Finding Pooling And Servicing Agreements (PSA's)

For Securitized Mortgage Loans

The "Pooling and Servicing Agreement" is the legal document that contains the

responsibilities and rights of the servicer, the trustee, and others over a pool of mortgage

loans. The Pooling and Servicing Agreement can be a stand-alone document or it can be

part of another paper, usually called the "Prospectus." If the securitization is public,

these documents must be filed with the Securities and Exchange Commission (SEC), and

will be available to the public at www.sec.gov. Locating a Pooling and Servicing

Agreement on the SEC website can be a challenge.

The most important information you will need to find the Pooling and Servicing

Agreement is the name of the original lender and the title of the pool of loans. We will

work through an example below. Assume that the lender is Ameriquest Mortgage Co.

We don't know the name of the pool that the homeowner's mortgage ended up in, but we

do know that the mortgage was made on June 1, 2002.

Step One:

Go to www.sec.gov and click on "Search for Company Filings" under "Filing & Forms

(EDGAR)." Under "General-Purpose Searches," click on "Companies & other filers."

Then, in the "Enter your search information" box, type in "Ameriquest" next to

"Company name" and click on the "Find Companies" button.

Step Two:

The page you are now looking at shows a long list of the names of securitized pools of

loans. We know the mortgage was made on June 1, 2002. Look for the entry titled

"AMERIQUEST MORT SEC INC ASS BK PAS THR CERTS SER 2002 2." The

document number is CIK 0001175125. Click on that number. We selected this entry

because it said 2002 on it and the loan in question was made in 2002. There may be

several other pools of mortgage loans that Ameriquest securitized in 2002 but this is the

first one we come to on this list (when reviewed in late February 2007) so we will pull it

up.

Step Three:

Now you see a list of documents filed with the SEC that are related to this pool of loans.

Scroll down to the bottom and you will see a document titled "Prospectus." This is the

document that will likely be the one you want, assuming that the mortgage loan you are

concerned about is in this pool. We can only make an educated guess, unless you know

the name of the securitized pool in advance (which is unlikely).

Click on either "htm or text" next to this document and the Prospectus will appear. Now,

bookmark this document on your web browser, so you can come back to it easily in the

future. Note that this Prospectus is also contained on this CD-ROM for your use.

Step Four:

Is this likely to be the document you want? Scroll down to page S-2 and you will see a

Table of Contents. Included in that is the "Pooling and Servicing Agreement" which

starts on page S-76. Also, scroll down one more page, past the Table of Contents, and

you will see a "Summary of Prospectus Supplement." Certain important information is

listed there, including the cut-off and closing dates for loans that will be included in this

pool. The closing date is June 7, 2002. Based on this information, you can assume that

this document governs the responsibilities of the servicer of the mortgage loan in

question, unless that servicer tells you otherwise and can back it up with a reference to a

different agreement or pool.

Other important information listed in this Summary includes the title of the pool, and the

identity of the servicer and trustee. The servicing rights may have been sold since this

document was filed and the current servicer may be a different company but the trustee

(the legal holder of the mortgage) should be accurate.

Step Five:

Go the Pooling and Servicing Agreement to find what you need to know. It should

describe how the servicer is paid and by how much, who keeps late and other fees, what

authority it has to modify the loan or engage in workouts with homeowners, and its

obligations to pass mortgage payments on to the trustee.

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Demand Letters Claiming Damages for Errors and Omissions, Negligence and Malpractice

DISCLAIMER:  The following information on the entirety of this website and blog is to be used for informational purposes and should not be construed as legal advice.  Please consult with an attorney. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure that this information is up-to-date as of the date of publication. It is not intended to be a full and exhaustive explanation of the law in any area. This information is not intended as legal advice and may not be used as legal advice. It should not be used to replace the advice of your own legal counsel.

Demand letters are one of your opening tools in putting the parties on notice that you have a claim and you intend to pursue it. AN ATTORNEY'S DEMAND LETTER CARRIES FAR MORE WEIGHT THAN ONE FROM A HOMEOWNER.

Most of the participants in your loan closing have malpractice or errors and omissions insurance policies. You must couch your claim as negligence or malpractice, an error or omission and not as a crime or intentional tort if you want to invoke insurance coverage.

You should also include a provision that they should forward a copy of the letter to their insurance carrier. Most carriers say that if you don't notify them within thirty (30) days they won't defend or cover the claim. So you put the receiver of the letter in a bind of either settling with you without insurance (so his premiums won't go up or his coverage dropped) or letting the insurance company know there is a problem.

The carrier will instantly understand that this is one of thousands of claims that they are going to be hit with, so they will likely try to either intimidate you out of the claim or offer minimal settlements. Depending upon what you have decided as your goal (getting money or getting rid of your mortgage) you might accept the offer or negotiate something higher.

This adds to the war chest you can mount up to pay for more expensive litigation. It also increases the likelihood that an attorney will take your case since there are so many insurance companies involved (including the insurance purchased from AMBAC, AIG, or credit default swaps, over collateralization and cross collateralization).

BEWARE OF THE RELEASE HOWEVER, SINCE THEY WILL TRY TO GET YOU TO RELEASE EVERY CLAIM OR DEFENSE YOU HAVE IN SETTLEMENT. DO NOT SIGN SUCH A DOCUMENT UNLESS YOU INTEND TO STOP THERE. INSIST ON CHANGES TO THE RELEASE DOCUMENT SUCH THAT YOU WILL STILL BE ABLE TO CLAIM THAT THE NOTE AND MORTGAGE ARE VOID, INVALID, NON-NEGOTIABLE, FRAUDULENTLY OBTAINED, ETC. GET COMPETENT LEGAL ADVICE BEFORE YOU SIGN ANYTHING.

PARTIES TO SEND DEMAND LETTERS TO FOR ERRORS AND OMISSIONS AND MALPRACTICE:

1. Appraiser and Appraisal Company

2. Mortgage Broker and Mortgage Brokerage Company

3. Escrow Agent and Escrow Company

4. Title Agent, Title Agency and Title Insurance Company claiming cloud on title

5. Lender who appears on paper as payee on note and as mortgagee on mortgage or beneficiary under Deed of Trust

6. Trustee under deed of trust and add challenge to authority because of successive Trustees named in pooling and services agreement and in the issuance of the mortgage backed securities.

7. Mortgage Servicers ? each of them that you know of for misapplication of funds and demand that they show a full accounting for all funds received and all funds disbursed. How do you know the holder of the note received the payment? Who is the holder of the note?

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Disclaimer:  The following is for informational purposes and should not be construed or used or interpreted as legal advise.  Seek the advise from an experienced attorney. 

 

1. Identify in the law where securitization or collateralization in the law is legal without knowledge, consent or authorization of signor or promissory note without Disclosure. Main issue here if the note is void then there is no debt!
2. Identify law that shows that an original (note) cannot be replaced with a copy under any circumstance to prove holder in due course at least as holder with authority to foreclose.
3. Laws that challenge nominee or trustee as a party in interest with authority to foreclose.
4. Law that reveals that in contract law a contract without proper consideration is void. If the originator of the loan also is listed as the lender and the lender has table funded by using borrowers signed note as collateral to obtain wholesale loan in it's name then sells off instrument as a security. The lender lent credit secured by the borrowers asset (note) not money or any thing of value that was actually owned by the lender, Broker- originator) . Credit is the opposite of money.
5. Assignments and the legal authority to foreclose with no date certain assignments, new trend is to place assignments after foreclosure that indicate prior assignment before foreclosure filing.
6. Laws that show a lost note affidavit is no good as the person attesting is filing out affidavit in bad faith as affiant is attesting to hearsay and is not a party with personal first hand knowledge. This eliminated the holder in due course doctrine and other bogus claims that would indicate some control and or ownership over the original note.
7. Laws that allow defendant to ask for sanctions against attorney for filing a suit without reasonable inquiry as an attorney has an obligation to investigate a potential cause of action before filing a complaint. Or filing affidavits that hide the fact that the evidence is truly not on the record but implied, this is fraud on the court and defendant.
8. Law of voids that would void all court orders due to falsified or bad faith evidence that cannot be used as best evidence or lacks in proving a claim defects included like no notary and or proper signatures or signatures from unauthorized personnel.
9. UCC codes that cover negotiable instruments as applied to security instruments and or notes. What distinguishes them from each other and who has the authority to convert such instruments and the lawful process.
   
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REQUEST FOR APPLICABLE DOCUMENTS

Disclaimer:  Not Legal Advice.  For informational purposes only

Your request MUST include a demand for copies of any applicable documents including Pooling and Service Agreement, Assignment and Assumption Agreement, the location of the actual original note, any allonge, and any assignment together with any documents specifying the duties of any Trustee or successor Trustee, including substitution of Trustee on Deed of Trust, appointment of Trustee for Pooled Assets, appointment of Trustee for any Structured Investment Vehicle, appointment of Trustee for owners of certificates of asset backed securities, and whether there is any record of transfer, sale, bailout, insurance payment etc to the investor.

DISCLAIMER:  The following is for informational purposes only and is not legal advise.  Please seek the advise from an attorney.

 

To recover on a promissory note, the plaintiff (the Lender in the case of foreclosure) must prove:(1) the existence of the note in question; (2) that the party sued signed the note; (3) that the plaintiff is the owner or holder of the note in due course; and (4) that a certain balance is due and owing on the note.

 

Trial court erred when it did not proceed to take testimony before it entered default judgment (see definition below) for the plaintiff; the unsworn statement of plaintiff's (plaintiff is the lender) attorney could not support default judgment rendered." 

 

It is also true, in mortgage foreclosures, prove up of the claim requires presentment of the "original" promissory note and general account and ledger statement. Claim of damages, to be admissible as evidence, must incorporate records such as a general ledger and accounting of an alleged unpaid promissory note, the person responsible for preparing and maintaining the account general ledger must provide a complete accounting which must be sworn to and dated by the person who maintained the ledger. 

To recover on a promissory note, the plaintiff must prove: (1) the existence of the note in question; (2) that the party sued signed the note; (3) that the plaintiff is the owner or holder of the note in due course; and (4) that a certain balance is due and owing on the note.

1) the existence of the note in question

2) If the "ORIGINAL" note you signed in ink that contains your signature is claimed to be lost, stolen, missing and/or destroyed, then your defense is as follows:

3) the "named" Plaintiff is not the 'holder in due course" of the note and only an agent or nominee for the true beneficial owners and holders in due course;

4) there may be fraud upon the court in that the named Plaintiff may not have ANY interest to the note and that the supposedly lost note is not lost, but may have been intentionally destroyed due to missing assignments on the note which may have made it void and a legal nullity, thus they have exploited key and vital evidence;

5) there is no proof that the named Plaintiff ever held the note or took possession of the note and thus has no claim or right to bringing about the foreclosure;

6) there is no proof, without the note, that a proper chain of assignments took place and that the lien positions were properly perfected;

7) other unnamed and disclosed real parties in interest may have a claim to the note and be the rightful beneficial owners to the note and must be identified and brought before the court;

8) there may be several unnamed and disclosed real parties in interest may have a claim to the note and be the rightful beneficial owners of the note;

9) that the party sued signed the note

10) If the "ORIGINAL" note you signed in ink that contains your signature is claimed to be lost, stolen, missing and/or destroyed, then you need to notify me and also put on affirmative defenses that:

11) the note in question is not the note you signed and executed in ink and only the one you signed in ink that presumably contains your fingerprints can be relied upon by your handwriting analysis expert;

12) in an electronic age, it is a simple matter to place someone's signature or image upon a document and that it is very difficult to imagine such a valuable negotiable instrument being lost or missing without a nefarious motive.

13) that the plaintiff is the owner or holder of the note in due course;

14) If the "ORIGINAL" note you signed in ink that contains your signature is claimed to be lost, stolen, missing and/or destroyed, then you need put on affirmative defenses that:

a) the mortgage industry, investors, and GSE's such as Fannie Mae, Freddie Mac, and FHLBs etc. have a requirement that the last endorsement to them be undated and "blank" leaving the payee line blank and making the negotiable instrument a sort of "bearer bond" and instrument. as such, any party finding or stealing the note can place their name on the payee line, claim ownership of the note, and sell the note to others who may make a demand upon you in the future. as such, you require money to be deposited in an escrow account or with the court in an amount equal to the amount claimed owed on the note, until such missing note is found or upon your death. notes have a life of their own...

b) if the note was destroyed or lost intentionally (the industry maintains this practice) then they may be trying to hide the beneficial owners and shield them from any assignee liability arising from the actions of the servicer who they hire, supervise and most importantly authorize to foreclose upon you. without the note, since subsequent endorsements are not recorded to avoid payment of taxes and t hide true and real beneficial interests, there is no possible way to determine who ever held a rightful interest in the note and who you may have claims or counter claims against and who should be presently before the court as a real party in interest.

c) Furthermore, if there are missing assignments of the original note and the assignment went from Lender A to Lender B to Lender D without an intervening assignment from Lender B to Lender C and From Lender C to Lender D, then the note may be void and a legal nullity in your state.

d) It is industry practice to not name the GSE, investor, or real party in interest in foreclosure and to use as a front for the Plaintiff:

i) The very original lender who may or may not even be in business any more or sold their interest in the note long ago, only to have a claim made upon them for repurchase;

ii) A Servicer of even "special servicer" who is acting as an agent for the investors, GSE's or real party in interest, but has no beneficial ownership in the note since they are only being paid to collect and foreclosure by the real parties in interest

iii) A "nominee" such as MERS who has no legal authority to foreclose upon you and do business in your state and who according to their own written documents and verbal assurances never hold the note or own "any" beneficial interest in the note!!!!!

e) Notes are pledged, sold, bifurcated, and traded in various derivative transactions like bubblegum baseball cards and their transfers, sales, pledges etc. Are not publicly recorded. As such, only possession of the actual original note can prove the actual owner and holder in due course of the note and who you can make an offer of payment to for purchase of the note by yourself, another family member or partner. You have a right to know the rightful owner of the note so an offer for payment of the note at a discount and at fair market value can be made. If the note has been pledged and encumbered, then that party must be made aware of the foreclosure and your right to negotiate with them a payment and release of the note by you, other lien holders or private parties;

f) Notes are traded often and you need to inspect the physical note to see who the real prior parties were that held and endorsed your note since you may have counter and cross claims against them and need to bring them before the court for the action, since they may have improperly inflated your principal balance, amount owed or escrow account by not applying your payments correctly; adding fees not legally owed by you to the principal balance; miscalculating the interest and not properly amortizing your loan; fraudulent selling your loan or misreporting you on your credit report.

g) Federal Circuit Courts have ruled that the only way to prove the perfection of any security [including promissory note] is by actual possession of the security. Current or prior possession must be proved up.

(h) that a certain balance is due and owing on the note.

15) You must have the master transaction histories and general ledgers for the account since a "dump," "summary," or redacted record cannot be relied upon to determine the rightful amounts owed by having a complete audit of your account. In order to conduct a proper audit, master records and all prior records must be compiled, reviewed, analyzed, and reconciled. In is not you responsibility to prove each payment was made. It is your responsibility to say a payment was made and provide evidence, including your word that it was made. It is the note holder's duty and responsibility to validate the claims being made on the note and the amount owed. If they have the master records or claim that the records of prior servicers are missing, then there is no rightful way for anyone to prove up the balances and amounts they claim are owed!!!! Furthermore, you must claim:

a) That the principal balance claimed owed, is not owed, and is the wrong amount.

b) That the loan has not been properly credited and amortized;

c) That the current servicer cannot be relied upon to testify and certify that prior amounts, transactions, credits, debits, charges and fees added by prior servicers were indeed proper and correct and that the account they were transferred was properly amortized and credited. As such, the person holding the ledgers at the prior servicer must come and testify as to the amounts owed on the note.

d) dumps and summaries of amounts owed cannot be relied upon and only original ledgers and master records and the keeper of those records cant testify as to the amounts claimed owed and due.
 

 

Supporting Case Law

Where the complaining party cannot prove the existence of the note, then there is no note.

See  Pacific Concrete F.C.U. V. Kauanoe,  62 Haw. 334, 614 P.2d 936 (1980), GE Capital Hawaii, Inc. v. Yonenaka  25 P.3d 807, 96 Hawaii 32, (Hawaii App 2001).

 

Siwooganock Bank in Lancaster NH, in alleged foreclosure suit, failed or refused to produce the actual note which Siwooganock alleges Eva J. Lovejoy owed.  

To recover on a promissory note, the plaintiff must prove: (1) the existence of the note in question; (2) that the party sued signed the note; (3) that the plaintiff is the owner or holder of the note; and (4) that a certain balance is due and owing on the note.  See In Re: SMS Financial LLC. v. Abco Homes, Inc. No.98-50117 February 18, 1999 (5th Circuit Court of Appeals.)

 

Volume 29 of the New Jersey Practice Series, Chapter 10 Section 123, page 566, emphatically states, "...; and no part payments should be made on the bond or note unless the person to whom payment is made is able to produce the bond or note and the part payments are endorsed thereon. It would seem that the mortgagor would normally have a Common law right to demand production or surrender of the bond or note and mortgage, as the case may be. See Restatement, Contracts S 170(3), (4) (1932); C.J.S. Mortgages S 469,  in Carnegie Bank v, Shalleck 256 N.J. Super 23 (App. Div  1992), the Appellate Division held, "When the underlying mortgage is evidenced by an instrument meeting the criteria for negotiability set forth in N.J.S. 12A:3-104, the holder of the instrument shall be afforded all the rights and protections provided a holder in due course pursuant to N.J.S. 12A:3-302"

 

Since no one is able to produce the "instrument" there is no competent evidence before the Court that any party is the holder of the alleged note or the true holder in due course. New Jersey common law dictates that the plaintiff prove the existence of the alleged note in question, prove that the party sued signed the alleged note, prove that the plaintiff is the owner and holder of the alleged note, and prove that certain balance is due and owing on any alleged note.  Federal Circuit Courts have ruled that the only way to prove the perfection of any security is by actual possession of the security.

 

Supporting Case Law

Unequivocally the Court's rule is that in order to prove the "instrument", possession is mandatory.

See Matter of Staff Mortg. & Inv. Corp., 550 F.2d 1228 (9^th Cir 1977).  "Under the Uniform Commercial Code, the only notice sufficient to inform all interested parties that a security interest in instruments has been perfected is actual possession by the secured party, his agent or bailee." Bankruptcy Courts have followed the Uniform Commercial Code. In Re Investors & Lenders, Ltd. 165 B.R. 389 (Bankruptcy.D.N.J.1994), "Under the New Jersey Uniform Commercial Code (NJUCC), promissory note is "instrument," security interest in which must be perfected by possession.

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Disclaimer:  The following is for informational purposes and not intended to be construed as legal advice.  Please seek the advise of an attorney.

If you are in Florida, please see Fl statute 90.953

In Re: b) The Fourth District Court of Appeals in the state of Florida decided an issue quite pertinent to todays foreclosures; in the case of StateStreetBank and Trust Co., Trustee for Holders of Bear Stearns Mortgage Securities, Inc. Mortgage Pass-Through Certificates, Series 1993-12 v. Harley Lord, et al., 851 So.2d 790 (Fla. 4th DCA 2003). The Court held that StateStreetBank could not maintain a cause of action to enforce a missing promissory note or to foreclose on the related mortgage in the absence of proof that it or its assignor ever held possession of the promissory note. Section 673.3091, Florida Statutes (2002).

c) The Court explained that pursuant to section 90.953, Florida Statutes, (2002), Florida's code of evidence, the plaintiff in a mortgage foreclosure must present the ORIGINAL PROMISSORY NOTE as a duplicate of a note is not admissible. Otherwise, the plaintiff must meet the requirements of section 673.3091, Florida Statutes to pursue enforcement. W.H. Dwoning v. First Na'tl Bank of Lake City, 81 So.2d 486 (Fla.1955), Nat'l Loan Investors, L.P. v. Joymar Assocs., 767 So.2d 549, 551 (Fla. 3d DCA 2000).

d) StateStreetBank was later cited with approval by Dasma Investments, LLC v. Realty Associates Fund III, L.P., 459 F.Supp.2d 1294(S.D.Fla.2006) where the court held that if a party is not in possession of the original note and cannot reestablish it, the party cannot prevail in an action on the note. In Dasma, the court explained that in Florida a promissory note is a negotiable instrument and that a party suing on a promissory note, whether just on the note itself or together with a foreclose on a mortgage securing the note, must be in possession of the ORIGINAL NOTE or reestablish the note pursuant to Fla. Stat. § 673.3091. See, Shelter Dev. Group, Inc. v. Mma of Georgia, Inc., 50 B.R. 588, 590 (Bkrtcy.S.D.Fla.1985).

e) 90.953 Admissibility of duplicates.-A duplicate is admissible to the same extent as an original, unless:
(1) The document or writing is a negotiable instrument as defined in s. 673.1041, a security as defined in s. 678.1021, or any other writing that evidences a right to the payment of money, is not itself a security agreement or lease, and is of a type that is transferred by delivery in the ordinary course of business with any necessary endorsement or assignment.
(2) A genuine question is raised about the authenticity of the original or any other document or writing.
(3) It is unfair, under the circumstance, to admit the duplicate in lieu of the original.
(4) A promissory note is clearly a negotiable instrument within the definition of section § 673.1041 (1) FS and either the ORIGINAL must be produced, or in the event of a lost note, the document must be re-established under section § 673.3091 (2) FS. In this case, the Plaintiff clearly FAILED to attempt to move Court to re-establish the necessary PROMISSORY NOTE under § 673.3091 (2) FS or any other Florida statute upon filing and initiating frivolous complaint.

5th DCA in Florida.

In Re: 4. That the Plaintiff pursuant to section 90.952 FS failed to attach the ORIGINAL PROMISSORY NOTE. 90.952 FS Requirement of originals.-Except as otherwise provided by statute, an original writing, recording, or photograph is required in order to prove the contents of the writing, recording, or photograph. Additionally, as the Fifth District Court of Appeals in the state of Florida noted, The original document that is generally required to be filed with the court in a mortgage proceeding is the ORIGINAL PROMISSORY NOTE (NOT a copy, a faxed copy, a lost note affidavit etc,) and NOT the mortgage. The ORIGINAL PROMISSORY NOTE must be surrendered in a foreclosure proceeding so that it DOES NOT remain in the stream of commerce. Booker T. Perry and Betty J. Perry v. Fairbanks Capital Corp., Et Al.

In this case the Perry's lost the case in a technicality. Please google case and study it. Do Not make the same mistake. The Perry's failed to OBJECT to a note provided to them by the attorneys and the court admitted it.

5. Plaintiff and their attorneys knowingly proceeded to use Dade County Public Records in an attempt and with intent to commit fraud upon the Defendant(s) and the Court. 817.034 Florida Communications Fraud Act.?(3). Services. (d) "Scheme to defraud" means a systematic, ongoing course of conduct with intent to defraud one or more persons, or with intent to obtain property from one or more persons by false or fraudulent pretenses, representations, or promises or willful misrepresentations of a future act.

1. In the event that law permits the enforcement of a lost negotiable instrument section § 673.3091 (2), F.S. applies. Section § 673.3091 (2) F.S., requires a person seeking to enforce a lost negotiable instrument to:

1) Prove the terms of the instrument;

2) Prove the right to enforce the instrument; and

3) Protect the person who has to make payment from other claims to pay the instrument.

4) Plaintiff failed to prove ALL conditions above. (1) (2) and (3).

f) Plaintiff failed to prove "Chain of Title" with their respective assignments assigning the rights to enforce

g) Information obtained from bill SB 282, sponsored by Senator Posey on February 2, 2004

h) Why would one lose or destroy a valuable negotiable instrument? Defendants only guess would be to hide fraud.

i) "Actual Fraud. Deceit. Concealing something or making a false representation with an evil intent [scienter] when it causes injury to another. [see: e.g.,Steven H. Gifis, ?Law Dictionary', 5th Edition, Happauge: Barron's Educational Series, Inc., 2003, s.v. "Fraud.

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This is it! WHERE'S THE NOTE, WHO'S THE HOLDER: ENFORCEMENT OF PROMISSORY NOTE SECURED BY REAL ESTATE

ubmitted by NY

Interestingly, with the exception of Judge Bufford and a few other judges, there has been less than adequate focus upon the UCC title issues. The next round of cases may and should focus upon the title to debt instrument. The person seeking to enforce the note must show that:

(1) It is the holder of t his note original by transfer, with all necessary rounds;
(2) It had possession of the note before it was lost;
(3) If it can show that title to the note runs to it, but the original is lost or destroyed, the holder must be prepared to post a bond;
(4) If the person seeking to enforce is an agent, it must show its agency status and that its principal is the holder of the note (and meets the above requirements).

Then, and only then, do the issues of evidence of debt and default and assignment of mortgage rights become relevant.

WHERE'S THE NOTE, WHO'S THE HOLDER: ENFORCEMENT OF PROMISSORY NOTE SECURED BY REAL ESTATE

HON. SAMUEL L. BUFFORD
UNITED STATES BANKRUPTCY JUDGE
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES, CALIFORNIA

(FORMERLY HON.) R. GLEN AYERS
LANGLEY & BANACK
SAN ANTONIO, TEXAS

AMERICAN BANKRUPTCY INSTUTUTE
APRIL 3, 2009
WASHINGTON, D.C.

WHERE'S THE NOTE, WHO'S THE HOLDER

INTRODUCTION

In an era where a very large portion of mortgage obligations have been securitized, by assignment to a trust indenture trustee, with the resulting pool of assets being then sold as mortgage backed securities, foreclosure becomes an interesting exercise, particularly where judicial process is involved. We are all familiar with the securitization process. The steps, if not the process, is simple. A borrower goes to a mortgage lender. The lender finances the purchase of real estate. The borrower signs a note and mortgage or deed of trust. The original lender sells the note and assigns the mortgage to an entity that securitizes the note by combining the note with hundreds or thousands of similar obligation to create a package of mortgage backed securities, which are then sold to investors.

Unfortunately, unless you represent borrowers, the vast flow of notes into the maw of the securitization industry meant that a lot of mistakes were made. When the borrower defaults, the party seeking to enforce the obligation and foreclose on the underlying collateral sometimes cannot find the note. A lawyer sophisticated in this area has speculated to one of the authors that perhaps a third of the notes "securitized" have been lost or destroyed. The cases we are going to look at reflect the stark fact that the unnamed source's speculation may be well-founded.

UCC SECTION 3-309

If the issue were as simple as a missing note, UCC §3-309 would provide a simple solution. A person entitled to enforce an instrument which has been lost, destroyed or stolen may enforce the instrument. If the court is concerned that some third party may show up and attempt to enforce the instrument against the payee, it may order adequate protection. But, and however, a person seeking to enforce a missing instrument must be a person entitled to enforce the instrument, and that person must prove the instrument's terms and that person's right to enforce the instrument. §3-309 (a)(1) & (b).

WHO'S THE HOLDER

Enforcement of a note always requires that the person seeking to collect show that it is the holder. A holder is an entity that has acquired the note either as the original payor or transfer by endorsement of order paper or physical possession of bearer paper. These requirements are set out in Article 3 of the Uniform Commercial Code, which has been adopted in every state, including Louisiana, and in the District of Columbia. Even in bankruptcy proceedings, State substantive law controls the rights of note and lien holders, as the Supreme Court pointed out almost forty (40) years ago in United States v. Butner, 440 U.S. 48, 54-55 (1979).

However, as Judge Bufford has recently illustrated, in one of the cases discussed below, in the bankruptcy and other federal courts, procedure is governed by the Federal Rules of Bankruptcy and Civil Procedure. And, procedure may just have an impact on the issue of "who," because, if the holder is unknown, pleading and standing issues arise.

BRIEF REVIEW OF UCC PROVISIONS

Article 3 governs negotiable instruments - it defines what a negotiable instrument is and defines how ownership of those pieces of paper is transferred. For the precise definition, see § 3-104(a) ("an unconditional promise or order to pay a fixed amount of money, with or without interest . . . .") The instrument may be either payable to order or bearer and payable on demand or at a definite time, with or without interest.

Ordinary negotiable instruments include notes and drafts (a check is a draft drawn on a bank). See § 3-104(e).

Negotiable paper is transferred from the original payor by negotiation. §3-301. "Order paper" must be endorsed; bearer paper need only be delivered. §3-305. However, in either case, for the note to be enforced, the person who asserts the status of the holder must be in possession of the instrument. See UCC § 1-201 (20) and comments.

The original and subsequent transferees are referred to as holders. Holders who take with no notice of defect or default are called "holders in due course," and take free of many defenses. See §§ 3-305(b).

The UCC says that a payment to a party "entitled to enforce the instrument" is sufficient to extinguish the obligation of the person obligated on the instrument. Clearly, then, only a holder - a person in possession of a note endorsed to it or a holder of bearer paper - may seek satisfaction or enforce rights in collateral such as real estate.

NOTE: Those of us who went through the bank and savings and loan collapse of the 1980's are familiar with these problems. The FDIC/FSLIC/RTC sold millions of notes secured and unsecured, in bulk transactions. Some notes could not be found and enforcement sometimes became a problem. Of course, sometimes we are forced to repeat history. For a recent FDIC case, see Liberty Savings Bank v. Redus, 2009 WL 41857 (Ohio App. 8 Dist.), January 8, 2009.

THE RULES

Judge Bufford addressed the rules issue this past year. See In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008). First, there are the pleading problems that arise when the holder of the note is unknown. Typically, the issue will arise in a motion for relief from stay in a bankruptcy proceeding.

According F.R.Civ. Pro. 17, "[a]n action must be prosecuted in the name of the real party in interest." This rule is incorporated into the rules governing bankruptcy procedure in several ways. As Judge Bufford has pointed out, for example, in a motion for relief from stay, filed under F.R.Bankr.Pro. 4001 is a contested matter, governed by F. R. Bankr. P. 9014, which makes F.R. Bankr. Pro. 7017 applicable to such motions. F.R. Bankr. P. 7017 is, of course, a restatement of F. R. Civ. P. 17. In re Hwang, 396 B.R. at 766. The real party in interest in a federal action to enforce a note, whether in bankruptcy court or federal district court, is the owner of a note. (In securitization transactions, this would be the trustee for the "certificate holders.") When the actual holder of the note is unknown, it is impossible - not difficult but impossible - to plead a cause of action in a federal court (unless the movant simply lies about the ownership of the note). Unless the name of the actual note holder can be stated, the very pleadings are defective.

STANDING

Often, the servicing agent for the loan will appear to enforce the note. Assume that the servicing agent states that it is the authorized agent of the note holder, which is "Trust Number 99." The servicing agent is certainly a party in interest, since a party in interest in a bankruptcy court is a very broad term or concept. See, e.g., Greer v. O'Dell, 305 F.3d 1297, 1302-03 (11th Cir. 2002). However, the servicing agent may not have standing: "Federal Courts have only the power authorized by Article III of the Constitutions and the statutes enacted by Congress pursuant thereto. . [A] plaintiff must have Constitutional standing in order for a federal court to have jurisdiction." In re Foreclosure Cases, 521 F.Supp. 3d 650, 653 (S.D. Ohio, 2007) (citations omitted).

But, the servicing agent does not have standing, for only a person who is the holder of the note has standing to enforce the note. See, e.g., In re Hwang, 2008 WL 4899273 at 8.

The servicing agent may have standing if acting as an agent for the holder, assuming that the agent can both show agency status and that the principle is the holder. See, e.g., In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008) at 520.

A BRIEF ASIDE: WHO IS MERS?

For those of you who are not familiar with the entity known as MERS, a frequent participant in these foreclosure proceedings:

MERS is the "Mortgage Electronic Registration System, Inc. "MERS is a mortgage banking ?utility' that registers mortgage loans in a book entry system so that . real estate loans can be bought, sold and securitized, just like Wall Street's book entry utility for stocks and bonds is the Depository Trust and Clearinghouse." Bastian, "Foreclosure Forms", State. Bar of Texas 17th Annual Advanced Real Estate Drafting Course, March 9-10, 2007, Dallas, Texas. MERS is enormous. It originates thousands of loans daily and is the mortgagee of record for at least 40 million mortgages and other security documents. Id.

MERS acts as agent for the owner of the note. Its authority to act should be shown by an agency agreement. Of course, if the owner is unknown, MERS cannot show that it is an authorized agent of the owner.

RULES OF EVIDENCE - A PRACTICAL PROBLEM

This structure also possesses practical evidentiary problems where the party asserting a right to foreclose must be able to show a default. Once again, Judge Bufford has addressed this issue. At In re Vargas, 396 B.R. at 517-19. Judge Bufford made a finding that the witness called to testify as to debt and default was incompetent. All the witness could testify was that he had looked at the MERS computerized records. The witness was unable to satisfy the requirements of the Federal Rules of Evidence, particularly Rule 803, as applied to computerized records in the Ninth Circuit. See id. at 517-20. The low level employee could really only testify that the MERS screen shot he reviewed reflected a default. That really is not much in the way of evidence, and not nearly enough to get around the hearsay rule.

FORECLOSURE OR RELIEF FROM STAY

In a foreclosure proceeding in a judicial foreclosure state, or a request for injunctive relief in a non-judicial foreclosure state, or in a motion for relief proceeding in a bankruptcy court, the courts are dealing with and writing about the problems very frequently.

In many if not almost all cases, the party seeking to exercise the rights of the creditor will be a servicing company. Servicing companies will be asserting the rights of their alleged principal, the note holder, which is, again, often going to be a trustee for a securitization package. The mortgage holder or beneficiary under the deed of trust will, again, very often be MERS.

Even before reaching the practical problem of debt and default, mentioned above, the moving party must show that it holds the note or (1) that it is an agent of the holder and that (2) the holder remains the holder. In addition, the owner of the note, if different from the holder, must join in the motion.

Some states, like Texas, have passed statutes that allow servicing companies to act in foreclosure proceedings as a statutorily recognized agent of the noteholder. See, e.g., Tex. Prop. Code §51.0001. However, that statute refers to the servicer as the last entity to whom the debtor has been instructed to make payments. This status is certainly open to challenge. The statute certainly provides nothing more than prima facie evidence of the ability of the servicer to act. If challenged, the servicing agent must show that the last entity to communicate instructions to the debtor is still the holder of the note. See, e.g., HSBC Bank, N.A. v. Valentin, 2l N.Y. Misc. 3d 1123(A), 2008 WL 4764816 (Table) (N.Y. Sup.), Nov. 3, 2008. In addition, such a statute does not control in federal court where Fed. R. Civ. P. 17 and 19 (and Fed. R. Bankr. P. 7017 and 7019) apply.

SOME RECENT CASE LAW

These cases are arranged by state, for no particular reason.

Massachusetts

In re Schwartz, 366 B.R.265 (Bankr. D. Mass. 2007)

Schwartz concerns a Motion for Relief to pursue an eviction. Movant asserted that the property had been foreclosed upon prior to the date of the bankruptcy petition. The pro se debtor asserted that the Movant was required to show that it had authority to conduct the sale. Movant, and "the party which appears to be the current mortgagee." provided documents for the court to review, but did not ask for an evidentiary hearing. Judge Rosenthal sifted through the documents and found that the Movant and the current mortgagee had failed to prove that the foreclosure was properly conducted.

Specifically, Judge Rosenthal found that there was no evidence of a proper assignment of the mortgage prior to foreclosure. However, at footnote 5, Id. at 268, the Court also finds that there is no evidence that the note itself was assigned and no evidence as to who the current holder might be.

Nosek v. Ameriquest Mortgage Company (In re Nosek), 286 Br. 374 (Bankr D Mass. 2008).

Almost a year to the day after Schwartz was signed, Judge Rosenthal issued a second opinion. This is an opinion on an order to show cause. Judge Rosenthal specifically found that, although the note and mortgage involved in the case had been transferred from the originator to another party within five days of closing, during the five years in which the chapter 13 proceeding was pending, the note and mortgage and associated claims had been prosecuted by Ameriquest which has represented itself to be the holder of the note and the mortgage. Not until September of 2007 did Ameriquest notify the Court that it was merely the servicer. In fact, only after the chapter 13 bankruptcy had been pending for about three years was there even an assignment of the servicing rights. Id. at 378.

Because these misrepresentations were not simple mistakes: as the Court has noted on more than one occasion, those parties who do not hold the note of mortgage do not service the mortgage do not have standing to pursue motions for leave or other actions arising form the mortgage obligation. Id at 380.

As a result, the Court sanctioned the local law firm that had been prosecuting the claim $25,000. It sanctioned a partner at that firm an additional $25,000. Then the Court sanctioned the national law firm involved $100,000 and ultimately sanctioned Wells Fargo $250,000. Id. at 382-386.

In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008).

Like Judge Rosenthal, Judge Feeney has attacked the problem of standing and authority head on. She has also held that standing must be established before either a claim can be allowed or a motion for relief be granted.

Ohio

In re Foreclosure Cases, 521 F.Supp. 2d (S.D. Ohio 2007).

Perhaps the District Court's orders in the foreclosure cases in Ohio have received the most press of any of these opinions. Relying almost exclusively on standing, the Judge Rose has determined that a foreclosing party must show standing. "[I]n a foreclosure action, the plaintiff must show that it is the holder of the note and the mortgage at the time that the complaint was filed." Id. at 653.

Judge Rose instructed the parties involved that the willful failure of the movants to comply with the general orders of the Court would in the future result in immediate dismissal of foreclosure actions.

Deutsche Bank Nat'l Trust Co. v. Steele, 2008 WL 111227 (S.D. Ohio) January 8, 2008.

In Steele, Judge Abel followed the lead of Judge Rose and found that Deutsche Bank had filed evidence in support of its motion for default judgment indicating that MERS was the mortgage holder. There was not sufficient evidence to support the claim that Deutsche Bank was the owner and holder of the note as of that date. Following In re Foreclosure Cases, 2007 WL 456586, the Court held that summary judgment would be denied "until such time as Deutsche Bank was able to offer evidence showing, by a preponderance of evidence, that it owned the note and mortgage when the complaint was filed." 2008 WL 111227 at 2. Deutsche Bank was given twenty-one days to comply. Id.

Illinois

U.S. Bank, N.A. v. Cook, 2009 WL 35286 (N.D. Ill. January 6, 2009).

Not all federal district judges are as concerned with the issues surrounding the transfer of notes and mortgages. Cook is a very pro lender case and, in an order granting a motion for summary judgment, the Court found that Cook had shown no "countervailing evidence to create a genuine issue of facts." Id. at 3. In fact, a review of the evidence submitted by U.S. Bank showed only that it was the alleged trustee of the securitization pool. U.S. Bank relied exclusively on the "pooling and serving agreement" to show that it was the holder of the note. Id.

Under UCC Article 3, the evidence presented in Cook was clearly insufficient.

New York

HSBC Bank USA, N.A. v. Valentin, 21 Misc. 3D 1124(A), 2008 WL 4764816 (Table) (N.Y. Sup.) November 3, 2008. In Valentin, the New York court found that, even though given an opportunity to, HSBC did not show the ownership of debt and mortgage. The complaint was dismissed with prejudice and the "notice of pendency" against the property was canceled.

Note that the Valentin case does not involve some sort of ambush. The Court gave every HSBC every opportunity to cure the defects the Court perceived in the pleadings.

California

In re Vargas, 396 B.R. 511 (Bankr. C.D. Cal. 2008)

and

In re Hwang, 396 B.R. 757 (Bankr. C.D. Cal. 2008)

These two opinions by Judge Bufford have been discussed above. Judge Bufford carefully explores the related issues of standing and ownership under both federal and California law.

Texas

In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008)

and

In re Gilbreath, 395 B.R. 356 (Bankr. S.D. Tex. 2008)

These two recent opinions by Judge Jeff Bohm are not really on point, but illustrate another thread of cases running through the issues of motions for relief from stay in bankruptcy court and the sloppiness of loan servicing agencies. Both of these cases involve motions for relief that were not based upon fact but upon mistakes by servicing agencies. Both opinions deal with the issue of sanctions and, put simply, both cases illustrate that Judge Bohm (and perhaps other members of the bankruptcy bench in the Southern District of Texas) are going to be very strict about motions for relief in consumer cases.

SUMMARY

The cases cited illustrate enormous problems in the loan servicing industry. These problems arise in the context of securitization and illustrate the difficulty of determining the name of the holder, the assignee of the mortgage, and the parties with both the legal right under Article 3 and the standing under the Constitution to enforce notes, whether in state court or federal court.

Interestingly, with the exception of Judge Bufford and a few other judges, there has been less than adequate focus upon the UCC title issues. The next round of cases may and should focus upon the title to debt instrument. The person seeking to enforce the note must show that:

(1) It is the holder of t his note original by transfer, with all necessary rounds;
(2) It had possession of the note before it was lost;
(3) If it can show that title to the note runs to it, but the original is lost or destroyed, the holder must be prepared to post a bond;
(4) If the person seeking to enforce is an agent, it must show its agency status and that its principal is the holder of the note (and meets the above requirements).

Then, and only then, do the issues of evidence of debt and default and assignment of mortgage rights become relevant.

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DISCLAIMER:  THE FOLLOWING IS FOR INFORMATIONAL PURPOSES AND NOT INTENDED TO BE USED AS A LEGAL REMEDY OR DOES IT SERVE AS LEGAL ADVISE.  PLEASE SEEK AN ATTORNEY WHO CAN PROVIDE PROPER DUE DILIGENCE.

FORMAL STATUTORY

DEMAND TO DISMISS FORECLOSURE ACTION WITH PREJUDICE, CLEAR

TITLE TO REAL PROPERTY, REFUND MONIES PAID, AND FOR PAYMENT

OF ATTORNEYS?f FEES AND COSTS PURSUANT TO FLA.STAT. SEC. 57.105

Dear (Plaintiff Attorney):

This letter is being provided to you, the Law Offices of _________________., and your client ____________________________ Bank, N.A. (Plaintiff in the Action identified herein) as formal notice, pursuant to the matters herein and Fla.Stat. sec. 57.105, of this Firm?fs client Defendant demand that you immediately and forthwith dismiss, with prejudice, that certain civil action styled ________________________ Bank, N.A. v. Defendant et al., 16^th Judicial Circuit Court Case No. _____________________________ (CITY NAME, Florida, hereafter referred to as the ?gAction?h); to provide clear title to the real property the subject of the Action; for refund of all monies paid by Defendant incident to the alleged ?gloan?h the subject of the Action; and for payment of attorneys?f fees and costs which are awardable under various Federal and state statutes violated by your filing of the Action. This letter is also being sent as formal notice of Defendant?fs Motion for Sanctions (copy attached hereto) which will be filed and set for hearing unless, pursuant to Fla.Stat. sec. 57.105(4), within twenty-one (21) days of today, Defendant?fs demands as set forth herein are not complied with in writing confirmed by fax receipt, by this Firm, of the _____________, 2008 57.105 demand and notice to _________________, Esq. re: ________________ Bank, N.A. v. Defendant et al.,

necessary documents to legally effect the demands made herein. The facts supporting this demand and the attached Motion are as follows, which are admissions by you, as an agent of the Law Offices of _________________ P.A., in the Complaint which you filed:

(a) On or about August 22, 2007, you, as an agent and attorney of the Law Offices of _____________________., caused a civil action for foreclosure and to ?genforce loan documents?h to be filed in the 16^th Judicial Circuit in and for Monroe County, Florida, which has been assigned case number 2007-CA-1120-K;

(b) In paragraph ?g5.?h of Count I of the Complaint, you affirmatively represent to the Court that ?gThe Plaintiff owns and holds the Note and Mortgage?h;

(c) In paragraph ?g4?? of Count I, you affirmatively represent to the Court that the mortgage was ?gsubsequently?h assigned to the Plaintiff ?gby virtue of an assignment to be recorded?h (that being some time in the future);

(d) In paragraph ?g20?? of Count II, you affirmatively represent to the Court that ?gThe Plaintiff is not presently in possession of the Note and Mortgage?h and ?gthe Plaintiff cannot reasonably obtain possession of the Note and Mortgage because THEIR whereabouts cannot be determined (original emphasis):

(e) In paragraph ?g22?? of Count II, you affirmatively represent to the Court that ?gThe Plaintiff will agree to the entry of a Final Judgment of Foreclosure wherein it will be required to indemnify and hold harmless the Defendant(s) [sic] Defendant, from any loss they [sic] may occur by reason of a claim by another person to enforce the lost Note and Mortgage.?h;

(f) The Action thus inconsistently but affirmatively alleges, in Count I, that ?gPlaintiff owns and holds the Note and Mortgage?h when in fact the admissions in Count II demonstrate, by the allegations of paragraphs ?g20?? and ?g22?? of the Complaint, that the Plaintiff DOES NOT and CANNOT legally establish possession or ownership of the Note or the Mortgage and that same is/are in the possession of an unknown party or parties;

(g) A copy of the Note is not even attached to the Complaint (only an alleged ?gledger of loan?h);

(h) By virtue of the admissions of the Plaintiff in paragraphs ?g20??, ?g21??, and ?g22?? of the Complaint, the Plaintiff has actual knowledge that it never, at any time material, had possession of either the mortgage or the note as same were sold, assigned, or transferred as part of the single-transaction securitization process which resulted in the subject mortgage and/or note being sold as

July 2, 2008 57.105 demand and notice to _________________, Esq. re: ____________ Bank, N.A. v. Defendant et al.,

parceled obligations and becoming part of one or more tranches within a special investment vehicle;

(i) that the Plaintiff cannot establish that the subject note or mortgage is owned or controlled by the Plaintiff ?gindenture trustee?h for unnamed holders of a series of asset-backed bonds (a copy of which are not even attached to the Complaint);

(j) As a direct and proximate result of the transaction referred to in paragraph ?gh?h above, the Plaintiff does not and cannot establish legal standing to even institute a foreclosure action;

(k) As such, the allegation by the Plaintiff in paragraph ?g5?? of the Complaint constitutes matters which are completely devoid of factual or legal support and are thus ?gfrivilous?h within the meaning of Fla.Stat. sec. 57.105;

(l) As the primary and threshold issue of legal standing to institute the Action cannot be satisfied (which was known to you, the Law Offices of ___________________ and the Plaintiff at the time that the Action was instituted), the Action is a patently frivilous claim within the meaning of Fla.Stat. sec 57.105 and the filing and prosecution thereof constitutes a fraud upon the Court.

Your client and your Firm are thus charged with actual notice of the filing of an frivilous claim, as you, your client, and the Law Offices of _________________________, knew or should have known that the Action was both not supported by the material (and record) facts necessary to establish the claim for foreclosure and would not (and could not) be supported by the application of then-existing law to the material (and record) facts.

As such, this Firm has been directed to file and set for hearing, after the expiration of twenty-one (21) days from today (that being _______________, _______, 2008), the attached Motion for Sanctions and to seek attorneys?f fees from both your client and your Firm if the demands set forth herein for immediate dismissal of the Action with Prejudice, providing of clear title to the property the subject of the action, refund of all monies paid by Defendant in connection with the original ?gloan?h the subject of the Action, and payment of all attorneys?f fees and costs associated with this demand are not complied with in writing by the close of business (5:00 p.m.) Wednesday, July 23, 2008.

Sincerely,

_______________________, Esq.

____/_____

attachment (enclosed with mailed original)

copy to: Defendant (w/attachment)