Notes on Hearings I Attended

NOTES ON HEARINGS

W. David Merrill was sworn. He said that he worked for American Home Mortgage Servicing as a senior loan consultant working in mitigation, mediation, and litigation. Hence, the witness only entered the picture long after the loan was declared in default, a notice of default was served, and a notice of sale was served. By definition, his personal knowledge was limited to that point in time when the case was handed over to him for mitigation, mediation, or litigation. More likely, his first brush with the case occurred shortly before the hearing in the afternoon of June 23, 2010 before Judge Hollowell.

Debtor’s attorney raised an objection based upon lack of personal knowledge. The judge overruled the objection. Debtor’s attorney further objected to the copy of the document that was allegedly signed as requiring foundation. The lack of foundation derives from the lack of competence of the witness.

The witness stated that AHMS was the service or for Deutsche Bank. By a written agreement, which was not produced, the witness stated that AHMS was the successor to America West. All objections were overruled.

The witness stated that he was the records custodian for AHMS. However, no foundation for that statement was offered, nor could the witness adequately answer questions on cross examination that were directed at the so-called business records and directed at the witnesses claim that he was in fact the records custodian. Anyone with familiarity of securitized loans knows very well that the servicer is not the records custodian. The attempt by Debtor’s attorney to raise this issue was overruled. In fact, earlier that morning in another case, the judge threatened Debtor’s with contempt of court.

The judge in both cases declared that she was using the doctrine of a colorable claim as she understood it to apply to a motion to lift stay.

The so-called business records were admitted in evidence over objection. The pooling and servicing agreement was admitted as Exhibit 6, but the terms of the pooling and servicing agreement were ignored. Based upon the naked assertion by AHMS, it was presumed that the substitute service or was properly authorized, and that issues raised by the expert  (me) were irrelevant to the preceding and that a very low threshold was required for the movant to obtain relief from stay.

Adding to the confusion, the judge herself stated on the record that the witness was not competent.

The judge was clearly viewing the claims raised by the debtor as a mere stalling tactic.

The concepts repeatedly introduced by Ryan in his pleadings and by myself as an expert witness were completely ignored. The judge refused to seriously consider the possibility that the multiplicity of parties who were in plain sight within the pooling and servicing agreement could present a problem of standing, real party in interest, whether the MOVANT was a creditor,  whether a proper accounting had been rendered, and us whether the balance due as claimed in the notice of the fault was correct or had material deficiencies, to wit:  (1) the identity of the beneficiary, trustee, and servicer was not properly stated and (2) the amount claimed to be in default was  fictitious.

The moving party presented a witness who attempted to justify the filing of three promissory notes as evidence of the obligation, each of which was different. The last and final promissory note was first shown to the expert witness for the  first time on the day of the hearing. This last note showed endorsements which were not apparent on previous “original” notes filed with the court. The Court expressed concern about this.

The testimony and the evidence both pointed to the same practice in both hearings.  For reasons relating to the securitization practices on Wall Street including but not limited to the repackaging of loan portfolios, mortgage-backed bonds, and the creation of collateralized debt obligations which in turn were sold as mortgage-backed bonds, the securitizations of the loans required that no actual formal assignment, endorsement,  or delivery be executed until the instructions were received from the lawyer for the investment banker that was the underwriter of the original series of mortgage-backed bonds. This was the testimony of the witness for the Movant.

Thus,  the legal owner of the loan remains the original party identified as the lender on the deed of trust (or the mortgage) until those instructions are received. Evidence from the industry including but not limited to the statistical probability that a particular loan or bond will be in litigation, strongly suggests that at least 97% of all securitized loans have never been the subject of a legal transfer of the obligation, note and mortgage as required under applicable state law regarding the transfer and recording of interests in real property, and the assignment and endorsement of the note.

In fact, the securitization parties were merely trading in an “expectation” of receivables generated through several channels, each of which depended upon the existence or stated existence of a performing loan. In actual practice, therefore, it may be fairly stated that in nearly all cases involving securitized loans, only the revenue streams arising from all parties and co-obligors were the subject of any trading or transfer activity.

Thus  the status of nearly all securitized loan could be fairly described as legally owned by the originating lender, who in all cases was not left with a receivable upon the closing of the loan transaction. The public records in which property interests are recorded clearly corroborate the conclusions stated herein. The only party that shows on those public records as having an “interest” in the loan is the originating lender. Since the originating lender has been paid in full –an uncontroverted fact– the obligation from the borrower to the originating lender was both created and satisfied at the time of closing.

Since the actual source of the funds that were borrowed by the debtor or borrower came from a remote source (a group of investors) who received a bond from a third party rather than receiving the note executed by the borrower, it is difficult to justify the position that third-party payments are irrelevant. It is equally difficult to construct a scenario under which anyone other than the originating lender had a legal claim under the original loan documents. However, there appears to be an equitable claim by the remote source of funds (the group of investors) for recovery of all payments made and received from all parties in the securitization chain. As to parties other than the borrower in the securitization chain, it appears that the remote source of funds (the group of investors) probably also have legal claims against the various parties in the securitization chain that created, sold and managed debits and credits attributable or allocable to the investor and to the loan accounts of the borrowers.

In the hearings I attended, many documents were offered in evidence that are not normally found in any type of foreclosure proceeding, nor would they be accepted in a judicial foreclosure proceeding without expensive foundation an explanation for their use. Limited powers of attorney, designation as limited signing officer, ratification of prior acts that don’t appear to have ever occurred, certificates of limited authority for certain named individuals to act as officers (obviously raising the question as to whether or not these individuals were ever officers of the entity in any other respectful), substitutions of trustee, endorsements from nonexistent entities, and other documents executed by parties outside of the chain of title, together with the use and confusion between assignments, endorsements, allonges.

Before the era of securitization of mortgage loans it was extremely rare to find any such documentation clouding the chain of title in a foreclosure proceeding. In this case ALL of those documents are present, as they are in millions of other foreclosure proceedings. Judges who have scrutinized these documents have universally arrived at the conclusion that the documents invariably suggest fabrication, forgery, unauthorized signatures, breaks in the chain of title, and frequently all of the above.

In this case, as in all cases where I have been an observer, no person or witness has been willing to testify that they know where these documents came from, when they were created, by whom they were created, or that they know the individuals who executed said documents. In my opinion, this corroborates my conclusion that no such documentation exists in nearly all cases. And further court corroborates my conclusion that any such documentation offered in support of a foreclosure was prepared after the declaration of the fault, after the notice of default, and after the notice of sale.

/s/ NEIL F GARFIELD

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