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Firm commentary: No one should be surprised. This office has tracked the same practice in hundreds of bankruptcy cases. Easch our Class Actions describe the same fraudulent industry practice. The bottom line is that each of the players in the mortgage industry have contracted out foreclosure processing to third parties who have no regard for truth or our legal system. Motivated by cost savings and a lack of consequences, lenders and the companies they hire have flooded our courts and county recorders offices with tens of thousands of phony and fabricated foreclosure documents.
See the results of 400 foreclosure audits here: http://aequitasaudit.com/images/aequitas_sf_report.pdf
As a citizen, what are you going to do about it?
http://www.nytimes.com/2012/02/16/business/california-audit-finds-broad-irregularities-in-foreclosures.html?_r=2&ref=gretchenmorgenson
An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday.
Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggest how pervasive foreclosure irregularities may be across the nation.
The improprieties range from the basic -- a failure to warn borrowers that they were in default on their loans as required by law -- to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.
Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.
Kathleen Engel, a professor at Suffolk University Law School in Boston said: "If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest."
The report comes just days after the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general, including California's. Among other things, that settlement requires participating banks to reduce mortgage amounts outstanding on a wide array of loans and provide $1.5 billion in reparations for borrowers who were improperly removed from their homes.
But the precise terms of the states' deal have not yet been disclosed. As the San Francisco analysis points out, "the settlement does not resolve most of the issues this report identifies nor immunizes lenders and servicers from a host of potential liabilities." For example, it is a felony to knowingly file false documents with any public office in California.
In an interview late Tuesday, Mr. Ting said he would forward his findings and foreclosure files to the attorney general's office and to local law enforcement officials. Kamala D. Harris, the California attorney general, announced a joint investigation into foreclosure abuses last December with the Nevada attorney general, Catherine Cortez Masto. The joint investigation spans both civil and criminal matters.
The depth of the problem raises questions about whether at least some foreclosures should be considered void, Mr. Ting said. "We're not saying that every consumer should not have been foreclosed on or every lender is a bad actor, but there are significant and troubling issues," he said.
California has been among the states hurt the most by the mortgage crisis. Because its laws, like those of 29 other states, do not require a judge to oversee foreclosures, the conduct of banks in the process is rarely scrutinized. Mr. Ting said his report was the first rigorous analysis of foreclosure improprieties in California and that it cast doubt on the validity of almost every foreclosure it examined.
"Clearly, we need to set up a process where lenders are following every part of the law," Mr. Ting said in the interview. "It is very apparent that the system is broken from many different vantage points."
The report, which was compiled by Aequitas Compliance Solutions, a mortgage regulatory compliance firm, did not identify specific banks involved in the irregularities. But among the legal violations uncovered in the analysis were cases where the loan servicer did not provide borrowers with a notice of default before beginning the eviction process; 8 percent of the audited foreclosures had that basic defect.
In a significant number of cases -- 85 percent -- documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, "a 'stranger' to the deed of trust," gained ownership of the property; as a result, the sale may be invalid, it said.
In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.
Banks involved in buying and selling foreclosed properties appear to be aware of potential problems if gaps in the chain of title cloud a subsequent buyer's ownership of the home. Lou Pizante, a partner at Aequitas who worked on the audit, pointed to documents that banks now require buyers to sign holding the institution harmless if questions arise about the validity of the foreclosure sale.
The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder's office.
The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. "We can deduce from the public evidence," the report noted, "that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question."
Firm Commentary: An excellent article that describes why the Attorney General Settlement will not have much affect on the foreclosure crisis. Ms. Frankel explains the incentives in place that will lead the Big 5 banks to modify their own portfolio loans, but not the loans owned by mortgage backed security trusts. Remember, 95% of residential loans are securitized and the settlement does not allow banks to change the rights of those investors. The old NPV test from HAMP is still in play and investors still have the power to say no to a loan mod based on Pooling and Servicing Agreements. Homeowners can also expect Banks to be more inclined to modify loans when they have an interest in the second liens.
Rest easy, MBS investors: You're protected in mortgage settlement
http://newsandinsight.thomsonreuters.com/Legal/News/2012/02_-_February/Rest_easy,_MBS_investors__You_re_protected_in_mortgage_settlement/
Asking investors in mortgage-backed securities to trust the banks that issued them is like asking Charlie Brown to trust Lucy van Pelt. MBS noteholders are so convinced they've been duped by the folks that packaged and sold shoddy mortgage loans that it's little wonder the banks' $25 billion settlement with federal and state regulators has been greeted with a tsunami of skepticism. Sure, MBS investors understand that the settlement doesn't preclude them or regulators from suing over deficient securitizations. But their fear, in the absence of the actual settlement documents, is that the loan modifications the deal calls for will reduce the revenue stream to MBS trusts.
It's an understandable fear. The five banks that agreed to the settlement -- Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial -- carry some troubled mortgage loans on their own books. Others were bundled into MBS trusts, in which the banks transfer ownership of the mortgages and remain as servicers. MBS noteholders are supposed to receive a stream of income from the principal and interest payments on the underlying mortgage loans. So if a bank agrees to reduce the unpaid principal a homeowner owes on a mortgage that's been securitized, less money flows to the trust and into MBS investors' hands.
Investors have complained that banks will modify securitized loans, shifting the $25 billion price tag to MBS noteholders. PIMCO's Scott Simon told Bloomberg News that because the settlement gives banks credit for reducing principal in loans held by MBS trusts, investors like those in his bond fund "are going to pick up a lot of the load." The American Association of Mortgage Investors called the settlement "flawed and opaque," and asserted that the deal penalizes responsible investors. Time magazine wondered if the settlement is "A Stealth Bank Bailout."
It's not, based on what I've been told about the nitty gritty of the settlement terms. Many pooling and servicing contracts between MBS issuers and investors have explicit provisions prohibiting issuers from modifying loans without investors' consent. Bondholders have assumed that banks would attempt to override those provisions. But I've been told that the $25 billion settlement agreement will include a specific provision that investors' contractual rights under pooling and servicing agreements (PSAs) remain in place. And if banks attempt to breach those agreements to satisfy obligations under the deal with state and federal regulators, there's no indemnity for them in the settlement.
There's also a built-in disincentive to attempt to earn credit for modifying securitized loans, as opposed to bank-held mortgages: Banks only receive a partial credit for writing down principal on loans they service but don't own. So if they write off $100,000 of unpaid principal on a mortgage in their own portfolio, they receive a $100,000 credit toward the billions they've pledged to modify; on a securitized loan they will get only a $40,000 or $45,000 credit.
I should point out that banks may have a competing interest in reducing the principal on first-lien mortgages held by investors if the banks themselves own second liens. But the multistate settlement agreement is expected to include provisions that restrict loan modifications to situations in which the write-down increases the so-called net present value of the mortgage to investors. If, for instance, a homeowner is on the verge of default in an area of the country where the housing market is depressed, a principal reduction that permits the homeowner to continue making mortgage payments and avoid foreclosure could be the best way to minimize investor losses. If, on the other hand, a loan modification would merely delay an inevitable foreclosure in a region where the house could be resold quickly, that's a better alternative. My understanding is that the settlement will require banks to analyze the impact on net present value of securitized loans before they're permitted to be modified. It may even require banks to obtain the consent of MBS investors before modifying a loan held in an MBS trust.
The settlement architects anticipated that the PSA contract protection and built-in disincentives make it more cost-effective for banks to find candidates for principal reduction among their own mortgage holdings, rather than in securitized pools. Other critics of the $25 billion settlement have complained that it will inspire homeowners to stop paying their mortgages. That may be so, but if homeowners take that risk, their chances of obtaining a loan modification should be a lot better if they hold a bank-owned mortgage.
There may still be wholesale modification of MBS-trust owned mortgages, but those would likely be through investor-negotiated settlements such as the proposed $8.5 billion Bank of America deal with Countrywide MBS investors. That deal, which has been challenged by some investors, calls for BofA to write down unpaid principal in underlying loans under terms that protect investors. (Write-downs, for instance, have to be net-present-value positive.) My understanding is that if JPMorgan, for instance, decides to negotiate a global MBS settlement with investors -- not an entirely far-fetched idea, since the investor group that pushed BofA into a settlement has sent demand letters to JPMorgan MBS trustees as well -- it can receive credit toward the $25 billion settlement from any loan modifications made through that deal. That's all very hypothetical, however.
The easiest way to stop all the guesswork about the $25 billion settlement would be to publish the agreement. I understand that getting signoff from five banks, 49 state AGs, and a slate of federal agencies isn't easy. But neither is correcting misimpressions created by the information vacuum.
(Reporting by Alison Frankel)
Firm commentary: Thanks to Max Gardner for this article. The bottom line is that the BUG MORTGAGE SETTLEMENT trumpeted all over the media is still UNSIGNED! Many important details remain as well as the fine language. In its ruch for a great soundbite in an election year, the Obama administration has put the "cart before the horse". Read below for Max's take:
I'm beginning to think that the last couple of days were April 1st in disguise. I mean, what a crazy practical joke our Federal Government and State AGs just tried to play! What a parade of press conferences, all touting a deal to trade some $25 billion in mostly more accurate accounting for some kind of release of origination, servicing and foreclosure fraud. But it turns out the deal's not real.
Jeff Horowitz and Kate Davidson have the story<http://www.americanbanker.com/issues/177_29/mortgage-servicers-settlement-1046574-1.html> for American Banker (bold always mine):
More than a day after the announcement of a mammoth national mortgage servicing settlement, the actual terms of the deal still aren't public....That's because a fully authorized, legally binding deal has not been inked yet.
Horowitz and Davidson then dryly note: "The implication of this is hard to say." They don't choose to pronounce, because people they quoted disagreed about what the lack of a fully negotiated, executed contract meant. First Horowitz and Davidson quote the deal boosters:
Spokespersons for both the Iowa attorney general's office and the Department of Justice both told American Banker that the actual settlement will not be made public until it is submitted to a court. A representative for the North Carolina attorney general downplayed the significance of the document's non-final status, saying that the terms were already fixed.
And then Horowitz and Davidson inform us about what's really going on:
Other sources who spoke with American Banker raised doubts that everything is yet in place. A person familiar with the mortgage servicing pact says that a settlement term sheet does not yet exist.
Really? So what do they have?
Instead, there are a series of nearly-complete documents that will be attached to a consent judgment eventually filed with the court.
What does "nearly-complete" mean? 80%? 90%? Maybe all they've got left is the very hardest 5% left? Besides, we all know "the devil's in the details", right? I mean, think about that phrase, don't just hear it and assign it an iconic meaning; think about it: "the devil is in the details."
Getting final language-particularly when you're not working of a term sheet-is not an easy, ministerial step. I mean, the final wording solidifies the precise deal. If you're not working off a term sheet, then you're negotiating a deal and final language at the same time. That's harder than just finalizing language. They're just not done; there's no deal yet.
Horowitz and Davidson offer one more tidbit showing the deal's not yet done.
That truly final version will include things such as servicing standards, consumer relief options, legal releases, and enforcement terms. There will likely be separate state and a federal versions of the release.
The scope of the liability release is one of the biggest deal points. I mean, consider the drama around NY AG Schneiderman's MERS suit. The scope of the release he was granting the banks was his make or break deal point; he wouldn't sign unless he could bring his MERS suit and name all the banks as defendants if he chose (he's only suing three of them so far.) So if there's a chance the federal and state liability releases are going to be the same, then the promise made to him to get him to sign on may not be kept. I mean, the banks wanted the MERS suit done and gone; the feds do what the banks want; no way an identical fed-state liability release lets Schneiderman keep his MERS suit intact.
Bottom line, NY AG Schneiderman may be confronted with final, binding language that doesn't honor the deal point he fought hardest for. Luckily, now that we all know he was lied to about there being a final deal with known terms on the scope of the liability release, he can walk. He can walk now, or he can walk as the language approaches final. We all know if he walks it's to defend the deal he helped sell us, we all know it'll be because the banks and their federal allies lied to him. I mean, there may be other crucially important promises about deal terms that were also lies.
Given the lack of deal documents, the AGs must have been relying on the promises of the banks and the Justice Department, Secretary Donovan and Iowa AG Miller to get comfortable with the deal. Oh, and they were being squeezed by Team Obama too, as Horowitz and Davidson report:
Some who talked to American Banker said that the political pressure to announce the settlement drove the timing, in effect putting the press release cart in front of the settlement horse.
See, everyone in the know knows there's no deal yet, just promises from the ever-so-trustworthy bankers and the Feds that cater to them. But don't take Horowitz and Davidson's excellent reporting as the only proof. Consider Bank of America's press release<http://mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1659164&highlight=>. Start with the headline:
Bank of America Announces Agreements in Principle With Federal and State Authorities on Mortgage Matters
What are "Agreements in Principle"? To me, Agreements in Principle sounds an awful lot like "nearly-complete agreements" that fundamentally don't reflect the final deal. In other words, BofA's headline confirms American Banker's story that there is no deal as of yet, that the PR push was precisely that: election driven PR, not policy, not accountability, not help.
As if you had any doubt left about that, if you were thinking of taking the North Carolina AG seriously when he "downplayed the significance of the document's non-final status, saying that the terms were already fixed", well, consider that bank analysts don't consider the deal reliably done on the talking points being chattered at the public:
Whatever the reason for the document's continued non-appearance, the lack of a public final settlement is already the cause for disgruntlement among those who closely follow the banking industry. Quite simply, the actual terms of a settlement matter.
Right: Quite simply, the actual terms of a settlement matter.
As a result, when AGs Schneiderman, Biden, Masto, Coakley, Harris and any of the other hold out, justice-focused AGs see the final language, or if before that they discover the promises made them by the bankers and their Feds have been broken, they all can and should walk. They must walk.
O. Max Gardner III
MaxGardnerLaw PLLC
PO Box 1000
Shelby NC 28151-1000
Firm Commentary:
The article below lists good reasons to not get excited about the $26Billion Attorney General Settlement with the five major lenders.
The California specific settlement numbers: $430Million will be paid directly to the state government for "foreclosure prevention efforts, legal aid etc."; $279Million will be paid to homeowners victimized by wrongful foreclosure [estimated 140,000 borrowers at $2,000 a piece]; $850Million for refinancing of current but underwater borrowers; $15Billion worth of Loan Mods, ShortSales and principal reductions determined by the loan servicers.
Please read the specific are comments included throughout.
"The Top Twelve Reasons Why You Should Hate the Mortgage Settlement"
by Yves Smith, Naked Capitalism
As readers may know by now, 49 of 50 states have agreed to join the
so-called mortgage settlement, with Oklahoma the lone refusenik.
Although the fine points are still being hammered out, various news
outlets (New York Times, Financial Times, Wall Street Journal) have
details, with Dave Dayen's overview at Firedoglake the best thus far.
The Wall Street Journal is also reporting that the SEC is about to
launch some securities litigation against major banks. Since the
statue of limitations has already run out on securities filings more
than five years old, this means they'll clip the banks for some of the
very last (and dreckiest) deals they shoved out the door before the
subprime market gave up the ghost.
[The Settlement does not protect the banks from civil claims by homeowners or class actions such as those filed by this firm against CHASE, GMAC Mortgage, AHMSI and Aurora Loan Servicing.]
The various news services are touting this pact at the biggest
multi-state settlement since the tobacco deal in 1998. While narrowly
accurate, this deal is bush league by comparison even though the
underlying abuses in both cases have had devastating consequences.
The tobacco agreement was pegged as being worth nearly $250 billion
over the first 25 years. Adjust that for inflation, and the disparity
is even bigger. That shows you the difference in outcomes between a
case where the prosecutors have solid evidence backing their charges,
versus one where everyone know a lot of bad stuff happened, but no one
has come close to marshaling the evidence.
The mortgage settlement terms have not been released, but more of the
details have been leaked:
1. The total for the top five servicers is now touted as $26 billion
(annoyingly, the FT is calling it "nearly $40 billion"), but of that,
roughly $17 billion is credits for principal modifications, which as
we pointed out earlier, can and almost assuredly will come largely
from mortgages owned by investors. $3 billion is for refis, and only
$5 billion will be in the form of hard cash payments, including $1500
to $2000 per borrower foreclosed on between September 2008 and
December 2011.
[Again, most of the losses will be born by private investors not the banks: Pension plans, governments and insurance companies who funded hundreds of mortgage backed securities]
Banks will be required to modify second liens that sit behind firsts
"at least" pari passu [meaning: "hand-in-hand"], which in practice will mean at most pari passu.
So this guarantees banks will also focus on borrowers where they do
not have second lien exposure, and this also makes the settlement less
helpful to struggling homeowners, since borrowers with both second and
first liens default at much higher rates than those without second
mortgages.
Per the Journal:
"It's not new money. It's all soft dollars to the banks," said Paul
Miller, a bank analyst at FBR Capital Markets.
The Times is also subdued: Despite the billions earmarked in the accord, the aid will help a
relatively small portion of the millions of borrowers who are
delinquent and facing foreclosure. The success could depend in part on
how effectively the program is carried out because earlier efforts by
Washington aimed at troubled borrowers helped far fewer than had been
expected.
[The same problems will occur as we have seen under HAMP, the banks are in charge of picking winners and losers and lack any incentive to act in a competent or responsible way-its another case of the "fox watching the chickens"]
2. Schneiderman's MERS suit survives, and he can add more banks as
defendants. It isn't clear what became of the Biden and Coakley MERS
suits, but Biden sounded pretty adamant in past media presentations on
preserving that.
[Expect more civil suits: we know the evidence of fraud and abuse is out there; leveraging that evidence against the banks however is a slow and expensive avenue for homeowners in financial distress]
3. Nevada's and Arizona's suits against Countrywide for violating its
past consent decree on mortgage servicing has, in a new Orwellianism,
been "folded into" the settlement.
[This is a sellout, a punt by the Nevada\Arizona AGs... plain and simple]
4. The five big players in the settlement have already set aside
reserves sufficient for this deal.
[Great news for bank stock prices]
Here are the top twelve reasons why this deal stinks:
1. We've now set a price for forgeries and fabricating documents. It's
$2000 per loan. This is a rounding error compared to the chain of
title problem these systematic practices were designed to circumvent.
The cost is also trivial in comparison to the average loan, which is
roughly $180k, so the settlement represents about 1% of loan balances.
It is less than the price of the title insurance that banks failed to
get when they transferred the loans to the trust. It is a fraction of
the cost of the legal expenses when foreclosures are challenged. It's
a great deal for the banks because no one is at any of the servicers
going to jail for forgery and the banks have set the upper bound of
the cost of riding roughshod over 300 years of real estate law.
[Sadly, Crime does pay...but only if you are a multinational bank with substantial political influence and the ability to hold hostage our national economy and democracy]
2. That $26 billion is actually $5 billion of bank money and the rest
is your money. The mortgage principal write downs are guaranteed to
come almost entirely from securitized loans, which means from
investors, which in turn means taxpayers via Fannie and Freddie,
pension funds, insurers, and 401 (k)s. Refis of performing loans also
reduce income to those very same investors.
[Not accurate: Fannie and Freddie loans are excluded, only private mortgage backed security trusts]
3. That $5 billion divided among the big banks wouldn't even represent
a significant quarterly hit. Freddie and Fannie put backs to the major
banks have been running at that level each quarter.
4. That $20 billion actually makes bank second liens sounder, so this
deal is a stealth bailout that strengthens bank balance sheets at the
expense of the broader public.
[Why: over 50% of these second liens are actually owned by the banks versus less than 5% of the first mortgages]
5. The enforcement is a joke. The first layer of supervision is the
banks reporting on themselves. The framework is similar to that of the
OCC consent decrees implemented last year, which Adam Levitin and
yours truly, among others, decried as regulatory theater.
[The same problems will occur as we have seen under HAMP, the banks are in charge of picking winners and losers and lack any incentive to act in a competent or responsible way-its another case of the "fox watching the chickens"]
6. The past history of servicer consent decrees shows the servicers
all fail to comply. Why? Servicer records and systems are terrible in
the best of times, and their systems and fee structures aren't set up
to handle much in the way of delinquencies. As Tom Adams has pointed
out in earlier posts, servicer behavior is predictable when their
portfolios are hit with a high level of delinquencies and defaults:
they cheat in all sorts of ways to reduce their losses.
[The same problems will occur as we have seen under HAMP, the banks are in charge of picking winners and losers and lack any incentive to act in a competent or responsible way-its another case of the "fox watching the chickens"]
7. The cave-in Nevada and Arizona on the Countrywide settlement suit
is a special gift for Bank of America, who is by far the worst
offender in the chain of title disaster (since, according to sworn
testimony of its own employee in Kemp v. Countrywide, Countrywide
failed to comply with trust delivery requirements). This move proves
that failing to comply with a consent degree has no consequences but
will merely be rolled into a new consent degree which will also fail
to be enforced. These cases also alleged HAMP violations as consumer
fraud violations and could have gotten costly and emboldened other
states to file similar suits not just against Countrywide but other
servicers, so it was useful to the other banks as well.
[Again...this is a sellout, a punt by the Nevada\Arizona AGs... plain and simple]
8. If the new Federal task force was intended to be serious, this
deal would have not had been settled. You never settle before
investigating. It's a bad idea to settle obvious, widespread
wrongdoing on the cheap. You use the stuff that is easy to prove to
gather information and secure cooperation on the stuff that is harder
to prove. In Missouri and Nevada, the robo-signing investigation led to
criminal charges against agents of the servicers. But even though
these companies were acting at the express direction and approval of
the services, no individuals or entities higher up the food chain will
face any sort of meaningful charges.
[The same problems will occur as we have seen under HAMP, the banks are in charge of picking winners and losers and lack any incentive to act in a competent or responsible way-its another case of the "fox watching the chickens"]
9. There is plenty of evidence of widespread abuses not that are
appear not to be on the attorney generals' or media's radar, such as
servicer driven foreclosures and looting of investors' funds via
impermissible and inflated charges. While no serious probe was
undertaken, even the limited or peripheral investigations show massive
failures (60% of documents had errors in AGs/Fed's pathetically small
sample). Similarly, the US Trustee's office found widespread evidence
of significant servicer errors in bankruptcy-related filings, such as
inflated and bogus fees, and even substantial, completely made up
charges. Yet the services and banks will suffer no real consequences
for these abuses.
[See our class action lawsuits for details]
10. A deal on robo-siginging serves to cover up the much deeper chain
of title problem. And don't get too excited about the New York,
Massachusetts, and Delaware MERS suits. They put pressure on banks to
clean up this monstrous mess only if the AGs go through to trial and
get tough penalties. The banks will want to settle their way out of
that too. And even if these cases do go to trial and produce
significant victories for the AGs, they still do not address the
problem of failures to transfer notes correctly.
[See our class action lawsuits for details]
11. Don't bet on a deus ex machina in terms of the new Federal
foreclosure task force to improve this picture much. If you think
Schneiderman, as a co-chairman who already has a full time day job in
New York, is going to outfox a bunch of DC insiders who are part of
the problem, I have a bridge I'd like to sell to you.
12. We'll now have to listen to banks and their sycophant defenders
declaring victory despite being wrong on the law and the facts. They
will proceed to marginalize and write off criticisms of the servicing
practices that hurt homeowners and investors and are devastating
communities. But the problems will fester and the housing market will
continue to suffer. Investors in mortgage-backed securities, who know
that services have been screwing them for years, will be hung out to
dry and will likely never return to a private MBS market, since the
problems won't ever be fixed. This settlement has not only revealed
the residential mortgage market to be too big to fail, but puts it on
long term, perhaps permanent, government life support.
As we've said before, this settlement is yet another raw demonstration
of who wields power in America, and it isn't you and me. It's bad
enough to see these negotiations come to their predictable, sorry
outcome. It adds insult to injury to see some try to depict it as a
win for long suffering, still abused homeowners.
[Get used to it until people take back control of our government. As citizens we have passed on our responsibility to monitor and participate in our democracy. Crime does pay...but only if you are a multinational bank with substantial political influence and the ability to hold hostage our national economy and democracy]
Firm commentary: After agreeing to change their foreclosure practices in a consent decree signed with the Office of the Comptroller of the Currency, Bank of America, Citibank, JPMorgan Chase, and Wells Fargo BLEW off the agreement because its cheaper to pay a $394Million penalty than to change the institutional practice of fabricating phony foreclosure documents. Homeowners should expect the same behavior even after the $26Billion Mortgage Settlement.
"OCC Settles Civil Money Penalties Against Large National Bank Mortgage Servicers for $394 Million; Penalty Assessment Coordinated with Servicers' Actions and Payments Under Federal-State Settlement"
WASHINGTON - The Office of the Comptroller of the Currency (OCC) today announced agreements in principle with four large national bank mortgage servicers to settle civil money penalties in connection with the unsafe and unsound mortgage servicing and foreclosure practices that were the subject of comprehensive cease and desist orders issued by the OCC in April 2011.
Today's announcement involves Bank of America, Citibank, JPMorgan Chase, and Wells Fargo. The OCC's actions were announced in coordination with the Board of Governors of the Federal Reserve System and the announcement of the federal-state settlement involving the U.S. Department of Justice, the Department of Housing and Urban Development, other federal agencies, and state attorneys general.
In the agreements in principle struck by the OCC with these mortgage servicers, the servicers do not contest the OCC's ability to impose penalties aggregating $394 million, and the OCC agrees to hold in abeyance imposition of such penalties provided the servicers make payments and take other actions under the federal-state settlement with a value equal to at least the penalty amounts that each servicer acknowledges that the OCC could impose. The amounts for each servicer are $164 million for Bank of America, $34 million for Citibank, $113 million for JPMorgan Chase, and $83 million for Wells Fargo. If after three years, a servicer has not paid an amount equal to its respective penalty, the OCC will assess a penalty against the servicer for the difference between the aggregate value of the actions and payments under the agreement and that servicer's OCC penalty amount.
"The actions announced today mark important progress in addressing the problems associated with foreclosure processing and are a critical step toward restoring a functioning industry that protects the rights of the customers it serves," said acting Comptroller of the Currency John Walsh. "The OCC has worked closely with the Department of Justice and other federal agencies throughout the federal-state foreclosure settlement negotiations. We have worked to coordinate the comprehensive fixes to mortgage servicing and foreclosure practices that we required in our April 2011 cease and desist orders to ensure that work complements actions required by the federal-state settlement."
These actions follow the issuance of consent orders in April 2011 against Bank of America, Citibank, JPMorgan Chase, and Wells Fargo to correct deficient, unsafe and unsound mortgage servicing and foreclosure practices.
Those enforcement actions required extensive fixes to mortgage servicing and foreclosure processes. Much of that work will continue throughout the balance of 2012. The orders also required servicers to retain independent consultants to conduct a comprehensive review of foreclosure activity by these servicers in 2009 and 2010. As part of that effort, an independent foreclosure review process began in November 2011 which gives more than four million people the opportunity to request a review of their case if they believe they suffered injuries as a result of errors, misrepresentations, or other deficiencies in a foreclosure action on their primary residence in 2009 or 2010 by one of these servicers.
Article from http://www.independentforeclosurereview.com/
"It is apodictic there can be no cause of action to foreclose a mortgage unless we know where the paper is and that it actually represents something. There is much "sand in the gears" of our property transfer system in these times. However, we cannot bend the rules. A person seeking to enforce an instrument conveying an interest in real property must demonstrate he has directly or indirectly acquired ownership of the instrument."
- Max Gardner, Attorney at Law
Standing in Federal Court - the Basics
Standing is a threshold issue in every federal case and cannot be waived; if the litigant does not have standing, the court has no power to hear the case, even if no objection has been raised. Unfortunately, not all courts exercise that affirmative duty, so it's up to us as attorneys for the debtor/defendant to ensure that claimants without standing don't slip through. The cases below establish those basic principles.
Sprint Communications Co. v. APCC Services, Inc., 554 U.S. 269 (2008): Assignee to claim must hold legal title at the time that it is asserted in action.
Elk Grove Unified School District v. Newdow, 542 U.S. 1 (2004): Federal court can only exercise jurisdiction when litigant meets both constitutional and prudential standing requirements.
Warth v. Seldin, 422 U.S. 490 (1975): Standing is a threshold question in every federal case determining the power of the court to entertain the suit.
St. Paul Fire and Marine Insurance Co. v. PepsiCo, Inc., 884 F. 2d 688 (2nd Cir. 1989): Court has independent duty to examine standing.
Barhold v. Rodriguez, 863 F.2d 233 (2nd Cir. 1988): Parties cannot consent to waive standing.
Constitutional and Prudential Standing in Bankruptcy Courts
Numerous U.S. Bankruptcy Court rulings have reaffirmed the general rule that federal court jurisdiction requires that the litigant have both Constitutional and prudential standing. That requirement and what exactly is required to satisfy the standard is elaborated upon in:
In re Jackson, 451 B.R. 24 (Bankr. E.D. Cal., June 6, 2011): For a federal court to have jurisdiction, the proponent of a matter must have both constitutional standing, which requires an injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief, and prudential standing.
In re Veal, 450 B.R. 897 (9th Cir. B.A.P., June 10, 2011): A federal court may exercise jurisdiction over a litigant only when that litigant meets constitutional and prudential standing requirements; constitutional standing requires an injury in fact, which is caused by or fairly traceable to some conduct or some statutory prohibition, and which the requested relief will likely redress; prudential standing embodies judicially self-imposed limits on the exercise of federal jurisdiction; here, Wells Fargo did not establish standing to seek relief from stay, as it did not show that it or its agent had actual possession of the note, so that it could not establish that it was a "person entitled to enforce" the note under UCC ยง 3-301.
In re Burnett, 450 B.R. 589 (Bankr. W.D. Va., April 28, 2011): In order to establish a colorable claim, a movant for relief from stay must satisfy the constitutional limitations on federal court jurisdiction and prudential limitations on its exercise.
In re Hill, 2009 WL 1956174 (Bankr. D.Ariz., July 6, 2009): In addition to the procedural "real party in interest" requirements of Rule 17, a litigant must also have standing to bring a motion; a litigant must have both constitutional standing and prudential standing for a federal court to have jurisdiction to hear the case.
Party in Interest Issues in Bankruptcy Courts
In re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho, July 7, 2009): To obtain stay relief, a movant must have standing and be the real party in interest under Federal Rule of Civil Procedure 17.
Standing of a Servicer
In re Alcide, 450 B.R. 526 (Bankr. E.D. Pa., May 27, 2011): To establish its status as a party in interest entitled to seek relief from the automatic stay, a mortgage servicer must demonstrate that (1) the initiation of a stay relief motion is within the scope of authority delegated to the servicer by its principal and; and (2) the principal itself is a party in interest (i.e., the principal is a party with the right to enforce the mortgage).
In re Gulley, 436 B.R. 878 (Bankr. N.D.Tex., August 23, 2010): A mortgage loan servicer is considered a creditor with standing to file a proof of claim by virtue of its pecuniary interest in collecting payments under the terms of the note.
In re Jacobson, 402 B.R. 359 (Bankr. W.D. Wash., March 6, 2009): Even if a servicer or agent has authority to bring a motion for relief from stay on behalf of the holder, it is the holder, rather than the servicer, that must be the moving party, and so identified in the papers and in the electronic docketing done by the moving party's counsel.
Possession of the Note
In re Escobar, 457 B.R. 229 (Bankr. E.D. N.Y., August 22, 2011): Where the stay relief movant claims rights as a secured creditor by virtue of an assignment of rights to a promissory note secured by a lien against real property, it must provide satisfactory proof of its status as the owner or holder of the note; here, the movants had met this burden of proof through their uncontroverted affidavit testimony that they were holders of the notes by virtue of possession of the original notes executed with endorsements in blank.
In re Veal, 450 B.R. 897 (9th Cir. B.A.P., June 10, 2011): (See Constitutional and Prudential Standing in Bankruptcy Courts)
In re Banks, 457 B.R. 9 (8th Cir. B.A.P., Oct. 11, 2011): The bankruptcy court erred in holding that a creditor possessed the right to enforce a note endorsed in blank where the creditor did not establish that it was in possession of the note.
Date of Possession
In re Ruest, Case No. 08-10512, Adv. Proc. No. 09-1035 (Bankr. D. Vt., August 23, 2011): Even though it was undisputed that loan servicer was in possession of the note and the note was endorsed in blank, the date that the bank came into possession of the note was a genuine issue of material fact sufficient to deny motion for summary judgment.
In re Parker, 445 B.R. 301 (Bankr. D.Vt., March 18, 2011): The creditor needed to show that it was the holder of the note on the date of the debtor's bankruptcy petition, and, since the endorsement was not dated, the court would hold a hearing to receive evidence on the issue.
In the coming weeks, we'll be providing additional information in more specific areas, and updating this material as new pertinent cases are decided. If you're not already a subscriber, sign up for the newsletter to receive those additional articles and updates.
Credit to: Robin Miller, Tiffany Sanders and Max Gardner compiling and disseminating for this information.
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