An Open Letter to Judges in Foreclosure and Bankruptcy Proceedings

Lynn E. Szymoniak, Esq., April 19, 2010


Download this Open Letter as a PDF.

Dear Honorable Judges in Foreclosure and Bankruptcy Proceedings:

This letter concerns how a Jacksonville, Florida publicly-traded company, Lender Processing Services, Inc. solves Deutsche Bank National Trust Company!s problem of missing documents in foreclosure cases. Deutsche Bank National Trust Company (“DBNTC”) is the plaintiff in the majority of foreclosure actions filed in thousands of counties in America since 2007. Deutsche Bank is sometimes referred to as “America!s Foreclosure King.” There is currently a Department of Justice investigation of LPS and its influence over law firms in foreclosure actions, according to an article in the Dow Jones Daily Bankruptcy Review on April 16, 2010.

In these foreclosure actions, DBNTC is usually acting as the trustee for a mortgage- backed securitized trust. This means that a securities company made a commodity out of approximately 5,000 mortgages that were bundled together. The notes in the trust have a face value of approximately $1.5 billion in each trust. Investors buy shares of these trusts. Deutsche Bank is the most common name in the business of being a Trustee for Mortgage-Backed trusts. Other banks very active in this role of Trustee include Wells Fargo, U.S. Bank, Citibank, Bank of New York, JP Morgan Chase and HSBC.

When each of these trusts was made, the securities company responsible for the securitization (often Financial Assets Securities Corporation in Greenwich, Connecticut) was supposed to have obtained mortgage assignments showing that the trust had acquired each mortgage and note from the previous owner, which was most often the original lender. The trust documents specify that the mortgages, notes and assignments in recordable from will have been obtained by the trust. Most mortgage-backed trusts included the following or equivalent language regarding Assignments:

Assignments of the Mortgage Loans to the Trustee (or its nominee) will not be recorded in any jurisdiction, but will be delivered to the Trustee in recordable form, so that they can be recorded in the event recordation is necessary in connection with the servicing of a Mortgage Loan.

Trustees take very few actions relating to the individual properties in the trust. Typically, the bank acting as a trustee for a mortgage-backed trust hires a mortgage servicing company to deal with issues involving the individual mortgages in the trust. The mortgage servicing companies in turn hire a “default management company” to foreclose when a homeowner defaults on payments on a loan that is part of the trust. Lender Processing Services in Jacksonville, Florida, is the largest mortgage default management company. Deutsche Bank National Trust Company uses several mortgage servicing companies, but most often uses American Home Mortgage Servicing, Inc. in Irving, Texas as its mortgage servicing company.

In tens of thousands of foreclosure cases filed by Deutsche Bank National Trust Company as trustee for a mortgage-backed trust, Deutsche Bank has not produced the mortgage, note or Assignment and instead has filed pleadings claiming that the original mortgage and note were inexplicably lost. In these cases, Deutsche Bank uses specially prepared Mortgage Assignments to show that they have the right to foreclose. These documents were often prepared by clerical employees of Docx, LLC, a subsidiary company of Lender Processing Services, the default management company. Hundreds of thousands of other Mortgage Assignments came from the LPS office in Dakota County, Minnesota. More recently, these documents were produced from the LPS offices in Jacksonville, Duval County, Florida. In thousands of other cases, LPS directs the law firms it hires to use the employees of the law firms to sign as officers of Mortgage Electronic Registration Systems to create the documents necessary for foreclosure. These employees sign as officers of the Grantors, when they are actually working for the Grantees.

These Assignments relied upon by Deutsche Bank to foreclose are in one of the following forms:

a) Mortgage Electronic Registration Services (MERS) is identified as the grantor and American Home Mortgage Servicing, Inc. is identified as the grantee; within days (or minutes), a second Assignment is filed, identifying American Home Mortgage Servicing, Inc. as the grantor and Deutsche Bank National Trust Company as trustee for the trust as the grantee;

b) a mortgage company no longer in existence is identified as the grantor and American Home Mortgage Servicing, Inc. is identified as the grantee; within days (or minutes), a second Assignment is filed, identifying American Home Mortgage Servicing, Inc. as the grantor and Deutsche Bank National Trust Company as trustee for the trust as the grantee;

c) a mortgage company no longer in existence is identified as the grantor and Deutsche Bank National Trust Company as trustee is identified as the grantee;

d) American Home Mortgage Servicing, Inc., purporting to be the “successor-in-interest” to Option One Mortgage Company, is identified as the grantor and Deutsche Bank National Trust Company as trustee is identified as the grantee;

e) Sand Canyon Corporation, formerly known as Option One Mortgage Company, is identified as the grantor and Deutsche Bank National Trust Company as trustee is identified as the grantee, with no further explanation of how both American Home Mortgage Servicing and Sand Canyon have authority to act for Option One Mortgage.

On several hundred thousand Assignments, the individuals signing as officers of the grantor were actually clerical employees of Lender Processing Services, the mortgage default management company hired by American Home Mortgage Servicing, Inc., working for the grantee - Deutsche Bank National Trust Company. On several hundred thousand Assignments, the very same individuals signed as officers of both the grantor and grantee.

In all of these hundreds of thousands of cases, no Assignment actually took place on the date stated and no consideration was paid by the grantee to the grantor despite the representations in the Assignments. Most significantly, no disclosure was ever made to the Court in the foreclosure or bankruptcy case or to the homeowners in default that the original Assignments to the Trust were never made – or were lost – or were defective and that the recently-filed Assignments were specially made to facilitate foreclosures years after the property was transferred to the trust.

An examination of the signatures on these Assignments shows that many are forgeries, with several different people signing the names Linda Green, Tywanna Thomas, Korell Harp, Jennifer Ohde, Linda Thoresen and many of the other names used on several million mortgage assignments, as I have reported in my article “Compare These Signatures.” Many of these same individuals use at least a dozen different job titles as I have reported in my article, “An Officer of Too Many Banks.” These articles are available at www.frauddigest.com.

A summary of my credentials can be found at www.szymoniakfirm.com. Please do not hesitate to contact me for additional information.

Yours truly,

Lynn E. Szymoniak, Esq.

This article could also have been titled:

HOW LENDER PROCESSING SERVICES, INC. SOLVES U.S. BANK!S MISSING PAPERWORK PROBLEM IN FORECLOSURES

-or-

HOW LENDER PROCESSING SERVICES, INC. SOLVES WELLS FARGO!S MISSING PAPERWORK PROBLEM IN FORECLOSURES

-or-

HOW LENDER PROCESSING SERVICES, INC. SOLVES BANK OF NEW YORK!S MISSING PAPERWORK PROBLEM IN FORECLOSURES

-or-

HOW LENDER PROCESSING SERVICES, INC. SOLVES CITIBANK’S MISSING


PAPERWORK PROBLEM IN FORECLOSURES

-or-

HOW LENDER PROCESSING SERVICES, INC. SOLVES HSBC!S MISSING PAPERWORK PROBLEM IN FORECLOSURES

For a copy of the Exhibits referenced below, please contact szymoniak@mac.com.

Copies of Assignments from MERS to American Home Mortgage Servicing, Inc. are attached hereto as Exhibit 1.

Copies of Assignments from American Home Mortgage Servicing Inc. to Deutsche Bank as Trustee are attached as Exhibit 2.

Copies of Assignments from American Brokers Conduit, a mortgage company no longer in existence at the time the Assignments were made, to Deutsche Bank as trustee are attached as Exhibit 3. These were filed in counties were no Power of Attorney designating Lender Processing Services or American Home Mortgage Servicing or any other entity as Attorney-in-Fact for American Brokers Conduit had been filed. This Exhibit also includes Assignments signed by Lender Processing Services employees as officers of MERS as nominee for American Brokers Conduit.

Copies of other Assignments to Deutsche Bank as Trustee signed by employees of Lender Processing Services, working for the grantee Deutsche Bank, but signing on behalf of the grantor mortgage companies or banks, or MERS as nominee for the grantor mortgage companies or banks, are attached as Exhibit 4.

Copies of Assignments from American Home Mortgage Servicing, Inc. as the successor- in-interest to Option One Mortgage as grantor and Deutsche Bank as Trustee as the grantee are attached as Exhibit 5.

Copies of Assignments from Sand Canyon, formerly known as Option One Mortgage as grantor and Deutsche Bank as Trustee as the grantee are attached as Exhibit 6.

Copies of Assignments signed by employees of law firms working for Lender Processing Services on behalf of American Home Mortgage Servicing, Inc. and ultimately for grantee Deutsche Bank, where such employees signed as officers of MERS as grantor are attached as Exhibit 7.

Copies of Assignments signed by employees of Lender Processing Services on behalf of grantors and notarized in Duval County, Florida for grantee Deutsche Bank, filed by law firms working for Deutsche Bank are attached as Exhibit 8.

THE REAL EMPLOYERS OF THE SIGNERS OF MORTGAGE ASSIGNMENTS TO TRUSTS

Lynn E. Szymoniak, Esq., April 15, 2010

Download this Article as a PDF.

On May 11, 2010, Judge Arthur J. Schack, Supreme Court, Kings County, New York, entered an order denying a foreclosure action with prejudice. The case involved a mortgage-backed securitized trust, SG Mortgage Securities Asset Backed Certificates, Series 2006-FRE2. U.S. Bank, N.A. served as Trustee for the SG Trust. See U.S. Bank, N.A. v. Emmanuel, 2010 NY Slip Op 50819 (u), Supreme Court, Kings County, decided May 11, 2010. In this case, as in hundreds of thousands of other cases involving securitized trusts, the trust inexplicably did not produce mortgage assignments from the original lender to the depositor to the securities company to the trust.

This particular residential mortgage-backed securities trust in the Emmanuel case had a cut-off date of July 1, 2006. The entities involved in the creation and early agreements of this trust included Wells Fargo Bank, N.A., as servicer, U.S. Bank, N.A. as trustee, Bear Stearns Financial Products as the “swap provider” and SG Mortgage Securities, LLC. The Class A Certificates in the trust were given a rating of “AAA” by Dominion Bond Rating Services on July 13, 2006.

The designation “FRE” in the title of this particular trust indicates that the loans in the trust were made by Fremont Investment & Loan, a bank and subprime lender and subsidiary of Fremont General Corporation. The “SG” in the title of the trust indicates that the loans were “securitized” by Signature Securities Group Corporation, or an affiliate.

Fremont, a California-based corporation, filed for Chapter 11 bankruptcy protection on June 19, 2008, but continued in business as a debtor-in-possession. On March 31, 2008, Fremont General sold its mortgage servicing rights to Carrington Capital Management, a hedge fund focused on the subprime residential mortgage securities market. Carrington Capital operated Carrington Mortgage Services, a company that had already acquired the mortgage servicing business of New Century after that large sub-prime lender also filed for bankruptcy. Carrington Mortgage Services provides services a portfolio of nearly 90,000 loans with an outstanding principal balance of over $16 billion. Nearly 63% of the portfolio is comprised of adjustable rate mortgages. Mortgage servicing companies charge substantially higher fees for servicing adjustable rate mortgages than fixed-rate mortgages. Those fees, often considered the most lucrative part of the subprime mortgage business, are paid by the securitized trusts that bought the loans from the original lenders (Fremont & New Century), after the loans had been combined into trusts by securities companies, like Financial Assets Securities Corporation, SG and Carrington Capital.

Carrington Capital in Greenwich, Connecticut, is headed by Bruce Rose, who left Salomon Brothers in 2003 to start Carrington. At Carrington, Rose packaged $23 billion in subprime mortgages. Many of those securities included loans originated by now-bankrupt New Century Financial. Carrington forged unique contracts that let it direct any foreclosure and liquidations of the underlying loans. Foreclosure management is also a very lucrative part of the subprime mortgage business. As with servicing adjustable rate mortgages, the fees for the foreclosure management are paid ultimately by the trust. There is little or no oversight of the fees charged for the foreclosure actions. The vast majority of foreclosure cases are uncontested, but the foreclosure management firms may nevertheless charge the trust several thousand dollars for each foreclosure of a property in the trust.

The securities companies and their affiliates also benefit from the bankruptcies of the original lenders. On May 12, 2010, Signature Group Holdings LLP, (“SG”) announced that it had been chosen to revive fallen subprime mortgage lender Freemont General, once the fifth-largest U.S. subprime mortgage lender. A decision to approve Signature’s reorganization plan for Fremont was made through a bench ruling issued by the U.S. Bankruptcy Court in Santa Ana, CA. The bid for Fremont lasted nearly two years, with several firms competing for the acquisition.

The purchase became much more lucrative for prospective purchasers in late March, 2010, when Fremont General announced that it would settle more than $89 million in tax obligations to the Internal Revenue Service without actually paying a majority of the back taxes. The U.S. Bankruptcy Court for the Central District of California, Santa Ana Division, approved a motion that allowed Fremont General to claim a net operating loss deduction for 2004 that is attributable for its 2006 tax obligations, according to a regulatory filing with the Securities and Exchange Commission.

In addition, Fremont General will deduct additional 2004 taxes, because of a temporary extension to the period when companies can claim the credit. The extension from two years to five went into effect when President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009. While approved by the bankruptcy court judge, the agreement must also meet the approval of the Congressional Joint Committee on Taxation, but according to the SEC filing, both Fremont General and the IRS anticipate that it will be approved. In all, Fremont’s nearly $89.4 million tax assessment was reduced to about $2.8 million, including interest. In addition, as a result of the IRS agreement, a California Franchise Tax Board tax claim of $13.3 million was reduced to $550,000.

Another development that made the purchase especially favorable for SG was the announcement on May 10, 2010, that Federal Insurance Co. has agreed to pay Fremont General Corp. the full $10 million loss limits of an errors and omissions policy to cover subprime lending claims, dropping an 18-month battle over whether the claims were outside the scope of its bankers professional liability policies.

All of these favorable developments are part of a long history of success for Craig Noell, the head of Signature Group Holdings, the winning bidder for Fremont. Previously, as a member of the distressed investing area at Goldman Sachs, Noell founded and ran Goldman Sachs Specialty Lending, investing Goldman’s proprietary capital in “special situations opportunities.”

Bruce Rose’s Carrington Mortgage Services and Craig Noell’s Signature Group Holdings are part of the story of the attempted foreclosure on Arianna Emmanuel in Brooklyn, New York. U.S. Bank, N.A., as Trustee for SG Mortgage Securities Asset-Backed Certificates, Series 2006 FRE-2 attempted to foreclose on Arianna Emmanuel. The original mortgage had been made by Fremont Investment & Loan (the beneficiary of the $100 milion tax break and the $10 million insurance payout discussed above).

To successfully foreclose, the Trustee needed to produce proof that the Trust had acquired the loan from Fremont. At this point, the document custodian for the trust needed only to produce the mortgage assignment. The securities company that made the SG Trust, the mortgage servicing company that serviced the trust and U.S. Bank as Trustee had all made frequent sworn statements to the SEC and shareholders that these documents were safely stored in a fire-proof vault.

Despite these frequent representations to the SEC, the assignment relied upon by U.S. Bank, the trustee, was one executed by Elpiniki Bechakas as assistant secretary and vice president of MERS, as nominee for Freemont. In foreclosure cases all over the U.S., assignments signed by Elpiniki Bechakas are never questioned. But on May 11, 2010, the judge examining the mortgage assignment was the Honorable Arthur J. Schack in Brooklyn, New York.

Bechakas signed as an officer of MERS, as nominee for Fremont, representing that the property had been acquired by the SG Trust in June, 2009. None of this was true. Judge Schack determined sua sponte that Bechakas was an associate in the law offices of Steven J. Baum, the firm representing the trustee and trust in the foreclosure. Judge Schack recognized that the Baum firm was thus working for both the GRANTOR and GRANTEE. Judge Schack wrote, “The Court is concerned that the concurrent representation by Steven J. Baum, P.C. of both assignor MERS, as nominee for FREMONT, and assignee plaintiff U.S. BANK is a conflict of interest, in violation of 22 NYCRR § 1200.0 (Rules of Professional Conduct, effective April 1, 2009) Rule 1.7, “Conflict of Interest: Current Clients.”

Judge Schack focused squarely on an issue that pro se homeowner litigants and foreclosure defense lawyers often attempt to raise - the authority of the individuals signing mortgage assignments that are used by trusts to foreclose. In tens of thousands of cases, law firm employees sign as MERS officers, without disclosing to the Court or to homeowners that they are actually employed by the law firm, not MERS, and that the firm is being paid and working on behalf of the Trust/Grantee while the firm employee is signing on behalf of the original lender/Grantor.

Did the SG Trust acquire the Emmanuel loan in 2006, the closing date of the trust, or in 2009, the date chosen by Belchakas and her employers? There are tremendous tax advantages being claimed by banks and mortgage companies based on their portfolio of non- performing loans. There are also millions of dollars in insurance payouts being made ultimately because of non-performing loans. There are substantial fees being charged by mortgage servicing companies and mortgage default management companies – being paid by trusts and assessed on homeowners in default. The question of the date of the transfer is much more than an academic exercise.

As important as the question of WHEN, there is also the question of WHAT – what exactly did the trust acquire? What is the reason for the millions of assignments to trusts that flooded recorders’ offices nationwide starting in 2007 that were prepared by law firm employees like Bechakas or by employees of mortgage default companies or document preparation companies specializing is providing “replacement” mortgage documents. Why, in judicial foreclosure states, are there thousands of Complaints for Foreclosure filed with the allegations: “We Own the Note; we had the note; we lost the note.” Why do bankruptcy courts repeatedly see these same three allegations in Motions For Relief of Stay filed by securitized trusts attempting to foreclose? If the assignments and notes are missing, has the trust acquired anything (other than investors’ money, tax advantages and insurance payouts)? In many cases, the mortgage servicing company does eventually acquire the property – often by purchasing the property after foreclosure for ten dollars and selling it to the trust that had claimed ownership from the start.

Where are the missing mortgage assignments?

MASS-PRODUCED AFFIDAVITS FILED BY FORECLOSURE FIRMS

Lynn E. Szymoniak, Esq., April 13, 2010

Download this article as a PDF.

These highlights are from a Motion for Rehearing where the Court had granted summary judgment for the lender in a foreclosure case. The judge is Honorable Anthony Rondolino from Pinellas County, Florida. The hearing took place on April 7, 2010. The judge reversed his own ruling that had granted summary judgment to GMAC Mortgage. The Law Offices of David Stern represented GMAC.

The judge noted that in a recent foreclosure summary judgment hearing, there was a different plaintiff pursuing foreclosure on the same note and mortgage in a different county.

In both cases, there was a count to reestablish the [lost] note and “both of them had gone so far as to have affidavits filed in support of a summary judgment whereby an individual represented to the Court in the Affidavit that the separate plaintiffs had possessed the note and had lost the note while it was in their possession.”

“Interestingly, both affidavits, although they were different plaintiffs, purported the same facts and they were executed by the same individual in alleged capacity as a director of two separate corporations, one of which was ultimately found to be an assignee of the original note.

So that really increased my interest in this subject matter, because I really honestly — I don’t have any confidence that any of the documents the Court’s receiving on these mass foreclosures are valid…” (p.7)

“I guess what you’re telling me I’ve got the discretion to be - - continually be wrong.”(p.11)

Then, (on page 15) regarding the affidavit in support of summary judgment submitted by GMAC:

Attorney for GMAC: Paragraph Two of our Affidavit says that based upon their personal knowledge, they’re authorized to make certain statements therein.

The Court: You know what I’d really like to see? I’d like to see in one of these cases where a defense lawyer cross-examines, takes a deposition of these people,and we can see whether they out to be charged with perjury for all of these affidavits.(p.16) “I would love to see that because, I’m going to tell you the truth, I had a lawyer on the phone from Miami telling me that they’ve got somebody in their office who is authorized by reason of a power of attorney filed as a public record. So that was supposed to be the support they have for their personal knowledge affidavits.”

(The attorney for the homeowner/defendant was Michael Anthony Wasylik.)

INROADS ON FORECLOSURE FRAUD BY MORTGAGE SERVICERS

Lynn E. Szymoniak, Esq., April 7, 2010

Download this article as a PDF.

Fannie Mae announced a rule change effective May 1, 2010, involving MERS, Mortgage Electronic Registration Systems, Inc. According to Fannie Mae, Servicing Guide, Part VIII, 105: Conduct of Foreclosure Proceedings, MERS must not be named as a plaintiff in any foreclosure action, whether judicial or non- judicial, on a mortgage loan owned or securitized by Fannie Mae.

According to the new rule, if MERS is the mortgagee of record, either because the mortgage named MERS as the original mortgagee or a completed and recorded assignment named MERS as the mortgagee assignee, Fannie Mae directs: “the servicer must prepare a mortgage assignment from MERS to the servicer, and then bring the foreclosure in its own name, unless Fannie Mae specifically requires that the foreclosure be brought in the name of Fannie Mae. In that event, the assignment must be from MERS to Fannie Mae, in care of the servicer at the servicer’s address for receipt of notices. In all cases, the assignment from MERS to the servicer or Fannie Mae must be recorded before the foreclosure begins.”

The rule also precludes servicers from charging Fannie Mae for correcting these MERS assignments, providing: “Fannie Mae will not reimburse the servicer for any expense incurred in preparing or recording an assignment of the mortgage loan from MERS to the servicer or to Fannie Mae.”

In the past three years, many of the major mortgage servicing companies have prepared and filed mortgage assignments from MERS to securitized trusts so that the trusts could foreclose. Recently, however, more courts have recognized that the assignment by MERS was erroneous because 1) there was never an assignment to MERS from the original lender in most cases; and 2) such an assignment would have been erroneous because MERS never owned legal title to mortgages registered on its database. Christopher L. Peterson, Associate Dean of Academic Affairs and Professor Of Law, Univerity of Utah, S.J. Quinney College of Law, sets forth the authority for the conclusion that MERS is not a mortgagee with respect to any loan registered on its database in his comprehensive article, “Foreclosure, Subprime Mortgage Lending, and The Mortgage Electronic Registration System.” Courts have split regarding whether foreclosure actions can be brought in the name of MERS, with a definite trend toward dismissing such actions. With this rule change, Fannie Mae officials seem to acknowledge the problem with MERS assignments.

While Fannie Mae officials may have addressed the problem of foreclosures brought in the name of MERS, they may have also created another significant problem by advising mortgage servicing companies to file foreclosure actions in their own names. Does a mortgage servicing company have any better claim to ownership than MERS? Many courts have already concluded that servicing companies are also lack ownership interest and standing to foreclose.

If a mortgage is part of a securitized trust, there should be a transfer from the original lender, to a depositor, to a securities company to a trust. Transfers by servicers are most often transfers by an entity with no ownership interest to transfer in the first place because most of the servicers have gotten their rights from MERS and MERS itself had no ownership interest.

The Assignments from and to MERS and servicers are most often used when the assignments that should have occurred as part of the securitization process are missing. Servicers and default management companies working for the securitized trusts often use questionable tactics when the trusts cannot produce the documents, particularly the mortgage assignments, necessary to foreclose. In a case pending in the United States Bankruptcy Court for the Southern District of New York, for example, In re Silvia Nuer, Case No. 08-17106 (REG), in a Memorandum of Law of the United States Trustee in Support of Sanctions Against J.P.Morgan Chase Bank National Association, filed January 4, 2010, the Trustee reviewed the testimony of Mr. Herndon, a witness for Chase, who testified that the chain of title for the property in question passed through three entities. “The original lender in connection with the loan was the Long Beach Mortgage Company, as evidenced by the Note and Mortgage listing Long Beach Mortgage Company as the initial owner.”

Regarding the next owner, the Memorandum states: “Next, Mr. Herndon testified that Long Beach Securities Corporation bought the Mortgage. Mr. Herndon acknowledged that the Motion for Stay Relief did not contain a reference to the Long Beach Securities Corporation or any documentation in connection therewith…Mr. Herndon testified that he knew that Long Beach Securities Corporation purchased the Mortgage because he had reviewed a mortgage loan purchase agreement dated February 24, 2006 between the Long beach Securities Corp. as purchaser and the Long Beach Mortgage Company as seller…”

Regarding the next owner, the Memorandum states: “The third owner of the Mortgage, according to the testimony, was the Long Beach Mortgage Trust 2006- 2…Mr. Herndon based his knowledge of this assignment on the system notes of Chase as well as the pooling and servicing agreement dated March 1, 2006 (the “PSA”)…Mr. Herndon stated that the PSA had a reference to the Mortgage on Exhibit A.”

Previously, Chase had submitted contrary documents. In particular, Chase had submitted an assignment “that appeared to show that Chase assigned its right as mortgagee to Deutsche, as trustee for Long Beach Mortgage Trust 2006-2. The Assignment was signed by Scott Walter as “Attorney in Fact for Chase (the “Walter November 1 Assignment”)…It was signed on November 1, 2008, after the Filing Date. This 2008 Assignment to a trust that closed in 2006 signed by an individual who did not in fact work for Chase has become the focus of the sanctions debate. Regarding the Walter Assignment, the Trustee states: “Here, the misconduct of Chase includes the attachment of the Walter November 1 Assignment…Chase’s own witness could not explain the Walter November 1 Assignment…”

Walter was actually an employee in the Minnesota office of Lender Processing Services, a company that “drafts missing documents.”

This scenario is familiar. In the case of Niles and Angela Taylor, 2009 WL 1885888 (Bankr. E.D. Pa. 2009), Judge Diane Weiss Sigmund also determined that sanctions were warranted in a foreclosure case involving Lender Processing Services. Judge Sigmund described in great detail how the default mortgage servicing and foreclosure systems really work.

Lender Processing Services (“LPS”) was described as the largest out-source provider in the United States for mortgage default services. The LPS systems frequently resulted in incorrect information regarding mortgages reported to litigants and judges in foreclosure actions. The LPS network of national and local law firms were required to communicate directly with LPS, and not the mortgage servicers, about any issues that arose in any given case. Likewise, the servicers were required to execute a 51-page Default Service Agreement with LPS that delegated to LPS all functions with respect to the default servicing work. LPS used a software communication system called “NewTrak” to deliver instructions and documents to the LPS network attorneys and to deliver any information to the servicers. LPS also had access to the servicers data-base platforms. The law firms were staffed primarily by paralegals with little supervision by attorneys. See In re Taylor, supra, at 1885889 to 1885891.

Judge Sigmund found that he LPS system was designed to minimize human involvement. She concluded, “When an attorney appears in a matter, it is assumed he or she brings not only substantive knowledge of the law but judgment. The competition for business cannot be an impediment to the use of these capabilities. The attorney, as opposed to the processor, knows when a contest does not fit the cookie cutter forms employed by the paralegals. At that juncture, the use of technology and automated queries must yield to hand- carried justice. The client must be advised, questioned and consulted. The thoughtless mechanical employment of computer-driven models and communications to inexpensively traverse the path to foreclosure offends the integrity of our American bankruptcy system. It is for those involved in the process to step back and assess how they can fulfill their professional obligations and responsibly reap the benefits of technology. Noting less should be tolerated.”

On February 18, 2010, the District Court reversed the sanctions determination, finding that Judge Sigmund abused her discretion. In the battle between bankers and the integrity of the American court system, bankers continue to win overwhelmingly, but MERS will no longer be as significant a weapon in their arsenal.