The Deed of Trust problem

The biggest problem MERS Deeds of Trust face is that there is no Grantor, Grantee or what has been Granted that was named. MERS and securitization are fairly new. However, many courts have held that a document attempting to convey an interest in realty fails to convey that interest if the document does not name an eligible Grantee or Grantor.

Courts around the country have long held, “There must be, in every Grant, a Grantor, a Grantee and a thing Granted, and a deed wanting in either essential is absolutely void.”


Clear Title May Not Derive from a Fraud

“Numerous authorities have established the rule that an instrument wholly void, such as an undelivered deed, a forged instrument, or a deed in blank, cannot be made the foundation of a good title, even under the equitable doctrine of bona fide purchase. Consequently, the fact that defendant Archer acted in good faith in dealing with persons who apparently held legal title, is not in itself sufficient basis for relief.”

“It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties.

“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”

Foreclosure Disaster Recipe

Remember, this recipe for disaster requires two things: a “Non-Perfected” Mortgage and a Bankruptcy.

So far, about 70 to 80% of the mortgages I see in local Bankruptcy cases here in the Southern District of California Bankruptcy Court appear to be non-perfected. Despite my continued requests to the mortgage companies to produce either proof they possess the underlying note or proof of a recorded assignment, I have received neither. Instead I get the run around, “Yes we have the original note. Really, can I see? Actually no, I thought we had the original, but we have a copy…………Yes we have the assignment. Really, can I see? Sure, here you go. But that was not recorded. Oh…….” Its the same song and dance. So what becomes of this?

Chapter 7: The trustee will most likely put on his “544 hat” and now “strip the lien off the house.” When he does this, he creates an unencumbered piece of real estate in most cases, with the exception of a small amount of past taxes and HOA fees remaining as liens on the property. The property is then sold and net profits held in trust. A notice is then sent to the creditors of the bankruptcy to submit a claim if they want to get paid.

The claims are then reviewed, and paid pro-rata or objected to with the Bankruptcy Court issuing the final ruling. The Claims process is a complex area too lengthy to discuss for this Blog, but suffice to say, many claims will be objected to as well, since most credit card debt and collection agents have similar problems in proving they too own their debts. Moreover, you might ask what happens to the mortgage lien which has now become a large unsecured debt? It might be paid, provided they can prove they own the note. However, it also may not.

There is a Bankruptcy Code section, 11 USC 502(d) which states that a creditor may not be able to share in the distribution if they did not give up there lien when requested by the trustee under 544. So, it could be that any remaining monies may even go back to the debtor if the new unsecured mortgage claim is disallowed! But this remains a grey area, and time will tell.

But what if the debtor wants to keep the house? No problem. Time to make a deal with the trustee. Suppose that the House was bought for $650,000 in 2006 with 100% financing and now is worth $500,000. The debtor is negative $150,000 in equity. Upside Down! Now lets say a bankruptcy is filed. The Mortgage Note was not perfected so Bankruptcy Trustee avoids the lien. Now he has this $500,000 piece of real estate that he wants to sell, but the debtor wants to keep it. So the debtor makes an offer of $430,000 to keep the house and the Trustee agrees. Trustee agrees since he would only net $430,000 anyways after costs of sale, attorney fees, marketing, etc. Debtor gets the $430,000 from a new loan he might qualify for, have cosigned, or have a family member engage their credit. Trustee then takes the $430,000 and distributes to creditors, which include the debtor’s non-dischargeable taxes, non-dischargeable child support obligations, and non-dischargeable student loans. Wow! Lets get this straight:

Mortgage reduced from $650,000 to $430,000, and over $100,000 in non-dischargeable bankruptcy debt consisting of student loans, taxes, and support obligations also paid, and all other debt wiped out? Sounds like the lemon just turned into lemonade!

Chapter 13: In Chapter 13, the Trustee does not liquidate assets. Instead, he administers a three to five year plan by distributing the monthly payments from the debtor to the creditors, and the avoidance powers of the Chapter 7 Trustee are given to the Debtor(at least here in the Ninth Circuit….western states in the US). This includes the power to remove unperfected liens such as unperfected mortgages.

So now the debtor can remove the mortgage just like a Chapter 7 Trustee. But that might be a problem. The Chapter 13 Trustee may object now to the bankruptcy since the debtor has too many assets. Well, as discussed above, time to get another smaller mortgage, pay that money into the Chapter 13 plan, and again pay off the non-dischargeable debt. Even better, if not all the creditors filed claims, the money then reverts to the debtor!

In the alternative, the simple threat of litigating the issues to remove the mortgage sure makes for a great negotiating tool to deal with the lender and rewrite the mortgage…..knocking off possibly hundreds of thousands of dollars and also lowering the interest rate substantially.

Involuntary Bankruptcies? Is there such a thing? Unfortunately, YES. And this could be very problematic. If several creditors are owed substantial sums of money, say a SBA Loan, large Medical Bill, or even large credit cards, they could petition the court for an involuntary bankruptcy. The debtor has no control to stop it. Next thing the debtor knows, he is in a bankruptcy and all the property is being liquidated, less the property allowed by exemption law. Then steps up the Chapter 7 Trustee and discovers that the Mortgage is not perfected. Well, there goes the house now! Or does it?

Once again, a smart debtor would argue to the trustee that he will get a loan to pay the trustee as discussed above. Problem solved, and what appears to be disaster at first, may be a blessing in disguise. The debtor keeps his home with a much smaller mortgage and removes non-dischargeable debts. He is better off now than before, even though he did not want this!

So the Recipe for Disaster appears to only affect the Mortgage Companies. They are the losing parties here, and rightly so for getting sloppy…..attempting to save $14 per loan times thousands of loans. Why didn’t they compute losing hundreds of thousands of dollars per loan times thousands of loans? Couldn’t they connect the dots? No… I said, lots of smart Real Estate Attorneys and lots of smart Bankruptcy Attorneys, but not too many Bankruptcy Real Estate Attorneys and none of them worked for the Mortgage industry.

But everyone else now seems to win. The debtor reduces his mortgage, gets a better interest rate, and eliminates the rest of his debts. The trustee makes a healthy profit on distributing such a large dividend to creditors. And the creditors who obey the law now share in a large dividend.
Of course, all the forgoing is Brand New. We are currently using this strategy.  We currently do not have available results from the use of this strategy because we have only recently started using this strategy in bankruptcy courts. But after talking to many Bankruptcy Attorneys across the Nation for the past several months, its starting to catch on. Recently an announcement from our local Chapter 7 Trustee that he is making new requirements concerning producing documents in all cases before him so that he can start avoiding these liens.

Coincidentally, this also comes after three of our Local Bankruptcy Judges started denying relief to Mortgage Creditors when coming before the Bankruptcy Court during the past months! Its brand new…but catching on like wildfire.

Housing Bubble? Mortgage Bubble? Well now it’s a Housing Mortgage Bubble disaster about to happen in Bankruptcy Court. Congress was not able to reform the predatory lending abuses. The Lenders certainly do not seem interested in workout programs. I guess its time for a Bankruptcy Cocktail!

Securitization Research Institute, llc.
Tele: 866-882-6767

Countrywide Never Sent Mortgages to Trust

The picture of fraud becomes clearer while regulatory action has stalled.
Testimony from a New Jersey bankruptcy court case indicating that Countrywide was not passing along notes as part of the securitization process:
The new allonge was signed by Sharon Mason, Vice President of Countrywide Home Loans, Inc., in the Bankruptcy Risk Litigation Management Department. Linda DeMartini, a supervisor and operational team leader for the Litigation Management Department for BAC Home Loans Servicing L.P. (“BAC Servicing”V testified that the new allonge was prepared in anticipation of this litigation, and that it was signed several weeks before the trial by Sharon Mason.
As to the location of the note, Ms. DeMartini testified that to her knowledge, the original note never left the possession of Countrywide, and that the original note appears to have been transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking numbers. She also confirmed that the new allonge had not been attached or otherwise affixed to the note. She testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents.
Both Yves Smith and David Dayen have write-ups of this news that you should read.
(Thanks to Tom Adams for a discussion about this chart.)
These are not technicalities — these obligations come from secured credit and trust law, two fields where strict requirements are essential. We don’t want confusion over conflicting claims to property, and we don’t want tax-free trusts set up without the trusts doing their homework. The channels for the securitization are tax-free under a special type of law (”REMIC“), and in exchange for that the trusts have to be set up correctly from the get-go.
These laws are based on New York trust law, not congressional law. As Professor Adam Levitin noted in his testimony, between the New York trust law and the Pooling and Service Agreements there are very specific requirements for passing these notes down the chain. They are required to protect investors from malfeasance, avoid fraudulent transfer concerns, and create “bankruptcy remoteness” of that asset from the originator/sponsor.
And it appears that during the worst excesses of the mortgage bubble, the very basic rules of property transfer and record-keeping were ignored. The trust and its servicers have no standing to foreclose.
Key point: Tim Geithner and Treasury did not announce this breakthrough. The Federal Reserve did not announce this breakthrough. Even at this late stage, the actions of the trust, servicers and depositors are opaque to regulators and investors.

The only reason we know about this is from a New Jersey bankruptcy court. And it’s only because of the people in the field deposing robosigners, piecing together the records, and fighting to get information about what is actually broken in the biggest piece of our stalled economy that we know any of this. Advances like this will disappear if Congress doesn’t allocate the $35 million dollars it is supposed to for legal aid groups, and you can now understand why lawmakers are hoping this request dies quietly. And it also shows why Attorneys General will need to step up to the plate and take over this fight while the public needs to hold federal regulators accountable for their lack of effort.

Creditors Failure to Defend

There was an interesting case out of Oregon Bankruptcy Court.  The case is Monk v. LSI Title Company of Oregon (In re Monk), 2011 WL 212381 (Bankr. D. Ore. Jan. 21, 2011).
In this case a Debtor filed Chapter 13 bankruptcy.  The alleged mortgage creditor “PCFS Mortgage Company” filed a proof of claim.  The Chapter 13 Trustee was not satisfied that PCFS had a secured lien or perfected interest and therefore challenged the Proof of Claim.  PCFS failed to respond with any type of opposition and the lien was “disallowed” under Section 506(d) of the Bankruptcy Code.  This Section declares:
(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void…….

The Chapter 13 debtor completed their Chapter 13 plan and a discharge was entered (no chapter 13 plan payments were made to PCFS).  The Discharge wiped out any debt that remained as it was unsecured debt.

However, after the Bankruptcy discharge, the successor in interest to PCFS Mortgage (Litton Loan) sought to enforce the debt and to foreclose on the property.  The debtor filed a motion to reopen the bankruptcy and filed an adversary proceeding to strip the lien, quiet title to the property and seeking an injunction to halt the foreclosure and for sanctions for the discharge violation (Litton should not be trying to collect on a debt that was previously discharged).

Litton responded and sought to dismiss the claims against them and dissolve the injunction.  The Court, for the most part, found for the Debtor and upheld the preliminary injunction and the action to strip the lien and quiet title, and for sanctions for discharge violation.  Apparently there was a loan modification agreement entered into after the Chapter 13 discharge.
Here is what Litton argued in trying to dismiss the case.

1) Plaintiffs do not have a private right of action under the discharge injunction and no violation of the discharge injunction occurred under the facts of this case.
2) Plaintiffs’ Chapter 13 Plan did not affect the lien of the Defendants, which rode through bankruptcy unaffected unaffected by the order disallowing the claim of PCFS, Litton’s predecessor in interest.
3) Plaintiffs entered into a novation of the loan after the discharge order was entered in the Chapter 13 case.
4) The bankruptcy court lacks post-confirmation subject matter jurisdiction over the claims set forth in the Complaint.
5) Plaintiffs have failed to state a claim for rescission based on the foregoing and the fact that they failed to plead that they could repay moneys owed to the Defendants in order to completely unwind the transaction.
6) The claim for violation of the FDCPA should be dismissed based on the foregoing and because: a) Defendants are not “debt collectors” within the meaning of the FDCPA; b) the FDCPA claim is based on alleged conduct outside the statute of limitations; and c) no FDCPA claim lies for alleged violations of the discharge injunction.

Here is some language from the holding in the case:
Because PCFS’s claim was “disallowed,” it was not an “allowed secured claim,” and the related lien was void pursuant to § 506(d). Defendant’s claim was not of the type described in § 506(d)(1), and its claim was disallowed for reasons other than its failure to file a proof of claim.
Thus, when the discharge order was entered in Debtors’ case, Defendant held a “disallowed” claim and a void lien.  Section 1328 provides in part:(a) As soon as practicable after completion by the debtor of all payments under the plan, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debts—(1) provided for under section 1322(b)(5) of this title.
Defendant argues that Debtors did not file an amended Plan after disallowance of its claim and that the Plan continued to provide for ongoing payments to Defendant on the long-term debt and that the Plaintiffs did, in fact, continue to make the ongoing payments to PCFS even after the claim was disallowed.

It follows, argues Defendant, that the debt was not discharged under the exception at § 1328(a)(1).
Defendant’s argument fails for the following reason: The debt was disallowed under section 502 and, as provided by § 1328(a), it was discharged. A “debt” is defined at § 101(12) as “liability on a claim.” A “claim” is defined as a “right to payment ….“ § 101(5)(A). Once the claim was disallowed, PCFS no longer had a right to payment and thus no longer had a “claim” or a “debt.” As it no longer possessed a “debt,” it follows that it did not have a “debt [ ] provided for under section 1322(b)(5),” and cannot use § 1328(a)(1) to except its nonexistent debt from discharge.

This case shows the importance of objecting to proofs of claim in bankruptcy and demanding that the alleged creditor show its legal right to collect the alleged debt owed.  We can no longer take it for granted that the banks have dotted their i’s and crossed their t’s and that they are a secured lender just because they say so.  Proof of the claim is required.  To me, that is an endorsed note from the originator of the loan up to the securitized trustee who claims to own the note.   Interesting case for sure.

Addressing the question of standing in a federal court

Opinion of the Supreme Court in the case of Warth v. Seldin addressing the question of standing in a federal court as follows: ―In essence, the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of the particular issues. This query involves both constitutional limitations on federal court jurisdiction and prudential limitations on its exercise. In its constitutional dimension, standing imports judiciability: whether the plaintiff has made out a ―case or controversy‖ between himself and the defendant within the meaning of Art.III. This is the threshold question in every federal case, determining the power of the court to entertain the suit. As an aspect of judiciability, the standing question is whether the plaintiff has ―alleged such a personal stake in the outcome of the controversy‖ as to warrant his invocation of federal –court jurisdiction and to justify exercise of the court‘s remedial powers on his behalf. Baker v. Carr 369 U.S.186,204, 82 S.Ct. 691, 703, 7 L.Ed.2d 663(1962).The United States Constitution Article III §2 specifically limits the jurisdiction of the federal courts to ―Cases or Controversies.‖ Justice Powell delivered the
 The Art. III judicial power exists only to redress or otherwise to protect against injury to the complaining party…A Federal court‘s jurisdiction therefore can be invoked only when the plaintiff himself has suffered ―some threat or actual injury resulting from the putatively illegal action…‖ Linda R.S. v. Richard D., 410 U.S. 614, 617, 93 S.Ct. 1146,1148, 35 L.Ed.2d 536 (1973).‖ Warth v. Seldin 422U.S.490, 498 (1975) ―Apart from this minimum constitutional mandate, this Court has recognized other limits on the class of persons who may invoke the courts‘ decisional and remedial powers. … even when the plaintiff has alleged injury sufficient to meet the ―case or controversy‖ requirement, this Court has held that the plaintiff generally must assert his own legal rights and interests and cannot rest his claim to relief on the legal rights or interests of third parties. E.g., Tilestion v. Ullman, 318 U.S. 44, 63 S.Ct. 493, 87 L.Ed. 603 (1943).‖ Warth v. Seldin 422U.S.490, 499 (1975) (emphasis added) 
 The Debtor in the instant case reiterates that a party seeking relief in any Federal Court ―bears the burden of demonstrating standing and must plead its components with specificity.‖ Coyne v American Tobacco Company, 183 F.3d 488, 494 (6th Cir. 1999). Again, the minimum constitutional requirements for standing are: proof of injury in fact, causation, and redressability. 
Valley Forge Christian College v Americans United for Separation of Church & State, Inc., 454 U.S. 464, 473 (1982). Furthermore, in order to satisfy the requirements of Article III of the United States Constitution, any claimant asserting rights in a Federal Court must show he has personally suffered some actual injury as a result of the conduct of the adverse party. Coyne, 183 F.3d at 494; Valley Forge, 454 U.S. at 472.

Servicing Agents Forwarned By Judge

Sericing Agents Forewarned: Becoming a “Real Party in Interest” when Filing 362(d) Motions

Determining exactly which parties have the right to request relief from the automatic stay in bankruptcy has long been a challenging and contentious issue for the courts. Recently, in In re Jacobson,[1] the Bankruptcy Court for the Western District of Washington held that a “servicing agent” was not a “real party in interest” for the purpose of filing a section 362(d) motion, which when granted entitles a party to relief from an automatic stay. Substantiated evidence proving standing in bankruptcy court is necessary to allow parties to bring such motions. In denying UBS AG’s (“UBS”) motion, the court upheld important notions of prudential standing, which require, even within the context of a federal bankruptcy forum, strict adherence and awareness of pertinent state requirements.[2]
In In re Jacobson, UBS, a “servicing agent” who is a third party to a loan that provides oversight and management of ongoing financial activities, filed a motion to lift the automatic stay so it could enforce a note that allegedly had been assigned to ACT Properties, LLC (“ACT”), although the note was in the possession of Wells Fargo Document Custody (as part of the MERS process). The court focused on whether UBS was a “real party in interest,” which, if true, would allow UBS to assert relief from the automatic stay in its own right. The court relied on a principle in In re Hwang[3] where a bankruptcy court there stated that status as an agent solely for the purpose of bringing suit, which is typically the role of a “servicing agent,” did not automatically confer standing upon a party.[4]
The In re Jacobson court then focused on UBS’s prudential standing rather than constitutional standing. Prudential standing requires the court to look into state substantive law. Under Washington law, an agent is entitled to enforce a negotiable instrument if, among other reasons, the agent is “a person not in possession of the instrument who is entitled to enforce the instrument.”[5] UBS argued the business records provided by the company showed that it was indeed a “servicing agent” and that such a title gave it standing to enforce an instrument even without possession. The court disagreed noting that business records are hearsay unless supported by a “qualified expert.”[6] Here, the boiler-plate assertions in an affidavit by a “bankruptcy specialist” employed by UBS were not sufficient.[7] However, even if the records had been admitted, the court noted that UBS would have still lost the motion, as they never actually properly asserted its entitlement to enforce the note.[8] Finding that prudential standing was lacking, the court held UBS was not a “real party in interest” and therefore had no right to file a 362(d) motion.

According to the In re Jacobson court, an agent solely for the purpose of bringing suit is merely a “nominal party” and therefore can only litigate a case in the name of its principal when state law standing requirements have been met.[9] Therefore, a movant cannot file a motion in bankruptcy court and assume that federal standing rules will apply without any consideration of state substantive law

True Legal Ownership

The “produce the note” is a catchy phrase for a very complex legal strategy. The production of the original not is not always the key. It is the lack of ownership of the note and the mortgage or deed of trust that is the key and securitized trusts and their agents and nominees (MERS). Since ownership is a key to making a claim, these complications cause a foreclosing party or claiming party in a  bankruptcy to show true and legal ownership.  The problem for them is they just can’t prove ownership!.  To  make it more difficult for them, a securitized trust cannot take ownership of a loan through equity. The Pooling and Servicing Agreement is the only rule of the road for securitized trusts.

Given what we know about the securitization process, I think we already know what’s happened. I have found out that most loans were not properly transferred into the pools. But in the meantime, where do we get the evidence outside of litigation to support this conclusion?

If you are able to verify that the loan is actually in the pool, what does that mean? Not much, especially if it wasn’t properly conveyed. Just because someone says they own something doesn’t mean they have evidence that they own it. Without a clear chain of assignment, a pool’s claim that they own something is just a claim and any foreclosure would be foreclosure fraud. 

SECURITIZATION INVESTIGATION: Is the securitization audit information still relevant if the loan was not properly conveyed?

A mortgage audit is still a powerful tool when developing a legal strategy and every foreclosure defense lawyer should have a relationship with a good auditor/investigator. The bottom line-is that all you as a borrower really need to know about securitization is that it created one big mess. It’s going to take an investigation to uncover evidence to support your lawsuit and you need to get an securitization audit then hire a lawyer to help you.

Force the Prender Lender To PROVE They Own You Home If they Want It!

Force Pretender Lender To PROVE Ownership if They Want Your Home!


The Longer you Wait… The Fewer Options you Have



The Bankruptcy Litigation Model is taught by our Bankruptcy Legal Analyst who has 30 years experience in bankruptcy strategies and who has worked on both sides of the tracks for the banksters, credit unions, creditors and debtor law firms.
We are currently building a Dream Team of attorneys who have the same common goal, sharing information, and those with extensive foreclosure defense skills to utilize defense strategies representing homeowners in litigation to stop foreclosures.

We have developed litigation strategies that goes beyond the loan modification and produce the note state court defenses that has been shut down in state civil courts that refuse to grant temporary restraining orders.

We do not believe in presenting foreclosure defense litigation in State courts, and have not found these to be very effective when it comes to requesting temporary restraining orders and in the state of California there is no law that requires lenders to prove anything in order to foreclose on your home.   First, the state court judges do not want to  learn securities law and have no clue about mortgage backed securitization.  Securitization falls under the Federal Securities  Laws. Federal and Bankruptcy Court  judges are knowledgeable in securities, taxation, securitization  and real party in interest litigation and are more willing to hear your arguments.

The use of  bankruptcy adversary proceedings against loan servicers has been the main focus on protecting your home from fraudulent  foreclosure and claims against your property.  Our analyst works with attorneys that use this same “produce the note” concept in bankruptcy court litigation.  

To challenge a loan servicer’s standing in a bankruptcy court and to make them prove they are the real party in interest you must obtain the (PSA) Pooling & Servicing Agreement.     

PaypalCheckout Order Investigation to get the evidence you need

It is the process of identifying and retrieving information that is necessary to support legal decision making. In it’s broad sense, legal research includes each step of a course of action that begins with an analysis of the facts of the problem and concludes with the application and communication of the results of the investigation.  The purpose of legal research is to find “authority” that will aid in finding a solution to a problem. Primary authorities are the rules of laws.