Illustration by Steve Brodner
Guest post from Yves Smith of Naked Capitalism. Legal docs included inside.
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If you were to believe the banks, the concern over foreclosure “improprieties” is way overdone. They claim that the robo signers really weren’t doing anything seriously wrong, the banks just need to redo some paperwork, and everything else about foreclosures is just fine.
Yet Bank of America, having made the implausible claim that it had reviewed 102,000 cases in a few weeks and nothing was amiss, was forced to retreat and acknowledge that it’s review hadn’t been comprehensive, and it was finding errors at a rate that could exceed 5%.
The bank position so far has been that problems so far are mere mistakes and “sloppiness”. But as we’ve described repeatedly, the problems with securitzations run much deeper than that. It appears that the parties to the deal often failed to take the time consuming steps necessary to convey the note (the borrower IOU) to the trust as stipulated in the contract governing the deal, the pooling and servicing agreement. The PSA required that each note in the deal had to be signed by multiple intermediary parties before it got to its supposed final resting place, a trust. And that had to take place by closing or at most 90 days thereafter.
Many foreclosures show this process was not observed on a widespread basis: the notes were assigned (as in transferred) to the trust right before closing, a violation of the PSA, the New York trust statutes that govern virtually all mortgage securitization trusts, and IRS rules for these trusts (REMIC). When foreclosure defense attorneys started contesting these assignments, suddenly a new ruse started to show up: allonges, which are sheets of paper that contained the needed endorsements, would magically appear out of nowhere. The problem is that an allonge is supposed to be used only when there is no space left on the note for endorsements, including margins and the reverse side, and when it is used, it is supposed to be so firmly attached to the original as to be inseparable. But these “ta da” allonges were always somehow discovered at the custodian, quite separate from the note.
Bank of America appears to have improved the state of the art in the creative foreclosure procedures department. I started hearing a few months ago about a sudden and suspicious increase in the number of foreclosures Bank of America was making in its own name. BofA was in effect saying that it owned these loans and had never securitized them. That seemed questionable, since the bulk of Bank of America’s mortgages had been originated by Countrywide, and Countrywide has said in its SEC filings that it securitized 96% of them. Why would the courts see such an explosion in foreclosures in the relatively small proportion of mortgage that BofA had kept on its books? Lawyers suspected that BofA was falsely claiming that it owned the loan to circumvent questions about standing (if the note had not been conveyed to the trust properly, then the trust might not be able to foreclose).
We now have some evidence that these suspicions are correct. A bankruptcy attorney in Kentucky has been working with clients who have lost their homes in foreclosures in the name of Bank of America. After taking the house, the bank has been filing deficiency judgments for the remaining mortgage balance. The attorney files a Chapter 13 bankruptcy. In the example we have here, Bank of America next files an objection to the bankruptcy plan. The attorney for Bank of America makes a response to the objection. Before the confirmation hearing, the same attorney files a second objection to the plan in the name of a Countrywide trust.
The attorney for the borrower, needless to say, raises all kinds of hell in the hearing, and wants an explanation of how two creditors, each representing the same debt obligation, can each object to the plan, when neither has yet filed a Proof of Claim.
Here is the juicy part. A Proof of Claim is filed later that day. It shows a series of assignments that were executed after the judgment (meaning after the house was taken by BofA) and after the borrower’s attorney filed the bankruptcy petition. The assignment is from MERS to Bank of America executed on September 29. The second assignment is from Bank of America to trust CWABS 2003-B6. This assignment has not been recorded in the land office as of November 10. And even more fun, the allonges look odd.
SEC filings show the loan as asset of CWABS 2003-BC6.
So we have:
1. Either Countrywide lied in its 2003 SEC filings or the loan was never on Bank of America’s books. Which would you believe?
2. Even though Countrywide appears to have intended to convey the loan to its CWABS 2003-BC6 trust, it appears never to have completed the steps. The assignments are legally void by virtue of being out of time and by being inconsistent with conveyance chain stipulated in the PSA (which would have been from Countrywide through at least one intermediary entity to the trust. So the trust does not now own the note either.
This means the odds are awfully high that Bank of America committed multiple frauds on the court, first on the state court in the foreclosures process, and now on the Federal bankruptcy court.
This sort of abuse is far more serious than robo signing. As much as the likely misconduct here and robo signing would both be considered frauds on the court, the robo signing is arguably cost cutting gone mad and riding roughshod over proper legal procedures. By contrast, this practice has all the appearances of multiple coverups of the fact that Countrywide trust did not have standing to foreclose on the house. The steps undertaken here look to be a deliberate, concerted effort for the bank to get its way, the law be damned. And this clearly took more parties and more thought than the robo signing abuses.
At a minimum, the attorneys at the law firm and the parties at the servicer had to be aware of this device. And if our reading of this document is correct, this is fraud, pure and simple. It’s high time we see some attorneys disbarred and some law firms go out of business as a result of foreclosure chicanery, as well as serious investigations of the people involved in foreclosure litigation at the servicers and the banks’ general counsel’s office.
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Yves Smith blogs at: