The four fraud patterns; assignment fraud, endorsement fraud, affidavit of indebtedness fraud, and notarization fraud.
At Naked Capitalism Michael Olenick detailed how easy it is to spot the industrialization of document creation and execution by looking at where people signing the documents are. Based on his analysis of Palm Beach County records, there’s factory floors in:
“35 different states, and 101 different counties…
“…California overall notarized 815 Florida assignments, 32.6% of the total. Florida, which you’d expect, came next with 610 assignments, or 24.4% of the total, followed by Minnesota (9.3%), Texas (7.3%), Ohio (4.8%), Georgia (4.5%), Louisiana (2.8%), and Nebraska (2.6%). All other states had less than 2%.
Banks and their vendors like LPS run these knock-off document factories, producing documents that are just like those cheap purses with fake luxury labels sold in Chinatown. That is, the documents look right but couldn’t be more false.
Actually, the documents produced in the document factories are more fake than knock-off luxury items because counterfeiting is about mimicry, accurately copying the original. These documents have no originals to copy; they are pure fabrications. And not even their creators or the people who give them to courts believe that they mean what they say. Everyone’s clear that these papers are created to check legal boxes that the mortgage servicers and traders long ago decided were irrelevant to their business models.
The name I have for what’s going on in these production facilities is “document fraud.”
By document fraud, I mean specific fact patterns, not a specific crime. It’s the difference between saying someone’s intentionally starting fires and saying they’re committing arson.
Document Fraud Defined
Specifically, I mean four fact patterns; assignment fraud, endorsement fraud, affidavit of indebtedness fraud, and notarization fraud. I spell out each in turn:
A) Assignment Fraud: Giving courts and homeowners a document that claims a mortgage or deed of trust and sometimes the underlying note is being transferred with the signing of the document, when that’s blatantly false.
For example, this assignment, which was recorded in San Bernadino County, California on July 28, 2011 was “signed” with two initials by T. Sevillano, Assistant Secretary of Home123 Corporation, and claims the following:
“For value received, the undersigned hereby grants, assigns, and transfer [sic] to:
Deutsche Bank National Trust Company as trustee on behalf of the Certificateholders of the Morgan Stanley ABS Capital I Inc. Trust 2006-HE6, Mortgage Pass-Through Certificates, Series 2006-HE6
all beneficial interest under that certain deed of trust dated  2006…together with the note or notes therein described or referred to, the money due and to become due thereon with interest….
Dated: July 21, 2011.”
According to what this official, public document affecting private property rights in land says, T. Sevillano is an Assistant Secretary of Home123 Corporation and on July 21, 2011 Sevillano transferred a complete mortgage home loan, note and deed of trust, from Home123 to a securitization trust formed in 2006. Every single component of that narrative is false. Let us count the ways:
1) T. Sevillano is not in any meaningful sense an Assistant Secretary of Home123 any more than T. Sevillano is an Assistant Secretary of MERS or an Assistant Vice President of Bank of America. T. Sevillano is an employee on a document factory floor that has various “limited signing authority” authorizations that confer fancy-sounding titles for multiple entities.
T. Sevillano “signs” so many documents a day under these authorizations that she or he has switched to using just his or her initials. Ask a real Assistant Vice President of BofA what they do all day and I’ll guaranty it’s not sit around signing stacks of mortgage assignments.
Almost certainly the ultimate employer of T. Sevillano during the moment s/he is executing this assignment is the servicer of this mortgage, which is to say, the securitization trustee employing the servicer. That’s how it always works with MERS mortgages at least, and there’s no reason to think servicer employees/agents aren’t fabricating the paperwork for non-MERS loans. That is, it’s the servicer who knows the document is needed, so it’s the servicer who makes it happen. Home123 didn’t hire T. Sevillano and deputize him or her to assign the assets of Home123 to other companies. The trustee’s agent–the servicer–did, and so either directly or through its own agent(s), the trustee “assigned” the assets to itself.
2) Regardless of T. Sevillano’s ultimate employer, s/he is no longer authorized in any sense to transfer notes and mortgages for Home123. Home123 corporation is a subsidiary of New Century Mortgage and has been in bankruptcy in Delaware for a few years. (See this post for more.) Only the liquidation trustee or its agent can transfer assets from the bankrupt company. No way has T. Sevillano been so deputized. Don’t be confused by any new Home123 incarnation; the loan at issue in that assignment predated the bankruptcy and was issued by the original Home123.
This order in the New Century bankruptcy, in the original or as revised in light of this case (which essentially says do what you have to do to foreclose on property which you think we own or owned without bothering the court for permission, though we’re not validating your claim that we own or owned anything), does not change the false nature of the Home123 “Assistant Secretary” title. The current entity with authority to act (if any) should be executing the document. Or to put in another way, the bankruptcy court can’t authorize mortgage servicers to fabricate and file fraudulent documents.(Thanks to Anita Carr for the orders and case.)
3) No “value” was “received” for this assignment. That’s not how these work. The mortgage servicer or its agent–invariably in the case of MERS, probably invariably in all other cases–creates the document assigning the mortgage/deed of trust and sometimes note to itself or the securitization trustee it works for. The money that changed hands for the mortgage and note in this assignment flowed in 2006, when the freshly originated loan passed through the securitization chain and into the trust on this assignment.
Actually, the money changed hands back then, but it’s not at all clear the mortgage and note made it into the trust; securitization fail may be very widespread. I mean, Deutsche Bank itself told the American Home Mortgage bankruptcy court that:
“…there exist missing or defective loan file documents for several billion dollars in original principal amount of the loans.” (Bold added.) Deutsche is only talking about the loans it handles as document custodian; it also tells the court other document custodians are missing lots of American Home documents as well. (excerpt is from an earlier blog post of mine)
And there’s no reason to think American Home is some kind of unique situation.
Regardless, when the document claims this 2011 assignment is being done for value received, it’s lying.
4) Back in 2006, when value was received for this loan, the securitization trust/Deutsche Bank as trustee did not give that value to Home123. Home123 isn’t a even a party to the Pooling and Servicing Agreement allegedly covering this loan.
According to Section 2.01 of that agreement, the “Depositor”, a Morgan Stanley special purpose entity sells the notes and mortgages to the trust. That is, the trustee is giving value (via the investors) to Morgan Stanley in 2006; an honest assignment would have been created then and would be from the Morgan Stanley entity to the trustee.
5) The role of the Morgan Stanley entity and the other intervening securitization chain players exposes another false feature of this assignment: at no time, not now, not in 2006, did Home123 transfer anything to the trust or trustee. And even if Home123 did still exist, and did have a T. Sevillano working for it, and even if Home123 did tell T. Sevillano to assign this mortgage and note to the trust, that effort would still fail because Home123 hasn’t owned the loan since 2006. It has nothing to assign.
Well, maybe, because of securitization fail, its parent New Century does have the loan to assign, but nobody, including the liquidation trustee, is acting like the company still owns these loans. See for example this order and related blog post (not mine), which outline a situation in which is a bit unclear but involves a home loan issued and claimed transferred by Home123 before the bankruptcy.
Moreover, Home123′s business model, like its parent’s, involved making mortgages for the securitization machine. It did not originate loans to hold. So it’s a pretty safe bet that the loans were sold early on. And those that weren’t are part of the bankruptcy estate and no T. Sevillano has the authority to transfer them.
6) The assignment claims that the trust is receiving the note and mortgage now. Not only is that impossible because the trust is forbidden by its contracts from receiving property at this late date, but the trustee would deny the transfer is happening now if asked by an investor or accountant. I mean, that would be clear securitization fail.
In sum, the only true statements in this “assignment” are the ones that describe the deed of trust, its original recording, and the date of execution.
The factory producers of these documents understand their falsity, but don’t think it matters because the documents aren’t affidavits created under the penalty of perjury. At least, that’s how Nationwide Title Clearing explained it to me when I wrote about three depositions of their employees for DailyFinance a year ago:
“Said Nationwide Senior Vice President Jeremy Pomerantz in a statement responding to a request for comment:
“We will continue to cooperate with those who are attempting to protect consumers and uphold justice, but it is unethical to imply that long-standing industry practices, which have been found in court to be legal methods of preparing common mortgage related documents, are somehow harmful to consumers. We’re disappointed in how this was handled but are very proud of our employees for doing a great job of serving the firms that service mortgage borrowers and for clearly describing what we do in their depositions.”
“When I asked Nationwide what it meant by the bolded language, it explained that it doesn’t prepare affidavits — the sworn, based-on-personal-knowledge documents that are at the heart of the robo-signing scandal. Instead, it prepares “assignments of mortgage” and other documents that do not have the penalty of perjury attached to them.
Nationwide also emphasized that its practices are industry standard and that it did not prepare “foreclosure documents, which do require the person to attest to more specific knowledge of the information.” As of publishing, Nationwide hadn’t provided a court decision to cite for the bolded language. [bold is from my original article; I've added the underlining now.]
Noteworthy beyond the ‘they’re not affidavits so who cares if they’re false’ defense is the ‘this is how its done by everybody for years’ defense and the statement that the company’s proud of its employees for accurately testifying about the company’s practices. I mean, read my article on what the employees testified.
B) Endorsement Fraud- Countrywide documents infamously lack endorsements, but the Deutsche Bank filing I reference above makes clear those aren’t the only ones. And yet notes that were originally filed without endorsement suddenly are often refiled with endorsements. While it’s possible that in some situations these new notes are more accurate than the original filing, it’s almost certainly true that in many cases these endorsements are fabrications for litigation. (Unlike AGs/DOJ I don’t have subpoena/search warrant power so I can’t say for sure, but Linda DiMartini of BofA testified about preparing allonges [endorsements] as needed for litigation.) I mean, it’s fraud to make up evidence for trial.
A likely example of endorsement fraud recently caught the attention of a Florida judge, as foreclosure defense attorney Mark Stopa related here. Lisa Epstein of Foreclosure Hamlet has many likely examples here.
C) Affidavit of Indebtedness Fraud- Giving courts and homeowners documents swearing as to amounts due when the amounts are demonstrably wrong so often that it’s clear that the servicers generating the numbers are indifferent to accuracy, at best, and are deliberately skewing the numbers at worst.
For example, Adrian Lofton, a former LPS employee, swore that LPS screwed up the records of the banks it worked for, both the current and defaulted accounts, as I reported for DailyFinance last spring. Or consider that mortgage servicers are notorious for larding illegal fees on homeowners accounts, leading to “servicer driven foreclosures.” Finally consider that servicers can systematically misapply payments, as judge Magner discovered and Matt Stoller discusses here.
Of course, there’s all the robosigning lack of personal knowledge fraud problems with these documents too.
D) Notarization Fraud- having people make a travesty of notarization by making the formal marks on paper needed for proof of authenticity when the underlying conduct instead couldn’t be more fake: forged signatures, false witness. I mean, the raison d’etre of notarization is to prevent fraud. (See “Background” on page 2 of this notary manual, e.g.) And remember, we’re talking about land, and as Yves Smith detailed a year ago, we have a “Statute of Frauds” precisely because our legal ancestors faced a corrupt and fraudulent system of stealing land.
Bring On the Search Warrants
So, Attorneys General and US Attorneys, think you can find any crimes in those four fact patterns? The Nevada AG did, and surely you can too. And please, look hard: can you find a related conspiracy charge? Those are particularly juicy as all you prosecutors know.
But if you do find criminal charges in those fact patterns, remember, those fact patterns (except, arguably, endorsement fraud) are the business model for all the companies in the foreclosure industry, both the document factory vendors (and sometimes banks) and the banks that employ them. If you can find crimes in those fact patterns, how are those companies anything other than criminal enterprises? That is, organized crime syndicates? Seems to me these crimes, which involve stealing homes and messing up land records and generally asserting a non-existent privilege of being above the law hurt far more people than mobsters generally do.
So here’s the thing: if you can figure out criminal charges in those fact patterns, where are the search warrants? Why don’t you go to the document factory floors and seize computers and stuff? Why don’t you investigate whether the servicers are systematically misapplying payments? (Hint: see what their software is programmed to do.)
And if you can’t figure out criminal charges in those fact patterns, either you’re not trying or your legislators better get busy–with you educating them and leading the way–because your Mom will tell you that not one of those fact patterns is ok, they’re all fraudulent.
And California Attorney General Kamala D. Harris, I’m calling you out in particular about the search warrants for two reasons. First, the records in Palm Beach County, Florida, show your state has some pretty big document factories, so we know you’ve got jurisdiction. Second, despite your pull out from the “50″ state talks, you’ve yet to join the Wall Street Sheriff posse. Seizing the computers and whatnot of the document factories would be a great way to earn your badge.
But all you other AGs, most if not all of you have a document factory in your locale. To find them, do what Michael Olenick did: look at the place of notarization in your land records. And then get those search warrants.
Special Thanks to Walter Hackett of Inland Counties Legal Services