HSBC FORECLOSURES AND THE NEWTRAK SYSTEM OF LENDER PROCESSING SERVICES

Lynn E. Szymoniak, Esq., August 26, 2011

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On August 24, 2011, Circuit Judge Fuentes of the United States Third Circuit Court of Appeals, issued an opinion in a case appealing the reversal by the District Court of sanctions originally imposed in the bankruptcy court on attorneys Mark J. Urden and Lorraine Doyle, the Udren Law Firm, and HSBC for violations of Federal Rule of Bankruptcy Procedure 9011. Highlights from that opinion, particularly regarding Lender Processing Services and HSBC, are set forth below. In this decision, the Third Circuit reversed the District Court and affirmed the bankruptcy court’s imposition of sanctions with respect to Lorraine Doyle, the Udren Law Firm, and HSBC. The District Court’s decision reversing the bankruptcy court’ssanctions against attorney Mark Udren was affirmed. The appeal was taken by Acting United States Trustee Roberta A. DeAngelis, In re Nile C. Taylor, et al., Case No. 10- 2154, 3d Cir. 2011. Ultimately, the Taylors lost their home. The sanctions imposed by the Bankruptcy Court, reversed by the District Court and finally affirmed by the Circuit Court, were minimal. Doyle was ordered to take 3 CLE credits in professional responsibility; Udren himself to be trained in the use of NewTrak and to spend a day observing his employees handling NewTrak; and both Doyle and Udren to conduct a training session for the firm’s relevant lawyers in the requirements of Rule 9011 and procedures for escalating inquiries on NewTrak. The court also required HSBC to send a copy of its opinion to all the law firms it uses in bankruptcy proceedings, along with a letter explaining that direct contact with HSBC concerning matters relating to HSBC’s case was permissible.

The Court made the following findings:

• HSBC does not deign to communicate directly with the firms it employs in its high-volume foreclosure work; rather, it uses a
computerized system called NewTrak (provided by a third party, LPS) to assign individual firms discrete assignments and provide the limited data the system deems relevant to each assignment. The firms are selected and the instructions generated without any direct human involvement. The firms so chosen generally do not have the capacity to check the data (such as the amount of mortgage payment or time in arrears) provided to them by NewTrak and are not expected to communicate with other firms that may have done related work on the matter. Although it is technically possible for a firm hired through NewTrak to contact HSBC to discuss the matter on which it has been retained, it is clear from the record that this was discouraged and that some attorneys, including at least one Udren Firm attorney, did not believe it to be permitted. [The Udren Firm represented HSBC in this bankruptcy foreclosure.](Page 6-7)

• LPS is also not involved in the present appeal, as the bankruptcy court found that it had not engaged in wrongdoing in this case. However, both the accuracy of its data and the ethics of its practices have been repeatedly called into question elsewhere. See, e.g., In re Wilson, 2011 WL 1337240 at 9 (Bankr. E.D.La. Apr. 7, 2011) (imposing sanctions after finding that LPS had issued “sham” affidavits and perpetrated fraud on the court); In re Thorne, 2011 WL 2470114 (Bankr. N.D. Miss. June 16, 2011); In re Doble, 2011 WL 1465559 (Bankr. S.D. Cal. Apr. 14, 2011). (Footnote 5, Page 6)

• Doyle [the attorney from the Udren Firm representing HSBC] did nothing to verify the information in the motion for relief from stay
besides check it against “screen prints” of the NewTrak information. She did not even access NewTrak herself. In effect, she simply proofread the document. It does not appear that NewTrak provided the Udren Firm with any information concerning the Taylors’ equity in their home, so Doyle could not have verified her statement in the motion concerning the lack of equity in any way, even against a “screen print.” (Page 8 )

• In May 2008, the bankruptcy court held a hearing on both the motion for relief and the claim objection. HSBC was represented at the hearing by a junior associate at the Udren Firm, Mr. Fitzgibbon. At that hearing, Fitzgibbon ultimately admitted that, at the time the motion for relief from the stay was filed, HSBC had received a mortgage payment for November 2007, even though both the motion for stay and the response to the Taylors’ objection to the proof of claim stated otherwise.8Despite this, Fitzgibbon urged the court to grant the relief from stay, because the Taylors had not responded to HSBC’s RFAs (which included the “admission” that the Taylors had not made payments from November 2007 to January 2008). It appears from the record that Fitzgibbon initially sought to have the RFAs admitted as evidence even though he knew they contained falsehoods. (Page 10)

• The bankruptcy court denied the request to enter the RFAs as evidence, noting that the firm “closed their eyes to the fact that there was evidence that . . . conflicted with the very admissions that they asked me [to deem admitted]. They . . . had that evidence [that the assertions in its motion were not accurate] in [their] possession and [they] went ahead like [they] never saw it.” (App. 108-109.) (Page 11)

• At the next hearing, in June 2008, Fitzgibbon stated that he could not obtain an accounting from HSBC, though he had repeatedly placed requests via NewTrak. He told the court that he was literally unable to contact HSBC—his firm’s client—directly to verify information which his firm had already represented to the court that it believed to be true. (Page 11)

• The bankruptcy court held four hearings over several days, making in-depth inquiries into the communications between HSBC and its lawyers in this case, as well as the general capabilities and limitations of a system like NewTrak. Ultimately, it found that the following had violated Rule 9011: Fitzgibbon, for pressing the motion for relief based on claims he knew to be untrue; Doyle, for failing to make reasonable inquiry concerning the representations she made in the motion for relief from stay and the response to the claim objection; Udren and the Udren Firm itself, for the conduct of its attorneys; and HSBC, for practices which caused the failure to adhere to Rule 9011.

• Rule 9011 of the Federal Rules of Bankruptcy Procedure, the equivalent of Rule 11 of the Federal Rules of Civil Procedure, requires that parties making representations to the court certify that “the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support.” Fed. R. Bank. P. 9011(b)(3). A party must reach this conclusion based on “inquiry reasonable under the circumstances.” Fed. R. Bank. P. 9011(b). The concern of Rule 9011 is not the truth or falsity of the representation in itself, but rather whether the party making the representation reasonably believed it at the time to have evidentiary support.

• As an initial matter, the appellees’ insistence that Doyle’s and Fitzgibbon’s statements were “literally true” should not exculpate them from Rule 9011 sanctions. First, it should be noted that several of these claims were not, in fact, accurate. There was no literal truth to the statement in the request for relief from stay that the Taylors had no equity in their home. Doyle admitted that she made that statement simply as “part of the form pleading,” and “acknowledged having no knowledge of the value of the property and having made no inquiry on this subject.” (App. 215.) Similarly, the statement in the claim objection response that the figures in the original proof of claim were correct was false. (Page 16)

• In particular, even assuming that Doyle’s and Fitzgibbon’s statements as to the payments made by the Taylors were literally accurate, they were misleading. In attempting to evaluate whether HSBC was justified in seeking a relief from the stay on foreclosure, the court needed to know that at least partial payments had been made and that the failure to make some of the rest of the payments was due to a bona fide dispute over the amount due, not simple default. Instead, the court was told only that the Taylors had “failed to make regular mortgage payments” from November 1, 2007 to January 15, 2008, with a mysterious notation concerning a “suspense balance” following. (App. 214-15.) A court could only reasonably interpret this to mean that the Taylors simply had not made payments for the period specified. As the bankruptcy court found, “[f]or at best a $540 dispute, the Udren Firm mechanically prosecuted a motion averring a $4,367 post-petition obligation, the aim of which was to allow HSBC to foreclose on [the Taylors] “house.” (App. 215.) Therefore, Doyle’s and Fitzgibbon’s statements in question were either false or misleading. (Pages 16-17)

• With respect to the Taylors case in particular, Doyle ignored clear warning signs as to the accuracy of the data that she did receive. In responding to the motion for relief from stay, the Taylors submitted documentation indicating that they had already made at least partial payments for some of the months in question. In objecting to the proof of claim, the Taylors pointed out the inaccuracy of the mortgage payment listed and explained the circumstances surrounding the flood insurance dispute. Although Doyle certainly was not obliged to accept the Taylors’ claims at face value, they indisputably put her on notice that the matter was not as simple as it might have appeared from the NewTrak file. At that point, any reasonable attorney would have sought clarification and further documentation from her client, in order to correct any prior inadvertent misstatements to the court and to avoid any further errors. Instead, Doyle mechanically affirmed facts (the monthly mortgage payment) that her own prior filing with the court had already contradicted. (Page 20)

• Doyle’s reliance on HSBC was particularly problematic because she was not, in fact, relying directly on HSBC. Instead, she relied on a computer system run by a third-party vendor. She did not know where the data provided by NewTrak came from. She had no capacity to check the data against the original documents if any of it seemed implausible. (Page 20)

• Although the initial data the Udren Firm received was not, in itself, wildly implausible, it was facially inadequate. In short, then, we find that Doyle’s inquiry before making her representations to the bankruptcy court was unreasonable.

In making this finding, we, of course, do not mean to suggest that the use of computerized databases is inherently inappropriate. However, the NewTrak system, as it was being used at the time of this case, permits parties at every level of the filing process to disclaim responsibility for inaccuracies. HSBC has handed off responsibility to a third- party maintainer, LPS, which, judging from the results in this case, has not generated particularly accurate records. LPS apparently regards itself as a mere conduit of information. Appellees, the attorneys and final link in the chain of transmission of this information to the court, claim reliance on NewTrak’s records. Who, precisely, can be held accountable if HSBC’s records are inadequately maintained, LPS transfers those records inaccurately into NewTrak, or a law firm relies on the NewTrak data without further investigation, thus leading to material misrepresentations to the court? It cannot be that all the parties involved can insulate themselves from responsibility by the use of such a system. (Page 21)

• We also find that it was appropriate to extend sanctions to the Udren Firm itself. Rule 11 explicitly allows the imposition of sanctions against law firms…In this instance, the bankruptcy court found that the misrepresentations in the case arose not simply from the irresponsibility of individual attorneys, but from the system put in place at the Udren Firm, which emphasized high-volume, high-speed processing of foreclosures to such an extent that it led to violations of Rule 9011. (citations omitted)(Page 24)

• We appreciate that the use of technology can save both litigants and attorneys time and money, and we do not, of course, mean to suggest that the use of databases or even certain automated communications between counsel and client are presumptively unreasonable. However, Rule 11 requires more than a rubber-stamping of the results of an automated process by a person who happens to be a lawyer. Where a lawyer systematically fails to take any responsibility for seeking adequate information from her client, makes representations without any factual basis because they are included in a “form pleading” she has been trained to fill out, and ignores obvious indications that herinformation may be incorrect, she cannot be said to have made reasonable inquiry. (Page 26)

WHO’S SIGNING NOW?

Lynn E. Szymoniak, Esq., July 20, 2011

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1. Who were the top mortgage document signers in the first half of 2011?

2. Which trusts that closed in 2005, 2006 and 2007 repeatedly filed mortgage assignments signed and notarized in 2011?

3. Who was the most prolific MERS Certifying Officer in the first half of 2011?

Bonus Question: Which law firm used the following phrase instead of an actual date for the assignments:

“At or before the ensealing and delivery of these presents the receipt whereof is hereby acknowledged…”

1. TOP MORTGAGE DOCUMENT SIGNERS, JAN. – JUNE, 2011

From American Home Mortgage Servicing in Jacksonville:
Christine Alday
Elizabeth Boulton
Andrew Fuerstenbeger
Michelle Halyard
Tonya Hopkins
Joseph Kaminski
Kasea Matthews
Harold Nord, III
Yvette Washington

From Aurora Loan Services in Scotts Bluff, Nebraska:
Jan Walsh

From BAC Home Loan Servicing in Simi Valley, California:
Malik Basurto

Nichole Clavadetscher

Youda Crain
Mercedes Judilla
Srbui Muradyan
Swarupa Slee

From Carrington Mortgage Services, LLC in Santa Ana, California:
Tom Croft

Greg Schleppy


From Chase Home Finance in Franklin County, Ohio:
David Ellis

From CitiMortgage in St. Charles, Missouri:
Kim Krakoviak

Aaron Menne

Scott Scheiner

From GMAC in Upper Dublin Township, Pennsylvania:
Sandy Broughton

Donald Dempsey

Thomas Strain

From HomEq Servicing in North Highlands, California:
Noriko Colston

From HSBC Mortgage Corp. in Depew, New York:
Michael Peter

From IndyMac Mortgage Services in Austin, Texas:
Suchan Murray

JC San Pedro

David Rodriguez
Mollie Schiffman
Mike Stanford

From JP Morgan Chase in Jacksonville, Florida:
Nura Nadarevic

From Litton Loan Servicing in Dallas, Texas:
Debra Lyman

Marti Noriega

From Nationwide Title Clearing in Palm Harbor, Florida:
Bryan Bly

Vilma Castro

Kim Goelz
Mary Sarmiento

From Ocwen Loan Servicing, LLC in West Palm Beach, Florida:
Christina Carter

Lesli Goodman

Rene Martinez

From Orion Financial Group in Southlake, Texas:
M. Arndt

M.E. Wileman

From Saxon Mortgage Service in Fort Worth, Texas:
Regina Alexander

John Cottrell

From Select Portfolio Servicing in Salt Lake City, Utah:
Bill Koch

Jeff Young

From Wells Fargo Home Mortgage in Minneapolis, Minnesota:
Nicholas Hoye

Janet L. Jones

Carissa Keeler
Carla Naughton
Ricky Thompson

2. MORTGAGE-BACKED TRUSTS, CLOSED BEFORE 2008, USING MORTGAGE ASSIGNMENTS SIGNED IN 2011

Aames Mortgage Investment Trusts

ABFC Trusts

Ace Securities Corp. Home Equity Loan Trusts
American Home Mortgage Assets Trusts
American Home Mortgage Investment Trusts
Ameriquest Mortgage Securities, Inc. Trusts
Argent Securities, Inc. Trusts

Banc of America Alternative Loan Trusts

Banc of America Funding Trusts

Bear Stearns Alt-A Trusts

Bear Stearns ARM Trusts

Bear Stearns Asset-Backed Securities Trusts
BNC Mortgage Loan Trusts

Carrington Home Equity Loan Trusts
Carrington Mortgage Loan Trusts

Citigroup Mortgage Loan Trusts
CSFB Trusts

CSMC Trusts

CWABS Trusts

CWALT Trusts

CWMBS Trusts

Deutsche Bank Alt-A Securities Inc. Mortgage Loan Trusts
First Franklin Mortgage Loan Trusts
First NLC Trusts

Fremont Home Loan Trusts

GSAA Home Equity Trusts

GSAMP Trusts

GSR Mortgage Loan Trusts

Harborview Mortgage Loan Trusts

HSI Asset Securitization Corp. Trusts

IndyMac IMSC Mortgage Loan Trusts

IndyMac INDX Mortgage Loan Trusts

Long Beach Mortgage Loan Trusts

MASTR Alternative Loan Trusts

MASTR Asset-Backed Securities Trusts

Morgan Stanley Capital I, Inc. Trusts

NatIxis Real Estate Capital Trusts

New Century Home Equity Loan Trusts

New Century Mortgage Loan Trusts

Nomura Home Equity Loan Trusts

NovaStar Home Equity Loan Trusts

NovaStar Mortgage Funding Trusts

Option One Mortgage Loan Trusts

RALI Trusts

RAMP Trusts

Residential Asset Securitization Trusts

Saxon Asset Securities Trusts

Securitized Asset-Backed Receivables Trusts

Soundview Home Loan Trusts

Structured Asset Investment Loan Trusts

Structured Asset Mort. Investments II Trusts

Structured Asset Mort. Investments II, Inc. Bear Stearns Alt-A Trusts
WaMu Trusts

Wells Fargo Asset Securities Corp. Trusts

3. MOST PROLIFIC MERS CERTIFYING OFFICER: NICHOLAS HOYE

Nicholas Hoye from the Minneapolis, Minnesota offices of Wells Fargo Home Mortgage is the winner of the “Busiest Signer of 2011 Award.”

Hoye signed thousands of mortgage assignments in the first six months of 2011. Hoye most often signs to convey mortgages to his employer, Wells Fargo. Hoye has signed as a Certifying Officer for MERS as Nominee for at least 40 mortgage companies. The runner-up is Ricky L. Thompson, also from Wells Fargo.

BONUS QUESTION

WHICH LAW FIRM USED THE MOST CREATIVE PHRASE (IN LIEU OF AN ACTUAL DATE) TO IDENTIFY THE DATE THE ASSIGNMENT WAS MADE?

When did the trust acquire the mortgage? What was the exact date the mortgage changed hands? According to thousands of documents, the date was:

“At or before the ensealing and delivery of these presents the receipt whereof is hereby acknowledged…”

Ben-Ezra & Katz, P.A.
2901 Stirling Road, Suite 300
Fort Lauderdale, FL 33312

This is one of the LPS affiliated law firms, a/k/a foreclosure mills - that was being investigated rigorously by June Clarkson and Theresa Edwards of the Florida Attorney General’s office – until that moment when Clarkson and Edwards were escorted rigorously out the door.

Signers come and signers go, but the practices of banks and their servicers remain the same.

THE DEVIL IS IN THE DETAILS:
 WHEN DID THE TRUST ACQUIRE THE NOTES AND MORTGAGES - A STUDY OF 4,580 FLORIDA ASSIGNMENTS

Lynn E. Szymoniak, June 5, 2011

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In 2010, mortgage bankers involved with mortgage-backed securities adopted a mantra: “The mortgage follows the note.” Tom Deutsch, Executive Director of the American Securitization Forum (“ASF”), appeared before the U.S. Senate Banking Committee, and in speeches to mortgage bankers, to argue that $7 trillion dollars of securitized mortgage debt was transferred in a legally sound matter.

The mantra became necessary as revelations piled up that mortgages had not been assigned to mortgage-backed trusts in the manner described in the trusts documents. The most important trust document, the “Pooling and Servicing Agreement (“PSA”), spells out in the definitions section that “mortgage file” documents include the promissory note, the mortgage, a mortgage assignment and a title insurance policy. The trusts promised investors that they would obtain these documents for each loan in the pool of loans that make up the trusts.

The manner in which the trust acquires the documents is also set out – usually in Section 2.01 of the PSA – which is usually titled “Conveyances of Mortgages.” This section specifies that the note itself should be the original note, indorsed to the trust or indorsed in blank. This recognizes that the trust was not the original lender and there were intervening owners of the note. The mortgage also needs to reflect that the trust is the owner of the mortgage. While notes are indorsed, usually on the last page of the note itself, mortgages are assigned, most often in a separate document.

Many trust specify that the mortgage must be assigned to the trust. Some trusts allowed the mortgage to be assigned “in blank” if such assignment would be acceptable under the laws of the state where the property was located. A mortgage assigned “in blank” means that the name of the new owner, or assignee, is not specified. The name of the entity acquiring the mortgage is the only item that may be left blank on an assignment made “in blank.”

There were widespread problems with assignments in blank. In most states, the question of the validity of a blank assignment was undecided.

In addition to the legal issue presented, there were massive technical difficulties. On many assignments, other information was also left blank – particularly the effective date of the assignment. Under the terms of the PSA, assignments were to have been delivered to the trust “in recordable form.” This meant that even assignments with the assignee unspecified were supposed to have been signed and dated by the prior owner so that only the name of the trust could be inserted and the assignment filed if necessary.

Many trusts obtained assignments, in blank, signed by an officer of the lender. A loan made by American Brokers Conduit, for example, was signed by an officer of American Brokers Conduit and notarized in Suffolk County, New York, where American Brokers Conduit was located. On tens of thousands of mortgages, however, the lender was not the mortgagee and, therefore, could not be the assignor. On these loans, Mortgage Electronic Registration Systems, Inc. (“MERS”) was identified as the mortgagee.

At some point, this problems appears to have been recognized on many assignments. On these documents, where the name of the trust has been hand-written into the document – an attempt has also been made to change the name of the assignor so that the words “Mortgage Electronic Registration Systems Incorporated as Nominee For” are inserted (hand-written) above the name of the assignor. These “Assignor-fixed” documents, however, are signed by an officer of the Lender, not MERS, and the signer identifies himself/herself as an officer of the Lender – not MERS.

On still other Assignments, the County and State where the document was notarized was also left blank. When the documents were filed, this information was also added – hand-written – to the document. Instead of the place of notarization, however, the place where the property was located was inserted. As a result, on many assignments, the Notary stamp states that the Notary is qualified in Suffolk County, New York (the location of American Home Mortgage) but the County and State where the document was notarized are identified as, for example, Lee County, Florida.

Many trusts did not require assignments for all loans in the asset pool. Many trusts permitted MERS loans to simply be transferred on the MERS system to the trust by the closing date of the trust. But even with MERS loans, the mortgage assignments prepared by the servicers from 2008 – 2011 (years after the closing dates of most of the trusts) showed that the loans were still registered on the MERS system in the names of the original lenders.

With these many problems with the original mortgage assignments, it is not surprising that the ASF began aggressively asserting that mortgage assignments are not even necessary because of the common law principle that “the mortgage follows the note.” The ASF reported that 13 major law firms agreed with the ASF.

Lesser-paid, but more objective authorities, particularly Georgetown Law Professor Adam Levitin, wrote an article/post, “The Big Fail,” after the U.S. Bankruptcy Court decision for the District of New Jersey in Kemp v. Countrywide Home Loans, Inc., where evidence was presented that the note never was delivered to the trust. Professor Levitin posited “failure to properly transfer the mortgage meant that the mortgages were never actually securitized.”

The issue of mortgage assignments became increasingly important, because of the widespread appearance of fraudulent and forged mortgage assignments to mortgage-backed trusts, produced by over a dozen mortgage servicing companies, from 2008 through 2011.

With the filing of these servicer-produced documents, the problem of missing documents was transformed into a problem of fraudulent documents. Moreover, these assignments not only call in to question whether and when the trusts received the mortgages – they also call in to question whether and when the trusts received the NOTES. Almost all of these servicer-made assignments also purported to assign the NOTES.

An examination was made of every assignment of mortgage filed in three Florida counties, Hillsborough, Lee and St. Lucie, to six groups of trusts: Bear Stearns, GSAMP, GSAA, Morgan Stanley, Structured Asset Investment Loans (“SAIL”) and Structured Asset Mortgage Investments (“SAMI”) trusts for a three-year period, 2008 – 2010. Every Assignment of Mortgage also included the PROMISSORY NOTE in the Assignment. There were no original documents (contemporaneously dated to correspond to the trust closing dates) in the 4,580 assignments filed in the three Florida counties. All of these assignments were prepared by mortgage servicers years later.

When did the Bear Stearns, GSAMP, GSAA, Morgan Stanley, SAIL, and SAMI trusts acquire the mortgages AND NOTES that were the pooled assets of the trusts? According to these documents, in every case where an effective date was stated, the mortgages AND NOTES were not assigned to the trusts until several years after the closing dates of the trusts.

A small percentage of these assignments state that the originals were lost or destroyed, but do not state when this loss or destruction occurred, other than “on or before…” a date that corresponds to the filing of the foreclosure action. A small percentage also states that the assignments took place “on or before” a certain date, leaving the actual date unspecified.

Only a very few assignments state in the document title that the assignment was an “Assignment of Mortgage and Promissory Note.” Most do not mention the promissory note in the title of the document, but include language in the mortgage assignment that specifically states that the note is also being assigned.

Typically, the language regarding the promissory notes is included at the end of the first paragraph on these assignments stated as follows:

“…together with the Note of Obligation described in said Mortgage(s), and the money due and to become, due thereon, with interest therein provided.”

Another common version states, immediately after the legal description:

“…together with the Note and indebtedness secured thereby.”
Still another version states, immediately after the legal description:

“Together with the note and each and every other obligation described in said mortgage and the money due and to become due thereon.”

A fourth version states:

“…together with the note of obligation described in said Mortgage(s), and the money due and to become, due thereon, with interest as therein provided.”

There is also a version that claims attorney’s fees:

“Together with any and all notes an obligations therein described or referred to, the debt respectively secured thereby and all sums of money due and to become due thereon, with interest thereon, and attorney’s fees and all other charges.”

The DocX version states:

“…the following described mortgage, securing the payment of a certain promissory note(s) for the sum listed below, together with all rights therein and thereto, all liens created or secured thereby, all obligations therein described, the money due and to become due thereon with interest, and all rights accrued or to accrue under such mortgage.”

These documents show that the note followed the mortgage – and not vice-versa. An examination of these assignments shows that the parties to the transfer effectuated the transfer of the mortgages and notes years after the trusts closed.

If the Trusts did not acquire these mortgages and notes until years after the closing dates of the trusts, what was in those pools of loans sold to investors? The trusts seem to have sold a list of loans they intended to acquire.

A very few of these Assignments seem to recognize the problem of the Trust acquiring the mortgages and notes many years after the trust closing dates and include the following language:

“Assignor hereby acknowledges that this assignment is being recorded as a formality pursuant to the requirements set forth under § 701.02, but that such be the intention of the parties herein that delivery of the subject note and mortgage be established as evidenced by electronic or physical delivery, of the note and mortgage and related documents that such delivery occurred on occurred prior to date of any litigation, hereto for, and that date be the delivery date has been established by the expressed intention of the parties, herein.”

(Note: this is the EXACT wording of the paragraph - despite what appears to be obvious errors and nonsense.)

In Hillsborough County in 2008, 2009, and 2010, there were 641 Assignments to Bear Stearns Trusts; 298 Assignments to GSAMP Trusts; 163 Assignments to GSAA Trusts; and 746 Assignments to Morgan Stanley Trusts, 153 Assignments to SAIL Trusts; 429 Assignments to SAMI Trusts; or 2,430 Assignments total.

In Lee County in 2008, 2009, and 2010, there were 506 Assignments to Bear Stearns Trusts; 203 Assignments to GSAMP Trusts; 188 Assignments to GSAA Trusts; 607 Assignments to Morgan Stanley Trusts, 100 Assignments to SAIL Trusts; 373 Assignments to SAMI Trusts; or 1,789 Assignments total.

In St. Lucie County in 2008, 2009, and 2010, there were 78 Assignments to Bear Stearns Trusts; 61 Assignments to GSAMP Trusts; 24 Assignments to GSAA Trusts; 161 Assignments to Morgan Stanley Trusts, 11 Assignments to SAIL Trusts; 26 Assignments to SAMI Trusts; or 361 Assignments total.

Courts will be deciding issues related to the assignments of mortgages and notes for years to come.

Did servicers produce millions of assignments of mortgages and notes to trusts with the effective dates of the assignments wrongly states – usually by several years?

If the original documents were missing, did the trustees, document custodians and accountants report to the Securities & Exchange Commission that they had discovered a failure to comply with Regulation AB, Item 1122(d)(4)(ii): ”Mortgage loan and related documents are safeguarded as required by the transaction agreements.” The transaction agreements, including the PSAs, almost universally told investors that the mortgage documents – defined as the indorsed note, the mortgage and the mortgage assignment – would be safely kept in the fireproof vault of the document custodian.

Did the securitizers and subsequent trustees and custodians make thousands of false statements to investors and the SEC about obtaining and maintaining the loan documents?

Have foreclosures by trusts gone forward where the evidence of ownership of the note, the mortgage or both has been manufactured by the trusts or their agents?

What is the most equitable relief for investors and homeowners? The recovery of the American economy rests on this answer.

DEUTSCHE BANK, SECURITIZATION FRAUD AND FORECLOSURE FRAUD

Lynn E. Szymoniak, Esq., April 23, 2011

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On April 13, 2011, the Permanent Subcommittee on Investigations of the U.S. Senate released a report titled “Wall Street and The Financial Crisis: Anatomy of a Financial Collapse.”

Section VI of the Report, pages 318 to 639, is titled “Investment Bank Abuses: Case Study of Goldman Sachs and Deutsche Bank.” Part B of this section, pages 330 to 375, focuses on Deutsche Bank and is titled “Running the CDO Machine: Case Study of Deutsche Bank.”

The Deutsche Bank case study section is divided into the following areas:

(1) Subcommittee Investigation and Findings of Fact

(2) Deutsche Bank Background


(3) Deutsche Bank’s $5 Billion Short

(a)  Lippmann’s Negative View of Mortgage Related Assets

(b)  Building And Cashing In the $5 Billion Short

(4) The “CDO Machine” (5) Gemstone

(a)  Background on Gemstone

(b)  Gemstone Asset Selection

(c)  Gemstone Risks and Poor Quality Assets

(d)  Gemstone Sales Effort

(e)  Gemstone Losses

(6) Other Deutsche Bank CDOs

(7) Analysis

The Analysis Section, pages 374 – 375, states the following clear condemnation of Deutsche Bank’s practices:

Deutsche Bank was the fourth largest issuer of CDOs in the United States. It continued to issue CDOs after mortgages began losing money at record rates, investor interest waned, and its most senior CDO trader concluded that the mortgage market in general and the specific RMBS securities being included in the bank’s own CDOs were going to lose value. Mr. Lippmann derided specific RMBS securities and advised his clients to short them, at the same time his desk was allowing the very same securities to be included or referenced in Gemstone 7, a CDO that the bank was assembling for sale to its clients. In fact, the bank was selling some assets that Mr. Lippmann believed contained “crap.” While the Gemstone CDO was constructed and marketed by the bank’s CDO Desk, which is separate from the trading desk controlled by Mr. Lippmann, both desks knew of Mr. Lippmann’s negative views. The bank managed to sell $700 million in Gemstone 7 securities which then failed within months, leaving the bank’s clients with worthless investments.

This case history raises several concerns. The first is that Deutsche Bank allowed the inclusion of Gemstone 7 assets which its most senior CDO trader was asked to review and saw as likely to lose value. Second, the bank sold poor quality assets from its own inventory to the CDO. Third, the bank aggressively marketed the CDO securities to clients despite the negative views of its most senior CDO trader, falling values, and the deteriorating market. Fourth, the bank failed to inform potential investors of Mr. Lippmann’s negative views of the underlying assets and its inability to sell over a third of Gemstone’s securities. Each of these issues focuses on the poor quality of the financial product that Deutsche Bank helped assemble and sell. Still another concern raised by this case history is the fact that the bank made large proprietary investments in the mortgage market that resulted in multi- billion-dollar losses – losses that, in this instance, did not require taxpayer relief but, due to their size, could have caused material damage to both U.S. investors and the U.S. economy.

“Mr. Lippmann” in the above summary refers to Greg Lippmann, Deutsche Bank’s top global CDO trader. Regarding Mr. Lippman, the Senate report finds the following (on page 330):

By the middle of 2006, Mr. Lippmann repeatedly warned and advised his Deutsche Bank colleagues and some of his clients seeking to buy short positions about the poor quality of the assets underlying many CDOs. He described some of those assets as “crap” and “pigs,” and predicted the assets and the CDO securities would lose value.

At one point, Mr. Lippmann was asked to buy a specific CDO security and responded that it “rarely trades,” but he “would take it and try to dupe someone” into buying it. He also at times referred to the industry’s ongoing CDO marketing efforts as a “CDO machine” or “ponzi scheme.”

“Gemstone” in the above summary refers to a CDO that the Subcommittee chose to examine in detail called Gemstone CDO VII Ltd. (Gemstone 7). The Subcommittee report states the following (on page 331) regarding Gemstone 7:

In October 2006, Deutsche Bank began assisting in the gathering of assets for Gemstone 7, which issued its securities in March 2007. It was the last in a series of CDOs sponsored by HBK Capital Management (HBK), a large hedge fund which acted as the collateral manager for the CDO. Deutsche Bank made $4.7 million in fees from the deal, while HBK was slated to receive $3.3 million. It was not the last CDO issued by Deutsche Bank. Even after Gemstone 7 was issued in March of 2007, Deutsche Bank issued 9 additional CDOs.

Gemstone 7 was a hybrid CDO containing or referencing a variety of high risk, subprime RMBS securities initially valued at $1.1 billion when issued. Deutsche Bank’s head global trader, Mr. Lippmann, recognized that these RMBS securities were high risk and likely to lose value, but did not object to their inclusion in Gemstone 7. Deutsche Bank, the sole placement agent, marketed the initial offering of Gemstone 7 in the first quarter of 2007. Its top tranches received AAA ratings from Standard & Poor’s and Moody’s, despite signs that the CDO market was failing and the CDO itself contained many poor quality assets.

Nearly a third of Gemstone’s assets consisted of high risk subprime loans originated by Fremont, Long Beach, and New Century, three lenders known at the time within the financial industry for issuing poor quality loans and RMBS securities. Although HBK directed the selection of assets for Gemstone 7, Mr. Lippmann’s CDO Trading Desk was involved in the process and did not object to including certain RMBS securities in Gemstone 7, even though Mr. Lippmann was simultaneously referring to them as “crap” or “pigs.” Mr. Lippmann was also at the same time advising some of his clients to short some of those same RMBS securities. In addition, Deutsche Bank sold five RMBS securities directly from its inventory to Gemstone 7, several of which were also contemporaneously disparaged by Mr. Lippmann.

Footnote #1325 on paqe 347 shows the disdain for the products the traders were selling was widespread among the traders, as a trader sends a parody of a rap song to his boss at Deutsche:

Mr. Lippmann’s negative views were shared by his traders. In an email originally sent by one of the traders on his desk, Rocky Kurita, the CDO business is set to a song, “CDO Oh Baby,” by VanillaIce with the following lyrics: “Yo vip let’s kick it! CDO oh baby, CDO oh baby. All right, stop, collaborate and listen. Spreads are wide with a technical invasion. Home Eq Subs were trading so tightly. Until Hedge Funds BotProtection daily and nightly. Will they stop? Yo I don’t know. Turn up the Arb and let’s go. To the extreme Macro Funds do damage like a vandal. Now, BBs are trading with a new handle. Print, even if the housing bubble looms. There are never ends to real estate booms. If there is a problem, yo, we’ll solve it. Check out the spreads while my structurer revolves it. CDO oh baby, CDO oh baby.” 11/8/2005 email from Jordan Milman to Greg Lippmann, DBSI_PSI_EMAIL00686597-601 (forwarding an 11/8/2005 email from Rocky Kurita at Deutsche Bank).

Ameriquest Mortgage Securities, Inc. (AMSI) loans were part of the Deutsche Bank warehouse inventory that were included in Gemstone 7. On page 362 of the report, the Subcommittee finds that Mr. Lippmann was also very disdainful of the Ameriquest loans, but that he bought them to sell to investors:

On April 6, 2006, Mr. Lippmann called AMSI 2005-R7 M8 a “crap name.” In a June 16, 2006 email, Mr. Lippmann called AMSI generally a “weakish name.” On December 12, 2006, Gemstone 7 purchased $5 million of another RMBS, AMSI 2005- R11 M10, with no objection from the Lippmann trading desk. (footnotes omitted)

The Report has very many examples of Mr. Lippman and his colleagues and traders sending emails to each other wherein they repeatedly refer to loans and securities as “absolute pigs” and “generally horrible” and “crap” as Deutsche Bank was buying these very loans and securities to sell to investors. “Doesn’t this deal blow?” Lippman asks one of his traders (page 361), as they forge ahead with the deal.

The Subcommittee Report records in painful, exhaustive detail the building and collapse of mortgage securitization and in particular the role of two of the largest entities, Deutsche Bank and Goldman Sachs, in causing investors to lose billions while they reaped the largest profits in the history of their companies.

The Subcommittee Report focused on the financial collapse and Wall Street. The aftermath of that financial collapse was widespread unemployment and foreclosures.

If the Subcommittee had extended its investigation, it would have found that the trusts with the loans from the four mortgage companies identified as “crap” by Deutsche Bank’s traders became the top foreclosure litigants in the country as Deutsche Bank itself became known as “America’s Foreclosure King.”

When Deutsche Bank, as trustee, foreclosed, it was no more honest with courts and foreclosure defendants than it had been with investors. To prove to courts and homeowners that the trusts owned the mortgages in foreclosure actions, Deutsche Bank most often relied on documents produced by Lender Processing Services (“LPS”) to create mortgage assignments to the trusts when the mortgages had been originated by Ameriquest, Fremont, Long Beach and New Century.

LPS employees signed thousands of mortgage assignments as if they were officers of Ameriquest, Fremont, Long Beach and New Century.

Both the Alpharetta, Georgia and the Mendota Heights, Minnestoa offices of LPS produced these Assignments.

On these Assignments, the dates that the trusts acquired the mortgages are falsely stated.

These false Assignments were prepared from 2007 to at least February, 2010. When LPS stopped producing the Assignments, employees of other mortgage servicing companies continued these practices.

The Deutsche Bank trusts needed these Assignments because they failed to get Mortgage Assignments from the loan originators to the trusts – even though Deutsche Bank promised investors and the SEC they would get these mortgage assignments.

On tens of thousands of these LPS produced Assignments, the mortgage servicer is identified as American Home Mortgage Servicing. On the documents produced by LPS subsidiary Docx in Alpharetta, the servicer is identified in a box in the upper left-hand corner as “AHMA” or “AHCIT.”

AHMA is an abbreviation for American Home Mortgage Acquisition, the company that became American Home Mortgage Servicing in Coppell, Texas. American Home Mortgage Acquisition, owned by billionaire investor Wilbur Ross, (the “King of Bankruptcy”) purchased the $45.3 mortgage servicing business of bankrupt American Home Mortgage in September, 2007.

AHCIT is an abbreviation for American Home Citigroup. In February, 2009, Citigroup sold its servicing rights on 185,000 loans to American Home Mortgage Servicing (AHMSI) for $1.5 billion. Citigroup was one of the primary servicers of the Ameriquest loans.

Only a few courts have recognized that the LPS assignments were fraudulent and forged, even after former employees of Docx admitted on a segment of CBS “60 Minutes” to forging over 4,000 documents each day for several years.

No criminal charges have been filed against Deutsche Bank, Lender Processing Services or American Home Mortgage Servicing and all three of these corporations continue to pursue forecloses in courts throughout the United States using fraudulent mortgage assignments to trusts created by Deutsche Bank and sold to investors as the bank was shorting these same investments.

MORTGAGE ASSIGNMENTS, MORTGAGE SERVICERS, AND SECURITIZED TRUSTS IN BANKRUPTCY CASES

Lynn E. Szymoniak, Esq., & Ray Brown, J.D., University of Pennsylvania Law School (2010), January 9, 2011

Download this Article as a PDF.

In 2010, the concept of “foreclosure fraud” emerged in case law. Foreclosure fraud differed from mortgage fraud in that foreclosure fraud referred to fraud by mortgage companies, mortgage servicing companies, and banks servicing as trustees for securitized trusts, where mortgage fraud most often referred to fraudulent acts by borrowers, and brokers.

Several cases in the first week of 2011 make it clear that fraud by mortgage servicers and securitized trusts, in particular, is now one of the most important considerations in the defense of foreclosures.

In In re Szumowski, Case No. 10-12431 (REL), USBC, Northern District of New York, Tracey Hope Davis, the Bankruptcy Trustee for Region 2, submitted a response to the debtor’s objections to the proof of claim filed by BAC Home Loans Servicing, LP [i] on January 6, 2011. According to the Trustee, “The documents in the record do not demonstrate that BAC is a “creditor” of the debtor. The United States Trustee supports a finding that BAC has not established through adequate documentary proof that it has a claim against the debt arising out of the Note.” The Assignment in the Szumowski case was signed by Elpiniki M. Bechakas as “Assistant Secretary and Vice President of Mortgage Electronic Registration Systems, Inc. as Nominee for Home Funding Finders, Inc. its successors and assigns.” When Bechakas signed the Assignment, she was an attorney in the law firm of Steven Baum, the law firm that represented the plaintiff in the foreclosure action. The Assignment assigned the mortgage, but not the note, to Countrywide Home Loans, Inc. [ii] According to the Trustee, “With respect to BAC, there is no document in the record establishing that either the Note or the Mortgage were assigned to BAC.” The Trustee noted that while the mortgage was assigned to Countrywide, there was nothing in the record to establish that the Note was also assigned. According to the Trustee, “If BAC is not the holder of the Note, then there is no basis for the claim.”

The Trustee also stressed the role of the Baum Firm, the firm that filed the BAC proof of claim, noting: “It appears that the attorneys filing the proof of claim and objection to confirmation did not take adequate steps to verify the truth or accuracy of their statements as required under Rule 9011.” The Trustee pointed out that the Baum Firm “recently was sanctioned $5,000 for submitting pleadings with defects similar to the documents filed in this Court,” citing Federal Home Loan Mtg. Corp. v. Raia, 29 Misc.3d 1226 (A), 2010 WL 4750043, 2010 NY Slip OP. 52003 (U)(Dist. Ct. Nassau Co. Nov. 23, 2010.) The Trustee also noted that the state court judge called the Baum Firm’s actions “reprehensible.” [iii]

In In re Bevins, Jr., Case No. 10-12856, USBC, Northern District of New York, Albany Division, United States Trustee Davis also filed a response to the debtor’s objections to a proof of claim filed by a mortgage servicer. In the Bevins case, the mortgage servicer was GMAC as servicer for Deutsche Bank Trust Company Americas as Trustee for RALI 2006QS18. Once again, Elpiniki Bechakas signed the Assignment of Mortgage relied upon by GMAC and attached to the proof of claim. On this Assignment, Bechakas again signed as an “Assistant Secretary and Vice president of Mortgage Electronic Registration Systems, Inc.” The Trustee again asserts that Deutsche Bank has no standing because an Assignment of Mortgage does not demonstrate that there was also an assignment of the underlying note.

The Trustee cites a recent opinion by Hon. Martin Glenn, Bankruptcy Judge, Southern District of New York, In re Tandela Mims, Case No. 10- 14030 (Bankr. S.D.N.Y. 2010), in which Judge Glenn surveyed New York case law and concluded that an Assignment of Mortgage, standing alone, is a nullity and cannot be the basis of a state court foreclosure action and is, therefore, insufficient to establish standing to request or obtain a relief from stay in a bankruptcy court.

According to the Trustee, because the Deutsche Bank claim failed, the claim of GMAC, as servicer, must also fail because the agent can never be granted broader authority than that of the principal. GMAC cannot do anything that its principal, Deutsche Bank, lacked authority to do. As in the Szumowski case, the Trustee sets forth the many state court cases challenging the practice of The Baum Firm and Elpiniki Bechakas to submit Mortgage Assignments on behalf of MERS so that The Baum Firm appears on both sides of the mortgage assignment. The Trustee states: “To the extent the Court is inclined to consider sanctions against the law firm that filed the documents, the United States Trustee supports such an outcome in order to protect the integrity of the bankruptcy system.”

One day later, on January 7, 2011, in a California bankruptcy case, the appropriateness of a law firm employee signing as both a movant and a MERS employee was also at issue in In re Brian W. Davies, Case No. 6:10- bk-37900-TD, USBC, Central District of California, a case involving OneWest Bank as both the movant and as agent of Deutsche Bank. In a very simple Order, the Court ruled 1) OneWest Bank and OneWest Bank as Agent for Deutsche Bank lack standing; and 2) that the movant’s declaration lacks credibility, having signed as both an employee of the movant and as an agent for MERS.

In Koontz v. EverHome Mortgage and Mortgage Electronic Registration Systems, Inc., Case No. 09-30024, Proc. No.-3005, October 20, 2010, USBC, Northern District of Indiana, (South Bend Division) EverHome Mortgage (“Everhome”) and Mortgage Electronic Registration Systems, Inc. (“MERS”) moved for summary judgment against Koontz, claiming that they did not file a fraudulent assignment, and that there was no dispute that Bethany Hood, who signed Koontz’s Mortgage Assignment as the Vice President of MERS, was in fact an employee of MERS. U.S. Bankruptcy Judge Harry C. Dees, Jr. dismissed the defendant’s motion for summary judgment. Judge Dees asserted that MERS admitted that Hood was not an employee of MERS, thus there were genuine issues of material fact, and Koontz may be able to prove that EverHome and MERS attempted to perform a fraudulent foreclosure: “MERS, in its Answer to the plaintiff’s Complaint, admit(ted) that Bethany Hood is not an employee of MERS. (cite omitted)… Indeed, MERS has completely sidestepped the fact that this Assignment was signed by someone representing herself to be a Vice President of MERS, and it has declined to explain why this false document was attached to the amended Proof of Claim… In the view of this court, the conduct of the EverHome defendants and the MERS defendant – reflecting a lack of transparency and determination not to provide information or documents until required – has burdened both the debtor and this Court.”

On October 11, 2010, Locke Barkley, the Standing Chapter 13 Trustee for the Northern District of Mississippi, joined a case against Lender Processing Services on behalf of herself and all Chapter 13 Trustees in the United States. The case, Thorne v. Prommis Solutions Holding Corporation, et al., Case No. 10-01172-DWH, USBC, Northern District of Mississippi, was brought by a family who lost their home in foreclosure. The family and the Trustee alleged that fees charged by the law firm representing the mortgage company were improper, illegal, and not properly disclosed to the bankruptcy court. The couple alleged the Lender Processing Services engaged in illegal fee-splitting. According to the complaint, Johnson & Freedman contractually agreed to split legal fees with Lender Processing in return for cases Lender Processing sent to Johnson & Freedman, a law firm frequently representing banks, mortgage companies and securitized trusts in foreclosures. According to the lawsuit, the undisclosed fee-splitting arrangements are improper because fees designated as legal fees are being shared with companies that aren’t authorized to practice law. The lawsuit alleges that these fee-splitting contracts are disguised as “administrative fees, document review ‘views,’ document download fees, document execution fees, and technology facilitation fees.”

In In re Wilson, Case No. 0711862, USDC, Eastern District of Louisiana, the United States Trustee filed a Motion for Sanctions on May 21, 2010, against Lender Processing Services, Inc., f/k/a Fidelity National Information Services, Inc. and The Boles Law Firm. The Trustee alleged that Lender Processing Services misrepresented to the Court their knowledge of mortgage payments made by the Debtors during the course of Show-Cause proceedings initiated by the Court. The Trustee also alleged that Fidelity misrepresented to the Court whether it communicated with Boles about unposted payments made by the Wilsons and whether “Fidelity misrepresented that it did not function as a “go between” in this case, between Boles and Option [One], with respect to the unposted payments.” The Court heard oral argument on the Trustee’s Motion on December 1, 2010. The parties were given until February 1, 2011 to submit admitted exhibits on disc.

In In re Taylor, 2009 WL 1885888 (Bankr. E.D. Pa. 2009), an earlier case also involving sanctions against Lender Processing Services, Judge Diane Sigmund Weiss determined that sanctions were warranted. Judge Weiss made very specific findings regarding how the mortgage servicing and foreclosure systems operate. She described Lender Processing Services (“LPS”) as the largest out-source provider in the United States for mortgage default services. She found that 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 Weiss found that the 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.”…Ultimately, on August 18, 2010, Chief United States Bankruptcy Judge Stephen Raslavich denied the Debtors’ Motion to Penalize HSBC Mortgage Corp. for Securing a Claim by Violating the Automatic Stay Code.

In In re Nosek, 386 B.R. 374 (Bankr. D. Mass 2008), Ameriquest Mortgage Company (“Ameriquest”) claimed that it was the holder of Nosek’s mortgage, despite the fact that Ameriquest was the loan originator, had not held the note since November 30, 1997, and ended its mortgage servicer role as of March 31, 2005. Judge Joel B. Rosenthal placed blame on Ameriquest, the mortgage servicer, and Wells Fargo, the mortgage lender, for the mishandling of the Mortgage Assignment, stating: “It is the creditor’s responsibility to keep a borrower and the Court informed as to who owns the note and mortgage and is servicing the loan, not the borrower’s or the Court’s responsibility to ferret out the truth…That Ameriquest had no role after March 2005—well before the trial in Adversary Proceeding 04-4517, was unknown to the court.” Judge Rosenthal also did not allow Ameriquest to claim that PSAs give banks the inherent power to act in their own name on filing proofs of claim: “Ameriquest also seeks to hide behind the Pooling and Servicing Agreement by arguing that the document gave Ameriquest the power to act in its own name, including for the purpose of filing proofs of claim. That may be true but proofs of claim filed under a written power of attorney MUST have the power of attorney attached. Fed. R. Bank. P. 3001 and Official Form 10. No part of the agreement was attached to the proof of claim.” Judge Rosenthal also blamed Wells Fargo, the mortgage lender, for the mishandling of the Mortgage Assignment, stating “This Court will not allow Wells Fargo or any other mortgagee to shirk responsibility by pointing the finger at their servicers.” Judge Rosenthal imposed sanctions of $250,000 on Ameriquest and Wells Fargo, as well as sanctions on the law firms.

On May 28, 2009, U.S. District Court Judge William G. Young upheld the sanctions against Ameriquest, but overturned the sanctions against Wells Fargo. Judge Young’s harshest criticisms were for the lawyers involved:

“After 43 years at the bar, the saddest thing about this case is the conduct of the lawyers — all the lawyers. A careful reading of the briefs in this case reveals only a single recognition that counsel did anything amiss in their misrepresentations to the Bankruptcy Court. There’s blame aplenty, of course, each one blaming everyone else — including the hapless bankrupt homeowner. … How is it that our profession, the legal profession —which could have and should have strongly counseled against the self interested excesses that set up the collapse — instead has eagerly aided and abetted those very excesses? How could we (all of us who profess to be lawyers) have fallen so low?”

In a footnote regarding the arguments of Ameriquest’s national law firm, Judge Young stated: “This argument is singularly unpersuasive. It is tantamount to saying, ‘We’ve been making these misrepresentations for years. Until 2005, no one seemed to care.’”

In In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008), Deutsche Bank, as Trustee of Argent Mortgage Securities, Inc. Asset-Backed Pass through Certificates Series 2004-W11, filed a Motion without Recourse for Relief from Stay against Hayes, claiming that it had standing to seek relief because Hayes’ mortgage transferred from Argent Mortgage Securities to them. The Court used the “real party in interest” rule under Section 362 of the Bankruptcy Code to determine standing, stating that a “real party in interest” is 1) the party with the legal right to bring suit, and 2) a party who is not seeking to assert another party’s rights. Id at 371, citing In re Woodberry, 383 B.R. 373 (Bankr. D.S.C. 2008). The Court determined that Deutsche Bank was not a “real party in interest” because it never proved that Hayes assigned its mortgage to Argent Mortgage Company, LLC or Argent Securities, Inc., the trust’s depositor, in the Pooling and Servicing Agreement (“PSA”) of the Trust. In addition, the Court asserted that Deutsche Bank “submitted no evidence that the November 3, 2004 mortgage was included in the PSA or was subject to Section 2.09 of the PSA.” Judge Joan M. Feeney ordered Deutsche Bank to show cause, as to why they should not be sanctioned under Fed.R.Bankr.P.9011 for filing without competent evidence that they had standing. The Court subsequently released the order to Show Cause because the parties reported in open court that the matter was resolved.

In In re Nuer, Case No. 08-17106 (REG), Diane G. Adams, the United States Trustee for the Southern District of New York, 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, alleged that “Chase has filed documents that appear to be either patently false or misleading in connection with the Motion for Stay Relief…Chase took the posiion that it was acting only as the servicer of the Mortgage. Chase at the same time attached documents which supported a different position.”

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. Previously, however, 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.]

One of the first and most important cases involving the lack of standing in foreclosure cases involving securitized trusts is In re Foreclosure Cases, which involved Deutsche Bank attempting to foreclose upon 19 defaulted homeowners in Ohio. In re Foreclosure Cases, 2007 WL 3232420 (N.D. Ohio Oct. 31, 2007). On October 10, 2007, Judge Boyko issued an order to Deutsche Bank to show cause for their filed complaint, demanding that Deutsche Bank file copies of the Assignments showing that they were the holder and owner of the Notes and Mortgages, as of the date the complaint was filed, which was July 27, 2007. The Assignments would prove that Deutsche Bank had standing to file its complaints against the homeowners. For one of the cases, Deutsche Bank filed an assignment on October 10, 2007, that was dated August 13, 2007, even though the trust on the Mortgage was closed in 2006. To the Court, this revealed that Deutsche Bank did not have the particular assignment at the date of the complaint, and created Assignments for trial. U.S. District Judge Christopher Boyko, Northern District of Ohio, Eastern Division, rendered a decision dismissing 14 of the foreclosure cases in In re Foreclosure Cases without prejudice, due to the filing of executed Assignments after the date of the filed complaint for 10 of the cases, and the lack of Assignments for four of the cases.

In an early 2007 decision of Massachusetts Bankruptcy Court Judge, Hon. Joel B. Rosenthal, In re Sima Schwartz, Case No. 06-42476-JBR, Judge Rosenthal denied the Motion for Relief of Stay filed by HomEq Servicing Corporation. Again, Assignments were at issue. According to the Court, Deutsche Bank “simply assumes that the mortgage was properly assigned to it prior to the foreclosure. Deutsche produced an Assignment, signed by Liquenda Allotey, who was represented to be a Vice President of MERS [but who was actually an employee of Lender Processing Services]. (In footnote six, the Court described Allotey’s signature as “a very large check mark attached to a downward line.”) Deutsche also argued that there was no requirement that the Assignment be recorded prior to the foreclosure. Judge Rosenthal stated: “While this is a correct statement of the law…it ignores that the assignment it provided to the Court was not signed until after the foreclosure sale. In denying the Motion for Relief of Stay, Judge Rosenthal stated: “While “mortgagee” has been defined to include assignees of a mortgage, in other words the current mortgagee, there is nothing to suggest that one who expects to receive the mortgage by assignment may undertake any foreclosure activity.” The court concluded that Deutsche was confused as to when it acquired the mortgage.

In each of the bankruptcy decisions discussed above, the Bankruptcy Judges and Trustees demonstrated a thorough understanding of mortgages, notes, mortgage servicers and assignments. Unsupported allegations by parties seeking to set aside the automatic stay and foreclose were rejected. These cases also illustrate, however, that such unsupported and even contradictory allegations are being made frequently. Many issues remain unresolved, but the most frequent decision to be made by bankruptcy courts in 2011 may well be the amount of the appropriate monetary sanction against the banks and mortgage servicing companies.

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[i] - BAC Home Loans Servicing, LP was formerly known as Countrywide Home Loans Servicing, LP is a mortgage servicing company owned by Bank of America and located in Collin County, Texas.

[ii] - Countrywide Home Loans, Inc. was the Assignee on the Bechakas Assignment. BAC Home Loans Servicing, LP was the successor to a different, but related entity, the servicing company, Countrywide Home Loans Servicing, LP.

[iii] - The most often cited new York state Court decision regarding Assignments signed by Elpiniki Bechakas from The Baum Firm was written by the Honorable Judge Arthur M. Schack, Kings County, New York: U.S. Bank, N.A. as Trustee for SG Mortgage Securities Asset backed Certificates, Series 2006-FRE2 v. Emmanuel, 27 Misc.3d 1220(A), 2010 WL 1856016 (N.Y.Sup.).

TRUSTS USING LENDER PROCESSING SERVICES DOCUMENTS IN FORECLOSURES

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

As scrutiny of mortgage documents continues in Congress and in the press, attention turns to the trustees and mortgage-backed trusts that have relied heavily on these documents to foreclose. Many of the trusts that relied on mortgage assignments prepared by Docx/Lender Processing Services in Alpharetta, Georgia, the fraudulent practices of Lender Processing Services were the focus of an investigative report by Reuters News Service on December 6, 2010. The report challenged the company’s frequent assertions that the document preparation problems were limited to one office and a short period of time.

Investors and homeowners can look to the following series of trusts that are among those that have used Docx-prepared documents almost exclusively in foreclosures. In thousands of cases, the trusts listed below have been unable to produce the mortgage assignments held by the trustees’ document custodians and have instead used Docx-prepared Assignments. In almost all of these cases, the trustees claimed that they acquired these mortgages many years after the trusts’ closing dates, and often AFTER the foreclosure actions were filed by the trustees.

The following 150 trusts, holding mortgages with a combined value of approximately $100 Billion, relied almost exclusively on Docx Assignments to foreclose:

• 13 American Home Mortgage Asset Trusts, with Deutsche Bank National Trust Company and Citibank as Trustee;
• 12 American Home Mortgage Investment Trusts with Deutsche Bank, U.S. Bank, Citibank, and Bank of NY Mellon as Trustee;
• 10 Ameriquest Trusts with Deutsche Bank as Trustee;
• 5 Argent Trusts with Deutsche Bank as Trustee;
• 4 Asset-Backed Securities Corporation Trusts with U.S. Bank and Wells Fargo as Trustees;
• 14 Bear Stearns Trusts with Citibank; U.S. Bank and Wells Fargo as Tustee;
• 12 Carrington Mortgage Loan Trusts with Deutsche Bank and Wells Fargo as Trustee;
• 7 Citigroup Mortgage Loan Trust with U.S. Bank and Wells Fargo as Trustee;
• 4 Deutsch Bank Alt B Trusts with HSBC as Trustee;
• 16 Harborview Trusts with Deutsche Bank as Trustee;
• 20 Option One Mortgage Loan Trusts with Wells Fargo as Trustee;
• 14 Soundview Home Loan “OPT” Trusts with Deutsche Bank and Citibank as Trustee;
• 7 Structured Asset Investment Loan Trusts with U.S. Bank as Trustee; and
• 12 Structured Asset Securities Corporation Trusts with U.S. Bank and Wells Fargo as Trustee.

An Open Letter Regarding Abuses and Forgeries By MERS Officers in Mortgage Foreclosures

Lynn E. Szymoniak, Esq., September 6, 2010

Download this Open Letter as a PDF.

Mr. Ed Albrigo
Senior Vice President

FREDDIE MAC

8200 Jones Branch Drive MS 200 McLean, Virginia 22102

Mr. R.K. Arnold, President and CEO Merscorp, Inc.

1595 Spring Hill Road, Suite 310 Vienna, Virginia 22182

Marianne Sullivan Senior Vice President FANNIE MAE

3900 Wisconsin Avenue Washington, D.C. 20016

September 6, 2010

Re: Abuses and Forgeries By MERS Officers in Mortgage Foreclosures

Dear Mr. Albrigo, Mr. Arnold and Ms. Sullivan:

I am writing to you in your capacity as members of the Board of Directors of MERS.

This letter concerns certain widespread abuses by individuals using MERS titles.

After extensive research regarding Mortgage Assignments prepared in Alpharetta, Georgia, purportedly signed by MERS certifying officers, it is apparent that:

1. there were widespread forgeries by individuals who signed over a million Mortgage Assignments as MERS officers with many different individuals signing the same four names: Linda Green, Korell Harp, Jessica Ohde and Tywanna Thomas;

2. the individuals signing these names also used many different MERS titles, with Linda Green, Korell Harp and Tywanna Thomas claiming to be authorized by many different lenders to convey mortgages as MERS officers;

3. the information on the Mortgage Assignments is false particularly regarding the dates on which mortgages were conveyed. In several hundred thousand cases, Assignments to Residential Mortgage-Backed Securitized Trusts state that the Trusts acquired the mortgages AFTER foreclosure litigation was filed by the Trusts. This has resulted in a tremendous backlog of cases as the wrong parties often file the foreclosure actions.

These Mortgage Assignments are being used extensively in foreclosure actions in Florida and other states. Because of the apparent authority of MERS, these assignments are most often assumed to be correct by judges. Because so many foreclosure litigants are unrepresented by counsel, these Mortgage Assignments are going unchallenged even though they are obvious forgeries.

Please carefully examine the attached mortgage assignments signed by Linda Green, Korell Harp, Tywanna Thomas and Jessica Ohde as MERS officers as these examples plainly show many variations of the Green, Harp, Ohde, and Thomas signatures.

Many of the MERS job titles that have been attributed to Linda Green are listed in Schedule A attached hereto. Many of the MERS job titles that have been attributed to Korell Harp are listed in Schedule B. Many of the MERS job titles that have been attributed to Tywanna Thomas are listed in Schedule C.

TIME IS OF THE ESSENCE. There were nearly 11,000 mortgage foreclosures granted in Palm Beach County, Florida in the last six weeks. Many of these foreclosures were granted based on these Mortgage Assignments signed by individuals using MERS titles. It is apparent that these signatures and MERS titles are misleading judges and homeowners. The Palm Beach County experience is occurring throughout the country.

The Florida Attorney General is investigating fraudulent documents used to “facilitate” foreclosures.

Most often, in Florida, these fraudulent Assignments are used by the same law firms that are hired by Lender Processing Services, in its role as a foreclosure management company. In Florida, the firms that most often use these documents to foreclose are the Law Offices of David J. Stern, Florida Default Law Group, Shapiro & Fishman, and the Law Offices of Marshall Watson.

All four of these law firms have also been named by the Florida Attorney General as being under investigation for using fraudulent documents in foreclosures.

I am prepared to brief you or your designees fully on my research.

Thank you for your attention to this most serious matter.

Yours truly,
Lynn E. Szymoniak

PALM BEACH COUNTY FORECLOSURES: THE PURSUIT OF NON-PERFORMING MORTGAGES IN 2009 BYBANK OF AMERICA & DEUTSCHE BANK

Lynn E. Szymoniak, Esq., August 23, 2010

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In 2009, Bank of America filed 3,200 foreclosure actions in Palm Beach County; Deutsche Bank National Trust Company filed 2,375 foreclosure actions. Most of these foreclosure actions were filed on behalf of mortgage-backed trusts. The county records show that at the same time these bank/trustees were filing foreclosure actions, they were also acquiring thousands of other “non-performing” mortgages for trusts.

These statistics are similar in counties across the country. Judges rarely question these foreclosures and acquisitions, but in Brooklyn, a few judges have been curious about these patterns and have asked the trustee/banks to explain why they were acquiring non- performing loans for the trusts and whether such acquisition was a violation of the trustee’s fiduciary duty to the trust.

“The Court wonders why HSBC would purchase a non-performing loan, four months in arrears?”

- Judge Arthur M. Schack of Kings County, New York, in HSBC Bank v. Valentin, 2008, NY Slip Op 52167(U), 21 Misc. 3d 1124 [A]

“Further, the Court requires an explanation from an officer of plaintiff DEUTSCHE BANK as to why, in the middle of our national sub-prime mortgage financial crisis, DEUTSCHE BANK would purchase a non- performing loan from INDYMAC…”

- Judge Arthur M. Schack of Kings County, New York, in Deutsche Bank National Trust Co. v. Harris, Kings, New York, Index No. 39192/2007 (05 FEB 2008)

This pattern of acquiring non-performing mortgages, then immediately pursuing foreclosures, was very evident in 2009 in Palm Beach County, a county particularly hard-hit by the mortgage crisis. Bank of America (“BOA”) and Deutsche Bank National Trust Company (“DBNTC”) acquired thousands of mortgages in 2009. Most often, BOA and DBNTC acquired these “foreclosure imminent mortgages” while acting as Trustees for residential mortgage-backed securitized “RMBS” trusts. In almost every case, these acquisitions were made for trusts that closed several years prior to the 2009 acquisitions.

• How often are RMBS trusts acquiring mortgages where the foreclosure is imminent?

• What trusts are acquiring these “foreclosure imminent” mortgages?

• Have the Trustees disclosed to the investors that the trusts have embarked on this path that will cause the trusts to incur significant costs and attorney’s fees to pursue these foreclosures?

• Are the trusts following local court rules making to resolve these cases through mediation and possibly modification?

• Have the Trustees disclosed to investors that, even where the foreclosure is “successful,” the trusts in many cases have acquired properties worth far less than the mortgage amount, with the obligation to pay taxes, purchase insurance and maintain the properties?

• Have the Trustees disclosed that the mortgages being acquired have chain-of-title problems that will make resales difficult and costly?

• Have the Trustees disclosed to the Securities & Exchange Commission that they have embarked on this new, risky, costly activity of acquiring “foreclosure imminent” mortgages, often in violation of the terms of the trust’s obligations as set forth in the Pooling & Servicing Agreement of the trust; specifically, have the Trustees disclosed that they are acquiring many mortgages long after the closing date of the trust?

• Have the Trustees disclosed to the Internal Revenue Service that the trusts have embarked on this new activity of acquiring “foreclosure imminent” mortgages, in violation of the terms of the trust’s Pooling & Servicing Agreement; specifically, have the Trustees disclosed that they are acquiring many mortgages long after the closing date of the trust; and specifically, have the trusts disclosed that these transactions do not qualify as tax-exempt REMIC transactions?

• Have the Trustees disclosed to the investors the tax consequences of these acquisitions?

An examination of mortgage assignments and foreclosures in Palm Beach County, Florida, by Trustees of Goldman Sachs Alternative Mortgage Product Trusts (“GSAMP”), Morgan Stanley ABS Capital I, Inc. (“MSABS”) trusts and Soundview Home Loan Trusts answers some of these questions.

MORTGAGE ASSIGNMENTS

In total, LaSalle Bank acquired 664 mortgages in Palm Beach County in 2009, and Bank of America acquired 736 mortgages. Because Bank of America is the successor in interest to LaSalle Bank, the total acquisitions in Palm Beach County in 2009 for Bank of America was 1,400. Deutsche Bank National Trust Company acquired 3,039 mortgages.

An examination of acquisitions for particular trusts shows that the majority of these acquisitions were made as Trustees for mortgage- backed trusts and the majority of mortgages acquired were “foreclosure imminent” mortgages. In hundreds of cases, BOA and DBNTC filed foreclosure actions within days of acquiring the mortgages.

According to recorded documents, GSAMP (Goldman Sachs Alternative Mortgage Products) Trusts acquired 100 mortgages in Palm Beach County in 2009, Soundview Home Loan Trusts acquired 101 mortgages and Morgan Stanley ABS Capital 1 Trusts acquired 117 mortgages.

LIS PENDENS

The filing of a Lis Pendens is the first step in the foreclosure process in Florida (a judicial foreclosure state). The filing of a Lis Pendens alerts all interested persons that a court has acquired jurisdiction over the property described in the Lis Pendens.

In 2009, the Trustees of GSAMP Trusts filed 119 Lis Pendens; the trustees of Soundview Trusts filed 91 Lis Pendens; and the trustees of Morgan Stanley ABS Capital 1 Trusts filed 136 Lis Pendens.

Almost half of the GSAMP foreclosures were filed by Bank of America as successor to LaSalle Bank, or by LaSalle Bank, as Trustee for a GSAMP Trust; most of the other GSAMP foreclosures were filed by Deutsche Bank National Trust Company, as Trustee.

Assignments of Mortgages were recorded less than half of these cases. No document filed in the official records of Palm Beach County established the right of the Trustees to file these foreclosure actions. The failure to record the mortgage makes proof of chain-of-title more difficult to establish, and is likely to impair the resale of the foreclosed property. Local governments are also deprived of filing fees at a time when every source of revenue to local government is important.

In the cases with recorded Mortgage Assignments, over 90% of the Assignments were dated AFTER the foreclosure action was filed. In these cases, from the records, BANK OF AMERICA and DEUTSCHE BANK filed for foreclosure several days, weeks, or months BEFORE they even acquired the mortgages for the Trusts.

The majority of the Assignments to GSAMP Trusts were signed by an employee of Litton Loan Servicing, a mortgage servicing company bought by Goldman Sachs in 2007. Employees of the foreclosing law firms also signed many of the Assignments. The law firm employees did not disclose that they were law firm employees. Instead, they used titles as officers of Mortgage Electronic Registration Systems, Inc. (“MERS”). The Litton Loan employees also used MERS titles so it is not readily apparent that a Goldman subsidiary – not the original lender - was assigning these mortgages to a Goldman trust.

The vast majority of the Soundview foreclosures were filed by Deutsche Bank National Trust Company, as Trustee. Again, in the cases with recorded Mortgage Assignments, the records show that in the majority of cases, DEUTSCHE BANK filed for foreclosure several days, weeks, or months BEFORE they even acquired the mortgages for the Trusts.

The majority of the Assignments to Soundview Trusts were signed by an employee of Lender Processing Services (“LPS”), a publicly- traded company that specializes in “facilitating” foreclosures for banks. Employees of the foreclosing law firms also signed many of the Soundview Assignments. The law firm employees did not disclose that they were law firm employees. Instead, they used titles as officers of MERS. The LPS employees also used MERS titles so it is not readily apparent that a company working for the Trustees – not the original lender - was assigning these mortgages to the Soundview trusts.

The vast majority of the Morgan Stanley ABS Capital 1, Inc. foreclosures were filed by Deutsche Bank National Trust Company, as Trustee. Again, in the cases with recorded Mortgage Assignments, the records show that in the majority of cases, DEUTSCHE BANK filed for foreclosure several days, weeks, or months BEFORE they even acquired the mortgages for the Trusts.

The majority of the Assignments to Morgan Stanley ABS Capital 1, Inc. Trusts were also signed by an employee of LPS. Employees of the foreclosing law firms also signed many of the Morgan Stanley ABS Capital Assignments. Again, the law firm employees did not disclose that they were law firm employees. Instead, they used titles as officers of MERS. The LPS employees also used MERS titles so it is not readily apparent that a company working for the Trustees – not the original lender - was assigning these mortgages to the Morgan Stanley ABS Capital 1 Trusts.

WHY PURSUE NON-PERFORMING LOANS?

Fees from the government-funded loan modification program funds (“HAMP Funds”) may be an incentive for RMBS Trusts and their mortgage servicing companies to acquire non-performing loans. Another incentive may be the opportunity to sell distressed loans to securities companies that are busily putting together new funds made up primarily of non-performing mortgages. Some authorities believe trusts may be acquiring non-performing loans so that the trust may reach the level of defaults necessary to make a claim on the financial guaranty insurance policies of the trust.

THE ACQUISITIONS THAT NEVER HAPPENED

Another explanation is that in the vast majority of cases, these mortgage assignments NEVER HAPPENED as represented in the documents. The trusts did not acquire the mortgages in 2009. Banks, trusts and/or their mortgage servicing companies and law firms may have created and filed hundreds of thousands of mortgage assignments so that they could use these very documents to “prove” that they had the legal right to foreclose – and conceal this simple truth: many trusts failed to ever acquire the mortgages they promised investors and regulators they had acquired.

THE MOST REVILED LAW FIRM IN FLORIDA AND THE “UNOWNED MORTGAGE LOANS” SCHEME

Lynn E. Szymoniak, Esq., August 1, 2010

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In the last weekend in July, 2010, photographs of Florida lawyer David J. Stern appeared on the internet. Stern, the owner of the largest foreclosure law firm in Florida, was photographed sun-bathing on his 130’ foot yacht, reportedly named “Su Casa es Mi Casa” (your house is my house). There were also photos alleged to be of Stern’s 2008 black Bugatti Veyron, a $1.85 million car and the most expensive street legal car. “Su Casa” is not Stern’s only yacht. The Bugatti is not Stern’s only sports car.[i]

Stern has likely profited more than most any other Florida lawyer from the nation’s foreclosure crisis. The Law Offices of David J. Stern represent most major banks in foreclosures and bankruptcies. Stern’s firm is one of the largest working for Lender Processing Services, Inc., the Jacksonville-based company that specializes in “default management.” According to an article in the Tampa Tribune, the firm’s revenues grew to $260 million as a result of its foreclosure work.

In addition to his law firm, Stern also heads DJSP Enterprises, Inc., a publicly-traded corporation formed in early 2008.[ii] According to DJSP Enterprises, the company is the largest provider of processing services [iii] for the mortgage and real estate industries in Florida and one of the largest in the United States. “Processing services” sounds like a benign activity, but an examination of some of the documents prepared by Stern’s businesses shows otherwise.

Stern employees regularly prepare and sign mortgage assignments to residential mortgage-backed trusts in cases where the trusts cannot produce the original assignments from the lenders to the trust. These documents are necessary for the trusts to prove that they have the right to foreclose.

These assignments must be signed by an officer or authorized representative of the bank or mortgage company that sold the mortgage to the trust or to the securities company that helped to make the trust. Stern’s employees regularly sign as if they are such mortgage company officers or officers of the registry service, Mortgage Electronic Registration Services (“MERS”), without disclosing that they are actually Stern’s employees.

When Stern’s employees sign these Mortgage Assignments, they routinely give false information about the date the trust acquired the mortgages. According to documents prepared by Stern, tens of thousands of mortgages (and the income from the promissory notes secured by the mortgages) went off the books of the previous owners in 2004, 2005 and 2006, went into the unknown, and then appeared on the books of mortgage-backed trusts in 2009 and 2010.

Chain-of-title is not just an issue for the buyers and sellers of particular homes and title insurance companies. Some entity – and most likely several entities – are claiming these mortgages and loans as assets when regulators and investors are determining solvency and compliance, but disavowing these same “assets” when acknowledgement of ownership would result in responsibilities ranging from payment of taxes to lawn mowing.

Stern employees often sign as if a bankrupt or out-of-business company or a failed bank owned the mortgage and loan up until foreclosure is imminent. In county recorders’ offices across the state, the Stern-created records show that the trusts acquired mortgages and loans on dates when no such acquisitions ever took place. The trusts claim ownership solely to prove that they have the right to foreclose. The date selected is arbitrary – chosen by Stern or LPS or the mortgage servicing company. In reality, residential mortgage- backed trusts did not rush to acquire billions of dollars in sub-prime non-performing loans in 2008 and 2009 as these assignments falsely state.

No one has ever asked who paid the taxes on the income from these mortgages during the years of unknown ownership. Who claimed these mortgages and loans as assets on their financial statements in order to attract and keep investors? What mortgage servicing companies charged fees for “servicing” mortgages and loans that were “UNOWNED” for several years? What pension funds and investor groups paid fees to mortgage servicing companies to service “UNOWNED” loans?

Several judges in Brooklyn began asking a related question years ago.

In Deutsche Bank National Trust Company v. Rose Harris, Index No. 35549/07 Supreme Court of NY (Brooklyn) February 5, 2008, the Honorable Arthur Schack wrote: “Further, the Court requires an explanation from an officer of plaintiff DEUTSCHE BANK as to why, in the middle of our national subprime mortgage financial crisis, DEUTSCHE BANK would purchase a non-performing loan from INDYMAC…” In HSBC Bank v. Valentin, 21 Misc. 3d 1124 [A]: Judge Schack wrote:

Further, according to plaintiff’s application, the default of defendants Valentin and Ruiz began with the nonpayment of principal and interest due on January 1, 2007. Yet, four months later, plaintiff HSBC was willing to take an assignment of the instant nonperforming loan. The Court wonders why HSBC would purchase a nonperforming loan, four months in arrears?

In Wells Fargo v. Saint Aubin, 2009 WL 311364 (N.Y. Sup.), Judge Schack noted:

The court needs to know if WELLS FARGO performed due diligence in purchasing this nonperforming loan or whether this was a device for FIRST FRANKLIN to shift its loss to the bondholders of plaintiff’s mortgage loan trust, a collateralized debt obligation. Nobel Laureate Paul Krugman, in his July 2, 2007-New York Times column, “Just Say AAA,” in writing about the subprime mortgage crisis, could have been alluding to FIRST FRANKLIN in the instant case…

Because of the structure of mortgage-backed trusts, it is impossible in most cases, without a subpoena, to identify the mortgages and loans that the trust supposedly owned and the date the trust actually acquired these assets. The weak laws regarding residential mortgage- backed trusts and the even weaker laws regarding mortgage assignments made a perfect storm for securities companies, mortgage servicing companies, banks acting as trustees and foreclosure law firms willing to do their bidding.

The Law Offices of David Stern became the leader in providing services – and documents.

Cheryl Samons, an office manager for the Law Offices of David Stern, has signed more mortgage assignments than any other Stern employee. She has admitted in depositions that she has no personal knowledge of the facts recited on the mortgage assignments.

According to tens of thousands of mortgage assignments signed by Cheryl Samons and filed in county records throughout Florida:

Occasionally, Samons has forgotten to sign and date an Assignment, but her signature (i.e., the empty line) has nonetheless been witnessed and notarized by other Stern employees.[iv] On other documents, Samons has signed over the signature line of Stern employee Beth Cerni and, again, the signature was nonetheless[v]witnessed and notarized by other Stern employees. Samons has also signed for Stern notary Shannon Smith.

The problem with Stern’s documents goes far beyond mortgage assignments. In 2008 and 2009, Stern’s firm filed between 4,000 and 7,000 foreclosures in Florida each month. In thousands of cases, Stern filed these actions knowing that the banks he represented had no documents that gave the banks standing to foreclose.

Stern’s lawyers claimed repeatedly that the bank, acting as trustee, owned the note and mortgage, had physical possession of the note and mortgage, and then mysteriously lost the note and mortgage. They filed these allegations knowing that they were false, but also knowing that the majority of homeowners in foreclosure would default.

In the cases where homeowners did object, Stern’s lawyers then produced the assignments and necessary documents, often created by their own staff, using the title of MERS officers.

When the Florida Supreme Court amended the rules of civil procedure effective February 11, 2010, to require that all foreclosure complaints be verified, the Stern lawyers ignored the new rule and continued to file hundreds of non-verified foreclosure complaints.

On July 26, 2010, a civil RICO class action lawsuit was filed against David Stern, individually, The Law Offices of David Stern, P.A. and MERSCORP. See, Figueroa v. Merscorp, Inc., et al., Case No. 0:10-cv- 61296-CMA, United States District Court, Southern District of Florida, Ft. Lauderdale Division. The lawsuit focuses on the fraudulent assignments signed by Cheryl Samons. The plaintiffs are represented by Fort Lauderdale attorney Kenneth Eric Trent.

The class action RICO lawsuit came just six days after David Stern, DJSP Enterprises and Kumar Ahaney were named as defendants in a class action lawsuit for violation of securities laws also filed in the Southern District of Florida. The securities’ lawsuit seeks damages for investors who purchased stock in DJSP Enterprises between March 16, 2010 and May 27, 2010. The lawsuit alleges that DJSP Enterprises generates a significant amount of its revenue from flat fees earned within the first month of a referral and that any significant decrease in the number of referrals would materially and adversely affect its revenues. DJSP Enterprises experienced a substantial decrease in the number of referrals in April and May, 2010, but did not publicly disclose the substantial slowdown until May 27, 2010. When the substantial decrease in referrals was disclosed, the price per share of DJSP Enterprises fell from $8.87 per share to $6.33 per share, causing a substantial loss to shareholders.

Florida judges often take extraordinary measures to accommodate the Law Offices of David Stern. In thousands of cases, Stern’s lawyers are allowed to appear telephonically. In Palm Beach County, all of Stern’s cases are assigned to be heard in the same courtroom by the same judge so that the Stern lawyers do not have to travel from courtroom to courtroom. Stern’s lawyers often fail to serve litigants with pleadings and documents prior to a hearing and instead reach into their briefcases at the hearing and deliver documents and pleadings at the moment of the hearing. Stern lawyers frequently “find” documents that were previously alleged to have been lost, with no questions asked by the Courts.

David J. Stern has amassed a fortune by providing documents and services to banks for foreclosures. The days of “anything goes” in foreclosures in Florida seem to be numbered, however, and banks may soon be required to account for the actions of the Stern employees.

[i] - Stern’s other autos include a 2010 silver Ferrari convertible, a 2009 red Ferrari coupe, a 2009 black Ferrari coupe, four Porsches, a 2010 white Cadillac Escalade, a 2011 Mercedes Benz coupe, a 2008 Bentley, a 2009 Rolls Royce, a 2008 Aston Martin Vantage, a 2007 Maserati Quattroporte, as well as BMWs, Hummers and Land Rovers.

[ii] - Shares in DJSP Enterprises traded in January, 2010 for $13.65; at the close of business of July 30, 2010, shares traded for $3.73.

[iii] - According to DJSP materials: “The Company provides a wide range of processing services in connection with mortgages, mortgage defaults, title searches and abstracts, REO (bank-owned) properties, loan modifications, title insurance, loss mitigation, bankruptcy, related litigation and other services. The Company’s principal customer is the Law Offices of David J. Stern, P.A., whose clients include all of the top 10 and 17 of the top 20 mortgage servicers in the United States, many of which have been customers of the Law Firm for more than 10 years. The Company has approximately 1,000 employees and is headquartered in Plantation, Florida, with additional operations in Louisville, Kentucky, and San Juan, Puerto Rico. The Company’s U.S. operations are supported by a scalable, low-cost back office operation in Manila, the Philippines, that provides data entry and document preparation support for the U.S. operation.”

[iv] - See File #3281725, Assignment of Mortgage of Ernesto Diaz, Saint Lucie County, Florida; see, also File # 107994571, Assignment of Mortgage, Andrea Sylvester, Broward County, Florida.

[v] - See File #3349080, Assignment of Mortgage of Neil Pettihomme, Saint Lucie County, Florida.