Global Literary Marketplace Foreclosure Fraud Defense by Grace Adams

11. September 2013

California HBOR Collaborative | The Import & Impact of Glaski v. Bank of America – Also see other cases in the attached newsletter‏

The Import & Impact of Glaski v. Bank of America
PDF: September-Newsletter-rev

PDF: Bank of New York Mellon v Preciado

A month has passed since the California Court of Appeal handed down their decision in Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1079 (2013). In that month, the opinion has been published and Bank of America’s petition for rehearing denied. Now binding on all California trial courts, the opinion has attracted much attention and praise in the foreclosure defense world. This article summarizes the court’s major findings, places the decision into the current legal landscape, and analyzes both its potential impact and its limitations.

I. The Court’s Conclusions

Ultimately, the court’s conclusions are rooted in two basic and related inquiries that clarify (and in some respects simplify) the “authority to foreclose” question in California, at least for the time being. First, does the borrower allege that the foreclosing party was not the beneficiary based on specific facts? Second, if borrower’s claim is based on a failed assignment, was the assignment void, or voidable? If borrowers can allege specific facts showing that the purported beneficiary derived their authority from a void assignment, their claims, under Glaski, may now survive the pleading stage in California courts.

A. Alleging that the Assignment Granting the Beneficiary’s Power to Foreclose is Void, is a Specific, Factual Allegation and the Basis for a Valid Wrongful Foreclosure Claim

The court divides wrongful foreclosure claims based on an authority to foreclose theory into two categories: 1) borrowers who allege, generally, that the foreclosing entity was not the “true beneficiary under the deed of trust;” and 2) borrowers who allege, with specific facts, that the foreclosing entity was not the true beneficiary.[1] Borrowers in the first category rarely make it past the pleading stage, but borrowers in the second group may. In other words, it is not enough to say “X is not the true beneficiary,” but it may be enough to allege “X is not the true beneficiary because Y.” If “Y” is a specific, factual allegation that shows the foreclosing entity did not have the authority to foreclose, then the claim is viable.

The court then explained that “[o]ne basis for claiming that a foreclosing party did not hold the deed of trust” is if the assignment purportedly giving that party foreclosing power is void.[2]The court did not say that attacking a beneficiary’s assignment is the only way to bring a wrongful foreclosure claim, only that this particular defect, when alleged with specific facts, is enough to put the authority to foreclose at issue. Glaski alleged that the assignment of his deed of trust and note to the WaMu Securitized Trust was void because it occurred after the trust’s closing date.

B. Standing: Void vs. Voidable Assignment

Many securitization-based wrongful foreclosure claims fail because the borrowers do not have “standing” to challenge how their loan was securitized.[3] The Glaski court framed this issue simply, focusing on the assignment: “When a borrower asserts an assignment was ineffective, a question often arises about the borrower’s standing to challenge the assignment of the loan (note and deed of trust) –an assignment to which the borrower is not a party.”[4] The court cites federal cases from other circuits,[5] and a California Jurisprudence treatise to conclude, “a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment.”[6] California courts have largely adopted a knee-jerk reaction to securitization theories, throwing those claims out because the borrower is not a party to, or third-party beneficiary of, the assignment agreement (the PSA in most cases). The Glaski court broke with California precedent in framing the issue as one of void versus voidable assignments, allowing theories based on void assignments to survive pleading.

C. A Post-Closing Date Transfer to Trust Renders the Assignment Void

The court had thus far established: 1) Glaski’s attack on the beneficiary’s assignment was specific enough that it went beyond a general challenge foreclosing party’s right to foreclose; and 2) generally, void assignments give a borrower standing to challenge the loan’s securitization, even though the borrower was not a party to, or third-party beneficiary of, the PSA. The court then analyzed whether Glaski’s specific allegations, taken as true, would void the assignment, giving him standing.

Like many mortgage loans, Glaski’s note and deed of trust were sold (assigned) to a trust to be bundled with other mortgages, sliced up and sold again. Through a subsequent FDIC takeover, acquisition, and more assignments, defendant Bank of America either became the “successor trustee” to the WaMu trust, or acquired the Glaski deed of trust from JP Morgan, who bought all of WaMu’s assets from the FDIC.[7] Either way, the possible chains of title are broken because the transfer from JP Morgan Chase to the WaMu Securitized Trust occurred long after the closing date of the trust.[8]

But does a post-closing assignment to a trust render that assignment void? To answer this question, the Glaski court analyzed New York law, which, according to the pleadings, was controlling,[9] to conclude that an assignment transferred after a trust’s closing date is void, rather than voidable.[10]

Glaski pled both threshold questions with the requisite specificity: 1) he alleged that Bank of America was not the beneficiary because the assignment purporting to give it foreclosing power was invalid; and 2) the assignment was void, not voidable, because the transfer to the trust occurred after the trust’s closing date. The first point got him past Gomes, and the second established his standing.

D. Tender

The court addressed the tender issue briefly, but it was still critical to its ruling and again emphasizes the importance of distinguishing whether a foreclosure sale is void or voidable. “Tender is not required where the foreclosure sale is void, rather than voidable, such as when a plaintiff proves that the entity lacked the authority to foreclose on the property.”[11] Because tender was not required, and because Glaski stated a cognizable claim for wrongful foreclosure, the court reversed the trial court’s dismissal of the complaint, and vacated and overruled the order sustaining the Bank of America’s demurrer.

II. Placing Glaski in the California Foreclosure Landscape

A. Distinguishing Gomes: Specificity

Gomes was probably Glaski’s biggest hurdle. The court dedicated an entire section of its opinion to differentiate its findings from those in Gomes.[12] The borrower in Gomes also brought a wrongful foreclosure claim, alleging that the foreclosing entity, MERS, was not the beneficiary’s nominee because the unknown beneficiary did not appoint MERS as nominee, or give MERS authorization to foreclose.[13] Unlike Glaski, however, Gomes left his argument there. He did not take the crucial step of explaining why MERS, who was listed as beneficiary and nominee in the deed of trust,[14] was not the true beneficiary.[15] Rather, Gomes alleged that CC § 2924 afforded him the right to “test” whether MERS had the beneficial interest before the sale took place.[16] “Whether” is the key word and the difference between a Gomes claim and a Glaskiclaim. Gomes wanted to investigate whether or not MERS was the beneficiary. By contrast, Glaski alleged that Bank of America was definitely not the beneficiary because the assignment giving them beneficiary status was late to the trust, and therefore void. Gomes asked, “who has the authority to foreclose?” whereas Glaski stated: “X definitely does not have authority for these reasons . . . .” The Gomes court found that CC § 2924 provides no right for borrowers to ask “whether” the foreclosing party had the authority to do so.[17]

B. Distinguishing Nguyen: Void vs. Voidable

The Glaski court also had to reckon with Nguyen v. Calhoun, 105 Cal. App. 4th 428 (2003), which held that anything outside of the foreclosure sale process cannot be used to challenge a presumably valid and complete sale.[18] Specifically, the court had to consider whether an “ineffective transfer to the WaMu Securitized Trust” was an aspect of the foreclosure sale, or if it fell outside of that sale and was therefore irrelevant.[19] Because the transfer to the trust was fundamental to Bank of America’s authority to foreclose, and would void the sale itself, the court decided that the trust transfer was part of the foreclosure sale and a valid basis for challenging the foreclosure.[20]

C. Distinguishing Fontenot: Burden Shifting

The Glaski opinion nowhere cites Fontenot v. Wells Fargo Bank, N.A., 198 Cal. App. 4th 256 (2011), but it is important to recognize why Glaski came out differently from that case. As inGlaski, the borrower in Fontenot alleged that an invalid assignment voided the entire foreclosure transaction.[21] Unlike Glaski, however, Fontenot based her invalid assignment theory, not on specific facts like a late transfer to a trust, but on the theory that the assignor (MERS) had the burden to prove the assignment was valid, and could not do so.[22] The court determined that MERS did not bear that burden because nothing in the statutory scheme regulating nonjudicial foreclosures created that duty: “[A] nonjudicial foreclosure sale is presumed to have been conducted regularly, and the burden of proof rests with the party attempting to rebut this presumption.”[23] If “‘the party challenging the trustee’s sale [can] prove such irregularity and . . . overcome the presumption of the sale’s regularity,’” that could shift the burden to defendant to show a valid assignment.[24] This is precisely what Glaski accomplished: by pleading specifically that the assignment is void because of the late transfer to the trust, Glaski rebutted the presumption of regularity, which is all he needed to do at the pleading stage.

III. The Promise & Limits of Glaski

Glaski cannot be used to bolster every securitization theory. To employ Glaski principles effectively, advocates should undertake the same analysis the court did. First, does the borrower simply allege the foreclosing party does not hold the beneficial interest in the deed of trust (Gomes), or does the borrower allege that the foreclosing party could not possibly be the rightful beneficiary because the assignment giving them that interest was invalid? (Glaski). Second, do the borrower’s allegations render the assignment void or voidable? If void, then Glaski could lend support to both the borrower’s standing and their wrongful foreclosure claim. The HBOR Collaborative will monitor Glaski’s implications and influence as other courts interpret this important decision.


[1] See Glaski v. Bank of Am., N.A., 218 Cal. App. 4th 1079, 160 Cal. Rptr. 3d 449, 460 (2013).

[2] Glaski, 160 Cal. Rptr. 3d at 461 (emphasis added).

[3] See, e.g., Rodenhurst v. Bank of Am., 773 F. Supp. 2d 886, 898-99 (D. Haw. 2011) (“[C]ourts have uniformly rejected the argument that securitization of a mortgage loan provides the mortgagor a cause of action.”); Junger v. Bank of Am., N.A., 2012 WL 603262, at *3 (C.D. Cal. Feb. 24, 2012) (“[P]laintiff lacks standing to challenge the process by which his mortgage was (or was not) securitized because he is not a party to the PSA.”); Bascos v. Fed. Home Loan Mortg. Corp., 2011 WL 3157063, at *6 (C.D. Cal. July 22, 2011) (“Plaintiff has no standing to challenge the validity of the securitization of the loan as he is not an investor in of the loan trust.”).

[4] Glaski, 160 Cal. Rptr. 3d at 461.

[5] Id. (citing Reinagel v. Deutsche Bank Nat’l Trust Co., 722 F.3d 700, at *3 (5th Cir. 2013); Conlin v. Mortg. Elec. Registration Sys., Inc., 714 F.3d 355, 361 (6th Cir. 2013); Culhane v. Aurora Loan Servs. of Neb., 708 F.3d 282, 291 (1st Cir. 2013)).

[6] Glaski, 160 Cal. Rptr. 3d at 461 (emphasis original).

[7] Id.

[8] Id. The WaMu trust, by its own terms, closed in 2005. Id. at 454. An assignment recorded in 2008 “stated that JP Morgan transferred and assigned all beneficial interest under the Glaski deed of trust [and note] to ‘LaSalle Bank NA as trustee for WaMu [Securitized Trust].’”Id.

[9] Id. at 462.

[10] Id. at 463 (“[T]he [WaMu trust] trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.”). The closing date is meant to protect the interests of the trust’s investors because it ensures REMIC status, exempting investors from federal income tax (with respect to the trust). Id. at 460 n.12, 463.

[11] Id. at 466.

[12] Glaski, 160 Cal. Rptr. 3d at 464.

[13] Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 1152 (2011).

[14] Id. at 1151.

[15] Instead, Gomes claimed he “‘d[id] not know the identity of the Note’s beneficial owner,’” but that whoever “authorized” MERS to foreclose was not the beneficiary or the beneficiary’s agent.Id. at 1152. He gave no specific reason for believing this, other than that his loan was “sold . . . on the secondary mortgage market.” Id.

[16] Id.

[17] Id. at 1155 (“[Section 2924 does not] provide for a judicial action to determine whether the person . . . foreclos[ing] . . . is indeed authorized.”).

[18] See Nguyen v. Calhoun, 105 Cal. App. 4th 428, 441-42 (2003).

[19] Glaski, 160 Cal. Rptr. 3d at 466.

[20] Id.

[21] See Fontenot v. Wells Fargo Bank, N.A., 198 Cal. App. 4th 256, 269 (2011).

[22] See id. at 269-70.

[23] Id. at 270.

[24] Id. (quoting Melendrez v. D & I Inv., Inc., 127 Cal. App. 4th 1238, 1258 (2005)).

2. July 2013

Who May Assign a Deed of Trust, even if MERS has Authority?

Who May Assign a Deed of Trust, even if MERS has Authority?

Problem is

MERS is not the beneficiary of a deed of trust. Having failed the litmus test for agency, MERS may not be found to be the agent of the beneficiary nor its successors and or assigns.  What position, if any,  this leaves MERS to occupy in the deed of trust remains to be seen as courts squarely confront the matter and its attendant issues, including assignments done in its name by its members.

Problem is, courts increasingly are not “squarely confronting” this issue in this way.  Look at the court decisions around the country in the past year, and you’ll see that in an overwhelming preponderance of cases, the courts are not adopting this strict view of MERS’s authority.  Judges seem reluctant to open Pandora’s box, even if it means they have to engage in a little bit of fuzzy logic.  And the Supreme Court has punted on MERS– they haven’t taken up any MERS cases, recently declining to hear a MERS case, Gomes v. Countrywide.


Alabama Real Estate Attorney Sentenced in Mortgage Fraud

A Birmingham, Alabama real estate lawyer has been sentenced to two years in prison for conducting a $1 million mortgage fraud scheme, after pleading guilty to four counts of wire fraud.  

8. May 2013

FL – An Allonge is Not an Assignment‏

12:44 PM

To: Charles Cox

Posted on May 8, 2013 by Neil Garfield

by Danielle Kelley, Esq., Senior Partner, Garfield, Gwaltney, Kelley and White:

I moved to dismiss two cases on several grounds – one that the allonge was not “firmly affixed”.  This will become an issue as the banks scramble to file pleadings under HB87 that show they have the Note.  The 1st DCA has now admitted there is a lack of caselaw in Florida on this issue – I’m hoping that one of these Judges (the one in Marianna who has already dismissed twice on one case) will issue an order agreeing.

1.                  The allonge attached to the Complaint does not meet the legal definition of what an allonge is:  a firmly attached document to the Note, when there is no space on the bottom of the Note for endorsements.  “An allonge is a piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself. Such must be so firmly affixed thereto as to become a part thereof.” Black’s Law Dictionary 76 (6th ed.1990). Florida’s Uniform Commercial Code does not specifically mention an allonge, but notes that “[f]or the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is part of the instrument.” § 673.2041(1), Fla. Stat. (1995). See Booker vs. Sarasota, 707 So.2d 886 (Fla. 1st DCA 1998)(footnote 1).  See also Isaac v. Deutsche Bank Nat. Trust Co., 74 So. 3d 495 (Fla. 4th DCA 2011)(“An “allonge” is a piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself; such must be so firmly affixed thereto as to become a part thereof.”). 

2.                  There is no Florida case on point which provides guidance as to how an allonge must be physically attached to an instrument in order for it to become “firmly affixed” to same.  Recently the First District Court of Appeal took notice of such in Wells Fargo Bank, N.A. v. Bohatka, 1D11-3356, 2013 WL 1715439 (Fla. 1st DCA 2013), stating that “A body of caselaw has developed, primarily in other states and under the UCC, regarding the validity of an allonge and how it must be “affixed” to a note.4”).  In footnote Four to that statement, the First District Court of Appeal wrote:

 “See, e.g., Douglas J. Whaley, Mortgage Foreclosures, Promissory Notes, the Uniform Commercial Code, 39 W. St. U.L.Rev. 313, 318–19 (2012) (noting the “many new cases” that deal with allonges and the meaning of “affixed”). Professor Whaley continues, “It is not enough that there is a separate piece of paper which documents the transfer unless that piece of paper is “affixed” to the note. What does “affixed” mean? The common law required gluing. Would a paper clip do the trick? A staple?” Id. at 319 (footnotes omitted). To our knowledge, no Florida court has explored what type of affixation or annexation of an allonge is legally sufficient, nor has any court addressed the possibility of electronic attachment of allonges. See Patricia Brumfield Fry, James A. Newell, & Michael R. Gordon, Coming To A Screen Near You—“Emortgages”—Starring Good Laws And Prudent Standards—Rated “XML”, 62 Bus. Law. 295, 311 (Nov.2006) (noting that Freddie Mac addressed the possibility “that an electronic allonge be added to all eNotes that contains language addressing both the recourse and transfer warranty issues”).”

 3.                  Thus, with this issue to date still uncertain, the Court can rely on the plain meaning of the words, “firmly affixed” and the Court may look to decisions of courts in other states for persuasive authority.  To begin, two reasons have been cited for the “firmly affixed” rule:  (1) to prevent fraud; and (2) to preserve a traceable chain of title.  See Adams v. Madison Realty & Development, Inc., 853 F. 2d. 163, 167 (3rd Cir. 1988).  A draft of the 1951 version of the UCC Article 3 included the comment that “[t]he indorsement must be written on the instrument itself or an allonge, which, as defined in Section___, is a strip of paper so firmly pasted, stapled or otherwise affixed to the instrument as to become part of it.”  ALI, Comments & Notes to Tentative Draft No. 1-Article III 114 (1946), reprinted in 2 Elizabeth Slusser Kelly, Uniform Commercial Code Drafts 311, 424 (1984).  More recently, however, courts have held that “stapling is the modern equivalent of gluing or pasting.”  See Lamson v. Commercial Cred. Corp., 187 Colo. 382 (Colo. 1975).  See also Southwestern Resolution Corp. v. Watson, 964 S.W. 2d 262 (Texas 1997)(holding that an allonge stabled to the back of a promissory note is valid so long as there is no room on the note for endorsement but affixed does not include paperclips.).  Regardless of the exact method of affixation, numerous cases have rejected indorsements made on a separate sheet of paper loosely inserted into a folder with the instrument and not physically attached in any way.  See Town of Freeport v. Ring, 1999 Me. 48 (Maine 1999); Adams v. Madison Realty & Development, Inc., 853 F. 2d 163 (3d Cir. 1988); Big Builders, Inc. v. Israel, 709 A. 2d 74 (D.C. 1988).  


Charles Wayne Cox
Websites:; and 
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240 direct
(541) 610-1931 eFax

Paralegal; Litigation Support and Expert Witness Services; Forensic Loan Analyst; CA Licensed Real Estate Broker.

23. August 2012

RE: Max Gardner on Standing


I included an article by the same author you sent earlier that may shed some light on these rulings you sent below by the Court. 



By Tiffany Sanders on March 7, 2012

The report issued by the Permanent Editorial Board for the Uniform Commercial Code on November 14, 2011 was intended to explain the application of the UCC to negotiable and non-negotiable mortgage notes.  Although there are a number of other applicable issues, the PEB Report addresses only four issues:

1.    If the note is negotiable, who can enforce;

2.    If the note is negotiable or non-negotiable, how ownership is transferred;

3.    If the note is transferred, what is the effect on the mortgage; and

4.    How the transferee of the note can become an assignee of record in the mortgage system.

The Report states that Article 3 of the UCC only applies if the note is negotiable, and there is real controversy about whether or not a mortgage note is a negotiable instrument.  Max addresses some of the reasons he believes that mortgage notes are typically not negotiable instruments in this series of blog posts, and in greater depth at the UCC seminar coming up in Orlando March 24 and 25.  However, others including Boot Camper Tom Cox, offer a different analysis, highlighting the complexity of the issues and the degree to which judicial biases may impact how these issues are decided.

We’ll be discussing the Report in Orlando, as well, but here’s the short version of Max’s analysis:

1.  If the note is negotiable, the key issue is to identify the person entitled to enforce the instrument (PETE). §3-301 of the UCC provides three ways to become a PETE:

·         Be the holder of the note, as defined in Article 1 of the UCC;

·         Be a non-holder in possession of the note with the rights of a holder (for example, the executor of an estate or a transferee in possession of the note with the rights of a holder); or

·         Qualify as a PETE under the Lost Note Rules in UCC §3-309.

However, Article 3 applies only to negotiable notes, and §3-301 does not relate to state foreclosure law and who has the right to enforce the note under such law.

2.  If the note is non-negotiable, then Article 3 would not apply with respect to the determination of who is the PETE.  You have to look at the note to make this determination.  All courts have assumed residential mortgage notes are negotiable without reviewing the note.  Article 9 rules apply to the transfer of such a note.  If the note is non-negotiable, then it is called a promissory note and is really just a contract, governed by the law of assignment of contracts.

3.  Article 9 governs the transfer of both negotiable and non-negotiable notes.  Transfers of the note may be accomplished by outright sale or the grant of a security interest in the note.  §9-203 requires that:

·         You must have property rights in the note to transfer the note;

·         You must receive value for the sale of the note; and

·         You must authenticate a security agreement that describes the note or the transferee and must take possession pursuant to the security agreement of the transferor.

4.  §9-102 refers to the mortgage or deed of trust that creates a lien on the real property.  Case law going back to the Restatement of Mortgages and 19th century common law provides that the recorded mortgage is deemed to follow the note.   §9-203 and §9-308 provide as a matter of law that the creation of a security interest in the note automatically creates an interest in the mortgage or deed of trust. However, this does not address state law requirements.

5.  If state foreclosure law requires the mortgage or deed of trust to be recorded in the name of the foreclosing party, §9-607(b) provides a mechanism by which a party can fulfill that requirement if the original mortgagee is out of business or fails or refuses to execute an assignment.

6.  If the party seeking to enforce the note acquired it from the FDIC, then the agreement must comply with Article 9.  Courts use the word standing, but the same analysis described above for the PETE applies.

7.  Under §9-406 and §9-408, an anti-assignment clause does not negate either the granting of a security interest in or the sale of a note.  An anti-assignment clause would make the note non-negotiable.

8.  The true rules as to who owns the note, which do apply to state foreclosure law related to ownership, are found in §9-203.

9.  Holder in Due Course (HDC) is an Article 3 concept, and comes into play only if the maker has a defense to payment of the note and the holder wishes to establish that he has taken the note free of such defenses.  You do not have to be an HDC to be a PETE. However, there is no such thing as HDC of a non-negotiable note—you must have a negotiable note to become an HDC.

It’s important to keep in mind the scope and function of the PEB Report.   PEB reports are not legislative and have no judicial effect.  The function of the Report is similar to that of a high-level law review or treatise.  PEB reports address issues believed to be clear and unambiguous and seek to explain those Rules.  States and courts do not necessarily defer to PEB reports.  Further, neither Article 3 nor Article 9 determines who has the right to enforce the note under applicable state law.  State real estate law may include documentation requirements that differ from those set forth in the UCC.


Subject: Max Gardner on Standing
Date: Wed, 22 Aug 2012 10:47:13 -0700

Standing Updates

By Tiffany Sanders on August 22, 2012

See the online link to Max’s site on Standing:

The most recent updates includes several new cases on “holder of the note” standing:

In re Knigge, 2012 WL 1536343 (Bankr. W.D. Mo., April 30, 2012):  The creditor, as the party in possession of a promissory note endorsed in blank, was the “holder” of the note and was entitled to enforce the note; while the deed of trust referred to in the note required the debtors to perform a variety of undertakings beyond the payment of money, such as “occupy[ing] the property, refrain[ing] from wasting or destroying the property, maintain[ing] insurance on the property, and giv[ing] notice to Lender of any losses relating to the property,” these additional undertakings did not undermine the negotiability of the note under Missouri law.

In re Griffin, Case No. 11-1362 (9th Cir. B.A.P., April 6, 2012), appeal filed, Case No. 12-60046 (9th Cir., filed June 18, 2012):  The stay relief movant’s providing a copy of the Chapter 7 debtor’s promissory note, along with a declaration stating that the copy was a “true and correct copy of the indorsed Promissory Note,” was sufficient to demonstrate that the movant was in possession of the note. Under Fed. R. Evid. 1003, “[a] duplicate is admissible to the same extent as an original unless (1) a genuine question is raised as to the authenticity of the original or (2) in the circumstances it would be unfair to admit the duplicate in lieu of the original,” and the Chapter 7 trustee had not presented a genuine question as to the note’s authenticity such that the original would be required; since the note was properly endorsed in blank, the movant was a holder of the note entitled to enforce it.

In re Balderrama, — B.R. —-, 2012 WL 1893634 (Bankr. M.D. Fla., May 16, 2012):  In Florida, standing to enforce a note depends on the type of negotiable instrument the note becomes upon execution. If the note is endorsed in blank, it becomes a bearer instrument and can be enforced by the party in possession, regardless of how that party obtained the note. When a note is payable to an identifiable party, however, the instrument becomes a “special instrument,” and only the party or its assignee, specifically identified as the proper holder, i.e., the holder in due course, may enforce the note. Here, because the movant claimed that it held a special instrument specifically endorsed to the movant, it needed to prove that it was a holder in due course.

In re Fennell, 2012 WL 1556535 (Bankr. E.D. N.Y., May 2, 2012):  A party holding the debtor’s mortgage note endorsed in blank is entitled to enforce the note and has standing to move for relief from stay.

Charles Wayne Cox
Email: or
Websites:; and 
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240 direct(541) 610-1931 eFax

10. August 2012

Cal. Cases…Separation of Note and Deed of Trust‏

Just a FYI…found this case researching something else on Google Scholar…I left the links in in case you want to follow up or on…

Domarad v. Fisher & Burke, Inc., 270 Cal.App.2d 543 (1969)

[3-5] Consonant with the foregoing, we note the following established principles: that a deed of trust is a mere incident of the debt it secures and that an assignment of the debt “carries with it the security.” (Civ. Code, § 2936; Cockerell v. Title Ins. & Trust Co., 42 Cal.2d 284, 291 [267 P.2d 16]; Lewis v. Booth, 3 Cal.2d 345, 349 [44 P.2d 560]; Union Supply Co. v. Morris, 220 Cal. 331, 338-339 [30 P.2d 394]; Savings & Loan Soc. v. McKoon, 120 Cal 177, 179 [52 P. 305]; Hyde v. Mangan, 88 Cal. 319, 327 [26 P. 180]); that a deed of trust is inseparable from the debt and always abides with the debt, and it has no market or ascertainable value, apart from the obligation it secures (Buck v. Superior Court, 232 Cal. App.2d 153, 158 [42 Cal. Rptr. 527, 11 A.L.R.3d 1064]; Nagle v. Macy, 9 Cal. 426, 428; Hyde v. Mangan, supra; Polhemus v. Trainer, 30 Cal. 685, 688); and that a deed of trust has no assignable quality independent of the debt, it may not be 554*554 assigned or transferred apart from the debt, and an attempt to assign the deed of trust without a transfer of the debt is without effect. (Adler v. Sargent, 109 Cal. 42, 48 [41 P. 799]; Polhemus v. Trainer, supra; Hyde v. Mangan, supra; Johnson v. Razy, 181 Cal. 342, 344 [184 P. 657]; Kelley v. Upshaw, 39 Cal.2d 179, 191-192 [246 P.2d 23].)[5]

Charles Wayne Cox
Websites:;; and
1969 Camellia Ave.
Medford, OR 97504-5403
(541) 727-2240
(541) 610-1931\eFax

3. August 2012

CA Trial Court Upholds Claims for Improper Assignment, Accounting, Unfair Practices

CA Trial Court Upholds Claims for Improper Assignment, Accounting, Unfair Practices

by Neil Garfield naranjo-v-sbmc-mortg-sdcal_3-11-cv-02229_20-july-24-20121.pdf

Editor’s Note: In an extremely well-written and well reasoned decision Federal District Court Judge M. James Lorenz denied the Motion to dismiss of US Bank on an alleged WAMU securitization that for the first time recognizes that the securitization scheme could be a sham, with no basis in fact.

Although the Plaintiff chose not to make allegations regarding false origination of loan documents, which I think is important, the rest of the decision breaks the illusion created by the banks and servicers through the use of documents that look good but do not meet the standards of proof required in a foreclosure.

1.    I would suggest that lawyers look at the claim and allegations that the origination documents were false and were procured by fraud.

2.    Since no such allegation was made, the court naturally assumed the loan was validly portrayed in the loan documents and that the note was evidence of the loan transaction, presuming that SBMC actually loaned the money to the Plaintiff, which does not appear to be the case.

3.    This Judge actually read everything and obvious questions in his mind led him to conclude that there were irregularities in the assignment process that could lead to a verdict in favor of the Plaintiff for quiet title, accounting, unfair practices and other claims.

4.    The court recites the fact that the loan was sold to “currently unknown entity or entities.” This implicitly raises the question of whether the loan was in fact actually sold more than once, and if so, to whom, for how much, and raises the issues of whom Plaintiff was to direct her payments and whether the actual creditor was receiving the money that Plaintiff paid.  — a point hammered on, among others, at the Garfield Seminars coming up in Emeryville (San Francisco), 8/25 and Anaheim, 8/29-30. If you really want to understand what went on in the mortgage meltdown and the tactics and strategies that are getting traction in the courts, you are invited to attend. Anaheim has a 1/2 day seminar for homeowners.

5.    For the first time, this Court uses the words (attempt to securitize” a loan as opposed to assuming it was done just based upon the paperwork and the presence of the the parties claiming rights through the assignments and securitization.

6.    AFTER the Notice of Sale was recorded, the Plaintiff sent a RESPA 6 Qualified Written request. The defendants used the time-honored defense that this was not a real QWR, but eh court disagreed, stating that the Plaintiff not only requested information but gave her reasons in some details for thinking that something might be wrong.

7.    Plaintiff did not specifically mention that the information requested should come from BOTH the subservicer claiming rights to service the loan and the Master Servicer claiming rights to administer the payments from all parties and the disbursements to those investor lenders that had contributed the money that was used to fund the loan. I would suggest that attorneys be aware of this distinction inasmuch as the subservicer only has a small snapshot of transactions solely between the borrower and the subservicer whereas the the information from the Master Servicer would require a complete set of records on all financial transactions and all documents relating to their claims regarding the loan.

8.    The court carefully applied the law on Motions to Dismiss instead of inserting the opinion of the Judge as to whether the Plaintiff would win stating that “material allegations, even if doubtful in fact, are assumed to be true,” which is another point we have been pounding on since 2007. The court went on to say that it was obligated to accept any claim that was “plausible on its face.”

9.    The primary claim of Plaintiffs was that the Defendants were “not her true creditors and as such have no legal, equitable, or pecuniary right in this debt obligation in the loan,’ which we presume to mean that the court was recognizing the distinction, for the first time, between the legal obligation to pay and the loan documents.

10.  Plaintiff contended that there was not a proper assignment to anyone because the assignment took place after the cutoff date in 2006 (assignment in 2010) and that the person executing the documents, was not a duly constituted authorized signor. The Judge’s decision weighed more heavily that allegation that the assignment was not properly made according to the “trust Document,” thus taking Defendants word for it that a trust was created and existing at the time of the assignment, but also saying in effect that they can’t pick up one end of the stick without picking up the other. The assignment, after the Notice of Default, violated the terms of the trust document thus removing the authority of the trustee or the trust to accept it, which as any reasonable person would know, they wouldn’t want to accept — having been sold on the idea that they were buying performing loans. More on this can be read in “whose Lien Is It Anyway?, which I just published and is available on

11.  The Court states without any caveats that the failure to assign the loan in the manner and timing set forth in the “trust document” (presumably the Pooling and Servicing Agreement) that the note and Deed of trust are not part of the trust and that therefore the trustee had no basis for asserting ownership, much less the right to enforce.

12.  THEN this Judge uses simple logic and applies existing law: if the assignment was void, then the notices of default, sale, substitution of trustee and any foreclosure would have been totally void.

13.  I would add that lawyers should consider the allegation that none of the transfers were supported by any financial transaction or other consideration because consideration passed at origination from the investors directly tot he borrower, due to the defendants ignoring the provisions of the prospectus and PSA shown to the investor-lender. In discovery what you want is the identity of each entity that ever showed this loan is a loan receivable on any regular business or record or set of accounting forms. It might surprise you that NOBODY has the loan posted as loan receivable and as such, the argument can be made that NOBODY can submit a CREDIT BID at auction even if the auction was otherwise a valid auction.

14.  Next, the Court disagrees with the Defendants that they are not debt collectors and upholds the Plaintiff’s claim for violation of FDCPA. Since she explicitly alleges that US bank is a debt collector, and started collection efforts on 2010, the allegation that the one-year statute of limitation should be applied was rejected by the court. Thus Plaintiff’s claims for violations under FDCPA were upheld.

15.  Plaintiff also added a count under California’s Unfair Competition Law (UCL) which prohibits any unlawful, unfair or fraudulent business act or practice. Section 17200 of Cal. Bus. & Prof. Code. The Court rejected defendants’ arguments that FDCPA did not apply since “Plaintiff alleges that Defendants violated the UCL by collecting payments that they lacked the right to collect, and engaging in unlawful business practices by violating the FDCPA and RESPA.” And under the rules regarding motions to dismiss, her allegations must be taken as absolutely true unless the allegations are clearly frivolous or speculative on their face.

16.  Plaintiff alleged that the Defendants had created a cloud upon her title affecting her in numerous ways including her credit score, ability to refinance etc. Defendants countered that the allegation regarding a cloud on title was speculative. The Judge said this is not speculation, it is fact if other allegations are true regarding the false recording of unauthroized documents based upon an illegal or void assignment.

17.  And lastly, but very importantly, the Court recognizes for the first time, the right of a homeowner to demand an accounting if they can establish facts in their allegations that raise questions regarding the status of the loan, whether she was paying the right people and whether the true creditors were being paid. “Plaintiff alleges facts that allows the Court to draw a reasonable inference that Defendants may be liable for various misconduct alleged. See Iqbal, 129 S. Ct. at 1949.

Here are some significant quotes from the case. Naranjo v SBMC TILA- Accounting -Unfair practices- QWR- m/dismiss –

No allegations regarding false origination of loan documents:

SBMC sold her loan to a currently unknown entity or entities. (FAC ¶ 15.) Plaintiff alleges that these unknown entities and Defendants were involved in an attempt to securitize the loan into the WAMU Mortgage Pass-through Certificates WMALT Series 2006-AR4 Trust (“WAMU Trust”). (Id. ¶ 17.) However, these entities involved in the attempted securitization of the loan “failed to adhere to the requirements of the Trust Agreement

In August 2009, Plaintiff was hospitalized, resulting in unforeseen financial hardship. (FAC ¶ 25.) As a result, she defaulted on her loan. (See id. ¶ 26.)
On May 26, 2010, Defendants recorded an Assignment of Deed of Trust, which states that MERS assigned and transferred to U.S. Bank as trustee for the WAMU Trust under the DOT. (RJN Ex. B.) Colleen Irby executed the Assignment as Officer for MERS. (Id.) On the same day, Defendants also recorded a Substitution of Trustee, which states that the U.S. Bank as trustee, by JP Morgan, as attorney-in-fact substituted its rights under the DOT to the California Reconveyance Company (“CRC”). (RJN Ex. C.) Colleen Irby also executed the Substitution as Officer of “U.S. Bank, National Association as trustee for the WAMU Trust.” (Id.) And again, on the same day, CRC, as trustee, recorded a Notice of Default and Election to Sell. (RJN Ex. D.)
A Notice of Trustee’s sale was recorded, stating that the estimated unpaid balance on the note was $989,468.00 on July 1, 2011. (RJN Ex. E.)
On August 8, 2011, Plaintiff sent JPMorgan a Qualified Written Request (“QWR”) letter in an effort to verify and validate her debt. (FAC ¶ 35 & Ex. C.) In the letter, she requested that JPMorgan provide, among other things, a true and correct copy of the original note and a complete life of the loan transactional history. (Id.) Although JPMorgan acknowledged the QWR within five days of receipt, Plaintiff alleges that it “failed to provide a substantive response.” (Id. ¶ 35.) Specifically, even though the QWR contained the borrow’s name, loan number, and property address, Plaintiff alleges that “JPMorgan’s substantive response concerned the same borrower, but instead supplied information regarding an entirely different loan and property.” (Id.)

The court must dismiss a cause of action for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The court must accept all allegations of material fact as true and construe them in light most favorable to the nonmoving party. Cedars-Sanai Med. Ctr. v. Nat’l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). Material allegations, even if doubtful in fact, are assumed to be true. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, the court need not “necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations.” Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (internal quotation marks omitted). In fact, the court does not need to accept any legal conclusions as true. Ashcroft v. Iqbal, 556 U.S. 662, ___, 129 S. Ct. 1937, 1949 (2009)

the allegations in the complaint “must be enough to raise a right to relief above the speculative level.” Id. Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'” Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a `probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. A complaint may be dismissed as a matter of law either for lack of a cognizable legal theory or for insufficient facts under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).

Plaintiff’s primary contention here is that Defendants “are not her true creditors and as such have no legal, equitable, or pecuniary right in this debt obligation” in the loan. (Pl.’s Opp’n 1:5-11.) She contends that her promissory note and DOT were never properly assigned to the WAMU Trust because the entities involved in the attempted transfer failed to adhere to the requirements set forth in the Trust Agreement and thus the note and DOT are not a part of the trust res. (FAC ¶¶ 17, 20.) Defendants moves to dismiss the FAC in its entirety with prejudice.

The vital allegation in this case is the assignment of the loan into the WAMU Trust was not completed by May 30, 2006 as required by the Trust Agreement. This allegation gives rise to a plausible inference that the subsequent assignment, substitution, and notice of default and election to sell may also be improper. Defendants wholly fail to address that issue. (See Defs.’ Mot. 3:16-6:2; Defs.’ Reply 2:13-4:4.) This reason alone is sufficient to deny Defendants’ motion with respect to this issue. [plus the fact that no financial transaction occurred]

Moving on, Defendants’ reliance on Gomes is misguided. In Gomes, the California Court of Appeal held that a plaintiff does not have a right to bring an action to determine a nominee’s authorization to proceed with a nonjudicial foreclosure on behalf of a noteholder. 192 Cal. App. 4th at 1155. The nominee in Gomes was MERS. Id. at 1151. Here, Plaintiff is not seeking such a determination. The role of the nominee is not central to this action as it was in Gomes. Rather, Plaintiff alleges that the transfer of rights to the WAMU Trust is improper, thus Defendants consequently lack the legal right to either collect on the debt or enforce the underlying security interest.

Plaintiff requests that the Court “make a finding and issue appropriate orders stating that none of the named Defendants . . . have any right or interest in Plaintiff’s Note, Deed of Trust, or the Property which authorizes them . . . to collect Plaintiff’s mortgage payments or enforce the terms of the Note or Deed of Trust in any manner whatsoever.” (FAC ¶ 50.) Defendant simplifies this as a request for “a determination of the ownership of [the] Note and Deed of Trust,” which they argue is “addressed in her other causes of action.” (Defs.’ Mot. 6:16-20.) The Court disagrees with Defendants. As discussed above and below, there is an actual controversy that is not superfluous. Therefore, the Court DENIES Defendants’ motion as to Plaintiff’s claim for declaratory relief.

Defendants argue that they are not “debt collectors” within the meaning of the FDCPA. (Defs.’ Mot. 9:13-15.) That argument is predicated on the presumption that all of the legal rights attached to the loan were properly assigned. Plaintiff responds that Defendants are debt collectors because U.S. Bank’s principal purpose is to collect debt and it also attempted to collect payments. (Pl.’s Opp’n 19:23-27.) She explicitly alleges in the FAC that U.S. Bank has attempted to collect her debt obligation and that U.S. Bank is a debt collector. Consequently, Plaintiff sufficiently alleges a claim under the FDCPA.
Defendants also argue that the FDCPA claim is time barred. (Defs.’ Mot. 7:18-27.) A FDCPA claim must be brought “within one year from the date on which the violation occurs.” 15 U.S.C. § 1692k(d). Defendants contend that the violation occurred when the allegedly false assignment occurred on May 26, 2010. (Defs.’ Mot. 7:22-27.) However, Plaintiff alleges that U.S. Bank violated the FDCPA when it attempted to enforce Plaintiff’s debt obligation and collect mortgage payments when it allegedly had no legal authority to do so. (FAC ¶ 72.) Defendants wholly overlook those allegations in the FAC. Thus, Defendants fail to show that Plaintiff’s FDCPA claim is time barred.
Accordingly, the Court DENIES Defendants’ motion as to Plaintiff’s FDCPA claim.
Defendants argue that Plaintiff’s letter does not constitute a QWR because it requests a list of unsupported demands rather than specific particular errors or omissions in the account along with an explanation from the borrower why she believes an error exists. (Defs.’ Mot. 10:4-13.) However, the letter explains that it “concerns sales and transfers of mortgage servicing rights; deceptive and fraudulent servicing practices to enhance balance sheets; deceptive, abusive, and fraudulent accounting tricks and practices that may have also negatively affected any credit rating, mortgage account and/or the debt or payments that [Plaintiff] may be obligated to.” (FAC Ex. C.) The letter goes on to put JPMorgan on notice of
potential abuses of J.P. Morgan Chase or previous servicing companies or previous servicing companies [that] could have deceptively, wrongfully, unlawfully, and/or illegally: Increased the amounts of monthly payments; Increased the principal balance Ms. Naranjo owes; Increased the escrow payments; Increased the amounts applied and attributed toward interest on this account; Decreased the proper amounts applied and attributed toward the principal on this account; and/or[] Assessed, charged and/or collected fees, expenses and miscellaneous charges Ms. Naranjo is not legally obligated to pay under this mortgage, note and/or deed of trust.
(Id.) Based on the substance of letter, the Court cannot find as a matter of law that the letter is not a QWR.
California’s Unfair Competition Law (“UCL”) prohibits “any unlawful, unfair or fraudulent business act or practice. . . .” Cal. Bus. & Prof. Code § 17200. This cause of action is generally derivative of some other illegal conduct or fraud committed by a defendant. Khoury v. Maly’s of Cal., Inc., 14 Cal. App. 4th 612, 619 (1993). Plaintiff alleges that Defendants violated the UCL by collecting payments that they lacked the right to collect, and engaging in unlawful business practices by violating the FDCPA and RESPA.

Defendants argue that Plaintiff’s allegation regarding a cloud on her title does not constitute an allegation of loss of money or property, and even if Plaintiff were to lose her property, she cannot show it was a result of Defendants’ actions. (Defs.’ Mot. 12:22-13:4.) The Court disagrees. As discussed above, Plaintiff alleges damages resulting from Defendants’ collection of payments that they purportedly did not have the legal right to collect. These injuries are monetary, but also may result in the loss of Plaintiff’s property. Furthermore, these injuries are causally connected to Defendants’ conduct. Thus, Plaintiff has standing to pursue a UCL claim against Defendants.

Plaintiff alleges that Defendants owe a fiduciary duty in their capacities as creditor and mortgage servicer. (FAC ¶ 125.) She pursues this claim on the grounds that Defendants collected payments from her that they had no right to do. Defendants argue that various documents recorded in the Official Records of San Diego County from May 2010 show that Plaintiff fails to allege facts sufficient to state a claim for accounting. (Defs.’ Mot. 16:1-3.) Defendants are mistaken. As discussed above, a fundamental issue in this action is whether Defendants’ rights were properly assigned in accordance with the Trust Agreement in 2006. Plaintiff alleges facts that allows the Court to draw a reasonable inference that Defendants may be liable for various misconduct alleged. See Iqbal, 129 S. Ct. at 1949.


21. June 2012

New ruling from Texas upholding Carpenter v Longan – The court disagrees with the contention of BOA

These different rulings and interpretations of the same law each court and each state has got to stop, misinterpreting the law.  



The court disagrees with the contention of BOA that BOA did not have to be the owner or holder of the note to proceed with the foreclosure sale. The reliance by defendants on Chapter 51 of the Texas Property Code is misplaced. Procedures outlining the steps and requirements for a foreclosure are contained in Chapter 51. Under the Property Code, MERS was a mortgagee based on either the definition of a ~book entry system,” Tex. Prop. Code §§ 51.0001(1) (defining ~book entry system”) and (4) (defining ~mortgagee”), or alternatively, the definition of a ~holder of a security instrument,” id. §§ 51.0001(4) and (6) ~security instrument” as a ~deed of trust, mortgage, or other contract lien on an interest in real property”).

Once MERS assigned its interest in the deed of trust to BOA, BOA became the ~holder of a security instrument” and was therefore a ~mortgagee.”

Id. The Property Code states that a ~mortgage servicer,” such as BAC, ~may administer the foreclosure of property under section 51.002 on behalf of a mortgagee, if: (1) the mortgage servicer and the mortgagee have entered into an agreement granting the current mortgage servicer authority to service the mortgage; and (2) the notices required under Section 51.002(b) disclose that the mortgage servicer is representing the mortgagee under a servicing agreement with the mortgagee and the name of the mortgagee and: (A) the address of the mortgageei or (B) the address of the mortgage servicer, if there is an agreement granting a mortgage servicer the authority to service the mortgage. Case 4:11-cv-00356-A Document 38 Filed 12/22/11 Page 8 of 11 PageID 421 McCARTHY v BANK OF




Grace Adams


Blog: Website:

11. June 2012

Naked Capitalism: Alabama Appeals Court Reverses Decision on Chain of Title Case, Ruling Hinges on Question of Bogus Allonges

FRIDAY, JUNE 8, 2012

Alabama Appeals Court Reverses Decision on Chain of Title Case, Ruling Hinges on Question of Bogus Allonges

In a unanimous decision, the Alabama Court of Civil Appeals reversed a lower court decision on a foreclosure case, U.S. Bank v. Congress and remanded the case to trial court.

We’d flagged this case as important because to our knowledge, it was the first to argue what we call the New York trust theory, namely, that the election to use New York law in the overwhelming majority of mortgage securitizations meant that the parties to the securitization could operate only as stipulated in the pooling and servicing agreement that created that particular deal. Over 100 years of precedents in New York have produced well settled case law that deems actions outside what the trustee is specifically authorized to do as “void acts” having no legal force. The rigidity of New York trust has serious implications for mortgage securitizations. The PSAs required that the notes (the borrower IOUs) be transferred to the trust in a very specific fashion (endorsed with wet ink signatures through a particular set of parties) before a cut-off date, which typically was no later than 90 days after the trust closing. The problem is, as we’ve described in numerous posts, that there appears to have been massive disregard in the securitization for complying with the contractual requirements that they established and appear to have complied with, at least in the early years of the securitization industry. It’s difficult to know when the breakdown occurred, but it appears that well before 2004-2005, many subprime originators quit bothering with the nerdy task of endorsing notes and completing assignments as the PSAs required; they seemed to take the position they could do that right before foreclosure. Indeed, that’s kosher if the note has not been securitized, but as indicated above, it is a no-go with a New York trust. There is no legal way to remedy the problem after the fact.

The solution in the Congress case appears to have been a practice that has since become troublingly become common: a fabricated allonge. An allonge is an attachment to a note that is so firmly affixed that it can’t travel separately. The fact that a note was submitted to the court in the Congress case and an allonge that fixed all the problems appeared magically, on the eve of trial, looked highly sus. The allonge also contained signatures that looked less than legitimate: they were digitized (remember, signatures as supposed to be wet ink) and some were shrunk to fit signature lines. These issues were raised at trial by Congress’s attorneys, but the fact that the magic allonge appeared the Thursday evening before Memorial Day weekend 2011 when the trial was set for Tuesday morning meant, among other things, that defense counsel was put on the back foot (for instance, how do you find and engage a signature expert on such short notice? Answer, you can’t).

The case was ruled in favor of the US Bank, in a narrow and strained opinion (which was touted as significant by reliable securitization industry booster Paul Jackson). It argued that the case was an ejectment action (the final step to get the borrower out after the foreclosure was final) so that, per securitization expert, Georgetown law professor Adam Levitin,

..the question of ownership of the note was not an issue of standing, but an affirmative defense for which the homeowner had the burden of proof…Crazy or not, however, this meant that the homeowner wasn’t actually challenging the trust’s standing. From there it was a small step for the court to say that the homeowner couldn’t invoke the terms of the PSA because she wasn’t a party to it…..

The case has been remanded back to trial court, and the judges put the issue of the allonge front and center

The court found that the judge put an improperly high burden of proof on Congress, applying a “clear and convincing evidence” standard. The court said that was a misapplication of precedent based on cases dealing with recorded deeds. The document under dispute was an allonge to an unrecorded note. The appeals court found the evidentiary hurdle should instead be that of a preponderance of evidence. In addition, the court also found that the lower court incorrectly focused on the issue of the validity of the signatures. The appeals court found that even though Congress seemed to be contesting the validity of the signatures (the appeals court notes the argument at points seemed to be a bit confused), her real bone of contention was that the allonge was bogus (emphasis original):

Congress appears to be arguing not that signatures on the allonge are forged or otherwise invalid to prevent enforcement of the note, but that the allonge was fabricated or, essentially, created after the first trial in order to remedy the apparent defect in the chain of indorsements.

Keep in mind that Alabama is hardly a consumer friendly jurisdiction; it’s former status as one of the preferred states for launching class action suits, thanks to favorable state statutes and easily riled juries, has led to a concerted effort to elect and place business friendly judges on the bench (Alabama has far and away the most costly Supreme Court elections in the entire nation). The fact that a higher court has finally decided to place the question of the legitimacy of suddenly-appearing allonges at the heart of a ruling is a welcome development. alabama-appeals-court-ruling-u-s-bank-v-congress-june-8-20111.pdf


Adam Levitin: Alabama Mortgage Ruling “doesn’t have precedential value anywhere“

Georgetown law professor and securitization expert Adam Levitin has weighed in on the ruling in an Alabama case, U.S. Bank v. Congress, in which a state court judge ruled against what we have called the New York trust theory. For readers new to this terrain, the short form is that the parties to mortgage securitizations are governed by a so-called pooling and servicing agreement. The PSA, among many other things, described how the notes (the borrower IOU) were to be conveyed to a trust that would hold them for the benefit of investors. The trust was almost without exception a New York trust. New York was chosen because its trust law is both very well settled and very rigid. New York trusts have no discretion in how they operate. Any measure undertaken that is inconsistent with explicit instructions is deemed to be a “void act”.

Now it appears that the notes were not conveyed to the trusts as stipulated in the PSAs on a widespread basis. (You can read the details here). Because the trusts are New York trusts, that means you have a really big mess. You can’t convey the notes in now, that’s not permitted because the trust had specific dates for accepting the assets that have long passed. The party that has the note (someone earlier in the securitization chain) can foreclose, but no one wants to do that. It isn’t just that this would be an admission that that parties to the agreement didn’t fulfill their contractual obligations; there is no way to get the money from the party that foreclosed to the trust and then to the investors.

Since the securitization industry has had so little good news of late, and this New York trust issue has the potential to make the chain of title problems that banks are facing in courtrooms all over the US even more acute, Paul Jackson of Housing Wire was quick to jump on this pro-bank decision as a major victory. We argued that it was probably not a significant precedent, and that some of the legal reasoning looked like a stretch, other parts were at odds with decisions in other states (meaning those states were unlikely to change course based on a lower-court decision in Alabama). But we acknowledged that parts of the decision were hard to parse and over our pay grade.

Levitin has taken an even more dismissive view of the decision (although since his writing style is more measured than ours, you need to read for substance, not tone). As he reads it, the judge rejected the borrower’s case on procedural grounds. That means it cannot be seen as a ruling against the New York trust theory. So effectively, the New York trust theory remains untested rather than defeated on its initial outing. As Levitin wrote:

Perhaps the most important thing to note about the opinion is what isn’t there. There was no consideration of the chain-of-title issue in the opinion. Let me repeat, the court said nothing about whether there was proper chain-of-title in the securitization. Instead, the court avoided dealing with it. That means that this ruling isn’t grounds for sounding the “all clear” on chain-of-title. At best, it is grounds for arguing that homeowners won’t be able to raise chain-of-title problems…

The court played on the procedural posture of the case to reject this argument. First, the court explained that because this was an ejectment action, not a foreclosure, the question of ownership of the note was not an issue of standing, but an affirmative defense for which the homeowner had the burden of proof. The trial court here was citing to a recent Alabama appellate court decision (reversing a previous Alabama appellate decision) that concluded that standing is satisfied by virtue of the bank being named party on the foreclosure deed. That’s just crazy given that the foreclosure deed is a nonjudicial sale. [G.S.—maybe this explains why your shop saw your notaries’ seal forged on those foreclosure deeds.]

Crazy or not, however, this meant that the homeowner wasn’t actually challenging the trust’s standing. From there it was a small step for the court to say that the homeowner couldn’t invoke the terms of the PSA because she wasn’t a party to it…..

I don’t think there’s much to get excited about with Congress. If the homeowner had prevailed, the banks would have been saying “it’s just an Alabama state trial court,” and it might well have been overturned on appeal. But that doesn’t mean that the chain-of-title issue isn’t real. It just means that there’s still a search for the proper channel on which to advance the argument.

There’s more to his post, and I suggest legal types read it in full. There is an important discussion in it about the differing considerations regarding legal action on the note (the IOU) versus the lien (which is what allows the bank to make the foreclosure) that I want to address that in a separate post. It warrants some unpacking and further discussion.

Finally, he points out that investors have been getting their own reading on these legal issues and see them as valid, hence serious, concerns:

….numerous buy-side people (read MBS investors) have told me that they think there’s a serious problem with the securitization documentation. The problem that they have is that they don’t know what to do about it—they are trying to figure out a way that this can be used to put the mortgages back to the banks without it tanking the entire financial system. In other words, the banks are being protected by the too-big-to-fail problem. That’s letting them externalize their violations of their securitization contracts on MBS investors.

That suggests that investors are looking for the right leverage point on this matter but have yet to find one that is sufficiently surgical. Given how much they have at stake, I would bet they find it sooner rather than later.alabama-appeals-court-ruling-u-s-bank-v-congress-june-8-20111.pdf

5. June 2012

Mortgage Foreclosure by Advertisement/ Assignments Chain of Title

Date: March 12, 2012

Dear Associates:

Please be advised that the State of Michigan Court of Appeals rendered a recent decision in the matter of Kim v. JP Morgan Chase Bank which upheld the statutory provision [MCL 600.3204(1)d] and the Davenport v. HSBC Bank USA case which provides that, if the foreclosing lender is not the original mortgagee, there must be a record chain of title for the assignments of mortgages before the assignee lender can foreclose the mortgage. The Court held in this action that JP Morgan Chase failed to satisfy this provision in foreclosing the plaintiff’s mortgage, thereby rendering their foreclosure invalid.

The plaintiff/borrower’s original bank, Washington Mutual, failed and on September 25, 2008, the United States Department of Treasury appointed the FDIC receiver and closed the Bank. Ultimately, the FDIC transferred all of Washington Mutual’s loans and loan commitments, by way of a Purchase and Assumption Agreement, to JP Morgan. JP Morgan declared a default on the plaintiff’s mortgage and initiated a foreclosure by advertisement. The plaintiff homeowner challenged the ability of JP Morgan to foreclose the mortgage on their property due to JP Morgan’s failure to record a chain of title to the mortgage.

JP Morgan argued they didn’t have to record a chain of title for assignments as they acquired the mortgage interests by operation of law. The Court disagreed holding, first, that JP Morgan paid consideration under the Agreement and, therefore, did not acquire their interest by way of operation of law and, secondly, the plain language of the statute makes no exception for mortgages acquired by operation of law. This would seem to indicate that, while the FDIC may acquire their interest by operation of law, mortgages conveyed into and out of the FDIC need to be reflected in a “chain of title prior to the date of sale under section 3216 evidencing the assignment of the mortgage to the party foreclosing the mortgage“.

To insure a mortgage foreclosure by a party other than the original mortgagee or their servicer, you must assure that there is a record chain of title to the assignment(s) of the mortgage by the recording of all the assignments or by the recording of some sort of affidavit which purports to establish a chain of title to the assignments.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins:


Date: Mon, 4 Jun 2012 10:52:04 -0700


Posted on June 4, 2012 by Neil Garfield


Excerpt from 2nd Edition Attorney Workbook, Treatise and Practice Manual

AND Subject Matters to be Covered in July Workshop

ALLONGE: An allonge is variously defined by different courts and sources. But the one thing they all have in common is that it is a very specific type of writing whose validity is presumed to be invalid unless accompanied by proof that the allonge was executed by the Payor (not the Payee) at the time of or shortly after the execution of a negotiable instrument or a promissory note that is not a negotiable instrument. People add all sorts of writing to notes but the additions are often notes by the payee that are not binding on the Payor because that is not what the Payor signed. In the context of securitization, it is always something that a third party has done after the note was signed, sometimes years after the note was signed.

A Common Definition is “An allonge is generally an attachment to a legal document that can be used to insert language or signatures when the original document does not have sufficient space for the inserted material. It may be, for example, a piece of paper attached to a negotiable instrument or promissory note, on which endorsements can be written because there isn’t enough room on the instrument itself. The allonge must be firmly attached so as to become a part of the instrument.”

So the first thing to remember is that an allonge is not an assignment nor is it an indorsement (UCC spelling) or endorsement (common spelling). This distinction was relatively unimportant until claims of “securitization” were made asserting that loans were being transferred by way of an allonge. By definition that is impossible. An allonge is neither an amendment, nor an assignment nor an endorsement of a loan, note, mortgage or obligation. Lawyers who miss this point are conceding something that is basic to contract law, the UCC and property law in each state.

It is important to recognize the elements of an allonge:

  1. By definition it is on a separate piece of paper containing TERMS that could not fit on the instrument itself. Since the documents are prepared in advance of the “closing” with the borrower, I can conceive of no circumstances where the note or other instrument would be attached to an allonge when there was plenty of time to reprint the note with all the terms and conditions. The burden would then shift to the pretender lender to establish why it was necessary to put these “terms” on a separate piece of paper.
  2. The separate piece of paper must be affixed to the note in such a manner as to demonstrate that the allonge was always there and formed the basis of the agreement between all signatories intended to be bound by the instrument (note). The burden is on the pretender lender to prove that the allonge was always present — a burden that is particularly difficult without the signature or initials of the party sought to be bound by the “terms” expressed in the allonge.
  3. The attached paper must contain terms, conditions or provisions that are relevant to the duties and obligations of the parties to the original instrument — in this case the original instrument is a promissory note. The burden of proof in such cases might include foundation testimony from a live witness who can testify that the signor on the note knew the allonge existed and agreed to the terms.
  4. ERROR: An allonge is not just any piece of paper attached to the original instrument. If it is being offered as an allonge but it is actually meant to be used as an assignment or indorsement, then additional questions of fact arise, including but not limited to consideration. In the opinion of this writer, the reason transfers are often “documented” with instruments called an “allonge” is that by its appearance it gives the impression that (1) it was there since inception of the instrument and (2) that the borrower agreed to it. An additional reason is that the issue consideration for the transfer is avoided completely if the “allonge” is accepted as a document of transfer.
  5. As a practice pointer, if the document contains terms and conditions of the loan or repayment, then it is being offered as an allonge. But it is not a valid allonge unless the signor of the original instrument (the note) agreed to the contents expressed on the allonge, since the proponent of this evidence wishes the court to consider the allonge part of the note itself.
  6. If the instrument contains language of transfer then it is not an allonge in that it fails to meet the elements required for proffering evidence of the instrument as an allonge.

ASSIGNMENT: All contracts require an offer, acceptance and consideration to be enforced. An assignment is a contract. In the context of mortgage loans and litigation, an assignment is a document that recites the terms of a transaction in which the loan, note, obligation, mortgage or deed of trust is transferred and accepted by the assignee in exchange for consideration. Within the context of loans that are subject to securitization claims or claims of assignment the documents proffered by the pretender lender are missing two out of three components: consideration and acceptance. The assignment in this context is an offer that cannot and in fact must not be accepted without violating the authority of the manager or “trustee” of the SPV (REMIC) pool.

Like all contracts it must be supported by consideration. An assignment without consideration is probably void, almost certainly voidable and at the very least requires the proponent of this instrument as evidence to be admitted into the record to meet the burden of proof as to foundation.

The typical assignment offered in foreclosure litigation states that “for value received” the assignor, being the owner of the note described, hereby assigns, transfers and conveys all right, title and interest to the assignee. The problem is obvious — there was no value received if the loan was not funded by the assignee or was being purchased by the assignee at the time of the alleged transfer. A demand for records of the assignor and assignee would show how the parties actually treated the transaction from an accounting point of view.

In the same way as we look at the bookkeeping records of the “payee” on the original note to determine if the payee was in fact the “lender” as declared in the note and mortgage, we look to the books and records of the assignor and assignee to determine the treatment of the transaction on their own books and records.

The highest probability is that there will be no entry on either the balance sheet categories or the income statement categories because the parties were already paid a fee at the inception of the “loan” which was not disclosed to the borrower in violation of TILA. At most there might be the recording of an additional fee for “processing” the “assignment”. At no time will the assignor nor the assignee show the transaction as a loan receivable, the absence of which is powerful evidence that the assignor did not own the loan and therefore conveyed nothing, and that the assignee paid nothing in the assignment “transaction” because there was no transaction.

Any accountant (CPA) should be able to render a report on this limited aspect. Such an accountant could recite the same statements contained herein as the reason why you are in need of the discovery and what it will show. Such a statement should not say that the evidence will prove anything, but rather than this information will lead to the discovery of admissible evidence as to whether the party whose records are being produced was acting in the capacity of servicer, nominee, lender, real party in interest, assignee or assignor.

The foundation for the assignment instrument must be by way of testimony (I doubt that “business records” could suffice) explaining the transaction and validating the assignment and the facts showing consideration, offer and acceptance. Acceptance is difficult in the context of securitization because the assignment is usually prepared (a) long after the close out date in the pooling and servicing agreement and (b) after the assignor or its agents have declared the loan to be in default. Both points violate virtually all pooling and servicing agreements that require performing loans to be pooled, ownership of the loan to be established by the assignor, the assignment executed in recordable form and many PSA’s require actual recording — a point missed by most analysts.

If we assume for the moment that the origination of the loan met the requirements for perfecting a mortgage lien on the subject property, the party managing the “pool” (REMIC, Trust etc.) would be committing an ultra vires act on its face if they accepted the loan, debt, obligation, note, mortgage or deed of trust into the pool years after the cut-off date and after the loan was declared in default. Acceptance of the assignment is a key component here that is missed by most judges and lawyers. The assumption is that if the assignment was offered, why wouldn’t the loan be accepted. And the answer is that by accepting the loan the manager would be committing the pool to an immediate loss of principal and income or even the opportunity for income.

Thus we are left with a Hobson’s choice: either the origination documents were void or the assignments of the origination documents were void. If the origination documents were void for lack of consideration and false declarations of facts, there could not be any conditions under which the elements of a perfected mortgage lien would be present. If the origination was valid, but the assignments were void, then the record owner of the loan is party who is admitted to have been paid in full, thus releasing the property from the encumbrance of the mortgage lien. Note that releasing the original lien neither releases any obligation to whoever paid it off nor does it bar a judgment lien against the homeowner — but that must be foreclosed by judicial means (non-judicial process does not apply to judgment liens under any state law I have reviewed).

INDORSEMENTS OR ENDORSEMENTSThe spelling varies depending upon the source. The common law spelling and the one often used in the UCC begins with the letter “I”. They both mean the same thing and are used interchangeably.

An indorsement transfers rights represented by the instruments to another individual other than the payee or holder. Indorsements can be open, qualified, conditional, bearer, with recourse, without recourse, requiring a subsequent indorsement, as a bailment (collection), or transferring all right title and interest. The types of indorsements vary as much as human imagination which is why an indorsement, alone, it frequently insufficient to establish the rights of the parties without another evidence, such as a contract of assignment.

The typical definition starts with an overall concept: “An indorsement on a negotiable instrument, such as a check or a promissory note, has the effect of transferring all the rights represented by the instrument to another individual. The ordinary manner in which an individual endorses a check is by placing his or her signature on the back of it, but it is valid even if the signature is placed somewhere else, such as on a separate paper, known as an allonge, which provides a space for a signature.” Another definition often appearing in cases and treatises is “ the act of the owner or payee signing his/her name to the back of a check, bill of exchange, or other negotiable instrument so as to make it payable to another or cashable by any person. An endorsement may be made after a specific direction (“pay to Dolly Madison” or “for deposit only”), called a qualified endorsement, or with no qualifying language, thereby making it payable to the holder, called a blank endorsement. There are also other forms of endorsement which may give credit or restrict the use of the check.”

Entire books have been written about indorsements and they have not exhausted all the possible interpretations of the act or the words used to describe the writing dubbed an “indorsement” or the words contained within the words described as an indorsement. As a result, courts are justifiably reluctant to accept an indorsed instrument on its face with parole evidence — unless the other party makes the mistake of failing to object to the foundation, and in the case of the mortgage meltdown practices of fabrication, forgery and fraud, by failing to deny the indorsement was ever made except for the purposes of litigation and has no relation to any legitimate business transaction.

Once the indorsement is put in issue as a material fact that is disputed, then the discovery must proceed to determine when the indorsement was created, where it was done, the parties involved in its creation and the parties involved in the execution of the indorsement, as well as the circumstantial evidence causing the indorsement to be made. A blank indorsement is no substitute for an assignment nor is it evidence that any transaction took place win which consideration (money) exchanged hands. Further blank indorsements might be yet another violation of the PSA, in which the indorsement must be with recourse and be unqualified naming the assignee.

A “trustee” of an alleged SPV (REMIC) who accepts such a document would no doubt be acting ultra vires (acting outside of the authority vested in the person purported to have acted) and it is doubtful that any evidence exists where the trustee was informed that the proposed indorsement or assignment involved a loan and a pool which was five years past the cutoff, already declared in default and which failed to meet the formal terms of assignment set forth in the PSA. A deposition upon written questions or oral deposition might clear the matter up by directing the right questions to the right person designated to be the person who represents the entity that claims to manage the SPV (REMIC) pool. In order to accomplish that, prior questions must be asked and answered as to the identity of such individuals and entities “with sufficient specificity such that they can be identified in subsequent demands for discovery or the issuance of a subpoena.”

Throughout this process, the defender in foreclosure must be ever vigilant in maintaining control of the narrative lest the other side wrest control and redirect the Judge to the allegation (without any evidence in the record) that the debt exists (or worse, has been admitted), the default occurred (or worse, has been admitted) and that the pretender is the lender (or worse, has been admitted as such).

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