Mr. Bevilacqua and the "Brooklyn Bridge Problem"

From the same court that brought us U.S. Bank Association, Trustee v. Ibanez, earlier this year, it now appears we will soon hear from the Massachusetts Supreme Judicial Court again. This time the issue deals with what happens to title after a bank completes a procedurally improper foreclosure.

Ibanez ruled that a foreclosure by U.S. Bank was invalid because at the time of the foreclosure it did not actually own the mortgage foreclosed upon. Thus, the Ibanez ruling set up the next logical issue for the court: If the bank conducts an invalid foreclosure, can it then “launder the title” by transferring it to a “bona fide purchaser” and thereby give that buyer better title than the bank received?

The Massachusetts case of Bevilacqua v. Rodriguez raises this very question. In that case, following its invalid foreclosure, the bank sold the property to Francis Bevilacqua, a developer, who then built four condominium units on it. In an effort to establish clear title, he then sued the prior owner who had been foreclosed. The owner did not appear and defend in the case. Nevertheless, the Massachusetts Land Court, in 2010, per Judge Keith C. Long [yes, the Ibanez trial judge. – PCQ], held that Mr. Bevilacqua’s effort to use the state’s quiet title statute “…most often used when there is a genuine dispute as to which competing title chain (each with a plausible basis)….” was without merit since Mr. Bevilacqua had “…no plausible claim — just a deed on record derived solely from an invalid foreclosure sale….”

Putting a finer point to this conclusion, Judge Long elaborated as follows:

The first reason it has no merit is the most obvious. By its express terms, G.L. c. 240, § 1 et seq. [Massachusetts’ “try title” statute – PCQ] only applies “if the record title of land is clouded by an adverse claim.” G.L. c. 240, § 1 (emphasis added). Here, there is no cloud, and certainly none that would give Mr. Bevilacqua standing to assert it. A cloud is not created simply on someone’s say so. There must be, at the least, a plausible claim to title by the G.L. c. 240, § 1 plaintiff. See Daley v. Daley, 300 Mass. 17 , 21 (1938) (“[a] petition to remove a cloud from the title to land affected cannot be maintained unless both actual possession and the legal title are united in the petitioner”) (emphasis added). Otherwise, in the classic example, a litigant could go to the registry, record a deed to the Brooklyn Bridge, commence suit, hope that the true owners either ignored the suit or (as here, discussed more fully below) could not readily be located and be defaulted, and secure a judgment. As shown on the face of his complaint, Mr. Bevilacqua has no plausible claim to title since it derives, and derives exclusively, from an invalid foreclosure sale. Continue reading “Mr. Bevilacqua and the “Brooklyn Bridge Problem””

The opinions expressed below are mine alone and do not necessarily reflect the opinions of PMAR, its officers, directors, employees or members. If anyone should feel that any statements of fact are incorrect, you are invited to discuss with me. – PCQ

Oregon’s Trust Deed Foreclosure Law. It is widely known that during the credit/housing boom, lenders frequently sold their loans between one another. When the ownership of a loan is transferred, it is necessary to execute, in recordable form, an “Assignment of Trust Deed.” ORS 86.735(1) governs what must occur before a trust deed may be foreclosed in Oregon; all such assignments must be placed on the public record. This is not a new law and it is not significantly different from the laws of many other states. Oregon’s law has been on the books for decades. Continue reading “Why People Are So Angry At the Lending and Servicing Industries – Part Two”

“Oh what a tangled web we weave, when first we practice to deceive.”

Sir Walter Scott (1771-1832)

This holding was inevitable. It has been the subject of my numerous posts, here, here, and here. Sooner or later courts would begin to actually “connect the dots” from (a) the bank claiming the right of foreclosure back to (b) the originator of the loan. Once they took the time to do so, they would realize that the REMIC trustee asserting the right of foreclosure, could not prove that the note and mortgage (or trust deed) had ever been deposited into the REMIC trust.

In Horace v. LaSalle Bank, filed on March 31, 2011, Judge Johnson’s logic is simple, straightforward, and unassailable: The Trustee of the REMIC trust (LaSalle Bank) may not prosecute a foreclosure, if that trust did not actually hold the note and mortgage sought to be foreclosed. The ruse perpetrated by LaSalle Bank in the Horace case is not uncommon. It has has been perpetrated by many foreclosing banks when acting as a “Trustee” for a REMIC into which the subject loan was supposedly deposited. Judge Johnson’s well-crafted opinion is straightforward. He’s done his homework, and it shows. The holding is well worth reading. Continue reading “Smackdown! Court Denies LaSalle Bank’s Right of Foreclosure For Violation of PSA”

SLAM! BANG!

Her: “Honey, is that you?”

Him: “Yeh.”

Her: “Another bad day at the Firm?”

Him: “Bad? Hellish!”

Her: “Is that alcohol on your breath? Have you been drinking at Lucifer’s Lounge with the other associates again?”

Him: “Yeh, it’s Friday, and we just go to shoot the breeze. Everyone’s pretty stressed out these days. This job isn’t cracked up to be what I thought it was.”

Her: “What do you mean? I remember how happy you were to be selected to work for the Firm. You said they did legal work for Big Banks. That sounds pretty impressive to me. And they do throw great parties!”

Him: “Well, no one ever told me that I’d be supervising a bunch of secretaries and paralegals, teaching them the fine art of speed signing. And whenever I go to court these days, I’m getting my head handed to me on a platter. I can see how those judges are looking at me…like some sort of demon. First, it was Rinegard-Guirma; then Burgett; then Allman; then Ibanez; then McCoy; and now Agard. Hell, some of these cases the banks are losing have been brought by pro se’ litigants without any attorney. How’d you like to lose a case to someone representing themselves? I’m starting to feel like a violist on the Titanic. I don’t see how the Big Banks are going to survive these decisions. And if they do, their reputation will be in tatters. Everyone is saying MERS is just circling the drain. Pretty soon there will be nothing left of them besides a bunch of electrons wandering around in cyberspace…come to think of it, that’s all they are right now.” Continue reading “A Bad Day At The (Foreclosure) Mill”

[Caveat: As recited on my website, Q-Law.com, unless expressed otherwise, all contents are solely those of the author and do not necessarily represent the views of my clients. This post is for entertainment purposes only. Truth, like beauty, is in the eyes of the beholder. The satire is mine. – PCQ]

As succinctly stated by C.S. Lewis in his Preface to The Screwtape Letters, ” I have no intention of explaining how the correspondence which I now offer to the public fell into my hands.”

CEO: “OK, do we have everyone on the line? Why don’t we do brief introductions, if we could. I’m not sure everyone is familiar with each other. I am B.L. Zebub, President and CEO of Belial Bank. I speak for the Big Banks on behalf of our lending industry.

Voice #1: “Well, OK, I’ll go next. My name is Lucy Furr, and I’m Assistant to the President. I work closely with BL. I’ll be taking notes of this phone conference. Just so you know, no one should make notes or take any recordings of this conference. My notes will be compiled into a summary, and after review and approval by BL, they will become our ‘official record.’ However, this conversation is intended to be absolutely confidential and the summary will not be made available to public under any circumstances. We need to be able to speak freely here. For all intents and purposes, this conference never occurred.”

Voice #2: My name is Liz Pendens, and I represent the title insurance industry. I’m new to this group. Continue reading “Belial Bank Telephone Conference Discussing MERS and the McCoy Case”

Background. The residential loan market experienced tremendous growth between 2004 and 2007. Lenders were able to accommodate millions of borrowers, because they quickly sold the loans they made into the secondary mortgage market, thus “recycling” their funds for further loans. Initially, the secondary mortgage market was dominated by two major players, Fannie Mae and Freddie Mac. Upon receipt of the loans they purchased from the banks, Fannie and Freddie, in turn, bundled them into pools, and sold them as securities to pension funds and other large investors.

The vehicle of choice for these mortgage-backed securities (“MBS”) was the REMIC. The term stands for “Real Estate Mortgage Investment Conduit.” In short, a REMIC is a trust into which pools of promissory notes (debt instruments – like an IOU) and mortgages or trust deeds (the security instruments which permit foreclosure if the notes are not paid).

These loan pools range in risk from the highest quality down the credit chain to the lowest quality. The loans are, figuratively speaking, sliced and diced into many “tranches” (French for “slice”), each one varying in degrees of risk of default. At this point, the loans lose their identity as individual notes and mortgages, and consist only of blended pieces of loans. The tranches are investment graded by their contents. Some tranches are rated safer than others, depending upon the loan mix each contains. The riskier the tranche, the better the yield. Although the safer tranches have lower yields, their investors receive returns before those holding the higher-yielding, but riskier tranches. Continue reading “What’s in Your REMIC?”

“Why, anybody can have a brain. That’s a very mediocre commodity. Every pusillanimous creature that crawls on the Earth or slinks through slimy seas has a brain. Back where I come from, we have universities, seats of great learning, where men go to become great thinkers. And when they come out, they think deep thoughts and with no more brains than you have. But they have one thing you haven’t got: A diploma.” [The Wizard of Oz to the Tin Man]

If you’ve been looking for an official certificate or two to hang on your wall, now’s your chance! We have just the program for you! It won’t require years of unnecessary education, boring professors, expensive text books, and– best of all – you won’t have to give up your day job!

Forget about being an attorney. They’re too stodgy and stuffy, anyway. For little or nothing, you can have the next best thing – a POWER OF ATTORNEY! Yes! An official document, saying that you’ve been duly appointed to sign IMPORTANT LEGAL DOCUMENTS. You can even record your POWER OF ATTORNEY in the public records of your county, for the whole world to see. Or, if you want, you can secretly keep it off the public record, adding to that air of mystery and intrigue. Imagine how impressed your friends will be when your name begins to appear on IMPORTANT LEGAL DOCUMENTS that get recorded in the public records. And best of all, some of the largest and most important publicly traded lending institutions are in need of your services today! Continue reading “ROBO-SIGNERS WANTED – No Experience Necessary”

(What follows is a hypothetical scenario. It is based upon at least 50 recent interviews with clients involved in distressed housing transactions as well as multiple conversations with local Realtors who have represented sellers trying to get out from under a mortgage they can no longer afford. The mystery of course, is how and why loan processors make the decisions they do. – PCQ)

John and Mary Doe applied to ABC Bank to modify their loan. They paid $425,000 for their home three years ago, borrowing $375,000. The mortgage had an adjustable rate they could afford at the time – but not today after the interest rate reset a few months ago, and John had to take a lower paying job. Comparable homes in the neighborhood are now selling for $295,000. Both John and Mary work, but with three kids, a dog, two cars and a hefty mortgage payment, their budget is stretched to the breaking point. Today, their mortgage balance is $350,000.

ABC Bank works with them for several months, but the best it will do is reduce their interest rate and their monthly payments for six months, and tack the deferred payments and interest to the principal balance of the loan, together with late fees, penalties, etc.

John and Mary ask the Bank to forgive $50,000 of the principal indebtedness and recast the loan balance at a fixed rate that would fully amortize the $300,000 loan over the remaining term – payments they can comfortably afford. The Bank won’t budge, saying that they will not forgive any principal – it all has to be paid back, either now or later. John and Mary give up, stop making their mortgage payments and wait for the inevitable foreclosure.

ABC Bank obliges John and Mary. It forecloses their home, puts it into their already bloated REO department, and lists it for sale. The Bank’s listing price for the home is now $325,000. The best offer it receives is $275,000, from an investor, who plans on renting it out. ABC Bank accepts the offer seven months after foreclosing John and Mary. Continue reading “Cosmic Mysteries – The Loan Servicer Decision-Making Process”

Real Estate Owned (“REO”). The abbreviation “REO” means “real estate owned.” In banker-speak, it means that the lender has taken the home back from the defaulting borrower – voluntarily or involuntarily – and must now try to sell it to recover the unpaid balance on the loan.

The Bank Addendum. It has been my experience that when banks sell their REO properties, they do so in the following manner: Upon receiving a purchase offer, they counter it with an “addendum.” This document is usually several pages in length, replacing many of the customary terms of the buyer’s offer. While there may be some differences among these bank forms, the one characteristic they all have in common is their attempt to reinforce the notion that the property is being sold “AS-IS.”

Having reviewed a number of bank addendums (technically “addenda”) over the last several months, I have concluded that if we read them at another time, say three, four or five years ago, we would likely have been offended that anyone would think us foolish enough to agree to such harsh terms. But this is today – banks have been taking properties back in droves. These properties must be placed back on the market quickly, and with the least amount of expense. In an effort to reduce future liability, banks have stretched the concept of an “AS-IS sale” to the breaking point. Why? Because they can. Even though it is a buyer’s market in Oregon and elsewhere, banks are selling some of their REOs at very attractive prices. As a result, buyers are generally willing to accept the AS-IS terms in the bank’s addenda.

But Is It Legal? To me, this approach is of dubious legality. Saying so does not make something so. While I cannot presume to know the thinking of those who draft these documents, I suspect some of the AS-IS language is inserted more for psychological affect than substantive effect. As far as I know they have yet to be legally tested in Oregon. Perhaps that means they are working….

Here are a few of the provisions I’ve seen in bank addenda that buyers (and the real estate agents representing them) should be aware of: Continue reading “Bank REOs And Property Disclosure”