Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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William A. Roper, Jr.

I have repeatedly observed over the past several years various Forum participants, including persons asserting great authority and expertise, engaged in confusing and misleading statements regarding authority and issues relating to agency, powers, principal and agent.  Very often, this takes the form of very naive views about how the law of agency works.

While this can be a very complex area, many of the most fundamental aspects are rooted in common sense and fairness and can be readily described and summarized.

I am writing this post completely extenporaneously and without reference to any particular cases or statutes and would encourage those who are singularly well informed in the law to clarify, elaborate or correct if you perceive that any of the information given is erroneous.

Rather than cite the law, as such, I am going to give several illustrations which should exemplify a number of the basic principles of agency.


Permit me to begin with a rural and agrarian example.  A farmer and head of household instructs his son to take the wagon into town and to sell three bushels of tomatoes and two bushels of pecans recently harvested at the best price he can obtain at a weekly farmers' market.  The son is also instructed to stop at the general store and to purchase a list of other groceries and supplies he furnishes, which are to be purchased on store credit.

The son does as instructed, selling the tomatoes and pecans to several customers including the proprietor of a restaurant and a baker.  He purchases the goods at the general store, signing on his father's behalf and returns at nightfall.

What is the relationship between father and son in respect of these transactions?

It can be readily seen that the father is the principal in both the sale of his farm produce and in the purchase of the goods from the general store and that the son is his agent in respect of these transactions.  The relationship can be generally described as one of agency and such agency involves the granting of a power.  In respect of the former transaction, the son was granted a power to sell the produce and in respect of the latter transaction he was granted a power to purchase the goods.

He hasn't given his son a written power of attorney nor was the shopping list at the store a formal signed order or contract.  Rather, it was informal instructions to the son, unsigned.  But he has expressly authorized each transaction, perhaps giving the son some additional parameters as to acceptable price ranges for the sale and a maximum amount to spend in respect of the purchase.

But how are the customers at the farmer's market to know of this agency and how is the manager or or owner of the general store to be assured that the transaction has been authorized by the father?

In an ordinary farmers' market no one is likely to question the authority of the seller at all.  Posession of the produce at the marketplace and the offering of the produce in public implies some authority to engage in small sales transactions on a cash and carry basis.

In respect of the credit purchase at the general store, the father might have expressly advised the merchant that his son was authorized to make purchases on his account or may have more informally introduced his son.  But even if the father had never expressed to the merchant such an authorization, when the son appeared and asserted such authority, the merchant was presented with a business decision as to whether to trust the son as to his assertion of authority or to insist upon some express written permission by the father.

In making such an assessment, factors the merchant might rely upon would probably include whether the son usually or frequently accompanied the father on past store visits, whether the groceries and goods were of a usual and recurring nature consistent with the father's past purchases, the son's reputation and trustworthiness and his impressions about the trust placed in the son by the father.  If he knew that the father trusted the son with other transactions, such as the sale of the produce, or if the father had previously entrusted the son to pick up groceries or to make payments on the credit account, these would be factors that would tend to influence the merchant to trust the son.

Taken together, the merchant would form an impression about the son's apparent authority based upon his usual course of dealing and other factors and his impression might actually differ from the son's actual authority

Suppose that the son exceeds his father's authority and purchases something NOT on the shopping list?  Is the father liable for such purchase?

The answer to this question isn't altogether cut and dried.  It will depend upon both the facts of the transaction itself, the other ancilliary facts giving rise to the son's apparent authority and the unique law and decisions of a jurisdiction.

As a practical matter, if the son exceeded his authority as to a particular credit purchase to his father's dissatisfaction, in a simpler era the son might often simply return the unauthorized item to the merchant, reverse out the transaction and resolve the matter.  Where the item was purchased on credit and the return is immediate with the item in pristine original condition, this is a good outcome for everyone.

But one can imagine situations where this doesn't work out.  And some disputes may arise as to whether the father is or ought to be liable.

One thing is rather clear and that is that it would be an inherently unjust outcome to allow the father (or the son) to retain the unauthorized item without paying for it on the theory that the purchase was unauthorized.  To allow such a rule would significantly inhibit commerce by requiring a measure of proof of authority that would make all transactions too cumbersome.

If the unauthorized item is not returned to the merchant for full credit, the question really reduces to whether the father can be held liable or not.  If the son settles payment, then this question is largely irrelevant.  But if the father can validly repudiate the transaction, there is little doubt that the son can be held liable in most instances.


In the limiting case, one can imagine examples wherein the son is induced or persuaded to purchase something by the merchant or where the nature of the purchase is so sharply divergent with the customary purchases of the father that it would be unreasonable to expect that the transaction is authorized.

And in other instances, one can construct examples where the father purchases one bag of chicked feed every month and the son is purchasing what appears to be the very same item purchased every other month for the past five years.

In the former case, it might be unreasonable to think that the son had authority, while in the latter it might be said that the son's authority was readily apparent from a usual course of dealing.

(It should probably be noted and distinguished that where the father has contracted to sell his neighbor two dozen eggs every week at a fixed price and the son is merely delivering the eggs and collecting the payment, it cannot be said that the son is the father's agent in selling eggs, though he may be a delivery and collection agent.)

Let us return to the farmers' market and imagine the situation where the baker asks the son whether his father can supply one bushel of pecans every week for the next ten weeks for a fixed price.

Here, the baker is proposing a contract in respect of future delivery of produce not already in the son's possession.  Is it reasonable for the baker to assume that the son has the authority to make such a contract for his father?


Where the son has the actual authority to act on his father's behalf, he can usually act as his father's agent based upon the oral power in respect of many or even most ordinary transactions.  And, in respect of such transactions, the father may be bound both as to the sale of the produce in the son's possession at the marketplace and in the purchases at the general store.

Even where the son lacked the father's authority, as when he unilaterally took the initiative to take bushels of tomatoes to market without his father's authorization or permission when his father was away, he would usually have apparent authority to make such a sale if his appearance at the marketplace on his father's behalf made this a usual course of dealing (and in respect of his posession of the produce).


By contrast, suppose that, upon the son's arrival in town, a sharp fellow offered to purchase the horse and wagon upon which the son arrived.  To the extent that the farmer -- father and son -- were well known in town and the horse and wagon were known to belong to the father, it would not be reasonable to expect that the son had the authority to sell the horses and wagon absent some express authority to do so.

But another son whose father was in the ranching business raising horses might have such apparent authority.

Suppose that the son is taken in by the sharp fellow and agrees to sell the horses and wagon.  He takes the money and walks home.

Can the father be held to this bargain?

The common sense answer is usually not.  The son didn't actually OWN the horses and therefore had nothing to sell.  And absent a valid power from the father, the son cannot bind his father to such a sale.

The father can probably insist upon an unwinding of this transaction.  That is, upon return of the consideration, he ought to be entitled to his horses and wagon back.  And if the sharp fellow failed to return the horses, they could probably be recovered upon suit (although this could prove uneconomic).

Whether he would be entitled to the recovery of the horses and wagon without restitution might be a little more cloudy, though he probably could be.  But upon a failure to return the contracted consideration, there would seem to be a criminal aspect to the issue, rather than merely a bad bargain by a person lacking actual authority.

(If the sale is on the father's behalf, then presumably the consideration goes to the father who can restore the consideration.  If the son has stolen the horses and wagon and kept the consideration for himself, this is yet another different problem.  The stolen property usually still belongs to its rightful owner and the purchaser of the stolen property suffers the loss, but has criminal recourse against the thief!)


Let us shift the example to the general store.  Suppose that the merchant employs a clerk who tends the store in the merchant's absence.

The clerk is the merchant's agent and the merchant is the principal

The clerk has been expressly authorized by the merchant to sell the merchandise at marked prices and to extend credit up to certain amounts to established customers whose names are memorialized in the merchant's ledgers.

Suppose a fellow enters the store and offers to purchase the cash register, which is not shown to be for sale.  Or suppose that the customer offers to purchase the entire stock of the store or to buy the business.

One can readily see that while the clerk has the apparent authority to sell the regular merchandise, it does NOT follow that the clerk would have the authority to sell the fixtures, display, or store itself.  The merchant could sell his business, but the clerk, absent a rather explicit written power of attorney is going to lack the apparent authority to do things well outside of usual dealing for a store clerk.

An arrangement to sell merchandise at unauthorized prices as between clerk and customer to defraud the merchant wouldn't seem to be lawful.  Nor would an arrangement to sell that not normally for sale.  (A problem could arise where the clerk was left unsupervised and made unauthorized items appear to be merchandise where the customer was decieved rather than a participant in a collusive fraud.) 


One can see that there is actual authority, there is implied authority and there is apparent authority.

There are also cases where there was NO authority and where none might be reasonably inferred.

But it does NOT follow that every transaction undertaken without authority is VOID or invalid.  To the contrary, at best, such transactions may be only voidable.

Let us return to the marketplace.  I earlier mentioned the suspect proposal by the baker to contract for future delivery of pecans.

Let us suppose that the son enters into an agreement with the baker to deliver some larger volume of pecans on a weekly basis for a fixed price.  They shake hands.  The baker understands that he is striking an agreement with the father through the son.

The son returns home and tells his father of the bargain.  The father is well pleased, because his son has obtained a good price and the quantities contracted are well within the farmer's ability to harvest and deliver from their grove of pecan trees.

The father sends the son to the market the following week with an extra bushel of pecans for the baker.  The father continues sending the pecans each week for three more weeks.

Thereafter, the baker learns that he can obtain pecans from another farmer at a better price.  Can the baker repudiate the contract (now already underway) asserting that the son lacked the authority to contract on his father's behalf?

In most places on these facts, probably NOT.

There is another basic principal of agency called ratification.  Even where an agent lacks actual or apparent authority, the principal can make the contract or bargain good by ratifying the terms agreed to by the person otherwise lacking authority.

By simple ratification, the father binds himself to the contract and with his agreement and partial performance, he has manifested his intention to be so bound.

While the father might have REPUDIATED and REJECTED the proposed contract from the outset, once he ratified and accepted the contract to deliver pecans, he was bound.

The baker cannot simply deny the existence of the contract.  Once he has ratified the contract and undertaken partial delivery, neither can the farmer.  That is, if the price of pecans went up and the farmer thought he would be better off selling his pecans at the market price, he couldn't simply terminate his forward contract to deliver to the baker. 

With the ratification, the contract the principal has bound himself to the terms which were agreed to by his unauthorized agent. 


Having layed out a basic framework, it is important to further distinguish that most jurisdictions have laws which further constrain certain kinds of transactions and certain kinds of contracts.

For example, it is not unusual for laws to require that motor vehicle sales be memorialized in writing through a bill of sale or written transfer of the title.

Under the laws of almost every jurisdiction, there is a so called statute of frauds, which usually requires that all contracts for sale of interests in real estate must be in writing and signed by the person against whom enforcement is sought.  The statute of frauds in many places also requires contracts the performance of which exceeds one year or for a value in excess of a certain amount must also be in writing.

Similar statutes usually require that where a person is executing an instrument on behalf of another in respect of these special types of transactions, that the power of attorney granting such person the power must be in writing.  And in some places the power of attorney also needs to be recorded.


My purpose in discussing these ideas is to clarify that those who think that a showing that a servicer lacks authority to act on behalf of some mortgage investor or who thinks that a person acting under a power of attorney lacks the authority to execute some instrument would prove that the instrument or actioin was void is usually operating under a rather stark misconception.

While the principal can usually repudiate and deny the transaction, the counterparty usually CANNOT.  Neither can non-parties to to the transaction.

The father can deny his son's authority to contract for the sale of pecans.  The baker cannot deny such authority.  And the merchant operating the general store, who is a stranger to the pecan contract, has no basis whatsoever to deny the validity of the pecan contract.

The principal can also ratify the contract of transaction.  And often, failure to repudiate the transaction OR partial or complete performance constitutes ratificiation.

So if you are a borrower and a non-party to a transaction, you are in a particularly weak position to challenge the authority of a person or entity to execute a transaction, IF the principal ratifies such transaction.


This is NOT to say that one shouldn't challenge forged assignments or forged allonges.

Rather, it is a caution that the central argument really is NOT so much lack of authority.  The authority argument can be quickly and easily defeated by showing ratification.

The central argument which defeats a forgery is to show that the fabricated instrument has no economic reality.


NOTE:  I am NOT an attorney and this is NOT LEGAL ADVICE.  Rather, it is intended to inform you independent research and investigation.  The law of agency is ancient and its application is varied in differing jurisdicitons, but I think you will find that the elements described above can assist you in better understanding and investigating issues relating to authority.
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William, Thanks for writing that great in-depth explanation. I'm sure it must have taken some time to do, but for some of us that is exactly what we need. I couldn't have found a better explanation if I had tried. Not to be a pain in the butt, but what does it mean to show that it has no economic reality and how do you go about proving that? Thanks for all the time and effort you put into this forum for all our benefit!
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William A. Roper, Jr.
William, Thanks for writing that great in-depth explanation. I'm sure it must have taken some time to do, but for some of us that is exactly what we need. I couldn't have found a better explanation if I had tried. Not to be a pain in the butt, but what does it mean to show that it has no economic reality and how do you go about proving that? Thanks for all the time and effort you put into this forum for all our benefit!


Due to the hour, this will necessarily be a brief response.  The core answer as to economic reality is to think about any comparable REAL transaction and to ask what happens when such a REAL transaction takes place.

At the consumer level, when you go to buy groceries in the very simplest transaction you go to the store, you select the groceries, you take them to the check out counter and the clerk rings up a total, you pay cash, you are given a receipt, you take the groceries and leave.

There might be a store security video that shows you coming to and going from the store.

In a slightly more complex transaction, you use a credit or debit card to pay, precipitating another recorded transaction with your bank.  And perhaps you have some store program rewards card that tracks your purchases and entitles you to discounts.  Your consumer loyalty/rewards account might also reflect the transaction.

Suppose that the police were trying to determine who was in the store, perhaps because you were a terrorist or simply because you are a critical witness and the terrorist was just ahead of you at the checkout.  Or, alternatively, suppose that YOU are a suspect and your assertion that you were shopping at the store establishes you alibi.

ALL of these details would go into the mossaic of information about that particular consumer transaction.  If you were questioned by police, they might ask you about a variety of these verifiable details to try to shake your alibi or to rule you out as a suspect.  You have seen it all on Law and Order or some other crime show before!

From the perspective of the store, the transaction has some other implications.  Each scanned purchase reflects an item coming OFF of the stores' inventory and adding to the store's sales.

In accounting, almost every commercial transaction gives rise to what is called a journal entry.  With the sale of each item or each shopping basket, the store creates one or more journal entries which debit certain accounts while crediting others.  When you buy $100 in groceries, and pay cash, the journal entry might reflect a debit of $100 to cash and a credit of $100 to sales.  But since inventory also went out the door, inventory has to be credited (reduced) and cost of goods sold debited.  We need not go through all of the precise transactions.  The point is that the valid sales transaction affects the accounting.

In a retail setting, some of the items also may involve a sales tax.  And the profits or losses from the sale affect not only the firm's accounting for internal or public reporting purposes, but it also affects the firm's tax accounting and tax liability.

Given how sophisticated photoediting software is today and the ready proliferation and availability of cash registers and register tape, how difficult do you think it would be to take the receipt from your local supermarket and recreate a fairly authentic looking forgery which might establish your presence in the store?

It would really be pretty EASY, wouldn't it!  But it would be much harder to create a register tape that could actually be matched and verified against the supermarket's own transactional records or to insert a transaction into the consumer loyalty/rewards account database.  Similarly, inserting your image into the security video covering the checkout area would be more of a project for a Mission Impossible team.

My point is that if someone simply showed you a supermarket receipt and said it was an alibi proving that they were at the supermarket at the time of a crime, an examination of the other evidence to corroborate the story and the verify the receipt would be in order, particularly if you were a murder or terrorism suspect rather than being sought for parking tickets or jumping the subway turnstiles.


And so it is with mortgage sales transactions.  When mortgages are REALLY bought and sold, certain things HAPPEN.  There isn't merely an assignment.  The note is indorsed and delivered.  Money changes hands.  The accounting records reflect the transaction through a journal entry: accounts are debited and credited.  The mortgage ceases to be reflected as an asset on the books of one entity and shows up as an asset on the books of another.  There are tax consequences to the sale or exchange.  The borrower's monthly cash flows are redirected.  The note is placed in the vaults of the new owner and a record is made.  The custodial vault is subject to continuous video which is archived practically forever.  Copies of the assignment are placed in the records and made available to the firm's auditors.

When the transaction is REAL, these things happen.  When the assignment is a forgery, NOTHING else actually happens.  They fabricate the document, record it and give it to the court as false evidence, but nothing else happens!

I have emphasized in other prior posts that the KEY to winning is discovery.  You need to embark upon a program of well thought out discovery to establish the facts of the case.  You need to ask the right questions in written discovery.  You need to depose the right witnesses and ask them the right questions under oath.  Since lying under oath is a crime, it become increasingly difficult to sustain and cover up the LIES.  They SETTLE or someone gets criminally charged!
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William, how can I apply this?   NH is a "mortgage follows the note" state and so the holder of an enforceable note takes the mortgage without any assignment necessary. 

Yet fact remains that I have this assignment executed on a date for which I'm sure there will be no records of actual transactions.  I know in my bones the assignment is bogus, and I understand that some intelligently crafted discovery and production can prove nothing else except this assignment took place.

Is my purpose to gather more evidence of a sham assignment in order to have it declared void?   Or is my purpose to get them to submit more fraudulent evidence and perjure themselves?

Somebody should write some of those well crafted discovery questions to the assignor, assignee, and their purported agents.

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FnDoomed said:
William, how can I apply this?   NH is a "mortgage follows the note" state and so the holder of an enforceable note takes the mortgage without any assignment necessary.

Bear in mind that the express purpose of the forgery is to have a nice concise piece of fabricated evidence that seems to say that the plaintiff is the owner and holder.  Many Judges are actually unfamiliar with the details of UCC Article III and the plaintiff might have to explain the statute to the Court to get them to appreciate and understand the legal elements of negotiation, etc.

The assignment is intended to create false evidence which makes the argument and the grant of summary judgment easier.

If you softly challenge the standing, the plaintiff's first impulse is to present and argue the forged assignment.

Only when you show some sophistication and it appears that you can readily defeat the assignment does the plaintiff and its foreclosure mill law firm tend to shift the argument and say as in the Wizard of Oz (paraphrasing): "Pay no attention to the man behind that curtin!"  The plaintiff will ask/tell the court to disregard the assignment.

But it isn't always that easy.

First, where the assignment was executed post commencement, this is some pretty good evidence that the plaintiff lacked standing when the suit was filed, entitling the defendant to dismissal.  See the Ohio Federal cases, and more recently, the landmark Kentucky ruling in Augenstein v. Deutsche Bank.

But even where the assignment was forged pre-commencement, if proven to be a forgery, that presents both some clean hands defense problems and perhaps some even more serious ethical and legal problems for the proponents of this forged instrument.  The forgers could be prosecuted.  The attorneys could be disbarred.  The case could be dismissed with prejudice.

Where you want to be is for there to be one or more active pleadings or motions relying upon the fabricated evidence as well as discovery responses answered under oath where they LIE ABOUT IT and seek to CONCEAL IT.
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