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“The battle liens are drawn: either the pretender lenders with nothing at stake except satisfaction of greed or the homeowner -borrowers who were duped by fraudulent appraisals and other predatory and fraudulent lending practices are going to get a free house. The tide has turned in favor of the victim (homeowner-borrowers) and against the pretender lenders who simply have no skin in the game).” — Neil Garfield
FROM THE ARTICLE:
“These “show me the paper” cases have been winding through the courts for several years. But in recent months, some judges have been siding with borrowers and stopping foreclosures after concluding that banks’ paperwork problems are more serious than previously thought and raise broader ethical questions.
This year, cases in California, North Carolina, Alabama, Florida, Maine, New York, New Jersey, Texas, Massachusetts and others have raised questions about whether banks properly demonstrated ownership.”
EDITOR’S COMMENT: When the Wall Street Journal and Bloomberg start questioning the viability of the mortgages, they are questioning the viability of the mortgage bonds. Since the money was always intended for parties other than those disclosed at the closing with the homeowner-borrower, it is obvious that the mortgage lien was not only not perfected, it didn’t exist at all because the paperwork describes a transaction that never occurred. This in turn means that the megabanks are now at the point of the cliff where they can’t go back and if they go forward they cease to exist in their present form.
Investors and traders are starting to get the complexity of this but they are also simplifying it down to the essentials, “where’s the beef?” If there isn’t any substance to these transactions, and the investors who were the source of the funds are suing on exactly that premise then you have a confluence in which both creditor and debtor are saying the same thing: there is no debt, there is no lien.
That being the case, there is a magnificent trading opportunity in shorting the bank stocks, and it turns out that both puts and shorts are increasing. From my own experience, traders make their own reality and companies live or die based upon the conventional wisdom amongst those companies and investors who make their money in the liquidity portion of trading activity — day trades, speed trades by supercomputers etc. My opinion is that the bank stocks are i for a fall not unlike the GM and that they are headed for bankruptcy and resolution whether anyone likes the idea or not.
It is also apparent that the holy grail for homeowners is coming within reach. In 2010 there were 2.9 million households that received foreclosure papers. The Obama administration claims over 600,000 successful permanent modification (many of which went back into foreclosure). The parties to those modifications, just like the parties to the enforcement of the obligation, just like the parties to would-be foreclosures are the same parties as those whose claims to standing and real party in interest have essentially been repeatedly struck down by every court that looked at the documentation and simply applied basic rules of law and basic rules of evidence, which is also law.
Since neither the pretender lenders nor the actual creditors (investor-lenders) have taken any steps to reform the transactions (and for good reason, because their proof would be lacking) that leaves a void where there would ordinarily be a creditor claiming damages from the the failure or unwillingness of the homeowner to pay on a debt that was fraudulently stated, in a transaction that never occurred. In plain language, the millions of foreclosures numbering some 7 million households, are subject to and should be reversed restoring the homeowner to ownership of the home without the existing liens of record — i.e., by having the courts clear the existing liens off the title registry in a quiet title action.
The battle liens are drawn: either the pretender lenders with nothing at stake except satisfaction of greed or the homeowner -borrowers who were duped by fraudulent appraisals and other predatory and fraudulent lending practices are going to get a free house. The tide has turned in favor of the victim (homeowner-borrowers) and against the pretender lenders who simply have no skin in the game).
Banks Hit Hurdle to Foreclosures
By NICK TIMIRAOS
Banks trying to foreclose on homeowners are hitting another roadblock, as some delinquent borrowers are successfully arguing that their mortgage companies can’t prove they own the loans and therefore don’t have the right to foreclose.
These “show me the paper” cases have been winding through the courts for several years. But in recent months, some judges have been siding with borrowers and stopping foreclosures after concluding that banks’ paperwork problems are more serious than previously thought and raise broader ethical questions.
This year, cases in California, North Carolina, Alabama, Florida, Maine, New York, New Jersey, Texas, Massachusetts and others have raised questions about whether banks properly demonstrated ownership.
During the fall, banks temporarily suspended foreclosures to address so-called robo-signing problems, where employees were approving legal documents without properly reviewing them. They said that in weeks they could fix what they considered to be simple clerical errors. But borrowers are uncovering new types of document problems, further delaying banks’ efforts to get foreclosures back on track.
In some cases, borrowers are showing courts that banks failed to properly assign ownership of mortgages after they were pooled into mortgage-backed securities. In other cases, borrowers say that lenders backdated or fabricated documents to fix those errors.
“Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages against these operations could be significant and take years to materialize,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp., in testimony to a Senate committee last month .
Last month, the Maine Supreme Court reversed the foreclosure of Dana and Robin Murphy of Auburn, Me., after concluding that the mortgage company, a unit of HSBC Holdings PLC, filed “inherently untrustworthy” documents. An HSBC spokesman declined to comment.
The case began in 2008 when HSBC filed to foreclose on the Murphys, who hadn’t made a mortgage payment in two years. A trial judge initially rejected HSBC’s foreclosure because the bank couldn’t show it owned the promissory note—in effect, the borrower’s IOU. The court later granted the foreclosure after HSBC submitted new paperwork.
However, the Murphys found discrepancies and alleged that the documents were backdated. The court voided the foreclosure and sent the case back to the lower court to determine potential penalties.
Attorneys for borrowers reject the view that they are using arcane legal rules to secure free houses for clients who aren’t paying their bills. Efforts to gloss over incomplete or falsified evidence “can’t be tolerated by a free society,” says Thomas Ice, an attorney in Royal Palm Beach, Fla., who has a similar case before the Florida Supreme Court. “This is a huge assault on our legal system” that risks “turning us into a banana republic.”
Laurence E. Platt, a banking-industry lawyer at K&L Gates in Washington, concedes that banks may have been sloppy. But he says “the real assault on the legal system” are efforts by judges and local officials to strip lenders of their rightful ownership and make foreclosures impossible.
In March, an Alabama court said J.P. Morgan Chase & Co. couldn’t foreclose on Phyllis Horace, a delinquent homeowner in Phenix City, Ala., because her loan hadn’t been properly assigned to its owners—a trust that represents investors—when it was securitized by Bear Stearns Cos. The mortgage assignment showed that the loan hadn’t been transferred to the trust from the subprime lender that originated it.
Specific deal agreements required Bear Stearns to assign the loan within three months of the securitization. Because it failed to do so, Alabama Circuit Court Judge Albert Johnson determined, the trust didn’t own the mortgage. “The court is surprised to the point of astonishment that the defendant trust did not comply with the terms,” of the securitization agreement, he wrote.
The ruling is one of the first in the nation to strip a mortgage trust of an asset it thought it owned. A similar case earlier this year was decided in the bank’s favor when it held that the borrower wasn’t a party to the securitization agreement.
Nick Wooten, the lawyer for Ms. Horace, says the case won’t necessarily influence other decisions unless it is upheld by a higher court. But he says it is “another brick in the wall of trial-court-level cases that clearly show the wheels fell off the bus in the securitization industry during the bubble.”
J.P. Morgan Chase hasn’t appealed the case. A bank spokesman declined to comment.
Curing incomplete mortgage assignments can be tricky because many lenders that originated subprime loans are still listed as the owner but have gone out of business.
Bill Dallas, former chief executive of subprime lender Ownit Mortgage Solutions Inc., receives between 200 and 300 pieces of mail every month at his former company’s California headquarters from companies looking to correct ownership flaws. “Am I surprised? Absolutely not,” says Mr. Dallas, who founded and ran the subprime lender until its collapse in late 2006. “I knew this assignment problem was going to be an issue.”
Loans with botched assignments or no assignment are “really problematic” because “the person that originated the loan is gone, the person that funded it is gone, and your servicers are confused,” he says.
Write to Nick Timiraos at nick.timiraos@wsj.com
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