Judge Arthur Schack might be the American Securitization Forum’s worst nightmare if more people started paying attention to his rulings. The Brooklyn judge has gotten a lot of media coverage for his lack of patience with “dog ate my homework” excuses from bank plaintiffs in foreclosure cases, as manifested by how often he has dismissed cases with prejudice (meaning those parties cannot return to court on the same matter).
But Schack is treated as a curiosity, a maverick. His colorful, rambling decisions reinforce that perception, which is useful from the banks’ perspective: he can be depicted as an outlier rather than as someone who has looked hard at securitization practices and does not like what he sees.
Judge Schack has been relentless in making sure that plaintiffs in foreclosures have their ducks in a row. And his rulings have extensive citations, which means they have the potential to be more influential than typical lower court decisions.
In another blow to securitization industry efforts to minimize the recent Massachusetts Supreme Judicial Court decision in Ibanez (or perversely, spin it as a victory), some of Judge Schack’s earlier decisions come to conclusions similar to those of Ibanez. This confirms the view of Georgetown law professor Adam Levitin, who has argued that Ibanez has the potential to influence the decisions of courts in other title theory states (very rough definition: in a title theory state, the lender holds a deed of trust, which means he owns the property until the borrower pays off the mortgage in full. By contrast, in a lien theory state, the borrower owns the property, but gives the lender a lien against the property which he can exercise to foreclose on the real estate if the borrowers defaults. Title theory states are generally also non-judicial foreclosure states).
If one judge in New York has independently come to Ibanez-like conclusions, the odds are high that other judges in title theory states may have similar reasoning in some of their rulings. This lowers the bar for higher courts to look to Ibanez as a guide. (Update/clarification: NY is a lien theory state, but the use of this sort of reasoning has even more serious implications for title theory states)
In a 2008 decision, Schack goes through a reasoning process similar to the Massachusetts high court, looking whether the chain of assignments of the lien holds up. Note that this much attention paid to the assignment of the lien, as opposed to the borrower note (the IOU), runs contrary to the American Securitization Forum assertion that the mortgage (confusing the name for the lien, which is called a deed of trust in some states) always follows the note (we had indicated here that there were states where this was not the case. Ibanez and its aftermath may demonstrate that we were incorrectly advised as to how many states might take the view that the handling of the lien itself was the primary consideration in determining the right to foreclose).
Judge Schack Decision Wells Fargo v Farmer
This is actually pretty simple. The note and mortgage were supposed to have gone from Argent Mortgage to Ameriquest to Wells Fargo. The judge wanted some evidence that this had actually taken place, as well as of Litton’s status as servicer, and had dismissed the case once, instructing the plaintiffs as to what questions they had to answer.
Judge Schack tries methodically to follow the paper trail and finds it to be wanting. He had questioned the fact that the same party had signed the assignment by Argent and Ameriquest. Without going into the details, no one could produce the corporate resolutions authorizing the same officer to sign for both companies, and Schack rejected the attempted retroactive fix.
Note that separately Judge Schack also made some comments in support of the New York trust theory advanced on this blog. We have said that New York trust law requires that a negotiable instrument like a note be endorsed to a specific party; endorsement in blank or mere endorsement to a trustee, as opposed to a particular trust, does not cut it. Judge Schack is very unhappy that Wells Fargo hasn’t said which trust owns the note, and looks to trust law to question the notion that Litton can be acting on behalf of an unspecified trust:
Since the court does not know for whom WELLS FARGO is the trustee, the court has no way to know if the above-named March 1, 2005 Agreement refers to the instant mortgage….Further, to determine if Ms. Lyman had the authority to execute her affidavit on behalf of plaintiff WELLS FARGO, the court required an inspection of the March 1, 2005 Servicing Agreement….Further, the second December 8, 2008 [sic, it’s 2004] assignment, from AMERIQUEST to “Wells Fargo Bank, N.A., as Trustee”, fails to name a beneficiary for the Trustee. It is axiomatic that “[t]here are four essential elements of a trust: (1) a designated beneficiary; (2) a designated trustee; (3) a fund or other property sufficiently designated or identified to enable title thereto to pass to the trustee; and (4) actually delivery or legal assignment of the property to the trustee, with the intention of passing legal title to such property to the trustee [NY citations follow]…
Therefore, since the AMERIQUEST to WELLS FARGO assignment is silent as for whom WELLS FARGO is the Trustee, plaintiff has failed to demonstrate how the May 5, 2005 limited power of attorney from WELLS FARGO to LITTON authorizes an “affidavit of merit and amount due” by Debra Lyman, Vice President of Litton.
Whoops.
Even more striking, Schack not only deems all the transfers to be invalid, but he reaches the logical conclusion that few judges have been wiling to put in writing: the note and mortgage are owned by a party early in the securitization chain, meaning outside the trust:
Both the December 8, 2004 defective assignments – ARGENT to AMERIQUEST andAMERIQUEST to WELLS FARGO – are voided and cancelled. ARGENT is the owner of the FARMER loan.
Double whoops.
The second case, from August of last year, is fun to read because Judge Schack takes some well deserved pot shots at the plaintiff for ignoring his instructions by coming back to court 290 days after his deadline for responding to his questions and then having the gall to do a combination of ignoring them and providing unsatisfactory answers. And he also dances on its head for having a MERS certifying officer play multiple roles (“Ms. Selman is a milliner’s delight by virtue of the number of hats she wears”) and by changing its story as to how the assignment took place (first by MERS, later by “actual assignment and delivery”).
Forgive any funky formatting:
Judge Schack Decision Bank of New York v. Mulligan
Here the parallel to Ibanez is the efforts of the plaintiffs to rely on a pooling and servicing agreement and a loan schedule to prove transfer. And like Ibanez, the documentation is so deficient that that effort goes nowhere:
The alleged proof presented of physical delivery of the subject MULLIGAN mortgage is a computer printout [exhibit G of motion], dated April 30, 2009, from [*4]Countrywide Financial, which plaintiff’s counsel calls a “Closing Loan Schedule,” and claims, in ¶ 21 of his affirmation in support, that this “closing loan schedule is the mortgage loan schedule displaying every loan held by such trust at the close date for said trust at the end of January 2006. The closing loan schedule is of public record and demonstrates that the Plaintiff was in possession of the note and mortgage about nineteen (19) months prior to the commencement of this action.” There is an entry on line 2591 of the second to last page of the printout showing account number xxxxxxxxxx, which plaintiff’s counsel, in ¶ 22 of his affirmation in support, alleges is the subject mortgage. Plaintiff’s counsel asserts, in ¶ 23 of his affirmation in support, that “[t]he annexed closing loan schedule suffices to proceed in granting Plaintiff’s Order of Reference in this matter proving possession prior to any default.” This claim is ludicrous. The computer printout, printed on April 30, 2009, just prior to the making of the instant motion, has no probative value with respect to whether physical delivery of the subject mortgage was made to plaintiff BNY prior to the August 9, 2007 commencement of the instant action… Plaintiff’s BNY’s claim that the gobblygook computer printout it offered in exhibit G is evidence of physical delivery of the mortgage and note prior to commencement of the action is not only nonsensical, but flies in the face of the complaint and amended complaint…
I suspect readers can point to other lower court rulings that echo key elements of the Ibanez ruling. This is starting to get interesting, and for a change, in a good way.
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But Schack is treated as a curiosity, a maverick. His colorful, rambling decisions reinforce that perception, which is useful from the banks’ perspective: he can be depicted as an outlier rather than as someone who has looked hard at securitization practices and does not like what he sees.
It can be a virtue. As part of public education, the pitch could be: If you investigate the rulings of this honest judge, he explains the law, how the criminals break it, and does it in an entertaining and accessible way, so that those not versed in legalese can follow it.
Just like in the examples here, excerpt the most important legalistic quotes and couple them with appropriate “maverick” quotes from the same ruling.
Reading these cases is very entertaining. How much paperwork do banks rig as they go along in other matters?
“Note that this much attention paid to the assignment of the lien, as opposed to the borrower note”
The decision continually refers to the assignment of the “mortgage and note.” I don’t see any attention paid to the mortgage divorced from the note; rather the court treats them as a unity.
jpe
I am not sure at all what difference it makes – what is your point that he refers to both the assignments of the mortgage and the note – ?
Both assignment are lacking in more ways than one.
It is too bad that the lawyers writing the opinions never spent a day in court.
I admire your continuing efforts to find a word of imagined hope here and there for the banks while they screw both investors and home owners.
So, what is your point????
I have only skimmed Judge Schack’s decisions posted here, but my first takeaway is that he, or maybe more importantly, his Chief Judge, is saying, “bad foreclosure process now, icky quiet titles later that will use up our court resources.”
Courts are seriously under-funded public assets in most places – one reason you don’t ever want to be in one. In other words, court time (your day in court) is a scarce resource, and you better make the “most” of it.
The attorneys for the trusts have pretty much blown any wiggle room if the judges are expected to do title exams and analysis of “alternative” real estate conveyance theories to grant an Order for Sale.
These are supposed to be routine cases and I am interpretting that Judge Schack’s district/division is saying there no such thing anymore.
Note: I probably won’t comment in any detail on NY law. I don’t know it, probably won’t learn it, and it’s organizational flow, both on substantive rules and procedure are a world unto itself.
Very interesting decesions. You just gotta love Judge Schack.
The implication of these rulings is that there has been a monumental failure to record conveyances. RMBS bond holders should be screaming to demand the repurchase of their holdings.
There is the continuing problem of who owns merchantable title? It’s time to dust off the escheat statutes and case law. And, can the wilful failure to record conveyances be construed as a felony? We really do need some prosecutions.
Yves, you write “judges in New York and other title theory states” — NYS is a lien theory state, no?
Eeek, I read past that drafting brain fart. Have corrected and explained further that if you have a judge in a lien theory state thinking this way, it’s less of a stretch to think judges in title theory states will consider Ibanez.
Yves, This site below has a ton of cases.
http://stopforeclosurefraud.com/2010/10/20/new-york-state-court-foreclosure-fraud-cases/
I’m not a bk attorney, but I found the Judge’s ruling on the issue of standing especially interesting. The court is stating ‘no jurisdiction’. It really can’t get any uglier than that. In other words, don’t even bother to file if you can’t show chain of ownership. This is not a fatal problem for the banks by any means, but what it does do is actually make them DO THE PAPERWORK. Perhaps with all the billions of dollars we the people are giving them, they’ll actually hire employees to do the work? (Probably not…it would reduce the bonuses.)
….is actually make them DO THE PAPERWORK… If only it were so simple. The sale,transfer,recording of the mortgage note from say, 2002, legally had to be done in,well, you know, like 2002. The only way it can be done now,in order to “prove” ownership and foreclose, is to forge,fabricate and backdate ALL THE NECESSARY DOCUMENTS. Every single one. Forged. Phony evidence being submitted by attorneys,as officers of the court, to the judge, in order to make our legal system a joke. So,sadly,it’s too late to do the paperwork,hence,the robosigners and “default processing firms”. And the reason no one was listed as owner of the notes in question,is to facilitate the sale of the same note to dozens of investors or their funds worldwide. Sell a 200k mortgage to one person? For 200k? No, sell it to 31 different entities for $6.2 million, and use the incoming cash to pay earlier investors. And this is just ONE MORTGAGE.
Nice comment, “Ian.”
It will unwind differently, that’s all. As demonstrated in the article’s example the title/lien reverts back to the last holder with a properly registered claim. But as that party DID receive fair value from its sale the entity which “purchased” the title/lien should have a valid (and I would think legally enforceable) claim for contractual non-performance. I’d submit a straight forward legal agreement to complete the transfer would correct the problem (causing a chain-reaction until the title/lien finally rests in the current title/lien holder’s hands).
Essentially what I’m arguing is that instead of trying to glue back the broken pieces as they are now eventually the banks will have admit reality and create the actual documentation from scratch once again. There would certainly be massive economies of scale if they all bit the bullet and got together to correct the problems. Of course this would mean abandoning MERS which, I’m sure, they don’t feel is possible without destroying themselves in the process- and they might have a point.
Your argument sounds plausible to me as far as the mortgage goes, and finding someone with standing to foreclose (if the last legitimate owner is not a bankrupt/long gone entity), but I understand the PSAs typically require that certain specific actions be done within a specific time frame. If the actions are not done within that time frame (I think it was usually abot six months from issuance of the PSA) then the derivative that the PSA is supposed to support does not, in fact, have any collateral securing it. IANAL, but it seems like the investors might have a basis to ask for their money back.
To weinerdog43( and anyone else who’s reading here)
The fact that the banks will be allowed to show chain of title is all well and good. Unfortunately, (for them)you are incorrect that that should not be a problem for them. The magnitude of this crisis hinges on the stark reality that most of the mortgages for the past 15 years have been mishandled in a number of ways which means that the re-establishment of a clear chain of title is humanly impossible in many instances.
I mean–they couldn’t do it if they had 5 years time and unlimited resources.
By using either MERS or securitizing the mortgage (and then leaving it out of the trust) lenders have broken Humpty so bad he can not be re-glued.
An in-depth understanding of what is required to establish title has been pointed out by a few sources, including Adam Levitin, among them. I teach title classes and have been warning of this issue for the past several years.
Yes, they can list who should be in the chain, perhaps.
They may be able to list them in the correct order, perhaps.
But IF the documents (mortgage/note/deed of trust)were not actually transferred and recorded AT THE TIME THEY SHOULD HAVE BEEN there is no legal way that can be accomplished at this point.
*Dead companies can’t assign anything.
*Trust can’t accept nor convey anything after their close
date.
A dominant reason behind the robo-signers was the ‘re-creation’ of chain of titles. They did more than just robo-sign the foreclosure affidavit. They also robo-signed assignments, transfers, releases, etc. That is the crux of the issue. They were attempting to re-create a viable chain of title when one had not been established in the first place.
On many sites and in many ways I hear people speaking the truth, that this is huge, titles are scrambled, etc. A number of things which indicate many ‘get it’.
But the fact that what we are facing is the reality that most of the titles in the United States are hopelessly clouded is a monumental concept.
The fact that folks who pay off their home may still face a claim from some other lender.
That folks who are in default can take come aggressive action and avoid foreclosure- and -Forever–is a real possibility that few folks want to acknowledge because of the HUGE implications. The huge unfairness of it all.
That folks who bought foreclosed homes in the last few years almost surely do not have clear title–even if they don’t get put out of the house–which they will in some cases–what a horrible feeling that the title to your home is not clear and will never be clear.
Some of you who are reading this may feel that I have interpreted this with a excessively consumer friendly outcome. The truth is, the outcome will be good for a percentage of the country but overwhelming bad for all of us.
I have been studying this for almost 10 years now. I’ve been calling them right for a long time. Don’t like what I see but I am accurate about what it is.
I hope that Congress will not give the banks a get out of jail card to make this go away because to do so would require essentially saying the property rights and our laws don’t mean a thing.
I pray that our laws will stand even as our country slides into what is shaping up to be the worse depression in the
history of our country. At least if our laws remain intact, we have a chance of starting over, if we become lawless (which is what we will be if the banks win and become the dictators of the country)then we have little or no chance of returning to anything close to our former self.
Don’t know why you’re so worried that “the banks” might “take over”, when the lawyers have already taken over, spreading gobbly-gook all over anything that doesn’t speak to their agenda. The simple facts are that “someone” loaned money to these people (the foreclosees), and these people stopped honoring the contract by not paying. Now they want to pretend that they are “victims” so they can keep assets that they have not paid for and do not deserve. And they can easily get lawyers to throw obfuscation all over these simple facts so they can get away with this. THIS is lawlessness, and the lawyers are the prime perpetrators! It’s obvious that the letter of the law kills, while the spirit of the law would be better.
The ‘gobbly-gook” to which you refer is called the law. It applies to the banks as well as the borrowers. If the banks failed to abide by the long-standing laws governing mortgages, trusts and conracts then they can hardly call on the courts to enforce claims that have no legitimacy under the law. That’s what’s called the rule of law — it applies to creditors and debtors alike.
Very thought provoking. But here is my thinking…
Yes, the transfer process is screwed. But the true title to the property still exists somewhere. If it was Countrywide that originally held the Note, then ownership goes back to Countrywide. It is up to the party seeking to prove ownership of the Note to secure it. If necessary, go back to the County Recorder of Deeds office to see who is the registered owner. As far as I am concerned, if the County says the title is owned by a particular party, the matter is settled. That is who owns the parcel.
The problem is many of the loan originators are out of business, so the chain can’t be unwound back to the beginning.
Justice Schack’s (Brooklyn Supreme) decision have nothing to do with the Chief Judge (NY Ct. of Appeals) or his supervising judge. Judges in NY are elected and act independently of any supervision. The SJ merely makes assignments.
Yves said Justice Schack’s decisions are “rambling”, but also uses “methodical”. Every one I’ve read has been logical and well-researched. Perhaps it is plaintiffs lawyers’ arguments that are rambling, but still must be addressed by the court.
We know many notes and/or mortgages were never assigned, improperly assigned or simply lost. We also know the time it takes a case to go from delinquency to foreclosure is getting longer.
Can we infer that servicers are harvesting the low hanging foreclosures first and those lingering unresolved have the most serious documentation anomalies?
If so, the loss implications for mortgage-backed securities investors and originating banks seem truly dire.
There is suppose to be a lawyer involved in a mortgage/note transfer every step of the way. Not MERS chop shops overseen by a couple attorneys from a firm. Investors will be suing the originators of MBS with mortgage payers looking for relief in some type of local quiet title actions leaving banks in the middle to be squeezed.
This discussion seems to have it’s nose too deep in the details–it may be a game to you but there will be hell to pay. Two obvious outcomes come to mind:
1. Causing foreclosures to be drawn out, thereby increasing the time it takes for assets to be redeployed in the economy (i.e. before the houses are bought by people who can actually afford them, whether for residences or renting). This means a long-term drag on the real economy.
2. Mortgage securitization and the whole mortgage-bond market may be impaired or damaged. The result of this will be even higher mortgage-origination fees and higher interest rates on mortgages. This will make it even harder to get the housing inventory back to normal.
3. The likely result of these two items will be that the price of houses, yours and mine, will go down.
So have fun with your games, pretending that you’re hurting some “bad guys” or helping “the little people”, while all you’re doing is shooting us all in the foot.
Quid? Come again?
NO ONE shall own ANYTHING of proven value if property rights and the rule of law is not respected and enforced. You CAN’T have a market based economic system without a legal structure that defend and PROPERLY act as referee of property rights.
And you want to gloss over this fundamental attack against the very foundations of our way of life because it’ll take more time for prices to come back up?
OUAAAAAAAN!! Cry me a freakin’ river!
Sorry, but the banksters have already shot the economy in the head with the fraudulent securitizations and anything goes NINJA credit standards.
We’ve already been damaged because of their crimes: the MERS mess that’s clouded title on nearly every home sold in the past decade, the mark-to-make believe accounting, and the extend-and-pretend games being played by the Fed.
Er – isn’t this the “nice little recovering economy you have there, wouldn’t it be a shame if something happened to it? Move along, nothing to see, people,” argument the banks (and their allies have been deploying lo these last four months? Recently endorsed by the Third Way, among others?
Anyone who was reading Tanta at Calculated Risk in 2006-7 could have seen something like this coming. It really is a complete horlicks, and I’d be very surprised if one or more major financial institution in the US doesn’t go belly up as a direct result. The Obama Administration, if it runs true to form, is going to want to try to protect the banks, but how – retroactive legislation, through a Republican House? Quasi bailout, perhaps through some kind of foreclosure amnesty? The courts (third arm of government) may not want to play ball.
Just when you thought the banksters couldn’t get any more despicable, Surprise (not)! And I doubt that JPMC isn’t the only one:
http://today.msnbc.msn.com/id/41043127/ns/business-real_estate
No. 2 bank overcharged troops on mortgages
NBC News exclusive: JPMorgan Chase also improperly foreclosed on homes
By Lisa Myers and Sarah Heidarpour
NBC News
updated 1/17/2011 5:22:50 PM ET
One of the nation’s biggest banks — JP Morgan Chase — admits it has overcharged several thousand military families for their mortgages, including families of troops fighting in Afghanistan. The bank also tells NBC News that it improperly foreclosed on more than a dozen military families.
The admissions are an outgrowth of a lawsuit filed by Marine Capt. Jonathan Rowles. Rowles is the backseat pilot of an F/A 18 Delta fighter jet and has served the nation as a Marine for five years. He and his wife, Julia, say they’ve been battling Chase almost that long.
The dispute apparently caused the bank to review its handling of all mortgages involving active-duty military personnel. Under a law known as the Servicemembers Civil Relief Act (SCRA), active-duty troops generally get their mortgage interest rates lowered to 6 percent and are protected from foreclosure. Chase now appears to have repeatedly violated that law, which is designed to protect troops and their families from financial stress while they’re in harm’s way.
A Chase official told NBC News that some 4,000 troops may have been overcharged. What’s more, the bank discovered it improperly foreclosed on the homes of 14 military families.
[…]
JPM are a bunch of pathological scammers running wild, thanks to the benevolent and permissive attitude of Turbo Tax Timmy from the fast becoming infamous Obummer Admin.
The SCRA problems started to multiply real bad during the first year of the Afghan invasion. I remember clearly how AG Ashcroft became very worried about this problem and repeatedly dispatched DOJ lawyers to “persuade” the banks that it was a very bad idea to claim ignorance of the SCRA. As much as I didn’t like the guy, render to the Caesar his due.
I’m willing to bet my last kwacha that Eric “Place” Holder won’t do Jack about JPM. Hell! The new COS is from JPM, so immunity shall be total, shan’t it?
Forgot to mention this piece from Zero Hedge about JPM; they’re getting sued by Wells Fargo. *evil grin*
There is more here: http://xrl.in/71ko
Given that securitization of mortgages was/is a global phenomenon, are any other national housing markets being affected by these problems in the same way the US is?
The US appears to be particularly opaque (different rules & regs for each state – and they say the EU is cumbersome!), and the idea that some US states have no recourse to the courts when foreclosing on homes is particularly scary, but is anyone else coming up against in the same way US householders are? Italy? Japan? Saudi? Anywhere?
If one takes the above article by Mildred Wilkins seriously(I certainly do), then all American borrowers(home owners) are faced with a clouded title–the true chain of title probably does not exist! Can Americans really begin to get to this reality before millions more wind up in the street? Damn!!