Archive for June 13th, 2011
From the “aw crap” file….
LEVENTHAL, J.This matter involves the enforcement of the rules that govern real property and whether such rules should be bent to accommodate a system that has taken on a life of its own. The issue presented on this appeal is whether a party has standing to commence a foreclosure action when that party’s assignor—in this case, Mortgage Electronic Registration Systems, Inc. (hereinafter MERS) —was listed in the underlying mortgage instruments as a nominee and mortgagee for the purpose of recording, but was never the actual holder or assignee of the underlying notes.
We answer this question in the negative.
This is far more important than it first appears. It would appear that the bottom line is that MERS cannot prosecute foreclosures in its own name (it has stopped attempting this in several jurisdictions after losing a number of cases.)
This case, however, make an interesting point that may go well beyond that.
In October 2006 the defendants Stephen Silverberg and Fredrica Silverberg (hereinafter together the defendants) borrowed the sum of $450,000 from Countrywide Home Loans, Inc. (hereinafter Countrywide), to purchase residential real property in Greenlawn, New York (hereinafter the property). The loan was secured by a mortgage on the property (hereinafter the initial mortgage). The initial mortgage refers to MERS as the mortgagee for the purpose of recording, and provides that the underlying promissory note is in favor of Countrywide. Further, the initial mortgage provides that “MERS holds only legal title to the rights granted by the [defendants] . . . but, if necessary to comply with law or custom,” MERS purportedly has the right to foreclose and “to take any action required of [Countrywide].” On November 2, 2006, the initial mortgage was recorded in the office of the Suffolk County Clerk.
Ok, so the original loan was funded by Countrywide and MERS was named as the nominee. So far we have the standard way that securitized junk, er, paper was originated during the go-go years.
Also in April 2007, the defendants executed a consolidation agreement in connection with the property in the sum of $479,000 in favor of MERS, as mortgagee and nominee of Countrywide . Countrywide was the named lender and note holder. The consolidation agreement purportedly merged the two prior notes and mortgages into one loan obligation. The consolidation agreement was recorded in the office of the Suffolk County Clerk on June 12, 2007. The consolidation agreement, as with the prior mortgages, recites that MERS was “acting solely as a nominee for [Countrywide] and [Countrywide's] successors and assigns . . . For purposes of recording this agreement, MERS is the mortgagee of record.” Countrywide, however, was not a party to the consolidation agreement.
There was a second (which I’ve elided) and the borrowers consolidated both loans. That consolidation was recorded. The borrowers then (nine months later, roughly) defaulted.
In December 2007 the defendants defaulted on the consolidation agreement. Meanwhile, on April 30, 2008, by way of a “corrected assignment of mortgage,” MERS, as Countrywide’s nominee, assigned the consolidation agreement to the Bank of New York, as Trustee For the Benefit of the Certificate Holders, CWALT, Inc., Alternate Loan Trust 2007-14-T2, Mortgage Pass-Through Certificates Series 2007-14T2 (hereinafter the plaintiff). On May 6, 2008, the plaintiff commenced this mortgage foreclosure action against the defendants, among others.
In June 2008 the defendants moved pursuant to CPLR 3211(a)(3) to dismiss the complaint insofar as asserted against them for lack of standing. In support of their motion, the defendants submitted, inter alia, the underlying mortgages, the summons and complaint, the second note, and an attorney’s affirmation. In the affirmation, the defendants argued, among other things, that the complaint failed to establish a chain of ownership of the notes and mortgages from Countrywide to the plaintiff. In opposition to the defendants’ motion, the plaintiff submitted, inter alia, the corrected assignment of mortgage dated April 30, 2008.
Borrowers defaulted and it appears that there was an attempt to “fix” the loans by assigning them late to a trust that should have been closed in 2007.
On appeal, the defendants argue that the plaintiff lacks standing to sue because it did not own the notes and mortgages at the time it commenced the foreclosure action. Specifically, the defendants contend that neither MERS nor Countrywide ever transferred or endorsed the notes described in the consolidation agreement to the plaintiff, as required by the Uniform Commercial Code. Moreover, the defendants assert that the mortgages were never properly assigned to the plaintiff because MERS, as nominee for Countrywide, did not have the authority to effectuate an assignment of the mortgages. The defendants further assert that the mortgages and notes were bifurcated, rendering the mortgages unenforceable and foreclosure impossible, and that because of such bifurcation, MERS never had an assignable interest in the notes.
There it is; the assertion that the assignments never happened as required under the PSA and UCC. The “assignment” couldn’t take place as MERS lacked the authority to do so.
The principal issue ripe for determination by this Court, and which was left unaddressed by the majority in Matter of MERSCORP (id.), is whether MERS, as nominee and mortgagee for purposes of recording, can assign the right to foreclose upon a mortgage to a plaintiff in a foreclosure action absent MERS’s right to, or possession of, the actual underlying promissory note.
“Can you assign something you never possesed?” It is amusing that this is a novel issue, but apparently it is.
However, as “nominee,”MERS’s authority was limited to only those powers which were specifically conferred to it and authorized by the lender (see Black’s Law Dictionary 1076 [8th ed 2004] [defining a nominee as "(a) person designated to act in place of another, (usually) in a very limited way"]). Hence, although the consolidation agreement gave MERS the right to assign the mortgages themselves, it did not specifically give MERS the right to assign the underlying notes, and the assignment of the notes was thus beyond MERS’s authority as nominee or agent of the lender.
DING DING DING DING DING!
You can only execute on those powers as a nominee that you have had conferred to you via some means. If the power you seek to use was never conferred to you, such as a beneficial interest in the note, you cannot assign that which you never had the power to act upon.
….Coakley indicates that this Court has determined that such broad provisions in mortgages, such as the initial mortgage and second mortgage here, standing alone, grant MERS, as nominee and mortgagee for the purpose of recording, the power to foreclose. On the contrary, the Coakley decision does not stand for that proposition. This Court’s holding in Coakley was dependent upon the fact that MERS held the note before commencing the foreclosure action.
Exactly. You cannot bring a foreclosure unless you have acquired the interest in the indebtedness prior to filing the action. Such a transfer can be by many means, but it must have taken place. It did not in this case, ergo, what MERS attempted to execute upon was without standing.
MERS purportedly holds approximately 60 million mortgage loans (see Michael Powell & Gretchen Morgenson, MERS? It May Have Swallowed Your Loan, New York Times, March 5, 2011), and is involved in the origination of approximately 60% of all mortgage loans in the United States (see Peterson at 1362; Kate Berry, Foreclosures Turn Up Heat on MERS, Am. [*6]Banker, July 10, 2007, at 1). This Court is mindful of the impact that this decision may have on the mortgage industry in New York, and perhaps the nation. Nonetheless, the law must not yield to expediency and the convenience of lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property.
Thank you New York Supreme Court.
Now, about those alleged Trusts that appear to not have anything actually in them……
Well, it’s official. U.S. stock prices have fallen for six weeks in a row. So will next week make it seven? The last time stocks declined for seven weeks in a row was back in May 2001 when the “dot-com” bubble was bursting. At this point, the Dow has declined by approximately 5 percent since the beginning of June. Things don’t look good. So exactly what is going on here? Well, it is undeniable that the recent mini-bubble in stocks has been too good to be true. The S&P 500 had surged nearly 30 percent since last September. Much of this has been fueled by the Federal Reserve’s latest round of quantitative easing, but now that is coming to an end in a few weeks and investors are a bit spooked. Meanwhile, wars and revolutions are sweeping the Middle East, Japan is dealing with the damage caused by the tsunami and by Fukushima, Europe is trying to figure out how to bail out Greece again and the U.S. debt crisis is continually getting worse. In addition, wave after wave of bad economic news is certainly not helping the mood on Wall Street. In many ways, a “perfect storm” is developing and many are now extremely concerned about what the rest of 2011 is going to bring for Wall Street.
QE2 is slated to conclude at the end of June, and many investors are deeply disappointed that it does not appear that we are not going to see QE3 right away. Many fear that the end of quantitative easing will pop the current mini-bubble in stocks and commodities. At the moment, financial markets are more jittery than they have been in a long time.
Frank Davis, director of sales and trading with LEK Securities, says that there is a lot of pessimism on Wall Street right now….
“There’s a lot of emotion in this market at the moment, and the conversations among traders are nearly all leaning toward the bear side”
So what are some of the signs that this downturn on Wall Street may turn into a full-blown crash?
Well, according to the Wall Street Journal, junk bonds are being sold off at an alarming rate right now. Does the following quote from the Journal remind anyone of 2008 at least a little bit?….
A steep decline in prices of bonds backed by subprime mortgages has spread through the riskiest segments of the credit markets, ending rallies in high-yield corporate bonds and commercial real-estate debt.
Also, many of the big Wall Street banks are already laying off workers. In a previous article I wrote about the potential for Wall Street to go into “panic mode“, I noted that Goldman Sachs, Bank of America, JPMorgan Chase and Morgan Stanley are all laying people off or are considering staff cuts.
The truth is that the big banks on Wall Street are not nearly as stable as most people think that they are. Moody’s recently warned that it may downgrade the debt ratings of Bank of America, Citigroup and Wells Fargo.
Another major story on Wall Street right now is oil. OPEC recently announced that oil production levels will not be raised, even though the price of oil has been hovering around $100 a barrel.
World oil supplies are very tight right now. In fact, the globe actually consumed 5 million barrels per day more oil than it produced during 2010. This was possible because the difference was apparently made up by drawing down reserves.
But if oil supplies are this tight already, what is going to happen if a major war (as opposed to all of the minor wars that are already happening) erupts in the Middle East?
The world is sitting on the edge of a financial disaster.
It is important to keep in mind that Europe is also in far worse financial condition than it was just prior to the financial collapse of 2008.
It is being reported that German finance minister Wolfgang Schaeuble is convinced that a “full-blown” financial meltdown by Greece is a very real possibility. The cost of insuring Greek debt has soared to a brand new record high, and officials all over Europe are in panic mode.
But financial problems are not just happening in Greece. The largest bank in France has just cut in half the amount of cash that customers can withdraw from ATMs each week.
Most Americans don’t spend much time thinking about the financial condition of Europe, but the truth is that what happens in Europe is going to play a major role in the months and years ahead.
Of course most Americans already know that the U.S. government is a financial mess.
As the “debt ceiling deadline” of August 2nd draws closer, the U.S. government has been raiding retirement funds in order to stay under the debt limit.
Many investors are quite nervous about what may happen if the U.S. government actually does start defaulting on debt on August 2nd.
Others claim that the U.S. government is already in default.
The only Chinese agency that gives credit ratings on sovereign debt says that the U.S. government “has already been defaulting” and the Chinese government has been repeatedly warning that the U.S. needs to get its finances in order.
In any event, this debt ceiling drama will get resolved one way or another.
The bigger question is this….
How is the U.S. government going to respond when the next financial crash happens?
Back in 2008, the Federal Reserve and the U.S. government took unprecedented steps to prop up Wall Street.
But can they really do that again if we see another major crash in 2011 or 2012?
Many believe that things will be totally different this time around. Just check out what Jim Rogers recently told CNBC….
“The debts that are in this country are skyrocketing,” he said. “In the last three years the government has spent staggering amounts of money and the Federal Reserve is taking on staggering amounts of debt.
“When the problems arise next time…what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around.”
Jim Rogers is right about that.
The next time we see a collapse on the scale of 2008 it is going to be a much bigger mess.
Global financial markets are extremely vulnerable right now and there are a whole host of potential “tipping points” which could push them over the edge.
The Federal Reserve and the U.S. government more or less used up all of their ammunition on the 2008 crisis.
If we see another collapse in 2011 or 2012 there is not going to be much of a safety net available.
The entire world financial system is simply swamped with way too much debt. The world has never seen anything even remotely close to the gigantic mountains of debt that have been accumulated around the world today.
The current global financial system is not sustainable. More crashes are inevitable. A lot of people are going to get steamrolled.
Hopefully you will not be one of them.
Whoo boy. A couple things on the MBS front today, both succinctly synopsized by The Market-Ticker:
After nearly four years in which I’ve outlined that I don’t believe the formalities of MBS securitization were followed, and two years of increasing evidence, despite intentional obstruction by OTS, OCC, the FDIC, The Fed and Congress, along with a rapidly-increasing number of court rulings that strongly suggest that I (and a few others) have been right while the naysayers are wrong, we finally have a law enforcement agency looking into this matter:
New York Attorney General Eric Schneiderman has targeted Bank of America, the biggest U.S. bank by assets, in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures, two people familiar with the matter said.
The investigation, which began quietly in recent weeks, is part of a larger inquiry that is scrutinizing whether mortgage companies and Wall Street firms took the necessary steps under New York state law when creating mortgage-backed securities, these people said, who requested anonymity because they weren’t authorized to speak publicly about the probe.
There’s plenty of reason to ask these questions. Like, for example, the court ruling that I cited last week. Then there’s this ruling which just popped up as well, this time from the 9th Circuit in Arizona.
Again, the record shows that the note was not properly indorsed into the trust. A late assignment was attempted but was judged legally defective.
Note, however, that this leaves open the question of what’s in the MBS box that the presumed holders of certificates which were issued against this obligation?
It appears, in this case and in literally hundreds of thousands of others, that these assignments are being made – whether legally sufficient at the time or not – well beyond the legal closing date of the trust involved.
That is, for the purpose of assigning interest they may (or may not) be sufficient to permit a foreclosure but as a matter of law and fact they cannot transfer the asset, in this case the note, into a trust that closed a year, two or even five years in the past!
The record in these cases is quite clear: When these fraudclosures are contested assignments “magically appear” (as opposed to being documented as having occurred contemporary with the creation of the trust in question) and often are dated on or near the date of the foreclosure proceeding. This may be legal to effectuate a foreclosure but at the same time it documents that the MBS certificate holders bought an empty box since these assignments invariably are not from the Trust to a servicer or institution for the purpose of foreclosure and recovery (perfectly legal) but rather are typically from the originator to the servicer, documenting that the transfer that was supposed to have taken place years previously did not as a matter of both law and fact.
Well folks? You can’t have this both ways. If the legal formalities of NY Trust Law (and IRS REMIC requirements) were complied with then what should be presented to the court is the original or a certified copy of the original assignment chain that took place into the trust prior to its closing date.
I challenge you to find documents evidencing these alleged transfers. What I keep seeing in these cases, in virtually every contested case I’ve seen, is instead a transfer that purports to grant the rights in the mortgage to the servicer-cum-foreclosing party from the originator on or about the time the foreclosure is filed.
The problem is that the originator was paid within days of the issuance of the mortgage and according to NY Trust Law had to indorse and tender that note to the Securitizer, who then had to tender it to the Depositor, and who then was supposed to have tendered it into the trust.