NY J Shack Explains Principal and Agent to OneWest: Robo-Case Dismissed

10.27.10 JUDGE SCHACK ROBO DISMISSAL-Onewest-Bank-F-S-B-v-Drayton[1]

With crushing clarity, Judge Shack in New York has made it crystal clear that the finesse of recording requirement for real property and splitting the note and mortgage won’t work under his watch. The quoted segments of testimony from a robo-signer shows criminal responsibility on the part of the robo-signor, the notary, and the witnesses. The admissions from the witness show that this was and remains an industry-wide practice.

The purpose was to split the mortgage from the note so the receivables could be transferred around and split up multiple times in duplicate as the “securitizers” wanted. The law cannot be more clear on this point. If the parties intentionally split the mortgage from the note, the mortgage loses its validity and cannot be restored. The reason for this principle of law could not be more simple: the purpose of property law, contract law and the UCC is to provide stability, consistency and confidence in transactions. Anything less would create chaos such that nobody would ever know if they were really the owner of anything they bought. Splitting the note from the mortgage, even for an instant, creates an automatic cloud on title, probably a defect in title, most probably a fatal defect of title and certainly prevents the transferor from honestly warranting that the title is marketable.

There is way to fix this and there is no reason to feel sympathy for the perpetrators of this scheme. The reason they wanted the note and mortgage split was precisely what the law seeks to avoid: multiple duplicate conveyances of the same interest in real property. There is no wiggle room on this. If you want to fix it, EVERYONE who could possibly have an interest must be joined in the same document or the same quiet title lawsuit — and with the best lawyers in the country, these employers of robo-signors seeking to avoid direct culpability in perjury and other criminal acts obviously know these simple legal requirements. Their problem is not that they don’t understand it. The real problem is that there are so many parties involved in the “securitization” transactions that many of them have interests each adverse to everyone else.

Logic dictates the final result: since there obviously won’t be an agreement to sign a new document or set of documents based upon premises that were never true and have now been revealed, a court must be the venue for deciding the rights and obligations of the parties. The best place for that to happen is in bankruptcy court, but not everyone is willing or qualified to petition for bankruptcy relief and most borrowers cannot qualify for lien stripping down to fair market value under current law. So a court of equity must make the decision either in Federal or State Court, applying applicable Federal and State Law.

Wall Street doesn’t like that result. Going to court and having all issues tried on the merits will open a can of worms they can never allow. By concentrating their fire power on tiny portions of the the entire transaction and depicting the borrower’s closing as the entire transaction, the pretender lenders manage to confuse some Judges, but not Judge Shack. As Beth Findsen, Esq. in Scottsdale has repeatedly pointed out, this is a relatively simple principal and agent issue.

Shack, along with an increasing number of other Judges, understands that this was a single transaction between the MBS investor and the borrower and that everyone in between is an agent. The only two principals are the MBS investor and the homeowner. Wall Street doesn’t like that either because the collateral source rule that would exclude loss mitigation payments from third parties would not apply simply because they would not be collateral sources — they are part of the entire transaction as described in the undisclosed securitization documents.

The pretender lenders want to turn non-disclosure into a virtue and use it as proof that the single transaction rule does not apply. But failing to disclose those documents and all the other antics that went with it is not the same as non-existence of those documents. They exist, they were undisclosed and they define the roles of the parties and their intention with respect to the splitting of the note and mortgage.

From Jan van Eck:

• Counsel are particularly directed to page 19, to observe the testimony of the deponent Seck that “her in-house counsel reviewed the Order of the Court (Shack)” and instructed here not to comply.   Now THAT is impressive.
• Note also the Court’s requirement upon re-filing that plaintiff provide the Court with evidence supporting the proposition that the original Lender (Cambridge) granted authority to its nominee MERS to do the onward transfer.  I have not seen this before.  This never seems to happen, as typically the next entity in the food chain makes a transfer as a MERS vp or by “attorney-in-fact” claims.
• Using this Order as foundation, to the extent it can be woven into Motions, would provide powerful grounds to undo the MERS knot.

Jan van Eck

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