The federal bank and thrift regulatory agencies issued a final rule that mortgage loans modified under the Home Affordable Modification Program (HAMP) retain the risk weight appropriate to the loan before modification.

Under HAMP, the US Treasury Department allocates funds to participating servicers for the modification of loans on the verge of foreclosure.

The final rule (available to download here) clarifies loans currently in the HAMP three-month trial period before reaching permanency qualify for the risk-based capital treatment.

Under the agencies’ general risk-based capital rules, loans that are fully secured by first liens and meet certain criteria are risk-weighted at 50%, referring to how much a risk a bank takes on and ultimately how much it could get back if the loan defaults.

After comments from banking organizations, the agencies modified the rule to specify that a mortgage originally risk weighted at 50% and has either entered a HAMP trial or even reached a permanent modification will keep the 50% risk weight.

And past due and nonaccrual loans that receive a 100% risk weight can return to a 50% risk weight if the borrower demonstrates he or she can make the new payments over a “sustained period of time.” However, the agencies have not established the specific time frame because of varying borrower characteristics.

via FDIC Says Mortgages Retain Risk-Weight After HAMP : HousingWire || financial news for the mortgage market.

Fannie Mae to rent out homes instead foreclosing

By ALAN ZIBEL (AP) – 4 hours ago

WASHINGTON — Thousands of borrowers on the verge of foreclosure will soon have the option of renting their homes from Fannie Mae, under a policy announced Thursday.

The government-controlled company, through its new “Deed for Lease” program, will allow borrowers to transfer ownership to Fannie Mae and sign a one-year lease, with month-to-month extensions after that.

The program will “eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities,” Jay Ryan, a Fannie Mae vice president, said in a statement.

But the effort is likely to affect a relatively small number of homeowners. In the first half of the year, Fannie Mae took back about 1,200 properties through this process, known as a deed-in-lieu of foreclosure. That pales in comparison to the 57,000 foreclosed properties the company repossessed in the period.

While neither option is particularly attractive for the homeowner, a deed-in-lieu does less harm to the borrower’s credit record.

The rental program is designed to help homeowners who don’t qualify for a loan modification under the Obama administration’s plan, but still want to remain in their homes. Fannie Mae is not planning to market the homes for sale during the one-year rental period.

Fannie Mae has hired an outside company, which officials declined to identify, to manage the properties.

To qualify, homeowners have to live in the home as their primary residence and prove that they can afford the market rent, which would be determined by the management company. The rent can’t be more than 31 percent of their pretax income.

Fannie Mae’s sibling company, Freddie Mac, launched a similar effort in March. That policy, however, requires the foreclosure to be complete and only allows month-to-month leases. A Freddie Mac spokesman declined to say how many borrowers have participated.

via The Associated Press: Fannie Mae to rent out homes instead foreclosing.

In bankruptcy and government takeovers of financial institutions, missing collateral is a major obstacle for trustees and regulators to overcome. The missing assignment problem is an extension of not carelessness or sloppiness as many have claimed, but of overt acts of fraud.

Skilled attorneys and forensic accounting experts could expose this fraud and as such, the effects and implications are more far reaching than a borrower, simply having their debt extinguished. Debt extinguishment or dismissal of foreclosure actions could be obtained if it can be shown that the entity filing the foreclosure:

• Does not own the note;
• Made false representations to the court in pleadings;
• Does not have proper authority to foreclose;
• Does not have possession of the note; and/or
• All indispensable parties (the actual owners) are not before the
court or represented in the pending foreclosure action.

To circumvent these issues, mortgage servicers and the secondary market have created and maintained a number of practices and procedures. MERS was briefly discussed and will be the sole subject of a major fraud report in the future.

Another common trade practice is to create pre-dated, backdated, and fraudulent assignments of mortgages and endorsements before or after the fact to support the allegations being made by the foreclosing party. Foreclosing parties are most often the servicer or MERS acting on the servicer’s behalf, not the owners of the actual promissory note. Often, they assist in concealing known frauds and abuses by originators, prior servicers, and mortgage brokers from both the borrowers and investors by the utilization of concealing the true chain of ownership of a borrower’s loan.
Ocwen-Anderson-Report-Sue-First-Ask-Questions-Later

FOR decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.

On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties.

In other words, with lenders in the driver’s seat, borrowers were run over, more often than not. Of course, errant borrowers hardly deserve sympathy from bankers or anyone else, and banks are well within their rights to try to protect their financial interests.

But if our current financial crisis has taught us anything, it is that many borrowers entered into mortgage agreements without a clear understanding of the debt they were incurring. And banks often lacked a clear understanding of whether all those borrowers could really repay their loans.

Even so, banks and borrowers still do battle over foreclosures on an unlevel playing field that exists in far too many courtrooms. But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.

One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.

So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.

The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.

To be sure, many legal hurdles mean that the initial outcome of the White Plains case may not be repeated elsewhere. Nevertheless, the ruling — by a federal judge, no less — is bound to bring a smile to anyone who has been subjected to rough treatment by a lender. Methinks a few of those people still exist.

More important, the case is an alert to lenders that dubious proof-of-ownership tactics may no longer be accepted practice. They may even be viewed as a fraud on the court.

The United States Trustee, a division of the Justice Department charged with monitoring the nation’s bankruptcy courts, has also taken an interest in the White Plains case. Its representative has attended hearings in the matter, and it has registered with the court as an interested party.

THE case involves a borrower, who declined to be named, living in a home with her daughter and son-in-law. According to court documents, the borrower bought the house in 2001 with a mortgage from Wells Fargo; four and a half years later she refinanced with Mortgage World Bankers Inc.

She fell behind in her payments, and David B. Shaev, a consumer bankruptcy lawyer in Manhattan, filed a Chapter 13 bankruptcy plan on her behalf in late February in an effort to save her home from foreclosure.

A proof of claim to the debt was filed in March by PHH, a company based in Mount Laurel, N.J. The $461,263 that PHH said was owed included $33,545 in arrears.

Mr. Shaev said that when he filed the case, he had simply hoped to persuade PHH to modify his client’s loan. But after months of what he described as foot-dragging by PHH and its lawyers, he asked for proof of PHH’s standing in the case.

“If you want to take someone’s house away, you’d better make sure you have the right to do it,” Mr. Shaev said in an interview last week.

via Fair Game – If the Lender Can’t Find the Mortgage – NYTimes.com.

Sheridan_decision

In this Chapter 7 case, the trustee, Ford Elsaesser (“Trustee”), objects to amotion under § 362(d) for relief from the § 362(a) automatic stay.1 Motions under § 362(d) are common in bankruptcy cases.2 Most stay relief requests proceed promptly to entry of an order, after proper notice, without any objection.

However, changes in mortgage practices over the past several years have created a number of new issues. The one highlighted in this case is the standing of the moving creditor. Serial assignments of the mortgagee’s interest(s) and the securitization of mortgages have complicated what was previously a generally straight-forward standing analysis. Though many creditors provide in their motions adequate explanation and documentation of their standing to seek relief on real estate secured debts, Trustee challenges the adequacy of the subject motion in this case.

Following hearing and consideration of the arguments of the parties, the Court determines that Trustee’s objection is well taken and the same will be sustained. The motion for stay relief will be denied.

BACKGROUND AND FACTS

On June 24, 2008, Darrell and Sherry Ann Sheridan (“Debtors”) filed their joint chapter 7 bankruptcy petition, schedules and statements. They scheduled a fee ownership interest in a residence located in Post Falls, Idaho. See Doc. No. 1 at sched. A (the “Property”). Debtors asserted the Property’s value was $225,000.00. Id. They indicated secured claims existed in favor of “Litton Loan Servicing” ($197,000.00) and “Citimortgage” ($34,000.00). Id. at sched. D.

While this left no apparent equity in the Property, Debtors nevertheless claimed the benefit of an Idaho homestead exemption. Id. at sched. C.4

Sheridan_decision

Deutsche Bank National Trust Company, AS TRUSTEE FOR THE CERTIFICATE HOLDERS OF CARRINGTON MORTGAGE LOAN TRUST 2005-OPT2, ASSET-BACKED CERTIFICATES, SERIES 2005-OPT2, Plaintiff

against

Debra Abbate, CARMELA ABBATE, KIM FIORENTINO, BOCCE COURT HOMEOWNERS ASSOCIATION, INC., NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK CITY TRANSIT ADJUDICATION BUREAU, NEW YORK CITY PARKING VIOLATIONS BUREAU, and “JOHN DOE No. 1″ through “JOHN DOE #10,” the last ten names being fictitious and unknown to the plaintiff, the person or parties intended being the person or parties, if any, having or claiming an interest in or lien upon the Mortgaged premises described in the Complaint, Defendants.

100893/07

Plaintiff was represented by the law firm of Frenkel Lambert Weiss & Weisman.

Defendant was represented by Robert E. Brown, Esq.

Joseph J. Maltese, J.

The defendants Kim Fiorentino, Debra Abbate, and Carmella Abbate’s motion to dismiss the plaintiff’s complaint is granted in its entirety.

This is an action to foreclose a mortgage dated February 24, 2005, upon the property located at 25 Bocce Court, Staten Island, New York. The mortgage was originated by Suntrust Mortgage Inc. (”Suntrust”) and was recorded in the Office of the Clerk of Richmond County on April 26, 2005. The plaintiff filed the Summons, Complaint, and Notice of Pendency on March [*2]1, 2007.[FN1] However, Suntrust assigned the first mortgage on this property to Option One Mortgage Corporation, which was executed on July 6, 2007. Another assignment to plaintiff Deutsche Bank National Trust Company (”Deutsche Bank”) was executed on March 7, 2007. Both assignments, which were recorded on July 23, 2007, contained a clause expressing their intention to be retroactively effective: the first one to date back to February 24, 2005, and the second one to February 28, 2007.[FN2] On November 19, 2007, this court issued an order of foreclosure and sale on the subject property. This court also granted two orders to show cause to stay the foreclosure on January 9, 2008 and April 8, 2008.[FN3]

Discussion

The Appellate Division, Second Department ruled and reiterated in Kluge v. Kugazy the well established law that “foreclosure of a mortgage may not be brought by one who has no title to it . . . .”[FN4] The Appellate Division, Third Department has similarly ruled that an assignee of a mortgage does not have a right or standing to foreclose a mortgage unless the assignment is complete at the time of commencing the action.[FN5] An assignment takes the form of a writing or occurs through the physical delivery of the mortgage.[FN6] Absent such transfer, the assignment of the mortgage is a nullity.[FN7]

Retroactive Assignments of a Mortgage are Invalid
The first issue this court must resolve is whether the clauses in the July 6, 2007 and March 7, 2007 assignments setting the effective date of the assignment to February 24, 2005 and February 28, 2007 respectively are permissible. This court rules that, absent a physical or written transfer before the filing of a complaint, retroactive assignments are invalid.

Recently, trial courts have been faced with the situation where the plaintiff commenced a [*3]foreclosure action before the assignment of the mortgage.[FN8] In those cases the trial courts have held,

. . . where there is no evidence that plaintiff, prior to commencing the foreclosure action, was the holder of the mortgage and note, took physical delivery of the mortgage and note, or was conveyed the mortgage and note by written assignment, an assignment’s language purporting to give it retroactive effect prior to the date of the commencement of the action is insufficient to establish the plaintiff’s requisite standing. . .[FN9]

In this case, the plaintiff failed to offer any admissible evidence demonstrating that they became assignees to the mortgage on or before March 1, 2007; as such, this court agrees with its sister courts and finds that the retroactive language contained in the July 26, 2007 and March 7, 2007 assignments are ineffective. This court therefore rules that it lacks jurisdiction over the subject matter when the plaintiff has no title to the mortgage at the time that it commenced the action.

The next issue this court must resolve is whether the defendants waived subject matter jurisdiction because they did not raise that issue in their prior applications to this court.

Affirmative Defense of Standing

At the outset of any litigation, the court must ascertain that the proper party requests an adjudication of a dispute.[FN10] As the first step of justiciability, “standing to sue is critical to the proper functioning of the judicial system.”[FN11] Standing is a threshold issue; if it is denied, “the pathway to the courthouse is blocked.” [FN12]

The doctrine of standing is designed to “ensure that a party seeking relief has a sufficiently cognizable stake in the outcome so as to present a court with a dispute that is capable [*4]of judicial resolution.”[FN13] “Standing to sue requires an interest in the claim at issue in the lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s request.”[FN14] Where the plaintiff has no legal or equitable interest in a mortgage, the plaintiff has no foundation in law or in fact.[FN15]

A plaintiff who has no standing in an action is subject to a jurisdictional dismissal since (1) courts have jurisdiction only over controversies that involve the plaintiff, (2) a plaintiff found to lack “standing is not involved in a controversy, and (3) the courts therefore have no jurisdiction of the case when such plaintiff purports to bring it.”[FN16]

On November 7, 2005, in the case of Wells Fargo Bank Minn. N.A. v. Mastropaolo ["Mastropaolo"], this court found that “Insofar as the plaintiff was not the legal titleholder to the mortgage at the time the action was commenced, [the Bank] had no standing to bring the action and it must be dismissed.”[FN17] Erroneously, this court “[o]rdered, that the plaintiff’s summary judgment motion is denied in its entirety and that this action is dismissed with prejudice.”[FN18]

This Court should have ordered that this matter was dismissed without prejudice, which would have given the plaintiff the right to start the action again after it had acquired title to the note and mortgage. Unfortunately, the plaintiff, did not seek a motion to reargue that error, which would have been corrected promptly. Instead, the plaintiff appealed the decision to the Appellate Division, Second Department, which rightfully reversed the decision 18 months later on May 29, 2007 based upon the dismissal with prejudice as opposed to a dismissal without prejudice to refile the action. However, in what appears to be dicta, the court went on to discuss whether lack of standing is tantamount to lack of subject matter jurisdiction. The court further stated that the failure of the initial pro se defendant to make a pre-answer motion or a motion to dismiss, the defense of lack of standing would be waived. But the Appellate Division did not address the issue of subject matter jurisdiction, which may not be waived. [*5]

In the instant case, this court is again faced with similar facts, which raise the issue that the Bank must have title to the mortgage before it can sue the defendant. Clearly, having title to the subject matter (the mortgage) is a condition precedent to the right to sue on that mortgage. This has always been the case, but since the Appellate Division, Second Department’s comments in Mastropaolo, that issue has been clouded.

At the time that the plaintiff improperly commenced the action, the pathway to the Courthouse should have been blocked. Deutsche Bank had no legal foundation to foreclose a mortgage in which it had no interest at the time of filing the summons and complaint. Lack of a plaintiff’s interest at the beginning of the action strips the court’s power to adjudicate over the action.[FN19] Lack of interest and controversy is protected by the umbrella of subject matter jurisdiction. Whenever a court lacks jurisdiction, a defense can be raised at any time and is not waivable.[FN20] In other words, for there to be a cause of action, there needs to be an injury. At the time that the action was commenced, the instant plaintiff suffered no injury and had no interest in the controversy. Since the plaintiff filed this action to foreclose the mortgage before it had title to it, there was no controversy between the existing parties when the action commenced. Therefore, the court lacked subject matter jurisdiction to adjudicate the present case. The defendants are consequently entitled to a dismissal without prejudice because the court lacked jurisdiction over a non-existent controversy.

Accordingly, it is hereby:

ORDERED, that the defendants Kim Fiorentino, Debra Abbate, and Carmella Abbate’s motion to dismiss the plaintiff’s complaint is granted, without prejudice to the plaintiff having the right to refile within the time provided by the Statute of Limitations; and it is further

ORDERED, that the parties and counsel shall appear before this court to further conference this matter on November 20, 2009 at 11:00AM.

ENTER,

DATED: October 6, 2009

Joseph J. Maltese

Justice of the Supreme Court

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

“Servicers may even make money on a foreclosure,” she writes. “And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed.”

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

via Foreclosures Are More Profitable Than Loan Modifications, According To New Report.

By PAM MARTENS

The financial tsunami unleashed by Wall Street’s esurient alchemy of spinning toxic home mortgages into triple-A bonds, a process known as securitization, has set off its second round of financial tremors.

After leaving mortgage investors, bank shareholders, and pension fiduciaries awash in losses and a large chunk of Wall Street feeding at the public trough, the full threat of this vast securitization machine and its unseen masters who push the levers behind a tightly drawn curtain is playing out in courtrooms across America.

Three plain talking judges, in state courts in Massachusetts and Kansas, and a Federal Court in Ohio, have drilled down to the “straw man” aspect of securitization. The judges’ decisions have raised serious questions as to the legality of hundreds of thousands of foreclosures that have transpired as well as the legal standing of the subsequent purchasers of those homes, who are more and more frequently the Wall Street banks themselves.

Adding to the chaos, the Financial Accounting Standards Board (FASB) has made rule changes that will force hundreds of billions of dollars of these securitizations back onto the Wall Street banks balance sheets, necessitating the need to raise capital just as the unseemly courtroom dramas are playing out.

The problems grew out of the steps required to structure a mortgage securitization. In order to meet the test of an arm’s length transaction, pass muster with regulators, conform to accounting rules and to qualify as an actual sale of the securities in order to be removed from the bank’s balance sheet, the mortgages get transferred a number of times before being sold to investors. Typically, the original lender (or a sponsor who has purchased the mortgages in the secondary market) will transfer the mortgages to a limited purpose entity called a depositor. The depositor will then transfer the mortgages to a trust which sells certificates to investors based on the various risk-rated tranches of the mortgage pool. (Theoretically, the lower rated tranches were to absorb the losses of defaults first with the top triple-A tiers being safe. In reality, many of the triple-A tiers have received ratings downgrades along with all the other tranches.)

Because of the expense, time and paperwork it would take to record each of the assignments of the thousands of mortgages in each securitization, Wall Street firms decided to just issue blank mortgage assignments all along the channel of transfers, skipping the actual physical recording of the mortgage at the county registry of deeds.

Astonishingly, representatives for the trusts have been foreclosing on homes across the country, evicting the families, then auctioning the homes, without a proper paper trail on the mortgage assignments or proof that they had legal standing. In some cases, the courts have allowed the representatives to foreclose and evict despite their admission that the original mortgage note is lost. (This raises the question as to whether these mortgage notes are really lost or might have been fraudulently used in multiple securitizations, a concern raised by some Wall Street veterans.)

But, at last, some astute judges have done more than take a cursory look and render a shrug. In a decision handed down on October 14, 2009, Judge Keith Long of the Massachusetts Land Court wrote:

“The blank mortgage assignments they possessed transferred nothing…in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed. The various agreements between the securitization entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form…The issues in this case are not merely problems with paperwork or a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature. To accept the plaintiffs’ arguments is to allow them to take someone’s home without any demonstrable right to do so, based upon the assumption that they ultimately will be able to show that they have that right and the further assumption that potential bidders will be undeterred by the lack of a demonstrable legal foundation for the sale and will nonetheless bid full value in the expectation that that foundation will ultimately be produced, even if it takes a year or more. The law recognizes the troubling nature of these assumptions, the harm caused if those assumptions prove erroneous, and commands otherwise.” [Italic emphasis in original.] (U.S. Bank National Association v. Ibanez/Wells Fargo v. Larace)

A month and a half before, on August 28, 2009, Judge Eric S. Rosen of the Kansas Supreme Court took an intensive look at a “straw man” some Wall Street firms had set up to handle the dirty work of foreclosure and serve as the “nominee” as the mortgages flipped between the various entities. Called MERS (Mortgage Electronic Registration Systems, Inc.) it’s a bankruptcy-remote subsidiary of MERSCORP, which in turn is owned by units of Citigroup, JPMorgan Chase, Bank of America, the Mortgage Bankers Association and assorted mortgage and title companies. According to the MERSCORP web site, these “shareholders played a critical role in the development of MERS. Through their capital support, MERS was able to fund expenses related to development and initial start-up.”

In recent years, MERS has become less of an electronic registration system and more of a serial defendant in courts across the land. In a May 2009 document titled “The Building Blocks of MERS,” the company concedes that “Recently there has been a wave of lawsuits filed by homeowners facing foreclosure which challenge MERS standing…” and then proceeds over the next 30 pages to describe the lawsuits state by state, putting a decidedly optimistic spin on the situation.

MERS doesn’t have a big roster of employees or lawyers running around the country foreclosing and defending itself in lawsuits. It simply deputizes employees of the banks and mortgage companies that use it as a nominee. It calls these deputies a “certifying officer.” Here’s how they explain this on their web site: “A certifying officer is an officer of the Member [mortgage company or bank] who is appointed a MERS officer by the Corporate Secretary of MERS by the issuance of a MERS Corporate Resolution. The Resolution authorizes the certifying officer to execute documents as a MERS officer.”

Kansas Supreme Court Judge Rosen wasn’t buying MERS’ story. In fact, Wall Street was probably not too happy to land before Judge Rosen. In January 2002, Judge Rosen had received the Martin Luther King “Living the Dream” Humanitarian Award; he previously served as Associate General Counsel for the Kansas Securities Commissioner, and as Assistant District Attorney in Shawnee County, Kansas. Judge Rosen wrote:

“The relationship that MERS has to Sovereign [Bank] is more akin to that of a straw man than to a party possessing all the rights given a buyer… What meaning is this court to attach to MERS’s designation as nominee for Millennia [Mortgage Corp.]? The parties appear to have defined the word 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. Counsel for Sovereign stated to the trial court that MERS holds the mortgage ‘in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not.’ ” (Landmark National Bank v. Boyd A. Kesler)

Lawyers for homeowners see a darker agenda to MERS. Timothy McCandless, a California lawyer, wrote on his blog as follows:

“…all across the country, MERS now brings foreclosure proceedings in its own name — even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer’s home. While up against the wall of foreclosure, consumers that try to assert predatory lending defenses are often forced to join the party — usually an investment trust — that actually will benefit from the foreclosure. As a simple matter of logistics this can be difficult, since the investment trust is even more faceless and seemingly innocent than MERS itself. The investment trust has no customer service personnel and has probably not even retained counsel. Inquiries to the trustee — if it can be identified — are typically referred to the servicer, who will then direct counsel back to MERS. This pattern of non-response gives the securitization conduit significant leverage in forcing consumers out of their homes. The prospect of waging a protracted discovery battle with all of these well funded parties in hopes of uncovering evidence of predatory lending can be too daunting even for those victims who know such evidence exists. So imposing is this opaque corporate wall, that in a ‘vast’ number of foreclosures, MERS actually succeeds in foreclosing without producing the original note — the legal sine qua non of foreclosure — much less documentation that could support predatory lending defenses.”

One of the first judges to hand Wall Street a serious slap down was Christopher A. Boyko of U.S. District Court in the Northern District of Ohio. In an opinion dated October 31, 2007, Judge Boyko dismissed 14 foreclosures that had been brought on behalf of investors in securitizations. Judge Boyko delivered the following harsh rebuke in a footnote:

“Plaintiff’s ‘Judge, you just don’t understand how things work,’ argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process…There is no doubt every decision made by a financial institution in the foreclosure is driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit – to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers…” (In Re Foreclosure Cases)

While the illegal foreclosure filings, investor lawsuits over securitization improprieties, and predatory lending challenges play out in courts across the country, a few sentences buried deep in Citigroup’s 10Q filing for the quarter ended June 30, 2009 signals that we’ve seen merely a few warts on the head of the securitization monster thus far and the massive torso remains well hidden in murky water.

Citigroup tells us that the Financial Accounting Standards Board (FASB) has issued a new rule, SFAS No. 166, and this is going to have a significant impact on Citigroup’s Consolidated Financial Statements “as the Company will lose sales treatment for certain assets previously sold to QSPEs [Qualifying Special Purpose Entities], as well as for certain future sales, and for certain transfers of portions of assets that do not meet the definition of participating interests. Just when might we expect this new land mine to go off? “SFAS 166 is effective for fiscal years that begin after November 15, 2009.” There’s more bad news. The FASB has also issued SFAS 167 and, long story short, more of those off balance sheet assets are going to move back onto Citi’s books.

Bottom line says Citi:

“… the cumulative effect of adopting these new accounting standards as of January 1, 2010, based on financial information as of June 30, 2009, would result in an estimated aggregate after-tax charge to Retained earnings of approximately $8.3 billion, reflecting the net effect of an overall pretax charge to Retained earnings (primarily relating to the establishment of loan loss reserves and the reversal of residual interests held) of approximately $13.3 billion and the recognition of related deferred tax assets amounting to approximately $5.0 billion….” [Emphasis in original.]

I’m trying to imagine how the American taxpayer is going to be asked to put more money into Citigroup as it continues to bleed into infinity.

Citigroup is far from alone in financial hits that will be coming from the Qualifying Special Purpose Entities. Regulators are receiving letters from Citigroup and other Wall Street firms pressing hard to rethink when this change will take effect.

Putting aside for the moment the massive predatory lending frauds bundled into mortgage securitizations, inadequate debate has occurred on whether securitization of home mortgages (other than those of government sponsored enterprises) should be resuscitated or allowed to die a welcome death. If we understand the true function of Wall Street, to efficiently allocate capital, the answer must be a resounding no to this racket.

Trillions of dollars of bundled home mortgage loans and derivative side bets tied to those loans were being manufactured by Wall Street without any one asking the basic question: why is all this capital being invested in a dormant structure? Houses don’t think and innovate. Houses don’t spawn new technologies, patents, new industries. Houses don’t create the jobs of tomorrow.

Also, by acting as wholesale lenders to the unscrupulous mortgage firms (some in house at Wall Street firms), Wall Street was not responding to legitimate consumer demand, it was creating an artificial demand simply to create mortgage product to feed its securitization machine and generate big fees for itself. Now we see the aftermath of that inefficient allocation of capital: a massive glut of condos and homes pulling down asset prices in neighborhoods as well as in those ill-conceived securitizations whose triple-A ratings have been downgraded to junk.

There’s no doubt that one of the contributing factors to the depression of the 30s and the intractable unemployment today stem from a massive misallocation of capital to both bad ideas and fraud. Today’s Wall Street, it turns out, is just another straw man for a rigged wealth transfer system.

Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article other than that which the U.S. Treasury has thrust upon her and fellow Americans involuntarily through TARP. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com

counterpunch

California has a new law on the books that bans collection of advance fees from firms that provide loan modification services to people struggling to avoid foreclosure.

Other real estate related bills signed into law this month by Gov. Arnold Schwarzenegger aim to crack down on abusive lending practices by mortgage brokers; provide more safeguards for seniors taking out reverse mortgages; and require lenders to provide a summary translation of loan papers to non-English speakers.

Effective Oct. 11, Senate Bill 94 made it illegal for anyone to collect advance fees from consumers seeking a loan modification. The legislation closed a loophole that previously allowed state- licensed real estate brokers and attorneys to collect advance payments for loan modification services provided a client signed off on forms approved by the state Department of Real Estate.

SB 94 was written by state Sen. Ron Calderon, D-Montebello.

“Over the past two years, unscrupulous attorneys and real estate brokers have abused their trusted roles and exploited desperate homeowners seeking to avoid foreclosure. The loophole that allowed this abusive practice has now been closed, and homeowners should avoid any person charging upfront fees for foreclosure relief services,” state Attorney General Jerry Brown said in a statement.

Advance payments previously collected before Oct. 11 are not impacted by the law but no additional fees can be collected going forward,

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said Tom Pool, a Department spokesman.

About 1,000 real estate brokers had previously submitted the required paperwork to collect advance payments before the law became effective, he said. More than 1,300 consumers have contacted the department with complaints about foreclosure rescue firms, most of which involved paying advance fees and not getting the loan modification assistance that was promised, he said. In many cases, the fees were collected by people who were not even licensed to offer loan modifications.

SB 94 only allows fees to be collected after the promised services are provided. Consumers must also be told that similar services are available from nonprofit housing counseling agencies approved by the federal Department of Housing and Urban Development. Consumers must also be told they have the option of calling their lender directly to request a change in loan terms.

Effective Jan. 1, three other laws will kick in to provide more protections to consumer who take out home loans:

2.3     Memoranda in Support of Motions to Dismiss Foreclosure

2.3.1  Memorandum in Support of Motion to Dismiss, Case #4

IN THE CIRCUIT COURT, FOURTH

JUDICIAL CIRCUIT, IN AND FOR

DUVAL COUNTY, FLORIDA.

CASE NO.:

DIVISION:

MORTGAGE ELECTRONIC REGISTRATION

SYSTEMS, INC.,

Plaintiff,

vs.

[DEFENDANT], DECEASED, ET AL

Defendants.

SEPARATE DEFENDANT, [SEPARATE DEFENDANT]’S MOTION TO CANCEL SUMMARY JUDGMENT HEARING, DISMISS PLAINTIFF’S COMPLAINT, OR IN THE ALTERNATIVE, MOTION FOR MORE DEFINITE STATEMENT

The Separate Defendant, [Separate Defendant],by and though her undersigned attorney, files this motion to cancel the summary judgment hearing, and dismiss the Plaintiff’s Complaint for failure to join an indispensable party, or in the alternative, for more definite statement, pursuant to Rules 1.460,  1.210(a), 1.130(a) and 1.140(b)(7) of the Florida Rules of Civil Procedure and states:

1.  This defendant was not able to access legal representation prior to her contact with Attorney [Attorney for Defendant] of Jacksonville Area Legal Aid, Inc., on February 23,

2.  This separate defendant was served with a summons and complaint in this foreclosure action on January 1, 2005 and she was noticed for the February 24, 2005 summary judgment hearing on January 24, 2005.

3.  Counsel for Defendant has made known to Plaintiff’s attorney this request for continuance of the scheduled hearing so that this defendant is able to have the benefit of legal representation to defend and protect her interests in this residential foreclosure.  However, counsel for plaintiff advises that he does not have authority without further contact with the plaintiff to consent to such continuance.

5.  No prejudice will result to Plaintiff because of this Motion for Continuance.

WHEREFORE, for the above stated reasons, Defendants request that the Court grant a continuance of the hearing on the Plaintiff’s Motion for Summary Final Judgment.

MOTION TO DISMISS PLAINTIFF’S COMPLAINT, OR IN THE ALTERNATIVE, MOTION FOR MORE DEFINITE STATEMENT

1.   This separate defendant is the owner of the property which is the subject of this mortgage foreclosure Complaint.  She requests the Court dismiss this action pursuant to Rule 1.210(a) and 1.140(7), because it appears on the face of the Complaint that a person other than the Plaintiff is the true owner of the claim sued upon and that the Plaintiff is not the real party in interest and is not shown to be authorized to bring this action.  In re: Shelter Development Group, Inc., 50 B.R. 588 (Bankr.S.D.Fla. 1985) [It is axiomatic that a suit cannot be prosecuted to foreclose a mortgage which secures the payment of a promissory note, unless the Plaintiff actually holds the original note, citing Downing v. First National Bank of Lake City, 81 So.2d 486 (Fla. 1955)],  See also 37 Fla. Jur. Mortgages and Deeds of Trust §240 (One who does not have the ownership, possession, or the right to possession of the mortgage and the obligation secured by it, may not foreclose the mortgage)

2.         Fla.R.Civ.P. Rule 1.130(a) requires a Plaintiff to attach copies of all “bonds, notes, bills of exchange, contracts, accounts, or documents upon which action may be brought” to its complaint.  The plaintiff has failed to attach a copy of the Promissory Note upon which its claim is based and the assignment attached to plaintiff’s complaint is only an assignment of the mortgage and not the note.  The assignment attached to the plaintiff’s complaint conflicts with the allegation in paragraph 3 of the plaintiff’s complaint which alleges that the assignment is of the mortgage and the promissory note.

.           3.         Fla.R.Civ.P. Rule 1.310(b) provides that all exhibits attached to a pleading shall be considered a part of the pleading for all purposes.  It appears on the face of MERS’ Complaint that it is not the proper party to bring this action

4.  Further, although the plaintiff names itself in the complaint as “Mortgage Electronic Registration Systems, Inc., as Nominee For Homecomings Financial Network, Inc.” the documents attached to the plaintiff’s complaint conflict and therefore cancel out said allegations.

5.    In this case, MERS’ allegations of material facts claiming it is the owner of the subject note are inconsistent with the documents attached to the Complaint.   Further, MERS has alleged it does not have the original promissory note.  When exhibits are inconsistent with the plaintiff’s allegations of material fact as to who the real party in interest is, such allegations cancel each other out. Fladell v. Palm Beach County Canvassing Board, 772 So.2d 1240 (Fla. 2000); Greenwald v. Triple D Properties, Inc., 424 So. 2d 185, 187 (Fla. 4^th DCA 1983); Costa Bella Development Corp. v. Costa Development Corp., 441 So. 2d 1114 (Fla. 3^rd DCA 1983).

6.  Rule 1.210(a) of the Florida Rules of Civil Procedure provides, in pertinent part:

“Every action may be prosecuted in the name of

the real party in interest, but a personal representative,

administrator, guardian, trustee of an express trust, a party

with whom or in whose name a contract has been made for

the benefit of another, or a party expressly authorized by

statute may sue in that person’s own name without joining

the party for whose benefit the action is brought…”

The plaintiff in this action meets none of these criteria.

7.  The plaintiff must allege that it is the owner and holder of the note and mortgage in question in order to be entitled to maintain an action on the note and mortgage which the plaintiff has not properly alleged in this case. Your Construction Center, Inc. v. Gross, 316 So. 2d 596 (Fl. 4^th DCA 1975)

8. Plaintiff Mortgage Electronic Registration Systems, Inc. (“MERS”) does not have standing to pursue this action.  Standing depends on whether a party has a sufficient stake in a justiciable controversy, whether a legally cognizable interest would be affected by the outcome of the litigation.  Nedeau v Gallagher 851 So.2d 214, 2003 Fla. App. LEXIS 9762, 28 Fla. L. Weekly D 1537 (1^st District, 2003).

9.  Standing encompasses not only the “sufficient stake” definition, but at the at least equally important requirement that the claim be brought by or on behalf of one who is recognized by the law and a “real party in interest”, that is “the person in whom rests, by substantive law, the claim sought to be enforced.  Kumar Corp. v Nopal Lines, Ltd, et al 462 So. 2d 1178, 1985 Fla.App.  LEXIS 11940.41U.C.C. Rep. Serv. (Callaghan) 69; 10 Fla. L. Weekly 189 (3^rd District1985).

10. It is axiomatic that a suit cannot be prosecuted to foreclose a mortgage which secures the payment of a promissory note, unless the Plaintiff actually holds the original note. A Plaintiff that does not hold the original notes sued has no standing and such action must be dismissed with prejudice Shelter Development Group v. MMA of Georgia, Inc 50 B.R. 588 (USBC, S.D. Florida 1985) Downing v. First National Bank of Lake City, , 81 So. 2d 486, (Fla., 1955) Tamiami Abstract and Title Company v.  Berman, 324 So. 2d 137 (Fla 3^rd DCA> 1975) Laing v. Gainey Builders, Inc. 184 So. 2d 897 (Fla. 1^st DCA 1966).  See also Davanzo v. Resolute Insurance Company, et al. 346 So.2d 1227, 1977 Fla.App. LEXIS 16014  (One who holds legal title to a mortgaged property is an indispensable party in suit to foreclose a mortgage).

WHEREFORE, this separate defendant requests the Court to dismiss the Plaintiff’s complaint with prejudice; or alternatively to order the Plaintiff to add the owner and holder of the subject note and mortgage as an indispensable party to this foreclosure action, and award this defendant attorney’s fees and all other relief to which she proves herself entitled.

CERTIFICATE OF SERVICE

The undersigned certifies that a true copy of this document has been faxed and mailed by U.S. Mail to [Attorney for Plaintiff] this _______________________________.

JACKSONVILLE AREA LEGAL AID, INC.,

____________________________________

[Attorney for Separate Defendant]

Attorneys for Separate Defendant