
investigations into mortgage practices at GMAC Mortgage following last week’s revelations.
California has ordered the company to prove its foreclosures are legal or halt them.
If the documents are shown to be false after a home has already been resold by a bank, that casts
doubt on who is the rightful owner, said O. Max Gardner III, an attorney at law firm Gardner &
Gardner PLLC in Shelby, North Carolina, who has represented homeowners in fighting
foreclosures and has cases pending against JPMorgan.
Title Insurers
“I’m sure a lot of title insurance companies are concerned about the potential liability right now,”
as borrowers challenge how banks made statements, he said. “The judges could absolutely hold the
bank and attorneys in contempt.”
U.S. home seizures reached a record for the third time in five months in August as lenders
completed the foreclosure process for thousands of delinquent owners, according to RealtyTrac
Inc.
JPMorgan Based Foreclosures on Faulty Documents, Lawyers Claim – Bloomberg Page 2 of 3
http://www.bloomberg.com/news/print/2010-09-27/jpmorgan-based-home-foreclosures-on… 9/27/2010
Ice, the founding partner of his foreclosure-defense law firm in Royal Palm Beach, Florida, said
some lenders are accepting voluntary dismissal of their cases.
During the deposition, Cottrell said a staff of in-house specialists scrutinize loan documents and
prepare affidavits, the transcript shows. If they have difficulties or questions, they come to her. She
signs in a notary’s presence, she said.
‘No Knowledge’
During questioning by Ice lawyer Zacks, Cottrell said she had worked at Chase Home Finance for
about eight months, according to the transcript.
“As to everything in the affidavit, did you have personal knowledge?” Zacks asked.
“My own personal knowledge, no,” Cottrell answered.
“You stated ‘That plaintiff is entitled to enforce the note and mortgage,’” Zacks said. “Again, did
you have personal knowledge of that?”
“No knowledge,” she answered.
Florida Attorney General William McCollum is investigating three law firms that represent loan
servicers in foreclosures, and are alleged to have submitted fraudulent documents to the courts,
according to an Aug. 10 statement. The firms handled about 80 percent of foreclosure cases in the
state, according to a letter from U.S. Representative Alan Grayson, a Florida Democrat.
Judges overseeing foreclosures in the wake of the housing crisis are growing skeptical of banks,
said Christopher L. Peterson, a professor at the University of Utah’s S.J. Quinney College of Law. A
surge in proceedings has helped expose a variety of paperwork lapses, he said in an interview.
“Early in the process the judges were very cavalier and they just took the financiers’ word,”
Peterson said. “Now there are enough disputes out there about ownership of loans that the judges
are starting to feel like they need to hold the financial institutions to the basic rules of evidence.”
To contact the reporters on this story: Lorraine Woellert in Washington at
lwoellert@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net
To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

FRAUD CHARGED AGAINST INDYMAC EXECS (via Foreclosureblues)

12 Feb

FRAUD CHARGED AGAINST INDYMAC EXECS FRAUD CHARGED AGAINST INDYMAC EXECS Today, February 12, 2011, 7 hours ago | Neil Garfield COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary EDITOR’S COMMENT: The fraud has been obvious from the start. While this is a major case and hopefully a harbinger of things to come, it is directed at the fraud committed on shareholders of IndyMac. The fact is, if any of the banks had told the truth about what they were doin … Read More

via Foreclosureblues

New Case Debunks MERS: In re Agard, New York Bankruptcy Court Well Reasoned Opinion (via Foreclosureblues)

12 Feb

New Case Debunks MERS: In re Agard, New York Bankruptcy Court Well Reasoned Opinion New Case Debunks MERS: In re Agard, New York Bankruptcy Court Well Reasoned Opinion Today, February 12, 2011, 5 hours ago | findsenlaw A great new case is out as of Feb. 10, 2011.  This judge analyzes all of the MERS arguments, incuding the Membership Rules, the Hultman and RK Arnold affidavits, and the agency and nominee arguments, and holds that MERS does not have the authority it claims.  Excerpts below.  Full case NY BK In re Agard Feb 2011.C … Read More

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Debt Collectors should follow the FDCPA Laws

12 Feb

see www.fairdebtcollectionpractices.org
The Fair Debt Collection Practices Act (FDCPA) was shaped by the Federal Trade Commission (FTC) and passed by the Congress to ensure fair and lawful debt collections. This Act regulates debt collectors to ensure the rights of consumers for fair collection of debts.

The FDCPA requires the debt collectors to follow certain laws. These laws are about how to treat you and what attempts can be made to collect the debt from you. It is a known fact that if you owe you must pay but while attempting to collect the debt the debt collector should not over step the laws.

Over phone a debt collector should:

* Inform you his name and where he works

* Call you at a convenient time

* Not call you repeatedly

* Call you at office only if you or your employer approve

* Use decent and proper language

* Not threaten you with violence

* Not intimidate you with wage garnishment

* Speak truth

* Give right information about your debt

To collect the debt, a debt collector can:

* Inform you of the debt and request you to pay

* Request you for your convenient time and call only during that time

* Send you information by fax, or email

* Send information in enclosed envelope and not a post card

* Reach you in person if you have agreed to

* Contact third parties only once for information about you about your place of work or stay

* Call you at your workplace if you or your employer approve of it

* Contact your attorney only, if you have informed him about your attorney

A debt collector violates the FDCPA by

* Harassing you about the debt by calling repeatedly at unusual times

* Using improper language

* Threatening you with violence or legal action

* Not disclosing his name or place of work

* Calling himself a federal agent or an attorney

* Threatening you with arrest if you dint pay

* Contacting you even after you dispute the debt

It is imperative for a debt collector to adhere to the FDCPA laws. If he violates he can be sued under this Act. In case of violation of the Act you may engage an FDCPA attorney and pursue legal action.

Why Robo-Signatures Are Illegal in California and Other Non-Judicial Foreclosure States

9 Feb

With all of the press robo-signing has gotten, it is a bit surprising that everyone is having such a hard time concluding whether these practices effect California foreclosures. My assistant even said to me today, “but the banks say that it doesn’t matter because California is non judicial.”

Because the topic has not gotten the treatment it deserves, I will gladly do the job. The following are by no means a complete list, but are the most clear LEGAL reasons (setting aside pure moral questions and the U.S. Constitution) that the Robo-Signer Controversy will lead to massive litigation in California.

In short, Robo Signers are illegal in California because good title cannot be based on fraud, robo signed non judicial foreclosure sales are void as a matter of law, the documents are not able to be recorded in California if they are not notarized, which we know was often not done properly, and finally, because they robo signed forgeries ARE intended for judicial proceedings, including evictions and bankruptcy relief from stay motions.

1. Good Title Cannot Be Based on Fraud (Even as to a 3d Party).

In the case of a fraudulent transaction California law is settled. The Court in Trout v. Trout, (1934), 220 Cal. 652 at 656 made as much plain:

“Numerous authorities have established the rule that an instrument wholly void, such as an undelivered deed, a forged instrument, or a deed in blank, cannot be made the foundation of a good title, even under the equitable doctrine of bona fide purchase. Consequently, the fact that defendant Archer acted in good faith in dealing with persons who apparently held legal title, is not in itself sufficient basis for relief.” (Emphasis added, internal citations omitted).

This sentiment was clearly echoed in 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001) 85 Cal.App.4th 1279 at 1286 where the Court stated:

“It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties.” (Emphasis added).

Hence, if forged Robo Signed signatures are used to obtain the foreclosure, it CERTAINLY makes a difference in California and other non-judicial foreclosure states.

2. Any apparent sale based on Robosigned documents is void – without any legal effect – like Monopoly Money.

In Bank of America v. LaJolla Group II, the California Court of Appeals held that if a trustee is not contractually empowered under the Deed of Trust to hold a sale, it is totally void. It has no legal effect whatsoever. Title does not transfer. No right to evict arises. The property is not sold.

In turn, California Civil COde 2934a requires that the beneficiary execute and notarize and record a substitution for a valid substitution of trustee to take effect. Thus, if the Assignment of Deed of Trust is robo-signed, the sale is void. If the substitution of trustee is robo-signed, the sale is void. If the Notice of Default is Robo-Signed, the sale is void.

3. These documents are not recordable without good notarization.

In California, the reason these documents are notarized in the first place is because otherwise they will not be accepted by the County recorder. Moreover, a notary who helps commit real estate fraud is liable for $25,000 per offense.

Once the document is recorded, however, it is entitled to a “presumption of validity”, which is what spurned the falsification trend in the first place. Civil Code section 2924.

Therefore, the notarization of a false signature not only constitutes fraud, but is every bit intended as part of a larger conspiracy to commit fraud on the court.

4. The documents are intended for court eviction proceedings.

A necessary purpose for these documents, AFTER the non judicial foreclosure, is the eviction of the rightful owners afterward. Even in California, eviction is a judicial process, albeit summary and often sloppily conducted by judges who don’t really believe they can say no to the pirates taking your house. However, as demonstrated below, once these documents make it into court, the bank officers and lawyers become guilty of FELONIES:

California Penal Code section 118 provides (a) Every person who, having taken an oath that he or she will testify, declare, depose, or certify truly before any competent tribunal, officer, or person, in any of the cases in which the oath may by law of the State of California be administered, willfully and contrary to the oath, states as true any material matter which he or she knows to be false, and every person who testifies, declares, deposes, or certifies under penalty of perjury in any of the cases in which the testimony, declarations, depositions, or certification is permitted by law of the State of California under penalty of perjury and willfully states as true any material matter which he or she knows to be false, is guilty of perjury. This subdivision is applicable whether the statement, or the testimony, declaration, deposition, or certification is made or subscribed within or without the State of California.

Penal Code section 132 provides: Every person who upon any trial, proceeding, inquiry, or investigation whatever, authorized or permitted by law, offers in evidence, as genuine or true, any book, paper, document, record, or other instrument in writing, knowing the same to have been forged or fraudulently altered or ante-dated, is guilty of felony.

The Doctrine of Unclean Hands provides: plaintiff’s “unclean hands” bar injunctive relief when the plaintiff’s misconduct arose from the transaction pleaded in the complaint. California Satellite Sys. v Nichols (1985) 170 CA3d 56, 216 CR 180. The unclean hands doctrine demands that a plaintiff act fairly in the matter for which he or she seeks a remedy. The plaintiff must come into
court with clean hands, and keep them clean, or he or she will be denied relief, regardless of the merits of the claim. Kendall-Jackson Winery Ltd. v Superior Court (1999) 76 CA4th 970, 978, 90 CR2d 743. Whether the doctrine applies is a question of fact. CrossTalk Prods., Inc. v Jacobson (1998) 65 CA4th 631, 639, 76 CR2d 615.

5. Robo Signed Documents Are Intended for Use in California Bankruptcy Court Matters.

One majorly overlooked facet of California is our extremely active bankrtupcy court proceedings, where, just as in judicial foreclosure states, the banks must prove “standing” to proceed with a foreclosure. All declarations submitted in support of standing to file a proof of claim, objections to a plan and most importantly perhaps Relief from Stays are fraud upon bankruptcy court if signed by robo-signers.

Conclusion

Verified eviction complaints, perjured motions for summary judgment, and all other eviction paperwork after robo signed non judicial foreclosures in California and other states are illegal and void. The paperwork itself is void. The sale is void. But the only way to clean up the hundreds of thousands of effected titles is through litigation, because even now the banks will simply not do the right thing. And that’s why robo signers count in non-judicial foreclosure states. Victims of robosigners in California may seek declaratory relief, damages under the Rosenthal Act; an injunction and attorneys fees for Unfair Business practices, as well as claims for slander of title; abuse of process, civil theft, and conversion.Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192 begin_of_the_skype_highlighting (909)890-9192 end_of_the_skype_highlighting

(925)957-9797 begin_of_the_skype_highlighting (925)957-9797 end_of_the_skype_highlighting

FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

Commercial property meltdown and Workout

9 Feb


Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

Commercial Mortgage Modification: Modify Your Small Business Mortgage to Avoid Commercial Bankruptcy

9 Feb

Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

Introduction

If you are a small business owner facing a large balloon payment you can not refinance or payments which are becoming increasingly less affordable, you may be considering closing your doors, filing bankruptcy, or just letting it all go. But there may be another alternative for you, which is being heavily encouraged by the government: Commercial Mortgage Modification. (A commercial mortgage modification is an alteration to your existing loan that would make the terms easier for you to afford.)

What is your best option?

It depends on several factors. They are: the cause of the problem, whether a modification will “work,” your long term goals, and the pros and cons of applying for a commercial mortgage modification.

1) What is the Cause of Your Cashflow Problem?

Commercial mortgage defaults fall into one of two categories: 1) debt service default and 2) balloon payment default. The latter of these categories is a bit easy to explain; i.e., after 3 years of payments on your commercial mortgage, you do not have a lump sum principal payment per the loan agreement and cannot refinance for one reason or another (these days, the economy has practically halted all lending so it should be no surprise). However, a debt service default arises from another problem: insufficient cash flow.

As a business owner and a commercial borrower interested in a commercial mortgage modification, it will serve you best to identify when your cash flow problem began, whether it was from a) drop in business, b) increased defaults on your own receivables, c) an increase in other recurring expenses, d) a single event, such as a lawsuit or partner’s bankruptcy, e) some combination of the above, or f) some other circumstance. Identifying the cause of the problem will help you and your lender to identify the most fitting solution.

2) Will mortgage modification work?

The importance of this second consideration to commercial mortgage modification cannot be overstated. It is neither in the lenders’ best interest, nor many times your own, to delay the inevitable: foreclosure. Some factors are:

a. Prospects for your business. Have you landed new contracts? Is business picking up? Is something set to happen in the industry that will help your business? Are you expanding into another more lucrative area? What are your prospects and how will they help to resolve the cause identified in your response to #1 above?

b. Debt Service Coverage Ratio after modification. Your “debt service coverage ratio” is a calculation of whether the money coming into your business is sufficient to cover the outflow, and by how much (or if not, by how much?) A DSCR of below 1 is desired, with a DSCR of over 1 indicating insufficient cash flow. The question the bank is most interested in is, if the loan is modified, will your coverage ratio be low enough to service your debt without default, and is the new proposed ratio sustainable based on your prospects (see 2.a. above)?

c. What is your exit plan? Finally, to determine whether the plan will work, you must be able to identify an exit strategy, or a plan for what happens at the end of the loan. If the term is only set out for a few more years, where will the next balloon payment come from? If the interest is reduced sufficiently to ix your current cash flow situation, what will happen if/when the interest rate goes back up, or when the balloon payment comes due? Your exit plan (and the bank’s) should never be overlooked when considering a commercial mortgage modification.

3) What are your long term goals?

For the business owner considering a commercial mortgage modification, an assessment of the company’s future, and the mortgage holder’s own goals can help in deciding whether a modification is the answer to your problems, or an exercise in futility. For some business owners, mortgage default and allowing the bank to exercise its interest in the security may be financially superior to the alternative of fighting to keep the business going. If your long terms goals do not sync with the mortgage modification plan, then even if you obtain a commercial mortgage modification, it is likely to fail sometime later down the road.

4) Consider the pros and cons of bankruptcy

The United States commercial bankruptcy statutes including Chapter 11 are specifically aimed to aid persons who are unable to pay business debt. The filing fee for a chapter 11 is $1000.00, and a debt management plan must accompany your filing. Keep in mind, Chapter 11 does not discharge business debt. Rather, the assets of the business will be used to repay its obligations over a specified period of time, commonly 3 years. Additionally, the attorney fees are high. So high that often the bankruptcy judge will order your firm liquidated to pay the fees.

Conclusion:

Commercial bankruptcy may be able to be avoided, if you still have some cash flow into the business and you can restructure your debts, including commercial mortgage modification, to improve your debt service coverage ratio (i.e., so you are back in the black every month). Commercial mortgage modification should be considered part of a long term, serious plan, and not a quick fix or a temporary way to stall an eventually unavoidable foreclosure. The cause of the problem, whether modification will work, your long term goals, and the pros and cons of bankruptcy should be among your major considerations.

Modifying a Land Loan

9 Feb

Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

(Adapted from the October 30, 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts)

Introduction

In response to the residential mortgage crisis, and in anticipation of the looming commercial mortgage crisis of much greater potential magnitude, the federal banking regulators got together and issued a policy statement to encourage lenders to modify commercial mortgages and other loans secured by commercial real estate. Attachment 1 to the Policy Statement featured six example scenarios to help lenders to understand that the question isn’t whether you modify a loan, but rather how you modify a loan, that may result in regulatory penalization.

From the statement: “[t]he regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution’s risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. ”

What follows is the regulator’s example of modifying a Land Loan.

Note:

* The financial regulators consist of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Federal Financial Institutions Examination Council (FFIEC) State Liaison Committee (collectively, the regulators).

BASE CASE: Three years ago, the lender originated a $3.25 million loan to a borrower for the purchase of raw land that the borrower was seeking to have zoned for residential use. The loan had a three-year term and required monthly interest-only payments at a market rate that the borrower has paid from existing financial resources. An appraisal obtained at origination reflected an “as is” market value of $5 million, which resulted in a 65 percent LTV. The borrower was successful in obtaining the zoning change and has been seeking construction financing for a townhouse development and to repay the land loan. At maturity, the borrower requested an extension to provide additional time to secure construction financing that would include repayment of the land loan.

SCENARIO 1: The borrower provided the lender with current financial information, demonstrating the ability to make principal and interest payments. Further, the borrower made a principal payment of $250,000 in exchange for an extension of the maturity date of the loan. The borrower also pledged additional unencumbered collateral, granting the lender a first lien on an office building with an “as stabilized” market value of $1 million. The financial information also demonstrates that cash flow from the borrower’s personal assets and the office building generate sufficient stable cash flow to amortize the land loan over a reasonable period of time. A recent appraisal of the raw land reflects an “as is” market value of $3 million, which results in a 75 percent LTV when combined with the additional collateral and the principal reduction. The lender restructured a $3 million loan with monthly principal and interest payments for another year at a market rate that provides for the incremental credit risk.

*
Classification: The lender internally graded the loan as pass due to the adequate cash flow to pay principal and interest from the borrower’s personal assets and the office building. Also the borrower provided a curtailment and additional collateral to maintain a reasonable LTV. The examiner agreed with the lender’s internal grade.
*
Nonaccrual Treatment: The lender maintained the loan on accrual status, as the borrower has sufficient funds to cover the debt service requirements for the next year. Full repayment of principal and interest is reasonably assured from the collateral and the borrower’s financial resources. The examiner concurred with the lender’s accrual treatment.
*
TDR Treatment: The lender concluded that while the borrower has been affected by declining economic conditions, the level of deterioration does not warrant TDR treatment. The borrower was not experiencing financial difficulties because the borrower has the ability to service the renewed loan, which was prudently underwritten and has a market rate of interest. The examiner concurred with the lender’s rationale and TDR treatment.

SCENARIO 2: The borrower provided the lender with current financial information that indicated the borrower is unable to continue to make interest-only payments. The borrower has been sporadically delinquent up to 60 days on payments. The borrower is still seeking a loan to finance construction of the townhouse development, but has not been able to obtain a takeout commitment. A recent appraisal of the property reflects an “as is” market value of $3 million, which results in a 108 percent LTV. The lender extended a $3.25 million loan at a market rate of interest for one year with principal and interest due at maturity.

*
Classification: The lender internally graded the loan as pass because the loan is currently not past due and at a market rate of interest. Also, the borrower is trying to obtain takeout construction financing. The examiner disagreed with the internal grade and adversely classified the loan. The examiner concluded that the loan was not restructured on reasonable repayment terms because the borrower does not have the capacity to service the debt and full repayment of principal and interest is not assured. The examiner classified $550,000 loss ($3.25 million loan balance less $2.7 million, based on the current appraisal of $3 million less estimated cost to sell of 10 percent or $300,000). The examiner classified the remaining $2.7 million balance substandard. This classification treatment recognizes the credit risk in the collateral dependent loan based on the property’s market value less costs to sell.
*
Nonaccrual Treatment: The lender maintained the loan on accrual status. The examiner did not concur with this treatment and advised the lender to place the loan on nonaccrual because the loan was not restructured on reasonable repayment terms, the borrower does not have the capacity to service the debt, and full repayment of principal and interest is not assured.
* TDR Treatment: The lender reported the restructured loan as a TDR. The borrower is experiencing financial difficulties as indicated by the inability to refinance this debt and the inability to repay the loan at maturity in a manner consistent with the original exit strategy. A concession was provided by renewing the loan with a deferral of principal and interest payments for an additional year when the borrower was unable to obtain takeout financing. The examiner concurred with the lender’s TDR treatment.

Modifying a Commercial Operating Line of Credit in Connection with Owner-Occupied Real Estate

9 Feb

Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

(Adapted from the October 30, 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts)

Introduction

In response to the residential mortgage crisis, and in anticipation of the looming commercial mortgage crisis of much greater potential magnitude, the federal banking regulators got together and issued a policy statement to encourage lenders to modify commercial mortgages and other loans secured by commercial real estate. Attachment 1 to the Policy Statement featured six example scenarios to help lenders to understand that the question isn’t whether you modify a loan, but rather how you modify a loan, that may result in regulatory penalization.

From the statement: “[t]he regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution’s risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. ”

What follows is the regulator’s example of modifying a C.O.L.O.C.

Note:

* The financial regulators consist of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Federal Financial Institutions Examination Council (FFIEC) State Liaison Committee (collectively, the regulators).

BASE CASE: Two years ago, the lender originated a CRE loan at a market rate to a borrower whose business occupies the property. The loan was based on a 20-year amortization period with a balloon payment due in three years. The LTV equaled 70 percent at origination. A year ago, the lender financed a $5 million interest-only operating line of credit for seasonal business operations at a market rate. The operating line of credit had a one-year maturity and was secured with a blanket lien on all the business assets. To better monitor the ongoing overall collateral position, the lender established a borrowing base reporting system, which included monthly accounts receivable aging reports. At maturity of the operating line of credit, the borrower’s accounts receivable aging report reflects a growing trend of delinquency, which is causing the borrower some temporary cash flow difficulties. The borrower has recently initiated more aggressive collection efforts.

SCENARIO 1: The lender renewed the $5 million operating line of credit for another year, requiring monthly interest payments at a market rate of interest. The borrower’s liquidity position has tightened but remains satisfactory, cash flow to service all debt is 1.2x, and both loans have been paid according to the contractual terms. The primary repayment source is from business operations, which remain satisfactory and an updated appraisal is not considered necessary.

Classification: The lender internally graded both loans as pass and is monitoring the credits. The examiner agreed with the lender’s analysis and the internal grades with the understanding that the lender is monitoring the trend in the accounts receivables aging report, and the borrower’s ongoing collection efforts.

Nonaccrual Treatment: The lender determined that both the real estate loan and the renewed operating line of credit may remain on accrual status as the borrower has demonstrated an ongoing ability to perform, has the financial capacity to pay a market rate of interest, and full repayment of principal and interest is reasonably assured. The examiner concurred with the lender’s accrual treatment.

TDR Treatment: The lender concluded that while the borrower has been affected by declining economic conditions, the renewal of the operating line of credit did not result in a TDR because the borrower is not experiencing financial difficulties and has the ability to repay both loans (which represent most of its outstanding obligations) at a market rate of interest. The lender expects full collection of principal and interest from the borrower’s operating income. The examiner concurred with the lender’s rationale and TDR treatment.

SCENARIO 2: The lender reduced the operating line of credit to $4 million and restructured the terms onto monthly interest-only payments at a below market rate. This action is expected to alleviate the business’ cash flow problem. The borrower’s company is still considered to be a going concern even though the borrower’s financial performance has continued to deteriorate and sales and profitability are declining. The trend in delinquencies in accounts receivable is worsening and has resulted in reduced liquidity for the borrower.

Cash flow problems have resulted in sporadic delinquencies on the operating line of credit. The borrower’s net operating income has declined, but reflects the capacity to generate a 1.08x debt service coverage ratio for both loans, based on the reduced rate of interest for the operating line of credit. The terms on the real estate loan remained unchanged. The lender internally updated the assumptions in the original appraisal and estimated the LTV on the real estate loan was 90 percent. The operating line of credit has an LTV of 80 percent with an overall LTV for the relationship of 85 percent for the relationship.

Classification: The lender internally graded both loans substandard due to deterioration in the borrower’s business operations and insufficient cash flow to repay all debt. The examiner agreed with the lender’s analysis and the internal grades with the understanding that the lender will monitor the trend in the business operations profitability and cash flow. The lender may need to order a new appraisal if the debt service coverage ratio continues to fall and the overall collateral margin further declines.

Nonaccrual Treatment: The lender reported both the restructured operating line of credit and the real estate loan on a nonaccrual basis. The operating line of credit was not renewed on market rate repayment terms, the borrower has an increasingly limited capacity to service the below market rate on an interest-only basis and there is insufficient support to demonstrate an ability to meet the new payment requirements. Since debt service for both loans is dependent on business operations, the borrower’s ability to continue to perform on the real estate loan is not assured. In addition, the collateral margin indicates that full repayment of all of the borrower’s indebtedness is questionable, particularly if the company fails to continue being a going concern. The examiner concurred with the lender’s nonaccrual treatment.

TDR Treatment: The lender reported the restructured operating line of credit as a TDR because (a) the borrower is experiencing financial difficulties (as evidenced by the borrower’s sporadic payment history, an increasing trend in accounts receivable delinquencies, and uncertain ability to repay the loans); and (b) the lender granted a concession on the line of credit through a below market interest rate. The lender concluded that the real estate loan should not be reported as TDR since that loan had not been restructured. The examiner concurred with the lender’s TDR treatment.

Modifying a Land Acquisition, Condominium Construction and Conversion Mortgage

9 Feb

Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

(Adapted from the October 30, 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts)

Introduction

In response to the residential mortgage crisis, and in anticipation of the looming commercial mortgage crisis of much greater potential magnitude, the federal banking regulators got together and issued a policy statement to encourage lenders to modify commercial mortgages and other loans secured by commercial real estate. Attachment 1 to the Policy Statement featured six example scenarios to help lenders to understand that the question isn’t whether you modify a loan, but rather how you modify a loan, that may result in regulatory penalization.

From the statement: “[t]he regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution’s risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. ”

What follows is the regulator’s example of modifying a land acquisition, Condominium Construction and Conversion Mortgage.

Note:

* The financial regulators consist of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Federal Financial Institutions Examination Council (FFIEC) State Liaison Committee (collectively, the regulators).

BASE CASE: The lender originally extended a $50 million loan for the purchase of vacant land and the construction of a condominium project. The loan was interest-only and included an interest reserve to cover the monthly payments. The developer bought the land and began construction after obtaining purchase commitments for about a third of the planned units. Many of these pending sales were with speculative buyers who committed to buy multiple units with minimal down payments. As the real estate market softened, most of the speculative buyers failed to perform on their purchase contracts and only a limited number of the other planned units have been pre-sold.

The developer subsequently determined it was in the best interest to halt construction with the property 80 percent complete. The loan balance was drawn to $44 million to pay construction costs (including cost overruns) and interest and the borrower estimates another $10 million is needed to complete construction. Current financial information reflects that the developer does not have sufficient cash flow to service the debt; and while the developer does have equity in other assets, there is a question about the borrower’s ability to complete the project.

SCENARIO 1: The borrower agrees to grant the lender a second lien on certain assets, which provides about $5 million in additional collateral support. In return, the lender advanced the borrower $10 million to finish construction and the condominium was completed. The lender also agreed to extend the $54 million loan for 12 months at a market rate of interest that provides for the incremental credit risk to give the borrower time to market the property. The borrower agreed to pay interest whenever a unit was sold with any outstanding balance due at maturity.

The lender obtained a recent appraisal on the condominium building that reported a prospective “as complete” market value of $65 million, reflecting a 24-month sell-out period and projected selling costs of 15 percent. The $65 million prospective “as complete” market value plus the $5 million in other collateral results in a LTV of 77 percent. The lender used the prospective “as complete” market value in its analysis and decision to fund the completion and sale of the units, and to maximize its recovery on the loan.

*
Classification: The lender internally graded the $54 million loan as substandard due to the project’s limited ability to service the debt despite the 1.3x gross collateral margin. The examiner agreed with the lender’s internal grade.
*
Nonaccrual Treatment: The lender maintained the loan on an accrual status due to the protection afforded by the collateral margin. The examiner did not concur with this treatment and determined the loan should be placed on nonaccrual due to the borrower’s questionable ability to sell the units and service the debt, raising concerns as to the full repayment of principal and interest.
*
TDR Treatment: The lender reported the restructured loan as a TDR because the borrower is experiencing financial difficulties, as demonstrated by the insufficient cash flow to service the debt, concerns about the project’s viability, and the borrower’s inability to obtain financing from other sources. In addition, the lender provided a concession by advancing additional funds to finish construction and deferring payments except from sold units until the maturity date when any remaining accrued interest plus principal are due. The examiner concurred with the lender’s TDR treatment.

SCENARIO 2: A recent appraisal of the property reflects that the highest and best use would be conversion to an apartment building. The appraisal reports a prospective “as complete” market value of $60 million upon conversion to an apartment building and a $67 million prospective “as stabilized” market value upon the property reaching stabilized occupancy. The borrower agrees to grant the lender a second lien on certain assets, which provides about $5 million in additional collateral support.

In return, the lender advanced the borrower $10 million, which is needed to convert the project to an apartment complex and finish construction. The lender also agreed to extend the $54 million loan for 12 months at a market rate of interest that provides for the incremental credit risk to give the borrower time to lease the apartments. The $60 million “as complete” market value plus the $5 million in other collateral results in a LTV of 83 percent. The prospective “as complete” market value is used because the loan is funding the construction of the apartment building. The lender may utilize the prospective “as stabilized” market value when funding is provided for the lease-up period.

*
Classification: The lender internally graded the $54 million loan as substandard due to the project’s limited ability to service the debt despite the 1.2x gross collateral margin. The examiner agreed with the lender’s internal grade.
*
Nonaccrual Treatment: The lender determined the loan should be placed on nonaccrual due to the borrower’s untested ability to lease the units and service the debt, raising concerns as to the full repayment of principal and interest. The examiner concurred with the lender’s nonaccrual treatment.
* TDR Treatment: The lender reported the restructured loan as a TDR because the borrower is experiencing financial difficulties, as demonstrated by the insufficient cash flow to service the debt, concerns about the project’s viability, and the borrower’s inability to obtain financing from other sources. In addition, the lender provided a concession by advancing additional funds to finish construction and deferring payments until the maturity date without a defined exit strategy. The examiner concurred with the lender’s TDR treatment.

Modifying A Construction Loan on a Single Family Residence

9 Feb

Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

(Adapted from the October 30, 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts)

Introduction

In response to the residential mortgage crisis, and in anticipation of the looming commercial mortgage crisis of much greater potential magnitude, the federal banking regulators got together and issued a policy statement to encourage lenders to modify commercial mortgages and other loans secured by commercial real estate. Attachment 1 to the Policy Statement featured six example scenarios to help lenders to understand that the question isn’t whether you modify a loan, but rather how you modify a loan, that may result in regulatory penalization.

From the statement: “[t]he regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution’s risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. ”

What follows is the regulator’s example of modifying a construction loan on a single family residence.

Note:

* The financial regulators consist of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Federal Financial Institutions Examination Council (FFIEC) State Liaison Committee (collectively, the regulators).

BASE CASE: The lender originated a $400,000 construction loan on a single family “spec” residence with a 15-month maturity to allow for completion and sale of the property. The loan required monthly interest-only payments at a market rate and was based on a LTV of 70 percent at origination. During the original loan construction phase, the borrower made all interest payments from personal funds. At maturity, the home had not sold and the borrower was unable to find another lender willing to finance this property under similar terms.

SCENARIO 1: At maturity, the lender restructured the loan for one year on an interest-only basis at a below market rate to give the borrower more time to sell the “spec” home. Current financial information indicates the borrower has limited ability to continue to pay interest from personal funds. If the residence does not sell by the revised maturity date, the borrower plans to rent the home. In this event, the lender will consider modifying the debt into an amortizing loan with a 20-year maturity, which would be consistent with this type of income-producing investment property. Any shortfall between the net rental income and loan payments would be paid by the borrower. Due to declining home values, the LTV at the renewal date was 90 percent.

*
Classification: The lender internally graded the loan substandard and is monitoring the credit. The examiner agreed with the lender’s treatment due to the borrower’s diminished ongoing ability to make payments and the reduced collateral position.
* Nonaccrual Treatment: The lender maintained the loan on an accrual basis because the borrower demonstrated an ability to make interest payments during the construction phase. The examiner did not concur with this treatment because the loan was not restructured on reasonable repayment terms, the borrower has limited capacity to service a below market rate on an interest-only basis, and the reduced collateral margin indicates that full repayment of principal and interest is questionable.
* TDR Treatment: The lender reported the restructured loan as a TDR. The borrower is experiencing financial difficulties as indicated by depleted cash reserves, inability to refinance this debt from other sources with similar terms, and the inability to repay the loan at maturity in a manner consistent with the original exit strategy. A concession was provided by renewing the loan with a deferral of principal payments, at a below market rate (compared to the rate charged on an investment property) for an additional year when the loan was no longer in the construction phase. The examiner concurred with the lender’s TDR treatment.

SCENARIO 2: At maturity of the original loan, the lender restructured the debt for one year on an interest-only basis at a below market rate to give the borrower more time to sell the “spec” home. Eight months later, the borrower rented the property. At that time, the borrower and the lender agreed to restructure the loan again with monthly payments that amortize the debt over 20 years at a market rate for a residential investment property. Since the date of the second restructuring, the borrower has made all payments for over six consecutive months.

*
Classification: The lender internally graded the restructured loan substandard. The examiner agreed with the lender’s initial substandard grade at the time of the restructuring, but now considered the loan as a pass due to the borrower’s demonstrated ability to make payments according to the modified terms for over six consecutive months.
*
Nonaccrual Treatment: The lender initially maintained the loan on nonaccrual, but returned it to an accruing status after the borrower made six consecutive monthly payments. The lender expects full repayment of principal and interest from the rental income. The examiner concurred with the lender’s accrual treatment.
*
TDR Treatment: The lender reported the first restructuring as a TDR. However, the second restructuring would not be reported as a TDR. The lender determined that the borrower is experiencing financial difficulties as indicated by depleted cash resources and a weak financial condition; however, the lender did not grant a concession on the second restructuring as the loan is at market rate and terms. The examiner concurred with the lender.

SCENARIO 3: The lender restructured the loan for one year on an interest-only basis at a below market rate to give the borrower more time to sell the “spec” home. The restructured loan has become 90+ days past due and the borrower has not been able to rent the property. Based on current financial information, the borrower does not have the capacity to service the debt. The lender considers repayment to be contingent upon the sale of the property. Current market data reflects few sales and similar new homes in this property’s neighborhood are selling within a range of $250,000 to $300,000 with selling costs equaling 10 percent, resulting in anticipated net sales proceeds between $225,000 and $270,000.

*
Classification: The lender graded $130,000 loss ($400,000 loan balance less estimated net sales proceeds of $270,000), $45,000 doubtful based on the range in the anticipated net sales proceeds, and the remaining balance of $225,000 substandard. The examiner agreed, as this classification treatment results in the recognition of the credit risk in the collateral dependent loan based on the property’s value less costs to sell. The examiner instructed management to obtain a current valuation on the property.
*
Nonaccrual Treatment: The lender placed the loan on nonaccrual when it became 60 days past due (reversing all accrued but unpaid interest) because the lender determined that full repayment of principal and interest was not reasonably assured. The examiner concurred with the lender’s nonaccrual treatment.
*
TDR Treatment: The lender plans to continue reporting this loan as a TDR until the lender forecloses on the property, and transfers the asset to the other real estate owned category. The lender determined that the borrower was continuing to experience financial difficulties as indicated by depleted cash resources, inability to refinance this debt from other sources with similar terms, and the inability to repay the loan at maturity in a manner consistent with the original exit strategy. In addition, the lender granted a concession by reducing the interest rate to a below market level. The examiner concurred with the lender’s TDR treatment.

SCENARIO 4: The lender committed an additional $16,000 for an interest reserve and extended the $400,000 loan for 12 months at a below market rate of interest with monthly interest-only payments. At the time of the examination, $6,000 of the interest reserve had been added to the loan balance. Current financial information that the lender obtained at examiner request reflects the borrower has no other repayment sources and has not been able to sell or rent the property. An updated appraisal supports an “as is” value of $317,650. Selling costs are estimated at 15 percent, resulting in anticipated net sales proceeds of $270,000.

*
Classification: The lender internally graded the loan as pass and is monitoring the credit. The examiner disagreed with the internal grade and instructed the lender to reverse the $6,000 interest capitalized out of the loan balance and interest income, and adversely classified the loan. The examiner concluded that the loan was not restructured on reasonable repayment terms because the borrower has limited capacity to service the debt and the reduced collateral margin indicated that full repayment of principal and interest is not assured. The examiner classified $130,000 loss based on the adjusted $400,000 loan balance less estimated net sales proceeds of $270,000, which was classified substandard. This classification treatment recognizes the credit risk in the collateral dependent loan based on the property’s market value less costs to sell. The examiner also criticized management for the inappropriate use of interest reserves. The remaining interest reserve of $10,000 is not subject to adverse classification because the loan should be placed on nonaccrual.
*
Nonaccrual Treatment: The lender maintained the loan on accrual status. The examiner did not concur with this treatment. The loan was not restructured on reasonable repayment terms, the borrower has limited capacity to service a below market rate on an interest-only basis, and the reduced collateral margin indicates that full repayment of principal and interest is not assured. The examiner advised the lender that the loan should be placed on nonaccrual. The lender’s decision to advance a $16,000 interest reserve was inappropriate given the borrower’s inability to repay it. The lender should reverse the capitalized interest in a manner consistent with regulatory reporting instructions and should not recognize any further interest income from the interest reserve.
* TDR Treatment: The lender reported the restructured loan as a TDR. The borrower is experiencing financial difficulties as indicated by depleted cash reserves, inability to refinance this debt from other sources with similar terms, and the inability to repay the loan at maturity in a manner consistent with the original exit strategy. A concession was provided by renewing the loan with a deferral of principal payments, at a below market rate (compared to investment property) for an additional year when the loan was no longer in the construction phase. The examiner concurred with the lender’s TDR treatment.

Modifying a Shopping Mall Mortgage

9 Feb

Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

(Adapted from the October 30, 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts)

Introduction

In response to the residential mortgage crisis, and in anticipation of the looming commercial mortgage crisis of much greater potential magnitude, the federal banking regulators got together and issued a policy statement to encourage lenders to modify commercial mortgages and other loans secured by commercial real estate. Attachment 1 to the Policy Statement featured six example scenarios to help lenders to understand that the question isn’t whether you modify a loan, but rather how you modify a loan, that may result in regulatory penalization.

From the statement: “[t]he regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution’s risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. ”

What follows is the regulator’s example of modifying a shopping mall mortgage.

Note:

* The financial regulators consist of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Federal Financial Institutions Examination Council (FFIEC) State Liaison Committee (collectively, the regulators).

BASE CASE: A lender originated a 36-month $10 million loan for the construction of a shopping mall to occur over 24 months with a 12-month lease-up period to allow the borrower time to achieve stabilized occupancy before obtaining permanent financing. The loan had an interest reserve to cover interest payments over the three-year term of the credit. At the end of the third year, there is $10 million outstanding on the loan, as the shopping mall has been built and the interest reserve, which has been covering interest payments, has been fully drawn.

At the time of origination, the appraisal reported an “as stabilized” market value of $13.5 million for the property. In addition, the borrower had a take-out commitment that would provide permanent financing at maturity. A condition of the take-out lender was that the shopping mall had to achieve a 75 percent occupancy level. Due to weak economic conditions, the property only reached a 55 percent occupancy level at the end of the12-month lease up period and the original takeout commitment became void. Mainly due to a tightening of credit for these types of loans, the borrower is unable to obtain permanent financing elsewhere when the loan matured in February (i.e., due to market factors and not due to the borrower’s financial condition).

SCENARIO 1: The lender renewed the loan for an additional year to allow for a higher lease-up rate and for the borrower to seek permanent financing. The extension is at a market rate that provides for the incremental credit risk and on an interest-only basis. While the property’s historical cash flow was insufficient at 0.92x debt service ratio, recent improvements in the occupancy level now provides adequate coverage. Recent improvements include the signing of several new leases with other leases currently being negotiated.

In addition, current financial statements reflect that the builder, who personally guarantees the debt, has sufficient cash on deposit at the lender plus other liquid assets. These assets provide sufficient cash flow to service the borrower’s global debt service requirements on a principal and interest basis, if necessary. The guarantor covered the initial cash flow shortfalls from the project and provided a good faith principal curtailment of $200,000 at renewal. A recent appraisal on the shopping mall reports an “as is” market value of $10 million and an “as stabilized” market value $11 million.

Classification: The lender internally graded the loan as a pass and is monitoring the credit. The examiner agreed with the lender’s internal loan grade. The examiner concluded that the project continues to progress and now cash flows the interest payments. The guarantor currently has the ability and demonstrated willingness to supplement the project’s cash flow and service the borrower’s global debt service requirements. The examiner concurred that the interest-only terms were reasonable because the renewal was short-term and the project and the guarantor have demonstrated repayment capacity. In addition, this type of loan structure is commonly used to allow a project to achieve stabilized occupancy, but any subsequent loan terms should likely have a principal amortization component. The examiner also agreed that the LTV should be based on the “as stabilized” market value as the lender is financing the project through the lease-up period.

Nonaccrual Treatment: The lender maintained the loan on accrual status as the guarantor has sufficient funds to cover the borrower’s global debt service requirements over the one-year period of the renewed loan. Full repayment of principal and interest is reasonably assured from the project’s and guarantor’s cash flow despite a decline in the collateral margin. The examiner concurred with the lender’s accrual treatment.

TDR Treatment: The lender concluded that while the borrower has been affected by declining economic conditions, the level of deterioration does not warrant TDR treatment. The borrower was not experiencing financial difficulties because the borrower and guarantor have the ability to service the renewed loan, which was prudently underwritten at a market rate of interest, plus the borrower’s other obligations on a timely basis, and the lender’s expectation to collect the full amount of principal and interest from the borrower’s or guarantor’s sources (i.e., not from interest reserves). The examiner concurred with the lender’s rationale and TDR treatment.

SCENARIO 2: The lender restructured the loan on an interest-only basis at a below market rate for one year to provide additional time to increase the occupancy level and thereby enable the borrower to arrange permanent financing. The level of lease-up remains relatively unchanged at 55 percent and the shopping mall projects a debt service coverage ratio of 1.02x based on the preferential loan terms. At the time of the restructuring, the lender inappropriately based the selection of the below market interest rate on outdated financial information, which resulted in a positive cash flow projection even though file documentation available at the time of the restructuring reflected that the borrower anticipates the shopping mall’s income stream will decline due to rent concessions, the loss of a tenant, and limited prospects for finding new tenants. Current financial statements indicate the builder, who personally guarantees the debt, is highly leveraged, has limited cash or liquid assets, and has other projects with delinquent payments. A recent appraisal on the shopping mall reports an “as is” market value of $9 million, which results in a LTV ratio of 111 percent.

Classification: The lender internally graded the loan as substandard. The examiner disagreed with the internal grade and classified the amount not protected by the collateral value, $1 million, as loss and required the lender to charge-off this amount. The examiner did not factor costs to sell into the loss classification analysis, as the source of repayment is not reliant on the sale of the collateral at this time. The examiner classified the remaining loan balance, based on the property’s “as is” market value of $9 million, as substandard given the borrower’s uncertain repayment capacity and weak financial support.

Nonaccrual Treatment: The lender determined the loan did not warrant being placed on nonaccrual status. The examiner did not concur with this treatment because the partial charge-off is indicative that full collection of principal is not anticipated and the lender has continued exposure to additional loss due to the project’s insufficient cash flow and reduced collateral margin, and the guarantor’s limited ability to provide further support.

TDR Treatment: The lender reported the restructured loan as a TDR because (a) the borrower is experiencing financial difficulties as evidenced by the high leverage, delinquent payments on other projects, and inability to meet the proposed exit strategy because of the inability to lease the property in a reasonable timeframe; and (b) the lender granted a concession as evidenced by the reduction in the interest rate to a below market rate. The examiner concurred with the lender’s TDR treatment.

SCENARIO 3: Current financial statements indicate the borrower and the guarantor have minimal other resources available to support this credit. The lender chose not to restructure the $10 million loan into a new single amortizing note of $10 million at a market rate of interest because the project’s projected cash flow would only provide a 0.88x debt service coverage ratio as the borrower has been unable to lease space. A recent appraisal on the shopping mall reported an “as is” market value of $9 million, which results in a LTV of 111 percent. Therefore, at the original loan’s maturity in February, the lender restructured the $10 million debt into two notes. The lender placed the first note of $7.2 million (i.e., the A note) on monthly payments that amortize the debt over 20 years at a market rate of interest that provides for the incremental credit risk. The project’s debt service coverage ratio equals 1.20x for the $7.2 million loan based on the shopping mall’s projected net operating income. The lender placed the second note of the remaining principal balance of $2.8 million (i.e., the B note) into a 2 percent interest-only loan that is scheduled to reset in five years to an amortizing payment. The lender then charged-off the $2.8 million note due to the project’s lack of repayment capacity and to provide reasonable collateral protection for the remaining on-book loan of $7.2 million. Since the restructuring, the borrower has made payments on both loans for more than six consecutive months.

Classification: The lender internally graded the on-book loan of $7.2 million as a pass credit due to the fact that the borrower has demonstrated the ability to perform under the modified terms. The examiner agreed with the lender’s grade as the lender restructured the original obligation into A and B notes, the lender charged off the B note, and the borrower has demonstrated the ability to repay the A note. Using this multiple note structure with the charge-off of the B note enables the lender to recognize interest income and limit the amount reported as a TDR in future periods. If the lender had restructured the loan into a single note, the credit classification and the nonaccrual and TDR treatments would have been different.

Nonaccrual Treatment: The lender restored the on-book loan of $7.2 million to accrual status as the borrower has the ability to repay the loan, has a record of performing at the revised terms for more than six months, and full repayment of principal and interest is expected. The examiner concurred with the lender’s accrual treatment. Interest payments received on the off-book loan have been recorded as recoveries because, in this case, full recovery of principal and interest on this loan was not reasonably assured.

TDR Treatment: The lender reported the restructured on-book loan of $7.2 million as a TDR. The lender determined that the on-book loan should be reported as a TDR, consistent with the regulatory reporting guidance because (a) the borrower is experiencing financial difficulties as evidenced by the borrower’s high leverage, delinquent payments on other projects, and failure to meet the proposed exit strategy because of the inability to lease the property in a reasonable timeframe and the unlikely collectibility of the charged-off loan; and (b) the lender granted a concession. The concessions included a below market interest rate and protracted payment requirements on the charged-off portion of the debt and extending the on-book loan beyond expected timeframes.

If the borrower continues to perform according to the modified terms of the restructured loan, the lender plans to stop reporting the on-book loan as a TDR after the regulatory reporting defined time period expires because it was restructured with a market rate of interest. For example, since the restructuring occurred in February, the $7.2 million on-book loan should be reported as a TDR on the lender’s March, June, September, and December regulatory reports. The TDR reporting could cease on the lender’s following March regulatory report if the borrower continues to perform according to the modified terms. The examiner concurred with this planned treatment.

SCENARIO 4: Current financial statements indicate the borrower and the guarantor have minimal other resources available to support this credit. The lender restructured the $10 million loan into a new single note of $10 million at a market rate of interest that provides for the incremental credit risk and is on an amortizing basis. The project’s projected cash flow reflects a 0.88x debt service coverage ratio as the borrower has been unable to lease space. A recent appraisal on the shopping mall reports an “as is” market value of $9 million, which results in a LTV of 111 percent. Based on the property’s current market value of $9 million, the lender charged-off $1 million immediately after the renewal.

Classification: The lender internally graded the remaining $9 million on-book portion of the loan as a pass credit because the lender’s analysis of the project’s cash flow indicated a 1.05x debt service coverage ratio when just considering the on-book balance. The examiner disagreed with the internal grade and classified the $9 million on-book balance as substandard due to the borrower’s marginal financial condition, lack of guarantor support, and uncertainty over the source of repayment.

Nonaccrual Treatment: The lender maintained the remaining $9 million on-book portion of the loan on accrual, as the borrower has the ability to repay the principal and interest on this balance. The examiner did not concur with this treatment. The examiner instructed the lender to place the loan on nonaccrual status. Because the lender restructured the debt into a single note and had charged-off a portion of the restructured loan, the repayment of the interest and principal contractually due on the entire debt is not reasonably assured.

The loan can be returned to accrual status if the lender can document that subsequent improvement in the borrower’s financial condition has enabled the loan to be brought fully current with respect to principal and interest and the lender expects the contractual balance of the loan (including the partial charge-off) will be fully collected. In addition, interest income may be recognized on a cash basis for the partially charged-off portion of the loan when the remaining recorded balance is considered fully collectible. However, the partial charge-off cannot be reversed.

TDR Treatment: The lender reported the restructured loan as a TDR according to the requirements of its regulatory reports because (a) the borrower is experiencing financial difficulties as evidenced by the high leverage, delinquent payments on other projects, and inability to meet the original exit strategy because the borrower was unable to lease the property in a reasonable timeframe; and (b) the lender granted a concession as evidenced by deferring payment beyond the repayment ability of the borrower. The charge-off indicates that the lender does not expect full repayment of principal and interest, yet the borrower remains obligated for the full amount of the debt and payments, which is at a level that is not consistent with the borrower’s repayment capacity. Because the borrower is not expected to be able to comply with the loan’s restructured terms, the lender would likely continue to report the loan as a TDR. The examiner concurs with reporting the renewed loan as a TDR.

Modifying a Commercial Office Building Mortgage

9 Feb

Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

(Adapted from the October 30, 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts)

Introduction

In response to the residential mortgage crisis, and in anticipation of the looming commercial mortgage crisis of much greater potential magnitude, the federal banking regulators got together and issued a policy statement to encourage lenders to modify commercial mortgages and other loans secured by commercial real estate. Attachment 1 to the Policy Statement featured six example scenarios to help lenders to understand that the question isn’t whether you modify a loan, but rather how you modify a loan, that may result in regulatory penalization.

From the statement: “[t]he regulators have found that prudent CRE loan workouts are often in the best interest of the financial institution and the borrower. Examiners are expected to take a balanced approach in assessing the adequacy of an institution’s risk management practices for loan workout activity. Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse credit classification. In addition, renewed or restructured loans to borrowers who have the ability to repay their debts according to reasonable modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance. ”

What follows is the regulator’s example of modifying a mortgage on a commercial office building.

Note:

* The financial regulators consist of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Federal Financial Institutions Examination Council (FFIEC) State Liaison Committee (collectively, the regulators).

BASE CASE: A lender originated a $15 million loan for the purchase of an office building with monthly payments based on an amortization of 20 years and a balloon payment of $13.6 million at the end of year three. At origination, the loan had a 75 percent loan-to-value (LTV) based on an appraisal reflecting a $20 million market value on an “as stabilized” basis, a debt service coverage ratio of 1.35x, and a market interest rate. The lender expected to renew the loan when the balloon payment became due at the end of year three. The project’s cash flow has declined, as the borrower granted rental concessions to existing tenants in order to retain the tenants and compete with other landlords in a weak economy.

SCENARIO 1: At maturity, the lender renewed the $13.6 million loan at a market rate of interest that provides for the incremental credit risk and amortized the principal over the remaining 17 years. The borrower had not been delinquent on prior payments and has sufficient cash flow to service the market rate terms at a debt service coverage ratio of 1.12x. A review of the leases reflects the majority of tenants are now stable occupants with long-term leases and sufficient cash flow to pay their rent. A recent appraisal reported an “as stabilized” market value of $13.1 million for the property, reflecting an increase in market capitalization rates, which results in a 104 percent LTV.

Classification: The lender internally graded the loan pass and is monitoring the credit. The examiner agreed, as the borrower has the ability to continue making payments on reasonable terms despite a decline in cash flow and in the market value of the collateral.

Nonaccrual Treatment: The lender maintained the loan on an accrual status. The borrower has demonstrated the ability to make the regularly scheduled payments and, even with the decline in the borrower’s creditworthiness, cash flow appears sufficient to make these payments and full repayment of principal and interest is expected. The examiner concurred with the lender’s accrual treatment.

TDR Treatment: The lender determined that the renewed loan should not be reported as a TDR. While the borrower is experiencing some financial deterioration, the borrower has sufficient cash flow to service the debt and has no record of payment default; therefore, the borrower is not experiencing financial difficulties. The examiner concurred with the lender’s TDR treatment.

SCENARIO 2: At maturity, the lender renewed the $13.6 million loan at a market rate of interest that provides for the incremental risk and amortized the principal over the remaining 17 years. The borrower had not been delinquent on prior payments. The building’s net operating income has decreased and current cash flow to service the new loan has declined, resulting in a debt service coverage ratio of 1.12x. Some of the leases are coming up for renewal and additional rental concessions may be necessary to keep the existing tenants in a weak economy. However, the project’s debt service coverage is not expected to drop below 1.05x. A current valuation has not been ordered. The lender estimates the property’s current “as stabilized” market value is $14.5 million, which results in a 94 percent LTV. In addition, the lender has not asked the borrower to provide current financial statements to assess the borrower’s ability to service the debt with cash from other sources.

Classification: The lender internally graded the loan pass and is monitoring the credit. The examiner disagreed with the internal grade and listed the credit as special mention. While the borrower has the ability to continue to make payments, there has been a declining trend in the property’s income stream, continued potential rental concessions, and a reduced collateral margin. In addition, the lender’s failure to request current financial information and to obtain an updated collateral valuation represents administrative deficiencies.

Nonaccrual Treatment: The lender maintained the loan on an accrual status. The borrower has demonstrated the ability to make regularly scheduled payments and, even with the decline in the borrower’s creditworthiness, cash flow is sufficient at this time to make payments and full repayment of principal and interest are expected. The examiner concurred with the lender’s accrual treatment.

TDR Treatment: The lender determined that the renewed loan should not be reported as a TDR. While the borrower is experiencing some financial deterioration, the borrower is not experiencing financial difficulties as the borrower has sufficient cash flow to service the debt, and there was no history of default. The examiner concurred with the lender’s TDR treatment.

SCENARIO 3: At maturity, the lender restructured the $13.6 million loan on a 12-month interest-only basis at a below market rate of interest. The borrower has been sporadically delinquent on prior payments and projects a debt service coverage ratio of 1.12x based on the preferential terms. A review of the leases, which were available to the lender at the time of the restructuring, reflects the majority of tenants have short-term leases and that some were behind on their rental payments to the borrower. According to the lender, this situation has not improved since the restructuring. A recent appraisal reported a $14.5 million “as stabilized” market value for the property, which results in a 94 percent LTV.

Classification: The lender internally graded the loan pass and is monitoring the credit. The examiner disagreed with the internal grade due to the borrower’s limited ability to service a below market rate loan on an interest-only basis, sporadic delinquencies, and the reduced collateral position, and classified the loan substandard.

Nonaccrual Treatment: The lender maintained the loan on accrual status due to the positive cash flow and collateral margin. The examiner did not concur with this treatment because the loan was not restructured with reasonable repayment terms, the borrower has limited capacity to service a below market rate on an interest-only basis, and the reduced estimate of cash flow from the property indicates that full repayment of principal and interest is not reasonably assured.

TDR Treatment: The lender reported the restructured loan as a TDR because the borrower is experiencing financial difficulties: the project’s ability to generate sufficient cash flows to service the debt is questionable, the lease income from the tenants is declining, loan payments have been sporadic, and collateral values have declined. In addition, the lender granted a concession (i.e., reduced the interest rate to a below market level and deferred principal payments). The examiner concurred with the lender’s TDR treatment.

Commercial Mortgage Modification: What They Are and How to Get One

9 Feb




Image Source:  © Copyright 2009  Roy Tennant
Introduction
This article will discuss, in basic terms, the process for obtaining a commercial mortgage modification.  For more detailed information, contact an attorney in your area competent in this specialized field of law. This article is not meant to be construed as legal advice, and is for educational and informative purposes only.
Definition of Commercial Mortgage Modification
First off, the term “Commercial Mortgage Modification” refers to a renegotiation in payment terms of a mortgage secured by real property that is not 1-4 unit residential real estate.  Commercial mortgages can be secured by hotels, golf courses, shopping malls, apartment complexes, office buildings, shipping warehouses, or any other type of commercial property (that is, not 1-4 unit residential).
The Best Circumstances for a Commercial Mortgage Modification
The circumstances under which commercial mortgage modification negotiations occur include any foreseeably pending default by the commercial mortgage borrower.  These circumstances will fall into one of two categories: debt service default, or balloon payment default.
“Debt service default” arises where a borrower does not have the monthly cash flow to continue to pay the monthly mortgage payment during the life of the loan (usually, 3, 5, or 7 years).  “Balloon Payment default,” on the other hand, occurs at the end of the life of the commercial mortgage, when the borrower must pay back the majority of the loan principal to the lender in a single lump sum (or, “balloon payment”).  Either debt service default or balloon payment default can lead to a borrower request for commercial mortgage modification.
The Process of Obtaining a Commercial Mortgage Modification
Obtaining a commercial mortgage modification from your lender is essentially a 3-step process that involves first a pre-negotiation agreement or letter your bank will send you upon your request to negotiate, a process of supplying information for your bank to review in consideration of your commercial mortgage modification request, and finally, negotiation of the terms of your commercial mortgage modification.
Pre-negotiation letter. The pre-negotiation agreement or letter which accompanies most negotiations for commercial mortgage modifications is usually an agreement about the negotiation process itself.  A pre-negotiation agreement will set the ground rules regarding whether each party reserves or waives certain legal rights during negotiation, such as the common law duty of good faith and fair dealing. It is very important to read, understand, and if necessary, negotiate the terms of the pre-negotiation agreement itself, so that you do not unwittingly waive potential rights or claims.
Informing your bank. The process of informing your bank will be similar to your original loan application.  You will provide your bank with tax and income information for consideration of whether you qualify for new terms.  Tax returns, profit and loss schedules, and proof of accounts receivable are common items the bank will want to see.  If you are a landlord, the bank may require you to provide information as to the nature of your leases and their respective payment histories.
Negotiating Terms. The final stage of the process, negotiating the terms of your commercial mortgage modification, involves the give-and-take process during which you set, for example, a new loan duration, interest rate, balloon amount, or other concessions for you to avoid defaulting on your mortgage and going into foreclosure.
Who to Call
You should always rely on a skilled professional whenever you are going to sign any legal documents, and so it is highly recommended that you contact an attorney in your area familiar with lending laws, banking regulations, and best practices in the field of commercial mortgage modification.  Conclusion
Commercial Mortgage Modification should be a consideration for anyone who owns a business and who is likely to default on a commercial mortgage obligation in the foreseeable future.  The process can be relatively simple, but involves highly complex legal documents for which a skilled professional should be sought.

Southern California (909)890-9192 begin_of_the_skype_highlighting              (909)890-9192      end_of_the_skype_highlighting      end_of_the_skype_highlighting in Northern California(925)957-9797

Mortgage Lawsuits

8 Feb

DUNN v. WELLS FARGO: Eight causes of action
LAWYERS’ FUND FOR CLIENT PROTECTION OF STATE v. JP MORGAN CHASE BANK
ACEVES v. U.S. BANK: Bank’s promise to work with her in reinstating and modifying the loan was enforceable
KESLING v. COUNTRYWIDE HOME LOANS: Countrywide has refused to exercise its rights to obtain repayment on the loan
BROWN v. BANK OF NEW YORK MELLON: Homeowners do not have a a private right of action under HAMP for denial of a loan modification
CALDERON v. AURORA LOAN SERVICES: Plaintiffs alleged that “at no time” was MERS a holder of the “Note” or “Deed of Trust”
MARSH v. WELLS FARGO BANK: Approved Plaintiffs’ application for a loan modification
DELEBREAU v. BAYVIEW LOAN SERVICING: The Court is Alarmed by the Factual and Procedural Morass
TORRES v. LITTON LOAN SERVICING: Another solicitation from Defendant for a loan modification plan
WELLS FARGO BANK, N.A. v. YOUNG: Question of whether foreclosures are legal proceedings or equitable proceedings
BANK OF NEW YORK v. PARNELL: A notice of mortgage cancellation
BANK v HARP: JPMorgan improperly filed the foreclosure complaint
CATALAN v. GMAC MORTGAGE: Details of plaintiffs’ maddening troubles with their mortgage
Keller Rohrback L.L.P. Files Class Action Against EMC Mortgage Corp. and Bear Stearns
International Investors Join Forces in Lawsuit Against Fortis Over Massive Misrepresentation Ahead of 2008 Bank Collapse
Wells Fargo Comments on Massachusetts Supreme Court Ruling
U.S. Bank’s Statement on Massachusetts Court Ruling
Massachusetts Foreclosure Case Reveals Bad Practices Behind the Mortgage Scene
Prisco v. U.S. Bank: Defendant violated the automatic stay under 11 U.S.C. § 362.1
Brookstone Law Fights For Orange County Law Enforcement Professionals Loan Modification
KARL v. QUALITY LOAN SERVICE: Plaintiff alleges several defects in the NOD
SIFRE v. WELLS FARGO BANK: Defendant does not have standing to foreclose and fraudulently induced him into entering into the mortgage contract
U.S. v. RAMENTOL: Appeal that the government failed to introduce evidence sufficient for a jury to convict them of wire fraud
MORTENSEN v. MERS: Defendants treated Mortensen shabbily in connection with his efforts to negotiate a mortgage loan modification
U.S. v. NOVRIT: Appeal from a criminal conviction for multiple counts relating to a mortgage fraud conspiracy
Ally Financial Reaches Agreement with Fannie Mae on Mortgage Repurchase Exposure
HAMP: Public citizens are not intended third-party beneficiaries to government contracts
VIDA v. ONEWEST BANK: HAMP does not provide for a private right of action
Loan Officers File Overtime Case Against Republic Mortgage Home Loans
Mortgage Lawsuits Up 41%
Timothy McCandless Esq. and Associates
Offices Statewide

(909)890-9192
(925)957-9797
FAX (909) 382-9956
tim@Prodefenders.com

http://www.timothymccandless.com

Home Affordable Modification Plan – Checklist For Approval

8 Feb

Are you applying for HAMP Program which is also known as Home Affordable Modification Program? The program is federally subsidized and that would pay lenders over and above servicers to modify eligible loans using the consistent terms state with the Treasury Department. What are the advantages of this loan workout programs and what are the necessities to partake?

“Obama’s HAMP loan modification program is part of the $75 billion dollar housing stimulus program that is planned to help out around 4 million homeowners out of foreclosure.”

The advantages of Obama’s HAMP loan modification program include:

  • Trim down payments to equal 31% of monthly total earnings
  • Stopping foreclosure procedure
  • Let off late fees and penalties
  • Include past outstanding payments in new loan
  • Lower interest rate as low as 2%*
  • Lengthen loan term to forty years
  • Defer or forgive principal balance

Unfortunately, not everyone could get eligible for aid under this program, nevertheless if you can meet the necessary eligibility requirements you can submit a loan modification program request for consideration. Here’re the requirements to apply for a loan workout:

  • Individual should stay in the home as your primary residence
  • Loan amount should be less than $729,750
  • Present payment equals more than 31% of monthly total income
  • Facing financial hardship

Majority lenders as well as servicers are contributing in Obama’s home affordable modification program, and concerned homeowners are positive to start the application process. Only borrowers who can prove they meet the appropriate guidelines would be accepted for a lower mortgage payment. There is a standard formula that lenders make use of to decide who would get eligible for approval. Homeowners can use a software program that uses this very similar program to help out them to organizing an exact and suitable application. Just input income and expenses, and the debt ratio, new target payment with new interest rate, disposable income and additional calculations are done automatically. Save hours of frustration and pass up mistakes.

Act Now – To Apply For Bad Credit Mortgage Refinance Loan »

Mass. BK Judge Issues “Emergency Preliminary Injunction, Pending Loan Modification Request” CRUZ v. WELLS FARGO (via Foreclosureblues)

8 Feb

Mass. BK Judge Issues “Emergency Preliminary Injunction, Pending Loan Modification Request” CRUZ v. WELLS FARGO Mass. BK Judge Issues “Emergency Preliminary Injunction, Pending Loan Modification Request” CRUZ v. WELLS FARGO Today, February 06, 2011, 8 hours ago | dinsfla In re: JOSE D CRUZ, Chapter 13, Debtor. JOSE D CRUZ, Plaintiff, v. HACIENDA ASSOCIATES, LLC and WELLS FARGO BANK, N.A., Defendants. Case No. 10-43793-MSH, Adv. Pro. No. 11-04006. United States Bankruptcy Court, D. Massachusetts, Central Division. January 26, 2011. MEMORANDUM OF DECISION ON … Read More

via Foreclosureblues

Arizona Homeowners: Strength in Numbers (via Foreclosureblues)

8 Feb

Arizona Homeowners: Strength in Numbers Arizona Homeowners: Strength in Numbers Today, February 06, 2011, 7 hours ago | findsenlaw Please take two minutes to email the Arizona Senate Banking and Insurance Committee members to show your support for SB 1259.  It should not be easier to steal a house than to steal a car. You might tell them: They should support the law because no honest foreclosing entity will fear certifying that they are authorized to foreclose by a clear chain of title … Read More

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MORTGAGE BACKED SECURITIES: LEGAL COUNTERFEITING (via Foreclosureblues)

8 Feb

MORTGAGE BACKED SECURITIES: LEGAL COUNTERFEITING MORTGAGE BACKED SECURITIES: LEGAL COUNTERFEITING Today, February 06, 2011, 11 hours ago | Neil Garfield COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary EDITOR’S NOTE: If you want to get the FEEL of what just happened in our world of finance and the ensuing effects on our economy, you might be better off reading a book like “Moneymakers: The Wicked Lives and Surprising Adventures of Three Notorious Counterfeiter … Read More

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housing market news from patrick.net (via Foreclosureblues)

8 Feb

housing market news from patrick.net Real Estate Lobby Is Ready To Kill Reform (businessweek.com) U.S. housing reform at risk of stopping way short (blogs.reuters.com) Housing finance changes likely to mean lower taxpayer subsidies for debt (washingtonpost.com) Mortgage rule could improve housing prices, by lowering them (reuters.com) GOP Targets Transportation, Housing For the Deepest Cuts (dc.streetsblog.org) Rand Paul Wants To End Public Housi … Read More

via Foreclosureblues

Wisconsin Appeals Court: Affidavits Not Based On "Personal Knowledge" Sink Lender's Attempt To Score Summary Judgment In Foreclosure Action (via Livinglies's Weblog)

8 Feb

Wisconsin Appeals Court: Affidavits Not Based On "Personal Knowledge" Sink Lender's Attempt To Score Summary Judgment In Foreclosure Action A Wisconsin intermediate appeals court recently reached the relatively unremarkable, predictable, and certainly non-ground-breaking conclusion that affidavits filed by a foreclosing lender that are not based on the "personal knowledge" of the affiant are insufficient to establish a basis for summary judgment. … Read More

via Livinglies's Weblog

Take this APR and Shove It

8 Feb

— Illustration: Christoph Hitz

He’s been called a “credit terrorist,” but Steven Katz says you shouldn’t feel guilty about sticking it to Wall Street.

— By Kimberly Thorpe

READ ALSO: Steven Katz’s tips for driving creditors crazy.

At last count, Steven Katz owed $80,000 on his six credit cards, and he has no intention of paying any of it off. In fact, he’d like to show you how to be like him—a “credit terrorist” in open revolt against the banking system.

Katz is the founder of Debtorboards.com (“Sue Your Creditor and Win!”), a five-year-old online forum where he’s collected countless tricks and tactics for evading and repelling persistent creditors. He’s written how-tos on shielding your assets from seizure, luring collection agencies into expensive lawsuits, and frustrating private investigators looking for debtors on the run. He’s even infiltrated the bill collectors’ forums, where he’s been tagged a “credit jihadist” and his site’s been called a “credit terrorist training camp,” a label he embraces. “Debtorboards is one of the biggest and most successful temper tantrums ever,” the 59-year-old Katz boasts. The site has more than 10,000 members—double what it had in 2009.

Katz wants the millions of Americans buried in debt to stop feeling guilty about not honoring their obligations. “People are brainwashed to think that paying a credit card is more important than paying for the necessities of life,” he says. “Business and morality have nothing to do with each other, according to the bankers.” One of Katz’s mottos is “No one ever went to hell for not paying a debt.”

“No one ever went to hell for not paying a debt.”

He wasn’t always an unrepentant debtor. When he first spoke to me from his tax and accounting business in a strip mall in Tucson, Arizona, he recalled how his first job in the ’70s was tromping through Brooklyn making collections for a small loan company. He once threatened to take a woman’s kids to an orphanage if she didn’t pay her bills. He wasn’t serious, but it worked.

The tables were turned in 2003, when a collection agency came after Katz for a debt that had been written off when he declared bankruptcy a few years earlier. The collector wouldn’t relent, and Katz’s credit score tanked. Outraged, he turned to the internet, where he learned how to go after debt collectors for violating consumer protection laws. Eventually, the collector paid him $1,000 in damages. Katz framed the check with the caption “The Steven Katz school of bill collector education is now open for business.”

His tactics may be extreme, but Katz is not alone in his quest to evade the banking system. More Americans than ever are unable—or unwilling—to make good on their debts. Since 2008, banks have “charged off” a record $90 billion in credit card debt—taking it off their books as unlikely to ever be repaid. In the past two years, major banks charged off more than 10 percent of all consumer credit card accounts, on average—two times the pre-recession rate, and the highest in US history. The number of consumer lawsuits filed against collectors, like those Debtorboards encourages, has grown 122 percent since 2008. A backlash against the big banks is ballooning—from the California woman who made a popular YouTube video urging people to stop paying their credit card bills as part of a “debtors’ revolution” to the “Move Your Money” campaign, which encourages consumers to move their money to local banks or credit unions.

While it’s easy to hate the big banks and credit card companies, it can be hard to quit them cold turkey. Katz knows this well: After going bankrupt, he went back into debt to finance the growth of his tax business and renovate his home. By early 2010, he and his wife owed upwards of $40,000 on six credit cards. They diligently made their monthly payments. The 6 percent APR on his Wells Fargo Visa tripled; his other cards’ rates followed. (Banks surprised many customers with higher rates and new fees in response to 2009’s credit reform law, which limited rate hikes.) He called Wells Fargo to lower the rate; the bank refused. He says he started to pay down the balance, but then it looked like his wife was about to lose her job.

So Katz started planning his final escape. His wife found a job teaching English in Shijiazhuang, China, and he decided to join her. “I’d been fucked over by the banks,” he says. “I was treated like a deadbeat even though I wasn’t. And my attitude was, ‘If you’re going to treat me like a deadbeat, goddamn it, I might as well be one.'”

He stopped paying his bills and took out the largest cash advances possible, transferring $38,000 to an account in China, where it would be virtually out of reach from American banks. Of course, in the States he’d still be on the hook for his debts, and he could face fraud charges for taking the money with no intention of paying it back. But Katz says he has no plans to ever come back.

Last August, he began his new life as an “international deadbeat” by buying a first-class one-way ticket to China—with his credit card, of course. Talking on the phone from his new three-bedroom apartment, he recalls how his wife and son met him in Beijing, handing him two collection letters that had already arrived at his new address. He opened them on the spot. “In the middle of the airport, I’m laughing my head off, and I just take one of them and wipe my butt with it.”

 

The Financial Anarchist's Cookbook (via Foreclosureblues)

8 Feb

The Financial Anarchist's Cookbook The Financial Anarchist's Cookbook Today, February 07, 2011, 9 hours ago | Kimberly Thorpe READ ALSO: "Credit terrorist" Steven Katz says you shouldn't feel guilty about sticking it to Wall Street. TAPE EVERYTHING. Record your calls with collection agents (if it's legal in your state). When they say, "We can seize your car to repay a credit card bill," you've caught them in a violation of the Fair Debt Collection Practices Act. Sue, and you could … Read More

via Foreclosureblues

US Housing Continues Freefall & Is Nowhere Near The Bottom (via Livinglies's Weblog)

8 Feb

US Housing Continues Freefall & Is Nowhere Near The Bottom The Frighteningly Obvious Truth That Most Deny – US Housing Continues Freefall & Is Nowhere Near The Bottom Posted on February 7, 2011 by Foreclosureblues Today, February 07, 2011, 4 hours ago | Reggie Middleton The residential real estate situation is still looking quite bleak. The downturn (actually, the continuation of the earlier downturn – they were not two separate events) that I forecast last year has come, and come with a vengeance. I … Read More

via Livinglies's Weblog

[NYSC] Judge Spinner “Plaintiff’s Papers Raises Disturbing Issues”, “Appears To Run Counter To New York’s Statute of Frauds” BENEFICIAL HOMEOWNER SERV. CORP v. STEELE (via Livinglies's Weblog)

8 Feb

[NYSC] Judge Spinner “Plaintiff’s Papers Raises Disturbing Issues”, “Appears To Run Counter To New York’s Statute of Frauds” BENEFICIAL HOMEOWNER SERV. CORP v. STEELE COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary MORTGAGE DOCUMENTS MUST BE IN WRITING AND EXECUTED ACCORDING TO STATUTE OF FRAUDS EDITORS ANALYSIS: Every state has a statute of frauds — which in plain language means that there are certain types of transactions that won't be enforced by the court, or where parts of the transactions won't be enforced by the court without a written instrument executed in the for … Read More

via Livinglies's Weblog

Foreclosure fraud Bay News

6 Feb

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Lawler: How Many Folks Have “Lost Their Homes” to Foreclosure/Short Sales/DILs?

6 Feb


by CalculatedRisk on 2/02/2011 05:30:00 PM

CR: This is an interesting question and hard to answer … the following is from economist Tom Lawler …

How Many Folks Have “Lost Their Homes” to Foreclosure/ShortSales/DILs Over the Past Few Years?

According toHope Nowestimates, completed foreclosure sales (rounded) were about as follows over the past few years.

Year Completed Foreclosure
2007 514,000
2008 914,000
2009 949,000
2010 1,070,000

 

While these numbers are disturbingly high, they are not nearly as large as one would have expected given the surge in seriously delinquent loans and loans in the process of foreclosure. For the latter, here is a chart based on data from the MBA’s National Delinquency Survey, which covers “over 85%” of total 1-4 family first-lienmortgages.MBA Delinquency
On one side, the “completed foreclosure sales” understates the number of homes “lost,” given that many homeowners have “lost” their homes but been able to negotiate a short sale or (much less likely) done a deed in lieu of foreclosure. While there are no official estimates of either short sales or DILs, there is no doubt that the volume of short sales increased dramatically in 2009 and 2010.

Using CoreLogic’s estimates and grossing them up to reflect its incomplete geographic coverage, one would get short sales estimates of around 78,000 for 2007, 164,000 for 2008, 278,000 for 2009, and 331,000 for 2010. However, based on data reported by lenders on short sales in the OCC/OTS mortgage metricsreports, the CoreLogic estimates of short sales look way too high for 2007 and 2008 (the 2009 estimates look OK, but the 2010 estimates – which admittedly are not available for the full year – look a tad low). Using instead my own estimates for 2008 through 2010, here’s what completed foreclosure sales plus short sales might look like (I don’t have a DIL estimate, but it appears as if the volume of DILs was pretty low).

Year Completed Foreclosure Sales Short Sales Total
2008 914,000 95,000 1,009,000
2009 949,000 263,000 1,212,000
2010 1,070,000 375,000 1,445,000

 

On the other hand, the above numbers could well OVERSTATE significantly the number of homeowners who lost their primary home either to foreclosure or to a short sale. A “significant” % of completed foreclosure sales has been completed foreclosures on non-owner-occupied homes, though estimates vary as to what that % has been. In addition, not all short sales have involved homeowners “involuntarily” leaving their home, but who instead wanted to (for economic or other reasons) move and who were able to negotiate a short sale with their lender.So what is the right number for folks who lost their residence to foreclosure, a short sales, or a DIL? I don’t rightly know.

It is pretty clear, however, that overall foreclosure moratoria, foreclosure delays, modifications, and other workout activity continued to keep the number of homeowners who “lost” their homes to foreclosure massively lower than one would have expected given the delinquency/in foreclosure numbers.

Year Completed Foreclosure Sales plus Short Sales Loans in Foreclosure/90+ Delinquent at end of previous year
2008 1,009,000 1,664,760
2009 1,212,000 2,859,959
2010 1,445,000 4,296,018

 

Note: the loans in foreclosure/90+ delinquent are derived from the MBA National Delinquency Survey, which only covers somewhere around 85-87% of the total 1-4 family first-lien mortgage market. A crude estimate of the “total” market would “gross up” the above numbers by around 1.163 (or 1/0.86).CR Note: This was from housing economist Tom Lawler.

Deutsche Bank Financial Fraud On Wall Street & US Mortgage Scam Just The Tip of the Foreclosure Iceberg Linked To Stern Law Firm. (via Foreclosureblues)

5 Feb

Deutsche Bank Financial Fraud On Wall Street & US Mortgage Scam Just The Tip of the Foreclosure Iceberg Linked To Stern Law Firm. Deutsche Bank Financial Fraud On Wall Street & US Mortgage Scam Just The Tip of the Foreclosure Iceberg Linked To Stern Law Firm. Today, February 04, 2011, 18 minutes ago | pibillwarner Friday, February 04, 2011 Deutsche Bank and David J. Stern as DJSP Enterprises set up Wall Strert for a big fall, when do the Federal Indictments come down? According to Bloomberg financial writer and author, Michael Lewis, under  Josef Ackermann’s leadership … Read More

via Foreclosureblues

Dems: Obama Broke Pledge to Force Banks to Help Homeowners

4 Feb
Dems: Obama Broke Pledge to Force Banks to Help Homeowners

by Paul Kiel and Olga Pierce ProPublica, Feb. 4, 2011

Before he took office, President Obama repeatedly promised voters and Democrats in Congress that he’d fight for changes to bankruptcy laws to help homeowners—a tough approach that would force banks to modify mortgages.

“I will change our bankruptcy laws to make it easier for families to stay in their homes,” Obama told supporters at a Colorado rally on September 16, 2008, the same day as the bailout of AIG.

Bankruptcy judges have long been barred from lowering mortgage payments on primary residences, though they could do it with nearly all other types of debt, even mortgages on vacation homes. Obama promised to change that, describing it as exactly “the kind of out-of-touch Washington loophole that makes no sense.”

But when it came time to fight for the measure, he didn’t show up. Some Democrats now say his administration actually undermined it behind the scenes.

“Their behavior did not well serve the country,” said Rep. Zoe Lofgren (D-CA), who led House negotiations to enact the change, known as “cramdown.” It was “extremely disappointing.”

Instead, the administration has relied on a voluntary program with few sticks, that simply offers banks incentives to modify mortgages. Known as Home Affordable Modification Program, or HAMP, the program was modeled after an industry plan. The administration also wrote it carefully to exclude millions of homeowners seen as undeserving.

The administration launched the program with a promise that it would help 3 million to 4 million homeowners avoid foreclosure, but it’s likely to fall far short of that goal. The Congressional Oversight Panel now estimates [1] fewer than 800,000 homeowners will ultimately get lasting mortgage modifications.

The number of modifications has remained dramatically low compared to the number of homeowners falling behind. (Source: LPS Applied Analytics and HOPE Now)

Over the past year, ProPublica has been exploring why the program has helped so few homeowners. Last week, we reported how the Treasury Department has allowed banks to break the program’s rules with few ramifications [2]. The series is based on newly released data, lobbying disclosures, and dozens of interviews with insiders, members of Congress and others.

As the foreclosure crisis grew through 2008, the large banks that handle most mortgages were slow to offer modifications to struggling homeowners. Homeowners were left to navigate an onerous process that usually did not actually lower their mortgage payment. More than half of modifications kept the homeowner’s payment the same or actually increased it.

Many in Congress and elsewhere thought that mortgage servicers, the largest of which are the four largest banks, would make modifications only if they were pressured to do so.

Servicers work as intermediaries, handling homeowners’ mortgage payments on behalf of investors who own the loans. Since servicers don’t own the vast majority of the loans they service, they don’t take the loss if a home goes to foreclosure, making them reluctant to make the investments necessary to fulfill their obligations to help homeowners.

To force those servicers to modify mortgages, advocates pushed for a change to bankruptcy law giving judges the power not just to change interest rates but to reduce the overall amount owed on the loan, something servicers are loath to do [3].

Congressional Democrats had long been pushing a bill to enact cramdown and were encouraged by the fact that Obama had supported it, both in the Senate and on the campaign trail.

They thought cramdowns would serve as a stick, pushing banks to make modifications on their own.

“That was always the thought,” said Rep. Brad Miller (D-NC), “that judicial modifications would make voluntary modifications work. There would be the consequence that if the lenders didn’t [modify the loan], it might be done to them.”

When Obama unveiled his proposal to stem foreclosures a month after taking office, cramdown was a part of the package [4]. But proponents say he’d already damaged cramdown’s chances of becoming law.

In the fall of 2008, Democrats saw a good opportunity to pass cramdown. The $700 billion TARP legislation was being considered, and lawmakers thought that with banks getting bailed out, the bill would be an ideal vehicle for also helping homeowners. But Obama, weeks away from his coming election, opposed that approach and instead pushed for a delay. He promised congressional Democrats that down the line he would “push hard to get cramdown into the law,” recalled Rep. Miller.

Four months later, the stimulus bill presented another potential vehicle for cramdown. But lawmakers say the White House again asked them to hold off, promising to push it later.

An attempt to include cramdown in a continuing resolution got the same response from the president.

“We would propose that this stuff be included and they kept punting,” said former Rep. Jim Marshall, a moderate Democrat from Georgia who had worked to sway other members of the moderate Blue Dog caucus [5] on the issue.

“We got the impression this was an issue [the White House] would not go to the mat for as they did with health care reform,” said Bill Hampel, chief economist for the Credit Union National Association, which opposed cramdown and participated in Senate negotiations on the issue.

Privately, administration officials were ambivalent about the idea. At a Democratic caucus meeting weeks before the House voted on a bill that included cramdown, Treasury Secretary Tim Geithner “was really dismissive as to the utility of it,” said Rep. Lofgren.

Larry Summers, then the president’s chief economic adviser, also expressed doubts in private meetings, she said. “He was not supportive of this.”

The White House and Summers did not respond to requests for comment.

Treasury staffers began conversations with congressional aides by saying the administration supported cramdown and would then “follow up with a whole bunch of reasons” why it wasn’t a good idea, said an aide to a senior Democratic senator.

Homeowners, Treasury staffers argued, would take advantage of bankruptcy to get help they didn’t need. Treasury also stressed the effects of cramdown on the nation’s biggest banks, which were still fragile. The banks’ books could take a beating if too many consumers lured into bankruptcy by cramdown also had their home equity loans and credit card debt written down.

While the Obama administration was silent, the banking industry had long been mobilizing massive opposition to the measure.

“Every now and again an issue comes along that we believe would so fundamentally undermine the nature of the financial system that we have to take major efforts to oppose, and this is one of them,” Floyd Stoner, the head lobbyist for the American Bankers Association, told an industry magazine.

With big banks hugely unpopular, the key opponents of cramdown were the nation’s community bankers, who argued that the law would force them to raise mortgage rates to cover the potential losses. Democratic leaders offered to exempt the politically popular smaller banks from the cramdown law, but no deal was reached.

“When you’re dealing with something like the bankruptcy issue, where all lenders stand pretty much in the same shoes, it shouldn’t be a surprise when the smaller and larger banks find common cause,” said Steve Verdier, a lobbyist for the Independent Community Bankers Association.

The lobbying by the community banks and credit unions proved fatal to the measure, lawmakers say. “The community banks went bonkers on this issue,” said former Sen. Chris Dodd (D-CT). With their opposition, he said, “you don’t win much.”

“It was a pitched battle to get it out of the House,” said Rep. Miller, with “all the effort coming from the Democratic leadership, not the Obama administration.”

The measure faced stark conservative opposition. It was opposed by Republicans in Congress and earlier by the Bush administration, who argued that government interference to change mortgage contracts would reduce the security of all kinds of future contracts.

“It undermines the foundation of the capitalist economy,” said Phillip Swagel, a Bush Treasury official. “What separates us from [Russian Prime Minister Vladimir] Putin is not retroactively changing contracts.”

After narrowly passing the House, cramdown was defeated when 12 Democrats joined Republicans [6] to vote against it.

Many Democrats in Congress said they saw this as the death knell for the modification program, which would now have to rely on the cooperation of banks and other mortgage servicers to help homeowners.

“I never thought that it would work on a voluntary basis,” said Rep. Lofgren.

At the time that the new administration was frustrating proponents of cramdown, the administration was putting its energies into creating a voluntary program, turning to a plan already endorsed by the banking industry. Crafted in late 2008, the industry plan gave banks almost complete freedom in deciding which mortgages to modify and how.

The proposal was drafted by the Hope Now Alliance, a group billed as a broad coalition of the players affected by the mortgage crisis, including consumer groups, housing counselors, and banks. In fact, the Hope Now Alliance was headquartered in the offices of the Financial Services Roundtable, a powerful banking industry trade group. Hope Now’s lobbying disclosures were filed jointly with the Roundtable, and they show efforts to defeat cramdown and other mortgage bills supported by consumer groups.

The Hope Now plan aimed to boost the number of modifications by streamlining the process for calculating the new homeowner payments. In practice, because it was voluntary, it permitted servicers to continue offering few or unaffordable modifications.

The plan was replaced by the administration’s program after just a few months, but it proved influential. “The groundwork was already laid,” said Christine Eldarrat, an executive adviser at the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac. “Servicers were onboard, and we knew their feelings about certain guidelines.”

As an official Treasury Department account of its housing programs later put it, “The Obama Administration recognized the momentum in the private sector reflected in Hope Now’s efforts and sought to build upon it.” It makes no mention of cramdown as being needed to compel compliance.

Ultimately, HAMP kept the streamlined evaluation process of the Hope Now plan but made changes that would, in theory, push servicers to make more affordable modifications. If servicers chose to participate, they would receive incentive payments, up to $4,000, for each modification, and the private investors and lenders who owned the loans would also receive subsidies. In exchange, servicers would agree to follow rules for handling homeowner applications and make deeper cuts in mortgage payments. Servicers who chose not to participate could handle delinquent homeowners however they chose.

The program had to be voluntary, Treasury officials say, because the bailout bill did not contain the authority to compel banks to modify loans or follow any rules. A mandatory program requires congressional approval. The prospects for that were, and remain, dim, said Dodd. “Not even close.”

“The ideal would have been both [cramdown and HAMP],” said Rep. Barney Frank (D-MA), then the chairman of the House Financial Services Committee. But given the political constraints, HAMP on its own was “better than nothing.”

“We designed elegant programs that seemed to get all the incentives right to solve the problem,” said Karen Dynan, a former senior economist at the Federal Reserve. “What we learned is that the world is a really complicated place.”

The program was further limited by the administration’s concerns about using taxpayer dollars to help the wrong homeowners. The now-famous “rant” by a CNBC reporter [7], which fueled the creation of the Tea Party movement, was prompted by the idea that homeowners who had borrowed too much money might get help.

Candidate Obama had portrayed homeowners in a sympathetic light. But the president struck a cautious note when he unveiled the plan in February 2009 [8]. The program will “not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans,” said Obama. “It will not reward folks who bought homes they knew from the beginning they would never be able to afford.”

While the government had been relatively undiscriminating in its bank bailout [9], it would carefully vet homeowners seeking help. HAMP was written to exclude homeowners seen as undeserving, limiting the program’s reach to between 3 million and 4 million homes.

In order to prove their income was neither too high nor too low for the program, homeowners were asked to send in more documents than servicers had required previously, further taxing servicers’ limited capacity. As a result, some servicers say eligible homeowners have been kept out. According to one industry estimate [10], as many as 30 percent more homeowners would have received modifications without the additional demands for documentation.

A lot of the program is focused on “weeding out bad apples,” said Steven Horne, former Director of Servicing Risk Strategy at Fannie Mae. “Ninety percent is not focused on keeping more borrowers in their homes.”

~

Banks Keep Stealing – Why Keep Paying? (via Foreclosureblues)

4 Feb

Banks Keep Stealing – Why Keep Paying? Banks Keep Stealing – Why Keep Paying? Today, February 03, 2011, 36 minutes ago | Mark Stopa Below is an article written by MSNBC’s Dylan Ratigan, who makes a compelling argument for strategic default. The dire straits of the middle class of America has made it near impossible for our politicians to keep up the pretense that our current government truly works for the “people.” Between the multiple overt and secretive bailouts, the massive bonuses … Read More

via Foreclosureblues

STOP! You Must Read The Florida Appeal Transcript of PINO v. BANK OF NEW YORK (via Foreclosureblues)

4 Feb

STOP! You Must Read The Florida Appeal Transcript of PINO v. BANK OF NEW YORK STOP! You Must Read The Florida Appeal Transcript of PINO v. BANK OF NEW YORK Yesterday, February 03, 2011, 11:01:44 PM | dinsfla courtesy of IceLegal excerpts: JUDGE POLEN: I’m afraid I’m not following that. David Stern’s client at the time was BNY Mellon Bank, right? MR. NIEVES: Yes. JUDGE POLEN: Okay. And that’s evidence of what, an assignment to a bank? MR. NIEVES: Basically, the law firm manufactured evidence for the client’s case. JUDGE POL … Read More

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The Pino Case- If The Court Considers Fraud on The Courts You’ll Create Chaos in The Courts. (via Foreclosureblues)

4 Feb

The Pino Case- If The Court Considers Fraud on The Courts You’ll Create Chaos in The Courts. The Pino Case- If The Court Considers Fraud on The Courts You’ll Create Chaos in The Courts. Yesterday, February 03, 2011, 8:51:53 PM | Matthew D. Weidner, Esq. The Pino Appeal is Florida’s Ibanez moment.  The Florida Supreme Court will soon decide just how serious Florida courts are going to take systematic, repetitive fraud on the Courts of the State of Florida.  The bottom line is this…. Will banks and foreclosure mills  be given a free pass o … Read More

via Foreclosureblues

housing market news from patrick.net (via Foreclosureblues)

4 Feb

housing market news from patrick.net Wealthiest Americans Enrich Themselves At Taxpayer Expense (dailybail.com) JPMorgan was warned on Madoff, lawsuit says (money.cnn.com) Read unsealed complaint: JPMorgan Execs Warned About Madoff (stopforeclosurefraud.com) Merrill fired analyst who angered huge bank clients before financial crisis (finance.yahoo.com) When Irish Eyes Are Crying (vanityfair.com) Russia's Putin sees $20.5 bln housing investment (r … Read More

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