Posted by Wendy S., Wednesday, March 7th, 2012 @ 8:05am
A Massachusetts appeals court ruled recently that lenders who lose a promissory note cannot enforce the mortgage. In this particular case, the lender was able to produce the mortgage, but some of the key mortgage terms were missing, rendering it unenforceable.
Another significant issue in this case has to do with the fact that the foreclosure in this case was a second mortgage. When the first mortgage was refinanced, the lenders' attorneys made a crucial mistake. They never obtained a subordination from the second lien holder. When the first mortgage holder asked the court to rearrange the priorities of mortgages (in an attempt to correct their screw up), the court denied their request.
The following article goes into some more detail.
Massachusetts Appeals Court Rules That Lost Promissory Note Renders Mortgage Unenforceable
by RICH VETSTEIN on MARCH 2, 2012
Case Underscores Importance of Safeguarding Loan Documents And Getting Subordinations
In a decision which could impact foreclosure cases involving missing or lost loan documents, the Appeals Court held that a mortgage is unenforceable and must be discharged where the underlying promissory note securing the mortgage could not be found.
Seller Second Mortgage Financing
This case involved an unconventional second mortgage for approximately $15,000 taken back from a private seller. The homeowner subsequently refinanced the first mortgage several times, but the refinancing lenders’ attorneys never obtained a subordination from the second lien-holder. That was a mistake. The first mortgage wound up in Wells Fargo’s hands which realized that due to the lack of recorded subordination, the second mortgage was senior to its first mortgage.
Alas, a title claim arose and the title insurance company had to step in and file an “equitable subrogation” action. In this type of legal action, a first mortgage holder asks the court to rearrange the priorities of mortgages due to mistake, inadvertence or to prevent injustice.
Where’s The Note?
The second mortgage holder had lost the promissory note which secured its mortgage, and notably, could not locate a copy of it. The mortgage itself referenced the amount of the loan and the interest rate but was silent on everything else, including the payment term, maturity date, and whether it was under seal. The second mortgage holder argued that enough of the terms of the missing note could be “imported” from the mortgage, but the Appeals Court disagreed, reasoning that there wasn’t enough specificity on key terms to enforce the mortgage.
Lesson One: Safeguard Original Loan Docs
This decision underscores the importance of safeguarding original promissory notes and other debt instruments, or at a minimum keeping photocopies so that if enforcement is required, the material terms of the original can be proved to the satisfaction of the court. With all the paperwork irregularities endemic with securitized mortgages these days, missing or lost promissory notes and loan documents have become more prevalent. This decision is potentially problematic for those foreclosures where the original promissory note is lost. The standard Fannie Mae form mortgage does not spell out the loan terms with specificity, instead, it references the promissory note. Indeed, the Fannie Mae mortgage does not even reference the interest rate. Based on this decision, a mortgage without sufficient evidence of a promissory note could be rendered unenforceable and un-forecloseable.
(a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. (b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, section 3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.
Lesson Two: Get Subordinations For Junior Liens
This decision also underscores the importance of getting a subordination agreement for second mortgages and other junior lien-holders when closing refinances. A subordination agreement is a contract whereby a junior lien-holder agrees to remain in junior position to a first mortgage or other senior lien-holder during a refinancing transaction. Otherwise, the first in time rule of recording would elevate a junior lien-holder to first, priority position after a refinance. If a subordination was obtained and recorded here, this case would not have occurred.
Disclaimer: I drafted the original complaint in this case while working at my previous law firm. I had long since left when the case was decided at the Appeals Court.
Posted by Wendy S., Tuesday, March 6th, 2012 @ 5:21pm
Some of you may have noticed Storm Bradford posting in the forums here and probably on other forums on the net.
We have done some investigating through Mr. Bradford's websites, mortgagefraudexaminers.com and instantlawpartner.com, and believe that Mr. Bradford may be working for MERS or is in some way affiliated with MERS.
The address listed on his website is listed as 1818 Library Street, Suite 500, Reston, VA 20190. MERS' address is 1818 Library Street, Suite 300, Reston, VA 20190.
There seems to be no record of his "parent" company, Lex Consulting, LLC in business search databases, nor do his phone numbers trace back to a legitimate business as far as we can tell.
Mr. Bradford's membership has been terminated for lack of payment and conflict of interest. We wish Mr. Bradford luck in his future endeavors.
Posted by Wendy S., Monday, March 5th, 2012 @ 10:35pm
An appellate court in New Jersey determined the lower court abused their discretion in this foreclosure case and was "unduly harsh" on the homeowner. See some excerts below .....
"The motion court focused primarily on the fifteen month lag between the filing of the complaint and the filing of the motion. It was unconvinced that an adequate explanation was provided for defendants' inaction, and was unforgiving in light of the passage of time. We view the court's analysis as unduly harsh, which resulted in an abuse of discretion.
"On the meritorious defense side of the ledger, we also disagree with the conclusions of the motion court. Much decisional law has developed — addressing both substantive and procedural issues — relating to mortgage foreclosures since the Chancery Division decided this matter. With the aid of such jurisprudential hindsight, we readily observe that it was improvident for the motion court to have authoritatively determined Sutton's status as a holder in due course without the benefit of discovery. Furthermore, the motion record does not provide standing-to-sue clarity vis-à-vis Sutton's ownership and possession of the note prior to the November 21, 2008 filing of the complaint. Lastly, we are struck by the unnerving imprecision and lack of personal knowledge as found in Orrison's certifications. We do not, of course, challenge the credibility of the certifications, but conclude that they suffer from the same type of deficiencies identified in Ford, supra, 418 N.J. Super. at 599-600 and Mitchell, supra, 422 N.J. Super. at 225-26.
In light of the clarification and amplification of the law, we conclude that defendants presented adequate evidence that their affirmative defenses were not futile. ... However, because defendants have adequately demonstrated that they possess claims that may avoid the entry of a final judgment against them, they should be allowed to interpose an answer and defend Sutton's theories of the case. This matter presents a clear example of one that "should be viewed with great liberality and every reasonable ground for indulgence is tolerated to the end that a just result is reached." Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964).
Reversed and remanded for further proceedings in accordance with this opinion.
Posted by Ari, Thursday, February 23rd, 2012 @ 11:13pm
Code of Federal Regulations 12 § 226.39 (a)(1):
12 CFR 226.39 - Mortgage transfer disclosures.
(a) Scope. The disclosure requirements of this section apply to any covered person except as otherwise provided in this section. For purposes of this section:
(1) A “covered person” means any person, as defined in § 226.2(a)(22), that becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment or other transfer, and who acquires more than one mortgage loan in any twelve-month period. For purposes of this section, a servicer of a mortgage loan shall not be treated as the owner of the obligation if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation.
United States Bankruptcy Judge Robert Grossman has ruled that MERS's business practices are unlawful. He explicitly acknowledged that this ruling sets a precedent that has far-reaching implications for half of the mortgages in this country. MERS is dead. The banks are in big trouble. And all foreclosures should be stopped immediately while the legislative branch comes up with a solution.
For some weeks I have been arguing that MERS is perpetrating foreclosure fraud all across the nation. Its business model makes it impossible to legally foreclose on any mortgaged property registered within its system -- which includes half of the outstanding mortgages in the US. MERS was a fraud from day one, whose purpose was to evade property recording fees and to subvert five centuries of property law. Its chickens have come home to roost.
Wall Street wanted to transform America's housing sector into the world's biggest casino and needed to undermine property rights to make it easier to run the scam. The payoffs were bigger for lenders who could induce homeowners to take mortgages they could not possibly afford. The mortgages were packaged into securities sold-on to patsy investors who were defrauded by the "reps and warranties" falsely certifying the securities as backed by top grade loans. In fact the securities were not backed by mortgages, and in any case the mortgages were sure to go bad. Given that homeowners would default, the Wall Street banks that serviced the mortgages needed a foreclosure steamroller to quickly and cheaply throw families out of the homes so that they could be resold to serve as purported collateral for yet more gambling bets. MERS -- the industry's creation -- stepped up to the plate to facilitate the fraud. The judge has ruled that its practices are illegal. MERS and the banks lose; investors and homeowners win.
Here's MERS's business model in brief. Real estate property sales and mortgages are supposed to be recorded in local recording offices, with fees paid. With the rise of securitization, each mortgage might be sold a dozen times before it came to rest as the collateral behind a mortgage backed security (MBS), and each of those sales would need to be recorded. MERS was created to bypass public recording; it would be listed in the county records as the "mortgagee of record" and the "nominee" of the holder of mortgage. Members of MERS could then transfer the mortgage from one to another without all the trouble of changing the local records, simply by (voluntarily) recording transactions on MERS's registry.
A mortgage has two parts, the "note" and the "security" (not to be confused with the MBS) or "deed of trust" that is usually just called the "mortgage". The idea behind MERS was that the "note" would be transferred from seller to purchaser, but the "mortgage" would be held by MERS. In fact, MERS recommended that the "note" be held by the mortgage servicer to facilitate foreclosures, but in practice it seems that the notes were often lost or destroyed (which is why all those Burger King Kids were hired to Robo-sign "lost note affidavits").
At each transfer, the note and mortgage are supposed to be "assigned" to the new owner; MERS claimed that because it was the "mortgagee of record" and the "nominee" of both parties to every transaction, there was no need to assign the "mortgage" until foreclosure. And it argued that since the old adage is that the "mortgage follows the note" and that both parties intended to assign the notes (even if they did not get around to doing it), then the Bankruptcy Court should rule that the assignments did take place in some sort of "virtual reality" so that there is a clear chain of title that allows the servicers to foreclose.
The Judge rejected every aspect of MERS's argument. The Court rejected the claim that MERS could be both holder of the mortgage as well as nominee of the "true" owner. It also found that "mortgagee of record" is a vague term that does not give one legal standing as mortgagee. Hence, at best, MERS is only a nominee. It rejected MERS's claim that as nominee it can assign notes or mortgages -- a nominee has limited rights and those most certainly do not include the right to transfer ownership unless there is specific written instruction to do so. In scarcely veiled anger, the Judge wrote:
"According to MERS, the principal/agent relationship among itself and its members is created by the MERS rules of membership and terms and conditions, as well as the Mortgage itself. However, none of the documents expressly creates an agency relationship or even mentions the word "agency." MERS would have this Court cobble together the documents and draw inferences from the words contained in those documents."
Judge Grossman rejected MERS's arguments, saying that mere membership in MERS does not provide "agency" rights to MERS, and agreeing with the Supreme Court of Kansas that ruled "The parties appear to have defined the word [nominee] in much the same way that the blind men of Indian legend described an elephant -- their description depended on which part they were touching at any given time."
He went on to disparage MERS's claim that since in legal theory the "mortgage follows the note", the Court should overlook the fact that MERS separated them. He stopped just short of saying that by separating them, MERS has irretrievably destroyed the clear chain of title, although he hinted that a future ruling could come to that conclusion:
"MERS argues that notes and mortgages processed through the MERS System are never "separated" because beneficial ownership of the notes and mortgages are always held by the same entity. The Court will not address that issue in this Decision, but leaves open the issue as to whether mortgages processed through the MERS system are properly perfected and valid liens. See Carpenter v. Longan, 83 U.S. at 274 (finding that an assignment of the mortgage without the note is a nullity); Landmark Nat'l Bank v. Kesler, 216 P.3d 158, 166-67 (Kan. 2009) ("[I]n the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable")."
That would mean not only the end of MERS, but also the end of the banks holding unenforceable mortgages because they were not, and cannot be, "perfected". MERS and the banks screwed up big time, and there is no "do over" -- there is no valid lien on the property, so owners have got their homes free and clear.
There have been numerous court rulings against MERS -- including decisions made by state supreme courts. What is significant about the US Bankruptcy Court of New York's ruling is that the judge specifically set out to examine the legality of MERS's business model. As the judge argued in the decision, "The Court believes this analysis is necessary for the precedential effect it will have on other cases pending before this Court". In the scathing opinion, Judge Grossman variously labeled MERS's positions as "stunningly inconsistent" with the facts, "absurd, at best", and "not supported by the law". The ruling is a complete repudiation of every argument MERS has made about the legality of its procedures.
What is particularly ironic is that MERS actually forced the judge to undertake the examination of its business model. The case before the judge involved a foreclosed homeowner who had already lost in state court. The homeowner then approached the US Bankruptcy Court to argue that the foreclosing bank did not have legal standing because of MERS's business practices. However, by the "Rooker-Feldman" doctrine (or res judicata), the US Bankruptcy Court is prohibited from "looking behind" the state court's decision to determine the issue of legal standing. Hence, Judge Grossman ruled in the bank's favor on that particular issue.
Yet, MERS's high priced lawyers wanted to push the issue and asked for the Judge to rule in favor of MERS's practices, too. So while MERS won the little battle over one foreclosed home, it lost the war against the nation's homeowners. The Judge ruled against MERS on every single issue of importance. And it was MERS's stupid arrogance that brought it down.
As I predicted two weeks ago, MERS would be dead within weeks. Judge Grossman has driven the final stake through its black heart. The half of America's homeowners whose mortgages are registered at MERS have been handed a "get out of jail free" card. Wall Street has no right to foreclose on their property. The tide has turned. It won't be easy, but homeowners in those states with judicial foreclosures now have Judge Grossman on their side. Those in the other states (just over half) will have a tougher time because they can lose their home before they ever get to court. But the law is still on their side -- foreclosure by members of MERS is theft -- so class action lawsuits may be the way to go.
MERS is dead, but can the banks survive? There are two separate issues. First, there are the "reps and warranties" given by the mortgage securitizers (Wall Street investment banks) to the investors (pension funds, GSEs, PIMCO, and so on). We now know that a quarter to a third of the mortgages bundled to serve as backing for the securities did not meet stated quality. Worse, we also know that the banks knew this -- they hired third parties to undertake "due diligence" to check quality. This was not done to protect the investors, rather, the purpose was to strengthen the bargaining position of the securitizers, who were able to reduce the prices paid for the mortgages. Now, the investors are suing the banks for restitution--forcing them to cover the losses and buy-back the bad mortgages at original price. To add insult to injury, even the NYFed is suing them. That is a lot like having your parents sue you for their inadequate parental oversight of your behavior.
The second issue is that the mortgages backing the securities were supposed to be placed in Trusts (affiliates of the securitizing banks), with the Trustee certifying not only that the mortgages met the reps and warranties but also that the documents were up to snuff and safely locked away. We know they were not. As mentioned above, MERS told the servicers to hold the notes, and many or most of them were destroyed or lost. Further, the notes were separated from the mortgages -- making them null and void. In any case, they are not at the Trusts. This means the MBSs are not backed by mortgages, meaning the MBSs are unsecured debt. MERS's business model ensures that. So, again, the banks must take back the fraudulent securities -- paying off the investors.
What can Wall Street do? Well, I suppose the "help wanted" signs are already up at MERS and Wall Street banks: "Needed: Burger King Kids to Robo-sign forged quasi-professional-looking docs". The problem is that even with tens of thousands of Robo-Kids, Wall Street will not be able to pull off a vast criminal conspiracy on the necessary scale. Think about it: 60 million mortgages, each sold ten times, means 600 million transactions and assignments that have to be forged. MERS's documentation was notoriously sloppy, relying on voluntary recording by members. The Robo-Kids would have to go back through a decade of records to manufacture a paper trail that would convince now-skeptical judges that there is a clear chain of title from the first recording in the public record through to the foreclosure. It ain't going to happen.
The only other hope is that Wall Street can call in its campaign contribution chips and get Congress to retroactively legalize fraud. That is what they do in those dictatorships that protestors are now bringing down in the Middle East. Is Washington willing to take that risk, just to please its Wall Street benefactors?
The court document is available here. It is terrific reading.
Posted by Wendy S., Thursday, February 16th, 2012 @ 1:22pm
Front Page of the NY Times February 16, 2012
By GRETCHEN MORGENSON
An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday.
Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggest how pervasive foreclosure irregularities may be across the nation.
The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.
Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.
Kathleen Engel, a professor at Suffolk University Law School in Boston said: "If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest."
The report comes just days after the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general, including California’s. Among other things, that settlement requires participating banks to reduce mortgage amounts outstanding on a wide array of loans and provide $1.5 billion in reparations for borrowers who were improperly removed from their homes.
But the precise terms of the states’ deal have not yet been disclosed. As the San Francisco analysis points out, "the settlement does not resolve most of the issues this report identifies nor immunizes lenders and servicers from a host of potential liabilities." For example, it is a felony to knowingly file false documents with any public office in California.
In an interview late Tuesday, Mr. Ting said he would forward his findings and foreclosure files to the attorney general’s office and to local law enforcement officials. Kamala D. Harris, the California attorney general, announced a joint investigation into foreclosure abuses last December with the Nevada attorney general, Catherine Cortez Masto. The joint investigation spans both civil and criminal matters.
The depth of the problem raises questions about whether at least some foreclosures should be considered void, Mr. Ting said. "We’re not saying that every consumer should not have been foreclosed on or every lender is a bad actor, but there are significant and troubling issues," he said.
California has been among the states hurt the most by the mortgage crisis. Because its laws, like those of 29 other states, do not require a judge to oversee foreclosures, the conduct of banks in the process is rarely scrutinized. Mr. Ting said his report was the first rigorous analysis of foreclosure improprieties in California and that it cast doubt on the validity of almost every foreclosure it examined.
"Clearly, we need to set up a process where lenders are following every part of the law," Mr. Ting said in the interview. "It is very apparent that the system is broken from many different vantage points."
The report, which was compiled by Aequitas Compliance Solutions, a mortgage regulatory compliance firm, did not identify specific banks involved in the irregularities. But among the legal violations uncovered in the analysis were cases where the loan servicer did not provide borrowers with a notice of default before beginning the eviction process; 8 percent of the audited foreclosures had that basic defect.
In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, "a ‘stranger’ to the deed of trust," gained ownership of the property; as a result, the sale may be invalid, it said.
In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.
Banks involved in buying and selling foreclosed properties appear to be aware of potential problems if gaps in the chain of title cloud a subsequent buyer’s ownership of the home. Lou Pizante, a partner at Aequitas who worked on the audit, pointed to documents that banks now require buyers to sign holding the institution harmless if questions arise about the validity of the foreclosure sale.
The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.
The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. "We can deduce from the public evidence," the report noted, "that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question."
Please join the Anti Foreclosure Network as we band together to help preserve our homes. Strength in numbers.
Posted by John, Thursday, February 9th, 2012 @ 9:11am
Camden County, New Jersey - With all the foreclosures that have been happening around the nation, this story shows how the Courts have been siding with the banks, turning a blind eye to predatory lending practices, and depriving homeowners of their property.
Currently in front of the District court is a case of first impression. The parties involved are a title company who provided settlement services, law firm who represented the lending bank in the state foreclosure action, Superior Court of New Jersey, a judge and two judiciary employees. The case currently under No. 1:11-cv-05110 alleges that the Superior Court of New Jersey had full knowledge that the borrower was a victim of predatory lending practices but still foreclosed.
Exhibits attached to the federal complaint show that an expert witness evaluated the mortgage loan and found several violations of the Truth in Lending Act, Real Estate Settlement Procedural Act, Regulation Z, and Home Ownership Equity Protection Act. In a nut shell the borrower was never sent any of the federally required disclosure documents prior to, during and after the closing of the mortgage. The borrower signed a 1003 Universal Residential Loan Application for a thirty year fixed rate mortgage but instead was given a five year balloon note mortgage.
Exhibits of the transcripts of the motion for summary judgment in the state courts were attached to the complaint. The transcripts show that the state court judge witnesses all that was previously stated, but on top of that the court attempted to coerce the borrower on several occasions to drop his counterclaim against the bank and work out a deal to get the mortgage he originally applied for. Since the borrower would not, the state court foreclosed.
Posted by Ari, Wednesday, February 8th, 2012 @ 11:25pm
February 8, 2012
In an opinion released today on JPM’s Motion for Clarification, the Florida 4th District Court of Appeal has reversed a summary judgment which was entered in favor of JPM, which is the claimed “trustee” of a securitized mortgage loan trust. The opinion clarifies the importance and necessity of evidence as to when an endorsement is placed on a note for purposes of standing to sue.
A MERS Assignment of the “lost note” from the (bankrupt) American Brokers’ Conduit was executed three days after the lawsuit was filed. JPM later managed to “find” the original “lost” note, and filed the note with an undated ”special endorsement” to JPM by American Brokers’ Conduit.
The important point of this opinion is that the Court focused on the fact that the “special endorsement” to JPM on the note was undated, and that JPM’s Affidavit in support of its motion for summary judgment contained no evidence or information was to when JPM became the owner of the note. As such, this Florida appellate court has finally dug deeper into the “endorsement” argument used by “banks”, and has held that there has to be evidence as to when the endorsement was placed on the note and that this evidence must show that the plaintiff had the right to enforce the note on the date that the suit was filed (citing a 2011 opinion from a Vermont court in support of its conclusion).
The last sentence of the opinion is perhaps the most significant: “An evidentiary hearing may also be required if there is disputed evidence on an issue, such as to the date the note was endorsed to Chase.” All too often, the “endorsements” do not bear a date as to when the endorsement was placed on the note, which this opinion now makes clear is an issue of material fact which precludes summary judgment.
What the opinion did not discuss was the issue of whether MERS, as the alleged “nominee” of the bankrupt American Brokers’ Conduit, even had the authority to execute the Assignment, or under what authority the bankrupt American Brokers Conduit could have placed the undated endorsement on the note to begin with.
We thank one of our dedicated readers for providing a copy of this opinion to us today.
This is an appeal from an order that sustained Appellee's "Motion to Set Aside Judgment and Sheriff's Sale." We affirm.
The relevant background underlying this matter can be summarized in the following manner. In October of 2006, Appellant filed a complaint in mortgage foreclosure against Appellee. According to the complaint, Appellee owns a home subject to a mortgage for which Appellant is the mortgagee. Appellant averred that Appellee's mortgage was in default due to Appellee's failure to pay her monthly mortgage costs. The parties eventually agreed to settle the matter. In short, the parties agreed to enter a judgment in favor of Appellant for $217,508.81 together with interest. They further agreed that, so long as Appellee made regular payments to Appellant, Appellant would not execute on the judgment. The trial court approved the parties' settlement on May 7, 2009.
On April 5, 2010, Appellant filed an affidavit of default wherein it alleged that Appellee had defaulted on her payment obligations. The following day, Appellant filed a praecipe for writ of execution. On August 2, 2010, the subject property was sold by sheriff's sale; Appellant was the successful bidder.
On August 31, 2010, Appellee filed a document which she entitled "Motion to Set Aside Judgment and Sheriff's Sale." Appellee contended that the trial court lacked subject matter jurisdiction over the matter because Appellant failed to comply with the notice requirements of the Homeowner's Emergency Mortgage Act, 35 P.S. §§ 1680.401c et seq. ("Act 91"). More specifically, Appellee maintained that the Act 91 notice she received from Appellant failed to inform her that she had thirty days to have a face-to-face meeting with Appellant. After holding a hearing, the trial court agreed with Appellee that the Act 91 notice was deficient. The court issued an order setting aside the sheriff's sale and the judgment; the order also dismissed Appellant's complaint without prejudice. Appellant timely filed an appeal.1
In its brief to this Court, Appellant asks us to consider the following questions:
A. Did Section 403c of Act 91 require [Appellant] to notify [Appellee] of an option to have a face to face meeting with [Appellant] where both the plain language of the statute and the history of such Act evidence a legislative intention to vest in the Agency the discretion to select which of these options should have been offered to homeowners in the Uniform Notice adopted by the Agency for use by all Lenders under the Act?
B. Was not the determination of the Pennsylvania Housing Finance Agency to remove any reference in its model Uniform Act 91 notice to homeowners having a face to face meeting with their lenders reasonable and consistent with the stated purpose and goals of such Act?
C. Should not the court below have deferred to the experience and expertise of the Agency in its administration of the Act, and should not the court below have upheld the validity of the Act 91 Notice sent to [Appellee] herein where such notice was entirely consistent with the model Uniform Notice adopted by the Agency for use by all lenders?
D. Even if the Act 91 notice should have offered [Appellee] the option of having a face to face meeting with her lender, should the court below have dismissed this action for lack of subject matter jurisdiction where [Appellee] had fully exercised her rights under Act 91 and was not in any way prejudiced by such omission?
E. Should not [Appellee] have been estopped from raising any objection to the Act 91 notice provided to her, and should not [Appellee's] objection to such notice have been barred by laches, where [Appellee] admitted to the validity of such notice in discovery and consented to the entry of judgment, and where [Appellee's] objection to such notice was made for the first time after a sheriff's sale had been held almost four (4) years after the commencement of the action?
Appellant's Brief at 3-4.
As an initial matter, we will consider whether the trial court properly entertained the Act 91 notice issue that Appellee presented in her "Motion to Set Aside Judgment and Sheriff's Sale." The trial court determined that, when a mortgagee provides to a mortgagor a deficient Act 91 notice and then files a mortgage foreclosure action, the court lacks subject matter jurisdiction to entertain the action. In its argument to this Court, Appellant raises a number of doctrines, including laches and res judicata, in arguing that Appellee untimely presented her Act 91 notice issue. Appellant's Brief at 31-33.
We begin our analysis of this threshold issue by noting the following principles of law.
The test for whether a court has subject matter jurisdiction inquires into the competency of the court to determine controversies of the general class to which the case presented for consideration belongs.
In re Administrative Order No. 1-MD-2003,936 A.2d 1, 5 (Pa. 2007) (citation omitted).
It is the law of this Commonwealth that a judgment may be attacked for lack of jurisdiction at any time, as any such judgment or decree rendered by a court that lacks subject matter or personal jurisdiction is null and void.Bell v. Kater,943 A.2d 293, 298 (Pa. Super. 2008) (citation omitted).
Appellee has never questioned the competency of the trial court to entertain mortgage foreclosure actions. Indeed, the Rules of Civil Procedure govern such actions, Pa.R.C.P. 1141 et seq., and save for exceptions that are irrelevant to this matter, the courts of common pleas have unlimited original jurisdiction over all actions and proceedings in this Commonwealth. 42 Pa.C.S.A. § 931(a). Appellee's complaints regarding the deficiencies in the Act 91 notice sound more in the nature of a jurisdictional challenge based upon procedural matters. Procedurally based jurisdictional challenges can be waived. See, e.g., Hauger v. Hauger, 101 A.2d 632, 633 (Pa. 1954) ("It is the rule that consent or waiver will not confer jurisdiction of the cause of action or subject matter where no jurisdiction exists. However, this rule does not apply to . . . jurisdiction based upon procedural matters, as to which defects can always be waived.") (citation omitted).
However, Appellee correctly highlights that, in the context of discussing subject matter jurisdiction, this Court has concluded, "[T]he notice requirements pertaining to foreclosure proceedings are jurisdictional, and, where applicable, a failure to comply therewith will deprive a court of jurisdiction to act." Philadelphia Housing Authority v. Barbour,592 A.2d 47, 48 (Pa. Super. 1991) (citation omitted), affirmed without opinion,615 A.2d 339 (Pa. 1992); see also, Marra v. Stocker,615 A.2d 326 (Pa. 1992) (concluding that, despite the fact that a judgment had been entered in the underlying mortgage foreclosure action, the trial court erred by refusing to set aside a sheriff's sale where the mortgagee failed to provide to the mortgagor the mortgage foreclosure notice required by 41 P.S. § 403). We are bound by these decisions. See, e.g., Commonwealth v. Hull,705 A.2d 911, 912 (Pa. Super. 1998) ("It is beyond the power of a panel of the Superior Court to overrule a prior decision of the Superior Court."). For this reason, we conclude that the trial court properly considered whether the pertinent Act 91 notice was deficient.
Moving forward, we note that the parties agree that, at the time relevant to this appeal, Act 91 provided, in pertinent part, as follows:
Before any mortgagee may accelerate the maturity of any mortgage obligation covered under this article, commence any legal action including mortgage foreclosure to recover under such obligation, or take possession of any security of the mortgage debtor for such mortgage obligation, such mortgagee shall give the mortgagor notice as described in section 403-C. [35 P.S. § 1680.403c.] Such notice shall be given in a form and manner prescribed by the [Pennsylvania Housing Finance Agency ("agency")]. Further, no mortgagee may enter judgment by confession pursuant to a note accompanying a mortgage, and may not proceed to enforce such obligation pursuant to applicable rules of civil procedure without giving the notice provided for in this subsection and following the procedures provided for under this article.
35 P.S. § 1680.402c (amended July 8, 2008, effective September 8, 2008) (emphasis added).
(a) Any mortgagee who desires to foreclose upon a mortgage shall send to such mortgagor at this or her last known address the notice provided in subsection (b): Provided, however, That such mortgagor shall be at least sixty (60) days contractually delinquent in his mortgage payments or be in violation of any other provision of such mortgage.
(b)(1) The agency shall prepare a notice which shall include all the information required by this subsection and by section 403 of the act of January 30, 1974 (P.L. 13, No. 6), referred to as the Loan Interest and Protection Law. This notice shall be in plain language and specifically state that the recipient of the notice may qualify for financial assistance under the homeowner's emergency mortgage assistance program. This notice shall contain the telephone number and the address of a local consumer credit counseling agency. This notice shall be in lieu of any other notice required by law. This notice shall also advise the mortgagor of his delinquency or other default under the mortgage and that such mortgagor has thirty (30) days to have a face-to-face meeting with the mortgagee who sent the notice or a consumer credit counseling agency to attempt to resolve the delinquency or default by restructuring the loan payment schedule or otherwise.
(2) The notice under paragraph (1) must be sent by a mortgagee at least thirty (30) days before the mortgagee:
(i) asks for full payment of any mortgage obligation; or
(ii) begins any legal action, including foreclosure, for money due under the mortgage obligation or to take possession of the mortgagor's security.
(3) The proposed notice under paragraph (1) shall be published by the agency in the Pennsylvania Bulletin within one hundred twenty (120) days of the effective date of this paragraph. The notice actually adopted for use by the agency shall be promulgated as part of the program guidelines required by [35 P.S. § 1680.401c]. . . .
35 P.S. § 1680.403c (amended July 8, 2008, effective September 8, 2008) (emphasis added).
As to the facts of this case, the parties agree that Appellant sent to Appellee an Act 91 notice and that the notice informed Appellee that she had thirty days to have a face-to-face meeting with a consumer credit counseling agency. They further agree that the Act 91 notice did not inform Appellee that she could meet face-to-face with the mortgagee, i.e., Appellant. The trial court interpreted the language highlighted above to mean that the Act 91 notice sent by Appellant to Appellee had to inform Appellee that she had thirty days either to have a face-to-face meeting with Appellant or to have a face-to-face meeting with a consumer credit counseling agency. Because the Act 91 notice Appellant sent to Appellee failed to inform Appellee that she could meet with Appellant, the trial court concluded that the notice was deficient and that the court thus lacked subject matter jurisdiction to entertain the matter, presumably from the time that Appellant filed its complaint. Consequently, the court set aside the sheriff's sale and the judgment and then dismissed Appellant's complaint without prejudice.
Appellant begins its argument to this Court by documenting the history of Act 91 and its notice requirements. Appellant next challenges the trial court's interpretation of the relevant version of the Act 91 notice provision. According to Appellant, the trial court's interpretation of Section 1680.403c of Act 91 failed to give effect to the word "or." Appellant maintains that the Legislature intended to vest the agency with the discretion to decide whether the notice sent from a mortgagee to a mortgagor should include the option of the mortgagor meeting face-to-face with the mortgagee or the alternate option of the mortgagor meeting face-to-face with a consumer credit counseling agency. Appellant believes that the agency reasonably chose to include in the notice that it promulgated the option of the mortgagor meeting face-to-face with a consumer credit counseling agency. Appellant argues that the trial court failed to give the agency's interpretation and prerogative due deference. Jumping forward a bit in Appellant's brief, Appellant contends that it was entitled to rely on the notice promulgated by the agency. We pause at this point to address these aspects of Appellant's argument.
While there are multiple layers to Appellant's argument, a relatively straightforward statutory construction analysis reveals whether the trial court erred in its interpretation of Act 91. All matters requiring statutory interpretation are guided by the provisions of the Statutory Construction Act, 1 Pa.C.S.A. § 1501 et seq.2Swords v. Harleysville Insurance Companies,883 A.2d 562, 567 (Pa. 2005) (citations omitted).
Under the Statutory Construction Act, the object of all statutory construction is to ascertain and effectuate the General Assembly's intention. 1 Pa.C.S.[A.] § 1921(a). When the words of a statute are clear and free from all ambiguity, the letter of the statute is not to be disregarded under the pretext of pursuing its spirit. 1 Pa.C.S.[A.] § 1921(b).
At the time relevant to this matter, Section 1680.402c of Act 91 clearly and unambiguously provided that, before a mortgagee could, inter alia, commence a mortgage foreclosure action against a mortgagor, the mortgagee was required to give the mortgagor a notice as described in Section 1680.403c of Act 91. Pursuant to the plain language employed in Subsection 1680.403c(b)(1), this notice was to, inter alia, advise the mortgagor that the mortgagor has thirty days to have a face-to-face meeting with the mortgagee who sent the notice or a consumer credit counseling agency to attempt to resolve the delinquency or default. In other words, Subsection 1680.403c(b)(1) clearly and unambiguously required a mortgagee to provide to a mortgagor notice that the mortgagor had a choice of whether to meet face-to-face with the mortgagee or a consumer credit counseling agency. While Act 91 undeniably empowered the agency to prepare a uniform notice, the Legislature mandated that the notice include all of the information outlined by Act 91's notice provision. 35 P.S. § 1680.403c(b)(1) (amended July 8, 2008, effective September 8, 2008) ("The agency shall prepare a notice which shall include all the information required by this subsection . . ..").
Here, the notice that Appellant provided to Appellee failed to inform Appellee that she could choose to meet face-to-face with Appellant. Consequently, the notice was deficient. Yet, such a conclusion does not end our inquiry.
Relying on Wells Fargo Bank v. Monroe,966 A.2d 1140 (Pa. Super. 2009), Appellant maintains that Appellee was required to prove that she was prejudiced by the deficiency in the Act 91 notice. According to Appellant, Appellee could not meet her burden of proof in this regard because she, in fact, met with Appellant's representatives, which led to the parties entering the agreed upon judgment.
In Wells Fargo Bank, the Monroes defaulted on their mortgage. The mortgage servicer sent to the Monroes an Act 91 notice. Wells Fargo later filed a mortgage foreclosure action against the Monroes. The parties filed competing motions for summary judgment. The Monroes argued, inter alia, that the Act 91 notice was deficient. The trial court nonetheless granted summary judgment in favor of Wells Fargo. The Monroes appealed to this Court.
The Monroes' first issue on appeal was "[w]hether the Trial Court erred by requiring the [Monroes] to show the occurrence of prejudice as the result of their receipt of a defective Act 91 Notice from [Wells Fargo?]" Wells Fargo Bank, 966 A.2d at 1142. This Court described the Monroes' argument under this issue as follows:
Specifically, the Monroes contend that the Act 91 Notice they received "did not identify the Mortgagee, it only identified the Servicer, Countrywide." Monroes' brief at 8. Therefore, they claim that they "did not have the address of the note-holder where they could have sent items pursuant to the Real Estate Settlement Procedures Act or more importantly, a Truth-in-Lending request to rescind their mortgage." Id. The Monroes further assert that "the Act 91 Notice did not provide a place of cure within Westmoreland County where the property is located, nor did it provide a place of cure within a County contiguous to Westmoreland County" and that it "included additional proscribed costs and fees." Id. Based upon these identified errors and in addition to them, the Monroes argue that the trial court required them to show that they were prejudiced by the improper notice, a requirement that they claim does not comply with Pennsylvania law. Id. at 9. Essentially, the Monroes assert that if the Act 91 Notice is improper, prejudice should be presumed.
Wells Fargo Bank, 966 A.2d at 1143.
The Court disposed of this argument as follows:
In response to the Monroes' assertions regarding the Act 91 Notice and the requirement that they show prejudice, we agree with the trial court's conclusion.FN1 The Monroes received an Act 91 Notice and, even if it was defective, they were given and availed themselves of the opportunity to pursue mortgage assistance through the Pennsylvania Homeowners' Emergency Mortgage Assistance Program. They met with a credit counseling agency within the thirty days as provided by the Act 91 Notice and applied for the mortgage assistance. Moreover, the Monroes have provided no legal authority for their position, nor do they suggest what rights they were due above and beyond those that were afforded to them. See Pa.R.A.P. 2119; Bombar v. West American Ins. Co.,932 A.2d 78, 93 (Pa. Super. 2007) (stating that failure to cite relevant authority may result in waiver of the issue). Accordingly, we conclude that the Monroes' first issue is without merit.
FN1. Specifically, the trial court indicated that any issues regarding fees and costs would be addressed at the accounting which takes place after a sheriff's sale and at the time of distribution of the proceeds. T.C.O. at 3. Moreover, we note as to the assertion that the Act 91 Notice failed to provide a local location at which the mortgagor could cure a default, the Pennsylvania Code indicates that an address to which the cure may be sent by mail is sufficient. See 10 Pa.Code § 7.2(ii) (definition of "performance"). Here, an address for Countrywide in Dallas, Texas, was provided as the location to which any cure could be mailed. The Monroes did not take advantage of this option.
Wells Fargo Bank, 966 A.2d at 1143-44.
We find Wells Fargo Bank to be sufficiently distinguishable from the matter sub judice, such that the decision in Wells Fargo Bank has no impact on our decision in this case. As best we can discern, the deficiencies cited by the Monroes, with regard to the Act 91 notice they received, did not implicate Act 91's explicit requirement that the mortgagee's Act 91 notice must inform the mortgagor that the mortgagor can meet face-to-face with the mortgagee or a consumer credit counseling agency. Moreover, unlike in Wells Fargo Bank, there is no failure on the part of the parties to this appeal to provide this Court with pertinent legal authority.
Act 91 contains no language that suggests that an Act 91 notice which fails to advise a mortgagor that the mortgagor can meet with the mortgagee will suffice so long as, during the course of the mortgage foreclosure litigation, the mortgagor cannot prove that he or she was prejudiced by the deficient notice. In fact, Act 91 explicitly states that, before a mortgagee can even commence a mortgage foreclosure action, it must give the mortgagor the notice described in Section 1680.403c; Subsection 1680.403c(b)(1) clearly and unambiguously mandates that the notice must inform a mortgagor, inter alia, that the mortgagor can meet face-to-face with the mortgagee.
We conclude that the trial court did not make an error of law or abuse its discretion by sustaining Appellee's "Motion to Set Aside Judgment and Sheriff's Sale." In conjunction with its ruling, the court properly set aside the sheriff's sale, vacated the judgment, and dismissed Appellant's complaint without prejudice. Accordingly, we affirm the court's order.
Posted by Ari, Thursday, February 2nd, 2012 @ 5:41pm
Chicago — Attorney General Lisa Madigan today filed a lawsuit against Nationwide Title Clearing for filing faulty documents with Illinois county recorders. Nationwide Title Cleaning Inc. (NTC) is a Florida-based company that prepares documents for mortgage servicers to use against borrowers who are in default, foreclosure or bankruptcy.
“The practices that NTC used were a key contributor to the mortgage crisis by undermining the integrity and accuracy of the mortgage servicing and foreclosure process,” Attorney General Madigan said.
NTC provides a range of mortgage loan services to eight of the top 10 lenders and mortgage servicers in the country. NTC specializes in creating, processing and recording mortgage assignments, which are often used for a lender to foreclose on a borrower.
The lawsuit, filed in Cook County Circuit Court, alleges numerous violations of the Illinois Consumer Fraud and Deceptive Practices Act and the Uniform Deceptive Trade Practices Act. Madigan is asking the court to require NTC to review and correct all documents it unlawfully created and recorded in Illinois, and pay back all revenues, profits and gains achieved in whole or in part due to unlawful practices. The suit also asks the court to impose civil penalties against the company.
Attorney General Madigan is committed to holding all entities that contributed to the financial crisis accountable for their unlawful misconduct. As part of those efforts, Madigan sued the national credit ratings agency Standard & Poor’s last week for its fraudulent role in assigning high ratings to risky mortgage-backed investments in the years leading up to the housing market crash. The Attorney General alleged that S&P compromised its independence as a ratings agency by doling out high ratings to unworthy, risky investments as a corporate strategy to increase its revenue and market share.
In December 2011, Madigan and the U.S. Department of Justice reached a $335 million settlement with Countrywide, a subsidiary of Bank of America, for discriminating against thousands of Illinois minority borrowers during the height of the subprime mortgage lending spree. The settlement will provide restitution to harmed Illinois borrowers and is the largest settlement of a fair lending lawsuit ever obtained by a state attorney general. The Attorney General is litigating a similar lawsuit against Wells Fargo alleging widespread discrimination against African American and Latino borrowers.
Madigan led an earlier lawsuit against Countrywide, which resulted in a nationwide $8.7 billion settlement in 2008 over the company’s predatory lending practices. That agreement established the nation’s first mandatory loan modification program. The Attorney General also reached a $39.5 million settlement with Wells Fargo over the bank’s deceptive marketing of extremely risky loans called Pay Option ARMs in 2010.
Assistant Attorneys General Andrew Dougherty, Thomas P. James and Vaishali Rao are handling the case for Madigan’s Consumer Fraud Bureau.
The Federal Trade Commission signaled on Monday that it would continue to crack down on debt collectors who harass consumers for money they may not even be legally obligated to pay.
In the second-largest penalty ever levied on a debt collector, the F.T.C. said that Asset Acceptance, one of the nation’s largest debt collection companies, had agreed to pay a $2.5 million civil penalty to settle charges that the company deceived consumers when trying to collect old debts.
The settlement is part of a broader effort to patrol the industry, agency officials said. The commission said it had pursued eight cases related to debt collection companies over the last two years.
“Our attention to debt collection has increased over the past couple of years because the complaints have been on the rise,” said J. Reilly Dolan, assistant director for the F.T.C.’s division of financial practices.
Consumer complaints about debt collection companies consistently rank as the second-highest category among all complaints at the agency, behind identity theft. But in 2010, complaints jumped 17 percent to 140,036, which represented 11 percent of all complaints in the commission’s database, up from 119,540, or about 9 percent of complaints, in 2009.
Asset Acceptance, based in Warren, Mich., was charged with a variety of complaints, including failing to tell consumers that they could no longer be sued for failing to pay some debts because the debts were too old. The company’s collectors also failed to inform consumers that paying even a small portion of the amount owed would revive the debt — in other words, making a payment would extend the amount of time the collector could legally sue.
Debt collectors have only a certain number of years to sue consumers. The statute of limitations varies by state, but typically ranges from two to 15 years, Mr. Dolan said, beginning when a consumer fails to make a payment. But borrowers often do not realize that making a payment on the old debt may restart the clock.
Among other things, the complaint also contended that the company — which buys unpaid debts for pennies on the dollar from credit card companies, health clubs and telecommunications and utility providers and tries to collect them — reported inaccurate information about the consumers to the credit reporting agencies. It also said that Asset Acceptance failed to conduct a reasonable investigation when it was notified by one of the credit agencies that a debt was being disputed. Moreover, the complaint says that the company used illegal collection practices and that it continued to try to collect debts that consumers disputed even though the company failed to verify that the debt was valid.
The proposed settlement with Asset Acceptance requires the company to tell consumers whose debt may be too old to be collected that it will not sue. It also requires the company to investigate disputed debts and to ensure it has a reasonable basis for its claims before going after the consumer. It is also barred from placing debt on credit reports without notifying the consumer.
The penalty “is certainly a slap on the wrist and probably a little bit more, but it really depends on what the F.T.C. does to enforce this in the coming months and years,” said Robert Hobbs, deputy director at the National Consumer Law Center and author of “Fair Debt Collection” (National Consumer Law Center, 1987). But “it is a great step forward. It is not self-enforcing, and it has a mechanism for the F.T.C. to follow up.”
Still, while the settlement requires the company to take more responsibility for checking the statute of limitations before it contacts consumers, he said most states did not require debt collectors to do that. That means it is up to consumers to know the rules on the statute of limitations, which, he said, can be “an enormously complex legal question.”
In a statement, Asset Acceptance said that the settlement ended an F.T.C. investigation that began nearly six years ago, and that the company did not admit to any of the allegations. “We are pleased to have this matter behind us, and to have clarity on the F.T.C.’s policies and expectations of the debt collection industry,” said Rion Needs, president and chief executive of Asset Acceptance.
In March, another leading debt collection company, West Asset Management, agreed to pay $2.8 million, the largest civil penalty ever levied by the F.T.C., to settle charges that its collection techniques violated the law. The commission charged that West Asset’s collectors often called consumers multiple times a day, sometimes using rude and abusive language, about accounts that were not theirs. The Consumer Financial Protection Bureau and the F.T.C. now share enforcement authority for debt collection companies, though the new bureau has a power that the F.T.C. did not: it can write new rules for debt collectors. But F.T.C. officials said that debt collection enforcement would remain a top priority.
Freddie Mac, the taxpayer-owned mortgage giant, has placed multibillion-dollar bets that pay off if homeowners stay trapped in expensive mortgages with interest rates well above current rates.
Freddie began increasing these bets dramatically in late 2010, the same time that the company was making it harder for homeowners to get out of such high-interest mortgages.
No evidence has emerged that these decisions were coordinated. The company is a key gatekeeper for home loans but says its traders are “walled off” from the officials who have restricted homeowners from taking advantage of historically low interest rates by imposing higher fees and new rules.
Freddie’s charter calls for the company to make home loans more accessible. Its chief executive, Charles Haldeman Jr., recently told Congress that his company is “helping financially strapped families reduce their mortgage costs through refinancing their mortgages.”
But the trades, uncovered for the first time in an investigation by ProPublica and NPR, give Freddie a powerful incentive to do the opposite, highlighting a conflict of interest at the heart of the company. In addition to being an instrument of government policy dedicated to making home loans more accessible, Freddie also has giant investment portfolios and could lose substantial amounts of money if too many borrowers refinance.
“We were actually shocked they did this,” says Scott Simon, who as the head of the giant bond fund PIMCO’s mortgage-backed securities team is one of the world’s biggest mortgage bond traders. “It seemed so out of line with their mission.”
The trades “put them squarely against the homeowner,” he says.
Those homeowners have a lot at stake, too. Many of them could cut their interest payments by thousands of dollars a year.
Freddie Mac, along with its cousin Fannie Mae, was bailed out in 2008 and is now owned by taxpayers. The companies play a pivotal role in the mortgage business because they insure most home loans in the United States, making banks likelier to lend. The companies’ rules determine whether homeowners can get loans and on what terms.
The Federal Housing Finance Agency effectively serves as Freddie’s board of directors and is ultimately responsible for Freddie’s decisions. It is run by acting director Edward DeMarco, who cannot be fired by the president except in extraordinary circumstances.
Freddie and the FHFA repeatedly declined to comment on the specific transactions.
Freddie’s moves to limit refinancing affect not only individual homeowners but the entire economy. An expansive refinancing program could help millions of homeowners, some economists say. Such an effort would “help the economy and put tens of billions of dollars back in consumers’ pockets, the equivalent of a very long-term tax cut,” says real-estate economist Christopher Mayer of the Columbia Business School. “It also is likely to reduce foreclosures and benefit the U.S. government” because Freddie and Fannie, which guarantee most mortgages in the country, would have lower losses over the long run.
Freddie Mac’s trades, while perfectly legal, came during a period when the company was supposed to be reducing its investment portfolio, according to the terms of its government takeover agreement. But these trades escalate the risk of its portfolio, because the securities Freddie has purchased are volatile and hard to sell, mortgage securities experts say.
The financial crisis in 2008 was made worse when Wall Street traders made bets against their customers and the American public. Now, some see similar behavior, only this time by traders at a government-owned company who are using leverage, which increases the potential profits but also the risk of big losses, and other Wall Street stratagems. “More than three years into the government takeover, we have Freddie Mac pursuing highly levered, complicated transactions seemingly with the purpose of trading against homeowners,” says Mayer. “These are the kinds of things that got us into trouble in the first place.”
'We’re in financial jail'
Freddie Mac is betting against, among others, Jay and Bonnie Silverstein. The Silversteins live in an unfinished development of cul-de-sacs and yellow stucco houses about 20 miles north of Philadelphia, in a house decorated with Bonnie’s orchids and their Rose Bowl parade pin collection. The developer went bankrupt, leaving orange plastic construction fencing around some empty lots. The community clubhouse isn’t complete.
The Silversteins have a 30-year fixed mortgage with an interest rate of 6.875 percent, much higher than the going rate of less than 4 percent. They have borrowed from family members and are living paycheck to paycheck. If they could refinance, they would save about $500 a month. He says the extra money would help them pay back some of their family members and visit their grandchildren more often.
But brokers have told the Silversteins that they cannot refinance, thanks to a Freddie Mac rule.
The Silversteins used to live in a larger house 15 minutes from their current place, in a more upscale development. They had always planned to downsize as they approached retirement. In 2005, they made the mistake of buying their new house before selling the larger one. As the housing market plummeted, they couldn’t sell their old house, so they carried two mortgages for 2½ years, wiping out their savings and 401(k). “It just drained us,” Jay Silverstein says.
Finally, they were advised to try a short sale, in which the house is sold for less than the value of the underlying mortgage. They stopped making payments on the big house for it to go through. The sale was finally completed in 2009.
Such debacles hurt a borrower’s credit rating. But Bonnie has a solid job at a doctor’s office, and Jay has a pension from working for more than two decades for Johnson & Johnson. They say they haven’t missed a payment on their current mortgage.
But the Silversteins haven't been able to get their refi. Freddie Mac won’t insure a new loan for people who had a short sale in the last two to four years, depending on their financial condition. While the company’s previous rules prohibited some short sales, in October 2010 the company changed its criteria to include all short sales. It is unclear whether the Silverstein mortgage would have been barred from a short sale under the previous Freddie rules.
Short-term, Freddie’s trades benefit from the high-interest mortgage in which the Silversteins are trapped. But in the long run, Freddie could benefit if the Silversteins refinanced to a more affordable loan. Freddie guarantees the Silversteins' mortgage, so if the couple defaults, Freddie — and the taxpayers who own the company — are on the hook. Getting the Silversteins into a more affordable mortgage would make a default less likely.
If millions of homeowners like the Silversteins default, the economy would be harmed. But if they switch to loans with lower interest rates, they would have more money to spend, which could boost the economy.
“We’re in financial jail,” says Jay, “and we’ve never been there before.”
How Freddie's investments work
Here's how Freddie Mac’s trades profit from the Silversteins staying in “financial jail.” The couple’s mortgage is sitting in a big pile of other mortgages, most of which are also guaranteed by Freddie and have high interest rates. Those mortgages underpin securities that get divided into two basic categories.
One portion is backed mainly by principal, pays a low return, and was sold to investors who wanted a safe place to park their money. The other part, the inverse floater, is backed mainly by the interest payments on the mortgages, such as the high rate that the Silversteins pay. So this portion of the security can pay a much higher return, and this is what Freddie retained.
In 2010 and '11, Freddie purchased $3.4 billion worth of inverse floater portions — their value based mostly on interest payments on $19.5 billion in mortgage-backed securities, according to prospectuses for the deals. They covered tens of thousands of homeowners. Most of the mortgages backing these transactions have high rates of about 6.5 percent to 7 percent, according to the deal documents.
Between late 2010 and early 2011, Freddie Mac’s purchases of inverse floater securities rose dramatically. Freddie purchased inverse floater portions of 29 deals in 2010 and 2011, with 26 bought between October 2010 and April 2011. That compares with seven for all of 2009 and five in 2008.
In these transactions, Freddie has sold off most of the principal, but it hasn’t reduced its risk.
First, if borrowers default, Freddie pays the entire value of the mortgages underpinning the securities, because it insures the loans.
It’s also a big problem if people like the Silversteins refinance their mortgages. That’s because a refi is a new loan; the borrower pays off the first loan early, stopping the interest payments. Since the security Freddie owns is backed mainly by those interest payments, Freddie loses.
And these inverse floaters burden Freddie with entirely new risks. With these deals, Freddie has taken mortgage-backed securities that are easy to sell and traded them for ones that are harder and possibly more expensive to offload, according to mortgage market experts.
The inverse floaters carry another risk. Freddie gets paid the difference between the high mortgages rates, such as the Silversteins are paying, and a key global interest rate that right now is very low. If that rate rises, Freddie's profits will fall.
It is unclear what kinds of hedging, if any, Freddie has done to offset its risks.
At the end of 2011, Freddie’s portfolio of mortgages was just over $663 billion, down more than 6 percent from the previous year. But that $43 billion drop in the portfolio overstates the risk reduction, because the company retained risk through the inverse floaters. The company is well below the cap of $729 billion required by its government takeover agreement.
How Freddie tightened credit
Restricting credit for people who have done short sales isn’t the only way that Freddie Mac and Fannie Mae have tightened their lending criteria in the wake of the financial crisis, making it harder for borrowers to get housing loans.
Some tightening is justified because, in the years leading up to the financial crisis, Freddie and Fannie were too willing to insure mortgages taken out by people who couldn’t afford them.
In a statement, Freddie contends it is “actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates.”
The company said in a statement: “During the first three quarters of 2011, we refinanced more than $170 billion in mortgages, helping nearly 835,000 borrowers save an average of $2,500 in interest payments during the next year.” As part of that effort, the company is participating in an Obama administration plan, called the Home Affordable Refinance Program, or HARP. But critics say HARP could be reaching millions more people if Fannie and Freddie implemented the program more effectively.
Indeed, just as it was escalating its inverse floater deals, it was also introducing new fees on borrowers, including those wanting to refinance. During Thanksgiving week in 2010, Freddie quietly announced that it was raising charges, called post-settlement delivery fees.
In a recent white paper on remedies for the stalled housing market, the Federal Reserve criticized Fannie and Freddie for the fees they have charged for refinancing. Such fees are “another possible reason for low rates of refinancing” and are “difficult to justify,” the Fed wrote.
A former Freddie employee, who spoke on condition he not be named, was even blunter: “Generally, it makes no sense whatsoever” for Freddie “to restrict refinancing” from expensive loans to ones borrowers can more easily pay, since the company remains on the hook if homeowners default.
In November, the FHFA announced that Fannie and Freddie were eliminating or reducing some fees. The Fed, however, said that “more might be done.”
The regulator as owner
The trades raise questions about the FHFA’s oversight of Fannie and Freddie. But the FHFA is not just a regulator. With the two companies in government conservatorship, the FHFA now plays the role of their board of directors and shareholders, responsible for the companies’ major decisions.
Under acting director DeMarco, the FHFA has emphasized that its main goal is to limit taxpayer losses by managing the two companies’ giant investment portfolios to make profits. To cover their previous losses and ongoing operations, Fannie and Freddie already had received $169 billion from taxpayers through the third quarter of last year.
The FHFA has frustrated the administration because the agency has made preserving the value of the companies’ investment portfolios a priority over helping homeowners in expensive mortgages. In 2010, President Barack Obama nominated a permanent replacement for acting director DeMarco, but Republicans in Congress blocked him. Obama has not nominated anyone else to replace DeMarco.
Even though Freddie is a ward of the state, top executives are highly compensated. Peter Federico, who's in charge of the company’s investment portfolio, made $2.5 million in 2010, and he had target compensation of $2.6 million for last year, when most of these leveraged investments were made.
One of Federico’s responsibilities — tied to his bonuses — is to “support and provide liquidity and stability in the mortgage market,” according to Freddie’s annual filing with the Securities and Exchange Commission. Mortgage experts contend that the inverse floater trades don’t further that goal.
ProPublica and NPR made numerous attempts to reach Federico. A woman who answered his home phone said he declined to comment.
The FHFA knew about the trades before ProPublica and NPR approached the regulatory agency about them, according to an FHFA official. The FHFA has the power to approve and disapprove trades, though it doesn’t involve itself in day-to-day decisions. The official declined to comment on whether the FHFA knew about them as Freddie was conducting them or whether the FHFA had explicitly approved them.
On appeal, the Pattersons assert, among other things, that the trial court erred in determining that the foreclosure was valid. While the Pattersons' appeal was pending, this court delivered its decision in Sturdivant v. BAC Home Loans, LP, [Ms. 2100245, Dec. 16, 2011] ___ So. 3d ___ (Ala. Civ. App. 2011). In Sturdivant, BAC Home Loans, LP ("BAC"), initiated foreclosure proceedings on the mortgage encumbering Bessie T. Sturdivant's house before the mortgage had been assigned to BAC. BAC then held a foreclosure sale at which it purchased Sturdivant's house, and the auctioneer executed a foreclosure deed purporting to convey title to Sturdivant's house to BAC. BAC was assigned the mortgage the same day as the foreclosure sale. Thereafter, BAC brought an ejectment action against Sturdivant, claiming that it owned title to her house by virtue of the foreclosure deed. After the trial court entered a summary judgment in favor of BAC, Sturdivant appealed to the supreme court, which transferred her appeal to this court. We held that BAC lacked authority to foreclose the mortgage because it had not been assigned the mortgage before it initiated foreclosure proceedings and that, therefore, the foreclosure and the foreclosure deed were invalid. We further held that, because the foreclosure and the foreclosure deed were invalid, BAC did not acquire legal title to Sturdivant's house through the foreclosure deed and thus BAC did not own an interest in the house when it commenced its ejectment action. We further held that, because BAC did not own any interest in Sturdivant's house when it commenced its ejectment action, BAC did not have standing to bring that action and, consequently, the trial court never acquired subject-matter jurisdiction over the ejectment action. Because BAC did not have standing to bring its ejectment action and the trial court never acquired jurisdiction over the ejectment action, we held that the judgment of the trial court was void, and we vacated that judgment. Moreover, because a void judgment will not support an appeal, we dismissed the appeal.
In the case now before us, GMAC Mortgage, like BAC in Sturdivant, had not been assigned the mortgage before it initiated foreclosure proceedings. Consequently, under our holding in Sturdivant, GMAC Mortgage lacked authority to foreclose the mortgage when it initiated the foreclosure proceedings, and, therefore, the foreclosure and the foreclosure deed upon which GMAC based it ejectment claim are invalid. Moreover, under our holding in Sturdivant, because GMAC Mortgage did not own any interest in the house, it lacked standing to bring its ejectment action against the Pattersons. Because GMAC Mortgage lacked standing to bring the ejectment action, the trial court never acquired subject-matter jurisdiction over the ejectment action. Accordingly, the judgment of the trial court is void and is hereby vacated. Moreover, because a void judgment will not support an appeal, we dismiss this appeal. Id.
JUDGMENT VACATED; APPEAL DISMISSED.
Pittman, Thomas, and Moore, JJ., concur.
Thompson, P.J., concurs in the result, with writing.
Bryan, J., dissents, with writing.
THOMPSON, Presiding Judge, concurring in the result.
Posted by Ari, Tuesday, January 24th, 2012 @ 11:32am
On January 19, 2012, during a weekly membership call, a question was posed to the members asking if anyone has an Assignment of Mortgage filed in their case, or against their property, signed by Judith T. Romano. To everyone's surprise, out of 16 on the call, 8 people confirmed Romano "assigned" their Mortgages.
The Assignments were signed by Romano claiming to act in the capacity of Assistant Secretary and Vice President of Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for numerous servicers and alleged lenders, as well as being Vice President of different servicers. Romano is a practicing attorney and a partner with Phelan Hallinan & Schmieg (PHS), a foreclosure mill law firm with offices in Philadelphia, Mt. Laurel and Newark, New Jersey.
An Assignment created by a law partner of a law firm that is foreclosing on the same Mortgage creates a clear conflict of interest and, in addition, gives the appearance of a financial interest in the outcome of the foreclosure for PHS and their impostor, Romano.
Imposter (according to Black's Law, 9th edition):
One who pretends to be someone else to deceive others, esp. to recceive the benefits of a negotiable instrument.
We can say with certainty that Romano did not come to work to sign these Assignments for free despite being the good-natured soul that she is. It is forbidden for any law firm and their associates to have a financial interest in the outcome of the case they filed to prosecute.
More to follow.
It is through these false Assignment of Mortgages did Romano and Phelan "create" their client's claim to the Mortgage “'together'with the Note." PHS lawyers (all of whom are officers of the court), nor MERS, were not authorized to assign Notes or Mortgagesto a PHS foreclosure plaintiff.
PHS lawyers, inclusive of Romano, intend for others to rely upon these false Assignments. PHS lawyers knew the Assignments would be accepted as self-authenticating documents in court proceedings and relied upon by home owners, adversaries, the Office of Foreclosure within the Administrative Office of the Courts, chancery court judges and law clerks, county clerks, county sheriffs, property purchasers, insurers, their own clients and title insurance companies.
PHS lawyers, inclusive of Romano, knew the false assignments would become part of the official mortgage records filed with county clerks throughout the states. PHS showed reckless disregard for compliance with legal standards governing the conduct of notaries, the use of self-authenticating documents in court proceedings, and the recording of mortgage assignments.
The acts of Judith T. Romano and PHS for their clients, MERS, and the plaintiff constitute a fraud upon the court as well as common law fraud.
“Lenders no longer routinely execute or record Assignments of Mortgage when a loan is transferred because they regard it as unnecessary unless there is a default and too costly and time consuming to do in every case. … By way of example, one large mortgage servicer recently purchased 1.3 million loans from another large servicer. Even if it took one minute per assignment to execute (which itself is a stretch) it would take over ten years to execute all the resulting assignments is same were executed at the rate of 40 hours per week.” So typically at the time the lender makes a decision to foreclose it is not the record mortgagee. To correct that defect, the attorney for the foreclosing mortgagee or the servicer of the loan will create an Assignment of Mortgage for the purposes of litigation which is in turn signed by a robo-signer. Documents recorded with a public official are self executing and have special evidential status and therefore are especially pernicious. Usually the assignment purports not only to assign the mortgage but also the note or underlying obligation. The assignment of the note nearly always contradicts other documents which indicate that the note was transferred at different times and in different manners or not at all.
The assignments appear to be based on the need for them rather than to memorialize an actual assignment of an instrument. ... The signers do not identify themselves by their true title or as being an agent or employee of foreclosure related documents typical of their actual employer. Instead they hold themselves out as vice presidents... "
E. COUNTERFEIT AND ALTERED DOCUMENTS AND NOTARY FRAUD
"Perhaps the most disturbing problem that has appeared in foreclosure cases is evidence of counterfeit or altered documents and false notarizations. To give some examples, there are cases in which multiple copies of the “true original note” are filed in the same case, with variations in the “true original note;” signatures on note allonges that have clearly been affixed to documents via Photoshop; “blue ink” notarizations that appear in blank ink; counterfeit notary seals; backdated notarizations of documents issued before the notary had his or her commission; and assignments that include the words “bogus assignee for intervening asmts, whose address is XXXXXXXXXXXXXXXXX.”
Most worrisome is evidence that these frauds might not be one-off problems, but an integral part of the foreclosure business. A price sheet from a company called DocEx that was affiliated with LPS, one of the largest servicer support firms, lists prices for various services including the “creation” of notes and mortgages. While I cannot confirm the authenticity of this price sheet or date it, it suggests that document counterfeiting is hardly exceptional in foreclosure cases."