Peculiarly (and I’ll have to admit I’m among the guilty), a state-wide halt of foreclosures by a Bank of America unit in Nevada earlier in the week attracted remarkably little notice. The number of foreclosures in involved is meaningful, over 8000. The reason may seem somewhat technical, and presumably would not apply to other BofA units, namely, that the entity, ReconTrust Co, is operating without a proper business license. But then it gets interesting.
First, we get Bank of America’s position, per the Las Vegas Review Journal(hat tip ForeclosureFraud):
In a statement, Bank of America said: “ReconTrust previously faced a nearly identical order in Utah, and it recently prevailed in challenging that order in federal court. Until the current situation is resolved, ReconTrust intends to comply with the order.”
However, the judge believes ReconTrust’s problems may go much deeper than licensing:
In the order, however, the judge said there is a “substantial likelihood that (North) will establish that ReconTrust does not have any contractual privities with respect to the contract between (North) and the other defendants regarding the promissory note and deed of trust.”
The Washington Post (hat tip Lisa Epstein) has taken note of the case, and cites sections of Bank of America’s court filing seeking to reverse the foreclosure freeze, which will otherwise remain in effect until at least February 28, the date of the next court hearing. Perhaps I am reading too much into the language of the pleading, but the tone strikes me as a tad desperate:
In a court filing Wednesday obtained by the Las Vegas Sun, Bank of America says that Bank of America and ReconTrust are in compliance with Nevada foreclosure laws and that the borrower’s case will ultimately fail.
The bank also argues that the harm the injunction “caused to the public interest is overwhelming,” and quotes U.S. Treasury Secretary Timothy Geithner to support its case.
“Treasury Secretary Tim Geithner opined that ceasing the foreclosure process is `very damaging’ and harms the public as communities are forced to live longer with empty homes, there is increased downward pressure on home prices and increasing blight,” the bank said. “The order also harms those subject to the foreclosure process because those individuals, especially those in mediation trying to stay in their homes, are now forced into a state of limbo for an unspecified duration.”
I have a sneaking suspicion that the views of Timothy Geithner don’t carry much weight in the Nevada judicial system.
Why the anxious tone? A couple of factors may be at work. First, recall how hard the banks fought the idea of a broad-based foreclosure freeze when the robo-signing scandal first came to light. And there are reasons why a blanket freeze is problematic, particularly if it extends to non-securitized loans (there are borrowers who want to get out from under a house they recognize they can no longer afford; a freeze can leave them on the hook). But at the same time, the banks have generally overstated the downside because the implications for them are unfavorable. And perhaps most important, an action like a wide-ranging halt is a reminder that banks are, or at least can be, subject to judicial orders, something they appear to have forgotten in recent years.
The second issue, is that Mr. Market has woken up to the fact that the Charlotte bank is particularly exposed to litigation risk. We were very critical of BofA’s purchase of Countrywide. As we said in January 2008:
Even with the reduction in the effective cost of buying Countrywide, Bank of America will come to regret this deal. Countrywide is an organization that has made an art form of just barely staying on the right side of the law, and even then screws up. There is certain to be more dirt, and therefore legal liabilty, that hasn’t yet risen to the surface. Furthermore, it is well nigh impossible to impose procedures and standards on rogue cultures. Look what happened to Bank of America when it purchased US Trust, a company that had a great franchise but one in which the account managers had more autonomy (and incurred more customer-related expenses) than Bank of America’s officers did. BofA succeeded in driving away the many of the best account officers, who took customers with them.
Now the cultural challenges of integrating a Countrywide are very different than dealing with a US Trust, but consider: US Trust was a highly valuable franchise in an area the North Carolina bank said was a priority, and they screwed it up just about every way they could. And US Trust was a much smaller organization too, so the acquisition should have been easier to manage.
BofA stock was off sharply early this week over worries about litigation risk, and those concerns were further stoked by an American Banker report that banks are slowing foreclosures in non-judicial states.
In other words, Bank of America would like to keep bad news about foreclosures to a bare minimum, but those pesky judges appear not to have gotten the memo.
On Friday the Massachusetts Supreme Judicial Court upheld a controversial decision by Land Court Judge Keith C. Long, who ruled in the case of two Springfield, MA homeowners that the foreclosures were invalid because the mortgages were not officially recorded as being owned by the foreclosing banks, US Bancorp and Wells Fargo.
The reaction from Wall Street came shortly after the decision was announced. Within a couple of hours Wells Fargo shares were down nearly 4 percent at $30.92, while U.S. Bancorp was down 1.4 percent at $25.93, Bank of America stock was down 2.8 percent, JPMorgan fell 3.7 percent, and the KBW Bank Index, which includes all four lenders, was down 2.3 percent.
In short, the Supreme Court upheld the March 2009 decision of the lower court that a bank can't foreclose on a home if it doesn't own the mortgage. You can read the 16-page decision here.
This simple statement would seem like a no-brainer, but as a result of fast and loose securitized mortgage lending practices, the ownership of a mortgage could potentially be divided and transferred multiple times by the lenders. As I pointed out in a post back in November, in one week alone there were 808 mortgage transfers in just one county in Massachusetts.
The documentation for these transfers (i.e., the assignments at the Registry of Deeds) on the other hand often lags far behind - in many cases months, or even years after the foreclosure has taken place. This makes it difficult and sometimes impossible to determine who owned what and when.
Add to an already confusing chain of events, and consider that many notes, as well as mortgages, were signed "in blank", shuffled around from one lender to the next and put into trusts well past the legal limit allowed and you've got a mess of epic proportions.
In the past, a bank representative or attorney for the bank would walk into court, point out that the "deadbeat homeowners" weren't paying their mortgage and the family would get kicked out. Many states adopted non-judicial foreclosure policies to alleviate unnecessary paperwork and court time. The premise being that a bank would never foreclose on a property on which the payments were being made and were certain that they owned. That worked fine and made sense when you knew who owned your loan and you owed the money to a local bank or credit union. The bank had your mortgage and your note and the Registry of Deeds has a solid record of it. If there was a transfer - something that might happen once or twice in the life of a loan, if at all, the banks would go down to the Registry of Deeds, file the assignment, pay the fee, and go on with their day. You, the borrower, would start sending your monthly checks to another bank.
Glenn Russell, one of the attorneys to have argued this case and who represented Mark and Tammy LaRace, one of the Springfield homeowners said, "In most cases banks foreclose without any detailed examination of the securitization process of the loan. After all, the homeowner hasn't paid or has missed payments and the foreclosure goes through without anyone really questioning the legality or legitimacy of the foreclosure."
Then the art of securitization came along and mortgages started being traded like baseball cards at recess, sliced up into pieces, and loaded into pools, trusts, and whatever new intricate financial instrument Wall Street dreamed up. Servicers started handling loans instead of your neighborhood bank and MERS (Mortgage Electronic Registration System) was invented to further allow banks to bypass millions of dollars in fees to county registries. Of course with all of these transactions flying around in the hands of people who quite possibly didn't understand what they represented and as we've seen in the recently exposed robo-signing fiasco didn't know what they were signing, there was a lot of room for mistakes ... a lot of mistakes.
Mortgage fraud investigator Steve Dibert of MFI-Miami said, "Seventy percent of the loans we investigate are flawed due to recordation, PSA violations, etc."
As the Boston Globe reported:
During the housing boom, millions of mortgages were packaged into bonds and sold to investors, a process that resulted in lengthy and tangled paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held a mortgage. Today's ruling makes it clear that the practice will not be allowed in Massachusetts.
The time-line of the case started, simply enough, back in 2007 when Wells Fargo and U.S. Bancorp began foreclosure proceedings against two separate delinquent borrowers. Neither borrower fought the proceedings; Massachusetts is a non-judicial state in which courts do not oversee foreclosures, so both banks seized the Springfield, MA properties without any trouble or pesky legal challenges.
In the fall of 2008 the banks tried to list the foreclosed properties in the Boston Globe. According to Mass law, like many states, foreclosure sales must be listed in a newspaper of general circulation in the county or town where the property is located, so the Globe asked the bank to get an okay from the Land Court. This is where Judge Long comes in - in March 2009.
Judge Keith C. Long had no problem with the properties being listed in the Globe, but to the shock of the attorneys he also wanted them to prove that they had legal standing to foreclose on the properties they had repossessed in the first place. He gave them until October (seven months) to get the proper paperwork together and come back and show how they had acquired the mortgage and prove that they had legal standing.
In October 2009 Judge Long examined the paperwork the banks came back with and determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off the houses.
Judge Long found that Option One Mortgage Corp., which early in the "chain of title" owned the mortgages, erred in assigning the mortgages without naming who they were transferred to -- so- called "blank assignments."
The Supreme Court agreed:
A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 ("When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them").
Judge Long's decision hit on the sensitive issue of the "assignment of mortgages in blank." In their crazed fury to aggregate and sell and then resell mortgages, many mortgage documents were transferred without explicitly naming to whom the note or mortgage was being sold.
The banks have argued (and tried to with Long) that this practice is legal. The argument being that everyone's doing it and it is standard practice in the industry. Long didn't buy it. "These blank mortgage assignments were never recorded and they were not legally recordable," he wrote in his ruling.
Where it gets interesting, is rather than take a loss and accept the ruling from a lower court - a decision that in retrospect must now seem like a good idea, in their contempt and utter lack of respect for the law, they decided to appeal to a higher authority. The Massachusetts Supreme Judicial Court, who upheld, unanimously, the lower court's decision.
We agree with the [land court] judge that the plaintiffs who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,'' the justices said in their opinion.
Under; Massachusetts law, in order to sell the borrowers home at a foreclosure auction, the foreclosing entity must actually be the "holder" of the right to foreclose contained in a borrowers' mortgage at the time the auction takes place.
"Looking into the not so distant future, I predict Judge Long's ruling will be hailed as one of the great Judicial opinions of all time, with regards to its impact," Attorney Glenn Russell said.
Essex County Register of Deeds John O'Brien, who in November requested that Attorney General Martha Coakley investigate whether major lenders had devised a scheme to avoid paying assignment fees when transferring mortgages from one entity to another, issued the following statement on Friday:
The Massachusetts Supreme Court has ruled that these Major Banks must follow the same laws as everyone else and that assignments are not optional in Massachusetts. It's obviously they didn't want the public to know what they were doing, coupled with their greed in trying to deliberately avoid the payment of the required recording fees, has placed them in the mess that they are in today.
This is a huge win for the taxpayers, this case will send shock waves throughout the MERS community as they now have been exposed, and they are going to have to get their checkbooks out and reimburse the taxpayers. These major banking conglomerates deliberate scheme to not file the proper paperwork together with the "robo-signers scandal" are the major reasons why our housing market is in the economic turmoil it is in today.
Massachusetts Attorney General Martha Coakley issued her own statement making her opinion about the financial industry clear.
We continue to suffer from the fallout of the lending crisis. There are thousands of people in our state who have lost their homes and many more still in danger of losing them. This decision affirms our belief that the onus should be on the banks and other holders of notes to follow proper procedures before initiating foreclosure on any Massachusetts homeowner.
In their careless and hasty stampede to securitize loans, the banks moved at their own peril. Whether by robo-signing or failing to properly transfer title, these financial institutions created this real estate chaos. They should bear the brunt and the cost of the remedy.
As for the spin coming from the banks as they try to deflect this, Attorney Glenn Russell had this to say on his site:
As I represented one of the parties in the Land Court cases (the LaRace family), it is very interesting to listen to the so called "experts" opine on Judge Long's ruling, saying that "at best this will delay foreclosures, but that is about it." These are uninformed and usually self-serving statements made by real estate professionals. Left unsaid is the fact that under G.L. c. 244 Section 14, in order to foreclose, the foreclosing entity must also prove that it is the holder of the borrowers mortgage note as well. The complexity of the securitization process can present difficult issues for lender to overcome.
Generally the parties involved in the securitization process of your mortgage did not follow the mandates under the prospectus supplement and pooling and servicing agreement governing the securitized trust that the note and mortgage are in. Additionally problematic for foreclosing entities, is the situation whereby the lender has already sold a property to an innocent third party (that it didn't really own, according to Judge Long's decision).
Taking into consideration that the Massachusetts Supreme Court is widely considered one of the best courts in the country, there's a good chance that other states will soon follow this decision.
Judge Long and the six jurists of the Massachusetts Supreme Court sent a very clear message to the banks on Friday: This is the law... And the law matters.
Join the hundreds of homeowners and tell your mortgage horror story and help us fight together at ShameTheBanks.org
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Peculiarly (and I’ll have to admit I’m among the guilty), a state-wide halt of foreclosures by a Bank of America unit in Nevada earlier in the week attracted remarkably little notice. The number of foreclosures in involved is meaningful, over 8000. The reason may seem somewhat technical, and presumably would not apply to other BofA units, namely, that the entity, ReconTrust Co, is operating without a proper business license. But then it gets interesting.
First, we get Bank of America’s position, per the Las Vegas Review Journal(hat tip ForeclosureFraud):
In a statement, Bank of America said: “ReconTrust previously faced a nearly identical order in Utah, and it recently prevailed in challenging that order in federal court. Until the current situation is resolved, ReconTrust intends to comply with the order.”
However, the judge believes ReconTrust’s problems may go much deeper than licensing:
In the order, however, the judge said there is a “substantial likelihood that (North) will establish that ReconTrust does not have any contractual privities with respect to the contract between (North) and the other defendants regarding the promissory note and deed of trust.”
The Washington Post (hat tip Lisa Epstein) has taken note of the case, and cites sections of Bank of America’s court filing seeking to reverse the foreclosure freeze, which will otherwise remain in effect until at least February 28, the date of the next court hearing. Perhaps I am reading too much into the language of the pleading, but the tone strikes me as a tad desperate:
In a court filing Wednesday obtained by the Las Vegas Sun, Bank of America says that Bank of America and ReconTrust are in compliance with Nevada foreclosure laws and that the borrower’s case will ultimately fail.
The bank also argues that the harm the injunction “caused to the public interest is overwhelming,” and quotes U.S. Treasury Secretary Timothy Geithner to support its case.
“Treasury Secretary Tim Geithner opined that ceasing the foreclosure process is `very damaging’ and harms the public as communities are forced to live longer with empty homes, there is increased downward pressure on home prices and increasing blight,” the bank said. “The order also harms those subject to the foreclosure process because those individuals, especially those in mediation trying to stay in their homes, are now forced into a state of limbo for an unspecified duration.”
I have a sneaking suspicion that the views of Timothy Geithner don’t carry much weight in the Nevada judicial system.
Why the anxious tone? A couple of factors may be at work. First, recall how hard the banks fought the idea of a broad-based foreclosure freeze when the robo-signing scandal first came to light. And there are reasons why a blanket freeze is problematic, particularly if it extends to non-securitized loans (there are borrowers who want to get out from under a house they recognize they can no longer afford; a freeze can leave them on the hook). But at the same time, the banks have generally overstated the downside because the implications for them are unfavorable. And perhaps most important, an action like a wide-ranging halt is a reminder that banks are, or at least can be, subject to judicial orders, something they appear to have forgotten in recent years.
The second issue, is that Mr. Market has woken up to the fact that the Charlotte bank is particularly exposed to litigation risk. We were very critical of BofA’s purchase of Countrywide. As we said in January 2008:
Even with the reduction in the effective cost of buying Countrywide, Bank of America will come to regret this deal. Countrywide is an organization that has made an art form of just barely staying on the right side of the law, and even then screws up. There is certain to be more dirt, and therefore legal liabilty, that hasn’t yet risen to the surface. Furthermore, it is well nigh impossible to impose procedures and standards on rogue cultures. Look what happened to Bank of America when it purchased US Trust, a company that had a great franchise but one in which the account managers had more autonomy (and incurred more customer-related expenses) than Bank of America’s officers did. BofA succeeded in driving away the many of the best account officers, who took customers with them.
Now the cultural challenges of integrating a Countrywide are very different than dealing with a US Trust, but consider: US Trust was a highly valuable franchise in an area the North Carolina bank said was a priority, and they screwed it up just about every way they could. And US Trust was a much smaller organization too, so the acquisition should have been easier to manage.
BofA stock was off sharply early this week over worries about litigation risk, and those concerns were further stoked by an American Banker report that banks are slowing foreclosures in non-judicial states.
In other words, Bank of America would like to keep bad news about foreclosures to a bare minimum, but those pesky judges appear not to have gotten the memo.
On Friday the Massachusetts Supreme Judicial Court upheld a controversial decision by Land Court Judge Keith C. Long, who ruled in the case of two Springfield, MA homeowners that the foreclosures were invalid because the mortgages were not officially recorded as being owned by the foreclosing banks, US Bancorp and Wells Fargo.
The reaction from Wall Street came shortly after the decision was announced. Within a couple of hours Wells Fargo shares were down nearly 4 percent at $30.92, while U.S. Bancorp was down 1.4 percent at $25.93, Bank of America stock was down 2.8 percent, JPMorgan fell 3.7 percent, and the KBW Bank Index, which includes all four lenders, was down 2.3 percent.
In short, the Supreme Court upheld the March 2009 decision of the lower court that a bank can't foreclose on a home if it doesn't own the mortgage. You can read the 16-page decision here.
This simple statement would seem like a no-brainer, but as a result of fast and loose securitized mortgage lending practices, the ownership of a mortgage could potentially be divided and transferred multiple times by the lenders. As I pointed out in a post back in November, in one week alone there were 808 mortgage transfers in just one county in Massachusetts.
The documentation for these transfers (i.e., the assignments at the Registry of Deeds) on the other hand often lags far behind - in many cases months, or even years after the foreclosure has taken place. This makes it difficult and sometimes impossible to determine who owned what and when.
Add to an already confusing chain of events, and consider that many notes, as well as mortgages, were signed "in blank", shuffled around from one lender to the next and put into trusts well past the legal limit allowed and you've got a mess of epic proportions.
In the past, a bank representative or attorney for the bank would walk into court, point out that the "deadbeat homeowners" weren't paying their mortgage and the family would get kicked out. Many states adopted non-judicial foreclosure policies to alleviate unnecessary paperwork and court time. The premise being that a bank would never foreclose on a property on which the payments were being made and were certain that they owned. That worked fine and made sense when you knew who owned your loan and you owed the money to a local bank or credit union. The bank had your mortgage and your note and the Registry of Deeds has a solid record of it. If there was a transfer - something that might happen once or twice in the life of a loan, if at all, the banks would go down to the Registry of Deeds, file the assignment, pay the fee, and go on with their day. You, the borrower, would start sending your monthly checks to another bank.
Glenn Russell, one of the attorneys to have argued this case and who represented Mark and Tammy LaRace, one of the Springfield homeowners said, "In most cases banks foreclose without any detailed examination of the securitization process of the loan. After all, the homeowner hasn't paid or has missed payments and the foreclosure goes through without anyone really questioning the legality or legitimacy of the foreclosure."
Then the art of securitization came along and mortgages started being traded like baseball cards at recess, sliced up into pieces, and loaded into pools, trusts, and whatever new intricate financial instrument Wall Street dreamed up. Servicers started handling loans instead of your neighborhood bank and MERS (Mortgage Electronic Registration System) was invented to further allow banks to bypass millions of dollars in fees to county registries. Of course with all of these transactions flying around in the hands of people who quite possibly didn't understand what they represented and as we've seen in the recently exposed robo-signing fiasco didn't know what they were signing, there was a lot of room for mistakes ... a lot of mistakes.
Mortgage fraud investigator Steve Dibert of MFI-Miami said, "Seventy percent of the loans we investigate are flawed due to recordation, PSA violations, etc."
As the Boston Globe reported:
During the housing boom, millions of mortgages were packaged into bonds and sold to investors, a process that resulted in lengthy and tangled paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held a mortgage. Today's ruling makes it clear that the practice will not be allowed in Massachusetts.
The time-line of the case started, simply enough, back in 2007 when Wells Fargo and U.S. Bancorp began foreclosure proceedings against two separate delinquent borrowers. Neither borrower fought the proceedings; Massachusetts is a non-judicial state in which courts do not oversee foreclosures, so both banks seized the Springfield, MA properties without any trouble or pesky legal challenges.
In the fall of 2008 the banks tried to list the foreclosed properties in the Boston Globe. According to Mass law, like many states, foreclosure sales must be listed in a newspaper of general circulation in the county or town where the property is located, so the Globe asked the bank to get an okay from the Land Court. This is where Judge Long comes in - in March 2009.
Judge Keith C. Long had no problem with the properties being listed in the Globe, but to the shock of the attorneys he also wanted them to prove that they had legal standing to foreclose on the properties they had repossessed in the first place. He gave them until October (seven months) to get the proper paperwork together and come back and show how they had acquired the mortgage and prove that they had legal standing.
In October 2009 Judge Long examined the paperwork the banks came back with and determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off the houses.
Judge Long found that Option One Mortgage Corp., which early in the "chain of title" owned the mortgages, erred in assigning the mortgages without naming who they were transferred to -- so- called "blank assignments."
The Supreme Court agreed:
A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 ("When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them").
Judge Long's decision hit on the sensitive issue of the "assignment of mortgages in blank." In their crazed fury to aggregate and sell and then resell mortgages, many mortgage documents were transferred without explicitly naming to whom the note or mortgage was being sold.
The banks have argued (and tried to with Long) that this practice is legal. The argument being that everyone's doing it and it is standard practice in the industry. Long didn't buy it. "These blank mortgage assignments were never recorded and they were not legally recordable," he wrote in his ruling.
Where it gets interesting, is rather than take a loss and accept the ruling from a lower court - a decision that in retrospect must now seem like a good idea, in their contempt and utter lack of respect for the law, they decided to appeal to a higher authority. The Massachusetts Supreme Judicial Court, who upheld, unanimously, the lower court's decision.
We agree with the [land court] judge that the plaintiffs who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,'' the justices said in their opinion.
Under; Massachusetts law, in order to sell the borrowers home at a foreclosure auction, the foreclosing entity must actually be the "holder" of the right to foreclose contained in a borrowers' mortgage at the time the auction takes place.
"Looking into the not so distant future, I predict Judge Long's ruling will be hailed as one of the great Judicial opinions of all time, with regards to its impact," Attorney Glenn Russell said.
Essex County Register of Deeds John O'Brien, who in November requested that Attorney General Martha Coakley investigate whether major lenders had devised a scheme to avoid paying assignment fees when transferring mortgages from one entity to another, issued the following statement on Friday:
The Massachusetts Supreme Court has ruled that these Major Banks must follow the same laws as everyone else and that assignments are not optional in Massachusetts. It's obviously they didn't want the public to know what they were doing, coupled with their greed in trying to deliberately avoid the payment of the required recording fees, has placed them in the mess that they are in today.
This is a huge win for the taxpayers, this case will send shock waves throughout the MERS community as they now have been exposed, and they are going to have to get their checkbooks out and reimburse the taxpayers. These major banking conglomerates deliberate scheme to not file the proper paperwork together with the "robo-signers scandal" are the major reasons why our housing market is in the economic turmoil it is in today.
Massachusetts Attorney General Martha Coakley issued her own statement making her opinion about the financial industry clear.
We continue to suffer from the fallout of the lending crisis. There are thousands of people in our state who have lost their homes and many more still in danger of losing them. This decision affirms our belief that the onus should be on the banks and other holders of notes to follow proper procedures before initiating foreclosure on any Massachusetts homeowner.
In their careless and hasty stampede to securitize loans, the banks moved at their own peril. Whether by robo-signing or failing to properly transfer title, these financial institutions created this real estate chaos. They should bear the brunt and the cost of the remedy.
As for the spin coming from the banks as they try to deflect this, Attorney Glenn Russell had this to say on his site:
As I represented one of the parties in the Land Court cases (the LaRace family), it is very interesting to listen to the so called "experts" opine on Judge Long's ruling, saying that "at best this will delay foreclosures, but that is about it." These are uninformed and usually self-serving statements made by real estate professionals. Left unsaid is the fact that under G.L. c. 244 Section 14, in order to foreclose, the foreclosing entity must also prove that it is the holder of the borrowers mortgage note as well. The complexity of the securitization process can present difficult issues for lender to overcome.
Generally the parties involved in the securitization process of your mortgage did not follow the mandates under the prospectus supplement and pooling and servicing agreement governing the securitized trust that the note and mortgage are in. Additionally problematic for foreclosing entities, is the situation whereby the lender has already sold a property to an innocent third party (that it didn't really own, according to Judge Long's decision).
Taking into consideration that the Massachusetts Supreme Court is widely considered one of the best courts in the country, there's a good chance that other states will soon follow this decision.
Judge Long and the six jurists of the Massachusetts Supreme Court sent a very clear message to the banks on Friday: This is the law... And the law matters.
Join the hundreds of homeowners and tell your mortgage horror story and help us fight together at ShameTheBanks.org
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Fox <b>News</b> Calls Bulletstorm the Worst Videogame in the World
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Peculiarly (and I’ll have to admit I’m among the guilty), a state-wide halt of foreclosures by a Bank of America unit in Nevada earlier in the week attracted remarkably little notice. The number of foreclosures in involved is meaningful, over 8000. The reason may seem somewhat technical, and presumably would not apply to other BofA units, namely, that the entity, ReconTrust Co, is operating without a proper business license. But then it gets interesting.
First, we get Bank of America’s position, per the Las Vegas Review Journal(hat tip ForeclosureFraud):
In a statement, Bank of America said: “ReconTrust previously faced a nearly identical order in Utah, and it recently prevailed in challenging that order in federal court. Until the current situation is resolved, ReconTrust intends to comply with the order.”
However, the judge believes ReconTrust’s problems may go much deeper than licensing:
In the order, however, the judge said there is a “substantial likelihood that (North) will establish that ReconTrust does not have any contractual privities with respect to the contract between (North) and the other defendants regarding the promissory note and deed of trust.”
The Washington Post (hat tip Lisa Epstein) has taken note of the case, and cites sections of Bank of America’s court filing seeking to reverse the foreclosure freeze, which will otherwise remain in effect until at least February 28, the date of the next court hearing. Perhaps I am reading too much into the language of the pleading, but the tone strikes me as a tad desperate:
In a court filing Wednesday obtained by the Las Vegas Sun, Bank of America says that Bank of America and ReconTrust are in compliance with Nevada foreclosure laws and that the borrower’s case will ultimately fail.
The bank also argues that the harm the injunction “caused to the public interest is overwhelming,” and quotes U.S. Treasury Secretary Timothy Geithner to support its case.
“Treasury Secretary Tim Geithner opined that ceasing the foreclosure process is `very damaging’ and harms the public as communities are forced to live longer with empty homes, there is increased downward pressure on home prices and increasing blight,” the bank said. “The order also harms those subject to the foreclosure process because those individuals, especially those in mediation trying to stay in their homes, are now forced into a state of limbo for an unspecified duration.”
I have a sneaking suspicion that the views of Timothy Geithner don’t carry much weight in the Nevada judicial system.
Why the anxious tone? A couple of factors may be at work. First, recall how hard the banks fought the idea of a broad-based foreclosure freeze when the robo-signing scandal first came to light. And there are reasons why a blanket freeze is problematic, particularly if it extends to non-securitized loans (there are borrowers who want to get out from under a house they recognize they can no longer afford; a freeze can leave them on the hook). But at the same time, the banks have generally overstated the downside because the implications for them are unfavorable. And perhaps most important, an action like a wide-ranging halt is a reminder that banks are, or at least can be, subject to judicial orders, something they appear to have forgotten in recent years.
The second issue, is that Mr. Market has woken up to the fact that the Charlotte bank is particularly exposed to litigation risk. We were very critical of BofA’s purchase of Countrywide. As we said in January 2008:
Even with the reduction in the effective cost of buying Countrywide, Bank of America will come to regret this deal. Countrywide is an organization that has made an art form of just barely staying on the right side of the law, and even then screws up. There is certain to be more dirt, and therefore legal liabilty, that hasn’t yet risen to the surface. Furthermore, it is well nigh impossible to impose procedures and standards on rogue cultures. Look what happened to Bank of America when it purchased US Trust, a company that had a great franchise but one in which the account managers had more autonomy (and incurred more customer-related expenses) than Bank of America’s officers did. BofA succeeded in driving away the many of the best account officers, who took customers with them.
Now the cultural challenges of integrating a Countrywide are very different than dealing with a US Trust, but consider: US Trust was a highly valuable franchise in an area the North Carolina bank said was a priority, and they screwed it up just about every way they could. And US Trust was a much smaller organization too, so the acquisition should have been easier to manage.
BofA stock was off sharply early this week over worries about litigation risk, and those concerns were further stoked by an American Banker report that banks are slowing foreclosures in non-judicial states.
In other words, Bank of America would like to keep bad news about foreclosures to a bare minimum, but those pesky judges appear not to have gotten the memo.
On Friday the Massachusetts Supreme Judicial Court upheld a controversial decision by Land Court Judge Keith C. Long, who ruled in the case of two Springfield, MA homeowners that the foreclosures were invalid because the mortgages were not officially recorded as being owned by the foreclosing banks, US Bancorp and Wells Fargo.
The reaction from Wall Street came shortly after the decision was announced. Within a couple of hours Wells Fargo shares were down nearly 4 percent at $30.92, while U.S. Bancorp was down 1.4 percent at $25.93, Bank of America stock was down 2.8 percent, JPMorgan fell 3.7 percent, and the KBW Bank Index, which includes all four lenders, was down 2.3 percent.
In short, the Supreme Court upheld the March 2009 decision of the lower court that a bank can't foreclose on a home if it doesn't own the mortgage. You can read the 16-page decision here.
This simple statement would seem like a no-brainer, but as a result of fast and loose securitized mortgage lending practices, the ownership of a mortgage could potentially be divided and transferred multiple times by the lenders. As I pointed out in a post back in November, in one week alone there were 808 mortgage transfers in just one county in Massachusetts.
The documentation for these transfers (i.e., the assignments at the Registry of Deeds) on the other hand often lags far behind - in many cases months, or even years after the foreclosure has taken place. This makes it difficult and sometimes impossible to determine who owned what and when.
Add to an already confusing chain of events, and consider that many notes, as well as mortgages, were signed "in blank", shuffled around from one lender to the next and put into trusts well past the legal limit allowed and you've got a mess of epic proportions.
In the past, a bank representative or attorney for the bank would walk into court, point out that the "deadbeat homeowners" weren't paying their mortgage and the family would get kicked out. Many states adopted non-judicial foreclosure policies to alleviate unnecessary paperwork and court time. The premise being that a bank would never foreclose on a property on which the payments were being made and were certain that they owned. That worked fine and made sense when you knew who owned your loan and you owed the money to a local bank or credit union. The bank had your mortgage and your note and the Registry of Deeds has a solid record of it. If there was a transfer - something that might happen once or twice in the life of a loan, if at all, the banks would go down to the Registry of Deeds, file the assignment, pay the fee, and go on with their day. You, the borrower, would start sending your monthly checks to another bank.
Glenn Russell, one of the attorneys to have argued this case and who represented Mark and Tammy LaRace, one of the Springfield homeowners said, "In most cases banks foreclose without any detailed examination of the securitization process of the loan. After all, the homeowner hasn't paid or has missed payments and the foreclosure goes through without anyone really questioning the legality or legitimacy of the foreclosure."
Then the art of securitization came along and mortgages started being traded like baseball cards at recess, sliced up into pieces, and loaded into pools, trusts, and whatever new intricate financial instrument Wall Street dreamed up. Servicers started handling loans instead of your neighborhood bank and MERS (Mortgage Electronic Registration System) was invented to further allow banks to bypass millions of dollars in fees to county registries. Of course with all of these transactions flying around in the hands of people who quite possibly didn't understand what they represented and as we've seen in the recently exposed robo-signing fiasco didn't know what they were signing, there was a lot of room for mistakes ... a lot of mistakes.
Mortgage fraud investigator Steve Dibert of MFI-Miami said, "Seventy percent of the loans we investigate are flawed due to recordation, PSA violations, etc."
As the Boston Globe reported:
During the housing boom, millions of mortgages were packaged into bonds and sold to investors, a process that resulted in lengthy and tangled paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held a mortgage. Today's ruling makes it clear that the practice will not be allowed in Massachusetts.
The time-line of the case started, simply enough, back in 2007 when Wells Fargo and U.S. Bancorp began foreclosure proceedings against two separate delinquent borrowers. Neither borrower fought the proceedings; Massachusetts is a non-judicial state in which courts do not oversee foreclosures, so both banks seized the Springfield, MA properties without any trouble or pesky legal challenges.
In the fall of 2008 the banks tried to list the foreclosed properties in the Boston Globe. According to Mass law, like many states, foreclosure sales must be listed in a newspaper of general circulation in the county or town where the property is located, so the Globe asked the bank to get an okay from the Land Court. This is where Judge Long comes in - in March 2009.
Judge Keith C. Long had no problem with the properties being listed in the Globe, but to the shock of the attorneys he also wanted them to prove that they had legal standing to foreclose on the properties they had repossessed in the first place. He gave them until October (seven months) to get the proper paperwork together and come back and show how they had acquired the mortgage and prove that they had legal standing.
In October 2009 Judge Long examined the paperwork the banks came back with and determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off the houses.
Judge Long found that Option One Mortgage Corp., which early in the "chain of title" owned the mortgages, erred in assigning the mortgages without naming who they were transferred to -- so- called "blank assignments."
The Supreme Court agreed:
A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 ("When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them").
Judge Long's decision hit on the sensitive issue of the "assignment of mortgages in blank." In their crazed fury to aggregate and sell and then resell mortgages, many mortgage documents were transferred without explicitly naming to whom the note or mortgage was being sold.
The banks have argued (and tried to with Long) that this practice is legal. The argument being that everyone's doing it and it is standard practice in the industry. Long didn't buy it. "These blank mortgage assignments were never recorded and they were not legally recordable," he wrote in his ruling.
Where it gets interesting, is rather than take a loss and accept the ruling from a lower court - a decision that in retrospect must now seem like a good idea, in their contempt and utter lack of respect for the law, they decided to appeal to a higher authority. The Massachusetts Supreme Judicial Court, who upheld, unanimously, the lower court's decision.
We agree with the [land court] judge that the plaintiffs who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,'' the justices said in their opinion.
Under; Massachusetts law, in order to sell the borrowers home at a foreclosure auction, the foreclosing entity must actually be the "holder" of the right to foreclose contained in a borrowers' mortgage at the time the auction takes place.
"Looking into the not so distant future, I predict Judge Long's ruling will be hailed as one of the great Judicial opinions of all time, with regards to its impact," Attorney Glenn Russell said.
Essex County Register of Deeds John O'Brien, who in November requested that Attorney General Martha Coakley investigate whether major lenders had devised a scheme to avoid paying assignment fees when transferring mortgages from one entity to another, issued the following statement on Friday:
The Massachusetts Supreme Court has ruled that these Major Banks must follow the same laws as everyone else and that assignments are not optional in Massachusetts. It's obviously they didn't want the public to know what they were doing, coupled with their greed in trying to deliberately avoid the payment of the required recording fees, has placed them in the mess that they are in today.
This is a huge win for the taxpayers, this case will send shock waves throughout the MERS community as they now have been exposed, and they are going to have to get their checkbooks out and reimburse the taxpayers. These major banking conglomerates deliberate scheme to not file the proper paperwork together with the "robo-signers scandal" are the major reasons why our housing market is in the economic turmoil it is in today.
Massachusetts Attorney General Martha Coakley issued her own statement making her opinion about the financial industry clear.
We continue to suffer from the fallout of the lending crisis. There are thousands of people in our state who have lost their homes and many more still in danger of losing them. This decision affirms our belief that the onus should be on the banks and other holders of notes to follow proper procedures before initiating foreclosure on any Massachusetts homeowner.
In their careless and hasty stampede to securitize loans, the banks moved at their own peril. Whether by robo-signing or failing to properly transfer title, these financial institutions created this real estate chaos. They should bear the brunt and the cost of the remedy.
As for the spin coming from the banks as they try to deflect this, Attorney Glenn Russell had this to say on his site:
As I represented one of the parties in the Land Court cases (the LaRace family), it is very interesting to listen to the so called "experts" opine on Judge Long's ruling, saying that "at best this will delay foreclosures, but that is about it." These are uninformed and usually self-serving statements made by real estate professionals. Left unsaid is the fact that under G.L. c. 244 Section 14, in order to foreclose, the foreclosing entity must also prove that it is the holder of the borrowers mortgage note as well. The complexity of the securitization process can present difficult issues for lender to overcome.
Generally the parties involved in the securitization process of your mortgage did not follow the mandates under the prospectus supplement and pooling and servicing agreement governing the securitized trust that the note and mortgage are in. Additionally problematic for foreclosing entities, is the situation whereby the lender has already sold a property to an innocent third party (that it didn't really own, according to Judge Long's decision).
Taking into consideration that the Massachusetts Supreme Court is widely considered one of the best courts in the country, there's a good chance that other states will soon follow this decision.
Judge Long and the six jurists of the Massachusetts Supreme Court sent a very clear message to the banks on Friday: This is the law... And the law matters.
Join the hundreds of homeowners and tell your mortgage horror story and help us fight together at ShameTheBanks.org
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More sad news for the economy; in addition to an increase of job losses, over a quarter million Americans lost their homes to foreclosure just last month! That's an estimated 9,000 daily foreclosures in the month of January.
To make matters worse, a news commentator on Good Morning America stated: "with the transfer of loans between banks (in addition to the abundance of paper work involved in acquiring a home loan), and the bundling of mystery bonds traded on Wall Street, many people are not quite sure who they owe money to". Quite a conundrum indeed!
Fortunately, there is a light at the end of such a dark, and dreary tunnel. Recent News reports state, that there are three words that just might save your home from foreclosure - "Produce the Note". What are the significance of these words? How might these words save a home from foreclosure?
Essentially, to voice these words "produce the note", is to make a (written and verbal) request of the home loan servicers, to provide the originally signed mortgage paperwork, of the home owner threatened by foreclosure. What's the significance of taking this type of action?
"Often, most companies (do not) have copies of the original note"; so stated the news commentator mentioned at the outset. Thereby, making it extremely hard to prove to a court of law, that someone is indebted to them, since there is no documented proof thereof.
How does this stall tactic work? For those who's mortgage loan companies are not willing to work with them, they have opted to visit the website www.consumerwarningnetwork.com, which provides a down-loadable copy of the "produce the note' form, to present to their local courts. With document in hand, courts have had no choice but to stall foreclosure proceedings, until the banks produce the original and signed mortgage paperwork.
It's important to note however, that although this is not a permanent solution, it can serve as a way to stall the home foreclosure process, buying the homeowner time to get their finances in order. (*A word of caution: this procedure should only be used as a last ditch effort, in the event that ones mortgage company is not, or will not, be willing to work with you).
Unfortunately, as the statistics show, many have found themselves effected by this unstable economy. Fortunately, with little known facts such as this one, you may still be able to keep the possessions you've worked so hard to obtain.
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