Archive for February, 2010

Greg Clark is a brilliant Clearwater, Florida attorney who has been a practicing title attorney for 30 years.  For hundreds of years, a title attorney’s job was to examine all of the records that related to a property and then issue an attorney’s opinion of title or title insurance policy confirming that if his client purchased the property or lent money against the property, they were doing so free of any claims by another other person or party who might claim an interest in the property.  I say that the job “used to be” because after the development of the Mortgage Electronic Registration System or MERS, no attorney can tell you what other party might claim an interest in the property because that information is locked away deep inside a private company…MERS.  A mortgage is recorded in the county public records, but who owns it and who may have any rights to that mortgage is a closely held secret.

Kessler, Azize, New Millennial, BAC Funding The Cases That Crack MERS

A good example of what goes wrong in the secret system is a case called JP Morgan v. New Millennial, a Pinellas County case that was decided correctly by Judge Douglas Baird, who was unfortunately reversed by the Second District Court of Appeal.  I’m going to write a full post on this case later, but it is an important case to know and understand so I post the entire case here. Support for Greg’s important argument is found in a Kansas Supreme Court case, Kessler v. Landmark, which is found here.  A fascinating thing about the Kessler opinion out of way far away Kansas is that it cites another Pinellas County Case, Azize v. MERS, found here.  Now here’s what’s fascinating about the Azize opinion.  MERS “won” that case…the Second DCA found that they could proceed with the foreclosure cases they had filed, but even though they “won” the case, neither MERS nor lenders cite that case or want courts to pay attention to that case.  The reason why is found in footnote number 2:

Although the complaint does not allege how or why MERS came to be the  owner and holder of the note, the trial court’s dismissal wasnot based on this deficit.Since the trial court did not base its ruling on this issue,we offer no opinion as to whether the complaint fails to
properly plead a cause of action without this information being alleged.

By now everyone’s read the BAC Funding case, so I won’t waste time with the opinion, what I will share is the appellate brief that most people haven’t read.  The brief answers many of the questions that are not adequately explained in the Order, and the brief is the important, “secret” information…the “secret” brief can be found here.  This brief should be provided to every judge who hears foreclosure cases to help them apply the BAC opinion to cases in their courtroom that match the facts described in the BAC brief.

What do we know about secrets when they relate to public policy? What place do secrets have in our of public court systems?

Secrets are bad news in almost every context, but they’re especially bad when it comes to matters of public policy and our court systems.  So anyway, Greg Clark makes a brilliant argument that the MERS system is a total violation of real property laws that have existed for literally hundreds of years and that the consequences of this system that violates the law are going to be catastrophic.  Greg posted a comment to my recent questions about the MERS system….I struggled with his argument at first, but as he explains below, the problem is not all that complex and the fundamental violations of law are pretty clear:

Let me give you the short answer to your question of “why the MERS assignments”, if Johns Gillian and its progeny applies: IT DOESN’T and the higher ups, who didn’t want to spend $10.50 (to our clerks of court) to do just one extra assignment, know it.

You see, the original introduction of MERS was post closing, that is, the note and mortgage were, at inception, put into the name of the original lender so you had compliance with the rule of common law, of unity of title of the note and mortgage into one holder. It was after that that the unenforceable attempt at splitting the note from the mortgage, by assignment, occurred, which assignment Florida law holds as a nullity (see Vance, Sobel, etc.).

So the assignment being invalid simply means that you go back “revert’ to the original transaction which was clean and unified in one holder, thus John/Gillian would have applied.

But now it doesn’t because of that extra $10.50 the lenders and mers wanted to pocket. Almost immediately after they started the post closing assignments lenders saw that $10.50 expense and decided to instead split the note and mortgage at the closing, AT INCEPTION, and, in essence, keep the money for themselves (ah, multiplied by 50 or 60 million loans that works out to 5 or 6 billion dollars if my math is right). Problem is that Florida law, which follows the common law of almost every state in the union states that bifurcation of the mortgage from the note renders the mortgage unenforceable, a nullity, was ignored.

This basic principal against note/mortgage splitting was reiterated in the U.S. Supreme court in the Carpenter case a long time ago, even before Johns/Gillian.  To date their exists no statutory or case law abrogating this fundamental concept of property law, which we inherited from English common law, unmodified.

MERS and the foreclosing lender proxies simply hoped (and still hope) they can moonwalk away from the scene of this title failure with these invalid assignments hoping no one notices the fact that an assignment can rise no higher in dignity that the failure of title upon which it is based.

Whats more, even poetic, is that the “MERS mortgage” (even if the court wants to ignore this fundamental failure of title at inception) contains no right, in the grant of the mortgage, allowing MERS to assign its duties as NOMINEE or to transfer or otherwise assign the mortgage.

They have painted themselves into a legal corner.

I’ve been practicing dirt law for some 30 years, writing title, crafting grant language, and chaining ownership, etc. and I understand that most if not all judges were former litigators who simply have no knowledge beyond their law school years in this subcategory of transactional practice and procedure, other than rubber stamping SJs presuming the plaintiffs bar will not lead them into error. (see and read the recent BAC Funding case out of our 2d DCA)

Its the same reason most people sit down and sign closing papers without thinking or reading them: because we have (or had) a solid and fair system or real property law in place for nearly a thousand years behind it each and every one of those deals.

It is now in great doubt whether it is fair or solid or even legal, with the disabling injection of the MERS mortgage and invisible lender lien holder now clouding our record titles.

Anyhow, what mystifies me most is why they took such a big chance. You would have thought that they would have at least tried to adopt nationwide recording/title law changes to allow the MERS mortgage splitting concept. I mean, they undertook the UCC article 9 changes which passed the 50 states to allow the securitization of debt, but they forgot to include the MERS configuration into the changes. They just assumed the real estate mortgage would simply tag along like a caboose into article nine. They rolled the bones that they could circumvent each states legislature and do a private deal with MERS. They likely feared the states would object to the degradation of their record title statutes and the evisceration of their public recording systems, not to mention the loss of recording fee revenue.

MERS, by the way is a privately owned company funded and financed by the big box lenders and, guess who else? The major title insurance companies and ALTA (American Land Title Association). This conflict of interest relationship does not allow for the independent accounting or transparency the public should have when it comes to the biggest investment of our lives. A guy like me who wants to investigate title to make sure my client gets a clean and clear deed or new mortgage can’t determine by relying on the public title records who owns the old mortgage loan that needs to be paid off. We simply run into the MERS strawman and have to hope they give us true and accurate info – if they give us any info at all – as to who to payoff to free title.

MERS is not a government agency looking out for the interests of the public. MERS is a profit driven closely held corporation. They openly seek to privatize all of our public records as they relate to real estate mortgages. Absolute power through control of information.

Absolute power, vested in the hands of private corporate interests.

Hardly egalitarian in a free democracy and open economy.

And this is why note/mortgage splitting, something that is already in derogation of our common law, should not be allowed.

Its just bad business.

JEDTI

G.

http://www.gregorydclarklaw,com

I attach here a copy of an Order signed by Judge Charles Roberts in Sarasota on February 26, 2010.  Please take time to read it carefully.  In it, the judge makes specific findings of fact that the Plaintiff:

1. Failed to show it was entitled to foreclose;

2. Failed to show it was the holder of the note and mortgage;

3. Failed to establish any admissible evidence to show that it validly held the note and mortgage.

Caught one Stinking Fish….How Many Got Away?

The fact that these major issues were caught is good.  The problem is, how many tens of thousands? tens of hundreds of thousands? millions? of judgments of foreclosure have been signed across the country when the Plaintiff:1. Failed to show it was entitled to foreclose 2. Failed to show it was the holder of the note and mortgage 3. Failed to establish any admissible evidence to show that it validly held the note and mortgage.

I believe there are tens of thousands, maybe hundreds of thousands of judgments entered across the state (millions across the country?) where this is the case. I believe depositions of key employees at document preparation mills and foreclosure mills is going to reveal assembly line document fabrication which purports to give Plaintiffs a basis for forecloure, when no proper evidentiary basis exists.  At some point in time in the foreclosure files that the mills have rushed through are going to be carefully examined..if not by defense attorneys what about junior lienholders, certificate holders, bondholders, investment firms….when that happens now we’re talking major problems.

What happens when the assignments of mortgage were improper/fraudulent on their face?

What happens when the note and mortgage and allegations contained within the pleadings are all inconsistent, yet Final Judgment was entered based on “facts” that are of record that do not support that judgment?

And now my final question of the post….WHY ARE PLAINTIFF’S FIRMS/LENDERS BOTHERING TO GET ASSIGNMENTS OF MORTGAGES AT ALL? If Johns v. Gillian and the law as it exists is that lenders do not need an assignment of mortgage, why bother with word processing hundreds of thousands of assignments of mortgages in law firms and document mills all across the country?  In many cases, lenders are coming to the table with original notes. Ignore for the moment how they got them and what entity purports to hold them.  Ignore for the moment that the endorsements/allonges are sloppy/inconsistent/questionable on their face.  Even if a proper lender couldn’t come up with a note, they could still re-establish the note through a copy and there would be no need whatsoever (if the whole “mortgage is but an incident to the debt” argument remains valid) to have an assignment of mortgage.

Why are document mills and foreclosure mills working weekends and around the clock to spit out assignments that purport to transfer mortgages out of MERS and other lenders/entities and into other entities that we no nothing about?

How are we allowing tens of hundreds of millions of dollars to be transferred into things like “The IXIS 2006 Certificateholder, Asset Backed Trust”?

Do judges/courts have any idea who these entities are?  (I’ll answer that one, the answer is no.)

Why are courts across the country transferring bajillions of dollars into alphabet soup entities that no one has any idea who controls or where they are located or what rules apply?

Why Are Courts in Florida Continuing to Rely on Legal Reasoning That Existed in 1938?

Remember that the Johns v. Gillian “mortgage is but an incident to the debt” reasoning applied in tiny little town where parol documentation and other evidence existed that supported the foreclosing lender’s claim to ownership of both the note and the mortgage. Remember Johns v. Gillian is a 1938 case! The judge probably knew everyone in his courtroom (he probably knew the lawyers since they were snot nosed kids running around town kicking cans.  He probably walked past or rode a horse past the property in question each day.  And remember the Johns reasoning applied decades before MERS was even conceived of….Johns simply cannot stand true in the MERS environment…here is Greg Clark’s splitting/Kessler v. Landmark reasoning….Johns only applies when the mortgage and note were not separated right from the very beginning.…How can the Johns reasoning apply in the MERS environment?

Consider all the cases, including WM Specialty v. Saloman and Chemical Residential v. Rector….assignments were of record in those cases and other evidence existed to support claims of ownership.  There is almost no additional evidence of ownership or interest in the cases that are being shoved through courts other than a few questionable documents…..but again the burning question….

Why The Assignments of Mortgage?

Across the State of Florida, foreclosure cases are filed and then for a variety of reasons, those cases are not actively pursued by the Plaintiff or the attorneys that filed the case.  There are any number of reasons why a Plaintiff may choose not to pursue a case, or not be able to pursue a case, like when a pesky borrower or defense attorney or judge asks the Plaintiff to produce some shred of evidence that they have the right to file the lawsuit in the first place or the parties may have reached a settlement and agreed not to proceed with the case.

Whatever the case may be, our courts need a mechanism to ensure these “stale” cases don’t go just languishing around with nobody doing anything.  That mechanism is a nifty little rule called Florida Rule of Civil Procedure, Rule 1.070.  Now anytime you want to check out a Rule of Civil Procedure for Florida Courts, don’t mess around with a book,check out the Florida Rules of Civil Procedure Online. It’s a nifty site because it has not only the Rules, but cases and Orders both from appellate and circuit courts. So back our issue with Rule 1.070…copied from our nifty new site is the text of the rule:

Florida Rules of Civil Procedure
1.070 Process

(j) Summons; Time Limit. If service of the initial process and initial pleading is not made upon a defendant within 120 days after filing of the initial pleading directed to that defendant the court, on its own initiative after notice or on motion, shall 1)direct that service be effected within a specified time or shall 2)dismiss the action without prejudice or 3)drop that defendant as a party; (emphasis added) provided that if the plaintiff shows good cause or excusable neglect for the failure, the court shall extend the time for service for an appropriate period. When a motion for leave to amend with the attached proposed amended complaint is filed, the 120-day period for service of amended complaints on the new party or parties shall begin upon the entry of an order granting leave to amend. A dismissal under this subdivision shall not be considered a voluntary dismissal or operate as an adjudication on the merits under rule 1.420(a)(1).

So if a Plaintiff chooses not to pursue a case,the court sends out a letter to the Plaintiff and says, “Hey Plaintiff, if you don’t do something here, we’re going to dismiss your case.”  All the Plaintiff needs to do is file something, any old something, to prevent the court from dismissing the case. If the  Plaintiff doesn’t file something, the Rule provides the court with three options….as indicated above.

Attached here is a Motion where I describe clearly the three options that are available to the court and the case law that supports each option.  Give the motion a read, and the cases to understand how the rule works in why.

Dropping Defendants, a Bad Decision for Courts To Make

Now in a foreclosure case, the third option, dropping the defendant as a party, is a dangerous business because the court risks making a determination that no tenants exist when tenants might in fact be living in the property.  If the tenants are dropped and the home is sold in foreclosure, their only notice the tenant might get would be the Writ of Possession posted on the door or the lender kicking down the door and throwing their property out on the street.  This might not be such a risk were it not for the widespread phenomena of “Sewer Service” or other improper conduct on the part of lenders and their attorneys, but given the widespread knowledge of this practice, the proper option for the court to select, (and the option that is clearly indicated on those Orders when the rule is invoked) is to Order that the case is dismissed.

No harm, no foul, no risk of irreparable harm to innocent tenants, no violation of their fundamental rights as is the case when the lender and their jack booted thugs kicks down the tenants door and says, “Sorry you paid your rent to your landlord, but he didn’t pay his mortgage and now you’re out on the street.”

Lender Processing Services is a publicly traded company that supports mortgage and lending institutions across the US.  As a publicly traded company, they are required to disclose certain liabilities to the public….the following disclosures come from the LPS form 10k filed with the SEC.  When LPS is acting as an agent for lenders….those lenders will face the same liabilities as their agent…read on….

Litigation

In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. Often, these matters do not include a specific statement as to the dollar amount of damages demanded. Instead, they include a demand in an amount to be proved at trial. For these reasons, it is often not possible to make a meaningful estimate of the amount or range of loss that could result from these matters. Accordingly, we review matters on an ongoing basis and follow the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 450, Contingencies, when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, we base our decision on our assessment of the ultimate outcome following all appeals. We intend to vigorously defend all litigation matters that are brought against us, and we do not believe that the ultimate disposition of any of these lawsuits will have a material adverse impact on our financial position or results of operations. Finally, we believe that no actions, other than the matter listed below, depart from customary litigation incidental to our business.

Schneider, Kenneth, et al. vs. Lender Processing Services, Inc., et al.

On February 17, 2010 this putative class action complaint was filed in the United States District Court for the Southern District of Florida. In a single count complaint, the plaintiffs seek to recover unspecified damages for alleged violations of the Fair Debt Collection Practices Act relating to the preparation and use of assignments of mortgage in foreclosure actions. The defendants include two large banks, as well as LPS and our document solutions subsidiary. The complaint essentially alleges that the “industry practice” of creating assignments of mortgages after the actual date on which a loan was transferred from one beneficial owner to another is unlawful. The complaint also challenges the authority of individuals employed by our document solutions subsidiary to execute such assignments as officers of various banks and mortgage companies. Although we do not believe that our conduct falls under the provisions of the Fair Debt Collection Practices Act, at this early stage we are unable to accurately predict the outcome of this matter.

Regulatory Matters

Due to the heavily regulated nature of the mortgage industry, from time to time we receive inquiries and requests for information from various state and federal regulatory agencies, including state insurance departments, attorneys general and other agencies, about various matters relating to our business. These inquiries take various forms, including informal or formal requests, reviews, investigations and subpoenas. We attempt to cooperate with all such inquiries. Recently, during an internal review of the business processes used by our document solutions subsidiary, we identified a business process that caused an error in the notarization of certain documents, some of which were used in foreclosure proceedings in various jurisdictions around the country. The services performed by this subsidiary were offered to a limited number of customers, were unrelated to our core default management services and were immaterial to our financial results. We immediately corrected the business process and began to take remedial actions necessary to cure the defect in an effort to minimize the impact of the error. We subsequently received an inquiry relating to this matter from the Clerk of Court of Fulton County, Georgia, which is the regulatory body responsible for licensing the notaries used by our document solutions subsidiary. In response, we met with the Clerk of Court, along with members of her staff, and reported on our identification of the error and the status of the corrective actions that were underway. We have since completed our remediation efforts with respect to the affected documents.

A brilliant Clearwater, Florida attorney (Greg Clark) has been making a complex and sophisticated argument against the Plaintiffs of foreclosure cases that I frankly struggled to understand.  Boiled down to simple points, the argument is that a mortgage transaction is based on two documents, 1) a note or the obligation to repay the money; 2) the mortgage which secures the obligation to repay the money to real property.  Clark’s argument is that ownership of those two documents must remain united in order for any subsequent party to enforce a mortgage foreclosure.  He argues that when a mortgage is transferred to one party, (in most cases Mortgage Electronic Registration Systems), but the note or the obligation to repay is transferred to another party (like a securitized trust), subsequent transfers of the mortgage (assignment) are invalid.  The argument goes that when the “chain of title” of a mortgage is broken, you must go back and fix the broken link before the chain can be reconnected and foreclosure pursued.

Clark is a title attorney and he, and others (myself included) have real concerns about the validity of title to property when the chain of mortgage ownership does not appear of public record.  When I perform a title search, I can see every mortgage that is recorded against the property.  The problem with the MERS system, where a mortgage went one way and the foreclosing lender comes in from another is I have no way of knowing how that foreclosing lender came into position to foreclose…the public record only shows that the originating lender holds an interest.  We know from depositions and other information, that agents of MERS and lenders are falsifying assignments of mortgages.  Now that this knowledge is becoming widespread, it cannot be ignored. (Read my next post on Lender Processing Services.)

A Mortgage is a Mere Incident to The Debt

A related inquiry that I struggle with is why the two forms of foreclosure?  If a lender has an original note, courts rely on antiquated case law (Johns v. Gillian, 184 So. 140, 143 (Fla. 1938)) which stands for the proposition that “a mortgage is a mere incident to the debt” and a person in possession of the note can proceed with the separate and distinct count to foreclose the mortgage even without an assignment of mortgage.  Other times, the lenders will obtain an assignment of mortgage….even when they are in possession of the original note.  So if the Johns line of reasoning is correct, why bother to ever obtain an assignment of mortgage?  Even if the lender cannot obtain the original note, if the note is re-established it has the same power as the original.  Why fool around with assignments in any case?

A landmark case from the Kansas Supreme Court, (Kessler v. Landmark) delves into these issues…..

The mortgagee is so well understood as the lender that Black’s Law Dictionary defines a “foreclosure” as an action brought by the lender/mortgagee: a foreclosure is a “legal proceeding to terminate a mortgagor’s interest in property, instituted by the lender (the mortgagee) either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.” Black’s Law Dictionary 674. Similarly, the tie between a mortgage and an underlying debt is so intrinsic that Kansas law provides that “[t]he assignment of any mortgage . . . shall carry with it the debt thereby secured.” K.S.A. 58-2323. Indeed, an assignment of a mortgage without the debt transfers nothing. 55 Am. Jur. 2d, Mortgages § 1002. Thus, the mortgagee, who must have an interest in the debt, is the lender in a typical home mortgage.

But for reasons thought beneficial by a group of lenders who trade mortgages, the form of mortgage used in this case designates an entity that is not the lender as the mortgagee. See MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 96, 828 N.Y.S.2d 266, 861 N.E.2d 81 (2006) (MERS was established by large lenders to allow easy electronic trading and tracking of mortgages). Specifically, the mortgage says that the mortgagee is MERS, though “solely as nominee for Lender.” Does this mean that MERS really was the mortgagee, even though it didn’t lend money or have any rights to loan repayments? Assuming so, MERS argues that it was a necessary party to the foreclosure and that the foreclosure must be set aside. But the premise upon which MERS bases this argument is flawed.  What is MERS’s interest? MERS claims that it holds the title to the second mortgage, not the real estate. So it does, but only as a nominee. In terms of the roles that we’ve discussed in the mortgage business, MERS holds the mortgage but without rights to the debt. The district court found that MERS was merely an agent for the principal player, Millennia. While MERS objects to its characterization as an agent, it’s a fair one.

MERS had no right to the underlying debt repayment secured by the mortgage; MERS did not even act as the servicing agent to receive the payments and remit them to the lender. MERS’s right to act to enforce the mortgage was strictly limited: if “necessary to comply with law or custom,” MERS could foreclose the mortgage or enter a release of the mortgage. MERS certainly could not act at odds to its principal, the lender. Its role fits the classic definition of an agent: one “‘authorized by another to act for him, or intrusted with another’s business.’” In re Tax Appeal of Scholastic Book Clubs, Inc., 260 Kan. 528, 534, 920 P.2d 947 (1996) (quoting Black’s Law Dictionary 85 [4th ed. 1968]).

The secret is out, judges in the Sixth Judicial Circuit of Florida have their judicial robes firmly around the foreclosure crisis and are applying and enforcing existing and new laws that apply in mortgage foreclosure actions. In the face of a growing body of evidence that documents and “evidence” presented by lenders and their attorneys that does not add up, judges are requiring more. According to the brilliant attorney that argued and won this latest motion, Pinellas County attorney Matthew Ellrod:

A MTD is limited to consideration of the four corners of the
complaint and its attachments. Since the note has only been filed
separately and the complaint has not been amended to incorporate those
documents, the later filing must be ignored and the complaint still
fails to state a cause of action until it has been properly amended.
Filing the note separately, and then talking the judge into ignoring the
rules of procedure and considering the filing on the MTD, prohibits your
client from properly raising any defenses or other issues that might
arise out of the form of the newly disclosed note (because you, unlike
the plaintiff, are obeying the legal limitations of MTD’s). At the very
least (though this is not the correct thing), if the court denies the
MTD it should find that the initial complaint and the later-filed note
shall be considered as a whole to be an amended complaint, and allow the
defendants to file responsive papers to the amended complaint within a
certain time.

The Full Text of the Judge’s Order can be found here.