Archive for January 7th, 2011
Ok, I now have the Slip Opinion – it’s gnarly.
We agree with the 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. As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied. [FN5]
So far this just sounds like a “late assignment” problem. Unfortunately it’s not – it’s far worse, and in fact it goes directly to what I’ve been talking about now for more than a year.
….. At a hearing on the motions on April 17, 2009, the plaintiffs conceded that each complaint alleged a postnotice, postforeclosure sale assignment of the mortgage at issue, but they now represented to the judge that documents might exist that could show a prenotice, preforeclosure sale assignment of the mortgages. The judge granted the plaintiffs leave to produce such documents, provided they were produced in the form they existed in at the time the foreclosure sale was noticed and conducted. In response, the plaintiffs submitted hundreds of pages of documents to the judge, which they claimed established that the mortgages had been assigned to them before the foreclosures. Many of these documents related to the creation of the securitized mortgage pools in which the Ibanez and LaRace mortgages were purportedly included. [FN9]
The judge denied the plaintiffs’ motions to vacate judgment on October 14, 2009, concluding that the newly submitted documents did not alter the conclusion that the plaintiffs were not the holders of the respective mortgages at the time of foreclosure. We granted the parties’ applications for direct appellate review.
The banks tried to get constructive assignment (e.g. assignment by contract, even though the PSAs said otherwise – that actual assignment and delivery had to take place) recognized by the judge, and failed to produce evidence of actual assignment (because there wasn’t any – the notes were originally endorsed in blank and there was no evidence of actual physical delivery to the trustee.) The Judge said no. That’s what I was talking about earlier in this case – this has been the pattern and practice in these securitized loans, and the ASF and others in the industry have argued that despite language in the PSAs that required physical delivery they didn’t have actually perform in that fashion to have a factually and legally-good transfer.
Finally, even if there were an executed trust agreement with the required schedule, U.S. Bank failed to furnish any evidence that the entity assigning the mortgage–Structured Asset Securities Corporation–ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale. [FN19] Thus, based on the documents submitted to the judge, Option One, not U.S. Bank, was the mortgage holder at the time of the foreclosure, and U.S. Bank did not have the authority to foreclose the mortgage.
Heh BAC, WFC and others: Dinner is served….
And for the market: “Here it comes…..”
PS: Cramer gave 10 reasons to buy Bank of America (BAC) – gee, I wonder if one of them was that they were a potential zero if all these securitizations that Countrywide did could be unwound as a consequence of this decision?
The Massachusetts Supreme Court just dealt a negative ruling to the banks in the closely-followed Ibanez case, which challenged securitization standards. It’s pretty straightforward: The banks didn’t have the proper parwork to foreclose, says the court. Hence, no legitimate foreclosure.
Oh oh. That’s exactly what I argued at the time.
If the details look like what this appears to be, the banks are totally fucked on their securitized paper. This decision is from the State Supreme Court and thus is final within the State, and makes it likely that MBS holders will now sue en-masse for the sale of fraudulently-constituted securities (that is, there are no mortgages in the MBS they were sold!)
Bloomberg is trying to spin this as only governing the fact that the transfers happened late. Nope – the problem is that they can’t happen now into the trusts at all due to the REMIC regulations and the fact that certifications were filed by the Trustees that appear to be facially false. I’m sure the banks will try to put a happy face on this, but coming from a State Supreme Court this judgment will be cited as (albeit not as binding precedent) in other states with similar recording requirements and in addition will be cited by private actions in an attempt to unwind MBS and force them back on the banks.
More updates as I get them.
— Original Post
No content yet, but the headline off the wire says the banks lost.
Waiting for more detail and will update this Ticker. If you remember, a couple of days ago I wrote on this, and said the banks were absolutely f*cked if this one went the wrong way.
It appears it has.
Discussion (registration required to post)
CLEVELAND, Ohio — A Cuyahoga County Juvenile Court judge faces foreclosure on his eight-bedroom, lakefront Cleveland home after falling a year behind on a nearly $1 million mortgage and property taxes.
Judge Peter Sikora said he hopes a mediation session scheduled for next month will keep him in his Edgewater Drive home, which the Cuyahoga County Auditor’s Office has appraised at $844,000.
Sikora, who makes $121,350 a year as a judge, said in a telephone interview Thursday that he has the money to make his mortgage payments. What got him in trouble was following the advice of officials at JP Morgan Chase & Co., he said.
With property values in decline over the past year in Cleveland, and mortgage rates the lowest in decades, Sikora sought to refinance. But the bank, he said, declined his request.
“The bank advised me that the only way they would consider a loan modification would be if I fell behind on my payments,” said Sikora, 59, a judge since 1989. “I took their advice and put the money aside.”
Sikora said he was surprised when, in June, during the middle of negotiations, JP Morgan Chase filed the foreclosure lawsuit against him seeking $999,000, including $6,400 in unpaid property taxes.
“It’s unfortunate that it’s gotten to this situation,” Sikora said. “I’ve been talking with them for more than a year, but the bank hasn’t been responsive.”
The attorney for JP Morgan Chase did not return a phone call.
Sikora was elected in 2008 as president of the Ohio Association of Juvenile Court Judges. A Democrat, he ran unsuccessfully three times for the Ohio Supreme Court.
He acknowledged it doesn’t look good for a juvenile court judge to become delinquent on property taxes, which are used to support schools and the children who appear in his court. But he said the bank is responsible for paying the taxes out of the escrow account.
The unemployment rate fell by 0.4 percentage point to 9.4 percent in December, and nonfarm payroll employment increased by 103,000, the U.S. Bureau of Labor Statistics reported today. Employment rose in leisure and hospitality and in health care but was little changed in other major industries.
Hmmmm…… let’s see. First, all those people talking about +500,000 are now cleaning the egg off their own faces, and I suspect their clients are going to be quite angry at the “error.” If you recall on Wednesday I said that due to the ISM Services report, which showed much weaker employment demand than the ADP report, I was not going to believe the ADP number. That turned out to be a very good call, despite the catcalls it generated.
Second, the internals are a surprise. But are they the surprise that they appear to be?
Careful with any sort of bullish interpretation of this. Here’s the problem:
The number of unemployed persons decreased by 556,000 to 14.5 million in December, and the unemployment rate dropped to 9.4 percent. Over the year, these measures were down from 15.2 million and 9.9 percent, respectively. (See table A-1.)
This is good, right? It should show up in the ratios.
The civilian labor force participation rate edged down in December to 64.3 percent, and the employment-population ratio was essentially unchanged at 58.3 percent. (See table A-1.)
This chart shows the particulars you need to pay attention to out of this report:
Note that the annualized (y/o/y change) is positive – that is, compared to last December, we added employed people. Compared to last month we did not – the monthly change has been negative since the summer, and in fact the trend has been down since the start of 2010. There is no trend-level improvement – to the contrary, the trend delta is negative and has been for a year. So-called “stimulus measures” (including The Fed’s games) have not worked.
Looking at the monthly “employed” numbers are even worse. Those peaked in the spring of 2010 and are declining. Yes, including this last month.
Then there’s the “Not In Labor Force” graph:
This is trouble. On a monthly basis this has been positive since early in the spring of 2010. That’s where the employed number decrease has come from – remember, the government doesn’t count those who give up as “unemployed.” On an annualized basis this number has flatlined at a small positive level since January of 2010. You cannot recover in the economy from an employment perspective until those who have given up come back into the labor force. Period.
Finally, there’s this chart, which is the one that keeps me up at night
After improvement in the early part of 2010, the employment rate of the population (that is, the number of employed as a percentage of the non-institutional adult population) has been deteriorating once again. I noted this last month (and have been highlighting it since it turned back down in the summer) as it is the most-important statistic in the series.
As I’ve repeatedly explained we cannot keep funding government expenditures via taxation unless this turns upward. We are instead, in this alleged “recovery”, threatening the lows.
There is in fact no “recovery” – all we’re doing and all we’ve been doing is putting our economy on the government Credit Card, but these machinations are failing to produce a response in the private economy that will be able to lift tax revenues and ultimately permit reduction in the deficit spending via “growth.”
We have spent more than two years now on a failed policy, and despite the alleged “ordinary lag” that these policy moves have, which has been the excuse of Bernanke and other policy makers to explain away why there was no immediate response, the six month to one year lag time they usually cite has now been exceeded by more than twice.
It is imperative that we change course – these policies have in fact failed and we are now tightening the flat spin with continued attempts to do that which has proved to not work.
As we’ve suggested, a not-well-recognized effect of the widespread publicity on robo-siging abuses and more recently, the widespread failure of securitization industry participants to adhere to their own agreements is more pushback in the courts. It takes a while for new information to trickle into courtroom strategies, but as the abuses get more press, it isn’t just attorneys for borrowers that are taking a new stance, but also some judges and other official watchdogs.
An example today comes via the US trustee, which is a Department of Justice overseer of bankruptcy courts, in two cases in Albany, New York (hat tip April Charney). In both, the US trustee has filed responses which are effectively in support of the debtor (the bankrupt borrower) and in opposition to creditors, which in this case are servicers claiming to act on behalf of securitization trusts. The issue? The parties trying to foreclose haven’t presented a document trail that the bankruptcy trustee finds persuasive.
Both cases, one with GMAC, the other with BAC as the servicer, both involve a foreclosure mill, the Baum Law Firm, which had been sanctioned and fined for submitting pleadings with documentation defects. As the first pleading, the one with BAC as plaintiff, noted “The state court judge called the Baum Firm’s actions ‘reprehensible.’”
The underlying issue is pretty simple, a failure to prove standing. Again from the BAC case:
The Debtor and his wife gave the Mortgage to Home Funding Finders,
LLC (“HFF”) on or about September 8, 2004 as collateral security for a Note in the principal amount of $125,000 (“Note”)….
With respect to BAC, there is no document in the record establishing that either the Note or the Mortgage were assigned to BAC. The assignment attached to the proof of claim shows a transfer of the right in the mortgage to Countrywide. There is nothing to indicate that the Note also was assigned. If BAC is not the holder of the Note, then there is no basis for the claim. As such, BAC is not a “creditor” of this Debtor as that term is defined in the Bankruptcy Code and lacks statutory authority to file a proof of claim.
New York has new standards requiring that attorneys certify the accuracy of statements submitted to courts in foreclosure cases. This filing notes the failure to take these steps.
The second response on the GMAC case is even more pointed:
Based on the documents in the record, neither GMAC nor Deutsche Bank have demonstrated that they have standing to file the proof of claim or to object to confirmation. Moreover, the assignment of mortgage relied on by GMAC and attached to the proof of claim was signed by Elpiniki M. Bechakas, as “Assistant Secretary and Vice President” of the Mortgage Electronic Registration Systems, Inc. (“MERS”) on behalf of the original mortgagee, Homecoming Financial Network, LLC.
Undisclosed to the Court by GMAC or its attorneys Steven J. Baum, P.C. (the “Baum Firm”) is the fact that Ms. Bechakas is also an attorney with the Baum Firm. It appears that the Baum Firm represents the assignee (GMAC) and that one of the Baum Firm’s attorneys is an officer of the assignor (MERS).
It is important to recognize that these are only two court filings by a single bankruptcy trustee. At the same time, it shows the degree to which parties who have no dog in these foreclosure fights, namely judges and other neutral parties, recognize that the issue of standing is valid. And that in turn has major ramifications for the mortgage securitization industry and the balance sheets of major banks.