HUD seeks revenge against major loan servicers…….welcome to the pissed off club boys!! LOL
FORECLOSURE FRAUD / FORECLOSURE GATE (THIS IS GETTING EMBARASSING)! IS THIS REALLY THE GOOD OLE UNITED STATES OF AMERICA GREATEST ASSET? 
Listen in on our upcoming FORECLOSURE GATE blog radio show on HUD and their beef against lenders and loan servicers. These financial institutions are the most UN-LOVED companies in the United States, but they walk and talk like their doody comes out in plastic bags. How do they pull this off? Amazing? Now HUD is upset, what can they do about it? Here is a link to the story about the foreclosure mess on Huffington Post Here is one HUD Settlement Agreement with a Bank (notice how criminal penalties are not settled – but this all seems to go the wayside). Here is some background on Deutsche and their subsidiary MortgageIT and their run-in with Department of Justice / HUD.
Good Information on Arizona Foreclosures – Trends, Stats and More
Here is a good link I found dealing with Arizona Foreclosures.
David Stern getting burned out on trying to dismiss his firm as counsel
Ah, the tales of Attorney David Stern, after being hired by many of the big banks to serve as a foreclosure mill, shoddy foreclosure practices have cost him plenty. Here is an article about Stern shutting down his firm.
Here is another recent article about David Stern trying to withdraw as counsel of record on over 100,000 cases. You heard me right, 100,000 cases.
Just an amazing story from the foreclosure trenches. We will be doing a Foreclosure Radio show on him later this month telling the story of how he hit the highest heights, only to be shot down in flames. We will post the link here when the show is archived. Or, you can stay in tune here: ATTORNEY STEVE VONDRAN FORECLOSURE MELTDOWN SHOW.
CALIFORNIA COURT OF APPEALS SAYS MERS CAN FORECLOSE IF DEED OF TRUST SAYS SO – GOMES CASE DISCUSSION
WHO CAN THAT BE KNOCKING AT MY DOOR? Is MERS trying to foreclose on you?
Gomes v. Countrywide, MERS and Recontrust
MERS is an interesting entity. They call themselves both the “nominee of the lender” (who never lent any money in most cases) and “their successors and assigns” (even though it is not known who the successor or assign of the loan-turned-bond would be). In the same instrument, MERS calls itself a “beneficiary” (which is also completely false and nonsensical because by MERS own admission they do not own the note, hold the note, or have any right to transfer the note, and they do not collect your loan payment, and they do not lose money if your mortgage payment is not made. But yet they argue that by signing the deed of trust, approximately 6o million homeowners across the nation have magically appointed or named MERS to the the agent (nominee) of another party. It is not even clear how you can appoint a second party to the the agent of a third party.
Adding more controversy into the debate, MERS often assigns a deed of trust “and the notes therein” when it assigns your deed of trust (usually at the time the foreclosure is taking place) and usually assigning your DOT and the notes therein to a securitized loan trust that argues it is the holder and owner of your loan (even though this is akin to a bigfoot sighting an in fact, I do not believe anyone has seen a complete and unbroken chain of endorsement of the note from the originator of the loan up to the securitized loan trust. These are things Max Gardner and Neil Garfield, expert lawyers in their respective fields, often teach.
Yet even given this controversy, there is a mix of opinion amongst courts and legal scholars as to just what role MERS is allowed to play in the foreclosure game. We have talked about other MERS cases on our website if you google “Vondran MERS.” So now we have another case, this time out of the California Court of Appeals, 4th District, which says MERS can foreclose on residences in California. Heck, in California Wallmart, Target, and BestBuy can foreclose on your if they wanted to given the Courts view that “produce the note” or “show me the note” (original note) as they call it, has been beaten down by the California and Arizona judiciary. So no proof is required to foreclose on anyone in California. You owe a debt and so it should not be an issue what the financial institutions want to do. You already allowed them to turn your loan into a stock to be sold on Wall Street, and that is all you need to know (if you ask them their opinion).
So let’s talk about the Gomes decision. In Gomes, the defaulting borrower brought a lawsuit to stop MERS from foreclosing arguing the note-holder (securitized loan trust) never authorized MERS to foreclose in their name.
The Court first discussed the role of MERS:
The role of MERS is central to the issues in this appeal. As case law explains,
“MERS is a private corporation that administers the MERS System, a national electronic
registry that tracks the transfer of ownership interests and servicing rights in mortgage
loans. Through the MERS System, MERS becomes the mortgagee of record for
participating members through assignment of the members’ interests to MERS. MERS is
listed as the grantee in the official records maintained at county register of deeds offices.
The lenders retain the promissory notes, as well as the servicing rights to the mortgages.
The lenders can then sell these interests to investors without having to record the
transaction in the public record. MERS is compensated for its services through fees
charged to participating MERS members.” (Mortgage Elec. Registration Sys. v.
Nebraska Dept. of Banking & Fin. (2005) 270 Neb. 529, 530 [704 N.W.2d 784, 785].)
“A side effect of the MERS system is that a transfer of an interest in a mortgage loan
between two MERS members is unknown to those outside the MERS system.” (Jackson
v. Mortgage Elec. Registration Sys., Inc. (Minn. 2009) 770 N.W.2d 487, 491.)”
IN OTHER WORDS, THE LOAN SERVICERS PLAY A BIG GAME TO HIDE THE TRUE IDENTITY OF THE ALLEGED OWNER OF YOUR LOAN WHEN THERE IS A MERS LOAN INVOLVED. MERS CLAIMS TO ACCURATELY TRACK LOAN OWNERSHIP AND SERVICING RIGHTS.
GOMES DEED OF TRUST GAVE MERS THE RIGHT TO FORECLOSE ACCORDING TO THE COURT:
“The deed of trust that Gomes signed states that “Borrower [i.e., Gomes]
understands and agrees that MERS holds only legal title to the interests granted by
Borrower in this Security Instrument, but, if necessary to comply with law or custom,
MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to
exercise any or all of those interests, including, but not limited to, the right to foreclose
and sell the Property . . . .”
NEXT, THE COURT DISCUSSED THE CLAIM BEING PURSUED BY GOMES:
“The first cause of action is titled “Wrongful Initiation of Foreclosure.” In that
cause of action, Gomes states that he “does not know the identity of the Note’s beneficial
owner” — as he believes that KB Home Mortgage Company sold it on the secondary
mortgage market. He alleges on information and belief that “the person or entity who
directed the initiation of the foreclosure process, whether through an agent of MERS or
otherwise, was neither the Note’s rightful owner nor acting with the rightful owner’s
authority.” In short, the first cause of action alleges, on information and belief, that
MERS did not have authority to initiate the foreclosure because the current owner of the
Note did not authorize MERS to proceed with the foreclosure.
___________
“The second cause of action seeks declaratory relief on the issue of whether “Civil
Code section 2924, subdivision (a)] allows a borrower, before his or her property is sold,
to bring a civil action in order to test whether the person electing to sell the property is, or
is duly authorized to so by, the owner of a beneficial interest in it.” Although designated
a cause of action for declaratory relief, the second cause of action appears to serve simply
as a legal argument in support of the first cause of action. Specifically, the second cause
of action alleges that section 2924, subdivision (a) provides the legal authority for Gomes
to assert the claim he has made in the first cause of action, namely that MERS lacks the
authority to initiate the foreclosure process because it was not authorized to do so by the
owner of the Note.”
AS YOU CAN SEE, THE PLAINTIFF GOMES APPARENTLY TRIED AN ARGUMENT SIMILAR TO “SHOW ME THE ORIGINAL NOTE SO I KNOW WHO THE LENDER IS.” As we have discussed, California and Arizona courts (the two states where we practice law) have shot down this legal theory although THIS SEEMS TO BE A FAIR QUESTION, YOU ARE THE BANK, DO YOU OWN MY LOAN, AND DO YOU HAVE THE RIGHT TO FORECLOSE ON ME? THE COURTS WILL NOT ENTERTAIN THIS LINE OF QUESTIONING IN THE FORECLOSURE PROCESS (although even a small claims court would demand proof of an IOU or contract in certain cases).
The Defendants in GOMES filed a demurrer raising the typical arguments:
Demurring to the first cause of action, Defendants
argued, among other things, that (1) to maintain a cause of action for wrongful
foreclosure, Gomes must allege that he is able to tender the full amount due under the
loan; (2) California’s nonjudicial foreclosure statute sets forth an exhaustive framework
that does not provide for the type of relief that Gomes seeks; (3) the terms of the deed of
trust authorize MERS to initiate a foreclosure proceeding; and (4) if Gomes is arguing
that “he is entitled to avoid foreclosure until a defendant has produced the note,” such a
claim has been uniformly rejected. Demurring to the second cause of action for
declaratory relief, Defendants argued that it was “nothing more than a repeat of the legal
theory” asserted in the first cause of action and should be rejected on the same basis.
THE COURT ULTIMATELY REACHED ITS DECISION ON THE MERS STANDING TO FORECLOSE ISSUE:
“Gomes Has Not Identified a Legal Basis for an Action to Determine
Whether MERS Has Authority to Initiate a Foreclosure Proceeding
California’s nonjudicial foreclosure scheme is set forth in Civil Code sections 2924
through 2924k, which “provide a comprehensive framework for the regulation of a
nonjudicial foreclosure sale pursuant to a power of sale contained in a deed of trust.”
(Moeller v. Lien (1994) 25 Cal.App.4th 822, 830 (Moeller).) “These provisions cover
every aspect of exercise of the power of sale contained in a deed of trust.” (I. E.
Associates v. Safeco Title Ins. Co. (1985) 39 Cal.3d 281, 285.) “The purposes of this
comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick,
inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the
debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly
conducted sale is final between the parties and conclusive as to a bona fide purchaser.”
(Moeller, at p. 830.) “Because of the exhaustive nature of this scheme, California
appellate courts have refused to read any additional requirements into the non-judicial
foreclosure statute.” (Lane v. Vitek Real Estate Industries Group (E.D. Cal. 2010) 713
F.Supp.2d 1092, 1098; see also Moeller, at p. 834 ["It would be inconsistent with the
comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to
incorporate another unrelated cure provision into statutory nonjudicial foreclosure
proceedings."
AND THEN THE COURT DELIVERED THE PAYLOAD:
"By asserting a right to bring a court action to determine whether the owner of the
Note has authorized its nominee to initiate the foreclosure process, Gomes is attempting
to interject the courts into this comprehensive nonjudicial scheme. As Defendants
correctly point out, Gomes has identified no legal authority for such a lawsuit. Nothing
in the statutory provisions establishing the nonjudicial foreclosure process suggests that
such a judicial proceeding is permitted or contemplated.
In his declaratory relief cause of action, Gomes sets forth the purported legal
authority for his first cause of action, alleging that Civil Code section 2924,
subdivision (a), by "necessary implication," allows for an action to test whether the
person initiating the foreclosure has the authority to do so. We reject this argument.
Section 2924, subdivision (a)(1) states that a "trustee, mortgagee, or beneficiary, or any
of their authorized agents" may initiate the foreclosure process. However, nowhere does
the statute provide for a judicial action to determine whether the person initiating the
foreclosure process is indeed authorized, and we see no ground for implying such an
action. (See Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592, 596 [legislative
intent, if any, to create a private cause of action is revealed through the language of the
statute and its legislative history].) Significantly, “[n]onjudicial foreclosure is less
expensive and more quickly concluded than judicial foreclosure, since there is no
oversight by a court, ‘[n]either appraisal nor judicial determination of fair value is
required,’ and the debtor has no postsale right of redemption.” (Alliance Mortgage Co. v.
Rothwell (1995) 10 Cal.4th 1226, 1236.) The recognition of the right to bring a lawsuit
to determine a nominee’s authorization to proceed with foreclosure on behalf of the
noteholder would fundamentally undermine the nonjudicial nature of the process and
introduce the possibility of lawsuits filed solely for the purpose of delaying valid
foreclosures.
THE COURT THEN POINTED TO GOMES DEED OF TRUST AND THE COURT HELD GOMES HAD SPECIFICALLY AUTHORIZED THE FORECLOSURE SALE:
“Specifically, Gomes agreed that “MERS (as nominee
for Lender and Lender’s successors and assigns) has . . . the right to foreclose and sell the
Property.” The deed of trust contains no suggestion that the lender or its successors and
assigns must provide Gomes with assurances that MERS is authorized to proceed with a
foreclosure at the time it is initiated.”
THE COURT ALSO FOOTNOTED TO THE BOGUS MERS ARGUMENT (ALSO MADE IN THE DEED OF TRUST WHICH IS CONSIDERED TO BE THE OPERATIVE FORECLOSURE DOCUMENT IN THE GOMES CASE) THAT IT IS A “BENEFICIARY” OF THE LOAN.
As the parties discuss, some federal district courts have observed
that although identified as a “beneficiary” in a deed of trust, the role of MERS is not
acting as a beneficiary as that term is commonly used, and that MERS in fact acts as a
nominee, and thus an agent of the beneficiary. (See, e.g., Roybal v. Countrywide Home
Loans, Inc. (D. Nev., Dec. 9, 2010, No. 2:10-CV-750-ECR-PAL) 2010 U.S. Dist. Lexis
131287, *11 ["there is a near consensus among district courts in this circuit that while
MERS does not have standing to foreclose as a beneficiary, because it is not one, it does
have standing as an agent of the beneficiary where it is the nominee of the lender, who is
the true beneficiary"]; Weingartner, supra, 702 F.Supp.2d at p. 1280 ["Calling MERS a
'beneficiary' is both incorrect and unnecessary . . . ," and "[c]ourts often hold that MERS
does not have standing as a beneficiary because it is not one, regardless of what a deed of
trust says, but that it does have standing as an agent of the beneficiary where it is the
nominee of the lender (who is the ‘true’ beneficiary).”
THE COURT DID WHAT SOME OTHER COURTS HAVE DONE WHEN FACED WITH THIS “PART OF WHAT WE SAY IN THE DEED OF TRUST IS TRUE AND PART OF WHAT WE SAY IS FALSE” ARGUMENT AND PERMIT THE NOMINEE LANGUAGE TO BE CONTROLLING WHEN IT COMES TO FORECLOSURE.
Relying on the terms of the applicable deeds of trust, courts have rejected similar
challenges to MERS’s authority to foreclose. In Pantoja v. Countrywide Home Loans,
Inc. (N.D. Cal. 2009) 640 F.Supp.2d 1177, the federal district court pointed out that in the
deed of trust, the plaintiff “distinctly granted MERS the right to foreclose through the
power of sale provision, giving MERS the right to conduct the foreclosure process under
[Civil Code s]ection 2924,” and therefore “[s]ince Plaintiff granted MERS the right to
foreclose in his contract, his argument that MERS cannot initiate foreclosure proceedings
is meritless.” (Id. at pp. 1189, 1190.) Similarly, another court pointed out that “[u]nder
the mortgage contract, MERS has the legal right to foreclose on the debtor’s property. . . .
MERS is the owner and holder of the note as nominee for the lender, and thus MERS can
enforce the note on the lender’s behalf.” (Morgera v. Countrywide Home Loans, Inc.
(E.D. Cal., Jan. 11, 2010, No. 2:09-cv-01476-MCE-GGH) 2010 U.S. Dist. Lexis 2037,
*22, citation omitted.).”
AND WITH THAT THE GOMES COURT AFFIRMED THE LOWER COURT DECISION AND REFUSED LEAVE TO AMEND.
________________________________
Some thoughts:
(1) Check your Deed of Trust, did you grant MERS the right to foreclose?
(2) Do you have grounds to rescind your loan under TILA? (refinance loan within the last three years and ability to tender)
(3) Keep an eye eye out for other MERS cases as the Courts are not in unanimous agreement about MERS and the scope of their agency authority or whether the scheme actually violates well established principles of agency law.
(4) If you are getting close to a foreclosure date, perhaps you are a chapter 13 bankruptcy candidate. In a bankruptcy setting MERS and the securitized loan trustee that claims to own and hold your note may not have it so easy and you may be able to challenge their legal standing to file a proof of claim in a chapter 13 proceeding, and challenge whether or not they are a real party in interest. I doubt MERS and the securitized trustee will welcome your challenge like they do the “produce the note” foreclosure strategy that they can easily defeat on a demurrer or motion to dismiss.
(5) There are a few letters you can send out to your loan servicer, MERS, and the securitized loan trust before you are foreclosed on that may help set up a chapter 13 attack.
(6) Never wait before its too late to get a foreclosure or bankruptcy game plan. The time to act is before you get a Notice of Sale or Notice of Default.
(7) As always, never trust a word your lender or loan servicer says. They want to foreclose, rather than assist, in most cases.
_______________________
COPYRIGHT 2011 – ALL RIGHTS RESERVED LAW OFFICES OF STEVEN C. VONDRAN
What is wrongful foreclosure in California? Here is a whiff of how some courts look at this issue.
WRONGFUL FORECLOSURE IS A FUNGUS THAT IS SPREADING IN CALIFORNIA AND ARIZONA – ARE ROBISGNERS TO BLAME?
In California, the tort of wrongful foreclosure requires: (1) a legally owed duty to the Plaintiff by the foreclosing party (2) a breach of that duty (3) a causal connection between the breach of that duty and the injury the Plaintiff sustained, and (4) damages. California courts have further clarified this cause of action by stating: “We are inclined however, to believe that with respect to real property the Murphy case was articulating a rule that has been applied in other jurisdictions. That rule is that a trustee or mortgagee may be liable to the trustor or mortgagor for damages sustained where there has been an illegal, fraudulent or willfully oppressive sale of property under a power of sale contained in a mortgage or deed of trust. Munger v. Moore, 11 Cal. App. 3d 1, 7, 89 Cal. Rptr. 323, 326 (Cal. Ct. App. 1970)
The court in Munger appears to be saying that if the foreclosure was illegal, fraudulent or willfully oppressive then that foreclosure was wrongful and the party foreclosed on may be entitled to damages. According to California statutory and case law several types of damages are available to victims of wrongful foreclosures.
First, damages are measured by the value of the property at the time of the sale in excess of the mortgage lien against the property (i.e the equity in the property). Second, damages are available in the amount that is sufficient to compensate for all detriment proximately caused by the wrongful conduct. California Civil Code Section 3333. Third, the borrower may be able to obtain damages for emotional distress in a wrongful foreclosure action and if the borrower can prove by clear and convincing evidence that the servicer/trustee was guilty of fraud, oppression or malice punitive damages may be awarded. Where there is a wrongful foreclosure, the borrower may seek punitive damages. In Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 345 [85 Cal.Rptr.3d 532, 554] the Court in acknowledging the right to seek punitive damages said:
“The jury concluded that the nonjudicial foreclosures instituted by the Kachlons were wrongful, and that in pursuing the foreclosure proceedings Mordechai acted “intentionally, fraudulently and in conscious and callous disregard for the rights of the Markowitzes.” These findings are tantamount to the finding of malice….” (emphasis added).
As such, it is clear in California, if the borrower can prove by clear and convincing evidence that the servicer or trustee was guilty of fraud, oppression or malice in its wrongful conduct, punitive damages may be awarded.
However, an action for the tort of wrongful foreclosure will lie if the trustor or mortgagor (borrower) can establish that at the time the power of sale was exercised or the foreclosure occurred, no breach of condition or failure of performance existed on the mortgagor’s or trustor’s part which would have authorized the foreclosure or exercise of the power of sale. See Munger v. Moore, 11 Cal.App.3d 1, 89 Cal.Rptr. 323 (Cal.App.1970). This seems to be an obstacle for many homeowners during this financial crisis. Many borrowers are behind on their payments and have fallen victim to predatory lending schemes or have stopped paying based on instructions from their lenders trying to qualify for loan modifications. But does default always mean the mere fact that you have fallen behind on your payments? This is an interesting issue we have discussed in other blogs the so-called “presentment” defense under the UCC.
First, for a mortgage to be in default, the borrower, or maker of the promissory note, must have dishonored the note. Under UCC §3-502 a promissory note is not dishonored until the maker refuses to pay it when presentment thereof is made. “Presentment” is defined by the UCC as “a demand to pay the instrument made by a person entitled to enforce an instrument.” The UCC also requires that “Upon demand of the person to whom presentment is made, the person making presentment must 1) exhibit the instrument” [emphasis added] (UCC 3-501(B)(2)(a))
Until the proper presentment is made the UCC requires that the “obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken, and the following rules apply: …2) In the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid.” (UCC 3-310(b) & A.R.S. 47-3310(b)) Therefore, the borrower is not in default until the lender can exhibit the instrument, proving dishonor. Default is not simply missing payments. It also includes refusal to pay after presentment has been made. Default must also include an exhibit of the instrument. Thus, the lender in a wrongful foreclosure suit cannot claim the borrower is in default unless they can produce the original note and deed of trust.
If true, this would produce additional problems for the lender/creditor. In fact, I recently reviewed one loan that has a UCC PRESENTMENT WAIVER (evidencing that this is an issue that at least one lender – in that case a reverse mortgage) has considered and apparently given credence to. According to California case law, the so-called lender would lose the right to foreclose on the security (real estate) if the obligation is unenforceable. Savings Bank v. Asbury (1897) 117 C 96, 48 P 1081; Trowbridge v. Love (1943) 58 CA 2d 746. As the theory goes, if the lender trying to foreclose on a property cannot prove default by producing the original note and deed of trust then they may not have the right to foreclose at all. IN FACT, IN SOME DEEDS OF TRUST (LIKE THIS ONE FOR A REVERSE MORTGAGE) THERE IS A SPECIFIC CLAUSE ASKING THAT THE BORROWER WAIVE THEIR “RIGHT” OF PRESENTMENT.
In fact, a recent Massachusetts court ruling invalidated two foreclosure sales based on a failure to prove proper documentation (unbroken chain of mortgage from the originator to the trust) proving the “lender” (the securitized loan trust) had the legal right to foreclose. See Ibanez v. U.S. Bank a recent landmark case from the Massachusetts Supreme Court.
DISCLAIMER: THIS IS ONLY A GENERAL LEGAL THEORY THAT WAS PRESENTED TO MY FIRM BY A 30 YEAR UCC LAW PROFESSOR FROM A MAJOR LAW SCHOOL. THE THEORY HAS NOT BEEN TESTED BY THIS AUTHOR AND YOU ARE ADVISED TO SEEK THE ADVISE OF COUNSEL BEFORE PURSUING THIS NOVEL THEORY.
In summary, where the Defendants fail to follow statutory law (ex. where you have notary fraud in the chain of title NOTICE OF DEFAULT, NOTICE OF SALE, ASSIGNMENT OF DEED OF TRUST, OR SUBSTITUTION OF TRUSTEE – and where the notary refuses to produce their notary transaction logs for a given transaction following a written request for such proof of valid signatures, etc.) this type of fraud can be argued to violate the duties set by the California foreclosure laws such as Civil Code Section 2924, 2934, and 2932.5 which require duly recorded documents be notarized and recorded with the County Recorder. Where you have false and forged signatures by robosigners, and a notary that does not verify a signing parties credentials, or signatures, and cannot produce a notary log, there may be a legal argument to be made that the resulting foreclosure sale was “fruit of the poisonous tree” as I like to say, and argue the sale was tainted with fraud, oppression, and breach of duties.
phoenix bankruptcy lawyer discusses Weisband case and who has standing to file a motion to lift the automatic stay in a bk court in an attempt to sell your house while in bk
In Re Barry Weisband, 427 B.R. Chapter 13 (Dist. Ariz. 2010). Case No. 4:09-bk-05175-EWH.
The following is general legal information only, and just my interpretation of the Weisband case. Other interpretations may be possible. In addition, law often changes, please check to make sure this is good and valid case law at the time if reading. Steve Vondran is a Phoenix Foreclosure and Bankruptcy Lawyer and also serves Clients in California where he is also licensed to practice law. He can be reached at (877) 276-5084.
Facts:
Barry Weisband filed for Chapter 13 Bankruptcy in March of 2009. One of his listed assets was his real property located at 5424 E. Placita Apan in Tucson, AZ. Weisband obtained the property when he executed a promissory note for $540,000 to GreenPoint Mortgage Funding secured by a deed of trust on October 6, 2006. The deed of trust was signed by Weisband on October 9 and recorded October 13 of the same year (2006). Importantly, the deed of trust named GreenPoint as the lender and MERS as the beneficiary “solely as nominee for GreenPoint, its successors and assigns.” On an undated and separate piece of paper, GreenPoint endorsed the note to GMAC. GMAC therefore had physical possession of the original note in late 2006.
LOAN SECURITIZATION – THE FIVE CONTRACTS AT ISSUE IN THIS CASE:
(1) 4/10/06 FLOW INTERIM SERVICING AGREEMENT (between Green Point and Lehman) – The “FISA” AGREEMENT.
According to GMAC, GreenPoint entered into an agreement with Lehman to sell loans it originated to Lehman Brothers Holdings under a “Flow Interim Servicing Agreement” (FISA) executed on an earlier date of 4/10/06. Under this Flow Agreement, GreenPoint agreed to sell certain loans to Lehman, and Green Point was to remain as servicer of these loans. As the Court later discussed, there was never any proof that Lehman got any transfer of notes from Green Point (recall the endorsement above was to GMAC, not to Lehman), and no assignment of the Deed of Trust from MERS.
(2) 11/1/06 MORTGAGE LOAN SALE AND ASSIGNMENT AGREEMENT (between Lehman and SASC Corporation) – The “MLSAA” AGREEMENT.
Under this agreement Lehman would sell/transfer the loans it received from Green Point to Structured Asset Securities Corporation (SASC). SASC Corporation would then create a securitized loan trust (called the “Green Point Funding Trust”) under a separate Trust Agreement (discussed below) and SASC would be entitled to receive the principle and interest payments. As discussed below, there was again no proof that SASC ever got any transfer of any note or deed of trust in regard to the debtors loan as GMAC had argued.
(3) 11/1/06 SECURITIZED LOAN TRUST AGREEMENT (between SASC, Aurora Loan Services, and US National Bank). Under this agreement, the following parties assumed the following roles:
(1) SASC, was Trustor
(2) U.S. Bank, was Trustee
(3) Aurora, was “Master Loan Servicer”
(4) 11/1/06 – RECONSTITUTED SERVICING CONTRACT (which essentially claimed Green Point would be the servicer of the loans in the trust. However, Green Point went out of business in 2007).
(5) 11/1/06 SECURITIZED SERVICING AGREEMENT – (“SSA”) (between GMAC, Lehman, and Aurora Loan Services)
Under this agreement, GMAC was to service the loans in the securitized loan trust (essentially leaving Aurora Loan Services as the “master servicer” and GMAC as the “sub-servicer”).
IF YOU ARE STILL FOLLOWING THE STORY YOU ARE TO BE COMMENDED. AT THIS POINT, TO RECAP, GREEN POINT ORIGINATES THE LOANS, MERS IS THE BENEFICIARY UNDER THE DEED OF TRUST IN A NOMINEE CAPACITY FOR GREEN POINT AND ITS SUCCESSORS AND ASSIGNS, AND THE ORIGINAL NOTE WAS TRANSFERRED AND ENDORSED TO GMAC, BUT THE LOANS ARE SOLD TO LEHMAN, AND THEN ASSIGNED TO SASC WHO CREATES A LOAN TRUST WHERE THE LOANS ARE ALLEGEDLY HELD AND SASC HAS THE RIGHT TO PRINCIPLE AND INTEREST PAYMENTS EVEN THOUGH GMAC HAS THE ORIGINAL NOTE. WELCOME TO SECURITZED LOANS.
At some point, the debtor became delinquent on the loan, and filed for Chapter 13 bankruptcy protection. While the automatic stay was in effect, MERS assigned the Deed of Trust to GMAC (apparently trying to convey standing on GMAC to file the motion to lift the automatic stay). There was never any proof of any transfer of the loan or deed of trust to Lehman, or to SASC, and no proof the note or deed of trust wound up in the securitized trust, or that the debtors loan was subject to the SSA (servicing agreement purporting to confer sub-servicer status on GMAC).
GMAC then filed a motion to lift the automatic stay (to try to sell the property) and the Debtor objected to GMAC’s proof of claim. In filing its proof of claim in support of its motion to lift the automatic stay, GMAC attached a copy of the note and the MERS assignment of the Deed of Trust, and an endorsement on a separate piece of paper (the endorsement was on an allonge and not attached to the note).
This dispute set the stage for an evidentiary hearing to determine whether or not GMAC had the legal right to lift the automatic stay in bankruptcy.
As discussed in the case: “GMAC advances three different arguments in support of its claim to be a “party in interest” with standing to seek relief from stay:
(1) First, GMAC asserts it has standing because the Note was endorsed to GMAC and GMAC has physical possession of the Note (although recall the loans were supposedly sold to Lehman and then to SASC who would theoritcally own the debtors loan). In essence GMAC seemed to be claiming it owned the loan as evidenced by its attachment to the proof of claim. This simply was not true. This was GMAC’s so called “custodian assignee” argument (i.e. we hold the note as a custodial guardian for the true owner of the loan).
(2) Second, GMAC asserts that by virtue of the MERS Assignment of the Deed of Trust, it is a beneficiary of the DOT and entitled to enforce and foreclose the DOT under Arizona law. (again, how could GMAC have a security interest in the debtors property if the loans were sold to Lehman, and then to SASC who had the right to receive principle and interest payments – a traditional concept of “beneficiary”)? There is also legal authority that MERS assignment of the Deed of Trust, without the note, is null and void and conveys nothing. See our blog posting on In re Walker case in California Bankruptcy Court.
(3) Third, GMAC asserts it has standing because it is the servicer of the Note. The court addresses each of GMAC’s claims in turn.”
As a last resort, GMAC argued it was the authorized loan servicer (sub-servicer under the 11/1/06 SSA agreement). The Court would eventually hold there was no proof the trust ever got the note and deed of trust so there was no way to know for sure that GMAC was the authorized servicer of a loan that did not appear to be covered or included in the SSA.
Legal Issue:
Did GMAC have constitutional / prudential standing to bring the Motion to Lift the Automatic Stay in Bankruptcy Court and was it the real party interest to bring such claim?
Holding:
No. GMAC was not the holder of the note under entitled to enforce such under Arizona law and did not have constitutional standing as a “custodian’s assignee,” and was not the real party in interest entitled to seek relief from the automatic bankruptcy stay. Their motion to lift the automatic stay was therefore denied.
The Court’s Rationale:
The Court first discussed the two relevant concepts of (a) CONSTITUTIONAL STANDING and (b) PRUDENTIAL STANDING - Real Party in Interest (both are required to bring the lift-stay motion:
CONSTITUTIONAL STANDING / PRUDENTIAL STANDING (REAL PARTY IN INTEREST)
To this point the Court held:
“Nevertheless, in order to establish a colorable claim, a movant for relief from stay bears the burden of proof that it has standing to bring the motion. In re Wilhelm, 407 B.R. 392, 400 (Bankr. D. Idaho 2009). The issue of standing involves both “constitutional limitations on federal court jurisdiction and prudential limitations on its exercise.” Warth v. Seldin, 422 U.S. 490, 498 (1975). Constitutional standing concerns whether the plaintiff’s personal stake in the lawsuit is sufficient to have a “case or controversy” to which the federal judicial power may extend under Article III. Id.; see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-60 (1992); Pershing Park Villas Homeowners Ass’n v. United Pac. Ins. Co., 219 F.3d 895, 899 (9th Cir. 2000).
Additionally, the “prudential doctrine of standing has come to encompass several judicially self-imposed limits on the exercise of federal jurisdiction.’” Pershing Park Villas, 219 F.3d at 899. Such limits are the prohibition on third-party standing and the requirement that suits be maintained by the real party in interest. See Warth v. Seldin, 422 U.S. at 498-99; Gilmartin v. City of Tucson, 2006 WL 5917165, at *4 (D. Ariz. 2006). Thus, prudential standing requires the plaintiff to assert its own claims rather than the claims of another. The requirements of Fed. R. Civ. P. 17, made applicable in stay relief motions by Rule 9014, “generally falls within the prudential standing doctrine.” In re Wilhelm, 407 B.R. at 398.
NEXT, THE COURT APPLIED THE LAW TO THE FACTS OF THE CASE TO DETERMINED WHETHER GMAC HAD STANDING TO BRING THE LIFT-STAY MOTION.
As to GMAC’s first argument, GMAC did not demonstrate it was the holder of the note under Arizona law (A.R.S. 47-3301 says only the “holder” of the note can enforce it). The court cited A.R.S. Section 47-1201(B)(21)(a) defining a holder as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” Because GMAC’s endorsement was on a separate piece of paper (allonge) rather than fixed to the note, it could not be considered the holder of the loan. The allonge must be affixed to the note to effectuate a legal transfer of the note. Therefore, the possession of the original note (one GMAC produced in court) meant nothing as GMAC “didn’t prove the note was properly payable to GMAC.” In addition, the allonge endorsement was not included with GMAC’s proof of claim, further indicating that it had not been affixed to the note at the time of transfer.
NOTE: the Court noted an exception to the allonge rule (the allonge endorsement need not be attached to the note) if 4 elements are shown: (1) if the assignment of the note was signed and notarized on the same day as the trust deed, (2) if the assignment specifically referenced the escrow number, (3) if the assignment identified the original note holder, and (4) if the assignment recited that the note was to be attached.See in re Nash, 49 B.R. 254, 261 (Bankr. D. Ariz. 1985) where “holder” in due course status was established.
Nevertheless, the court concluded that GMAC did not qualify under this exception because there was no proof that that the allonge containing the special endorsement from GreenPoint to GMAC was executed at or near the time the note was executed. SPECIFICALLY, THE COURT STATED:
“GMAC cannot overcome the problems with the unaffixed Endorsement by its physical possession of the Note because the Note was not endorsed in blank and, even if it was, the problem of the unaffixed endorsement would remain. As a result, because GMAC failed to meet its burden of demonstrating that the Endorsement was proper, it has failed to demonstrate that it is the holder of the Note.”
As to their second argument, the MERS assignment of the deed of trust DID NOT provide GMAC with Standing. The Court noted that an assignee of a deed of trust “stands in the shoes” of the assignor, taking only those “rights and remedies the assignor held. SINCE MERS HAD NO FINANCIAL INTEREST IN THE NOTE, THERE WAS NONE TO TRANSFER TO GMAC, AND NO STANDING CONFERRED TO GMAC BY ASSIGNING THE DEED OF TRUST.
HERE IS WHAT THE COURT SAID AS TO THE MERS ASSIGNMENT OF THE DEED OF TRUST TO GMAC:
“GMAC argues that it has standing to bring the Motion as the assignee of MERS. In this case, MERS is named in the DOT as a beneficiary, solely as the “nominee” of GreenPoint, holding only “legal title” to the interests granted to GreenPoint under the DOT. A number of cases have held that such language confers no economic benefit on MERS. See, e.g., In re Sheridan, 2009 WL 631355, *4 (Bankr. D. Idaho 2009); In re Mitchell, 2009 WL 1044368, *3-4 (Bankr. D. Nev. 2009); In re Jacobson, 402 B.R. 359, 367 (Bankr. W.D. Wash. 2009). As noted by the Sheridan court, MERS “collect[s] no money from [d]ebtors under the [n]ote, nor will it realize the value of the [p]roperty through foreclosure of the [d]eed of [t]rust in the event the [n]ote is not paid.” 2009 WL 631355 at *4.
Because MERS has no financial interest in the Note, it will suffer no injury if the Note is not paid and will realize no benefit if the DOT is foreclosed. Accordingly, MERS cannot satisfy the requirements of constitutional standing. GMAC, as MERS’ assignee of the DOT, “stands in the shoes” of the assignor, taking only those rights and remedies the assignor would have had. Hunnicutt Constr., Inc. v. Stewart Title & Trust of Tucson, Trust No. 3496, 187 Ariz. 301, 304 (Ct. App. 1996) citing Van Waters & Rogers v. Interchange Res., Inc., 14 Ariz. App. 414, 417 (1971); In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007). Because GMAC is MERS’ assignee, it cannot satisfy the requirements of constitutional standing either.”
Third, the Court rejected GMAC’s argument that they had standing to pursue the lift stay motion as the servicer of the note. The court reasoned that because there was insufficient evidence that the note and the deed of trust were transferred to the final Trust (ex. from Green Point to Lehman, to SASC to the Trust), GMAC could not claim that it was the servicer of the note as claimed – there was no proof the NOTE AND DEED OF TRUST were part of the Trust. To this point the Court discussed the nature of securitized loans:
Securitization of residential mortgages is “the process of aggregating a large number of notes secured by deeds of trust in what is called a mortgage pool, and then selling security interests in that pool of mortgages.” Kurt Eggert, Held Up In Due Course: Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 CREIGHTON L. REV. 503, 536 (2002). The process begins with a borrower negotiating with a mortgage broker for the terms of the loan. Then, the mortgage broker either originates the loan in its own name or in the name of another entity, which presumably provides the money for the loan. Almost immediately, the broker transfers the loan to the funding entity. “This lender quickly sells the loan to a different financial entity, which pools the loan together with a host of other loans in a mortgage pool.” Id. at 538.
The assignee then transfers the mortgages in the pool to another entity, which in turn transfers the loans to a special purpose vehicle (“SPV”,) whose sole role is to hold the pool of mortgages. Id. at 539. “The transfer to the special purpose trust must constitute a true sale, so that the party transferring the assets reduces its potential liability on the loans and exchanges the fairly illiquid loans for much more liquid cash.” Id. at 542. Next, the SPV issues securities which the assignee sells to investors. Id. at 539.
Once the securities have been sold, the SPV is not actively involved. It “does not directly collect payments from the homeowners whose notes and deeds of trust are held by the SPV.” Id. at 544. Rather, servicers collect the principal and interest payments on behalf of the SPV. Id. Fees are associated with the servicing of loans in the pool. Therefore, GMAC WOULD HAVE constitutional standing if it is the servicer for the Note and DOT because it would suffer concrete injury by not being able to collect its servicing fees. In re O’Kelley, 420 B.R. 18, 23 (D. Haw. 2009). In this case, however, the evidence does not demonstrate that the Note and DOT were transferred to the Trust, and, without that evidence, there is no demonstration that GMAC is the servicer of the Note.
NOTE: AFTER DETERMING THERE WAS NO STANDING FOR GMAC TO PURSUE THE MOTION TO LIFT THE BANKRUPTCY STAY, THE COURT ADDRESSED THE DEBTORS ARGUMENT THAT “ONLY THE SECURITIZED LOAN INVESTORS HAVE STANDING TO LIFT THE STAY.” The court, in rejecting this argument stated:
The Debtor argues that, in an asset securitization scheme, only the securities investors have standing to seek stay relief because they are the only parties with a financial interest in the securitized notes. However, because the Debtor executed the Note and received consideration (which he used to purchase the house), the contract is enforceable regardless of who provided the funding. In other words, the fact that the funds for a borrower’s loan are supplied by someone other than the loan originator, does not invalidate the loan or restrict enforcement of the loan contract to the parties who funded the loan. A number of cases and treatises recognize that consideration for a contract, including a promissory note, can be provided by a third party. See, e.g., DCM Ltd. P’ship v. Wang, 555 F. Supp. 2d 808, 817 (E.D. Mich. 2008); Buffalo County v. Richards, 212 Neb. 826, 828-29 (Neb. 1982); 3 WILLISTON ON CONTRACTS 7:20 (Richard A. Lord, 4th ed. 2009); RESTATEMENT (SECOND) OF CONTRACTS 71(4) (2009).
Notes are regularly assigned and the assignment does not change the nature of the contract. The assignee merely steps into the shoes of the assignor. In re Boyajian, 367 B.R. 138, 145 (9th Cir. BAP 2007); In re Trejos, 374 B.R. 210, 215 (9th Cir. BAP 2007). No additional consideration is required, as opposed to a novation which creates a new obligation. Id. at 216-17 citing RESTATEMENT (SECOND) OF CONTRACTS 280, cmt. e. Therefore, the Debtor’s argument that the Note is unenforceable because the funder of the Note was not the payee fails. The Note is still valid and can be enforced by the party who has the right to enforce it under applicable Arizona law.
THE COURT ALSO ADDRESSED WHAT TYPE OF PROOF OF NOTE ASSIGNMENT IS REQUIRED TO LIFT THE AUTOMATIC STAY:
A movant for stay relief need only present evidence sufficient to present a colorable claim not every piece of evidence that would be required to prove the right to foreclose under a state law judicial foreclosure proceeding is necessary. In re Emrich, 2009 WL 3816174, at *1 (Bankr. N.D. Cal. 2009). Accordingly, not every movant for relief from stay has to provide a complete chain of a note’s assignment to obtain relief.
Arizona’s deed of trust statute does not require a beneficiary of a deed of trust to produce the underlying note (or its chain of assignment) in order to conduct a Trustee’s Sale. Blau v. Am.’s Serv. Co., 2009 WL 3174823, at *6 (D. Ariz. 2009); Mansour v. Cal-W. Reconveyance Corp., 618 F. Supp. 2d 1178, 1181 (D. Ariz. 2009); Diessner v. Mortg. Elec. Registration Sys., 618 F. Supp. 2d 1184, 1187 (D. Ariz. 2009). It would make no sense to require a creditor to demonstrate more to obtain stay relief than it needs to demonstrate under state law to conduct a judicial or non-judicial foreclosure. Moreover, if a note is endorsed in blank, it is enforceable as a bearer instrument. See In re Hill, 2009 WL 1956174, at *2 (Bankr. D. Ariz. 2009). Therefore, this Court declines to impose a blanket requirement that all movants must offer proof of a note’s entire chain of assignments to have standing to seek relief although there may be circumstances where, in order to establish standing, the movant will have to do so.
Conclusion:
The Weisband Court held that GMAC lacked standing to move for relief of stay (both constitutional and prudential standing – real party in interest). GMAC’s possession of the original note did not entitle it to enforce the note because the allonge was not properly affixed to the note meaning there was no right to seek payment on the note. MERS has no financial interest in a deed of trust (because is collects no loan payments and is not injured in the event of foreclosure) so it has no real interest to transfer to the assignee (who stands in the shoes of the assignor) and so the assignment of the deed of trust (security for payment of the loan) is essentially a transfer of no legal interests. The in re Walker blog we wrote and cited above also lends credence to this position. Finally, without proof that a note and deed of trust was transferred to the underlying securitized loan trust (at least evidence sufficient to raise a colorable claim of transfer of ownership of the trust), GMAC could not claim standing as a loan servicer (although it is injured in the sense that it loses the right to collect loan payments when a borrower is in default). The Court did not make exactly clear what kind of proof was required, and indicated a full chain of transfer may not be required, but there may be some cases where it is. As such, GMAC’s motion was denied, and they could not lift the stay. What the consequences of that are is anybody’s guess. Perhaps it is time for the debtor to file an adversary proceeding to challenge the validity of the lien? Perhaps there is some type of settlement?
PRODUCE THE NOTE IN A BANKRUPTCY COURT – CAN YOU CALL MERS AND OTHER “PRETENDER LENDERS” OUT IN A BANKRUPTCY COURT?
IN THIS DAY AND AGE OF “MERS LOANS” (WHERE THE MORTGAGE ELECTRONIC REGISTRATION SYSTEMS – A MERE SOFTWARE COMPANY – POSES AS A BENEFICIARY OF A LOAN), CAN WE TRULY ACKNOWLEDGE ANY ALLEGED BENEFICIARY OF A LOAN AS BEING A “CREDITOR” IN A BANKRUPTCY SETTING?
Attorney Steve Vondran can be reached at steve@vondranlaw.com or (877) 276-5084. Mr. Vondran is licensed to practice law in California and Arizona and is currently assisting homeowners in foreclosure defense, predatory lending, bankruptcy, and loan modification (Arizona only). The following is general legal information only, and not legal advice.
MY NAME IS MERS AND I AM THE BENEFICIARY OF YOUR LOAN, NO I MEAN THE NOMINEE OF YOUR LENDER AND ITS SUCCESSORS AND ASSIGNS, I CAN LIFT THE AUTOMATIC STAY IN BANKRUPTCY – DO NOT CHALLENGE ME! RESPECT MY AUTHORITY.
Yes, to a certain degree we have been calling this “produce the note” bankruptcy style (or to be more accurate, “prove you are a creditor”). Here is a general overview of what we are talking about here. If you have a MERS loan (check your deed of trust see if it lists MERS as the nominee of the lender and its successor and assigns and the beneficiary of the loan), and you are thinking of filing Bankruptcy Chapter 7, give this article a close review.
We are a debt relief agency and we help people file for Bankruptcy Protection under the Bankruptcy Code. The following article is general legal information only and may not be current, up-to-date or accurate as law can be subject to interpretation and is constantly evolving. In addition, this article is not legal advice and not to be construed as a substitution for legal advice. If you have specific legal questions, please contact a bankruptcy lawyer or real estate lawyer or foreclosure lawyer as your case may require.
MERS IN BANKRUPTCY – RIP OPEN THE CURTAIN AND LETS SEE THE “WIZARD OF OZ” STANDING THERE WITH NOTHING BUT SMOKE AND MIRRORS.
WHAT IS MERS?
MERS stands for the Mortgage Electronic Registration System. They are essentially a software company that was set up to track the transfer (sale) of loan ownership rights, and loan servicing rights where loans are originated and transferred (sold) on the secondary market.
Where you see MERS pop up in the loan context is look on your deed of trust, if you see it say something similar to the following you have a MERS loan:
“MERS is the nominee of the lender, its successors and assign. MERS is the beneficiary.”
That is typically what you will see. Yes, you may be scratching your head like we do in our foreclosure defense work and asking yourself the following question, HOW IS IT THAT MERS IS BOTH A NOMINEE OF THE LENDER AND THE BENEFICIARY? It is a bit strange, but basically MERS is trying to hedge its bets. Where it needs to be an agent (nominee) it will act as an agent. Where they want to pretend to be the beneficiary, it will put the beneficiary hat on. Yes, MERS gets to be whoever it wants to be, or at least we should say that MERS can pretend to be whoever it wants to be in regard to loan foreclosure, trying to life a stay in bankruptcy etc.
Yes, MERS is assuming you will not challenge them, or that you do not have the money to challenge them, and/or that the judge will go right along with them in a civil lawsuit or allow them to lift the automatic stay in a bankruptcy setting.
Alas, there is the rub, people are starting to learn about MERS, and trying to find ways to challenge them. Our firm is also putting forth some new strategies to take on MERS, and MERS-related loans.
The analogy for MERS (pretender lenders) can also be extended to Trustees of Securitized trusts (as pointed out in California State bar MCLE units taught by Neil Garfield, a lawyer who can probably be called the “father of produce the note theory”). The point being that a trustee of a securitized trust who does not have the original promissory note, transferred and endorsed, along with an assignment of the note and deed of trust (the note and deed of trust are supposed to be assigned together for “the note without the deed of trust is a legal nullity” according to some legal cases. For example, where a trustee of a securitized trust cannot show proper transfer of the note and deed of trust, no one in their right mind should just assume that because the Trust claims to hold the loan, that they should be treated as a legitimate “creditor” in a bankruptcy case.
The point becomes, in this day and age, we are finding it increasingly difficult to find out WHO THE HOLDER OR OWNER OF YOUR LOAN IS. WHO IS ENTITLED TO PAYMENTS? WHO IS ENTITLED TO FORECLOSE ON YOU? WHO IS REQUIRED TO CONTACT YOU PURSUANT TO CALIFORNIA CIVIL CODE SECTION 2923.5 TO TRY TO WORK OUT LOAN MODIFICATIONS WITH YOU BEFORE THEY FORECLOSE? WHO DO YOU SUE WHEN YOU ARE FILING A TRUTH IN LENDING RESCISSION CASE TO FORCE THEM TO GIVE BACK THE MONEY THEY MADE AS PART OF THEIR TENDER OBLIGATION.
What we have found to be absolutely amazing in our work as a foreclosure defense and loss mitigation law firm is that when you contact your lender as ask them what should be a relatively simple and straight-forward question such as “WHO IS THE OWNER OF MY LOAN I WANT TO TALK TO THEM ABOUT A LOAN MODIFICATION” many California and Arizona homeowners will typically get the same answer: NONE OF YOUR BUSINESS……OR SORRY, WE CANNOT TELL YOU…….OR SORRY, WE DO NOT KNOW……OR, YES WE OWN IT, WHEN IN FACT THEY DONT.
If you think I am kidding, call your lender or more likely, your loan servicer and ask them who owns your loan. They may insist that Fannie Mae or Freddie Mac owns your loan. Both fannie and freddie have a loan lookup tool and you can google this to see of they “own your loan.” Of course, the result you will get you will have to take on faith, because you will not be able to download a copy of your note assigned to them, or a copy of your deed of trust assigned to them. Instead, Fannie Mae and Freddie Mac will be asking you to take it for granted that when they tell you they are the owner of your loan, that that is true and indisputable. If you ask for proof however, they will likely tell you to “pound sand.”
The rationale of many lenders seems to be this: “you took out a loan……you know you owe somebody……..that somebody might as well be us…….and there is no obligation for us to “show the note” in order to conduct a private trustee sale in California and Arizona (unfortunately the case law backs them up on this wild assertion) and if you try to file for an injunction to stop the foreclosure sale, we will point out the case law that says an original copy of the promissory note is not required in seeking to foreclosure in a non-judicial foreclosure sale. THAT MY FRIENDS IS BASICALLY WHAT YOU ARE UP AGAINST.
Meanwhile, Attorneys like me would like you to know that things are not always as they seem to be. Remember the Wizard of OZ? The guy behind the curtain that wanted you to believe he was the ultimate authority and not subject to challenge? Well, the lenders, loan servicers and MERS like to do the same thing when in comes to acting like they have all the credentials to prove their right to ACT IN RESPONSE TO REQUESTS FOR LOAN MODIFICATIONS, SHORT SALES, DEED-IN-LIEU OR FORECLOSURE, IN PRIVATE NON-JUDICIAL FORECLOSE SALES, TRYING TO LIFT AUTOMATIC STAYS IN BANKRUPTCY COURTS, AND EVEN EVICT PEOPLE FOLLOWING AN UNLAWFUL SALE BY A PRETENDER LENDER AS NEIL GARFIELD CALLS THEM.
In short, it is time to start asking the tough questions, and making these guys answer them with honesty, and in accordance with commercial law and other legal standards and making them PROVE they are the true creditor, or an agent of the true creditor when them come pushing people around in loss mitigation settings (even after they got their real nice bailout that saved their asses from bankruptcy and embarrassment).
IS MERS THE BENEFICIARY OF A LOAN?
As mentioned above, MERS is NOT A LENDER…….NOT A BENEFICIARY OF ANY LOAN. They did not lend you any money; they do not accept your loan payments, they do not discuss loan modifications or short-sales with you. Again, MERS is nothing more than a software company that is essentially made up of its member banks who like to hide behind the “MERS Curtain.” The use of MERS allows the TRUE OWNER of the loan to remain anonymous. That way, nobody knows who to go sue, unless and until a borrower goes into a default in which case MERS will ask one of its members to step forward and act as the creditor of the loan and move to foreclose. Until that day, you will never likely learn who “holds your loan or who “holds your loan” or who “the creditor or beneficiary of your loan is.” Again, the big banks, lenders, and wall street investors (who typically are the loan beneficiary as they are the ones seeking your loan payments after the servicer takes its cut) do not want you to know about them, because they do not want to answer for any predatory lending claims you may have. They would rather hide in the shadows for 4 or 5 years until statutes of limitations run, collecting your loan payments, trading your loan as many times as possible, and basically just living covertly off your interest payments.
Court cases have come down that have basically stated that MERS is NOT A BENEFICIARY OF A LOAN JUST BECAUSE IT CALLS ITSELF A BENEFICIARY UNDER YOUR DEED OF TRUST (CALLING A PIG A HORSE DOES NOT MAKE IT SO). AT BEST, COURTS WHO HAVE HEARD “MERS CASES” HAVE NORMALLY HELD THAT MERS MAY BE AN AGENT (NOMINEE) BUT THEIR CLAIM TO CREDITOR OR BENEFICIARY STATUS IS NOT MUCH MORE THAN SMOKE AND MIRRORS. We have discussed the Arkansas MERS case and Kansas Supreme Court Case on other blogs. We have also addressed “MERS BANKRUPTCY CASES” which have held that MERS does not have “standing” to lift an automatic stay in a bankruptcy court and that MERS is not a “real party in interest” in a BK case.
MERS hates these cases, even though it touts some of their alleged “successes” and the MERS TRIAL STRATEGY AND MERS LEGAL PRIMER on their website (assuming the article is still up there).
At any rate, do not expect MERS to stop, and as we discussed above, TRUSTEES OF A SECURITIZED LOAN TRUST (who like MERS cannot produce the note and assignment of deed of trust properly endorsed and transferred) should also not be acknowledged as TRUE CREDITORS who can do whatever the heck they want in private foreclosure sale settings, short sales, loan modifications, deed-in-lieu-of-foreclosure and in bankruptcy courts in California and Arizona where we are licensed to practice law. Note, we only serve loan modification clients in Arizona since California passed SB94 which essentially was the lenders way of putting loss mitigation representative out of business. That being said, we still file lawsuits seeking money damages, injunctions, TILA rescission, elder abuse cases, file lis pendens, file trial plan breach of contract cases seeking specific performance of the trial plan agreement, and force them to prove their creditor status (standing and real party in interest) in a BK Chapter 7 case where a debtor has legitimate debts (including deficiency judgment liability) that they seek to wipe out.
IF MERS IS NOT THE BENEFICIARY OF THE LOAN, THEN WHO IS?
This is the million dollar question. The Beneficiary is normally the party entitled to payment on your loan. Recall in the normal loan situation you have the Trustor (who is the borrower) and the Trustee (who has the power of sale given to them by the borrower) and the Trustee (who is the beneficiary of the loan, and the one who loaned the money).
This is the typical arrangement in a deed-of-trust setting. Mortgages are different and have only a mortgagor (the borrower) and the mortgagee (again, the bank that normally lends its own money).
It used to be the case (before securitized loans, and the secondary loan market) that banks would lend their money and then hold the loan, servicing it, and foreclosing on it if need be. The would, of course, hang on to your promissory note (which is evidence of the debt obligation) and would record the deed of trust in the local County Recorder’s office as evidence of the security interest in the loan. If you went into default on the loan, the bank would send you a notice of default or a notice of sale, and eventually they would foreclose on you. You never really had any reason to question who the owner or your loan was, or who your creditor was under this type of arrangement (which is often called “portfolio loans” or “whole loans.”).
Fast forward to the present, where you have loan brokers and “lenders” involved in many transactions, and the “lenders” typically do not loan any of their own money (yes, this sounds strange) but typically they will have entered into an agreement with another company who has agreed to buy, or otherwise fund your loan perhaps through a credit line, or perhaps by another agreement linking to a wall street investor.
WHAT? Yes, this means when you though your lender was “lending you money” often times there was no money lent by the original “lender” and your loan (at least the note part of it) was assigned or transferred through the secondary loan market where investment banks would carve up your note with other notes (called fractionalized notes) and create investment products for investors on wall streets to invest in (the products can essentially be called “tranches” and your loan, or a fractionalized portion of your loan is in one or more tranches). The tranches would be rated by Moody’s or Standard and Poor and investors on wall street (such as pension funds, foreign investors, insurance companies, and even investment bankers themselves) would purchase these up, thereby purchasing the right to your payments.
If you are savvy, you may be asking yourself, BUT WHAT ABOUT THE DEED OF TRUST – THE SECURITY FOR THE LOAN, WAS THAT TRANSFERRED TOO? Recall, we said the note and deed of trust has to be transferred together or it could be construed as a “legal nullity.” Well, as we discussed above, MERS often records the Deed of Trust and this is never assigned along with the promissory note to the investment trust that now supposedly holds your loan. So, they were separated.
This is one of the main points of contention, if it is a “legal nullity” to separate the note and deed of trust, doesn’t this mean that they securitized trust, or even the wall street investor who may have purchased an interest in your loan payments, does not have a right to enforce the debt they claim is owed (even though they may use the services of a specialized “loan servicer” who gets paid a percentage of each loan payment to act as if they work as the “agent of the beneficiary?”). Doesn’t this mean that neither the loan servicer (who has also tried to act as beneficiary on occasions), nor the trustee of the securitized trust, nor the wall street investor, nor MERS is a true “creditor” if they cannot produce both the transferred and endorsed promissory note, and the assigned deed of trust? Well, that seems to be a fair proposition.
So, if you are filing a bankruptcy petition (again, you must have bona fide good faith debts to discharge) and you are LISTING YOUR CREDITORS ON YOUR BK SCHEDULES(BOTH SECURED AND UNSECURED CREDITORS) WHAT EXACTLY ARE YOU SUPPOSED TO DO? List these companies and entities as “creditors” or list their alleged debts as “disputed” and list their alleged debts as “unsecured? Is it malpractice to grant these types of entities “creditor status” merely because they say they are a horse, and act like a horse, and their notice of default says they are a horse and their notice of sale say they are a horse, and their loss mitigation documents and HAMP agreements state they are the horse, when in fact, because they do not have the note properly endorsed and assigned along with the deed of trust they are just a pig? Should we take everything for granted, and give the Wizard of Oz the status they seek?
This is the question, this is the legal issue. These guys should be FORCED to prove they are legitimate and valid creditors given what we know of securitized loans.
WHY IS MERS SHIELDING THE IDENTITY OF THE TRUE BENEFICIARY OF THE LOAN?
Again, MERS was setup to assist its member banks to track loan servicing and ownership rights. They also help hide the identity of the true holder of the loan (the true beneficiary) as these parties only want an interest in your loan payment stream, and certainly do not want to end up a Plaintiff in a Truth in Lending rescission case (where they may actually have to give you your money back). So MERS helps aid this function, and MERS also allows members to buy, sell, and trade your loan without ever having to RECORD THE TRANSFERS OF THE NOTE AND DEED OF TRUST in the County Recorder.
Yes, this can deprive a County of essential revenues it needs for valuable social services) but it aids the bank in saving money so of course that is of paramount importance, at least to the banks.
MERS does other things as well, like advising its member banks on who to win lawsuits, and join MERS as a party when litigation ensues. They have it all planned out. It is only recently when MERS has started losing a few cases that its power, or lack of power, is coming to light, and the curtain is being pulled back. For now, they still feel they have power over the estimated 60 MILLION MERS LOANS THAT WERE ORIGINATED IN THE PAST DECADE OR SO.
CAN THE TRUSTEE OF A TRUST BE A BENEFICIARY OF A LOAN?
Again, this is a good question, under Commercial law standards, the note and the deed of trust would need to be assigned to the trust and as we know, this rarely appears to happen. In our foreclosure defense work, we will often hear “the trust owns the loan” or “Duetsche Bank as Trustee of the trust is the owner of the loan.” Again, they want you to take this on face value, admit you are in default of your loan, and give way to them because they are the entity billowing smoke up into the air, and angling the mirrors to blind your sight. As we have stated, in the past maybe you would give them credence for this type of ownership assertion. In this day and age of MERS, securitized loans, mortgage backed securities, CDO’s, etc., you have to ask questions and demand proof before you believe a word you hear. This is especially true in a BK filing.
There was a good Arizona bankruptcy Case that came down that talked about how a Securitized Trust could own a loan if the note and deed of trust were securitized, and if that occurs, then a loan servicer (GMAC in that case) would be able to claim standing in a Bankruptcy Court, and would be a real party in interest. We will be posting our brief of the Arizona case shortly. Google “Vondran Arizona Bankruptcy Lawyer Prove you are a Creditor” that should take you there. This is a pretty nice case that talks about what is legally required to prove standing in a Bankruptcy Court in a manner that would allow an entity to lift a foreclosure stay in bankruptcy court. In that case GMAC was basically told to go home as they had no standing in the Bankruptcy Court and was NOT a REAL PARTY IN INTEREST. So yes, these things CAN be challenged, and SHOULD be challenged in a Bankruptcy Court. The game playing, although allowed to be perpetrated in a private trustee sale, may have to come to a halt in a federal bankruptcy court, as it should.
ARE THERE ANY WAYS TO DETERMINE WHO THE OWNER OR HOLDER OF MY LOAN IS?
Sure, you can try using some of the ways we do to “ferret out the true holder of the loan….the true creditor…..the true beneficiary. You have to ask questions, and ASK THE LENDER OR LOAN SERVICERS IN WRITING. Here are a few of the things we do in our “Creditor Validation” and “Debt Validation” efforts.
Send in a Qualified Written Request under RESPA Section 6 (we have talked about QWR’s in other blog posts) where a bona fide billing or accounting dispute exists.
Send a request to identify the holder of the loan or master loan servicer under 15 U.S.C. 1641(f)
Send a debt validation letter demanding the “lender” validate their alleged debt, including identifying the holder of the loan, and producing the note and assignment of deed of trust.
Send in beneficiary demand letters.
If these letters go unanswered, or not answered in detail, of course this would raise suspicion, and doubt (again, what do they have to hide except the truth, namely that they are not valid legal creditors, and cannot prove such in some cases). This would also potentially create legal violations under TILA and RESPA and may turn them into potential defendants in a civil lawsuit if a proper predatory lending, or wrongful foreclosure case is brought. We call this MAKING THEM DO WORK TO JUSTIFY THEIR EXISTENCE AND JUSTIFY THEIR ASSERTIONS. Again, if they cannot answer these relatively simple questions and producing the proper documentation of their creditor status, how can we as bankruptcy lawyers treat them as legitimate secured creditors in a bankruptcy setting?
IF WE CANNOT ASCERTAIN THE IDENTITY OF THE TRUE HOLDER OF MY LOAN, AND IF WE ARE FILING CHAPTER 7 BANKRUPTCY SHOULD THE ALLEGED LENDER OR LOAN SERVICER BE TREATED AS A “CREDITOR” (EITHER SECURED ON UNSECURED) ON MY BANKRUPTCY CHAPTER 7 PETITION?
This is what we are saying above. Where good faith, bona fide legal challenges exist, although you may not be able to raise these in private non-judicial trustee sale settings (i.e. “there is no obligation to produce the note to pursue a private trustee sale”), I have not seen any requirement that says YOU MUST TREAT YOUR LENDER AS A BONA FIDE SECURED CREDITOR ON YOUR BANKRUPTCY APPLICATION FOR YOU KNOW YOU OWE SOMEBODY MONEY AND IT MIGHT AS WELL BE BANK OF AMERICA, OR CHASE, OR WELLS FARGO, ETC.
Consult with your bankruptcy Attorney to ask them how they handle MERS loans. You can also contact Attorney Steve Vondran’s office (offices in Phoenix, Arizona and Newport Beach, California servicing the Greater Phoenix / Scottsdale area and all areas of California) to discuss your case.
WHAT HAPPENS IF WE LIST THE ALLEGED LOAN CREDITOR / BENEFICIARY AS UNSECURED AND CHALLENGE THE DEBT AS DISPUTED?
This is another important issue, if they are not the true creditors, and their debt is challenged on a bankruptcy petition, then what happens next? How is this handled in a BK Court? Contact our office to setup a attorney consultation. Toll Free (877) 276-5084.
ARE THERE ANY CASES THAT TALK ABOUT MERS LOANS AND PRETENDER LENDERS?
Yes, there are a good number of MERS cases that come out of Bankruptcy Courts. Our office, and its BK clerk are working to brief these cases and present a discussion on our blogs located at www.LoanModRadio.com, www.AdversaryProceeding.com, www.ForeclosureDefenseResourceCenter.com, and www.BKAttorneys.net.
Please check these sites for more information. There are also some good cases that have come out of California, Arizona, Kansas, and Arkansas that we will be highlighting on our foreclosure defense blogs. So stay posted or subscribe to our newsletter at Loan Mod Radio (the foreclosure defense show we used to air on California Angels Radio).
IS IT MALPRACTICE NOT TO CHALLENGE YOUR ALLEGED CREDITOR IN A BK SETTING WHERE THE LOAN AT ISSUE IS A MERS LOAN?
Again, for now this is an open question. If you are a BK attorney, perhaps you should be challenging MERS loans and demanding true creditors, lenders and beneficiaries prove such before allowing them to lift a stay in bankruptcy Court. Perhaps you should be charging an extra fee (whether your client can afford it or not – yes there are extra costs above and beyond your normal BK Chapter 7 fee), and perhaps you can use an outside firm like mine to conduct PROOF OF CLAIM CHALLENGES, ENGAGE IN STAY LITIGATION, OR TO FILE ADVERSARY PROCEEDINGS TO CHALLENGE THE EXTENT OR VALIDITY OF A LIEN. To those BK attorneys in California or Arizona (where we are licensed to practice law) who want to discuss co-counseling MERS cases, we are available for discussion at (877) 276-5084.
CONCLUSION – MERS (AND OTHER “PRETENDER LENDERS” AS NEIL GARFIELD CALLS THEM) IN BANKRUPTCY COURT.
In the world of securitized loans where the note and deed of trust is often separated by the use of MERS (the software company) and where it is often not clear who holds your loan or who your lender might be (this is often kept a big secret), it may be time to consider whether you should challenge these entities claims that they are your true creditor who is owed the money, and who has the right to foreclose on your loan, or lift your automatic stay in a bankruptcy court. The ramifications of taking such a position may threaten the “Wizard of Oz” hiding behind the loan curtain, but it also may work to your ultimate benefit. It is not clear who Bankruptcy Judges will treat such claims, but where you have a good faith belief the alleged “creditor” is just trying to pull a fast one because “you owe somebody it just might as well be me” and where you have bona fide debts, including potential deficiency judgment liability you want to discharge, perhaps the Bankruptcy Court may be your “court of last resort” to “make them produce the note.” These are strategies our firm is willing to investigate, consider, and allege where appropriate.
Also, you may want to bookmark a good reference site for Produce the Note issues – http://www.ProduceTheNoteAttorney.com.
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Keywords: bankruptcy Chapter 7 / bankruptcy Adversary Proceeding / Bankruptcy Prove they are a Creditor / QWR / Debt Validation Letter / Arizona BK Attorney / Phoenix BK Attorney / Scottsdale bankruptcy / California Bankruptcy Lawyer / Orange County Bankruptcy Lawyer / Securitized Loans / Phoenix Foreclosure Defense Lawyer / Phoenix Foreclosure Defense Attorney / Scottsdale Loan Modification / 949 Foreclosure Defense / 602 Foreclosure Defense Law / 480 Foreclosure Defense Attorney / Filing Chapter 7 / Unsecured Creditors in MERS Loans / MERS loans / Mortgage backed Securities / Trustee of a TRUST and MERS / Produce the Note Attorney / Produce the Note Lawyer
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This is an advertisement and communication pursuant to state bar rules. No guarantees or representations as to any case outcome are ever given, and no predications made. Every case, lender, servicer, property, borrower, jury, and legal theory is different. Please do not email confidential information as there is not guarantee of confidentiality and no attorney-client relationship is formed until and unless a retainer agreement is signed by Client and Attorney .
Bankruptcy resources for Phoenix Arizona Regional Homeowners
When you are considering filing for bankruptcy in the Greater Phoenix Arizona region (Phoenix, Scottsdale, Tempe, Mesa, etc.), you will likely be filing your case in the United States Bankruptcy Court for the District of Arizona.
The address for the United States Bankruptcy Court for the District of Arizona is 230 N. First Ave, Suite 101, Phoenix, AZ 85003. The general telephone numbers are 602-682-4000 / 800-556-9230.
To find your bankruptcy filing office in Arizona use this tool: http://www.azb.uscourts.gov/ZipTool.aspx.
Here is a link to common forms and publications that may assist you in filing for bankruptcy in Phoenix Arizona with or without a Phoenix bankruptcy Lawyer http://www.azb.uscourts.gov/default.aspx?PID=73.
Here are some Arizona bankruptcy links of interest that may assist you in understanding the bankruptcy process in Phoenix, Arizona: http://www.azb.uscourts.gov/default.aspx?PID=9.
More good information about filing for bankruptcy in and around Phoenix Arizona can be found at www.BKAttorneyS.Net
KEYOWRDS: PHOENIX BANKRUPTCY ATTORNEY / PHOENIX BANKRUPTCY LAWYER / SCOTTSDALE BANKRUPTCY LAWYER / SCOTTSDALE BANKRUPTCY ATTORNEY /FOUNTAIN HILLS BANKRUPTCY LAWYER /FOUNTAIN HILLS BANKRUPTCY ATTORNEY /CREDITORS HEARING / AUTOMATIC STAY / ADVERSARY PROCEEDING / LIEN STRIP
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