BANKS CHANGING TACTICS: GOING JUDICIAL

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“I suspect the FMAs [Foreclosure Mill Attorneys] came up with the scheme of “assuming” that the notes and trust deeds had already been safely deposited inside the REMICs. Based upon this fabricated assumption, they would have the REMIC Trustee execute a Limited Power of Attorney to a Big Bank Servicer to conduct the foreclosure.  The approach would avoid [or obscure] the issue of if, how, when, or whether the paperwork had ever been
delivered into the REMIC.” — PHIL QUERIN, ESQ.

“If the right of foreclosure never resided with the REMIC Trustee because the loan paperwork was never deposited there, then the foreclosure proceeds or the recovered property don’t belong there either.” PHIL QUERIN, ESQ>

EDITOR’S NOTE: In this superbly reasoned article, Querin grinds into the issues of strategy and tactics. It still all comes down to one simple fact: the pretenders are just that — pretenders. They are not the creditors, they do not represent the creditors, and they do not own the obligation, note or mortgage.

Note also differences in recording laws from state to state. Here, in Oregon, different rules apply as to recorded instruments depending upon whether the action is judicial or non-judicial. If he is right and the banks are going to try the judicial gambit, then they are “banking” on the bias of judges against borrowers who look like they are escaping liability. If you can keep the Judge’s attention on the priority, validity and ownership of liens, the issue of enforcement and identity of the creditor, you can avoid appearing as though you are seeking to invalidate the obligation — something no judge is likely to ever entertain.

Foreclosures – What Are The Big Banks Up to Now!?

August 07, 2011, 9:59:26 PM | Phil Querin ESQ.

“Oh what a tangled web we weave,
When first we practice to deceive!”

Sir Walter Scott, Marmion, Canto vi. Stanza 17.
Scottish author & novelist (1771 – 1832)

There are two new interesting developments on the foreclosure front in
Oregon.  But first, here’s a recap of where we’ve been and where we
are now:

Background.

The Big Banks tried and failed to conduct illegal non-judicial
foreclosures in Oregon.  As pointed out in several earlier posts,
here, here, and here, they have been routinely ignoring the mandatory
recording requirement of ORS 86.735(1).
They got their wrists slapped by Federal Judges, Panner, Alley, and others.
They realized that even when they completed an illegal foreclosure,
they likely couldn’t get title and couldn’t evict the homeowner.
As discussed here and here, their lobbyists went to the Oregon
legislature, and tried to convince the politicians that real estate
commerce would come to a halt, if they weren’t permitted to continue
violating the law.  [Note to Big Banks: Commerce did come to a halt,
but it was back in 2007+ after you’d gone on your securitization
binge, lent money to borrowers you knew couldn’t qualify [or didn’t
care if they couldn’t], immediately got paid by selling liar loans as
securities to pension funds and others who relied upon the agencies
you paid for bogus investment grade ratings, and then went through
four years of “extend and pretend” modifications that accomplished
absolutely nothing to resolve the foreclosure crisis. – PCQ]
The Big Banks next threatened that if they weren’t permitted to
violate Oregon’s non-judicial foreclosure law any more, then By Golly,
they would just start suing their delinquent borrowers in court, since
the  mandatory recording requirement only applied to non-judicial
foreclosures.
First Recent Development – Judicial Foreclosures. Today, there are
anecdotal reports of the Big Banks cancelling their non-judicial
foreclosure sales and going judicial.   We know this because they are
quietly changing their pre-foreclosure title insurance orders from
“Trustee Sale Guarantees” to “Litigation Reports.”  What does this
mean?  Well, if they were going to non-judicially foreclose one of
their borrowers, they would order a Trustee Sale Guarantee, since the
Successor Trustee in charge of the foreclosure would be conducting it
by public record recordings and newspaper advertisements, rather than
through the court system.  This type of report tells the Successor
Trustee who to name and send all mailings to in order to foreclose out
their interest in the subject property.

But if the Big Banks order a “Litigation Report”, it means they’re
teeing up a foreclosure lawsuit in court, and need a slightly
different form of title insurance coverage.  This report tells the
bank’s FMA [“Foreclosure Mill Attorneys”] who has to be named in the
lawsuit’s complaint, so that the foreclosure removes all other
interests subordinate to the plaintiff bank.  That way, the bank has
clear title to the property to transfer out of their REO department
once they complete the judicial foreclosure.

Why do the banks want to go to court, and publicly drag themselves,
and their borrowers, into the public arena, which will not only air
everyone’s dirty linen, but also subject themselves to court scrutiny?
The first explanation is simple: The mandatory recording requirement
of ORS 86.735(1) only applies in non-judicial foreclosures.  In other
words, the Big Banks don’t have to record the [oftentimes missing]
Trust Deed Assignments if they go to court, since the law does not
require that they so. [However,  they still have to establish that
they have “standing” as the “real party in interest” which essentially
raises the same issue as in a non-judicial foreclosure – does the bank
actually hold the note and mortgage it’s foreclosing on? – PCQ] My
suspicion is that the Big Banks really don’t want to go this route.
All it will take is one borrower to call their bluff, and demand that
they establish their legal standing to sue, i.e. produce the note,
fully endorsed [“indorsed” in UCC-speak] by all successive owners.

But being institutionally incapable of thinking outside the safety
box, Big Banks figure this is their only alternative. Options such as
deeds-in-lieu of foreclosure, cash for keys, expedited short sale
consents, are far too innovative – and would require a dose of human
compassion, which is verboten on most banker menus.

The remaining issue in this new development is how the Big Banks will
decide which homeowners they’ll sue, versus which one they will
foreclose non-judicially.  Right now, there appears to be no common
theme.  Clearly, if a borrower has the temerity to sue them to enjoin
a non-judicial sale, they will likely stop that sale and sue the
borrower in court. Who else they sick their FMAs on remains to be
seen.

Second Recent Development – Limited Powers of Attorney. Recently, we
are also seeing Big Banks quietly record Limited Powers of Attorney
before commencing their foreclosures.  A “Limited Power of Attorney”
(“LPOA”) is a document used to delegate certain prescribed powers from
one party to another.  A LPOA differs from the General Power of
Attorney in that the latter is broad and all-encompassing, with few,
if any limitations placed on the Attorney-in-Fact [the party receiving
the delegated power. – PCQ].  What follows is a summary of one such
LPOA recently recorded on the county records in anticipation of a
foreclosure:

It runs from the Big Bank, not in its “individual capacity” but solely
as “Trustee”.  Although it is clear that the Trustee is serving in
that capacity for a REMIC, the REMIC isn’t identified by name.  In
this case, the Trustee is acting as the principal and is delegating
certain powers to a third party.
The third party is another Big Bank identified as a “Servicer.”
Certain delegated powers are granted to any officer appointed by the
Servicer’s Board of Directors.  They are empowered to execute and
acknowledge in writing or by facsimile stamp “…all documents
customarily and reasonably necessary and appropriate” for certain
enumerated foreclosure tasks.  It is not clear if the Servicer is the
same Servicer already identified in the REMIC’s Pooling and Servicing
Agreement [“PSA”], but it would seem doubtful, since that would be
unnecessary.  The Servicer identified in the PSA would already have
those powers.
The LPOA provides that the documents may only be executed and
delivered by the Attorneys-in-Fact [i.e. the officers of the
Servicer], if such documents are required or permitted under the terms
of the related servicing agreements.
More specifically, the LPOA is issued in connection with the
Servicer’s responsibilities regarding the mortgage loans held by the
REMIC Trustee.
The listed tasks that the Servicer is authorized to perform run the
gamut of enforcing mortgages and trust deeds, to foreclosing them, and
virtually everything in between.  The Servicer is authorized to sue in
its own name, and defend the Trustee in all related litigation.
It is worth noting that the LPOAs appear to be signed by legitimate
bank officers.
So what’s up?  Well….given the banks’ radio silence, we can only
speculate.  Here’s my take:  As we have known for a year or more, the
Big Banks have been engaging in a “single assignment” ruse,
transferring the Trust Deeds being foreclosed from the original
lenders who made the loan [or MERS] to the Trustee of the REMIC where
the loan ostensibly resides.  This is nonsensical, since if the loan
was actually securitized into a REMIC upon origination years earlier,
it would have immediately gone through multiple assignments before
being deposited with the REMIC’s Trustee or Custodian.  Thus, making a
single assignment now, right before foreclosure, was a fairly
transparent sham. Banks do not transfer nonperforming loans to each
other without a reason. In those cases in which the original lender no
longer existed, but the Trust Deed Assignment was executed anyway,
this sham may have bordered on outright fraud.

Thus, in anticipation of further problems with borrowers contesting
this single assignment ruse, I suspect the FMAs [Foreclosure Mill
Attorneys] came up with the scheme of “assuming” that the notes and
trust deeds had already been safely deposited inside the REMICs.
Based upon this fabricated assumption, they would have the REMIC
Trustee execute a Limited Power of Attorney to a Big Bank Servicer to
conduct the foreclosure.  The approach would avoid [or obscure] the
issue of if, how, when, or whether the paperwork had ever been
delivered into the REMIC.  If some borrower wanted to attack the
Servicer’s power under the LPOA, the FMAs would likely argue that the
borrower was on a “fishing expedition” [quoting Prosecutor Hamilton
Berger in so many old Perry Mason TV episodes].  This argument could
resonate with a trial judge, concerned more about judicial economy
than borrowers’ procedural rights – “after all, the borrower is in
default….”

At this early point in time, it is difficult to tell whether the
Servicer, acting as the Attorney-in-Fact for the REMIC Trustee, is the
same Servicer identified in the REMIC’s PSA.  One of the reasons for
this difficulty is that at least in some cases, the LPOAs do not
specifically identify the REMIC by name.  Without the name, it is
almost impossible to identify the PSA, which names the Servicer and
describes their powers.  It also makes it difficult to know whether
such a delegation of power from the Trustee to a non-REMIC servicer
[if that was the case] is a violation of the terms of the PSA.

Here are my issues/questions/observations so far:

If the Note and Trust Deed were originally placed inside the REMIC
years ago, as they should have been, the PSA already gave the Master
Servicer or sub-servicer, the power to foreclose.  If so, the LPOA
would be completely unnecessary, since they already had these powers.
How can a LPOA be used to empower unidentified and unnamed persons in
a company to act?  Traditionally, powers of attorney are used to
delegate authority to a specified individual.  To have a power of
attorney from one corporation [with an unlimited existence] to another
corporation [with an unlimited existence] delegates power perpetually.
This has never been the traditional purpose or use of a Power of
Attorney – and it fact, subverts a corporation’s authority.  This sham
is reminiscent of the old MERS “Assistant Secretary” scam, where the
Board of Directors gave blanket officer designations to it members for
use in their foreclosures.
If the LPOA delegates foreclosure authority to persons outside the
REMIC structure, doesn’t that circumvent the purpose and intent of the
PSA that identifies who has the power to foreclose?
If the loan documents never made it into the REMIC before its Closing
Date – i.e. the date all notes, trust deeds, and mortgages were to be
delivered – how can the REMIC’s Trustee later delegate power to a
servicer to foreclose a property that was never inside the REMIC?
What happens after the foreclosure by the Servicer, acting as
Attorney-in-Fact on behalf of the REMIC Trustee?  If the right of
foreclosure never resided with the REMIC Trustee because the loan
paperwork was never deposited there, then the foreclosure proceeds or
the recovered property don’t belong there either.
What scrutiny are the title companies giving to this ruse?
Traditionally, title companies are very skittish about powers of
attorney appearing in the chain of title, since it is a risk they
insure against.  That being the case, they place stringent
requirements on the terms and authority in the document.  When title
companies issue a Trustee Sale Guarantee [for a non-judicial
foreclosure] or a Litigation Report [for a judicial foreclosure] to a
Big Bank doing the foreclosure, are they excluding or limiting
coverage for “excess of authority” problems that might arise if the
foreclosing Servicer didn’t actually acquire any authority because the
REMIC Trustee had none to delegate?  My suspicion, unfortunately, is
that this problem has already been addressed and resolved.  I suspect
the Big Banks have said [expressly or impliedly]: “If you want our
continued business, you’ll cover our backs on this.  If you won’t
cooperate, we’ll find a company that will.”
I also suspect that with the passage of time, more issues will arise.
But as it stands today, it appears that the Big Banks are still
looking for a work-around in order to deal with the documentation mess
they created several years ago.  Stay tuned!

Tags: bankruptcy, borrower, countrywide, disclosure, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, quiet title, rescission, RESPA, securitization, TILA audit, trustee, WEISBAND
Posted in bubble, Corruption, Eviction, securities fraud |