http://xa.yimg.com/kq/groups/21961710/439735101/name/AppPtnRvwCalvo.pdf

The CALVO decision of the Second District Court of Appeal effectively sanctioned the robo-signer practice by ruling that the recording of an ASSIGNMENT was not a pre-requisite to foreclosure.  CALVO's Attorney Dennis Moore has taken the matter to the California Supreme Court for review of the decision.  The Petition, filed today, is as follows:

1

I.

In other words, should California Civil Code § 2932.5 apply to deeds of trust?

"Where a power to sell real property is given to a mortgagee, or other encumbrancer, in an instrument intended to secure the payment of money, the power is part of the security and vests in any person who by assignment becomes entitled to payment of the money secured by the instrument. The power of sale may be exercised by the assignee if the assignment is duly acknowledged and recorded." 2

This issue is an important issue in California. In California, 1 in every 259 housing units received a notice of default filing in September of 20111. The amount of foreclosures in 2011 is expected to be greater than in previous years.2 .

In Bank of Italy Nat'l Trust and Savings Ass'n v. Bank of Italy, 217 Cal. 644, this Court demonstrated that laws applicable to only mortgages can be extended to cover deeds of trust as well. In Bank of Italy, although California Code of Civil Procedure § 726's wording only made it applicable to mortgages, this Court held it also applies to deeds of trust in addition to mortgages. Id. at 658. Part of this Court's reasoning in extending California Code of Civil Procedure § 3

In the midst of the foreclosure crisis, this Court has an opportunity to determine whether the mere fundamental difference in mortgages and deeds of trust should be a basis to treat mortgages and deeds of trust differently under laws relating to the exercise of the power of sale within such instruments. This Court will be able to decide whether the California Legislature already addressed this issue when it enacted California Civil Code § 2924f(c)(2), which provides:

If California Civil Code § 2932.5 applies to deeds of trust, then whenever a loan is sold on the secondary mortgage market, such as most loans today, the purchaser of the note and deed of trust only has to record its interest first, then the purchaser can exercise the power of 4

sale and initiate a non-judicial foreclosure. Such a requirement gives the public a means of knowing who the foreclosing bank is on a particular piece of real property. California Civil Code § 2932.5 would protect borrowers from confusion of who owns their loan.

The decisions that hold California Civil Code § 2932.5 doesn't apply to deeds of trust recognize deeds of trust to be treated differently than mortgages. None of these decisions recognize the "anomalous nature" of deeds of trust and mortgages. None of these decisions recognize that since Bank of Italy, this Court went a step further and described deeds of trust as liens in Monterey S. P. Partnership v. W. L. Bangham, Inc. 49 Cal.3d 454, 460. ["In practical effect, if not in legal parlance, a deed of trust is a lien on the property"]. The deed of trust conveys title to the trustee only so far as it may be necessary for the execution of the trust. Id.

None of these decisions address California Civil Code § 2932.5's plain wording and address who the "Other Encumbrancers" are referred to in California Civil Code § 2932.5 in order to meet the elementary rules of statutory construction. Torrey Hills Community Coalition v. City of San Diego, (2010) 186 Cal.App.4th 429, 440. 5

None of these decisions address the effect of California Civil Code § 2924f(c)(2). Currently, there are no cases that discuss and analyze California Civil Code § 2924f(c)(2). There is no caselaw addressing California Civil Code § 2924f(c)(2).

Review is necessary to determine whether it should be a public record who is foreclosing on real property. Review will provide this Court with an opportunity to clarify how the anomalous nature of deeds of trust and mortgages affect laws that relate to the exercising of the power of sale, and Review can finally give guidance to California Civil Code § 2924f(c)(2), which has never been interpreted in any decision.

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1. Does California Civil Code § 2932.5 apply to deeds of trust?

3. Since California Civil Code § 2932.5 plain wording applies to "Other Encumbrancers," if California Civil Code § 2932.5 applied only to mortgages, would such an interpretation cause California Civil Code § 2932.5 to contain superfluous and inoperative language?

On April 27, 2006, Eugenia Calvo ("Ms. Calvo") obtained a loan ("Loan") from CBSK Financial Group, Inc. ("CBSK") by executing a note ("Note"), which was secured by real property ("Property") via a deed of trust ("DOT"). (CT. p. 95). The DOT identified CBSK as the lender, Mortgage Electronic Registration 7

Systems, Inc. ("MERS") as beneficiary, and Lawyers Title Company ("LTC") as trustee under the DOT. (CT. p. 95) (See CT. p. 100 for Exhibit A, identifying parties in DOT).

[1st Paragraph] "....... Lender at its option may ...... and may invoke the power of sale..." (CT p. 110 - 111).

[2nd Paragraph] "........ If the Lender invokes the power of sale, Lender shall execute or cause Trustee to execute a written notice of the occurrence of an event of default and of Lender's election to cause the Property to be sold ....." (CT p. 111).

On July 9, 2008, foreclosure proceedings against the Property were commenced by a Notice of Default and Election to Sell under Deed of Trust ("NOD") being recorded in the Los Angeles County 8

Recorder's Office ("Recorder's Office"). (CT. p. 95) (See CT. p. 123 for Exhitbit B, which contains the NOD). HSBC caused the NOD to be recorded. (CT. p. 96).

In Ms. Calvo's second amended complaint ("SAC"), Ms. Calvo alleged a violation of California Civil Code § 2932.5 against HSBC. 9

(CT. p. 97). HSBC's responsive pleading to the SAC was a demurrer, and HSBC's primary argument was California Civil Code § 2932.5 did not apply to deeds of trust. (CT. p. 165). The trial court sustained HSBC's demurrer to the SAC without leave to amend and dismissed the case. (CT. p. 255). The Court of Appeal upheld the Trial Court's ruling, asserting California Civil Code § 2932.5 did not apply to deeds of trust.

The important issue of law to settle is whether California Civil Code § 2932.5 applies to deeds of trust. However, this issue of law raises other important issues of law, such as:

2) Whether due to California Civil Code § 2932.5's plain wording, California Civil Code § 2932.5 must be interpreted

to apply to deeds of trust in order to prevent California Civil Code § 2932.5 from containing superfluous and inoperative language.

Next, this Court thoroughly discussed the California caselaw history of mortgages and deeds of trust. In the past, there were two lines of authority; one group of cases emphasized the distinction between deeds of trust and mortgages, and the other group emphasized the similarity between them. Id. at 655. There was also a new line of cases, which assert that although in theory deeds of trust are different than mortgages, the function and purpose of the two securities are identical, and therefore, such cases apply the same rules to deeds of trust that are applied to mortgages. Id. 11

After breaking down the history of deeds of trust and mortgages, this Court held California Code of Civil Procedure § 726 also applies to deeds of trust in addition to mortgages. Id. at 658. Part of this Court's reasoning in extending California Code of Civil Procedure § 726 to also apply to deeds of trust was the "anomalous nature of deeds of trust in this state." Furthermore, the mere difference of title passing in a deed of trust shouldn't be the reason an obligee shouldn't have to first exhaust its security before filing a suit against the obligor. Id.

Review is necessary to clarify the anomalous nature of deeds of trust to mortgages. Every decision that held California Civil Code § 2932.5 inapplicable to deeds of trust interprets deeds of trust to be different from mortgages. The Court of Appeal in this case, Calvo v. HSBC Bank, interprets Bank of Italy to recognize the distinction between a mortgage and deed of trust has become well settled in our law and now cannot be disturbed. Calvo at 6 of 9. Stockwell v. Barnum 7 Cal.App. 413 was decided in 1908, in an era which distinguished deeds of trust from mortgages, and Stockwell was heavily relied on by the Calvo Court. Stockwell distinguished deeds of trust from mortgages. 7 Cal.App. 413, 416. Stockwell ruled: 12

"The transferee of a negotiable promissory note, payment of which is secured by a deed of trust whereby the title to the property and power of sale in case of default is vested in a third party as trustee, is not an encumbrancer to whom power of sale is given, within the meaning of section 8583 of the Civil Code." Id. at 417.

3 In 1986 Civil Code § 2932.5 continued Civil Code § 858 without substantive change.

Every federal decision cited by the Calvo Court distinguishes deeds of trust from mortgages. The Calvo Court cites Roque v. Suntrust Mortgage, Inc., 2010 WL 546896 (attached as Exhibit B), Parcray v. Shea Mortg, Inc., 2010 WL 1659369 (attached as Exhibit C), and Caballero v. Bank of America, 2010 WL 4604031 (attached as Exhibit D). None of these federal decisions discuss the issue of whether the fundamental difference between deeds of trust and mortgages should be a basis to not extend California Civil Code § 2932.5 to deeds of trust. Instead, these decisions distinguish the two instruments.

Roque v. Suntrust Mortgage, 2010 WL 546896 *3 held "2932.5 applies to mortgages, not deeds of trust. It applies only to mortgages 13

Parcray cites Roque when it held: "There is no requirement under California law for an assignment to be recorded in order for an assignee beneficiary to foreclose." Parcray at 10.

Caballero cites Roque and Parcray in asserting 2932.5 does not apply to deeds of trust. Caballero at 3. Caballero cites Bank of Italy, but cites the part of the Bank of Italy decision that discusses the history of California's treatment of deeds of trust from mortgages on pinpoint page 655 of Bank of Italy. Caballero asserts:

"California courts have not eliminated the distinction between deeds of trusts and mortgages. See Bank of Italy Nat. Trust and 14

Savings Ass'n v. Bently, 217 Cal. 644, 655, 20 P.2d 940 (1933)." Caballero, page 3.

Caballero also cites Stockwell when asserting:

"The only California state court decision on point similarly distinguishes between a deed of trust and a mortgage. See Stockwell v. Barnum, 7 Cal.App. 413, 416-17, 94 P. 400 (Cal.App.1908)." Id.

The only Court that interprets Bank of Italy to find deeds of trust and mortgages are substantially the same and addresses the issue of whether California Civil Code § 2932.5 applies to deeds of trust is a published federal bankruptcy decision, U.S. Bank, N.A. v. Skelton (In re Salazar) (Bankr. S.D.Cal. 2011) 448 B.R. 814, which concluded California Civil Code § 2932.5 does apply to deeds of trust. Id. at 820. In re Salazar asserts the historical distinction between deeds of trust and mortgages is not obsolete under Bank of Italy. In re Salazar at 820-821. The In re Salazar Court recognizes California Civil Code § 2932.5 provides borrowers with statutory 15

Due to the varying viewpoints of whether mortgages and deeds of trust are similar by the different Courts, review of the Calvo decision gives this Court an opportunity to clarify whether deeds of trust should be treated differently than mortgages and to what extent under laws relating to the exercise of the power of sale. This issue might have already been answered by California's Legislature when it enacted California Civil Code § 2924f(c)(2). However, there are no decisions that discuss this statute. Furthermore, review will also help prevent other Courts from interpreting California law to treat deeds of trust and mortgages differently.

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Review will also determine whether it is possible to interpret the plain wording of California Civil Code § 2932.5 to not apply to deeds of trust and still meet the elementary rules of statutory construction. Torrey Hills Community Coalition v. City of San Diego, (2010) 186 Cal.App.4th 429, 440. None of the decisions address who the "Other Encumbrancers" are referred to in California Civil Code § 2932.5.

Review is also necessary to secure uniformity of decisions. Currently, the decisions are in conflict. Stockwell and the numerous federal authorities, such as Caballero, Parcray, and Roque hold California Civil Code § 2932.5 doesn't apply to deeds of trust. Contrary to these decisions is In re Salazar and Strike v. Transwest Discount Corp.,(1979) 92 Cal.App.3d 735. In Strike's analysis, Civil Code § 858 was referred to in the following manner:

"A recorded assignment of note and deed of trust vests in the assignee all of the rights, interests of the beneficiary (Musgrave v. Renkin, 180 Cal. 785 [183 P. 145]) including authority to 17

Due to the different holdings, review provides an opportunity to clarify and settle the issue of the applicability of California Civil Code § 2932.5 to deeds of trust to secure uniformity in the decisions.

_________________________ Dennis Moore, Attorney for Petitioner, Eugenia Calvo

Firm commentary:  This office is pursuing litigation wherein we challenge the validity of mortgage loan transfers by MERS to a new entity executed AFTER the original lender files for BANKRUPTCY.  The New Jersey case below addresses this issue and adds weight to our arguments.

Its simple agency law.  Under GOMES, MERS is deemed an agent of any number of original lenders via the borrowers consent as contained in the deed of trust.  Therefore, MERS can effectuate transfers of loans.  But when the originator files BK...it is no longer a party with the power to transfer its assets...the BK Court and Trustees take over.

Absent there being express BK authority, MERS cannot transfer loans that are tied up in bankruptcy cases.  Read on...

AURORA LOAN SERVICES, LLC, Plaintiff-Respondent,
v.
BERNICE TOLEDO, Defendant-Appellant, and
MR. TOLEDO, Husband of BERNICE TOLEDO, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., As Nominee For LEHMAN BROTHERS BANK FSB; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., As Nominee For AURORA LOAN SERVICES LLC, Defendants.
No. A-0804-10T3.

Superior Court of New Jersey, Appellate Division.
Submitted September 26, 2011.
Decided October 18, 2011.

Kenneth C. Marano, attorney for appellant.

Victoria E. Edwards (Akerman Senterfitt), attorney for respondent.

Before Judges Alvarez and Skillman.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

PER CURIAM.

Defendant appeals from an order entered on August 31, 2010, which granted a summary judgment in this mortgage foreclosure action declaring that defendant's answer "sets forth no genuine issue as to any material fact challenged and that [plaintiff] is entitled to a judgment as a matter of law." There is no indication in the record before us that plaintiff ever secured a final judgment of foreclosure. Therefore, the appeal appears interlocutory. See Wells Fargo Bank, N.A. v. Garner, 416 N.J. Super. 520, 523-24 (App. Div. 2010)<http://scholar.google.com/scholar_case?case=1991528943250804255&hl=en&lr=lang_en&as_sdt=2,34&as_vis=1>. However, because defendant did not move to dismiss on that basis and the appeal has been pending for a substantial period of time, we grant leave to appeal as within time and address the merits. See R. 2:4-4(b)(2).

The record before us is rather sparse and disjointed. However, the following facts may be gleaned from that record.

Defendant owns a home in the Borough of Prospect Park. On July 24, 2006, defendant executed two promissory notes payable to Lehman Brothers Bank, the first for $320,000, which was payable on August 1, 2036, and the second for $60,000, which was payable on August 1, 2021. Both notes were secured by mortgages on defendant's home.

On September 1, 2006, plaintiff began servicing the notes on behalf of Lehman.

Sometime in 2008, defendant went into default in the payment of her obligations under the notes.

On January 30, 2009, plaintiff purportedly obtained an assignment of the $320,000 note from Lehman and the mortgage securing that note.[1]<http://scholar.google.com/scholar_case?case=16774512883913583673&hl=en&lr=lang_en&as_sdt=2,34&as_vis=1&oi=scholaralrt&ct=alrt&cd=0#[1]> This assignment was signed by a person named Joann Rein, with the title of Vice-President of Mortgage Electronic Systems, Inc. (MERS). MERS was described in the assignment document as a "nominee for Lehman Brothers Bank." This document is discussed in greater detail later in the opinion.

On February 23, 2009, plaintiff filed this mortgage foreclosure action. The parties subsequently engaged in negotiations to resolve the matter. Those negotiations were unsuccessful and are not relevant to our disposition of this appeal.

Plaintiff filed a motion for summary judgment to strike defendant's answer on the ground there was no contested issue of fact material to plaintiff's right to foreclose upon defendant's property. In support of this motion, plaintiff relied primarily upon an affidavit by Laura McCann, one of its vice-presidents, and exhibits attached to that affidavit, which are discussed later in this opinion. Defendant submitted an answering certification.

After hearing oral argument, the trial court issued a brief written opinion and order granting plaintiff's motion. This appeal followed.

To have standing to foreclose a mortgage, a party generally must "own or control the underlying debt." Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011)<http://scholar.google.com/scholar_case?case=5942503760492091081&hl=en&lr=lang_en&as_sdt=2,34&as_vis=1> (quotingBank of N.Y. v. Raftogianis, 418 N.J. Super. 323, 327-28 (Ch. Div. 2010)<http://scholar.google.com/scholar_case?case=9224954237527618705&hl=en&lr=lang_en&as_sdt=2,34&as_vis=1>). If the debt is evidenced by a negotiable instrument, such as the promissory notes executed by defendant, the determination whether a party owns or controls the underlying debt "is governed by Article III of the Uniform Commercial Code (UCC), N.J.S.A. 12:3-101 to -605, in particular N.J.S.A. 12A:3-301." Ibid. Under this section of the UCC, the only parties entitled to enforce a negotiable instrument are "[1] the holder of the instrument, [2] a nonholder in possession of the instrument who has the rights of the holder, or [3] a person not in possession of the instrument who is entitled to enforce the instrument pursuant to [N.J.S.A.] 12A-3-309 or subsection d. of [N.J.S.A.] 12A:3-418." N.J.S.A. 12A:3-301 (brackets added).

In this case, it is clear for the same reasons as in Ford, 418 N.J. Super. at 598,<http://scholar.google.com/scholar_case?case=5942503760492091081&hl=en&lr=lang_en&as_sdt=2,34&as_vis=1> that plaintiff is neither a "holder" of the promissory notes executed by defendant nor a "person not in possession" of those notes who is entitled to enforce them pursuant to N.J.S.A. 12A:3-309 or N.J.S.A. 12A:3-418(d). Therefore, as in Ford, plaintiff's right to foreclose upon the mortgages defendant executed to secure those notes depends upon whether plaintiff established that it is "a nonholder in possession of the instrument[s] who has the rights of a holder." N.J.S.A. 12A:3-301; see Ford, supra, 418 N.J. Super. at 498-99<http://scholar.google.com/scholar_case?case=5942503760492091081&hl=en&lr=lang_en&as_sdt=2,34&as_vis=1>.

To establish its right to foreclose upon the mortgage defendant executed to secure her $320,000 note to Lehman, plaintiff relied upon an affidavit by Laura McCann, a vice-president of plaintiff. McCann's affidavit states that she has "custody and control of the business records of [plaintiff] as they relate to [defendant's] loans." Regarding each of the copies of defendant's notes and mortgages attached to her certifications, McCann asserts that it is a "true and correct copy." However, McCann does not state that she personally confirmed that those attachments were copies of originals in plaintiff's files.

McCann's affidavit also has attached a copy of a document that purports to be a "Corporate Assignment of Mortgage" from MERS, as Lehman's nominee, to plaintiff. Again, McCann's affidavit asserts that this document "is a true and correct copy of the instrument assigning the Mortgage and Note to [plaintiff]," but does not state that she personally confirmed that it was a copy of the original.

A certification in support of a motion for summary judgment must be based on "personal knowledge." Ford, supra, 418 N.J. Super. at 599<http://scholar.google.com/scholar_case?case=5942503760492091081&hl=en&lr=lang_en&as_sdt=2,34&as_vis=1> (quoting R. 1:6-6); see also Deutsche Bank Nat'l Trust Co. v. Mitchell, ___ N.J. Super. ___, ___ (App. Div. 2011) (slip op. at 17-19). Our Supreme Court has recently reaffirmed the need for strict compliance with this requirement in mortgage foreclosure actions by adopting, effective December 20, 2010, a new court rule which specifically states that an affidavit in support of a judgment in a mortgage foreclosure action must be "based on a personal review of business records of the plaintiff or the plaintiff's mortgage loan servicer." R. 4:64-2(c)(2). McCann's affidavit does not state that she conducted such a "personal review of [plaintiff's] business records" relating to defendant's notes and mortgages.

Furthermore, even if plaintiff had presented adequate evidence that the purported assignment of the mortgages and notes attached to McCann's affidavit was a copy of the original in plaintiff's files, this would not have been sufficient to establish the effectiveness of the alleged assignment. This document was signed by a JoAnn Rein, who identifies herself as a vice-president of MERS, as nominee for Lehman Brothers, and was notarized in Nebraska. Plaintiff's submission in support of its motion for summary judgment did not include a certification by Rein or any other representative of MERS regarding her authority to execute the assignment or the circumstances of the assignment. In the absence of such further evidence, we do not view the purported assignment of the mortgages and notes to be a self-authenticating document that can support the summary judgment in plaintiff's favor. N.J.R.E. 901; see 2 McCormick on Evidence § 221 (6th ed. 2006).

There is an additional potential problem with this purported assignment. The assignment was not made by Lehman, as payee of the promissory notes secured by the mortgage, but rather by MERS, "as nominee for Lehman." Although the notes and mortgages appointed MERS as Lehman's nominee, Lehman filed a petition for bankruptcy protection in September 2008, see Andrew Ross Sorkin, Lehman Files for Bankruptcy; Merrill is Sold, N.Y. Times (Sept. 14, 2008), which was before the purported assignment of defendant's mortgage and note on January 30, 2009. Therefore, we question whether Lehman's designation of MERS as its nominee remained in effect after Lehman filed its bankruptcy petition, absent ratification of that designation by the bankruptcy trustee. On remand, the trial court should address the question whether MERS was still Lehman's nominee as of the date of its purported assignment of defendant's note and mortgage to plaintiff.

Accordingly, we reverse the August 31, 2010 order granting plaintiff's motion for summary judgment and remand to the trial court for further proceedings in conformity with this opinion.

[1]<http://scholar.google.com/scholar_case?case=16774512883913583673&hl=en&lr=lang_en&as_sdt=2,34&as_vis=1&oi=scholaralrt&ct=alrt&cd=0#r[1]> The record does not indicate whether there also was an assignment of the $60,000 note and mortgage securing that note.

Rolling Stones.20111007

Matt Taibbi

Amidst all the bad news coming out of Wall Street and the economy, here's something good: California has backed out of the talks for the long-awaited foreclosure settlement, now making it far from likely that the so-called "Attorneys General" deal will happen anytime soon.

California Attorney General Kamala Harris sent a letter to state and federal regulators explaining that she pulled out because the proposed settlement amount for banks guilty of bad securitization practices leading up to the mortgage crisis - said to be in the $20 billion range - was too small. From Business Week:

Harris says in a letter to state and federal negotiators that the pending settlement is "inadequate" and gives bank officials too much immunity.

I'm convinced that the deal will eventually go through, however, after some further concessions are made. Certainly the absence of both New York (whose Attorney General Eric Schneiderman gamely started this mess by refusing to sign on or abandon his own investigation into corrupt securitization practices) and California will make it difficult for the banks to do any kind of a deal. But there is such an awesome amount of political will to get this deal done in Washington that it almost has to happen before the presidential election season really gets going.

If it does get done, expect a great deal of public debate over whether or not the size of the settlement was sufficient. Did the banks pay enough? Should they have paid ten billion more? Twenty? Even I engaged in a little bit of that some weeks ago.

But if and when that debate takes place, it will actually obscure the real issue, because this settlement is not about getting money from the banks. The deal being contemplated is actually the opposite: a giant bailout.

In fact, any federal foreclosure settlement along the lines of what's been proposed will amount to a last round of post-2008-crisis bailouts. I talked to one foreclosure activist over the weekend who put it this way: "[The AG settlement] will be a bigger bailout than TARP."

How? The math actually makes a hell of a lot of sense, when you look at it closely.

Any foreclosure settlement will allow the banks to pay one relatively small bill to cover all of their legal liabilities stemming from the monstrous frauds they all practiced in the years leading up to the 2008 crash (and even afterward), when they all schemed to create great masses of dicey/junk subprime loans and then disguise them as AAA-rated paper for sale to big private investors and institutions like state pension funds and union funds.

To recap the crime: the banks lent money to firms like Countrywide, who in turn created billions in dicey loans, who then sold them back to the banks, who chopped them up and sold them to, among other things, your state's worker retirement funds.

So this is bankers from Deutsche and Goldman and Bank of America essentially stealing the retirement nest eggs of firemen, teachers, cops, and other actors, as well as the investment monies of foreigners and hedge fund managers. To repeat: this was Wall Street hotshotsstealing money from old ladies. 

Along the road to this systematic thievery, a great many other, sometimes smaller offenses were committed. One involved the use of the MERS electronic registration system. By law, banks were supposed to register with county-level offices in each state every time they sold or resold a mortgage, and pay fees each time.

But they didn't, instead registering with the private deed-transfer agency MERS, allowing them to systematically, and illegally, bypass local taxes.

So any "AG settlement" might allow the banks to avoid legal damages being sought from three different set of enraged creditors: the public institutions who invested in these sham securities, the private investors who did the same, and the localities who were cheated out of their taxes.

Let's take a look at each of those three categories.

As far as private investors go, we've already had one lawsuit directed at Bank of America, over losses linked to purchases of bad MBS (mostly from Countrywide mortgages), which resulted in an $8.5 billion settlement.

That one settlement, covering 22 mostly private plaintiffs, cost one bank, Bank of America, nearly half the size of the entire proposed AG settlement. This is from the Times story about that deal, in June:

In a research note, Paul Miller of FBR Capital Markets projected that Bank of America could face a total of $25 billion of losses from the soured mortgages, the most of any of the major banks.

So a private analyst this summer was estimating that just one bank, Bank of America, could face more in damages than the Obama administration and the AGs are now trying to "wrest" from all the major banks, combined, for all their liabilities.

Just a few days ago, news of more such suits came in. An Irish company called Sealink Funding is suing Chase and Bank of America, seeking $4.5 billion combined in connection to losses in mortgage-backed securities sold to them by those banks. Meanwhile, a German bank, Landesbank Baden-Wurttemberg, is suing Chase for an additional $500 million in losses.

These huge amounts - a few billion here, a half a billion there - are coming from single companies, directed at single banks. And think about the Bank of America settlement for $8.5 billion: what's the usual payoff in a lawsuit settlement? Ten cents on the dollar? Five?

In fact, the settlement amount in that case was just 2% of the face value of the loans when they were securitized ($424 billion), and represented just 4% of the principal still outstanding ($221 billion).

Why do those figures matter? Because the way these securitizations were structured, legally, Bank of America is obligated to buy back any loans that were sold fraudulently at face value - that is part of the legal language in the "pooling and servicing agreements" under which all of these mortgages were pooled.

So minus a settlement, Bank of America - one bank -- had a potential liability of $424 billion just from its Countrywide holdings! And it got off for $8.5 billion, a major victory.

All of which puts in perspective the preposterously small size of the proposed AG settlement. $20 billion would be a lousy number if we were just talking about Bank of America. But all the big banks combined?

And that just covers legal exposure to private investors. How about public agencies and institutions? Well, just recently, the Federal Housing Finance Agency sued a group of the major banks (Chase, Barclay's, and Citi, among others) over losses connected with, again, bad MBS.

This suit covers sales to the two GSEs, Fannie Mae and Freddie Mac, and they're seeking $200 billion. The're asking for $25 billion from Merrill Lynch (which is now owned by Bank of America) and $6 billion from Bank of America proper, meaning they're claiming $30 billion in damages from just one bank.

This, again, puts into perspective the idea of a collective $20 billion settlement covering all the major banks.

But wait, there's more. The FHFA lawsuit only covers the GSEs. How about state pension funds?

Well, over the summer, Bank of America caught another lawsuit, when a group of union and state pension funds sued Merrill Lynch for misleading them in a $16.5 offering of, you guessed it, MBS certificates. The suit included claims from Mississippi and Los Angeles County employees, the Connecticut Carpenters' Annuity Fund, and others.

So again, just with those two lawsuits, one bank, Bank of America, is facing nearly $50 billion in damages. And this doesn't even cover all of the other states and localities that were wiped out by sales of fraudulently-conceived MBS. California's state pension fund, CalPERS, lost $100 billion all by itself between 2008 and 2009, largely due to plummeting MBS values.

That would explain why Kamala Harris had to pull out of the settlement talks: she must have realized that going through the courts, her state could probably recover far more than whatever California's share of $20 billion would have been. It's incredible that other states have not already come to the same conclusion.

Lastly, of course, there is the matter of lost taxes. To date, most of the lawsuits filed by counties over unpaid fees have been directed at MERS, the private electronic registry company through which the banks "legally transferred" all of these mortgage deeds.

For example, my old home county of Essex County, Massachusetts, recently sued MERS for $22 million in unpaid fees. Dallas County, Texas, lost even more, suing MERS and claiming it lost between $50 and $100 million in fees.

You can do the math. That's two counties - not states, but counties - claiming they lost a total of at least $70 million. And yes, they're suing MERS, but ultimately the real liability probably rests with the banks, who would probably have been paying those fees had MERS not existed.

Will any AG settlement cover that potential liability? I have no idea. But if the settlement is broad enough, and covers all activities connected with securitization, it might very well cover these unpaid fees.

How many hundreds of millions in fees will the states lose if that deal goes through? Has anyone even asked? Have any county officials even been consulted?

The point of all of this is, if you add up all of the MBS-related liability out there, the banks as it stands are facing an Armageddon of claims from all sides. It can't possibly be less than a trillion dollars, and it's probably much, much more.

But the Obama administration's current plan is to let them all walk after paying a few shekels apiece into a $20 billion kitty.

Certainly, of course, one can see the logic of a universal deal that avoids the probable end result minus a federal settlement - bankruptcy for one or more of the big "TBTF" companies (especially Bank of America). After all, if all the suits go through, then the final settlement for most of those defrauded parties will be squat or close to it, since there won' tbe any money left to recover. So if they can come up with a deal that satisfies plaintiffs at least in part and keeps the banks solvent, I suppose that might be a good thing.

But the negotiators really have three actors they have to consider: the banks, the investors, and the homeowners, who of course were also victims of this artificial bubble.

The current proposed deal is a huge giveaway to the banks, a major shafting to most of the investors, and would probably give homeowners either next to nothing or some cosmetic reward, i.e. a little bit of principal forgiveness, counseling, etc.

If the Obama administration was serious about helping actual human beings through this settlement, then it would be fighting for homeowners to get the same bailout the banks would get. If the banks are getting a trillion or more dollars of legal immunity, why shouldn't homeowners get that much debt forgiveness? Or, half that much? A quarter?

It's encouraging that California and New York have already come to this conclusion. Hopefully, down the road, there will be a settlement, but one that's fair to everyone. It's probably up to the states to stop this TARP-on-crack of a deal.

Firm commentary:  The homeowners in the attached appeal lost...but the Court provides a road map on how to successfully plead a MERS Assignment fraud case to survive ealry dismissal and get into the discovery phase of litigation.

If you have evidence that a MERS assignment has been used by your loan servicer to "prove" a transfer of your home loan to a mortgage backed security trust, you should call my office and request a free consultation.

Filed 8/11/11

Firm commentary on article:

The FHFA lawsuit, against 17 banks on behalf of Fannie Mae and Freddie Mac for creating nearly $200 billion worth of ill-fated mortgage bonds that were purchased by the now-government-controlled mortgage guarantors, also includes the accusation that lenders used Robo-signers to create the illusion the loans were up to par.

The fraudulent practice of creating phony title documents, such as ASSIGMENTS, so as to create the illusion of a valid transfer of a mortgage to a mortgage backed security trust is increasingly the basis of litigation by consumers.

In short, loan servicers are manufacturing fake assignments so as to create the illusion that individual loans have been validly transfered into Mortgage backed security trusts [MBST] years after the were supposed to be transferred. 

Servicers effectively "dump" the bad loan into a MBST years after the MBST was closed, so as to avoid liability to investors for failing to transfer loans into trusts in a timely way.

In reality, the transfers claimed in the ASSIGNMENTS can assumed to be phony if they allegedly occur after the MBST closing date has passed.  Each MBST has a close out date by which all loans must be owned by the MBST.  MBST cannot buy and sell mortgages after the closing date as they are "static" trusts and as a result are tax exempt REMICs. 

If you have an assignment to a MBST, contact the Firm for an analysis.

  Read on...

In Disputed Fannie and Freddie Mortgage Deals Evidence of 'Robo-Signing' 

by: Stephen Gandel is a senior writer at TIME.

Long before the banks started evicting delinquent homeowners, Wall Street, it appears, used robo-signers to ink mortgage deals that would eventually cost investors tens of billions of dollars and in part led to the financial crisis.

According to lawsuits filed last week <http://curiouscapitalist.blogs.time.com/2011/09/02/new-mortgage-suits-u-s-financial-problems-are-far-from-fixed/> by the U.S.'s Federal Housing Financing Agency, one individual was used by three different banks to sign off on 36 different mortgage bond deals in 2006 alone. Many of the deals contained as many as 4,000 home loans. Yet, according to the lawsuits, the individual Evelyn Echevarria signed documents attesting to the fact that all the loans - well over 100,o00 in 2006 alone - met the underwriting guidelines set out in each of the deals' offering statements for potential investors. In fact, according to the FHFA lawsuits, many of the loans in the deals were of much lower quality than the offering documents suggested. "Signing these documents should have been a meaningful function," says Joel Laitman, a lawyer who suing Echevarria and Credit Suisse in a separate class action suit on behalf of investors. "But it is hard to see that one person could have fulfilled their legal obligation to vet all of these prospectuses if they were doing so many deals at the same time."

(SPECIAL: 25 People to Blame for the Financial Crisis<http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350_1877339,00.html>)

Last week, the FHFA sued 17 banks on behalf of Fannie Mae and Freddie Mac for creating nearly $200 billion worth of ill-fated mortgage bonds that were purchased by the giant now-government-controlled mortgage guarantors. The government, through the FHFA suits, claims the banks mislead Fannie and Freddie into believing the loans that backed the bond deals it was buying into were safer than they turned out to be. When many of the borrowers failed to pay back their loans, the bonds plunged in value, and Fannie and Freddie lost tens of billions of dollars on the deals. The government's suits <http://curiouscapitalist.blogs.time.com/2011/09/02/new-mortgage-suits-u-s-financial-problems-are-far-from-fixed/> are bringing back fears that some of the nation's largest banks - most notably Bank of America - might not have enough capital to meet their obligations. Paul Miller, an analyst at FBR Capital Markets, estimates that the banks might have to pay out as much as $121 billion to settle the FHFA and other similar lawsuits.

But the suits are also shedding light on the outside firms and individuals that Wall Street used to set up and supposedly vet mortgage deals. Here's why:A number of the FHFA lawsuits name individual defendants who signed off on the mortgage deals but appear to have had little or no day-to-day role at the banks. At times, the investment banks touted the involvement of these outside individuals as extra protection for investors, making sure the loans were of proper quality. But according to the FHFA, many of the deals that Fannie and Freddie bought into included home loans - some with little or no downpayment to borrowers with low credit scores - that were riskier than banks selling the deals let on.

(SPECIALS: The 25 Most Influential Business-Management Books<http://www.time.com/time/specials/packages/article/0,28804,2086680_2086683_2086684,00.html>)

Echevarria is named in three different lawsuits involving Citigroup, Credit Suisse and Deutsche Bank. In all, according to the suits, Echevarria's name appeared on documents pertaining to 62 deals starting in 2005 and ending in 2007 in which Fannie or Freddie invested in. During that time, according to the lawsuits, Echevarria, sometimes simultaneously, held positions as a director of subsidiaries of all three banks.

Reached by phone by TIME on Tuesday, Echevarria said she knew about the FHFA lawsuits, but didn't know she was personally named in any of the suits. She said she didn't know why she would be listed as a defendant. Echevarria said she has never been employed at Citigroup, Credit Suisse or Deutsche Bank, or any large Wall Street bank for that matter.

(MORE: Bye, Bye Jobs Growth, Hello Recession<http://curiouscapitalist.blogs.time.com/2011/09/02/bye-bye-jobs-growth-hello-recession/>)

Where Echevarria does work is at a small firm in Charlotte, North Carolina called Amacar Group, which according to the firm's website "delivers consultative structure finance expertise." The company's CEO Douglas Johnson is also named as a defendant in one of the FHFA lawsuits, against Deutsche.

Spokespersons for Citigroup and Credit Suisse declined to comment on the FHFA lawsuits. A spokesperson for Deutsche says that the firm that Echevarria is listed as working for, ACE Securities, in the FHFA lawsuit against the German bank is a separate firm, and was never owned or operated by Deutsche. He said he believes ACE acted as trustee for some of Deutsche's mortgage deals, and that's its role was limited to such clerical duties as collecting and storing paperwork.

But according to Amacar's website, the firm's role in securitizations - the process that packages numerous mortgages or other loans into bonds that can be sold to investors - is different "from the specific services provided by law firms, accounting firms, trustees or administrative service providers." Johnson, before founding the firm in 1995, had been the head of asset backed securitization at First Union. Amacar's website says it's function is to bring independence to securitization deals. It's website says it does so by setting up separate legal entities for bond underwriters and finding managers and directors to run these entities for the banks.

One of the independent directors Johnson's firm found for banks was Johnson's wife. According to the FHFA lawsuits, Juliana Johnson served as a director at mortgage subsidiaries of Bank of America, Credit Suisse and Deutsche. She signed off on numerous deals for all three banks. She is named as a defendant in three of the government's lawsuits. Juliana Johnson is listed as a founder of Amacar, along with her husband. Before joining the firm, Juliana Johnson, according to her bio on Amacar's website, spent 12 years at AT&T, "including extensive sales and marketing experience." It is unclear if she has any experience with mortgage bonds or securitizations in general outside of her time at Amacar. And it's not clear how good a job she did at vetting the deals she ended up signing off on. In one such deal for Deutsche, called ACE 2006-ASAP4, the offering statement said that in nearly 80% of the loans in deal, borrowers owned at least 20% of the equity of their home. In reality, according to the FHFA lawsuit against Deutsche, borrowers had no equity at all in nearly 13% of the loans included in the deal. The percentage with 20% or more was just less than 45%.

Lawyer Joel Laitman says all individuals who signed off on these deals should be held liable for the losses because they gave the appearance that they were making sure the investment banks were following the rules. "It's not just supposed to be the investment bankers who are attesting to the fact that these deals are what they claim to be in their prospectuses," says Laitman. "It should be anyone that signs the document."

Stephen Gandel is a senior writer at TIME. Find him on Twitter at @stephengandel<http://twitter.com/#%21/stephengandel>. You can also continue the discussion on TIME's Facebook page<http://www.facebook.com/time> and on Twitter at @TIME<http://twitter.com/#%21/TIME>.

--

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Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation's five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, Harris told The Times on Friday.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street's role in the mortgage meltdown, Harris said.

"It has been a process of negotiating and sitting at a table in good faith, but ultimately I have decided that we have to go our own course and take an independent path. And that decision is because we need to bring relief to Californians that is equal to the pain California experienced, and what is being negotiated now is insufficient," Harris told The Times in an interview.

Harris delivered the news in a letter sent Friday to Iowa Atty. Gen. Tom Miller, who has been leading the 50-state coalition.

[Updated 5:36 p.m.: Iowa Atty. Gen. Tom Miller, who has been leading the negotiations, vowed to press on.

"California has been an important part of our team and has made a significant contribution to this case," Miller said in a statement. "However, the multistate effort is pressing forward and we fully expect to reach a settlement with the banks."]

The removal of California from the discussions is a major blow to fraying efforts by the coalition, which has been trying to strike a settlement deal with the big banks for months. The move by Harris to reject the settlement talks is also a key departure from efforts by the Obama administration, which has been pushing for a fast resolution to the so-called robo-signing scandal that erupted last year.

"This whole concept of a settlement on foreclosure abuse is probably dead," said Christopher Whalen, the founder of Institutional Risk Analytics. "Nobody in their right mind is going to opt into a settlement right now."

For California homeowners, the move means the probable end of an opportunity for relatively quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers. Key reforms to mortgage-servicing and foreclosure practices pushed by the attorneys general may also be delayed.

Harris has faced increasing pressure in recent weeks from inside and outside the state to reject any deal that was considered too weak, particularly as the foreclosure crisis in the Golden State appears to be worsening.

Among the states with the highest foreclosure rates, California led the pack in new foreclosure proceedings last month, with an increase of 55% over July, according to data from Irvine-based RealtyTrac. Metro areas in the inland parts of California posted big jumps in August, with Riverside and San Bernardino counties soaring 68%, Bakersfield 44% and Modesto 57%.

In rejecting the 50-state talks, California also widens the riff among law enforcement officials nationwide over the best approach to pursuing banks for mortgage misdeeds.

New York Atty. Gen. Eric Schneiderman, who was originally part of the 50-state negotiations, has launched a wide-ranging investigation into Wall Street's role in the mortgage meltdown -- focusing on the efforts to bundle low-quality mortgages into sophisticated bonds.

Schneiderman has been highly critical of the proposed 50-state settlement and expressed concern that his counterparts in other states may let the banks off too lightly and provide immunity from other efforts to bring them to account for misdeeds. Schneiderman has also won support from attorneys general in Delaware, Nevada, Massachusetts, Kentucky and Minnesota, some of whom have launched their own investigations.

A spokesman for Schneiderman, Danny Kanner, welcomed Harris's move.

"Attorney General Schneiderman looks forward to his continued work with Attorney General Harris and his other state and federal counterparts to ensure those responsible for the mortgage crisis are held accountable and homeowners who are suffering receive meaningful relief," said Kanner.