Cuomo Nixing Broker Appraisals?

Fannie Mae and Freddie Mac may stop accepting appraisals ordered by mortgage brokers by Sept. 1 as part of a settlement the two secondary-market agencies are negotiating with New York Attorney General Andrew Cuomo.

Front page of National mortgage news

Well I think the firemen did a fake 30 second inspection, if any, not a real inspection, so I think the corpse was there all along. But it's hard for me to imagine how mortgage fraud operates, all those criminal housing appraisers and loan originators who work together. So if you can't imagine that, you can't imagine murder.

But I applaud your brilliant writing, Tanta, nevertheless.

But if consumer attorneys want to create a siutation in which the simple fact of loss of or irreparable damage to an original note vacates the debt

Tanta, you're supposed to roll your eyes back to the front of your head before you start typing!

i worked in a department that maintained contracts when i was a teen. the company sold/leased very expensive equipment and the very first thing an lawyer ask in court was 'producve the contract' which we couldnt a lot of the time because we would destroy them to save storage costs.

the court wouldnt accept a microfiche copy. this was back when storage space on computers was a fortune and it took huge storage facilities to store millions of paper contracts. it was cheaper to risk losing a few foreclosure cases versus storage fees.

i saw this coming when i heard that banks had started selling off contracts....who maintains those records? cost millions to do it............

There isn't exactly a smoking gun on some issues, but I know where I will/would find it.

There's no information on whether this was a broker deal or a direct retail. There is information on Tristar Title who was a party to many of these, and for whom Ticor Title (it's underwriter) is now holding a very large bag.

Tanta,

Thanks for the well thought out and informative posting. I'm think all of these attacks end up causing further credit contraction and deflation.

This is one of those things the "consumer advocates" will find to be a very shallow victory in the end.

James

To echo a previous comment, this sounds like the work of Marlo Stanfield. Is he working as a mortgage broker now?

The mortgage is a matter of public record. So no matter what happens in court, you are not going to enjoy the property free and clear.

The judge is not going to declare the mortgage null and void, why would he, it's a matter of public record?

The "owner" can delay foreclosure but there's no way he can wind up owning the property fee of the mortgage.

A couple of points:

1. This Lents guy is giving the rest of us deadbeats a bad name.
2. If WAMU cannot prove who owns the note, why should it get paid? The thing is, if the note was sold to Citibank, for example, and WAMU wins, what prevents Citibank from going after Lents?
3. I would tend to agree with Lents. If I had a note worth $1.5 million, wouldn't I want to keep track of it?
4. I wonder if Lents moved for sanctions. Not only might he be able to keep his house for a longer time, but he might be able to get the judge to order WAMU to pay his attorney fees.

Tanta:
Don't you know that we are all victims. I mean how can you really expect this individual to play by the rules. In any case, I think that this is a sad commentary on the legal system and our society's view that everyone is a victim in some way.

Tanta --

This is kind of OT, but Pam Crowley (aka the Paminator) of AppraisersForum was interviewed yesterday by CBS News. Pam is a one woman crusader against mortgage lender appraisal fraud, and the interview had something to do with that.

Support Pam thread --

Let's all Rally together for Pam!- Improving the Profession - Appraisers Forum

Pam on Freddie Mac and OFHEO HPI

Freddie Mac and OFHEO HPI- Fannie Mae, Freddie Mac, USPAP - Appraisers Forum

Pam on Cuomo GSE Deal to Curb Home-Appraisal Abuse

Appraisers Forum

In court, you challenge everything.

Everything.

A similar loophole was, and perhaps still is, used by "Credit Cleaners" looking to discharge debt under the Fair Credit Reporting Act.

When there is a clear difference between the letter and the intent of a law, in most cases, the letter of the law will win.

If this gets to be a big problem, there is a simple solution: change the law. Allow lenders to record the note along with the mortgage and, when the note is transferred, put in a transfer document. Only the lender that has recorded the note will be able to recover funds.

At the height of the bubble, I used to joke that the only house I'd be able to afford would likely have dead bodies stacked in the basement. Now it's looking like I might get away with having to clean out only one or two corpses when I'm ready to buy.

Why have the WaMu executives not been indicted for subornationof perjury? Tanta's point about Lents not deserving to get of scot free is well taken, but our legal system cannot tolerate fraudulent filings by anyone and be able to safely function. A few criminal prosceutions, by forcing parties to actaully look and then do their LNA, should help matters without creating bad precedents.

When was the last time you sat through legal proceeding? Blatant perjury is SOP in US courts. Perjury, even when proven, is seldom prosecuted.

It makes me want to bang my head on my desk.

Hey, they've got animated emoticons for that!

Just make the notes non-negotiable... Oh, that will cause liquidity problems.

As a borrower, don't I at least have the right to know with whom I am dealing? I seriously contemplated on my last loan not allowing transfer without my approval. That might have disqualified me from the loan, I don't know.

I am all for liquidity and all the complexity that lenders want to put on themselves. As a borrower, I want it to be simple: I pay the principal and interest and it never changes (for my fixed loan) and the service provider notifies me on a yearly basis about the escrow.

I don't want to change service providers. I want the opportunity to use electronic transfers and make it easy on myself (the service provider should want that, too, as it gives them certainty that the loan would be paid).

As for information on the loan being in public records... The problem is not that SSNs are on the loans, but that SSNs are being used for identification purposes. On the other hand, almost any other identifier would be similarly used.

There is a lot to be said for easy credit enabled by use of SSNs. On the other hand, there are some of us who would like to opt out from the easy credit (and the accompanying ID theft), but keep some access to credit. Unfortunately, there is no real means for doing so.

One more thing.  I am current on my note and have no intention of missing any payments during the pendency of my suit.  So I am no deadbeat.

Real Property 101.

A recordation is nothing more or less than the provision of constructive notice to the world of what has been recorded.

Recordation of a mortgage is nothing more or less than the equivalent of putting a giant billboard into orbit that the whole world can see that says, "on this date, you should all know the following document was presented to the recording clerk" and so on.

Recordation of a mortgage does NOT make a mortgage valid or the note underlying it valid.

Recordation of a mortgage MAY be admissible evidence to prove there was at one time such a mortgage, and MAY be evidence to prove there was a note, but it is NOT evidence that the mortgage or note still exists or the note unpaid.

Plenty of stupid people pay off liens and notes and fail to have the recordation adjusted; it doesn't change the fact that the note no longer exists and the homeowner is entitled to have expunged the mortgage.

There indeed is a way to own property free and clear of a previously recorded mortgage, it's called an action to quiet title, and in such an action it would be necessary to prove the absence of encumbrance; however, whether there would be a burden of production on the mortgage/note holder is a matter of state law; possibly parol (oral testimony) evidence or lost certificates would do it.

Other than that, I don't see why it's wrong to defend someone in a FC action not by subornation but by insisting that the creditor meet its burdens of proof and production. In fact, I would think failure to do that would be actionable.

As far as I am concerned, you make the plaintiff in FC prove he/she has standing to bring the action if you have any reason to suspect he/she can't prove same.

TO BE VERY CLEAR HERE:

IN ANY ACTION, CIVIL OR CRIMINAL, THE PLAINTIFF/PROSECUTOR HAS THE BURDENS OF PRODUCTION AND PROOF (OVERSIMPLIFIED I KNOW) OF EVERY ELEMENT OF THE CAUSE OF ACTION, AND IT IS NOT WRONG TO MAKE HIM/HER SO PROVE.

WHERE IS IT COMING FROM THIS IDEA THAT ITS IMMORAL TO MAKE THE PLAINTIFF PROVE HIS CASE ACCORDING TO THE APPLICABLE RULES?

Excellent analysis/commentary Tanta; great article! Thanks.

Cheers,

Is today's lesson: "Neither a Lentser nor a borrower be?"

Thanks, I'll be here all week.

Sorry. Couldn't resist.

Tanta, the distinction you're missing is that in this case no one appears to have the original note. So it's impossible to establish that the forecloser is the purported agent of the noteholder.

The court will not allow a foreclosure in this case, because it is impossible to verify who the actual noteholder is. To do anything else would allow some banks to "sell" the mortgage to multiple buyers (as appears to have happened in various cases, but that's an entirely different topic). This may appear to be heavy-handed legalism, but it's the only practical solution, for the same reason that the court will not garnishee someone's wages if it can't verify that the debtholder is asking for the garnishment, for the exact reason that someone else (the real debtholder) could come along later and assert its true right to garnishment on the same debt.

There's a Hail Mary argument that WaMu may have an action in unjust enrichment against the debtor, but in my view no judge is going to award an equitable remedy in this case. Losing control over a million dollar debt instrument is pure negligence.

Tanta,

WAMU's argument, presumably, was that it owned the note and could foreclose. Lents's argument was that someone owned the note and, if that person showed up, he would relent.

Are we 100% sure that WAMU owned the note? Are we even reasonably sure? Could it have sold the note and not known about it (which is possible, if we accept that WAMU can't find the note, why can't we accept that WAMU can't find evidence that the note was sold?).

Personally, I don't know who owns the note on my house. What prevents the note originator from selling the note, not telling me about it, and coming with a copy to court claiming I did not pay? Sure, its fraud. But under your scenario, I have no protection against the fraud.

I do not trust the lender side of the house enough to give them the leeway. Lenders rightly have one thing on their mind: making money. The company does not care about individuals (which arguably makes this generation of loans different from those in years past, where the local bank owned the mortgage). If we make it easier for them to take advantage of people unable to effectively represent themselves and unable to hire an attorney, they will.

 
Too bad if it gets too expensive.  What has happened is that people are taking shortcuts.  Sometimes doing things right is expensive.  But in the long run its cheaper than taking a shortcut and getting caught.

Scanning doesn't get it anymore than scanning a dollar bill.
 
People do not understand that many notes are what are known as bearer paper.  Depends on the endorsement.
 
But if they are bearer paper that means if they are left on the ground, the person who picks them up can own them every bit as much as a person who picks up a twenty dollar bill.

Tanta writes:
The other thing you have to prove before you can foreclose, after you have proven standing and valid debt, is that the borrower did not pay you.

How do you think that gets proved?

There's a huge difference between proving I didn't pay you (a negative can't be proven) and proving it's you who is entitled to the payment I'm supposed to make. That's the crux of the defendant's argument.

Attorney to Judge: I don't see the plaintiff's name on anything.

Judge: Zzzzzzzzzzzz...Zzzzzzzzzzzz....Snort!... Wha? Oh, yeah, you're right! Clear the courtroom!

Zzzzzzzzzz...Zzzzzzzzz...

Silly me. Here I always thought it was an equitable remedy.

Actually, the servicer may not have standing.  The law of agency dictates whether the servicer has standing.
 
To acquire standing, the servicer has to have the noteholder (the principal) make the servicer the agent of the noteholder.  This takes documentation to establish a principal agent relationship.  If the note is lost, there is no owner of the note to act as principal to designate an agent.  Therfore, the servicer can not be the agent and therefore the servicer would not have standing.
 
 

The kind of comment it is, is that if you are going to write about juridical philosophy, do it thoroughly.

Because you write with the voice of authority, typically asserting, and I have no reason to doubt you at all, that you have extensive experience with these matters, use it.

You should know that where a foreclosure statute requires either an original or, for example, a lost note affidavit, and in the latter case it must be, typically, accompanied by a copy, plus notice to the defendant/obligor that he may object to same, and request indemnification in the event he feels exposed to liability from others in subsequent claims, etc. that it is there because such an equitable remedy as losing title is drastic and irremediable.

By contrast, an action for a LEGAL remedy is not so drastic. A judgment for the payment of money damages can be appealed and even recompensed years later in the event of a fraud on the court.

An equitable remedy like loss of title is final and forever. You take the guy's house and auction it off, other than in rare cases of long-tail redemption rights, it's gone, goodbye, forget it; you can get money recompense later if it was wrongful, but not the property back.

Consequently, foreclosure law is rightfully VASTLY more concerned than that of legal (money damages) that there be NO mistake when foreclosure is sought.

To suggest that it's a burden to be fussy and stuffy about demanding the original note or that you be subject to perjury for saying it's lost when you simply don't want to go to the expense of producing it (if I understand you correctly and that's your position, that there should be no penalty for LNA's done as convenience rather than after thorough search) is to demean the concern of equity with doing no wrong.

So YES ABSOLUTELY it's important to understand that it's an EQUITABLE remedy and not a LEGAL one, or you disregard the entire reason for the entirely reasonable demand of thorough proof of standing and entitlement.

And I'm no deadbeat's sympathizer, but you (the bank or holder) show up and proffer or you don't get the house.

Great post, Tanta.

Now I know why you were hesitant to write it.

I still don't know how you propose to deal with the mechanics of the original document. Sending them out to lawyers is not going to make things work.

It seems to me that there should be some way to certify a copy of a true original. Otherwise, there will be a lot more truly lost notes. That is, some other way to file a copy rather than the original
other then a LNA.

I have extremely limited experience with this, but I believe that an original will can be brought to the courthouse, but that the lawyer has it verified by the court clerk and keeps the original.

Anyway, the one legitimate complaint I can see is:

'"I tried contacting WaMu [Washington Mutual] and couldn't get through to anyone who could help me reset or recast the mortgage," Lents said. He contacted the mortgage broker, Express Financial, which had helped him shop around for the best mortgage in 2001. "They contacted WaMu and were told it couldn't do anything because, even though they were servicing the mortgage, the loan had been sold. It was a Catch-22," Lents said.'

I think that someone needs to address situations where borrowers that want to make an economic case for some sort of relief to be able to find someone to talk to. Otherwise securitization is harming people. My current mortgage is an arm that is held by my local bank, and I can walk in and do a mod for a lower interest rate, rather then refi, by walking over to an officer's desk.

The courts have real problems to deal with and the idea of LNA's is going to be the pivotal aspect of foreclosure is unrealistic.

See, they call it EQUITY because it's supposed to do what's RIGHT. EQUITY and LAW are NOT the same thing, merger or no merger.

If the FC plaintiff cannot prove it holds the note and thus has standing, then it can sue for money damages, but if the securitization trust is harmed by this inability to foreclose, then its beneficiaries have a cause of action for breach of fiduciary duty (and other causes as well). The trustee had no business accepting the trustor's turnover without ascertaining the availability of whatever docs could conceivably be necessary down the line.

And FWIW, the single area least likely to be successfully federally preempted is in evidentiary requirements in real property procedure, which is the ultimate bastion of federalism, so forget it unless you imagine convincing 50 state legislatures to change their laws.

Your original document and your LNA remain at the level of evidence; it is in the power of the judge to find facts. In a small town with few judges, I am used to the few judges habitually connecting the dots and repairing evidence lapses in their factual findings. The judge's behavior in favor of Lents suggests a judge that either is wary of such cases because he never sees anyone more than once--so he has a habit of dotting i's and crossing t's--or is sending a message to someone who has come up short too many times before. At the same time, Lents is playing a game to make things expensive, and the plaintiff has let him get away with it.

On a conciliatory note, and no I am not intimately familiar with MERS, why would it be so hard at a mortgage closing for the escrow agent or title company to scan the originals into a digital image file, compute the digital signature of that image file with a CRC, then email it off to a virtual warehouse and distribute copies to all in attendance.

Forgetting for the moment whether you need to produce the original...

Wouldn't this at least solve the issue of how do we know this is really a true copy (that does come up often enough)?

As long as everyone understands that file is a simulacrum and not a legal original, at least it eliminates the fraud issue.

Tanta, thanks for digging into this story despite how you've been rewarded for it.

To check for understanding: The mortgage itself, the document that Tracy & Hepburn burn in Adam's Rib, the note--it's not duplicable any more than a personal check is.

And that's because it can be assigned and transferred from Local Suits Bank to Chan-Zou Commune's Bank of the PRC, should Hu Coodanode wish to bid on the rights to it. The value in the note transfers to the holder, or 'assignee'.

Hu is buying either an income stream or the right to foreclose, because they go hand-in-hand. Since it's not convenient for him to fly to Kansas every month to collect in person, the price he paid includes a servicing company which we will call WaMu for the purposes of this anecdote.

BLoomberg's reporter is suggesting that some judge in FL may be impeding Local Suits' ability to sell that negotiable instrument to Hu--because the judge thinks that WaMu should quit lying under oath about whether their sprinklers soaked the note, which they are holding on Hu Coodanode's behalf. A service for which they are charging him AND the borrower, I feel certain.

Did I get it, or is more instruction required?

Believe me I've seen cases where proffered copies are met with, "That's not what I agreed to," and then, when the original does turn up and indeed it doesn't match the copies, you'd be amazed how fast things settle.

Just saying that it does happen that there are collateral disputes as to accuracy of copies, and if we're allowing copies either because (my world) the original is TRULY lost or destoryed or because (what I gather yours is) it's too cumbersome and expensive, there has to be a way to avoid dispute as to the accuracy thereof.

It ABSOLUTELY happens in FC proceedings that mortgages were fixed but not all the copies conformed.

At a MINIMUM it should be incumbent on he who would proffer a copy to prove its conforming, so if there's a digital master and you're NOT proferring THAT ONE itself then you have a lot of work to do.

And still not making payments.

Speaking of escrows, Lents is in arrears on the property taxes going back to 2003, according to Palm Beach County. Can't wait to see how he intends to fight that one.

Allan you couldn't be more wrong, it IS immoral to default on a loan; you PROMISED to pay, you DID NOT keep your word, that is immoral.

The fact that it is illegal does not mean it isn't immoral.

Just FYI, I've never had a client who didn't lie. I doubt any other lawyer here will say differently.

Some are worse than others.

BELIEVE me I'm on the side of people honoring their obligations, INCLUDING banks obliged to go find the note or at least REALLY try.

Again, and I'm sorry if I repeat but this didn't get a response...

One big issue is whether the defendant could be faced with liability if another (true) holder shows up later. Many state foreclosure statues entitle the defendant to demand indemnification from the plaintiff in FC using an LNA instead of the original.

NORMALLY this would be done by posting an undertaking.

However, in the case of securitization, how does that happen? Why would an indemnity company put up a bond against assets that are going away when the trust expires?

I'm just saying that most of the legal rights we have now came about because unsavory parties whom we wouldnt want to have home for dinner stood up for themselves.

Most criminal defendants are guilty. That doesnt mean we throw out procedure.

I am not comparing FC to jail, but saying that judges are not UNIFORMLY stupid and other than a private agenda something must be going on here thats making the court put the plaintiff thru the mess.

There isnt ANYONE here who wouldnt FC this guy, but not by shortcutting process.

I'm not your enemy, I'm a purist. Every comment I have made has been intended as ad rem. If inartful phrasing has made it appear otherwise, that was never my intent and I regret such if it be the case.

But no ticket, no laundry.

AS A POSSIBLE COMPROMISE, consider a chain of custody concept.

A five year old copy has problems, but if you find the real copy, and then have a bonded service make a copy and certify it so the original stays safe, and give the defendant opportunity to inspect the original, then that solves the problem of using a Brink's trust, to the extent such problem is real (I say that because if the original were lost in a Fedex to the court, then there'd BE a real case for an LNA, as you yourself suggested in your history).

What's amazing to me is that this guy apparently actually pays his legal bills, but then they usually do or theyd have no representation.

There is.  That is what UCC 3-309 is for.  A legitimate lost note.  If you meet the requirements of UCC 3-309 you can then prove the validity under 3-308.

It simply does not mean that the servicer has to own the note--it has to show it works for the guy who owns the note.

Right, which is performed under SOP by producing...the note. Or an LNA that doesn't contain perjury.

I think you're right, BTW, that bad cases make stinky laws and that the general prejudice against lenders--which they have earned--will lead to outcomes that make the securitization of loans either too expensive or too expensive to bother with.

Where I can't agree with you is the implication that we should all be waiting for a more sympathetic party. Mark Dann is being a prat, but he's got to go to court with the defendants he has, not the defendants he wishes he had.

The regulatory mechanisms that were charged with preventing this exact kind of mess serve consumers, but they also serve the financial industry by lending (har har) credibility to its players. Those players have destroyed not just their own credibility--how many of us assume that Countrywide conveyed a Chicago home with corpse inside? it's not inherently incredible, which it ought to be--but dragged the regulators down with them.

Now comes the court system, to salvage the state's credibility with citizens and foreign investors. The legislators and executive agencies have done all they can to make our version of capitalism into a freaking worldwide laughingstock...the judges can hardly do worse.

And besides, it makes a good show.

OK, I really did read to the bottom here -- phew! What dedication, T!

First, my mind numbs in its attempt to get something original out of this; then it falls into its "legal" groove, considers the sides presented, and the exercise does me good. (Also, reminds me why I'm glad I didn't become a lawyer, and appreciate the skill at clear thinking and expression of those who did.)

Seems the problem arises when the mortgagor is made party to a transaction with someone unknown to him, even though language of original note may permit such.

Difficult perhaps, but solution is to require mortgagor's re-endorsement with each transfer.

There goes securitization, but then, one or two removes from that original signing makes exponentially for vulnerability.

but did you include her extensive rebuttals?

If you were the judge you would have no basis for telling the Defendant to deposit the money into the registry of the court.  If the owner of the note was a non-party, the court has no obligation to protect or take jurisdiction over this non-party. 
 
The defendant has every right to tell the court he will pay the owner of the note once the owner shows up and convinces the court the owner is legitimate.  The defendant also has the right not to pay anyone until the owner is legally established.

Does the mortgage just sit in limbo indefinitely? Does the court give indefinite time to the lender to try and prove ownership of the note? Is there some statute of limitations (say 100 years) after which the mortgage will simply be vacated if no one can prove legal ownership of the note?

Don't quote me on this but I would expect one of two options here - one - the mortage cannot be collected on after the statute of limitations on written contracts has passed (in my state 6 years)

Or, and this is on much firmer ground, the owner can own the house free and clear under adverse possession rules once the time period has passed. Adverse possession is living in a house that is not yours for long enough that the court just calls it yours.

1) The fact that promissory notes are supposed to be negotiable instruments is important. I have read, however, that there are experts on NIs who say that the standard forms used, and the practices employed by servicers may take them out of NI status, which has pretty strict standards.

2) Allowable foreclosure fees are ridiculously low. The GSEs set these. In the National Mortgage Servicer Directory, there is a state-by-state breakdown of what's allowed. So, Tanta, while you're point about back-room costs being artificially low is valid, it's cause is regulation, not market forces, at least in this area.

Re: Ralph Cramdown's comment about an A selling an affidavit to B and then A later selling an affidavit to C and D. Well, I do know for a fact that this was an issue in the late 1980's as an infamous bankruptcy in Houston, Texas The Couch Mortagage Company had at times either "included" or "sold" the same individual mortgage via mortgage pools to more than one "investor" (predominately banks and savings & loans) and numerous properties were either in litigation among investors or eventually abandoned as the financial institutions were purchased, merged or taken into receivership. I am not a gambler but I would be willing to bet there were numerous loans, mortgages, notes, security agreements etc...that have been placed, sold or included in various investment pools (CMO's, CDO's, MBS's)or whatever the financial instrument of the day may be during the most recent "lending"/"real estate" boom. Further, I can only assume there are a large number of players (investment banks, hedge funds, mutual funds, insurance companies, corporations, retirement funds/systems etc.) which have yet to reveal or realize the financial impact of the "investments" that had been purchased.