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10/1/11 1:41 PM
The Florida Bar
The Florida Bar News
September 15, 2011
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Who owns the note?
Paperwork problems still plague foreclosure actions
By Gary Blankenship
Senior Editor John Adams, as a new lawyer, was very nervous when he tried his first case in court, according to biographer David McCullough. The future second president of the United States was representing a man whose crops were damaged when a neighbor’s horses broke through a fence. He lost the case because, in preparing the necessary writ, Adams omitted the required words “the county in the direction to the constables of Braintree.” (Or perhaps that technicality was important because his opposing counsel was the son of the judge.) There’s an echo of Adams’ woes resounding in mortgage foreclosures and the scandals surrounding faulty paperwork filed in Florida and around the country by lenders and those servicing mortgages. Questions raised include: How widespread is the problem with “robosigned” documents, that is, foreclosure paperwork signed by people who aren’t familiar with the cases and who haven’t personally verified the information is correct? Or problems with improper notarization of foreclosure documents, with improper service, or with missing mortgage assignments, or in some cases outright forged documents?
What’s the Significance?
Beyond that, are the problems with the documents significant? Are they just technical and don’t affect the underlying failure of the borrower to repay the lender? Is a missing assignment as mortgage notes change hands more or less significant than a robosigned affidavit? Are paperwork snafus significant challenges to the functioning of the legal system that also carry implications on the trustworthiness of the title of foreclosed property? The answers may well affect the ability of Florida courts to handle nearly 400,000 pending cases. Florida’s court funding is also heavily dependent on forclosure filing fees. The slowdown in filings following the revelations a year ago of paperwork problems turned a surplus in court funding into a deficit and forced the courts to borrow money to finish the last fiscal year and begin the current one.
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according to its website. and it would be rare to find one [a foreclosure] that didn’t have some type of issue.Who owns the note? 10/1/11 1:41 PM For the moment. because they were handled the same way to get them ready to be bundled and sold as mortgage-backed securities. a claim that’s been repeated by others. “Either it wasn’t a verified complaint. who defends homeowners in foreclosure actions. MERS keeps track of when mortgages and notes are bought. Charney said. and when they do have to explain themselves.” said April Charney. or the affidavits of the amounts due and owing were not done under personal knowledge. https://www.” Robosigning was rampant.floridabar. a founding member of 4closurefraud. That’s because of Florida case law and what they see as due process protections in the foreclosure process that give foreclosed property owners a chance to challenge.) Michael Redman. title insurers. Created by the real estate financing industry. (Two Florida district courts of appeal have upheld MERS participation in foreclosures. MERS.nsf/0/1ECF0330FF80AED5852579090042EF92?OpenDocument Page 2 of 6 .” Redman said.) “We used to spend hours upon hours in the file rooms. and packaged into securities.” Golant said. the plaintiffs fight tooth and claw to avoid discovery. Then you almost definitely have fraudulent paperwork in the chain of title on that loan. “They don’t want to explain themselves. which banks said were ended last year. “Most of these cases are not litigated.” She said the problem extends beyond foreclosures into the paperwork of most mortgages in recent years. everyone has the same virus because it was so systemic.” Redman continued. pointing to depositions where signers admitted they signed hundreds of files a day without personally verifying the correctness of the figures. sold. “eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans. But MERS never did the proper paperwork to allow participating companies to appoint signers for documents or to legally sign the required transfer paperwork.” Instead. Charney said. you can find the fraud on the face of the document. they can’t. including Michigan and Massachusetts (both have nonjudicial foreclosures) have either questioned or banned MERS or MERS documents from being used in foreclosures.” Despite claims by major banks that they have overhauled their foreclosure paperwork preparation. “The real question is what is the percentage that’s not affected. nonetheless are continuing. The problems also were caused by the Mortgage Electronic Registration System. Some courts in other states. Those that are.” “If you know what you’re looking for.com. “I’d say it’s still questionable. “It’s likely in any residential mortgage loan where there has been some transfer from the originating lender. a citizen group based in Palm Beach County that helps homeowners fight foreclosures.org/__85256AA9005B9F25. Boca Raton’s Margery Golant. said there’s no difficulty finding defective paperwork.” she said. Petersburg Times have all published recent stories claiming that abuses in foreclosure paperwork. said she thinks robosigning is nearly universal in foreclosure paperwork.” he added. Reuters. and the St. “It’s like paperwork HIV. he added. It’s systemic. say they are still underwriting titles for foreclosed properties sold by banks (but not if the banks retain the title). “I would say it’s in the high 90 percentile that all of it was affected up to early this year. (Associated Press. a Jacksonville Area Legal Aid attorney and acknowledged expert on foreclosure defense. key to a functioning real estate market.
Among the findings were that owners could be determined only on 60 percent of the properties. Jennifer Krell Davis.” Davis said. said 11 investigations have been started.” A coalition of all 50 state attorneys general is negotiating with banks and other mortgage financiers for a national settlement over problems caused by bad foreclosure paperwork.” The website associated with Redman’s group claims to have uncovered evidence that many mortgage originators stopped conveying the notes accompanying mortgages at the height of the housing boom in 200405. “Our investigations are ongoing.Who owns the note? 10/1/11 1:41 PM Redman blamed the real estate financing system during the housing boom.” Davis said. and particularly problematic were those that had MERS paperwork or were owned by federal government-sponsored entities. 4closurefraud. https://www. he claimed. against a law firm.nsf/0/1ECF0330FF80AED5852579090042EF92?OpenDocument Page 3 of 6 . Wells Fargo. Mortgage originators were eager to collect fees and less concerned with making sure all the paperwork was correct. but the Attorney General’s Office has undertaken several investigations of law firms and private companies that prepare foreclosure documents.P. which cooperated in the probe. John O’Brien is the register of deeds for South Essex County in Massachusetts and has gained national attention for his criticisms of foreclosure paperwork filed with his office. including Florida. such as Fannie Mae or Freddie Mac. O’Brien had a forensic audit performed on 2. Much of it was never done. Financial institutions were eager to take the mortgages and bundle them into securities and weren’t concerned that all the paperwork done before the securities were issued. “The Florida Attorney General’s Office has been actively engaged in the ongoing multistate settlement discussions and is working to ensure that the terms of that settlement will improve the foreclosure process moving forward.000 documents filed in 565 mortgage assignments on 473 “unique” mortgage cases by J. Morgan Chase. and one of those. ‘Fraud of the Week’ The site also began a feature called “Fraud of the Week. has been settled. There has been no formal study of foreclosures filed in Florida to determine the extent of the paperwork problems.” where it takes 10 randomly selected foreclosure cases and prints the most “egregious” paperwork deficiency — the assumption being there will be no problem finding multiple problems in any selected 10 cases.org/__85256AA9005B9F25.com concluded the signatures actually were copies run through a computer to add the blue color and make them look original. press secretary for Attorney General Pam Bondi. “We would not be able to provide any conclusions regarding how widespread these document issues are. One problem highlighted by the site last year was a case where two different entities filed “wet ink” signed notes claiming to own the same mortgage. he called his office a “crime scene” because of paperwork. In most states. That law firm. “The problem is there’s no way to fix it without making it [paperwork] up.floridabar. “It was never properly securitized and transferred.” Redman said. paid $2 million and agreed to follow certain practices in foreclosure cases. and Bank of America. Most notably. possession of the note is necessary to show the entity bringing a foreclosure action actually has the right to collect that debt.
but that caused controversy because in some cases it hired lawyers in firms that also were representing MERS in foreclosure cases. authority to do the transfers. about 65 employees.” O’Brien has taken the unusual step of publishing a list of known robosigners and refusing to accept any paperwork with their signatures. Michigan. or about half of the residential market in the U. fraudulent signatures. They were given signing authority. although he hasn’t been able to do a forensic study. Seventy-five percent were invalid.S. as a recordkeeper. they can be transferred from one bank to another. and another 8.” It’s not an inconsiderable problem since. rather. That it may have recordkeeping problems is not surprising. 35 percent had been processed by robosigners. “How can I record something done by a robosigner?” O’Brien said. which is required in Michigan to use its nonjudicial foreclosure process. Instead. the lenders have executed new paperwork with other people signing the affidavits and related paperwork. O’Brien said he forwards those redone filings to the state Attorney General’s Office for investigation of possible fraud. he added. and 10 percent violated the Massachusetts Mortgage Fraud Statute. When he finds a questionable record. None of the affidavits have been signed and returned. Huertel said. The ruling by the Michigan court on MERS foreclosures caused a huge problem. the court said. “Loans go into the MERS system.org/__85256AA9005B9F25. is a nonjudicial. The audit found 27 percent of the invalid assignments were fraudulent. did not actually have a financial interest in the notes. Nor. “This is a nightmare.” (Florida’s clerks of courts say they’re caught in the same bind. Heurtel said it’s likely those sales will be considered final. Heurtel said he’s seen robosigned documents. MERS has handled about 35 million mortgages.floridabar. until recently. foreclosure-by-notice state. along with an additional affidavit for the lender to certify there is nothing wrong with the paperwork. Homes in the middle of foreclosure were in some cases given back to owners who had already vacated — and after the homes had been empty for months or even years with resulting maintenance problems. only 16 percent were valid. although the owners may have to bring actions to quiet titles. he said. The court said that MERS. “MERS was given signing authority by the banks to pretty much handle the work. Huertel said.7 percent were questionable. and I honestly do not know what the solution is. and authority to do the foreclosures.Who owns the note? 10/1/11 1:41 PM Of all the assignments examined. The word they use is ‘nominee. could it be given that interest under state law. because it had. He also said under Michigan law he cannot refuse to record a submitted document “irregardless of whether there’s fraud. Many of the larger banks delegated their foreclosure work to MERS — until an appellate court in April found MERS foreclosures illegal in Michigan. which includes the capital of Lansing. Nonjudicial Foreclosure Curtis Huertel is the register of deeds for Ingham County in Michigan. he returns it to the lender. he forwards it to the Michigan Attorney General and the FBI. to help with the paperwork.nsf/0/1ECF0330FF80AED5852579090042EF92?OpenDocument Page 4 of 6 . and notary fraud.000 lawyers as “vice presidents. As for people who bought foreclosed homes from MERS before the ruling.’” Huertel said.” Huertel said. They have no statutory authority to refuse a https://www. adding that term is somewhat vague since it doesn’t specify that MERS is the servicer of the mortgage. It recently added about 2. The case may still be appealed to the Michigan Supreme Court. Aside from the MERS problems.
and homeowners would never be able to get by with sloppy paperwork and questionable signatures if they were suing the banks. title insurers in Florida are continuing to issue policies on properties sold following a foreclosure. “Any sale affected by that kind of failure can potentially be set aside at anytime in the future. are being closely watched by title insurers. “The whole machinery of foreclosure just totally.” Fields said. they would be prosecuted. is a concern because it could lead to the wrong entity foreclosing on a property.” O’Brien. it undercuts the entire legal system. “there’s no due process if you haven’t served someone. executive director of the Florida Land Title Association. from faulty documents to charges that some homeowners were never served with papers. “They’re producing what looks to be legitimate documents which are meant to fool the legal system. he added. .” Redman.” For the moment.’ it would lock up all the foreclosure sales in Florida because no one would insure them. you do not go into a court of law and try to take someone’s home away with fraudulent documents.” Robosigning. Improperly done foreclosures may create difficulties for subsequent owners if the title is challenged.com. “The case law is fairly strong on that. because an improperly foreclosed home can lead to title questions. One judge saying. while “there is a real owner of the mortgage still out there who can show up at a later date.Who owns the note? 10/1/11 1:41 PM filing and no authority to screen them for accuracy or fraud. He said much will depend on what Attorney General Bondi finds in her ongoing investigations of paperwork irregularities. said citizens’ confidence in the legal system is being damaged.” Golant said. In cases of questionable service.nsf/0/1ECF0330FF80AED5852579090042EF92?OpenDocument Page 5 of 6 . ‘No. Here we have a different fact situation. but it’s also fairly old. the bona fide purchaser is protected from having their foreclosure transfer overturned. Right now. of 4closesure. most banks are able https://www. they don’t have the money to pay for such reviews. That’s not what we do in America. I’m going to set aside these foreclosures even though they’ve been sold.” Redman said. dating back to the Depression. “If they did a tenth of what’s being done to them.” Fields said. Even if they did.org/__85256AA9005B9F25. . obviously disrespects the legal system. said alleged problems in the foreclosure process.) Loss of Faith in the System? Golant.floridabar. When you have people swearing that they’re vice presidents of companies they don’t work for. said the paperwork problems have implications both for property owners and for the legal system. “The case law in Florida is fairly supportive that once you completed a judicial foreclosure. Future Titles in Question Goland and Charney said there also are implications for subsequent owners of foreclosed properties. and when they are swearing they have personal knowledge of facts when they don’t. the Massachusetts deed recorder. . Alan Fields. There’s also a question about whether shoddily done foreclosures undermine faith in the legal system. but that seems to be the case here. the Florida attorney who defends foreclosures. put it like this: “What I’m trying to point out to people is whether people make their mortgage payments or not.
we have not heard of many instances where the information on the affidavits is flawed or inaccurate as to the indebtedness itself. he added.” [Revised: 10-01-2011] © 2005 The Florida Bar | Disclaimer | Top of page | News HOME https://www. Then insurers aren’t willing to step up because the banks do not have the protection of being a bona fide purchaser. “The Fund firmly believes judicial foreclosure gives borrowers every opportunity to raise all defenses. That’s one reason that judicial foreclosures. in the Fund’s opinion. that they might have to an attempted foreclosure of their property. including supporting documents. after a facial review of the file. “It is those due process protections that provide confidence to purchasers of foreclosed property. it’s different if banks keep the title. Pat Jones.Who owns the note? 10/1/11 1:41 PM to find someone.” Jones said. Fields said getting title insurance will remove the risk associated with any future challenge.org/__85256AA9005B9F25. said while robosigning and other document problems “are troublesome. procedural and substantive. are more worthy of underwriting than nonjudicial foreclosures.” However.nsf/0/1ECF0330FF80AED5852579090042EF92?OpenDocument Page 6 of 6 .floridabar. she said. associate general counsel and vice president for underwriting for Attorneys’ Title Fund Services.” Due process protections of the foreclosure process are important. because it means that owners have been served and have a chance to challenge the validity of a foreclosure. The improper execution of documents in a foreclosure action is not something that a title examiner can readily identify. For those looking to purchase foreclosed properties. willing to insure it.