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https://newrepublic.com/article/134722/foreclosure-sleuth

NEW REPUBLIC

Jim Watson/Getty Images

The Foreclosure Sleuth


How a sports agent uncovered the greatest financial
fraud in American history.
By David Dayen
June 29, 2016

New Republic contributor David Dayens book Chain of Title focuses on three individuals in South
Floridacancer nurse Lisa Epstein, car dealership worker Michael Redman, and Lynn Szymoniak, a
lawyer specializing in insurance fraudwho stumbled upon the biggest consumer fraud in American
history. They did so after they fell into foreclosure, and realized that all the documents they were sent by
their mortgage companiesthe evidence being used to kick them out of their homeswere fake. It turned
out that the industry broke the chain of titlethe chain of ownership, reallyon millions of securitized
mortgages, and were using false documents to cover it up.

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As they researched this, they discovered that they were not alone. In fact, perhaps the first person to
identify, fight, and broadcast his struggle against the mortgage industry and its various crimes was a guy
named Nye Lavallenearly 20 years before the housing bubble and the financial crisis that resulted from
its collapse. Lisa, Michael, and Lynn eventually sought out and worked with Lavalle as they tried to expose
the epidemic they called foreclosure fraud. In 2010, Lavalle played a major role in getting JPMorgan
Chase to admit that they were delivering documents with improper signatures into courtrooms across the
country. But prior to any of that, Lavalle was just a guy who bought a house, and became conscripted into
a fight he didnt want over crimes he never knew possible.

Nye Lavalles story follows a trail that many other citizen activists walked after suffering the sting of
foreclosure. The difference was that he had the perseverance to keep goingfor more than a quarter-
century. If people in power had listened to Lavalle, we could have had a different outcome from the crisis
than millions of people losing their homes and no accountability for those who facilitated it. This excerpt
tells how he uncovered the workings of the Great Foreclosure Machineand tried to warn the world
before the Great Recession hit.

It was 1989before the housing bubble, even before the savings and loan industry blew up. Nye Lavalle
was the great-grandson of an Argentinian president (Teatro Colon, one of the worlds finest opera houses,
sits on a Buenos Aires square named Plaza Lavalle, after his ancestor) who successfully managed
professional tennis players in the 1970s. Nyes father, Ramon, was a diplomat, tight with the Kennedys and
Ernest Hemingway. Ramon left Argentina to work in the Office of War Information during World War II,
eventually becoming an executive vice president at the pharmaceutical firm Parke-Davis. Nye grew up in
the tony suburb of Grosse Pointe, Michigan, and his dad liked to take him to inner-city slums in Detroit and
New York City, telling him that people born into privilege had a duty to look out for those less fortunate.

In the 1980s Nye founded a consultancy and research firm called the Sports Marketing Group (SMG),
which published groundbreaking studies into the popularity and viewing audiences of American sports. For
many years he was a go-to analyst on sports trends and predictions, quoted in papers across the country. He
called the rise of figure skating and NASCAR in the 1990s, and advertisers salivated over his detailed
analysis. Nyes business successes accompanied a flamboyant style. He dressed sharply, laughed big, and
was never at a loss for dates, as he would tell you. One friend quipped that, with his monogrammed blazers,
he looked like the captain of a ship, minus the hat.

At that point he would never have imagined that he would become a driving force in a grassroots
movement to expose Wall Street malfeasance.

In 1989 Nye was building his business, running part of it out of a home in Dallas purchased for his parents,
Anthony and Matilde Pew (his father, Ramon, died young, and his mother remarried). Savings of America
(SOA), predecessor to the crisis-era lender Washington Mutual and the nations largest S&L, owned and
serviced the loan. Though the Pews instructed SOA to send monthly statements to their primary home in
Michigan, the company would either send them to Dallas or not at all. Nye paid the mortgage directly at an
SOA branch. But SOA would mail the check to a servicing center, and by the time it got delivered to the
proper division, the payment would be late. Nye protested that he held the check receipt, showing delivery
well before the due date, but SOA would tack on a late fee anyway.

Nye started talking to banker clientshe represented Barclays and Visa in his consulting firmabout these
nickel-and-dime schemes. Loan servicers were mostly automated, with software programs tracking
payments and ringing up fees. They were paid through a small percentage of the principal balance on the
loans they serviced; they also earned float, from investments made in the time between receiving
monthly payments and sending them to investors. Most important, they kept all fees generated through
servicing. Fees represented the only real variable, creating a big incentive to make customers delinquent.
And the software could be dialed to increase fees and maximize profits.

Savings of Americas next attempted cash grab on the Pew home would become a commonplace scam in
the bubble years, known as force-placed insurance. Homeowners are required to hold property insurance,
so whenever that lapsed, servicers automatically enrolled them in an overpriced replacement policy, taking
a kickback from the insurer in exchange. Homeowners suddenly got a giant charge for junk insurance
automatically deducted from their mortgage payment. Force-placed insurance served a dual function: It
racked up profits for the insurer while making homeowners late on their full payment, leading to more fees.
In this case, SOAs software program force-placed the Pew house into homeowners insurance whenever
the policy came within 30 days of expiration. This happened three times on the same loan, with SOA force-
placing additional policies on top of the old ones, charging for each by deducting from the monthly
payment. All the insurers who imposed new policies on the residence were actually owned by the same
parent company as SOA.

Nye and his family had enough. He told SOA he wanted out of the loan: Just give him the payoff amount
and the loan histories, and hed cut them a check. When Nye finally got the data, he found that SOA
overcharged by close to $18,000. Plus they failed to supply the promissory note. Nye refused to pay the
charge-off amount, believing it fraudulent. The ensuing battle took more than a decade and cost around
$2.5 million in legal fees.

Throughout the dispute, Nye and his parents consistently made mortgage payments to stay current. But
SOA kept demanding excess charges and court fees well above the loan balance, based on a delinquency
they concocted. More frustratingly, Nye could never get a clear estimate of the amount owed. He received
20 different loan histories throughout the ordeal, none of which matched. Sometimes monthly payments
were missing; other transactions were redacted or even manually whited out and typed over.

If what Nye saw in his case occurred across the U.S. housing market, it would be the greatest consumer
fraud scandal in history.

In 1991, SOA started charging the Pews monthly property-inspection fees without telling them, taking the
money from the mortgage payments. This generated additional late fees because the payment would come
up short, though the deductions were unknown to the Pews until after the fact, and even then concealed as
miscellaneous advances. Nyes banker friends called the deliberate strategy fee pyramiding, layering
obscure overcharges to siphon as much extra cash as possible from every loan. Any attempts to fix these
errors would only meet with stall tactics.

SOA probably didnt think anyone would read the payoff statements; surely none of their homeowners
would have the resources or the will to fight them over it. And mostly they were right. But Nye had a sense
of principle, a buildup of personal wealth, and a temper. You can fuck with me, he told me later. But
fuck with my family, my friends, or my dog, and you have an enemy for life.
In September 1993, Savings of America claimed to have sold the loan on Lavelle and his parents Dallas
house to EMC, a subsidiary of the investment bank Bear Stearns. (Interestingly, all of these entitiesSOA,
their purchaser Washington Mutual, EMC, and Bear Stearnswould after the financial crisis fall into the
hands of JPMorgan Chase.) EMC rapidly filed for foreclosure, demanding nearly $1 million in excess fees,
court costs, and late payments. Nye and his parents, who never missed a mortgage payment, were on the
brink of losing their home. They countersued in Dallas District Court to stop the foreclosure, which in
Texas did not have to go through a judicial process.

It appeared that EMC operated as, to use Nyes phrase, a mortgage toxic waste dump, taking over what
the industry called scratch-and-dent loans in default and moving to foreclose, regardless of the
homeowners ability to cure past-due amounts. Nye considered it a form of extortion. He demanded that
EMC fix SOAs repeated misapplications of payments, fee pyramiding, and other fraudulent behavior, but
EMC representatives openly threatened to ruin Nyes business credit and his familys credit if they werent
paid the full amount, arguing that they had no obligation to correct previous errors. EMC submitted loan
histories to Dallas District Court that were pastiches of past SOA records, similarly flawed and incomplete,
while swearing under penalty of perjury to their veracity.

And then there was the sale of the loan itself. EMC hyped the purchase from SOA, involving more than
8,000 loans with a total value of more than $2 billion, one of the largest loan purchases in history to that
point. But when Nye pressed EMC to fix the pattern of fraudulent charges on his account, EMC asserted
that the master transaction records were destroyed. Nye asked EMC for the promissory note and all the
assignments and transfer documents on the loan, but EMC never provided them either, claiming several of
them were also destroyed.

During his investigation, Nye learned that Bear Stearns, parent company of EMC, was an investment
adviser to SOA. EMC created a shell corporation called California Loan Partners as a pass-through. SOA
sold the 8,000 loans to California Loan Partners, and on the same day, California Loan Partners sold them
to EMC. By structuring the deal this way, SOA could hide losses in the shell corporation, so they wouldnt
have to take immediate write-downs. This would have led to technical insolvency and a takeover by the
Resolution Trust Corporation, the entity President George H. W. Bush set up to unwind failing savings and
loans. So the entire transaction was an elaborate game to get bad assets off SOAs books and ward off a
government takeover.

EMC concealed the notes and mortgages to keep the scheme hidden, but that left them lacking proof of
standing to foreclose. In addition, once EMC got hold of the loans, they included them in mortgage-backed
security sales to investors. None of those transfers was ever recorded at the Collin County, Texas, land
records office. Nye wondered if EMC even had custody of the mortgages, or if they were assigned willy-
nilly to different investor pools without a proper chain of title. Nye also believed EMC officials gave false
testimony under oath, particularly in sworn affidavits attesting to the loan histories. In a court filing, Nye
questioned whether EMC was the actual owner of the note or mortgage upon which they attempt to
foreclose in their own name, rather than the name of the trustee or investor in the note or mortgage.

In the 1990s, the judicial system was not ready to hear about financial institutions creating false documents
and lying to courts. After several years, the judge hearing the case unexpectedly recused himself, with a
new judge brought in from retirement. The bank piled on frivolous challenges, even questioning Nyes
adoption by his stepfather at one point. The familys own lawyers told them not to bother with the case,
urging them to take an inadequate settlement; Nye suspected they were bought off. Ultimately the new
judge ruled for EMC, and on January 4, 2000, they foreclosed on the Pew family property.

But the house in Dallas had ceased to be the point of the struggle.
Nye could tell hed stumbled into something big; why else would a collection of financial institutions spend
millions in legal fees to repossess a house worth, at best, $160,000? Only to conceal the fraud lurking
underneath, and to inflict enough emotional and financial distress to get away with it. If what Nye saw in
his case occurred across the U.S. housing market, it would be the greatest consumer fraud scandal in
history, affecting people far more financially vulnerable than his family.

Nye used the extensive discovery period to acquire and analyze tax records, prospectuses, SEC filings,
internal audits, insurance documents, and more. He flew around, at his own expense, to courthouses in
Florida, Georgia, California, and Texas, reading foreclosure case files line by line, making notes and even
scanning documents into an early version of a Mac laptop. He found other foreclosed homeowners with
similar horror stories. He deposed employees of Bear Stearns, EMC, and SOA and interviewed dozens of
other mortgage bankers, industry experts, forensic specialists, and even local, state, and federal banking
regulators. And once people on the inside learned of his investigation, they anonymously fed him bits and
pieces of information, too. Nye Lavalle was a full-time sports agent and consultant but a part-time
mortgage sleuth.
One day in Florida Nye met a woman in a bar, a certified cash manager with Bank of America. She told
him that the board of directors set a profit number for the bank, and employees had to hit the target in any
way possible. With the rise of computerization, they could do that simply by moving numbers on a
spreadsheet. If a bank robber steals a million dollars, they go to jail. But if banks steal that sum from their
customers every day in five- and ten-dollar increments, auditors and regulators pay no attention.

Nye connected this to mortgage servicers financial incentives to drive borrowers into default and
maximize fees. Servicers got paid first in a foreclosure sale, even before the owners of the loan. So there
was no reason for them to help anyone in need or hire enough staff to handle requests for assistance. They
devised ways to digitally extract profits through every stage of the mortgage process, from escrow accounts
to homeowners insurance to applications of monthly payments. When mortgages transferred to new
servicers, the computer systems wouldnt reamortize the loan or reconcile the numbers, always benefiting
the servicer over the borrower. At one point Nye counted 44 different schemes to ring up additional fees,
even if borrowers paid on time. These werent back-office mistakes, but deliberate financial engineering.
Nye found a policy manual from EMC Mortgage that referred to its customers as smucks, and if
anything, that overstated the level of respect. Since smucks couldnt choose their servicers, they had to live
with the consequences.

Furthermore, as Nye would later tell The New York Times, nothing and I mean nothingthat a bank,
lender, loan servicer or their lawyer says or puts on paper can be trusted and accepted as true. No transfers
of mortgages, which started to multiply with the rise of securitization in the late 1990s, were actually true
sales. The notes and mortgages in securitizations never made it to the trusts, and mocked-up documents
submitted to county recording offices, bankruptcy trustees, and courts in foreclosure cases constituted an
elaborate game to conceal that fact.

Nye also identified how banks would offer for sale interests in mortgages that they did not own. Banks
would double-pledge mortgages into a loan pool and also as collateral with the Federal Reserve to obtain
additional borrowing. If the Fed ever called in the collateral, they would find that the bank who offered it to
them already sold off the loan. It was as if a baker sold you a cupcake and then sold the same cupcake to
the person in line behind you, letting you two fight it out over who gets to eat it.

Instead of documenting chain of title on each mortgage transfer and keeping assignments and notes in the
individual loan file, investment banks made copies of the original documents, and when they needed to,
they had foreclosure mills fill in the blanks with the necessary names and signatures. They couldnt really
do it any other way: If the rules of evidence for all other trials also held in foreclosure cases, the cost of
litigation would be enormous. You would need original promissory notes and assignments from every link
in the securitization chain, along with certified testimony from each document custodian. But nobody
preserved the records. Nobody tracked or verified evidence. One industry hand told Nye it was like taking a
criminal suspects lab specimen from the evidence room and letting someone else pee in the bottle. From a
legal point of view, the chain of custody of hundreds of thousands if not millions of loans was fatally
corrupted. And Nyes family trust had numerous investments in mortgage-backed securities through mutual
fund holdings. He was helping fund this mess.

The Great Foreclosure Machine was sloppy; you could uncover its traces. And Nye wasnt just willing to
look. He wanted to expose it to the world.

When you combine the spoliation of the data with servicers driving borrowers into default, anyone with a
loan, current or not, could find themselves wrongly evicted with false documents. But the Great
Foreclosure Machine was sloppy; you could uncover its traces. And Nye wasnt just willing to look. He
wanted to expose it to the world.

As someone frequently quoted in the press, Nye knew how to get media attention. So in 2000-2001, he
presented his findings under the names of Pew Mortgage Investigations and Americans Against Mortgage
Abuse, two nonprofit organizations that consisted mainly of Nye Lavalle, in long reports with provocative
titles. Predatory Grizzly Bear Attacks Innocent, Elderly, Poor, Minorities, Disabled and Disadvantaged!
excruciatingly detailed the schemes of Savings of America, EMC, and Bear Stearns that led to foreclosure
on the family home in Dallas. The next report, 21st Century Loan Sharks, took as its modest goal to
defend and protect Americans and the American dream of homeownership from unlawful, fraudulent,
criminal, unethical and illegal acts. In that report, Nye described the modern financial industry as a white-
collar mafia, using software and lawyers instead of guns and knives. Well-known banks and mortgage
companies, Nye wrote, are providing perjured testimony, false affidavits and frivolous pleadings in cases
involving mortgage foreclosure. Nye described a litany of false affidavits entered into courts by Florida
foreclosure law firms, where they claimed control of documents the trusts never received, claimed
ownership over notes when the entity merely serviced them, or claimed to support knowledge of facts not
known by the affiant.

This was a novel finding: The signatories on foreclosure documents had no understanding of the evidence
they claimed to authenticate. Nye came to this realization while going through affidavits in the public
records. The same names kept coming up over and over again, at a pace that suggested little or no
examination of the loan files. Plus they signed multiple affidavits swearing to be vice presidents of different
banks in different parts of the country. They were often the witness in one document and the vice president
in another. Finally, the signatures were inconsistent, with initials on one affidavit and full names on
another. Signatures sometimes looked so different from one another, it seemed impossible for them to
spring from the same hand.

Nye reckoned these were entry-level employees signing as bank officersthe lowest-paid vice presidents
in historywith a corporate title rented by a foreclosure mill or document processor. He suspected that
they lacked the personal knowledge of the facts of the case file, as required by law. Nye later published an
entire report in 2008 about one of these document executors, Scott Anderson, who worked for Ocwen, a
specialized nonbank servicer that dealt with distressed loans. Nye demonstrated that Anderson adopted the
position of vice president for dozens of different banks and lenders, signing with initials or squiggle
marks that looked different across multiple documents, possibly signed by other employees on his behalf.
While Nye was more exercised by double-pledging notes and concealing rip-offs inside servicer computing
platforms, he included these dodgy signing practices in his reports as a way to reach nonexperts with
something they could easily understand. High-priced attorneys can explain away complicated securities
maneuvers, but what about the physical documents that govern real estate transactions?

Nye intended to get these reports in front of anyone who could stop the abuse, from homeowners who
could challenge their foreclosures to the highest levels of government. The effects of institutionalized
fraud, Nye warned, would lead to drastic devaluations of securities derived from mortgages, widespread
failures of major banks and a mass sell-off in the stock market, not to mention millions of foreclosures, job
losses, vacant homes, and emotional distress. He predicted the financial crisis and Great Recession eight
years in advance.

For years, Nye was under a gag order imposed by the judge in his foreclosure case. When it was lifted in
2000, he sent his reports to top executives at practically every major financial institution: Banc One,
Countrywide, Merrill Lynch, Washington Mutual. Nye not only contacted Bear Stearns but created several
websites with names like EMCMortgageFrauds.com, BearStearnsCriminals.com, and
BearStearnsShareholders.com. On these sites he listed numerous criticisms against Bear Stearns and EMC.
Bear Stearns sued to get the sites taken down because they created customer confusion. A judge forced the
closure of some, while allowing those whose addresses were unmistakably critical to remain up.

In 2000, Nye helped sponsor a conference of the National Consumer Law Center in Broomfield, Colorado.
With his Italian suit standing out among the collared shirts and jeans of 500 legal aid attorneys and housing
counselors, Nye released his findings. Youre wrong if you call these errors, he told the assembly. This
is intentional and premeditated. Servicers want their customers in default, its designed to increase
revenues. Almost all of the lawyers thought he was nuts. Maybe they resented being lectured about their
profession by a non-lawyer; maybe they just didnt like this guy with the fancy suit and brusque self-
confidence. Why is he wasting our time like this? was the general reaction. Were here to learn the
law!

The same year, Nye got to spend 15 minutes with Arthur Levitt, chairman of the Securities and Exchange
Commission at the end of the Clinton administration. He was in South Florida for a speech and Nye
somehow secured a meeting. Levitt listened intently and agreed with Nye on virtually every point. But
when Nye finished, Levitt leaned back and said, I have as many lawyers at the entire SEC as one major
law firm representing the banks. Levitt described a ten-year lag between identifying a financial fraud
scheme and its ultimate exposure to the nation. It wont come out for ten years, and the banks know it. By
then theyre already on to the next scam, Levitt sighed.

Undaunted and completely obsessed, Nye kept making his case. He published rants and critiques of the
mortgage industry on consumer websites like Ripoff Report and on a primitive blog documenting these
issues, Mortgage Servicing Fraud (msfraud.org), run by another foreclosure victim-turned-evangelist
named Jack Wright. Nye infiltrated the corporate message board for MERS, the private database for
mortgage transfers, accusing them of fraudulent activity. The companys CEO, R.K. Arnold, personally
responded in the comments, writing, Theres nothing sinister about who we are and what we do.

Nyes masterstroke was to purchase a piece of the companies he wanted to confront. He bought single
shares of stock in several banks, mortgage servicing companies, and even the quasi-governmental entities
Fannie Mae and Freddie Mac. Then he attended shareholder meetings and listed his grievances about
pervasive mortgage misconduct and threats to the financial system. Nye studied every subsection of
corporate shareholder rules, strategizing how to make himself heard.

In 2001 Nye and his parents flew to Seattle for Washington Mutuals annual meeting. Company bylaws
stipulated that all shareholders had the right to inspect accounting books and shareholder lists 14 days in
advance. Washington Mutual didnt really make that information available. Nye found the woman who
handled investor relations and asked to see the books. Ive been here 16 years and nobody has ever made
this request, she said.

It wont come out for ten years, and the banks know it. By then
theyre already on to the next scam.

Well, guess whattodays your lucky day, Nye replied.

But we just dont have this information!

Nye smiled. Youd better get it, because if not, that little party youre planning tomorrow wont go
forward. Ill go to the Superior Court of King County and shut down your shareholder meeting!

The woman turned white and left the room, returning a couple of hours later with William Lynch,
Washington Mutuals corporate secretary, whom she pulled out of a board meeting. Nye handed Lynch one
of his reports and reiterated his desire to see the shareholder lists and the books. Lynch pulled out his own
file about the Pew familys long legal battle with Washington Mutuals predecessor, Savings of America.
Youre just crying sour grapes because we foreclosed on you, Lynch said, smirking.

The smugness set Nye off. You can wipe that fucking grin off your face before I knock it off, he said,
banging the table in the conference room.

The startled head of investor relations rose. How dare you speak to the corporate secretary that way! He
took time out of his day to address your concerns!
The reason hes here, Nye replied, shooting her a look, is because he knows I can shut down your
meeting in a second. So youre going to listen to everything I have to say and take me seriously. This isnt a
fucking joke.

Nyes parents thought security would haul their son out of the room. But William Lynch stayed there until
8 p.m. going over Nyes reports. And the next day Nye met for hours with the companys head of mortgage
servicing while the annual meeting went forward across the street. But while Nye forced Washington
Mutual to be respectful, nothing really changed.

In fact, while major banks, accounting firms, and mortgage servicers accepted Nyes comments and vowed
to address them, only one company, the mortgage giant Fannie Mae, took it a step further. Fannie did
business with enough lenders, servicers, and law firms that changes to their practices would have ripple
effects throughout the industry. Nye corresponded with several Fannie Mae executives, including CEO
Franklin Raines. Eventually Fannie Mae hired an outside law firm, Baker Hostetler, to verify Nyes claims.
Baker Hostetler conducted 17 separate interviews with Nye over a six-month period. The deal for his
participation was that Nye would get to review the final report and make comments, but when the time
came, Baker Hostetler asserted attorney-client privilege and shielded it. Nye was blocked from reading a
study based on his own work.

Years later, in 2012, The New York Timess Gretchen Morgenson published the 147-page report, which was
authored in May 2006, at the housing bubbles peak. With the saccharine title Report to Fannie Mae
Regarding Shareholder Complaints by Mr. Nye Lavalle, Baker Hostetler corroborated most of Nyes
allegations. The author, Mark Cymrot, distanced himself by noting, Mr. Lavalle is partial to extreme
analogies that undermine his credibility. But he agreed that Fannie Maes foreclosure attorneys in Florida
routinely filed false statements and affidavits, that MERS filed sham pleadings in cases across seven
states, and that Lavalle has identified an issue that Fannie Mae needs to address promptly.

But the report added one critical caveat. Mr. Lavalles assertion that Fannie Mae faces tens of billions of
dollars of unenforceable mortgages and damages from class action lawsuits is overstated in our view,
Cymrot explained, because borrowers were unlikely to robustly defend themselves from foreclosure. Most
homeowners didnt have the resources. Plus Fannie Mae was insulated, one step removed from the
attorneys who filed the false documents. Reaching Fannie would require multiple lawsuits, and borrowers
would simply run out of money.

There was an eerie parallel to the infamous Ford Pinto memo. According to a 1977 expos in Mother Jones
magazine, Ford Motor Company discovered a design flaw in the fuel tank of its Pinto model that made it
susceptible to explosion in a rear-end collision. But the company refused to fix it, because a cost-benefit
analysis determined it would be cheaper to pay off individual lawsuits than to redesign assembly lines and
repair the cars sold. They deliberately kept the public at risk rather than spend the money.

Even Nyes friends would tease him, calling him Chicken Little, asking when the sky would fall. They
stopped laughing when it did.

The Baker Hostetler report for Fannie Mae wasnt as explicit, but it made the same point: It would cost
more to unwind the many problems with foreclosures than to keep everything in place and deal with
borrower lawsuits on a case-by-case basis. As a result, Fannie Mae took no action on Nye Lavalles claims.
They certainly didnt make public the documented evidence of fraud.

But Nye was hooked on exposing banking industry fraud, and years of setbacks wouldnt stop him. In his
career, he had always peered to the edge of the horizon and brought back the future. Now he saw tsunami
waves on that other side, and he felt obligated to warn people. Nye started serving as a consultant and
expert witness for some foreclosure defense lawyers who embraced his theories. Through those cases and
additional reports, Nye believed, he could educate lawyers, judges, and the general public. He left a trail a
mile wide, so that anyone could see what he called the fraud of our lifetime. But it was hard to get people
to listen; even Nyes friends would tease him, calling him Chicken Little, asking when the sky would fall.
They stopped laughing when it did.

David Dayen is the author of Chain of Title: How Three Ordinary Americans Uncovered Wall Streets
Great Foreclosure Fraud.

Copyright 2017 New Republic. All rights reserved.

http://thjf.org/2016/05/01/floridas-4th-dca-reverses-many-foreclosure-judgments/

Floridas 4th DCA


Reverses Many
Foreclosure
Judgments
May 1, 2016
Oops Our Bad The Banks Didnt Have
Standing to Foreclose
In the first four months of 2016, Floridas 4th District Court of
Appeals reversed many foreclosure judgments, primarily on
standing grounds. In these appellate opinions, the appellate
court repeatedly held that the banks failed to prove that they had
standing to foreclose when they failed to prove that they had
possession of the indorsed original note at the time the complaint
was filed. These were all cases where the foreclosure was
sought by a bank that was not the original lender. In the vast
majority of foreclosure cases decided after 2008, the lender and
the plaintiff/forecloser were different entities because the lender
sold the loan. In most cases, the loans had been repeatedly sold.
The threshold question that frequently arose in foreclosure cases
was whether the entity seeking to foreclose owned the loan at
the time the foreclosure was commenced. In legal terms, the
entity seeking to foreclose had to establish that it had standing to
foreclose.
The easiest way for an entity seeking to foreclose to establish
that it owned the note and had the right to foreclose was to
attach the original, properly indorsed note to the complaint. In
tens of thousands of foreclosure cases filed from 2008 through
2012, the note was not attached. The entities seeking to
foreclose not only did not attach the notes, but they included
allegations that the original notes were lost. Later in the litigation,
in the majority of these cases, the party seeking to foreclose
would claim to have found the original, properly indorsed note. In
such circumstances, in tens of thousands of cases where the
homeowners lost their homes, the courts decided that the
subsequent found note was sufficient to establish standing.
Now, when the foreclosure crisis has waned, the courts are
agreeing with the homeowners that the foreclosing banks never
established their right to foreclose. For tens of thousands of
homeowners, this acknowledgment is a very bitter pill to swallow.
In simplest terms, a foreclosure case would be filed in June, with
no note and an allegation that the original note was lost. In
October, the bank would file what it claimed was the original
indorsed note with the court, with no explanation of where the
note had been found or where the note was in June when the
case was filed. Courts essentially found that production of the
note in October was sufficient proof in and of itself that the
foreclosing bank owned the note back in June. The vast majority
of foreclosure courts followed this absurd logic.
In 2014, some appellate courts finally began rejecting this proof
of standing by the late filing of the indorsed note. Floridas 4th
District Court of Appeals has been especially aggressive about
this issue, repeatedly reversing lower court rulings. Most of these
cases involve foreclosure complaints that were filed with a lost
note count. The lower courts found there was sufficient evidence
for standing when the bank came in later in the litigation with an
indorsed note, even though the indorsement was not dated. In
most of the opinions reversing the lower courts, the appellate
court relied on McClean v. JPMorgan Chase Bank Natl Assn,
79 So. 3d 170, 173 (Fla. 4th DCA 2012) (It is well settled that a
plaintiff in a foreclosure case must demonstrate that it had
standing at the time the complaint was filed.). The court also
usually relied on Calvo v. U.S. Bank Natl Assn, 181 So. 3d 562,
564 (Fla. 4th DCA 2015) (An undated indorsement introduced
after the complaint was filed, is insufficient, without further
evidence, to prove standing at the time the complaint was filed.)
Additionally, the court regularly relied on Balch v. LaSalle Bank,
N.A., 171 So. 3d 207, 209 (FLA. 4th DCA 2015), finding the
plaintiff failed to prove standing where there was no evidence
indicating when the indorsement was placed onto the note.
These reversals resulted in remands with instructions to enter
involuntary dismissals of the actions. Each of these opinions is
available on the website of the 4th DCA.
Several of the cases dealt with the sufficiency of the evidence
presented by the banks witnesses. These witnesses are usually
employees of the mortgage servicing companies that are
successors to companies that previously serviced the loans.
These employees are often unfamiliar with the practices,
procedures and record-keeping of the previous company and are
not able to testify from personal knowledge about critical facts,
especially, whether the loan file contained the original indorsed
note when the file reached the servicer. If the witness testifies
that the file contained the original indorsed note, the question
becomes why such note was not attached to the complaint at the
time of the original filing.
The 4th DCA also reiterated its position that a Pooling and
Servicing Agreement (PSA) with a loan schedule showing the
loan in dispute does not establish standing. In these cases, the
banks attempted to use the PSA to prove standing. None of the
banks or servicers produced the document custodians transfer
and delivery receipt certifying that delivery of the indorsed notes
on the loan schedule was actually made at a certain place and
on a specific date.

Opinions Released April 6, 2016:


Edgar Braga v. Fannie Mae, 4D14-1809
CitiMortgage filed a foreclosure action against the
homeowners/borrowers, and attached a copy of the promissory
note, which included a stamp indicating an allonge was attached,
but no allonge was actually included with the complaint. An
amended complaint was later filed, substituting Fannie Mae as
the plaintiff, and including an undated copy of an allonge. At trial,
Fannie Maes sole witness testified that he did not know when
the allonge was created, nor was he aware of when CitiMortgage
became the notes holder.
Ice Appellant, Royal Palm Beach, for Appellant.

Susan Elman and Bruce Elman v. U.S. Bank, 4D142520


The borrowers executed a note and mortgage with Pinnacle
Financial Corporation. The bank filed a foreclosure complaint
with a count to reestablish a lost note, then filed an amended
complaint, dropping the reestablishment count and attaching a
copy of the note containing an undated special indorsement from
Pinnacle to Impac Funding Corporation on an allonge. The loan
number on the note was different from the loan number on the
allonge. The bank then filed a third amended complaint which
alleged that the bank was the holder of the Mortgage Note and
Mortgage. The banks witness could not state the date the
allonge was affixed to the note. The banks witness testified that
the payment log indicated that the loan had been sold to EMC
and that Wells Fargo Bank was the servicer for the loan, but the
witness could not explain EMCs relation to the ownership trail.
The court found that the bank failed to prove the allonge was
specially indorsed in the banks favor and affixed to the original
note prior to filing its complaint and therefore, the bank failed to
prove standing.
Korte & Wortman, P.A., West Palm Beach, for Appellants.

Michael Maslak v. Wells Fargo Bank, 4D14-4672, 4D14-4673


and 4D14-4707
The homeowners/borrowers executed three promissory notes
and mortgages to Washington Mutual Bank. JPMorgan Chase
was the servicer of the loans. WaMu endorsed the notes to Wells
Fargo, as Trustee for WaMu Mortgage Certificates, Series 2005-
PR4. Wells Fargo foreclosed. The cases were consolidated for
trial and final judgments of foreclosure were entered in favor of
Wells Fargo. On appeal, the borrower argued that the trial court
erred in admitting business records because Wells Fargos
witness was not qualified to lay a foundation for their admission.
The appellate court agreed, stating: What is missing here is
testimony about Chases procedures for inputting payment
information into their systems and how the payment history was
produced. Without the payment history, Wells Fargo failed to
prove the amounts due and owing. The case was reversed and
remanded for further proceedings to establish the amounts due
and owing.
Wright, Ponsoldt & Lozeau, LLC for Appellants.

Opinion Released March 30, 2016:


Laveria Knowles v. Bank of New York Mellon, et al., 4D-15-
630
Reversal of the trial courts judgment of foreclosure and remand
for an order of dismissal was appropriate because two important
cases were decided after the trial. The first was Jelic v. LaSalle
Bank, Natl Assn, 160 So. 3d 127, 130 (Fla. 4th DCA 2015)
which reversed a final judgment of foreclosure, in part because
there was no evidence that the party transferring the note into
the trust had any intent to transfer an interest to the trustee. The
second case was Balch v. LaSalle Bank, N.A., 171 So. 3d 207,
209 (Fla. 4th DCA 2015) reversing a final judgment of
foreclosure, in part because evidence that the note was
transferred into the trust prior to the foreclosure action is
insufficient by itself to confer standing because there was no
evidence that the indorsee had the intent to transfer any interest
to the trustee.
Ice Appellate, Royal Palm Beach, for Appellant.

Opinions released March 23, 2016:


Ottoniel Cruz and Luz Cruz v. JPMorgan Chase Bank, et al.
The transfer of mortgages by the FDIC, as receiver of WaMu, at
the collapse of WaMu, to JPMorgan Chase was the main issue
before the court. The loan and mortgage were made by WaMu,
then transferred to JPMorgan Chase. Before trial, JPMorgan
Chase transferred its interests in the mortgage to PennyMac
Corporation. When the foreclosure action was filed, JPMorgan
Chase included a lost note count. During the course of the
litigation, JPMorgan Chase dropped the lost note count.
JPMorgan Chase attempted to rely on the Purchase and
Assumption Agreement (PAA) between JPMorgan Chase and
the FDIC, but the trial court found this insufficient to prove
standing:
Here, there was no proof that JPMorgan had possession of the
note at the time it filed the complaint. JPMorgan acknowledged
that the note was lost and not in its custody or control. Because
the original note was never filed with the court and there was no
other evidence of possession, no competent substantial
evidence exists of possession And, similar to Snyder, there
exists no competent substantial evidence of ownership. The PAA
has caveats where JPMorgan could refuse to acquire assets and
there is no record evidence that the FDIC transferred the note to
JPMorgan before the complaint was filed. Id. We reverse the
final judgment of foreclosure based on JPMorgans failure to
prove standing.
Bravo, P.A. and Corona Law Firm for Appellants.

Jorge Sosa and Jeanette Sosa v. Bank of New York Mellon,


et al.
Bank of New York Mellon (BNYM) filed a mortgage foreclosure
complaint against the homeowners/borrowers alleging one count
of foreclosure and one count for reestablishment of a lost note.
Although BNYM was not the original lender, BNYM alleged that it
was the owner and holder of the Note and Mortgage and, in
support, attached a copy of the Note containing a blank
indorsement. At trial, BNYM announced it had located the
original Note and intended to submit it as evidence. BNYM called
a loan verification analyst for its purported servicer, Wells Fargo
Bank, N.A., as its only witness. Through the analyst, the BNYM
introduced the original Note which, unlike the copy of the Note
attached to its complaint, was specially indorsed to JP Morgan
Bank as Trustee (JP Morgan). When asked about her
knowledge of how BNYM acquired the Note from JP Morgan, the
witness testified that she learned about the transfer through
general research she did on the internet and that the internet
will illustrate the transfer occurred in 2006. BNYM did not
present any additional evidence establishing that it acquired the
Note prior to filing the foreclosure action.
At the conclusion of the witness testimony, BNYM rested. At that
point, the homeowners/borrowers moved for an involuntary
dismissal, arguing that the BNYM failed to establish it had
standing. The homeowners/borrowers argued that the Note was
indorsed to JP Morgan and there was no evidence establishing a
relationship between JP Morgan and BNYM. BNYM countered
that it identified itself as the successor in interest to JP Morgan in
the style of the complaint. The court entered judgment in favor of
BNYM.
The appellate court found the testimony of the BNYM witness to
be insufficient:
Here, the Bank claims that it presented through its witnesss
testimony substantial, competent evidence that the Bank was the
successor trustee to JP Morgan and, thus, had standing to sue
under the Note. The Banks position is patently overstated. The
witness did not work for the Bank or JP Morgan and was unable
to describe the relationship between the two. Moreover, the
witnesss entire body of knowledge on the subject was limited to
what the witness learned from a search on the internet. Such
evidence is not competent to establish the Banks standing as
nonholder in possession with the rights of a holder.
The trial courts decision was reversed and the case was
remanded for entry of an order of involuntary dismissal of the
action.
Corona Law firm for Appellants.

Opinions Released March 9, 2016:


Sharlene Hampton Lewis v. U.S. Bank, 4D14-815
U.S. Bank filed a foreclosure action and included a count
seeking to reestablish a lost note. No copy of the original note
was attached to the complaint. When the case went to trial, the
bank produced a note and an allonge. The endorsements on the
allonge to the note were undated and the banks witness could
not testify when the endorsements were placed on the allonge.
The appellate court found that the banks reliance on a pooling
and servicing agreement was insufficient to establish the banks
standing to bring suit at the time the suit was filed, citing Jarvis v.
Deutsche Bank Natl Trust Co., 169 So. 3d 194, 196 (Fla. 4th
DCA 2015); Balch v. Lasalle Bank N.A., 171 So. 3d 207, 209
(Fla. 4th DCA 2015); and Perez v. Deutsche Bank Natl Trust
Co., 174 So. 3d 489, 491 (Fla. 4th DCA 2015).
In Jarvis v. Deutsche Bank Natl Trust Co., 169 So. 3d 194, 196
(Fla. 4th DCA 2015), decided June 15, 2015, the court rejected
Deutsche Banks argument that a Pooling and Servicing
Agreement from the trust that stated when the loans were to
have been transferred to the trust and testimony from a bank
representative that the trust had physical possession of the note
were insufficient to establish standing where the original note
contained no blank or special indorsements and no assignment
of mortgage was offered into evidence. The Jarvis court relied on
Kiefert v. Nationstar Mortg., LLC, 153 So. 3d 351, 353 (Fla. 1st
DCA 2014). In Kiefert, the mortgage servicers witness was only
able to testify that its predecessor was in possession of the note
when the complaint was filed, Not that the note had been
endorsed at the time the complaint was filed.
Jacobs Keeley PLLC for Appellants.
In Jarvis, the appellants were represent by The Mack Firm,
Englewood.

Opinions Released February 24, 2016:


Abdel Darwiche and Batoul Darwiche v. Bank of New York
Mellon, et al., 4D13-4395
In the Darwiche case, the copy of the note attached to the
complaint stated that the original lender was Americas
Wholesale Lender. The note did not contain any indorsements.
In its complaint, filed July 28, 2009, Bank of New York Mellon
(BNYM) alleged that the mortgage was transferred to it by
virtue of an assignment to be recorded and that it owns and
holds the Note and Mortgage.
After Appellants filed a motion to dismiss challenging the banks
standing, BNYM filed a copy of the note reflecting an undated
blank indorsement signed by Countrywide Home Loans, Inc.,
doing business under the fictitious name of Americas Wholesale
Lender, the original lender. The bank also maintained in its
response to Appellants motion that it was in possession of the
original note and mortgage and that it came into ownership of the
same through a valid assignment of mortgage.
Thereafter, BNYM filed a motion for summary judgment of
foreclosure. In support of its motion, BNYM filed an affidavit
attesting that it has possession of the promissory note, and that
it is the assignee of the security instrument for the referenced
loan. BNYM also filed the original note and mortgage, along with
a copy of the recorded assignment of mortgage. The original
note contained the undated blank indorsement by the original
lender. The assignment of mortgage, notarized August 5, 2009
(after suit was filed), reflected a transfer of the note and
mortgage from MERS to BNYM, effective June 22, 2009 (before
suit was filed). After the hearing, the trial court entered a final
summary judgment in favor of the bank.
Reversing the trial court, the appellate court noted that the
affidavits in support of the BNYMs motion for summary judgment
did not specifically state when the bank came into possession of
the note, nor did the bank otherwise indicate that it owned or
possessed the note at the time suit was filed. Though the bank
filed the original note and mortgage prior to the summary
judgment hearing, its bare assertion in its supporting affidavit
that it has possession of the promissory note fails to clarify at
what point the bank obtained possession of the blank-indorsed
note, and is therefore insufficient evidence of whether the bank
possessed the note from the inception of the suit. See Cromarty
v. Wells Fargo Bank, NA, 110 So. 3d 988, 989 (Fla. 4th DCA
2013) (While the note introduced had a blank [i]ndorsement and
was sufficient to prove ownership by appellee, who possessed
the note, nothing in the record shows that the note was acquired
prior to the filing of the complaint. The [i]ndorsement did not
contain a date, nor did the affidavit filed in support of the motion
for summary judgment contain any sworn statement that the note
was owned by the plaintiff on the date that the complaint was
filed.)
As to the assignment of mortgage, upon which the BNYM relied
to establish its standing, the appellate court agreed with the
homeowners/borrowers that genuine issues of material fact
remained as to whether the assignment of mortgage was
sufficient to establish BNYMs standing at the inception of the
suit, noting:
The complaint was filed on July 28, 2009. Although the
assignment transferring the note and mortgage to the bank
states an effective date of June 22, 2009, the assignment
appears to have been notarized and executed on August 5,
2009, which was clearly after the complaint was filed. We have
held that two inferences can be drawn from the effective date
language. Vidal v. Liquidation Props., Inc., 104 So. 3d 1274,
1277 (Fla. 4th DCA 2013). One inference is that ownership of the
note and mortgage was equitably transferred to the bank on
June 22, 2009 (prior to suit), but another inference is that the
parties to the transfer were attempting to backdate an event to
their benefit. Id. We have previously warned that [a]llowing
assignments to be retroactively effective would be inimical to the
requirements of pre-suit ownership for standing in foreclosure
cases. Id. at 1277 n.1. Because the language yields two
possible inferences, proof is needed as to the meaning of the
language, and a disputed fact exists. Id. at 1277.
Neustein Law Group for Appellants.

Frederic Monot v. U.S. Bank, et al., 4D14-2527


In Monot, the appellate court reversed the trial courts entry of a
final judgment of foreclosure, finding, The bank simply failed to
prove standing because it failed to prove that it possessed the
original note endorsed in its favor prior to filing the complaint.
U.S. Bank, NA filed a complaint against the
homeowners/borrowers on December 2, 2009. Count I sought
foreclosure of the mortgage and count II sought to reestablish a
lost note. U.S. Bank alleged that it held the mortgage by virtue of
an assignment. It also alleged that it owns and holds the note
and subject mortgage. And, it alleged that [t]he Plaintiff, its
Assignor, or its servicer, was in possession of the Note and was
entitled to enforce the Note when loss of possession occurred.
The bank attached a copy of the note and mortgage to the
complaint. The attached note was executed in favor of Chevy
Chase Bank and did not contain any indorsements. On
December 11, 2009, the bank filed a notice of filing original note
and mortgage. Unlike the copy of the note attached to the
complaint, this note contained an undated special indorsement
from Chevy Chase Bank to U.S. Bank, N.A. The appellate court
found that this late filing of the indorsed note was insufficient
relying on Tilus v. AS Michai LLC, 161 So. 3d 1284, 1286 (Fla.
4th DCA 2015) (citing Bristol v. Wells Fargo Bank, Natl Assn,
137 So. 3d 1130, 1132 (Fla. 4th DCA 2014)).
The appellate court also found that the banks witnesses did not
establish standing:
The banks witness testified that based on her records review,
the bank obtained physical possession of the note in June 2007.
While she later testified that the bank had the original endorsed
note in its possession at the time the complaint was filed, she
admitted that she did not know the specific date on which the
note was endorsed to the bank. And, she did not check the
collateral file for the original note and had no personal
knowledge of whether the original note was in the collateral file
when received by the servicer because she did not review its
contents. She also did not know why the endorsed note was not
attached to the complaint nor the specific date the note was
endorsed to the bank.
U.S. Bank also argued that the PSA showed it had been the
owner of the loan since June 1, 2007, because the mortgage
loan schedule showed the note was transferred into the PSA.
Relying on Jarvis v. Deutsche Bank Natl Trust Co., 169 So. 3d
194, 196 (Fla. 4th DCA 2015), the appellate court also rejected
this argument.
Arthur Morburger for Appellant.

Charles Nolan v. Mia Real Holdings, LLC, 4D15-666


Flagstar Bank filed a foreclosure action against the homeowner,
which it voluntarily dismissed. Flagstar assigned the note and
mortgage to DKR Mortgage, which then filed a second
foreclosure action against the homeowner, on the same note,
alleging the same breach. MIA Real Holdings substituted as the
party plaintiff in that action after it purchased the note from DKR
Mortgage. MIA voluntarily dismissed the second action.
Subsequently, MIA filed a third complaint on the same note,
alleging the same breach, which resulted in the final judgment on
appeal.
The appellate court reversed the final judgment of foreclosure
because the action was barred by the two dismissal rule of
Florida Rule of Civil Procedure 1.420(a)(1). In successive
actions, two different plaintiff/note holders sought to foreclose
based on the same breach. Each plaintiff filed a voluntary
dismissal of its lawsuit. The appellate court held that for the
purpose of rule 1.420(a)(1), the two noteholdersthe original
plaintiff and the subsequent assignee of the notewere the
same plaintiff under the rule, so that the second voluntary
dismissal triggered an adjudication on the merits.
Korte & Wortman, P.A., West Palm Beach, for Appellant.

Opinions Released February 17, 2016:


Lirris Smith Gallimore v. Bank of America, 4D13-3269
Bank of America filed a two-count complaint against the
homeowner. Count I sought mortgage foreclosure and Count II
sought enforcement of a lost note. The subject note and
mortgage were signed on January 19, 2007, and both list Encore
Credit Corp. (Encore) as the lender. The copy of the note
attached to the complaint did not contain any indorsements or
allonges. There were no allegations of transfer of the note in the
complaint.
Subsequently, the Bank moved to amend its complaint, dropping
the lost note count. Attached to a proposed amended complaint
was a copy of the original note, which included an undated blank
indorsement on the back of the last page of the note. The Bank
did not obtain a pretrial order granting leave to amend the
complaint.
The case proceeded to a non-jury trial in August 2013. Bank of
Americas sole witness testified that she worked for SPS, the
servicer for the Bank. On cross-examination, the witness
admitted that SPS became the servicer only two months before
trial. The witness gave little testimony about the indorsement on
the note. The only significant testimony regarding the
indorsement was that the witness saw the indorsement on a
copy of the note in SPSs system in June of 2013.
When Bank of America attempted to introduce the original note
at trial, the homeowner objected, arguing that the original note
was never produced prior to trial and that she was surprised by
the blank indorsement and was not aware that the lost note
count had been dropped. There was no order dropping the lost
note count or notice of voluntary dismissal of the lost note count.
Bank of America moved to amend the pleadings to conform to
the evidence, since it had the original note at trial. The trial court
granted the motion to drop, overruled the objections to the
admission of the original note into evidence, and subsequently
entered a judgment of foreclosure. The homeowner appealed.
On appeal, the court noted that since the indorsement was
undated, the indorsement did not facially establish that it was
placed on the note prior to the filing of the complaint.
Additionally, there was no testimony by Bank of Americas
witness as to when the indorsement was placed on the note, or
that the indorsement was on the note at the time suit was filed.
Instead, all the witness could say was that she saw the
indorsement on a copy of the note in SPSs system in June of
2013, over four years after the complaint was filed. Likewise, the
copy of the note that was attached to the complaint did not
exhibit an indorsement; thus, there was no circumstantial
evidence that the note was indorsed before suit was filed. There
was also no evidence that there was an assignment of the note
or mortgage. The appellate court concluded that Bank of
America presented no evidence at trial proving it had standing at
the time the complaint was filed.
Korte & Wortman, P.A., West Palm Beach, for Appellant.

Mark Barnett and Yvette Barnett v. U.S. Bank, et al., 4D13-


4179
Bank of America, as Successor by Merger to LaSalle Bank,
National Association, as Trustee for Washington Mutual
Mortgage Pass-Through Certificates, WMALT Series 2005-11,
filed a mortgage foreclosure complaint against the homeowners
on May 25, 2010. The complaint alleged that Bank of America is
the current owner of or has the right to enforce the Note and
Mortgage. See attached Exhibit C. The copy of the note
attached to the complaint identified First Savings Mortgage
Corporation as the lender. The note also contained an undated
special indorsement from First Savings Mortgage Corporation to
a third party, Residential Funding Corporation. Also attached to
the complaint was a copy of the mortgage. The mortgage, like
the note, identified First Savings Mortgage Corporation as the
lender and contained the following statement:
MERS is Mortgage Electronic Registration Systems, Inc. MERS
is a separate corporation that is acting solely as a nominee for
Lender and Lenders successors and assigns. MERS is the
mortgagee under this Security Instrument.
Attached as Exhibit C to the complaint was a copy of an
unrecorded assignment of mortgage dated April 8, 2010, from
MERS to Bank of America, the successor to LaSalle Bank, with
the same name designation in the complaint. The assignment
transferred both the mortgage and the note to Bank of America.
In their answer, Appellants challenged Bank of Americas
standing. Bank of America later filed the original note and
mortgage with the trial court. In February 2013, U.S. Bank was
substituted as party plaintiff upon a motion alleging the right to
enforce the loan had been transferred to it.
The matter proceeded to a non-jury trial. At trial, U.S. Bank
called one witness, a home loan research officer for JP Morgan
Chase Bank, N.A., the servicer of the loan at the time. The
banks witness gave confusing testimony about the ownership of
the loan. At no time did U.S. Bank present testimony as to
possession of the note at the time suit was filed. In response to
Appellants closing argument regarding lack of standing, the trial
court stated: I find that by virtue of possession of the original
Note that there was standing at the filing of the suit, of the
foreclosure action. Thereafter, final judgment was entered in
favor of U.S. Bank. The homeowners appealed.
The appellate court agreed with the homeowners argument that
U.S. Bank failed to prove that Bank of America had sufficient
standing to file suit. There was no evidence presented to prove
that Bank of America actually possessed the note at the time of
the filing of the complaint. While there was evidence of an
assignment transferring the note and mortgage from MERS, as
nominee for the original lender, to Bank of America, which
predates the complaint, U.S. Bank failed to present any evidence
to account for the undated special indorsement on the note from
First Savings to the third party. Likewise, U.S. Bank presented
no evidence showing whether the assignment of the note and
mortgage to Bank of America occurred before or after the
undated indorsement of the note to the third party.
The appellate court found that the assignment of mortgage could
be construed as circumstantial evidence that Bank of America
possessed the note at the time suit was filed, but that the
unexplained, undated indorsement to the third party was also
circumstantial evidence that Bank of America may not have
possessed the note at the time suit was filed. At trial, U.S. Bank
had the burden of proof by greater weight of the evidence. The
appellate court concluded that the trial court erred in ruling that,
by virtue of possession of the original note, there was standing at
the time suit was filed, reversed the final judgment and directed
the trial court to dismiss the proceeding.
Sackrin & Tolchinsky, Hallandale Beach, for Appellant.
Opinions Released February 10, 2016:
Darlene Angelini and Joseph Angelini v. HSBC Bank, et al.,
4D14-216
HSBC Bank originally brought a lost note count along with a
foreclosure count. The copy of the note attached to the complaint
showed a different bank as the lender and bore no
indorsements. The original note eventually introduced at trial
(apparently after being found) had a blank indorsement. The
Banks witness was unable to testify when the indorsement was
placed on the note. However, when asked to testify who owned
the note on the date the complaint was filed, he answered,
HSBC did. The trial court judge found these facts sufficient to
establish standing. The appellate court disagreed, finding:
The Banks testimony did not establish the relevant fact: that it
held the note at the time the complaint was filed. Although the
Bank clearly was the holder at the time it introduced the blank-
indorsed note at trial, [a] plaintiffs lack of standing at the
inception of the case is not a defect that may be cured by the
acquisition of standing after the case is filed and cannot be
established retroactively by acquiring standing to file a lawsuit
after the fact. LaFrance v. U.S. Bank Natl Assn, 141 So. 3d
754, 756 (Fla. 4th DCA 2014).
Patrick Giunta, P.A., Fort Lauderdale, for Appellant.

Opinions Released January 27, 2016:


Jean W. Chery v. Bank of America, 4D14-3446
This case involved a very common fact pattern. The trial court
entered a final foreclosure judgment, but the appellate court
reversed, finding that Bank of America, N.A. (BANA) failed to
prove standing. In common with many foreclosure appeals, the
issue of standing in this case focused on undated indorsements
on the note.
Countrywide Home Loans Servicing, L.P. (Countrywide HLS)
filed a two-count complaint against the homeowner, seeking a
mortgage foreclosure and enforcement of a lost note. Attached
to the complaint was a copy of a mortgage signed by the
homeowner, with Great Country Mortgage Bankers, Corp.
(Great Country) listed as the original lender. A copy of the note
was not attached to the complaint. The complaint alleged that
Countrywide HLS owns and holds the Note and Mortgage.
The trial court granted a motion by Countrywide HLS to
substitute BAC Home Loans Servicing (BAC), formerly known
as Countrywide HLS, as the plaintiff. In the motion for
substitution of plaintiff, Countrywide HLS explained that the basis
for the substitution was that [s]ubsequent to the commencement
of this action, Plaintiff filed a name change to [BAC] with the
State of Texas.
BAC filed a copy of the note, which contained four undated
indorsements:
1. from Great Country to Countrywide Bank, FSB;
2. from Countrywide FSB to Countrywide Home Loans, Inc.;
3. from Countrywide Home Loans, Inc. to Countrywide HLS.; and
4. from Countrywide HLS indorsed in the blank.
The trial court granted a second motion to substitute plaintiff, this
time filed by BAC, seeking to replace itself with BANA, since
BAC merged into BANA.
At trial, BANA called one witness, who testified that the note had
four indorsements. However, the witness was unable to testify as
to the date that any of the indorsements were placed on the
note. She did not testify as to the date the note was transferred
from the original lender to Countrywide Bank, FSB, in part
because the trial court interrupted the questioning on cross-
examination with the comment: She already said she doesnt
know the dates on the endorsement. Although a screenshot of
the business record information maintained by BANA was
admitted into evidence, from which the witness testified that a
subsidiary of Countrywide had possession of the note since May
29, 2007 (almost two years before suit was filed), the witness
was not asked, and did not testify, that the business records
showed the note was indorsed at the time suit was filed.
After denying the Homeowners motion for involuntary dismissal,
which included arguments as to standing, the trial court entered
a final judgment foreclosing the mortgage.
The appellate court reversed, finding that while there were the
four indorsements on the note, which could easily be followed
from the original lender to BANA, there was no evidence that the
note was indorsed in a manner to give the original plaintiff the
status of holder at the time suit was filed.
BANA argued that since the witness testified that Countrywide,
an entity subsequently acquired by BANA, had possession of the
note on May 29, 2007, and there was a blank indorsement on
the note when it was filed with the court, that proves the original
plaintiff and BANA had standing to seek foreclosure of the
mortgage. The appellate court disagreed, finding that such
evidence was sufficient to prove BANA had standing at the time
of trial, but the evidence was insufficient to prove the original
plaintiff, an entity subsequently acquired by BANA, had standing
at the time suit was filed.
James Jean-Francois, P.A., Hollywood, for Appellant.

Opinions Released January 20, 2016:


Alan Ha and Tram Le Ha v. BAC Home Loans Servicing, et
al., 4D13-4198
Mr. Ha executed a promissory note made payable to
Countrywide Home Loans, Inc. He and his wife executed a
mortgage agreement securing the loan. Subsequently, the
appellee, BAC Home Loans Servicing, L.P. f/k/a Countrywide
Home Loans Servicing (BAC), brought a foreclosure action
against Mr. and Mrs. Ha. BAC alleged it was the servicer for the
owner and acting upon the owners authority. The copy of the
note attached to the complaint was made payable to
Countrywide Home Loans, Inc. and did not contain an
endorsement.
At trial, BAC offered the original note, which contained an
undated blank endorsement. BACs witness, an employee of
Bank of America, did not know when the endorsement was
made.
On appeal, BAC argued that the original note established its
standing to foreclose. The appellate court agreed, stating:
Although BAC may have established its standing at the time of
trial by filing the original note endorsed in blank, it did not
establish its standing at inception of the suit. ..By now it should
be understood that a plaintiffs standing at inception of the suit is
not established by filing the note with an undated endorsement
after the complaint has been filed. See Matthews v. Fed. Natl
Mortg. Assn, 160 So. 3d 131, 133 (Fla. 4th DCA 2015) (holding
that standing at inception of the suit was not established where
the note attached to the complaint was not made payable to the
plaintiff and contained no endorsement, even though the original
note endorsed in blank was introduced at trial); Focht v. Wells
Fargo Bank, N.A., 124 So. 3d 308, 310 (Fla. 2d DCA 2013)
(finding that banks submission of original note endorsed in blank
did not establish standing at inception of suit where it was
submitted several months after bank filed the complaint);
McLean v. JP Morgan Chase Bank Natl Assn, 79 So. 3d 170,
173 (Fla. 4th DCA 2012) ([T]he plaintiffs lack of standing at the
inception of the case is not a defect that may be cured by the
acquisition of standing after the case is filed. Thus, a party is not
permitted to establish the right to maintain an action retroactively
by acquiring standing to file a lawsuit after the fact. (citation
omitted)). BAC does not point to any evidence establishing its
standing at the inception of the suit and the record does not
reflect any such evidence was introduced at trial.
The Ticktin Law Group, Deerfield Beach, for Appellant.

Yosvani Alfonso and Elbita Alfonso v. JPMorgan Chase


Bank, 4D13-4713
The original plaintiff filed a foreclosure complaint against the
homeowners/borrowers. The original plaintiff alleged it was the
current owner of or has the right to enforce the Note and
Mortgage. However, the original plaintiff attached to the
complaint a copy of the note containing an endorsement from the
original lender to the successor plaintiff. Despite that
endorsement, the original plaintiff did not allege in what capacity
it had the right to enforce the note and mortgage as the plaintiff
in the action.
The court later granted the original plaintiffs motion to substitute
the successor plaintiff in the action. The defendants answer
alleged as an affirmative defense that the original plaintiff lacked
standing to foreclose because, at the time the original plaintiff
filed the action, the note attached to the complaint indicated that
the successor plaintiff, and not the original plaintiff, was the
notes assignee.
At the trial, the successor plaintiff introduced the original note
into evidence. The successor plaintiff also called one of its
employees as its trial witness. The witness testified that: the
successor plaintiff acquired the note before the original plaintiff
filed suit; the successor plaintiff maintained possession of the
note until trial; and the original plaintiff was the loans servicer
until it was merged into the successor plaintiff after the action
was filed. The witness did not testify that the original plaintiff had
the authority to enforce the note on the successor plaintiffs
behalf when the original plaintiff filed the foreclosure action.
The circuit court found that the [successor plaintiff] has met [its]
burden of proving the debt and the amount of the debt and their
standing at the time of the debt . . . . The court then entered a
final judgment of foreclosure in the successor plaintiffs favor.
On appeal, the homeowners primarily argued the court erred in
finding that the successor plaintiff had standing at the time the
original plaintiff filed the foreclosure action. The appellate court
agreed with the homeowners argument, stating:
A servicer that is not the holder of the note may have standing
to commence a foreclosure action on behalf of the real party in
interest, but [evidence must be presented] . . . demonstrating
that the real party in interest granted the servicer authority to
enforce the note. Rodriguez v. Wells Fargo Bank, N.A., No.
4D14-100, 2015 WL 5948169, at *1 (Fla. 4th DCA Oct. 14,
2015).
The appellate court found that the successor plaintiff, which was
the real party in interest, failed to present any evidence
demonstrating that it granted the original plaintiff/servicer the
authority to enforce the note at the time the original
plaintiff/servicer filed the foreclosure action. Thus, the successor
plaintiff did not prove that the original plaintiff/servicer had
standing to commence the foreclosure action.
The Brand Law Firm, Coconut Grove, for Appellants.

Marie Septimus and Vilnor Septimus v. Christiana Trust, et


al., 4D14-1781
The bank filed a copy of the note with the complaint, but that
copy did not contain an indorsement. Later in the litigation, the
bank filed a copy of the note with an indorsement. The 4th DCA
held that the bank, as a successor plaintiff, failed to demonstrate
that its predecessor had standing at the time the action was
commenced.
Although the bank eventually filed a blank-indorsed note, the
note attached to the complaint did not contain the indorsement,
and the bank points to no other evidence demonstrating standing
at the time the complaint was filed. The bank asks this court to
take judicial notice of the FDICs assignment of the note and
mortgage to its predecessor before the complaint was filed.
However, even if standing were demonstrated by the
assignment, this evidence was not admitted at trial, and our
judicial notice would not change the fact that the trial court erred
in entering judgment for the bank where it did not prove standing.
Korte & Wortman, P.A., West Palm Beach, for Appellant.

Opinions Released January 6, 2016:


Fallon Rahima Jallali v. Christiana Trust, et al., 4D14-2369
This was another case where the bank sought to foreclose
based on an undated, blank-indorsed note that it filed after filing
the initial complaint. The appellate court walked through the
process:
If the foreclosing party asserts standing based on an undated
endorsement of the note, it must show that the endorsement
occurred before the filing of the complaint through additional
evidence, such as the testimony of a litigation analyst. Id.
(quoting Lloyd v. Bank of N.Y. Mellon, 160 So. 3d 513, 515 (Fla.
4th DCA 2015)). When a plaintiff attempts to foreclose based
upon an undated, blank-endorsed note that it filed after the initial
complaint, and provides no proof that it was the holder or
authorized representative of the holder prior to the inception of
the lawsuit, it fails to prove its standing to foreclose. See, e.g.,
Perez v. Deutsche Bank Natl Trust Co., 174 So. 3d 489, 490-91
(Fla. 4th DCA 2015) (reversing final judgment of foreclosure
where bank attempted to prove standing based in part upon an
undated blank-endorsed note filed after the initial complaint, but
failed to provide evidence that it possessed the note prior to the
time suit was filed).
Countrywide was the original lender in this case. The appellate
court noted that while a substituted plaintiff can acquire standing
to foreclose if the original party had standing, the record was
devoid of any proof that Countrywide had possession of the
blank-endorsed note prior to the inception of the lawsuit.
Regarding an assignment, the appellate court ruled:
Appellee also failed to prove that Countrywide had standing to
foreclose based upon the assignment of mortgage, as it was
clear the assignment took place after suit was filed. See Balch v.
LaSalle Bank N.A., 171 So. 3d 207, 209 (Fla. 4th DCA 2015)
(reversing a foreclosure judgment in part because the
assignment [of the mortgage] was executed after the complaint
was filed).
Cyrus Bischoff, Miami, for Appellant.

Bank of New York Mellon v. Dennis Conley, 4D14-2430


In this foreclosure case, the trial court granted the borrowers
motion for involuntary dismissal because the bank did not
present competent substantial evidence of its standing to
foreclose. The appellate court affirmed, noting the many changes
of ownership:
The record in this case reveals that, at one time or another, at
least six different banking entities claimed ownership of the
borrowers note. The problem is not the number of entities
claiming ownership, but the similarities of their names.
Two of the entities are:
JP Morgan Chase Bank; and
JP Morgan Chase & Co.
Two others are:
Bank of New York Company, Inc.; and
The Bank of New York Mellon Trust Company, National
Association
The appellate court emphasized that when a nonholder in
possession attempts to establish its right to enforce a note, and
thus its standing to foreclose, the precise identity of each entity
in the chain of transfers is crucial.
The plaintiff in this case was Bank of New York Mellon Trust
Company, National Association fka The Bank of New York Trust
Company, N.A. as Successor to JPMorgan Chase Bank N.A. as
Trustee for RASC 2004KS4. Home Loan Corporation dba
Expanded Mortgage Credit was the original lender. The note had
two special indorsements: (1) Home Loan Corporation indorsed
the note to Residential Funding Corporation; and (2) Residential
Funding Corporation indorsed the note to JP Morgan Chase
Bank, as Trustee.
Bank of New York Mellon presented the original note bearing the
special indorsement in favor of JP Morgan Chase Bank, as
Trustee. At trial, a witness for the Bank of New York Mellon
testified that the note was deposited into a trust with JP Morgan
Chase Bank as the original trustee. The witness also testified
that the Bank of New York Mellon became the successor trustee
in April of 2006.
The appellate court analyzed the Banks evidence as follows:
An excerpt of a Pooling and Servicing Agreement (PSA) was
placed into evidence. The PSA created the Residential Asset
Securities Corporation Series 2004-KS4 Trust and listed
JPMorgan Chase Bank as the trustee. The witness agreed that
the PSA did not establish that the Bank of New York Mellon had
any interest in the note.
A 200+ page document was placed into evidence entitled
Purchase and Assumption Agreement by and between the Bank
of New York Company, Inc. and JPMorgan Chase & Co.
(emphasis added). This purchase agreement was dated April 7,
2006. The witness was under the impression that the agreement
established that the plaintiff purchased the trust assets of JP
Morgan Chase Bank. However, the document contradicts his
testimony. Neither the plaintiff (the Bank of New York Mellon
Trust Company, N.A.) nor the indorsee on the note and trustee
of the RASC 2004KS4 Trust (JP Morgan Chase Bank) are
parties to the purchase and assumption agreement.
When specially indorsed, an instrument becomes payable to the
identified person and may be negotiated only by the indorsement
of that person. 673.2051(1), Fla. Stat. (2014). Where a bank is
seeking to enforce a note which is specially indorsed to another,
the bank is a nonholder in possession. Murray v. HSBC Bank
USA, 157 So. 3d 355, 358 (Fla. 4th DCA), review dismissed, 171
So. 3d 117 (Fla. 2015). A nonholder in possession may prove its
right to enforce the note through:
(1) evidence of an effective transfer; (2) proof of purchase of the
debt; or (3) evidence of a valid assignment.
See Lamb v. Nationstar Mortg., LLC, 174 So. 3d 1039, 1040
(Fla. 4th DCA 2015). A nonholder in possession must account
for its possession of the instrument by proving the transaction (or
series of transactions) through which it acquired the note.
Murray, 157 So. 3d at 358.
At bar, the plaintiff attempted to prove its right to enforce the note
through proof of purchase of the debt. The plaintiffs proof of
purchase, however, is an agreement between two entities that
have no relationship to either the plaintiff or the indorsee. At
most, the agreement establishes that somehow JP Morgan
Chase & Co. became the trustee for the RASC 2004KS4 Trust
and transferred/sold its interest in the trust to a company called
The Bank of New York Company. The Agreement does not
connect the indorsee of the note (JP Morgan Chase Bank) to the
plaintiff (the Bank of New York Mellon).
The appellate court relied on Verizzo v. Bank of New York, 28
So. 3d 976 (Fla. 2d DCA 2010). There, the Bank of New York
attempted to foreclose on a note indorsed to JPMorgan Chase
Bank, as Trustee. Id. at 977. At summary judgment, the Bank of
New York produced an assignment between MERS and the
Bank of New York. Reversing summary judgment, the court
found:
The promissory note shows that Novastar endorsed the note to
JPMorgan Chase Bank, as Trustee. Nothing in the record
reflects assignment or endorsement of the note by JPMorgan
Chase Bank to the Bank of New York or MERS. Thus, there is a
genuine issue of material fact as to whether the Bank of New
York owns and holds the note and has standing to foreclose the
mortgage. Id. at 978 (emphasis added).
Korte & Wortman, P.A., West Palm Beach, for
Appellees/Homeowners.

ABOUT THE AUTHOR

Lynn Szymoniak is an attorney who has been active in the South


Florida area for thirty years. From cases ranging from civil rights
issues, insurance fraud, and election procedures, Lynn
Szymoniak has a reputation for being a dogged defender of
justice and has been called as an expert witness for the United
States Government. In 2010, facing foreclosure after being
forced from work by breast cancer and to care for her ailing
mother, Lynn Szymoniak noticed inconsistencies in the banks
paperwork. This lead to the discovery of the illegal practice
known as robo-signing, where banks fake needed signatures to
foreclose on homes. Lynn Szymoniak sued on behalf of the
government, forcing the banks to date to pay out over $95 Million
to HUD to be used for foreclosure relief, allowing people behind
on their mortgages to find a way to stay in their homes. Lynn
Szymoniak took her share of the settlement and founded the
Housing Justice Foundation, an organization dedicated to
helping the victims of foreclosure fraud and exposing the crimes
of predatory lenders.

http://thjf.org/2014/06/27/suddenly-appearing-endorsements-
used-by-bank-trustees-in-foreclosures/

SUDDENLY
APPEARING
ENDORSEMENTS
USED BY BANK-
TRUSTEES IN
FORECLOSURES
June 27, 2014
42 CASES WITH SUDDENLY APPEARING
ENDORSEMENTS
The Court is concerned, as a result, that OneWest does not
hold the Endorsed Note. But, perhaps more significantly,
the Court is concerned that OneWest has determined that
business expediency and cost containment are more
important than complete candor with the courts.[1]
In Re Jessie M. Arizmendi (At the time of this California
foreclosure decision in 2011, the homeowner/debtor, Ms.
Arizmendi, was a frail 86-year-old with hearing loss and difficulty
walking.)
This article discusses 42 cases with suddenly appearing (often
called ta-da) endorsements. In each case, a bank-trustee tried
to foreclose on behalf of a mortgage-backed trust. Most of these
cases began with the filing of an unendorsed note that was
described in the banks pleadings as a true and correct copy of
the original note. Several of the Florida cases began with a Lost
Note claim, alleging that the bank at one point had the note in its
custody and control, but somehow lost the note. Later in the
litigation, these lost notes were invariably and inexplicably found.
In a few cases, the judges expressed their disbelief and
frustration with the documents presented by the banks and the
claims made. These cases are the exception, however, not the
norm. Very few cases address the issue of whether the
endorsements or found notes were illegally fabricated or forged.

INTRODUCTION TO NOTES AND


ENDORSEMENTS
Most homeowners borrow money to purchase their
homes. When these homeowners close on their home loan,
they sign a promissory note and mortgage or deed of trust. The
note obliges the homeowners to pay back the loan under the
specified terms. The mortgage or deed of trust gives the lender
the right to foreclose on the home if the homeowners default
under the terms of the loan. The note and the mortgage are two
separate and distinct documents or instruments.
Generally, almost all residential mortgage notes start as notes
payable to order, that is, payable to the lender of the
money. Beginning in approximately 2004, the era of mortgage
securitization, most mortgage notes (notes secured by a
mortgage) were sold to third parties, usually called
Depositors. These Depositors bought loans from originators,
pooled loans together, and sold the pools to form securitized
trusts. The agreements governing almost every securitized trust
required that the notes that were sold to the depositor, and made
part of the trust loan pool, be both endorsed and delivered to the
trustee or the document custodian for the trust. The governing
trust documents specified both how the notes were to be
endorsed, and how (when, where and to whom) they were to be
delivered.
Five different major problems occur with notes that have been
securitized:
1. Many notes presented in foreclosures are not endorsed;
2. The vast majority of endorsements are undated;
3. The endorsed notes are not filed at the time the complaint is
filed, making it impossible for a court to determine whether the
bank had the endorsed note at the time it commenced the
foreclosure;
4. There are seldom any records presented in foreclosure cases
recording when and where the delivery of the notes occurred;
and
5. Different versions of the notes are presented to the Court in
the same case, with the differences almost always involving the
endorsements.

1. THE ROMERO FORECLOSURE


The Supreme Court of New Mexico became the third state
highest court, joining Vermont and Oklahoma, to confront the
issue of conflicting promissory note endorsements[2] in
foreclosures, in a decision filed February 13, 2014, Bank of New
York v. Romero.[3] The Romero case involves a fact pattern that
arises frequently in foreclosure litigation: the copy of the note
attached to the complaint when the action was first filed
contained no endorsements, but by the time of the Summary
Judgment hearing or trial, the bank-trustee has filed another
copy of the note, this one with endorsements.
In the Romero case, the first newly appearing endorsement was
a blank endorsement (no stated payee) from Equity One, Inc.,
the original lender. The second endorsement was a special
endorsement (payee stated) made payable to JP Morgan Chase
Bank. There was no endorsement to Bank of New York Mellon
(BONY), the plaintiff who filed the foreclosure action in its
capacity as trustee for a mortgage-backed trust. Both copies
were purported to be copies of the original note.
The New Mexico Supreme Court held that Bank of New York did
not establish its lawful standing to file a foreclosure.[4] The New
Mexico Supreme Court reversed the Court of Appeals and the
District Court and remanded the case to the District Court with
instructions to vacate its foreclosure judgment and to dismiss the
Bank of New Yorks foreclosure action for lack of standing.
Joseph and Mary Romero borrowed $227,240 on June 26, 2006,
from Equity One, Inc. to refinance their home in Chimayo
County, New Mexico. They signed a mortgage that identified
Equity One, Inc. as the lender and Mortgage Electronic
Registration Systems, Inc., as Nominee for Equity One, as the
mortgagee. The Romeros became delinquent in 2008.
Bank of New York, as Trustee for Popular Financial Services
Mortgage Pass-Through Certificates Series #2006, filed a
foreclosure action on April 1, 2008. The copy of the promissory
note that was attached to the complaint when the Romero case
was filed had no endorsements. The note itself identified only
Equity One as the lender.
The Romeros argued at trial that the original note introduced by
BONY at trial and purportedly authenticated was different from
the copy of the original note attached to the Complaint that did
not include any endorsements. A document custodian from Litton
Loan Servicing, the servicer for the trust, testified that BONY had
physical possession of both the note and mortgage at the time it
filed the foreclosure complaint, but this testimony was largely
disregarded because the document custodian claimed to rely on
a Pooling and Servicing Agreement from the trust, but that
agreement was not offered into evidence.
In Romero, the Supreme Court held that possession of the note,
with a special endorsement to JP Morgan Chase, did not
establish BONY as a Holder under the New Mexico UCC
provision, UCC 55-3-301, defining a person entitled to enforce
a negotiable instrument such as a home loan. The Court stated
that:
Possession of an unendorsed note made payable to a third party
does not establish the right of enforcement, just as finding a lost
check made payable to a particular party does not allow the
finder to cash it[5]
Regarding the conflicting versions of the Note one without
endorsements, and one with two endorsements, the Supreme
Court stated:
Without explanation, the note introduced at trial differed
significantly from the original note attached to the foreclosure
complaint, despite testimony at trial that the Bank of New York
had physical possession of the Romeros note from the time the
foreclosure complaint was filed on April 1, 2008. Neither the
unendorsed note nor the twice-indorsed note establishes the
Bank as a holder.[6]
The Court found that even the version of the note with
endorsements was still insufficient to establish standing, noting:
The trial copy of the Romeros note contained two undated
indorsements: a blank indorsement by Equity One and a special
indorsement by Equity One to JP Morgan Chase. Although we
agree with the Bank that if the Romeros note contained only a
blank indorsement from Equity One, the blank indorsement
would have established the Bank as a Holder because the Bank
would have been in possession of bearer paper, that is not the
situation before us. The Banks copy of the Romeros note
contained two indorsements, and the restrictive, special
indorsement to JP Morgan Chase established JP Morgan Chase
as the proper holder of the Romeros note absent some evidence
by JP Morgan Chase to the contrary. (citation omitted).[7]
The Bank also made an argument that the Court should ignore
the special endorsement, but the Court rejected that argument,
stating:
Rather than demonstrate timely ownership of the note and
mortgage through JP Morgan Chase, the Bank of New York
urges this Court to infer that the special indorsement was a
mistake and that we should rely only on the blank indorsement.
We are not persuaded. The Bank provides no authority and we
know of none that exists to support its argument that the
payment restrictions created by a special indorsement can be
ignored contrary to our long-held rule on indorsements and the
rights they create[8]
The issue of whether such trust actually existed was never
raised. The Romeros did try to question the ownership of their
note, as the Supreme Court opinion states:
According to the Romeros, Security and Exchange Commission
filings showed that their loan certificate series was once owned
by Popular ABS Mortgage and not Popular Financial Services
Mortgage and the owner was JP Morgan Chase. [9]
If this issue had been properly raised, the court could have
determined at the outset that the name of the plaintiff was
incorrect, because such a trust did not exist and never existed.
There is no such trust, Popular Financial Services Mortgage
Pass-Through Certificates Series #2006, registered with the
SEC, rated by any rating organization or listed by any servicer or
trustee. Such a trust is not the plaintiff in any other lawsuit filed
in federal court or any reported state court case.
An examination of the Schedule of Loans from an entirely
different trust indicates that the plaintiff was not only incorrectly
identified and did not exist, but also that another trust, Popular
ABS Mortgage Pass-Through Trust 2006-D, claimed in
documents filed with the SEC and distributed to investors that it
owned a loan for the same amount as the Romero loan, initiated
in the same year, and from the same county in New Mexico,
making it very likely that this trust actually owned the Romeros
note.
If the loan in the Romero case were actually held by Popular
ABS, Inc. Mortgage Pass-Through Certificates Series 2006-D,
the trial court may have addressed the issue of the endorsement
by JP Morgan Chase with the additional knowledge the JP
Morgan Chase was the original trustee, but withdrew from acting
as trustee for hundreds of trusts, and was replaced by BONY.
This may not have been a critical fact, but it does help explain
the endorsement to JP Morgan Chase on the note presented by
BONY at trial. It also helps explain why the Pooling and
Servicing Agreement was not presented to the Court as
evidence. The plaintiffs may have known they had named the
wrong trust.

2. ANOTHER NEW MEXICO REVERSAL: JOHNNY


LANCE JOHNSTON
Johnny Lance Johnston is a disabled Vietnam veteran who
represented himself at trial. His request to present the testimony
of Lynn Szymoniak (the author of this article) regarding
fraudulent documents used in his case was denied at trial.
Three months after the New Mexico Supreme Courts decision in
Romero, in Deutsche Bank National Trust Company v. Beneficial
NM, Inc.,[10] a New Mexico appellate court reversed a
foreclosure entered after a bench trial because the bank failed to
establish that it had standing when it filed its complaint. At the
initial filing, the bank attached unendorsed copy of the note
made payable to New Century Mortgage Corporation. At trial, 20
months after the complaint was filed, Deutsche Bank introduced
the original note, this time endorsed in blank, and argued that its
possession of the note at trial with an undated blank
endorsement was sufficient to establish its right to enforce the
note, stating:
In this case, the blank indorsement on the note the Bank
introduced at trial was not dated, making it impossible to tell
when the indorsement was executed. Therefore, while the
indorsed note was sufficient to show that the Bank was the
holder of the note at the time of trial, it failed to show that the
Bank was the holder at the time it filed its complaint for
foreclosure. We conclude that neither the unindorsed copy of the
note produced with the foreclosure complaint nor the indorsed
note produced at trial were sufficient to show that the Bank held
the note when it filed the complaint. The Bank offers no
explanation as to why it produced an unindorsed copy of the
note made payable to New Century instead of the indorsed note
if it indeed had possession of the indorsed note when the
complaint was filed. The bottom line is the Bank needed to show
it possessed the proper supporting documentation when it filed
the foreclosure complaint. Kabba, 2012 OK 2013, 11.[11]

3. THE VERMONT SUPREME COURTS 2011


KIMBALL CASE
Prior to the New Mexico Romero decision, two state Supreme
Court decisions dealt with the issue of conflicting
endorsements. The first such case was U.S. Bank National
Assn v. Kimball,[12] decided by the Vermont Supreme Court in
2011. In Kimball, U.S. Bank filed its complaint with a copy of a
note attached. An undated allonge was attached to the note,
signed by a corporate officer of Accredited Home Lenders, Inc.,
the original lender, endorsing the note in blank. The homeowners
filed an answer and the bank moved for summary judgment.
In its summary judgment motion, the bank asserted that it had
the original note, and that it was endorsed from Accredited to
RFC and then to U.S. Bank. No dates, however, were provided
for these endorsements. In support, U.S. Bank attached an
affidavit attesting to these facts, but the affidavit was devoid of
any dates. The copy of the note attached had an allonge. The
trial court noted that the allonge submitted at summary judgment
appeared to be the same allonge previously submitted as
endorsed in blank, but this time with RFC stamped in the blank
spot and containing a second endorsement from RFC to U.S.
Bank. The court held that U.S. Bank lacked standing when the
complaint was filed, and dismissed the complaint with
prejudice.
On appeal, U.S. Bank asserted that it was entitled to enforce the
note as a holder of the instrument. The Supreme Court set forth
the banks burden of proof:
A person becomes the holder of an instrument when it is issued
or later negotiated to that person. 9A V.S.A. 3-201(a).
Negotiation always requires a transfer of possession of the
instrument. Id. 3-201 cmt. When the instrument is made
payable to bearer, it can be negotiated by transfer alone. Id.
3-201(b), 3-205(a). If it is payable to orderthat is, to an
identified personthen negotiation is completed by transfer and
endorsement of the instrument. Id. 3-201(b). An instrument
payable to order can become a bearer instrument if endorsed in
blank. Id. 3-205(b). Therefore, in this case, because the note
was not issued to U.S. Bank, to be a holder, U.S. Bank was
required to show that at the time the complaint was filed it
possessed the original note either made payable to bearer with a
blank endorsement or made payable to order with an
endorsement specifically to U.S. Bank.[13]
The Supreme Court concluded that U.S. Bank failed to satisfy
either requirement. When U.S. Bank submitted its note with two
undated specific endorsements, after submitting a note with a
blank endorsement, the bank failed to explain when the
additional endorsements were made, and why the complaint was
originally submitted with a blank endorsement. The Supreme
Court concluded that the trial court did not err in dismissing the
complaint because of the contradictory and uncertain
documentation.

4. THE OKLAHOMA SUPREME COURTS 2012


BRUMBAUGH CASE
The Oklahoma Supreme Court decided a similar case the
following year, Deutsche Bank National Trust, as Trustee for
Long Beach Mortgage Loan Trust 2002-1 v. Brumbaugh,[14]
where the original petition for foreclosure, filed in January, 2009,
included a copy of an unendorsed note payable to Long Beach
Mortgage Company. On April 1, 2010, JP Morgan Chase Bank,
as the servicing agent for the trust, filed a motion for summary
judgment, again attaching a copy of the unendorsed note. The
respondent homeowners argued that the bank was not the real
party in interest because there was no endorsement whatsoever.
In reply to the homeowners response, and at the hearing, a copy
of the note with a blank, undated indorsement signed by Long
Beach Mortgage Company was attached and presented. The
bank argued that this allonge was inadvertently omitted from the
copy of the note attached with its motion for summary judgment.
The trial court reviewed the note presented at the hearing and
agreed with Appellee that Appellee was the holder of the note
because it had possession of the note and it was indorsed in
blank. The court granted summary judgment in favor of Appellee
on January 27, 2011.
The Oklahoma Supreme Court reversed, finding that there was a
question of fact as to when the bank became a holder, and thus,
a person entitled to enforce the note making summary judgment
inappropriate. The Court noted that to commence a foreclosure
action in Oklahoma, a plaintiff must demonstrate that it has a
right to enforce the note and, absent a showing of ownership, the
plaintiff lacks standing, stating:
It is a fundamental precept of the law to expect a foreclosing
party to actually be in possession of its claimed interest in the
note, and have the proper supporting documentation in hand
when filing suit, showing the history of the note, so the defendant
is duly apprised of the rights of the plaintiff We reverse the
granting of summary judgment by the trial court and remand
back for further determinations as to when Appellee acquired its
interest in the note.[15]

5. THE OKLAHOMA SUPREME COURT IN KABBA


The New Mexico appellate court in the Johnston case (#2,
above) also relied in part on a 2013 Oklahoma Supreme Court
decision, Bank of America v. Kabba.[16] There, the Bank filed its
foreclosure petition claiming to be the holder of the note, as
successor in interest to LaSalle Bank, as Trustee for a trust,
SAIL 2004-BNC2 in March, 2010. The Bank did not attach a
copy of the note to its petition, but filed the note, with a blank
endorsement, with a Motion for Summary Judgment, that was
granted on June 13, 2011. The Oklahoma Supreme Court
reversed, finding that it was impossible to determine from the
record when Bank of America acquired its interest in the
underlying note.

6. THE OKLAHOMA SUPREME COURT IN


MATTHEWS
Within three months of the the Kabba decision, the Oklahoma
Supreme Court decided eight additional cases, reversing
foreclosure judgments where the original, endorsed note was not
filed at the time the foreclosure action was commenced.
In Deutsche Bank National Trust Co. v. Matthews,[17] Deutsche
Bank filed a foreclosure petition as trustee of JPMorgan
Acquisition Trust 2007-CH3 on January 14, 2009, claiming that it
held the note and mortgage. The note filed with the petition was
unendorsed (despite an allegation saying it was endorsed), but
eventually, six months later with a Motion for Summary
Judgment, Deutsche Bank produced a note with two allonge
endorsements, the second being an endorsement in blank. Both
allonges were dated January 9, 2007, meaning Deutsche Bank
was claiming to have acquired the note only five days before it
filed for foreclosure, if the note was assumed to have been
delivered the same day it was endorsed.
The first allonge was a special endorsement from the lender,
Chase Bank USA, N.A. payable to Chase Home Finance, LLC.
The second allonge was a blank endorsement from Chase Home
Finance, LLC.
While the endorsement in blank pre-dating the filing of the
petition would ordinarily have been enough to establish the
banks right to foreclose, the unendorsed note attached at the
original filing and the banks own allegations in the Summary
Judgment motion made the court conclude otherwise. In the
motion for summary judgment, Deutsche Bank stated that it
acquired Chase Bank USA, N.A.s interest in the note and
mortgage subsequent to the filing of the original action. Because
of this admission by Deutsche Bank, the Oklahoma Supreme
Court reversed a summary judgment of foreclosure granted by
the trial court with instructions to dismiss the case without
prejudice because there was no evidence showing Deutsche
Bank was a person entitled to enforce the note prior to the filing
of the action.

7. THE OKLAHOMA SUPREME COURT IN


RICHARDSON
In Deutsche Bank National Trust Co. v. Richardson,[18]
Deutsche Bank again filed a foreclosure without attaching the
note. The initial pleading, filed October 15, 2010, alleged that
Deutsche Bank was the present holder of the note and
mortgage, but did not refer to any endorsement of the note.
Deutsche Bank then filed for Summary Judgment on May 26,
2011, attaching for the first time a copy of the note, endorsed in
blank, by WMC Mortgage Corporation, the original lender.
Deutsche Bank. Summary judgment was entered in favor of
Deutsche Bank.
The Oklahoma Supreme Court reversed, noting that summary
judgment is improper if, under the evidentiary materials,
reasonable individuals could reach different factual
conclusions. The court found that the timeliness of the transfer
was a disputed fact issue because Deutsche Bank did not file the
blank endorsement until it filed its motion for summary judgment,
making it impossible to determine from the record when
Deutsche Bank acquired its underlying interest in the note.

8. THE OKLAHOMA SUPREME COURT IN CIN


KAHM
In CPT Asset Backed Certificates Series 2004-EC1 v. Cin
Kham,[19] the copy of the note attached to the original petition
was unendorsed. No endorsed note was ever entered into the
record, though the banks counsel claimed to have a copy of the
endorsed note at a hearing on the homeowners motion to
vacate a default judgment that was entered in the case. Because
the only note found in the record contained no endorsements,
the Oklahoma Supreme Court vacated the judgment.

9. THE OKLAHOMA SUPREME COURT IN


SWANSON
In BAC Home Loan Servicing, LP v. Swanson,[20] the petition
filed by BAC had an attached copy of a note with an allonge
transferring the note to Countrywide Bank, N.A. signed by a
warehouse manager of Magnus Financial Corporation. There
was no evidence presented showing the note was endorsed to
BAC until the summary judgment motion when a copy of the
allonge was filed which also showed a blank endorsement. The
Supreme Court found that there was a question of fact as to
when BAC acquired the note making summary judgment
inappropriate.
10. THE OKLAHOMA SUPREME COURT IN
TACKER
In NTEX Realty LP v. Tacker,[21] the original note was payable
to Home Funds Direct, Inc. and the original non-endorsed note
was attached to the petition for foreclosure. NTEX moved for
summary judgment, again attaching the unendorsed note,
alleging that it was a full, true and correct copy of the note.
When the homeowners again raised the issue in opposition that
NTEX lacked standing, NTEX filed a supplement to its motion
that included an undated allonge which transferred the note to
NTEX, and the trial court granted summary judgment to
NTEX. The Supreme Court reversed because a question of fact
remained as to when NTEX acquired the note.

11. THE OKLAHOMA SUPREME COURT IN


ALEXANDER
In U.S. Bank v. Alexander,[22] the original lender was MILA, Inc.
DBA Mortgage Lending Associates, Inc. Wells Fargo originally
brought the case, with only an unendorsed note and part of the
original mortgage attached. U.S. Bank as trustee for Credit
Suisse First Boston HEAT 2005-4 was substituted as
plaintiff. This new plaintiff filed an amended petition, but again,
only the unendorsed note was attached. The bank filed for
summary judgment, again relying on the unendorsed note. At a
second motion for summary judgment, the bank for the first time,
attached a copy of the note with a blank allonge. Again,
summary judgment was reversed because the bank did not
demonstrate that it was the holder of the note at the time it filed
its first amended petition.

12. THE OKLAHOMA SUPREME COURT IN HEATH


In Wells Fargo Bank v. Heath, [23] the original lender was Option
One Mortgage Corporation. The foreclosure petition was filed by
Wells Fargo Bank as Trustee for Option One Mortgage Loan
Trust 2005-4. Wells Fargo attached a copy of an unendorsed
note to the petition. A final summary judgment was entered in
favor of Wells Fargo and the property was sold at sheriffs sale.
The original homeowners obtained new counsel who filed a
petition to vacate the sale. At the hearing on that petition, the
bank presented the original note, but this time with an undated
allonge attached. The Supreme Court decided that because
Wells Fargo never established standing at the time suit was
commenced, summary judgment was wrongly entered, reversed
the lower court decisions, and remanded.

13. IN FLORIDA: THE GREEN DECISION


The court in the Johnny Lance Johnston case (see #2 above)
also relied on a Florida appellate court decision, Green v.
JPMorgan Chase Bank, NA.[24] In the Green case, the copy of
the note attached to the banks original complaint did not contain
an endorsement. The bank later filed a note with an undated
endorsement and summary judgment was granted for the bank.
The appellate court reversed, noting that although the filing of
the original blank-indorsed note showed the Banks possession
of the note, that filing occurred more than a year after the Bank
filed suit. This late filing failed to refute the homeowners
affirmative defense of lack of standing.

MORE FLORIDA CASES: WE FOUND THE


NOTE.
14. BAC FUNDING CONSORTIUM A 2010
FLORIDA LOST NOTE CASE
In BAC Funding Consortium, Inc. v. Jean-Jacques,[25] a foreclosure was
filed in December, 2007, that included a count for reestablishment of a lost
note. Subsequently, U.S. Bank filed a motion for summary judgment and
dismissed its count for reestablishment of the note, and filed an original
mortgage and note with the court. Summary judgment was granted in
favor of U.S. Bank. Reversing, the appellate court concluded that
summary judgment was improper because U.S. Bank never established its
standing to foreclose, stating:
Moreover, while U.S. Bank subsequently filed the original note,
the note did not identify U.S. Bank as the lender or holder. U.S.
Bank also did not attach an assignment or any other evidence to
establish that it had purchased the note and mortgage. Further, it
did not file any supporting affidavits or deposition testimony to
establish that it owns and holds the note and mortgage.
Accordingly, the documents before the trial court at the summary
judgment hearing did not establish U.S. Banks standing to
foreclose the note and mortgage, and thus, at this point, U.S.
Bank was not entitled to summary judgment in its favor.[26]

15. VERIZZO: ANOTHER 2010 FLORIDA LOST


NOTE CASE
In Verizzo v. Bank of New York,[27] the Florida Second District
Court of Appeal reversed a Summary Judgment in a foreclosure
case originally filed with a count to reestablish a lost note, but
later produced what it alleged to be an original note, endorsed to
JP Morgan Chase Bank, as Trustee. The trial court entered
summary judgment in favor of Bank of New York, but the
appellate court reversed, noting that because the note was
assigned to JPMorgan Chase, not to the Bank of New York,
there was a genuine issue of material fact as to whether The
Bank of New York has standing to foreclose the mortgage.

16. A FLORIDA COURT CHALLENGES


AUTHENTICITY
Circuit Judge J. Michael Traynor in St. Johns County, Florida,
was one of the first judges to challenge the authenticity of a
suddenly appearing allonge. In M & T Bank v. Lisa D. Smith,[28]
Judge Traynor granted the homeowners Motion to Dismiss the
Second Amended Complaint and scheduled a special
evidentiary hearing to determine the authenticity of documents
filed by M & T Bank, stating:
Additionally, the Court is concerned with the authenticity of the
documents filed. Plaintiff is asking the Court to ignore the
documents filed in the first two Complaints, and to rule solely on
the most recent Complaint. However, all three of these
documents appear to be inconsistent with one another and have
changed as needed to benefit the Plaintiff. For instance, the
blank Allonge as filed on both February 10, 2009, and
September 22, 2009, remarkably turned into a stamped Allonge
on March 3, 2010, with Wells Fargos information in the
previously blank area. This transformation is most interesting,
given that it was argued that the Office of the Comptroller of the
Currency closed the First National Bank of Nevada on July 25,
2008, and the stamp did not appear in either of the February or
September 2009 filings. Similarly, Assignments appeared and
vanished as needed, and the Allonge changed to fit the Plaintiffs
particular purpose at that moment. Accordingly, an evidentiary
hearing will be held to determine the authenticity of the Allonge
and the appearance of the Assignment.

17. GEE: A 2011 FLORIDA LOST NOTE CASE


Gee v. U.S. Bank, N.A.[29] began with a complaint to reestablish
a lost note and mortgage. The original lender was Advent
Mortgage, LLC, but U.S. Bank claimed that Advent assigned the
mortgage to Option One Mortgage Company who in turn
assigned the mortgage to U.S. Bank. Gee denied the banks
allegations. U.S. Bank subsequently filed a Motion for Summary
Judgment. The motion was silent regarding the reestablishment
claim, and asserted instead that the original promissory note
would be filed on or before the hearing. At the hearing,
however, the court considered a lost document affidavit and
granted summary judgment on the reestablishment claim and
foreclosed the reestablished mortgage. The appellate court
reversed, finding genuine issues of material fact.

18. FELTUS: A 2012 FLORIDA LOST AND FOUND


NOTE CASE
In Feltus v. U.S. Bank,[30]the bank filed a Lost Note count, but
attached a copy of the note to the complaint. The copy showed
the lender to be Countrywide Bank, N.A. There were no
endorsements. After the homeowner filed a Motion To Dismiss
for lack of standing, U.S. Bank filed another copy of the note as a
supplemental exhibit to its complaint. This copy included two
endorsements, a special endorsement by Countrywide Bank,
N.A. to Countrywide Home Loans, Inc., and a blank
endorsement by Countrywide Home Loans, Inc. Approximately
six months later, however, U.S. Bank filed a motion for summary
judgment, again alleging that the note had been
lost. Approximately 10 days later, U.S. Bank filed a reply to
Feltuss affirmative defenses in which it asserted that it was now
in possession of the original note and attached a copy of the
note with the two endorsements. The trial court entered
judgment for the bank. Reversing, the appellate court found that
the endorsed note that U.S. Bank claimed to have in its
possession was not properly before the court at the summary
judgment hearing because U.S. Bank never properly amended
its complaint. The documents properly before the court did not
establish conclusively that U.S. Bank was entitled to foreclose
the Feltus mortgage as a matter of law.

19. MCLEAN: ANOTHER 2012 FLORIDA LOST


NOTE CASE
McLean v. JPMorgan Chase Bank[31] also began with a Lost
Note count. The copy of the mortgage attached to the complaint
identified the lender as American Brokers Conduit. After McLean
filed an Answer and Affirmative Defenses and two Motions to
Dismiss, Chase filed the alleged original note and mortgage. The
note included an undated special endorsement, Pay To The
Order of JPMorgan Chase Bank, N.A. as Trustee Without
Recourse By: American Brokers Conduit. Chase filed a Motion
for Summary Judgment that was granted by the trial court. The
appellate court vacated the summary judgment because Chase
failed to submit any record evidence proving that it had the right
to enforce the note on the date the complaint was filed.

20. GONZALEZ: A THIRD 2012 FLORIDA LOST


NOTE CASE
Gonzales v. Deutsche Bank National Trust Company[32] was
filed with a missing note count. Approximately 10 weeks later,
Deutsche Bank dismissed that count and filed a Notice of Filing
Original Note and Mortgage. The note had an undated blank
endorsement. Because the endorsement was not dated, and the
original endorsed note was not filed at the time the case was
filed, summary judgment was reversed.

21. ZERVAS: A FOURTH 2012 FLORIDA LOST


NOTE CASE
Zervas v. Wells Fargo Bank, N.A.,[33] the mortgage and note
attached to the complaint showed the lender to be Fremont
Investment and Loan. On April 1, 2010, approximately six
months after the complaint was filed, Wells Fargo filed a lost
note affidavit, alleging that the note was lost by its attorney
sometime after the attorney received it on November 2, 2009.
Then on July 26, 2010, seven days before a hearing on the
banks motion for summary judgment, Wells Fargo filed the note
as a supplemental exhibit to its complaint and summary
judgment was granted for the bank. In reversing, the appellate
court noted that the bank was required to prove the endorsement
in blank was effectuated before the lawsuit was filed.

22. CUTLER: A FIFTH 2012 FLORIDA LOST NOTE


CASE
Cutler v. U.S. Bank[34] was also filed with a Lost Note
count. The homeowners challenged U.S. Banks standing.
Approximately five months later, U.S. Bank moved for summary
judgment, attaching what was represented to be the original
note, with an attached allonge, signed in blank and
undated. The trial court granted the banks summary judgment
motion. The appellate court reversed, finding that a genuine
issue of material fact existed as to whether U.S. Bank was the
proper holder of the note at the time it filed the foreclosure
action.
23. TEAGUE: A SIXTH 2012 FLORIDA LOST NOTE
CASE
In Bank of New York v. Teague,[35] summary judgment was
granted for the homeowners and the case was dismissed without
prejudice where the plaintiff did not have the original note when it
filed the complaint and the note later produced by the bank had
an endorsement to a different company.

24. VIDAL: A 2013 FLORIDA LOST NOTE CASE


Vidal v. Liquidation Properties[36] also involved a complaint filed
with a Lost Note count. At summary judgment, Liquidation filed
the original note and an undated allonge to the note endorsed in
blank. Liquidation did not file an affidavit demonstrating that the
note was transferred prior to the filing of the complaint.
Liquidation also filed an assignment of mortgage reflecting
transfer of only the mortgage, not the note. Although the
Assignment of Mortgage was sworn to on February 6, 2009, it
included the statement: ASSIGNMENT EFFECTIVE AS OF
01/15/2009. The appellate court found that two inferences
could be drawn from the effective date language. One could infer
that ownership of the note and mortgage were equitably
transferred to Liquidation on January 15, 2009, but one could
also infer that the parties to the transfer were attempting to
backdate an event to their benefit.Because the language yields
two possible inferences, proof was needed as to the meaning of
the language, and a disputed fact existed, making summary
judgment inappropriate. In a footnote, the appellate court added:
Allowing assignments to be retroactively effective would be
inimical to the requirements of pre-suit ownership for standing in
foreclosure cases. This is one of the few cases to address the
fact that many of the mortgage assignments filed in foreclosure
cases attempt to make the assignments effective prior to their
creation.

25. BOHATKA: A SECOND 2013 FLORIDA LOST


NOTE CASE
In Wells Fargo Bank v. Bohatka,[37] the trial court dismissed
Wells Fargos complaint with prejudice. On appeal, the dismissal
with prejudice was reversed, with the appellate court stating that
dismissal without prejudice was appropriate. This was a case
where the note and the mortgage identified Option One as the
lender. The note contained no endorsement. At a hearing on the
Bohatkas Motion to Dismiss, the bank produced a photocopy of
an allonge to the note. The Court examined the original note in
the court file, made a finding that the allonge had never been
affixed to the note, and dismissed with prejudice, and filed a
formal complaint with the Attorney General.

26. FOCHT: A THIRD 2013 FLORIDA LOST NOTE


CASE
In Focht v. Wells Fargo Bank,[38] Wells Fargo, as trustee, filed a
foreclosure complaint with a Lost Note count in January,
2008. Six months later, Wells Fargo produced and filed what
was represented to be the original note, endorsed in blank, and a
mortgage assignment dated September, 2008. The trial court
granted Wells Fargos motion for summary judgment. The
appellate court found that Wells Fargos submission of a post
filing assignment did not establish that it had standing when it
filed the lawsuit and that nothing else in the record established
that Wells Fargo possessed the note when it filed the lawsuit.

27. ZIMMERMAN: A 2014 FLORIDA FOUND


ENDORSEMENT CASE
In Zimmerman v. JPMorgan Chase Bank,[39] Chase attached a
copy of a promissory note listing Washington Mutual Bank FA as
the lender to its complaint. That copy did not include any
endorsements. Later, again in support of summary judgment,
Chase filed what was purported to be the original note, but this
version included an undated endorsement in blank. As it failed
to file any evidence establishing that Chase obtained possession
of the endorsed note prior to filing the complaint, the lower
courts judgment in favor of the lender was reversed.
28. IN RE CANELLAS, A FLORIDA BANKRUPTCY
COURT DECISION
One of the most thorough examinations of a suddenly appearing
allonge came in the bankruptcy decision, In Re Canellas,[40]
where the court painstakingly explained the insufficiencies of the
documents presented by U.S. Bank that resulted in a denial of
the banks motion for relief from stay:
The Affidavit executed by Movants loan servicer makes no
mention of the location of the original Note or who has
possession of it. Movant proffered no business records or
testimony tracing ownership of the Note and establishing Movant
is the present holder of the Note.
The veracity of the Allonge and Assignment is questionable. The
dates contained in the Allonge are chronologically impossible.
The Allonge is dated August 1, 2006, but references a trust that
came into existence on October 31, 2006. The signature of
Jennifer Henninger is undated and not notarized. The Allonge
was not referenced in or filed with Movants Motion in October
2009, but was presented three months later as an attachment to
its post-hearing brief.
The Assignment was executed and recorded post-petition
approximately two weeks prior to Movants filing of the Motion for
Relief. It was prepared by Jennifer Henninger, who executed the
Allonge, and was recorded by the law firm that is representing
Movant in this proceeding. Jack Jacobs execution of the
Assignment was notarized by Jennifer Henninger and witnessed
by Louis Zaffino, the affiant of Movants Affidavit. It appears the
Allonge and the Assignment were created post-petition for the
purpose of the relief from stay proceeding. Movant did not
establish Jennifer Henninger and Jack Jacob had authority to
execute the Allonge and Assignment.[41]

29. IN RE KEMP THE MOST FAMOUS SUDDEN


ENDORSEMENTS CASE:
In June, 2010, a New Jersey bankruptcy court decided In Re
Kemp,[42] a case that received attention in the national press
and revealed the scope of the mortgage loan documentation
problems. In Kemp, the debtors sought to expunge the proof of
claim filed on behalf of BONY by Countrywide Home Loans, Inc.
as servicer. The debtor argued that the note was never properly
endorsed to the transferee and was never placed in the
transferees possession. Under the New Jersey Uniform
Commercial Code, the note, as a negotiable instrument, would
not have been enforceable under those circumstances.
The trust involved in the Kemp case was CWABS Series 2006-
8. The Court examined the PSA and focused on the
endorsement provision PSA 2.01(a) at 52 that expressly
provided that in connection with the transfer of each loan, the
depositor was to deliver the original Mortgage Note, endorsed
by manual or facsimile signature in blank in the following form:
Pay to the order of ____________ without recourse with all
intervening endorsements that show a complete chain of
endorsement from the originator to the person endorsing the
Mortgage Note. PSA 2.01(g)(i) at 56. The Court found that,
most significantly, the note in question was never endorsed in
blank or delivered to BONY as required by the PSA.
In Kemp, BONY originally filed a note with no endorsement and
an unsigned allonge with its proof of claim. The unsigned allonge
was specially endorsed in favor of Americas Wholesale
Lender, directing that the debtor Pay to the Order of
Countrywide Home Loans, Inc., d/b/a Americas Wholesale
Lender.
At the Kemp trial, Countrywide produced a new undated allonge
with an endorsement stating Pay to the Order of Bank of New
York, as Trustee for the Certificateholders CWABS, Inc., Asset-
backed Certificates, Series 6006-8.The new allonge was signed
by a vice president of Countrywide Home Loans, Inc., in the
Bankruptcy Risk Litigation Management Department. Linda
DeMartini, a supervisor and operational team leader for the
Litigation Management Department for BAC Home Loans
Servicing testified that the new allonge was prepared in
anticipation of the litigation, and that it was signed several weeks
before the trial.
As to the location of the note, Ms. DeMartini testified that to her
knowledge, the original note never left the possession of
Countrywide, and that the original note appears to have been
transferred to Countrywides foreclosure unit, as evidenced by
internal FedEx tracking numbers. She also confirmed that the
new allonge had not been attached or otherwise affixed to the
note. She testified further that it was customary for Countrywide
to maintain possession of the original note and related loan
documents. The testimony that the notes were never endorsed
and delivered to the trusts was a bombshell disclosure because
every trust required endorsement of the notes, and delivery to
the trustee or custodian. A process was described in the PSAs
where the document custodian would accept the mortgage files
containing these documents, review the files to make sure each
was complete, and then notify the originators of any missing
documents, so that the originators could provide the missing
documents or substitute a qualified loan for any loan with the
missing paperwork. The DeMartini testimony supported a
conclusion that none of these steps were followed, in violation of
the representations and warranties in the PSAs.
The Kemp Court disallowed Countrywides claim, finding that it
was unenforceable under New Jersey law on two grounds. First,
under New Jerseys UCC provisions, the fact that the purported
owner of the note, BONY, never had possession of the note was
fatal to its enforcement. Second, the fact that the note was not
properly endorsed to the new owner also defeated its
enforceability. The Court also commented on the conflicting
versions of the note possession, noting:
In a bizarre twistCountrywide produced a copy of a Lost Note
Certification, dated February 1, 2007, which indicated that the
original note had been delivered to the lender on the origination
date and thereafter misplaced, lost or destroyed, and after a
thorough and diligent search, no one has been able to locate the
original Note. The defendant asserted for the first time that the
whereabouts of the Note could not be determined at the time
that the proof of claim was filed. Def. Suppl. Subm. at 6. As a
result, Countrywide claimed that it was unable to affix the allonge
to the note until after the original note had been rediscovered. At
the next hearing on September 24, 2009, counsel was not able
to explain the inconsistencies between the lost note certification,
Ms. DeMartinis testimony, and the rediscovery of the note, and
asked that the lost note certification be disregarded. T13-15 to
16 (9/24/2009).[43]
The Kemp case, and the DeMartini testimony in particular, were
the subject of articles in the New York Times,[44] Fortune,[45]
Daily Finance,[46] Naked Capitalism,[47] American
Banker[48]and Firedoglake.[49] In an article for Fortune, Abigail
Field investigated whether, as DeMartini testified, the notes
lacked the proper endorsements. Field examined 130
foreclosures filed in two New York counties between 2006 and
2010 where the Bank of New York was foreclosing on behalf of a
Countrywide mortgage-backed trust. In 104 of those cases,
where the loan was originally made by Countrywide, none of the
104 Countrywide loans were endorsed by Countrywide. Two-
thirds of the 26 loans made by other banks also lacked
endorsements.
In a similar study conducted in June, 2014, The Housing Justice
Foundation reviewed filings by Bank of New York as Trustee for
a mortgage-backed trust in bankruptcy cases ending in a
standard discharge in three different jurisdictions, the Middle
District of Florida, Massachusetts and South Carolina. In the
cases where a note was submitted, the note was unendorsed in
78.899% of the cases filed in 2008 and 2009.
The issue of missing endorsements and possibly of litigation
specialists wrongfully adding missing endorsements was not
just a Countrywide Mortgage problem nor was it limited to
Countrywide trusts the CWABS, CWALT and CWMBS trusts
that used Bank of New York as trustee. Deutsche Bank, HSBC
Bank and U.S. Bank also regularly filed unendorsed notes in
bankruptcy cases.
THE ALLEGATIONS REGARDING WELLS FARGO
On March 12, 2014, a story by Catherine Curan in the New York
Post,[50] reported that allegations in a bankruptcy case in the
Southern District of New York involved a 150-page Wells Fargo
Foreclosure Attorney Procedures Manual created November 9,
2011 and updated February 24, 2012, which, according to the
homeowner/debtors attorney, Linda Tirelli, was a detailed
procedure to be followed when mortgage notes lacked
endorsements. The process involved the attorney notifying the
Wells Fargo Default Docs Team of exactly what entities the
attorney needs the note endorsement to reflect. This process
raises the question of why Wells Fargo employees were adding
any endorsement other than a Wells Fargo endorsement to any
note. Even in cases where Wells Fargo should have been the
endorser, in the case of mortgage-backed trusts, the
endorsement would have been added six to sight years after the
trust closing date. The language, however, regarding what
entities certainly indicates that Wells Fargo employees were
adding endorsements from lenders other than Wells Fargo.

30. IN RE DOBLE: IRE FROM THE CALIFORNIA


BANKRUPTCY COURT
Unendorsed notes were presented three times to the bankruptcy
court in In Re Doble,[51] a 2011 case from the Southern District
of California, and finally replaced with an endorsed copy of the
note. Bankruptcy Judge Margaret M. Mann found this especially
troubling, noting:
The most disconcerting misrepresentation to the Court was
Defendants submission of multiple true and correct copies of
the Note under penalty of perjury without any endorsement from
Plaza. Whether the Note was endorsed is central to the merits of
this case. When Defendants finally submitted an endorsed copy
of the Note on November 8, 2010, they attempted to pass off the
first three unendorsed copies of the Note as illegible. The first
three copies of the Note were fully readable, so the phantom
endorsement page was not a problem with legibility. The timing
of this tardily produced endorsement, produced after several
requests, suggests it was added [*19] only in response to the
litigation. To add to the Courts incredulity, Defendants have
never answered the Courts specific questions as to when and
under what circumstances this newly proffered endorsement was
executed. For the purpose of its analysis on the merits, the Court
finds that the endorsement was not made until it was presented
to the Court on November 8, 2010.[52]

31. IN RE JESSIE M. ARIZMENDI, ALSO FROM


CALIFORNIA
Bankruptcy Judge Laura S. Taylor does not hide her frustration
with the evidence presented by OneWest in In Re Jessie M.
Arizmendi,[53] this 2011 case from the Southern District of
California:
there are key assumptions that the Court must make in order
for this set of facts to withstand scrutiny. And they are that
OneWest, in fact, holds the Endorsed Note and held the
Endorsed Note at all appropriate points in time. Frankly, the
Court is not willing to make such assumptions at this time.
OneWest attached the Unendorsed Note to both its Proof of
Claim and the Declaration. The Declaration stated under penalty
of perjury, that the Unendorsed Note was a true and accurate
copy of the Note held by OneWest. The Proof of Claim implicitly
stated the same and OneWest, of course, is obligated to provide
only accurate information in connection with its Proof of Claim.
The problem is that the Unendorsed Note does not bear the
endorsement or attach the allonge found on the Endorsed Note,
a document produced only after trial and the close of evidence.
One West, thus, leaves the Court with the quandary of guessing
which promissory note OneWest holds, whether and when One
West held the Endorsed Note, and what the explanation is for
the failure to provide the Endorsed Note prior to the close of
evidence.
A further evidentiary anomaly arises on account of the
Assignment; MERS executed this document as a nominee for
the Original Lender. But the allonge to the Endorsed Note makes
clear that the Original Lender assigned its interests in the Note
more than three years prior to execution of the Assignment. And
rights under the Trust Deed follow the Note. Polhemas v.
Trainer, 30 Cal. 686, 688 (1866). Thus, MERS purported
assignment of the Trust Deed and the related note as nominee
for the Original Lender and without a reference to either IndyMac
Bank, FSB or Freddie Mac appears designed to disguise rather
than to illuminate the facts.
And finally, even if OneWests second post-trial discussion of
standing and submission of evidence were accurate, one thing
remains clear: OneWest failed to tell the true and complete story
in the OneWest Declaration and in the Claim.
The Court is concerned, as a result, that OneWest does not hold
the Endorsed Note. But, perhaps more significantly, the Court is
concerned that OneWest has determined that business
expediency and cost containment are more important than
complete candor with the courts. On these points, Ms. Arizmendi
has a right to be heard, and the Court has a right to explanation.
Further, this is not the first time that OneWest has provided less
than complete information in the Southern District of
California.[54]

32. IN RE WEISBAND, AN ARIZONA


BANKRUPTCY COURT DECISION
Other bankruptcy decisions that have focused on whether
movant banks have sufficiently established themselves as the
holders of the notes include several cases involving suddenly
appearing endorsements. In In Re Weisband,[55] an allonge
with a special endorsement was presented at an evidentiary
hearing, but the allonge had not been included when GMAC filed
its proof of claim, as the Court noted:
Under Arizona law, a holder is defined as the person in
possession of a negotiable instrument that is payable either to
bearer or to an identified person that is the person in
possession. A.R.S. 47-1201(B)(21)(a).[3] GMAC has failed to
demonstrate that it is the holder of the Note because, while it
was in possession of the Note at the evidentiary hearing, it failed
to demonstrate that the Note is properly payable to GMAC. A
special endorsement to GMAC was admitted into evidence with
the Note. However, for the Endorsement to constitute part of the
Note, it must be on a paper affixed to the instrument. A.R.S.
47-3204; see also In re Nash, 49 B.R. 254, 261
(Bankr.D.Ariz.1985). Here, the evidence did not demonstrate that
the Endorsement was affixed to the Note. The Endorsement is
on a separate sheet of paper; there was no evidence that it was
stapled or otherwise attached to the rest of the Note.
Furthermore, when GMAC filed its proof of claim, the
Endorsement was not included, which is a further indication that
the allonge containing the Endorsement was not affixed to the
Note.[56]

33. IN RE TARANTOLA, ANOTHER ARIZONA


BANKRUPTCY DECISION
In In Re Tarantola,[57] Deutsche Bank National Trust Company,
as successor trustee, filed a motion for relief from stay, to which
the debtor objected, claiming that Deutsche did not have
standing. When filed, Deutsche Bank attached a copy of the note
to the motion. The note contained no endorsements and showed
no allonges attached. At trial, the servicer for Deutsche appeared
and presented the original note, containing two endorsements,
on an allonge. The testimony showed that the allonge was not
attached to the original note (it was attached to a copy), and it
was determined that the allonge was created subsequent to the
filing of the motion, executed by a person whose limited power of
attorney did not extend to execution of an allonge. As a result of
the post-filing creation of the allonge to support the motion, the
court denied Deutsche Banks motion, stating:
Yet again, the court is called upon to decide whether the
purported holder of a note allegedly transferred into a securitized
mortgage pool has standing to obtain relief from the automatic
stay. Yet again, the movant has failed to demonstrate that it has
standing. To make matters worse, the movant filed its motion
without evidentiary support of its claim, attempted to create such
evidentiary support after the fact, and only disclosed its real
evidence on the day of the final evidentiary hearing. The relief
will be denied.[58]
34. HOLDEN A 2014 OHIO APPELLATE
DECISION
Also in 2014, an Ohio appellate court also dealt with the issue of
conflicting endorsements in Deutsche Bank National Trust
Company v. Holden,[59] where the Court noted:
Thus, Deutsche Bank has filed two different copies of the same
note one with and one without an endorsement. Both copies
purport to be true and accurate copies of the original note. Ms.
Theodoros affidavit fails to explain why the copy of the note
attached to her affidavit differs from the one attached to her
complaint when, from her averments, the note, while in Chases
possession, had always contained a blank indorsement from
Novastar to Deutsche BankDue to the inconsistencies
between the copies of the note and the lack of an explanation
based on personal knowledge as to how Deutsche Bank came to
offer two different copies of the note into the record, this Court
concludes that there is a genuine issue of material fact as to
whether Deutsche Bank was the holder of the note at the time
the complaint was filed. Accordingly, the trial court erred in
granting Deutsche Banks motion for summary judgment on its
foreclosure complaint.[60]
The Court in Holden noted two similar cases where Summary
Judgments were also reversed: U.S. Bank, N.A. v. McGinn,[61]
and Fannie Mae v. Trahey.[62]

35. OHIO APPELLATE DECISIONS: MCGINN


The McGinn case involved a note changing from two
endorsements at filing to a note with three endorsements at
Summary Judgment. In this case, the third endorsement was to
U.S. Bank, the bank-trustee that had filed the foreclosure action.
The original filing had two endorsements: an endorsement from
Intervale Mortgage Corporation, the original lender, to Decision
One Mortgage Company and a blank endorsement from
Decision One Mortgage. By Summary Judgment, the blank
endorsement had been signed over to Residual Funding
Corporation, who then executed the third endorsement to U.S.
Bank. In addition to the third endorsement, US. Bank attached
an Assignment of Mortgage executed on June 12, 2008, twelve
days after the complaint was filed. U.S. Bank also attached an
affidavit from Peter Knapp who was identified as a senior
litigation analyst for GMAC Mortgage, LLC to explain the
inconsistency of the notes. Knapps affidavit stated, in pertinent
part:
Based on the circumstances of this case and my personal
knowledge of how foreclosure counsel obtains copies of notes,
earlier versions of the notes, not identical to the actual Note held
in the custodial vault, are in GMACMs computer system and are
sometime[s] printed out and inadvertently attached to foreclosure
complaints. I believe that is what happened with the copy of the
Note which was attached to the Complaint in this case, and is
the reason the Note attached to the Complaint was not a copy of
the actual original Note.[63]
The Appellate Court rejected this explanation, stating:
U.S. Bank argues that Knapps second affidavit resolves any
issue concerning the difference in the original note and the copy
that was attached to the complaint. However, the language of
that affidavit is indecisive. Rather than providing a definitive
explanation for the additional endorsements on the original note,
Knapp states that he believes that the wrong copy of the
complaint was inadvertently attached to the foreclosure
complaint. However, Civ.R. 56(E) requires personal knowledge.
Indeed, believing something to be true is different that knowing
something is true.
While it may be true that U.S. Bank met its initial burden of
demonstrating that no genuine issue of material fact existed,
appellants responded by showing that a genuine issue of
material fact did exist by pointing to the inconsistency in the two
notes. The difference in the two notes calls into question whether
U.S. Bank actually possessed the original note prior to filing the
complaint. If U.S. Bank did not, it was not a holder and, thus,
lacked standing to bring the foreclosure action in the first place.
Construing the evidence in a light most favorable to appellants,
we conclude that the trial court erred when it granted U.S. Banks
motion for summary judgment. Accordingly, appellants
assignment of error is well-taken.[64]

36. OHIO APPELLATE DECISIONS: TRAHEY


The Trahey case involved a note executed in favor of Sirva
Mortgage, Inc. There was a MERS Assignment to Fannie Mae in
May, 2011. In June, 2011, Fannie Maw filed a foreclosure action
against the Traheys. Fannie Mae attached a note with an
undated endorsed in blank by Sirva Mortgage.
In September 2011, Fannie Mae filed an amended complaint to
attach the fully negotiated note with all [i]ndorsements. The
promissory note attached showed Sirva had indorsed the note to
CitiMortgage, Inc. and that CitiMortgage, Inc. had indorsed the
note in blank. Unlike the note attached to the original complaint,
this copy of the note did not include an endorsement from Sirva
in blank. The new endorsements were also undated.
Fannie Mae filed a Motion for Summary Judgment that which
was granted by the trial court. The appellate court reversed,
noting the problem with the endorsements:
Here, Fannie Mae filed two copies of the promissory note, each
containing different indorsements. The first note, attached to the
original complaint, was indorsed by Sirva to blank. Therefore,
Fannie Mae could have established that it was the real party in
interest by proving that it had possession of the note. See R.C.
1303.25(B). However, a second copy of the promissory note,
attached to the amended complaint, reflects that Sirva indorsed
the note to CitiMortgage, and CitiMortgage indorsed the note to
blank. Neither copy indicates when the various indorsements
were made.
The inconsistencies between the indorsements contained in the
two copies of the promissory notes raises a genuine issue of
material fact. In reviewing the record, we cannot determine what
the status of the note was at the time the complaint was filed.
Because there is a genuine issue of material fact as to whether
Fannie Mae was a holder of the promissory note at the time the
complaint was filed, the court erred in granting Fannie Maes
motion for summary judgment. Accordingly, Traheys first
assignment of error is sustained.[65]

37. NY CASES WITH ENORSEMENT


ISSUES: HELLER
In Deutsche Bank National Trust Company v. Heller,[66]
Deutsche Bank submitted a copy of a note with an undated
endorsement to Deutsche Bank to support its motion for
Summary Judgment, but the copy of the note annexed to the
plaintiffs original complaint contained no such
endorsement. The appellate court found that Summary
judgment was inappropriate because it was not clear from the
undated endorsement whether the endorsement was effectuated
prior to the commencement of the action.

38. NY CASES WITH ENORSEMENT ISSUES:


HOSSAIN
In Deutsche Bank National Trust Company v. Hossain,[67]
summary judgment for Deutsche Bank was denied where
Deutsche Bank originally filed an unendorsed note, then filed a
note with an allonge endorsing the note in blank in support of
Summary Judgment, with an explanation by the banks lawyer
that the endorsement page had been inadvertently omitted. The
court found this explanation to be insufficient.

39. NY CASES WITH ENORSEMENT ISSUES: DE


LOS RIOS
An undated allonge similarly appeared mid-litigation in U.S. Bank
Natl. Assn. v. De Los Rios,[68] where the Court denied Summary
Judgment, noting, in part, Furthermore, the plaintiff has not
provided an explanation as to why a different version of the note
without the without the allonge was produced by it.

40. NY CASES WITH ENORSEMENT ISSUES:


MCRAE
Deutsche Bank Natl. Trust Co. v. McRae,[69] also involved an
unendorsed note that was later replaced with a note with an
endorsement in blank. The court found this suspect and
insufficient, stating:
By way of the September 8, 2009 Order, this court previously
determined that Plaintiff lacked standing, because it failed to
submit evidence of proper assignment/delivery of mortgage and
note. Thereafter, Plaintiff submitted a second copy of the Note,
which for the first time contained an endorsement by First
Franklin, a Division of National City Bank of Indiana, to First
Franklin Financial Corporation, and an endorsement in blank by
First Franklin Financial Corporation. The endorsement in blank,
however, is undated. In stark contrast, the copy of the Note
attached to the complaint bears no such endorsements.
Obviously, the endorsements were made in response to the
September 8, 2009 Order, which post-date the commencement
of this case (in January 2009), and are ineffective.

41. NY CASES WITH ENORSEMENT ISSUES:


BARNETT
The endorsements in Deutsche Bank National Trust Company v.
Barnett,[70] were also found to be insufficient to confer standing,
and the inconsistencies raised an issue of fact as to the plaintiffs
standing to commence the action where the plaintiff submitted
copies of two different versions of an undated allonge.

42. MORGAN: A KENTUCKY DECISION ON


ENDORSEMENTS
An allonge also appeared mid-litigation in a Kentucky case,
Morgan v. HSBC Bank USA,[71] where initially, HSBC produced
a note between Ownit and Morgan, and subsequently, at the
summary judgment stage, produced another note with an allonge
purporting to assign the note to HSBC. In its order granting
summary judgment, the trial court held that the endorsement in
the note allonge by Richard Williams, as president of Litton Loan
Servicing LP and attorney-in- act for Ownit, was sufficient proof
that HSBC was a holder of the note. The appellate court
reversed and stated that it found it troubling that when HSBC
initially filed suit, a copy of this note was not attached and that
later, this undated note allonge purporting to indorse the note to
HSBC appeared in the record.

THE TWO KEY THRESHOLD QUESTIONS


In every foreclosure, the two key threshold questions are:
1. Was the note endorsed in blank or by special
endorsement to the party seeking to foreclose?
2. Was the note endorsed and delivered before the
foreclosure complaint was filed?
The issue of note endorsements is critical in foreclosures
because most foreclosures involve notes and mortgages that
have been transferred several times. Many courts have found
that without any endorsements, only the original lender identified
on the note has standing to foreclose.[72] Courts in almost every
jurisdiction were slow in recognizing that unendorsed notes do
not establish a third-partys right to foreclose, but by 2014, most
courts ask the key question of whether the note was properly
endorsed. As the Court explained in Servedio v. US. Bank,[73]
A plaintiff must tender the original promissory note to the trial
court or seek to reestablish the lost note under section 673.3091,
Florida Statutes Moreover, if the note does not name the
plaintiff as the payee, the note must bear a special indorsement
in favor of the plaintiff or a blank indorsement. Alternatively, the
plaintiff may submit evidence of an assignment from the payee to
the plaintiff or an affidavit of ownership to prove its status as the
holder of the note.[74]
An unendorsed note is insufficient by itself to establish standing
to foreclose in most jurisdictions in 2014. Because the end-result
when a bank files a note missing an endorsement, or with a
special endorsement to another party, as in the Romero case
(number one above), is often dismissal of the banks case, there
is considerable incentive to add an endorsement, particularly
because it is very difficult to challenge an endorsed original note
filed at the inception of the case. Where the endorsement
suddenly appears, as in the cases discussed above, the
defending homeowner is often successful in challenging the
banks standing to foreclose. Where the loan documents look
correct, however, the bank most often prevails even if the
notes and/or endorsements were created the week before trial
by a bank litigation specialist team as described in Kemp.

SERVICERS WERE REQUIRED BY THE


TRUST AGREEMENTS TO USE THE
ORIGINAL ENDORSED NOTES IN
FORECLOSURES
Many of the cases involving notes, endorsements and
foreclosures have arisen because of a common practice of
banks to begin foreclosure proceedings, in both judicial and non-
judicial states, before the actual, original note has been delivered
to the law firm representing the bank. The banks either allege
that the original note has been lost, or they attach a copy of the
note as it appeared at closing, or both.
The Pooling and Servicing Agreements (PSA) for almost every
trust specifically address the documents that the trustees and
servicers are supposed to use in foreclosures. According to the
trust documents, when there is a foreclosure, the servicer is
supposed to send a Request for Release of Mortgage
Documents form to the document custodian. Within three
business days, the custodian us supposed to send the original
mortgage file, including the properly endorsed note, by overnight
mail, to the servicer to be used in the foreclosure proceeding.
These requirements are usually set forth in a provision of the
PSA titled Trustee to Cooperate; Release of Mortgage Files. In
Soundview Home Loan Trust 2006-OPT2, for example, this
provision is found in section 3.17(b) which states, in pertinent
part:
From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan the Custodian, pursuant to
the Custodial Agreement, shall, upon any request made by or on
behalf of the Servicer and delivery to the Custodian of two
executed copies of a written Request for Release release the
related Mortgage File to the Servicer or its designee within three
Business Days, which, shall be sent by overnight mail, at the
expense of the Servicer or the related Mortgagor, and the
Trustee (or the Custodian on behalf of the Trustee) shall, at the
written direction of the Servicer, execute such documents
provided to it by the Servicer as shall be necessary to the
prosecution of any such proceedings.
The term Mortgage File is defined in the definitions section of
the PSA as The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional
documents required to be added to the Mortgage File pursuant
to this Agreement.
Section 2.01 lists six documents that are to be contained in each
mortgage file for each loan in the pool: 1) the original Mortgage
Note endorsed either (A) in blank or (B) in the following form:
Pay to the Order of Deutsche Bank National Trust Company,
without recourse; 2) the original mortgage with evidence of
recording thereon; 3) unless the mortgage is a MERS loan, an
original Assignment, in form and substance acceptable for
recording, assigned either (A) in blank or (B) to Deutsche Bank
National Trust Company, as trustee, without recourse; 4) an
original of any intervening assignment of Mortgage, showing a
complete chain of assignments or to MERS if the mortgage loan
is a MERS loan; 5) the original or a certified copy of the lenders
title insurance policy; and 6) the original or copies of each
assumption, modification, written assurance or substitution
agreement, if any.
In many cases, when the original note was eventually filed, the
note differed from the note that was filed at the commencement
of the foreclosure action. This failure to use the original endorsed
note is a breach of the PSA provisions set forth above. This
short-cut used in a rush to foreclose has resulted in significant
increased expense for the foreclosing banks and for the
homeowner litigants. Nevertheless, perhaps because law firms
received the bulk of their fees when the complaint was
commenced, the common practice was a shoot first ask
questions later approach in foreclosure litigation.

WERE THE ORIGINAL NOTES


SHREDDED OR NEVER DELIVERED?
The Florida Bankers Association confirmed the routine
destruction of promissory notes in Comments submitted by the
Association to the Florida Supreme Court when the Court was
considering an amendment to the Florida Rules of Civil
Procedure to require verification of residential mortgage
foreclosure complaints, stating:
It is a reality of commerce that virtually all paper documents
related to a note and mortgage are converted to electronic files
almost immediately after the loan is closed. Individual loans, as
electronic data, are compiled into portfolios which are transferred
to the secondary market, frequently as mortgage-backed
securities. The records of ownership and payment are
maintained by a servicing agent in an electronic database.
The reason many firms file lost note counts as a standard
alternative pleading in the complaint is because the physical
document was deliberately eliminated to avoid confusion
immediately upon its conversion to an electronic file. See State
Street Bank and Trust Company v. Lord, 851 So. 2d 790 (Fla.
4th DCA 2003). Electronic storage is almost universally
acknowledged as safer, more efficient and less expensive than
maintaining the originals in hard copy, which bears the
concomitant costs of physical indexing, archiving and
maintaining security. It is a standard in the industry and
becoming the benchmark of modern efficiency across the
spectrum of commerceincluding the court system.
There is also some evidence that original loan documents could
be sitting in warehouses after the lenders filed for bankruptcy
and closed their offices. In the bankruptcy case of Mortgage
Lenders Network USA, the U.S. Attorney in Delaware formally
objected to a trustees request to destroy 18,000 boxes of
records to eliminate the storage costs. Similarly, in the American
Home Mortgage bankruptcy case, thousands of boxes of
documents were stored or destroyed. The New Century
Mortgage Liquidating Trust Trustee in February, 2013 also
sought permission to destroy thousands of boxes of loan
documents.

WILL INVESTORS HOLD THE BANKS


ACCOUNTABLE?
Lawsuits regarding the missing loan documents and quality of
loans were filed by investor groups, including Massachusetts
Mutual Life Insurance Company,[75] Dexia SA/NV, Dexia
Holdings, Dexia Asset Management and Dexia Credit Local,
SA,[76] the Oklahoma Police Pension and Retirement
System,[77] MASTR Asset-Backed Securities Trust 2006-
HE3,[78] HSH Nordbank AG,[79] Phoenix Light SF Limited, [80]
John Hancock Life Insurance Company,[81] Blackrock Allocation
Target Shares: Series S Portfolio,[82] Blackrock Balanced
Capital Portfolio (FI),[83] BlackRock Allocation Target Shares:
Series S Portfolio,[84] BlackRock Allocation Target Shares:
Series S Portfolio,[85] BlackRock Balanced Capital Portfolio
(FI),[86] and BlackRock Core Active Libor Fund B.[87]
These lawsuits generally claim that representations and
omissions regarding the transfer of good title to the mortgage
loans were false and misleading. The discovery in these cases
will certainly involve testimony by the employees who were
responsible for receiving and safeguarding the loan documents
for the trusts, the employees who found the tens of thousands of
lost notes and the litigation specialists who added the missing
endorsements.
Before investors can regain the confidence to again make
significant investments in residential mortgage-backed securities,
issues regarding missing notes, endorsements, and possible
fabrication of loan documents need to be resolved, including:
Were defective loan documents, including unendorsed
notes and mortgage assignments in unrecordable form
delivered to thousands of trusts?
Were the actual promissory notes never delivered, or
delivered and destroyed, or delivered, but in non-negotiable,
unendorsed form?
Did the trustees fail to examine the loan documents and
reject any loan with defective documentation?
How often did litigation specialists recreate the missing
notes and/or add the missing endorsements?
How do we compensate past investors and protect future
investors from these crimes and failures?

[1] In Re Jessie M. Arizmendi, 09-19263-PB13, United States


Bankruptcy Court, S.D. of California.
[2] Many courts and authors prefer the spelling indorsements.
[3] Bank of New York as Trustee for Popular Financial Services
Mortgage Pass-Through Certificate Series #2006 v. Joseph A.
Romero, et al., 2014 N.M. Lexis 81.
[4] The Court also held that a borrowers ability to repay a home
mortgage is one of the borrowers circumstances that lenders
and courts must consider in determining compliance with the
New Mexico Home Loan Protection Act (HLPA) and that the
HLPA is not preempted by federal law.
[5] Romero, op. cit., 23.
[6] Id. 22.
[7] Id. 26.
[8] Id. 27.
[9] Id. 6.
[10] New Mexico Court of Appeals, 31,503 (N.M. Ct. App. 2014).
[11] Id. at 13.
[12] 2011 VT 81, 190 Vt. 210; 27 A.3d 1087.
[13] Id. at 14.
[14] 2012 OK 3, 270 P.3d 151.
[15] Id. at 11.
[16] 2012 OK 23, 276 P.3d 176 (2012).
[17] 2012 OK 14, 273 P. 3d 43 (2012).
[18] 2012 OK 15, 273 P. 3d 50 (2012).
[19] 2012 OK 22, 278 P. 3d 586 (2012).
[20] 2012 OK 25, 275 P. 3d 144 (2012).
[21] 2012 OK 26, 275 P. 3d 147 (2012).
[22] 2012 OK 43, 280 P. 3d 936 (2012).
[23] 2012 OK 54, 280 P. 3d 328 (2012).
[24] 109 So. 3d 1285 (Fla 5th DCA 2013).
[25] 28 So. 3d 936 (Fla. 2d DCA 2010).
[26] Id.
[27] 28 So. 3d 976 (Fla. 2nd DCA 2010).
[28] Case No. CA0900418, St. Johns County, FL.
[29] 72 So. 3d 211 (Fla. 5th DCA 2011).
[30] 80 So. 3d 375 (Fla. 2d DCA 2012).
[31] 79 So. 3d 170 (Fla. 4th DCA 2012).
[32] 95 So. 3d 251 (Fla. 2d DCA 2012).
[33] 93 So. 3d 453 (Fla. 2d DCA 2012).
[34] 109 So. 3d 224 (Fla. 2d DCA 2012).
[35] Case No. 27-2009-CA-003121, Hernando County, FL,
October 25, 2012.
[36] 104 So. 3d 1274 (Fla. 4th DCA 2013).
[37] 112 So. 3d 596 (Fla. 1st DCA 2013).
[38] 124 So. 3d 308 (Fla. 2d DCA 2013).
[39] No. 4D12-2190 (Fla. 4th DCA 2012).
[40] Case No. 6:09-bk-12240-AB, (Bankr. M.D. Fla. 2009).
[41] Id. at 8-9.
[42] 440 B.R. 624 (Bankr. D.N.J. 010).
[43] Id, footnote 7.
[44] Gretchen Morgensen, Flawed Paperwork Aggravates A
Foreclosure Crisis, New York Times, October 3, 2010.
[45] Abigail Field, At Bank of America, more incomplete
mortgage docs raise more questions, Fortune, June 3, 2011.
[46] Abigail Field, Whos to Blame for the Mortgage Mess?
Banks, Not Homeowners, Daily Finance, January 30, 2011.
[47] Yves Smith, Countrywide Admits To Not Conveying Notes
to Mortgage Securitization Trusts, Naked Capitalism, November
21, 2010.
[48] Kate Berry, Foreclosure Mess Threatens To Hit
Securitization Trustees, American Banker, November 8, 2010.
[49] David Dayen, Deposition: Countrywide Never Sent
Mortgage Notes to Trust; Mortgage-Backed Securities in
Question, Firedoglake, November 21, 2010.
[50] Catherine Curan, Wells Fargo Made Up on-demand
foreclosure papers plan: court filing charges, New York Post,
March 12, 2014.
[51] 2011 WL 1465559 (Bankr. S.D.Cal. April 14, 2011).
[52] Id. at 18-19.
[53] Supra.
[54] Arizmendi, Supra.
[55] 427 B.R. 13 (Bankr. D. Ariz. 2010).
[56] Id. at 18-19.
[57] 2010 WL 3022038, (D. AZ, July 9, 2010)(unreported
decision).
[58] Id. at 1.
[59] 2014-Ohio-1333.
[60] Id. at 10-11.
[61] 6th Dist. No. S-12-004, 2013-Ohio-8.
[62] 9th Dist. Lorain No. 12CA010209, 2013-Ohio-3071.
[63] McGinn, Supra at 23.
[64] Id. at 24-25.
[65] Trahey, Supra at 11-12.
[66] 100 AD 3d 68 NY; Appellate Div. 2nd Dept. 2012.
[67] 2013 NY Slip Op 30096(U) NY: Supreme Court 2013.
[68] 2014 NY Slip Op 30153 NY: Supreme Court 2014.
[69] 2010 NY Slip Op 20020 NY: Supreme Court, Alleghany,
2010.
[70] 88 AD3d 636, 931 NYS2d 630 [2d Dept. 2012].
[71] 2011 WL 3207776 (Court of Appeals of KY, 2011).
[72] See, e.g., Douglas J. Whaley, Mortgage Foreclosures,
Promissory Notes and the Uniform Commercial Code, 39 W. St.
U. L. Rev. 313 (2012), describing the Golden Rule of Mortgage
Foreclosure under the Uniform Commercial Code as prohibiting
foreclosure unless the creditor possess[es] the properly-
negotiated original promissory note. See, also, Fed. Home Loan
Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 1, 2012-Ohio-
5017, 979 N.E.2d 1214, 28; Deutsche Bank National Trust
Company v. Bodzianowski, Case No. 1:11-cv-01950 (N.D. ILL
October 11, 2011) and Deutsche Bank v. Francis, 2011 NY Slip
Op 50423(U), Index: 10441/09.
[73] 46 So. 3d 1105 (Fla. 4th DCA 2010).
[74] Id. at 2-3 (cites omitted).
[75] Massachusetts Mutual Life Insurance Company v. DB
Structured Products, Inc., et al., Case No. 3:11-cv-30039, U.S.
District Court, District of Massachusetts, filed February 16, 2011.
[76] Dexia SA/NV; Dexia Holdings, Inc.; Dexia Asset
Management, LLC; Dexia Credit Local, SA v. Deutsche Bank
AG, et al., Supreme Court of New York, County of New York,
filed July 13, 2011.
[77] Oklahoma Police Pension & Retirement System v. U.S.
Bank NA, Case No. 1:11-cv-08066, U.S. District Court, Southern
District of New York, filed November 19, 2011.
[78] MASTR Asset-Backed Securities Trust 2006-HE3 by U.S.
Bank, N.A. v. WMC Mortgage Corporation and Equifirst
Corporation, Case 0:11-cv-02542-PAM-TNL, U.S. District Court,
District of Minnesota, filed September 2, 2011.
[79] Index No. 652678/2011, Supreme Court of New York,
County of New York, filed April 2, 2012.
[80] Lead Case No. 2-11-ml-02265-MRP-MAN, U.S. District
Court, Central District of California.
[81] Case No. 1:2012cv03184, U.S. District Court, Southern
District of New York, filed April 23, 2012.
[82] Blackrock Allocation Target Shares: Series S Portfolio v.
U.S. Bank National Association, Index No. 651864/2014,
Supreme Court of New York, County of New York, filed June 18,
2014.
[83] Blackrock Balanced Capital Portfolio (FI) v. Deutsche Bank
National Trust Co. Index No. 651865/2014, Supreme Court of
New York, County of New York, filed June 18, 2014.
[84] BlackRock Allocation Target Shares: Series S Portfolio v.
Bank of New York Mellon, Index No. 651866/2014, Supreme
Court of New York, County of New York, filed June 18, 2014.
[85] BlackRock Allocation Target Shares: Series S Portfolio v.
Wells Fargo Bank N.A., Index No. 651867/2014, Supreme Court
of New York, County of New York, filed June 18, 2014.
[86] BlackRock Balanced Capital Portfolio (FI) v. Citibank N.A.,
Index No. 651868/2014, Supreme Court of New York, County of
New York, filed June 18, 2014.
[87] BlackRock Core Active Libor Fund B v. HSBC Bank USA,
Index No. 651869/2014, Supreme Court of New York, County of
New York, filed June 18, 2014.

ABOUT THE AUTHOR

Lynn Szymoniak is an attorney who has been active in the South


Florida area for thirty years. From cases ranging from civil rights
issues, insurance fraud, and election procedures, Lynn
Szymoniak has a reputation for being a dogged defender of
justice and has been called as an expert witness for the United
States Government. In 2010, facing foreclosure after being
forced from work by breast cancer and to care for her ailing
mother, Lynn Szymoniak noticed inconsistencies in the banks
paperwork. This lead to the discovery of the illegal practice
known as robo-signing, where banks fake needed signatures to
foreclose on homes. Lynn Szymoniak sued on behalf of the
government, forcing the banks to date to pay out over $95 Million
to HUD to be used for foreclosure relief, allowing people behind
on their mortgages to find a way to stay in their homes. Lynn
Szymoniak took her share of the settlement and founded the
Housing Justice Foundation, an organization dedicated to
helping the victims of foreclosure fraud and exposing the crimes
of predatory lenders.