“Wells Fargo’s conduct is clandestine. Rather than provide Jones with a complete history of his debt on an ongoing basis, Wells Fargo simply stopped communicating with Jones once it deemed him in default. At that point in time, fees and costs were assessed against his account and satisfied with postpetition payments intended for other debt without notice. Only through litigation was this practice discovered. Wells Fargo admitted to the same practices for all other loans in bankruptcy or default. As a result, it is unlikely that most debtors will be able to discern problems with their accounts without extensive discovery.”

Honorable Elizabeth W. Magner, U.S. Bankruptcy Judge, In Re: Jones v. Wells Fargo Home Mortgage, Inc.

Introduction. In understanding what happened in this case, it is important for the layman to understand the following:  All bankruptcies in the U.S. are governed by federal law.  The concept – though not necessarily the process – is simple: The moment one files for bankruptcy, an “automatic stay” is imposed.  This means that immediately upon filing a petition in bankruptcy, no creditor may attempt to recover any monies or seek other relief against that person [called the “debtor”] without court approval.  A trustee is appointed to administer the bankrupt’s estate.  Creditors, such as Wells Fargo, must then file a “proof of claim” with the court, setting forth the amount the debtor owes them as of the date he or she filed their petition.   A bankruptcy proceeding in which a “reorganization plan” or “plan” is filed with the court is known as a “Chapter 13” bankruptcy. If the plan is opposed by any creditors or the trustee, it must be worked out, or resolved by the Bankruptcy Judge.  Once “confirmed” by the Court, the debtor and all creditors must adhere to it.

Typically, a reorganization plan will identify who, what, when and how, creditors are to be repaid by the debtor.  Any variance from the plan has to first be approved by the bankruptcy court.  Some actions and events in bankruptcy lingo are occasionally referred to “post-petition” in order to signify that they occurred after the debtor filed for bankruptcy.  Events occurring before the debtor’s bankruptcy filing are referred to as “pre-petition.” The trustee is in charge of overseeing the operations of the final confirmed plan.

In the following case, Wells Fargo was one of the debtor’s creditors, and as such, had participated in, and was bound by, the confirmed plan.  As demonstrated below, the courts jealously guard debtors who seek federal bankruptcy protection.  Any deviation from a confirmed plan by the debtor’s creditors, especially intentional deviations, can result in severe sanctions.

Discussion. The Memorandum Opinion written by the Honorable Elizabeth W. Magner, U.S. Bankruptcy Judge, could have been completed in a few pages.  Instead, she decided to take 21 pages, setting out in detail, the conduct of Wells Fargo, that you sensed was not going to end well for this Big Bank. Continue reading “Slapdown! – In Re: Jones v. Wells Fargo Home Mortgage, Inc.”

“You got to know when to hold ’em, know when to fold ’em, know when to walk away, know when to run” [The Gambler, by Kenny Rogers, 1978]

This isn’t really late-breaking news.  It’s been under internal discussion for months, but now it’s official:  MERS is out of the foreclosure business.  Read the full story here. Remarkable?  Not for the decision itself.  What is remarkable is that it took so long.  Then again, maybe not, when you consider the MERS is owned by the same folks that brought us The Modification Game.  It’s hard to stop when you’re having so much fun….

“When a note is split from a deed of trust ‘the note becomes, as a practical matter, unsecured.’ *** Additionally, if the deed of trust was assigned without the note, then the assignee, ‘having no interest in the underlying debt or obligation, has a worthless piece of paper.’” [In re Veal – United States Bankruptcy Appellate Panel of the Ninth Circuit (June 10, 2011)]

Introduction. This case is significant for two reasons: First, it was heard and decided by a three-judge Bankruptcy Appellate Panel for the Ninth Circuit, which includes Oregon.  Second, it represents the next battleground in the continuing foreclosure wars between Big Banks and Bantam Borrowers: The effect of the Uniform Commercial Code (UCC”) on the transferability of the Promissory Note (or “Note”).

Remember, the Trust Deed follows the Note.  If a lender is the owner of a Trust Deed, but cannot produce the actual Note which it secures, the Trust Deed is useless, since the lender is unable to prove it is owed the debt.  Conversely, if the lender owns the Note, but not the Trust Deed, it cannot foreclose the secured property. [For a poetic perspective on the peripatetic lives of a Note and Trust Deed, connect here. – PCQ]

By now, most observers are aware that Oregon’s mandatory recording statute, ORS 86.735(1), has been a major impediment to lenders and servicers seeking trying to foreclose borrowers.  Two major Oregon cases, the first in federal bankruptcy court, In re McCoy, and the other, in federal district trial court, Hooker v. Bank of America, et. al, based their decisions to halt the banks’ foreclosures, squarely on the lenders’ failure to record all Trust Deed Assignments.  To date, however, scant mention has been made in these cases about ownership of the Promissory Note. [Presumably, this is because a clear violation of the Oregon’s recording statute is much easier to pitch to a judge, than having to explain the nuances – and there are many – of Articles 3 and 9 of the UCC.  – PCQ] Continue reading “The Meat of the Matter – In Re: Veal Analyzed”


Snidely Whiplash, Arch Villain, Rocky & Bullwinkle Cartoon

This post follows on the heels of my discussion of Oregon’s Foreclosure problems, here. At this time, we know two things: (a) The lenders and servicers cannot change our trust deed foreclosure law to accommodate their foreclosure practice; and (b) In fact, they likely don’t have the necessary paperwork to record even if they wanted to comply.

Here are their choices:

  • Continue to ignore ORS 86.735(1), the successive recording law they sought to repeal, and record only one assignment [which usually issues from a sham corporate officer on behalf of MERS or the originating lender – PCQ]. But even if you’re a Big Bank, it’s pretty hard to ignore two federal judges who have already said that the resulting foreclosure would be invalid. Moreover, as pointed out in my earlier post on the marketability issue, the title companies are now balking at insuring title for the banks’ REO sales if the underlying foreclosure failed to comply with Oregon’s law.
  • But let’s look at what would happen today if lenders actually continued doing their foreclosures illegally in Oregon?  Probably what is going on right now, i.e. a fear that the deeds out from the lenders to good faith buyers who pay fair consideration without knowledge of the problem. [These people are known as “Bona Fide Purchasers” or ”BFPs.”  Normally the law gives them great protection. However, it questionable whether BFP protection can trump a void sale. – PCQ] So how will the banks deal with the risk that a couple of years down the road, a former foreclosed borrower might come back and assert ownership to the property due to an invalid foreclosure?  Here are some suggestions for the Big Banks to consider: Continue reading “Solutions to the Foreclosure Mess in Oregon”

sat·ire/ˈsaˌtī(ə)r/Noun – The use of humor, irony, exaggeration, or ridicule to expose and criticize people’s stupidity or vices, particularly in the context of contemporary politics and other topical issues. Wikipedia

[The following bit of satire is intended to be read immediately before or after my recent post regarding a class action lawsuit filed against Lender Processing Services and a foreclosure mill law firm, entitled, In Re: Harris. – Phil]


Slam!  Bang!

Her: “Honey, is that you?”

Him: “Yeh.”

Her:  “What is it now? Is the Firm getting to you again?  You must be glad it’s Friday.”

Him: “Which question do you want me to answer first?”

Her: “Honey, don’t take things out on me – I’m just concerned about you.”

Him: “I know. Sorry.  I’ve just had it up to here with the Firm.  Every day that goes by, I hear the drumbeat of press coverage about lender and servicer abuses, and fraud being perpetrated on the courts by the bank and servicer attorneys.  I’m starting to become concerned for myself if the Firm should come under the spotlight.”

Her: “What do you mean, ‘under the spotlight’”?

Him: “Well, last week another firm – OK, OK, a ‘foreclosure mill – got named in a class action complaint.  The lawsuit was what we call an “adversary proceeding” arising out of alleged fraudulent practices by Lender Processing Services and its law firm, in the Florida bankruptcy courts.  So far, it’s just a claim – and anyone can sue anyone today – but the allegations are starting to hit home.  I need a drink.  Do we still have some of the Devil Springs® Vodka left from the bottle B.L. Zebub gave us for Christmas?”

Her:  “Honey, that’s 160 Proof!  You only had a couple of drinks after you opened it and you didn’t sober up until New Year’s Day.  B.L. Zebub may be the Firm’s largest banking client, but his taste in beverages runs to the extreme.  I think he’d be just as happy drinking from a can of paint thinner.”

Him: “Good! That way I’ll forget about this past week.”

Her: “Honey, this sounds serious.  Tell me what’s going on.” Continue reading “Another Bad Day At The Foreclosure Mill….”

“The effective use of the DSA’s [Default Services Agreements] between LPS Default and the national mortgage servicers resulted in LPS Default having under its control and concurrent access, the vast majority of the multibillion dollar default services fee market in the entire country.  This effectively put LPS Default in the position of Mephistopheles to its “Network [Law] Firms” role of Faust.”  –

[Class Action Complaint: Marie Harris, A/K/A Susan Marie Rhodes, Debtor, Plaintiff, vs. Ben-Ezra & Katz P.A., Lender Processing Services, Inc., LPS Default Solutions, Inc., Defendants.  In The United States Bankruptcy Court for the Northern District of Florida, Pensacola Division, Bankruptcy Case No. 08-30376 LMK.]

It can’t be helped.  Ever since I began digging into the foreclosure mess, and the more I have viewed the lender-lawyer relationships, I feel that some of my brethren have made a pact with the devil, in much the same way Faust did with Mephistopheles.  The metaphor is inescapable. Many lawyers and law firms across the country have joined forces with Big Banks and Big Servicers, to cash in on the foreclosure crisis.  And what is slightly remarkable is that they continue to do so, even though they have read the scathing court opinions, lambasting these industries and their attorneys, for fraudulent practices.

An interesting fact is that those foreclosure mill firms that have crossed over to the Dark Side, are not your big, long time, and reputable law firms with flourishing creditor practices.  However, one must suspect that LPS and other default servicing companies, may have approached them at one time.  I suspect one of their in-house “Quality Assurance” partners took a look, said “Thanks but no thanks” and slammed the door.  So what explains why some small, rather nondescript, law firms, now have suddenly acquired high volume foreclosure and bankruptcy practices? For one possible answer, read on. Continue reading “In Re: Harris Analyzed – LPS And Its Pact With Foreclosure Mill Attorneys”

“The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court had less experience concerning the conduct of mortgage servicers. One too many times, this Court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry. With each revelation, one hopes that the bottom of the barrel has been reached and that the industry will self correct. Sadly, this does not appear to be reality. This case is one example of why their conduct comes at a high cost to the system and debtors.”  – Hon. Elizabeth W. Magner, U.S. Bankruptcy Judge, in granting the U.S. Trustee’s Motion for Sanctions against Lender Processing Services (“LPS”).

The Court’s Memorandum Opinion is a great read – like a John Grisham or Michael Connelly airplane paperback.  It has all the usual protagonists: A Big Lender, an Incompetent Servicer, a Hapless Foreclosure Mill Law Firm, a couple of Honest Debtors, a Clueless Robo-Signer, and One Stern Judge


Big Lender: Option One Mortgage Corporation

Hapless Foreclosure Mill Law Firm: Boles Law Firm

Honest Debtors: Ron Wilson, Sr. and Larhonda Wilson

Incompetent Servicer: Lender Processing Servicers (“LPS”)

One Stern Judge: Honorable Elizabeth W. Magner, U. S. Bankruptcy Court Judge

Clueless Robo-Signer: Dory Goebel, LPS Employee (Masquerading as an “Assistant Secretary” for Option One)

OUR STORY BEGINS as so many do these days – in Bankruptcy Court. In September, 2007, the debtors filed a voluntary petition under Chapter 13 of the U.S. Bankruptcy Code.  Their plan of reorganization called for them to make their mortgage payments directly to Option One.  The plan was confirmed in December, 2007.

On January 7, 2008, Option One filed its first Motion for Relief From Stay, alleging that the debtors had failed to make their installment payments for November 2007 through January 2008. Debtors responded that they were current and that Option One had failed to properly credit their installments.  The bank was unable to prove any default in the debtors’ plan, and its motion was dismissed without prejudice – meaning it could file again.

On March 10, 2008, Option One filed its second Motion for Relief from Stay, alleging the debtors were in default for “over four months now….”  The second motion was supported by an affidavit signed by Ms. Dory Goebel, as Assistant Secretary for Option One.  The Boles Law firm filed both the motions, acting as legal counsel for Option One – although it was actually hired by the lender’s servicer, LPS. After several hearings on the second motion, it became apparent that the debtors were, in fact, current.  Actually, their payments had been forwarded from Option One directly to the Boles firm.  The payments had never been posted to LPS’ computerized records.

By now, Judge Magner had also learned that Ms. Goebel was actually an employee of LPS, and had no employment relationship with Option One.  She had merely been given a title as Option One’s “Assistant Secretary” to robo-sign affidavits like the one she made supporting the filing of the second Motion for Relief From Stay.  Smelling a rat, but unsure which one in the pack was the most culpable, she fined the Boles Law Firm and issued an order requiring Ms. Goebel and Option One to show cause why they should not also be sanctioned.

Apparently feeling slighted for being left out of this drama, LPS voluntarily intervened “to clarify its role in this matter and to address any misconceptions or misunderstandings which may have been left with the Court regarding that role.”  This public act of self-flagellation might seem inexplicable, until one realizes that LPS apparently felt no embarrassment or shame about a business model that relies upon bogus “corporate officers” and bogus “affidavits.”

At this point, the Whodunit turns into a comedy, with each player pointing fingers at the other: Continue reading “In Re: Wilson Analyzed – Another Story Of Servicer Fraud On The Courts”

“Choisissez vos combat”

It’s a rare day in the court system where a litigant wins a case and still comes out the big loser.  But MERS has managed the feat. [For a detailed background on MERS’ business model, see my earlier post here. – PCQ]

In a recent bankruptcy case, In re: Agard, the U.S. Bankruptcy Court for the Eastern District of New York, per the Hon. Robert E. Grossman, Select Portfolio Servicing, Inc., acting as servicer for U.S. Bank National Association, Trustee of a securitized trust (collectively, “the Bank”), won the right to pursue a foreclosure against a debtor (“Agard”) who had recently filed for bankruptcy.

In lay terms, this means that the although Mr. Agard was in bankruptcy, and therefore entitled to protection from creditors (the so-called “stay”), the Bank filed a motion for relief from the stay (“the Motion”), so it could proceed against him.  The Bank based its right of  foreclosure upon an assignment of the mortgage from MERS as “nominee” for the original lender, First Franklin.  Mr. Agard put up  limited opposition to the Bank’s Motion, arguing that MERS did not have the power to make the assignment to the Bank, and therefore the Bank had no standing to foreclose.  Problem was, the Bank had already obtained a judgment of foreclosure in the New York state court, which had been entered before Mr. Agard filed for bankruptcy.  Thus, under well-established legal principles [known as res judicata – PCQ], the Court had no alternative but to honor the prior state court judgment of foreclosure.  Therefore, in less than three pages into the 37-page Memorandum Opinion, Judge Grossman concluded that the Bank had the legal right to lift the bankruptcy stay.

MERS, which was not originally a party, intervened in the proceeding, based upon the following arguments: Continue reading “The Agard Case Analyzed – Another MERS Smackdown!”

“…the powers accorded to MERS by the Lender [whose name appears in the Trust Deed] – with the Borrower’s consent – cannot exceed the powers of the beneficiary.  The beneficiary’s right to require a non-judicial sale is limited by ORS 86.735.  A non-judicial sale may take place only if any assignment by [the Lender whose name appears in the Trust Deed] has been recorded.”

[Frank R. Alley III, Chief Bankruptcy Judge, published opinion, Donald McCoy III v. BNC Mortgage, et al., Adversary  No. 10-6224 -fra, Case No. 10-63814-fra-13, February 7, 2011]

Slapdown!  In a relatively uncomplicated adversary proceeding in Oregon’s bankruptcy court, Judge Alley hit the nail squarely on the head:  If lenders in Oregon want to foreclose people out of their homes, they must follow ORS 86.735(1). Or in the words of one Oregon title counsel, Judge Alley’s decision means that “…all assignments behind a MERS trust deed must be recorded for a non-judicial foreclosure.  In McCoy, it appeared there were unrecorded assignments by the original lender identified in the promissory note.  A “beneficiary” in Oregon is defined as the entity or person identified in the trust deed as the one for whose benefit the trust deed is given (or their successor in interest) – that was not MERS, but rather the original lender making the actual loan to the borrower.

For some reason, this relatively simple requirement has been routinely and flagrantly ignored in virtually every non-judicial foreclosure I have reviewed last year and this year.  I suspect if I went back to 2008 and 2009, I would see the same thing.  And this holding isn’t confined to situations in which MERS is the (nominal) beneficiary.

As this site has repeatedly pointed out, the Oregon statute is pretty clear:  Oregon Revised Statute 86.735(1) provides that a successor trustee [i.e the bank’s “enforcers” who actually process the foreclosure from beginning to end – PCQ] may foreclose a trust deed by advertisement and sale if “(t)he trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded…” in the public records of the county in which the property is located.  [Underscore mine.  PCQ] Continue reading “The McCoy Case Analyzed – MERS Smackdown!”

As the Realtor® industry enters into 2011, there is little question but that short sales are going to be around for a while. It will take at least two more years as excess inventory from all sources – banks, distressed owners (current and non-current with lender), unsold new construction, new condos, and sellers waiting on the sidelines – depletes itself.  However, this is not the only factor causing the current glut of real and shadow inventory.  Significantly, the employment picture and general overall confidence in the state and national economy must improve substantially.  The consumer exuberance during the holidays does not – in my opinion – necessarily translate into good news for the housing market.  It says, at best, that the retail segment of our economy enjoyed some good news for a change.

The bottom line for short sale transaction is that for the foreseeable future, they are going to remain a significant part of many Realtors®’ book of business.  Avoiding these transactions is a luxury reserved for the very few.  For those Realtors®who saw short sales as a good marketing opportunity early on, they are to be congratulated.  However, for those thinking about dipping the veritable “toe in the water,” it’s not too late.  I say this because the conventional wisdom about short sales a couple of years ago – if any existed back then – is ancient history.  Much has changed for 2011:

  • Banks have come to accept short sales, and in so doing, they have streamlined their protocols in dealing with them;
  • With the foreclosure fiasco in the fall of 2010, many lenders are seeing their REO inventory inflate, which suggests they may be more receptive to short sale approvals;
  • With each new short sale, Realtors® are gaining more experience;
  • Thanks to the Internet and other sources, the public is becoming more educated about short sales;
  • Today, the typical homeowner confronting a distressed transaction (i.e. short sale, deed-in-lieu, or foreclosure) is generally not the old “sub-primer” or “flipper” of 2004-2007 who acquired their home with easy credit, no money down, and a “liar loan;”
  • Today’s distressed homeowners are our neighbors and sometimes ourselves.  Many had significant equity at one time. Continue reading “2011 – Realtor® Best Practices For Short Sales”