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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posted by Adam Levitin

I have generally been willing to give mortgage servicers, servicer support shops (like LPS), and foreclosure attorneys the benefit of the doubt when it comes to documentation irregularities (to put it mildly) in foreclosures. My working assumption up to this point has been that the documentation problems have been a function of corner cutting with securitization based on the assumptions that (1) the loans would perform better than they did and (2) those that defaulted would result in default judgments in foreclosure, so no one would ever notice the problems. I've also assumed that lack of capacity has played a critical role in problems in the default management chain--the system is held together by Scotch tape at this point. In other words, the problems in the system weren't caused by malice.

I got some grief about this from people down in the trenches when I posted a comment about this a couple of weeks ago. And I was tempted to write it off as a function of litigants being too close to their cases. But a document I read today is making me rethink these assumptions. Here is an order from a Florida court that makes me start to wonder if we might have a serious fraud problem going on with blank endorsements and allonges.

To be sure, one data point isn't an epidemic, but servicing is an industry where things tend to happen en masse. As Obi-Wan Kenobi explains: 

Obi-Wan: "A fighter that size couldn't get this deep into space on its own." 
Luke: "Yeah, he must have gotten lost, been part of a convoy or something." 
Han: "Well, he ain't going to be around long enough to tell anyone about us." 
Luke: "Look at him. He's headed for that small moon." 
Han: "I think I can get him before he gets there. He's almost in range." 
Obi-Wan: "That's no moon. It's a space station." 
Han: "It's too big to be a space station." 
Luke: "I have a very bad feeling about this." 
Obi-Wan: "Turn the ship around." 
Han: "Yeah, I think your right. Full reverse! Chewie, lock in the auxiliary power."


To start with, let me explain endorsements and allonges. And endorsement (or indorsement) is a signature on an instrument for the purpose of transferring rights in the instrument. (See UCC 3-204 for more details.) They work the same with notes as with checks and are governed by the same law. There are three types of endorsements. There are endorsements in blank--just your signature, nothing more (e.g., Adam J. Levitin), and special endorsements (Adam J. Levitin to Katherine Porter), and restrictive endorsements (Adam J. Levitin, for deposit only in Safe'n'Sound Bank).

A blank endorsement (by the instrument's payee, of course) turns the instrument into bearer paper. That means it's like cash. Whoever physically possesses the note, including a theif, can enforce it against the maker. And as a recent 9th Circuit BAP opinion, In re Veal (about which I hope to blog more) noted (fn 25), bearer paper has long had lots of nefarious associations (I would add Godfather III to the bearer bonds movie list in that note). In contrast, a special endorsement limits who can enforce the note; only the specially noted endorsee has rights in that note and can enforce it (they could transfer it to someone else, but that's another matter). 

Now allonges.  An allonge isn't a delicious throat-soothing lozenge from Switzerland. It's a piece of paper that goes a-long with the note. The allonge is basically an overflow sheet for extra endorsements. Frankly, no one should ever be using an allonge if there is room for an endorsement on the original note. Yes, it's easier to print on the allonge, but allonges create evidentiary problems, namely that it can be difficult to tell when the endorsement on the allonge was done or if the allonge is even meant to go with that particular note. And I'm not sure what the evidentiary weight of an affidavit or testimony on this point could possibly be. Unless the affiant or witness has some basis for knowing that this particular allonge goes with this particular note ("I distinctly remember the peculiar coffee stain on both pieces of paper--it looked like Karl Malden's nose"), then there's little probative value from the affidavit or testimony.  

The law on allonges is not particularly well-developed. The 1951 version of the UCC, in force in NY and South Carolina (I think), covers them in section 3-202, but the current version does not. The old version of the UCC required that allonges be "firmly attached." That requirement seems to have been fulfilled via pasting or gluing and maybe stapling. Query whether paper clip or rubber band or simply in the same folder will suffice. I'm not sure why any of them would. None of these methods answers the question of when the allonge was created. I can paste or rubberband the day of trial. There's a smidgen of state law on this, but it hasn't been a major issue previously.

Which brings us to BONY v. Faulk. In this case, the foreclosure filing included a 3 page note. The note lacked endorsements connecting the originator to BONY as trustee for the foreclosing securitziation trust. This set up a motion to dismiss on the grounds that BONY didn't have any right to do anything--it had no connection with the note. 

But wait!  Suddenly BONY's attorney tells the court that she is in possession of the fourth page of the note, which includes a blank endorsement. Puhlease...  What a ridiculous deus ex machina ending. Are we do believe that this attorney filed 3 pages of the note, but not the 4th? If so, I sure hope she's not billing for that screw up.

But here's what perplexes me. Suppose that an allonge is produced. How are we going to know when that allonge was created or that it even relates to the note in question? (Just so everyone's clear--if the endorsement were created later, then BONY as trustee for CWABS 2006-13 trust had no standing at the time the action was filed because the trust didn't own the note at that time.) How do we know that this attorney isn't engaged in fraud on the court (and a host of other violations of state and federal law)?  

And this isn't even getting into the question of whether the PSA at issue requires specific endorsements, not endorsements in blank. As it turns out that's a problem in this particular case. Here's the PSA for CWABS 2006-13 trust.  Section 2.01(g)(1) provides that the Depositor deliver to the trustee: 

the original Mortgage Note, endorsed by manual of 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...

As an aside, let me point out that " blank" does not mean endorsed in blank in the UCC sense. In the UCC sense, endorsed in blank simply means the endorser's signature, just as you might put on the back of a check before depositing it. Here, it means endorsed with a blank for the endorsee's name.  Critically, this PSA requires a complete chain of endorsement with all intervening endorsements. A single endorsement in blank ain't gonna do it if this PSA means anything. And there were a lot of MBS investors who assumed that it was going to be followed. 

I think this PSA just puts the attorney in an even worse place. The only way there should be a separate blank endorsement page is if there was non-compliance with the PSA. Are we really to believe that happened? (Well, yes, but the attorney can't really argue that BONY generally doesn't comply with its duties as trustee, now can she?)

We've already seen pretty shocking evidence of documentation fraud in foreclosures.  Remember that the robosigning scandal was the by-product of depositions that aimed to show backdating of assignments to trusts. The shame of the robosigning press coverage was that it focused on some shmucks signing 10,000 assignments in a month--which didn't necessarily produce any harm itself, just carpal tunnel syndrome--and overlooked the really quite serious criminal problem of the backdating of assignments. The depositions showed pretty clearly that there was backdating--the notarizations were by notaries who didn't have their commissions until a couple of years subsequent or were done on Christmas Day, etc. 

Document fraud in the mortgage industry is nothing new. It's appeared in all flavors and sizes for centuries. The laws of negotiability are first and foremost evidentiary laws meant to protect against fraud. Negotiable instruments are reified obligations--the instrument itself is the right to payment (UCC 3-203, cmt. 1).  That means that one can sue on either the instrument or on the underlying contract (but Statute of Frauds might require some writing for enforceability). I hope that courts will recognize that real serious potential for fraud that exists when one combines endorsements in blank with allonges and start demanding (1) that the complete note be filed with the original filing and (2) that anyone using an allonge prove that the allonge goes with the note in question. I think we've passed the point were there can be any assumptions of good faith and fair dealing.

I'd be curious to hear if any foreclosure defense attorneys have been pushing on the evidentiary status of allonges--namely what proof beyond a staple or the like is there that an allonge goes with a particular mortgage and wasn't just photocopied from another one. 

And yes, this sort of evidentiary scrutiny adds huge costs to the system. But it would be pretty easily avoided if PSAs had been followed in the first place--there was a reason that they required complete, unbroken chains of endorsement.

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Ed Cage

Not legal advice:
An "allonge" as you call it is no good unless fully signed off by all parties directly involved and provisions for same are clearly provided for within the main contract. Often attachments of this sort are disallowed by the contract and the court.

Ed Cage  |

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William A. Roper, Jr.

NOT to single you out (since Forum regulars have been doing this since the inception of the message board), but it would probably be somewhat better practice to refrain from posting the complete text of material found elsewhere.

We should be as respectful of other folks' copyrighted material as we hope they might be of material found at this site.

You did well by posting the link.  But it is probably usually better to limit posted text to the inclusion of the title, author, date and site of the post, the link and either a paraphrase and distilled summary of what one might expect to learn from the story or, at most, a couple of teaser paragraphs from the material at the other site with a link encouraging others to follow the link for more information.

While there is certainly some selfish reason to keep traffic on the MS Fraud site rather than drifting off elsewhere, Forum regulars will find their way back.

Again, I am NOT intending to single you out.  The Forum is littered with posts including the full text of articles original to other venues.  These posts could create copyright infringement problems for the site administrator and it is probably at least discourteous to lift other folks creative work and post it here (even to honor the effort). 

In another thread, I faulted Neil GARFIELD for his egregious plagerism of material from the MS Fraud site.  I think that we should adhere to a higher standard and set a good example!   
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Roper, as you have made it quite clear that you wish to not hear what I have to say.
So don't read it then you will not have to comment. Your failure to listen leaves you in the short-room of the closet without total knowledge.

It's been correctly stated that I do not normally operate in the foreclosure defense area, other areas have the potential to accomplish results and it is these areas that you have short sightedness.

Sometimes case law does not exist, that does not mean that there is nobody pursuing avenues to generate case law. This is where very few tread and angels fear.

God Speed and Good Luck

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William A. Roper, Jr.

I am unsure how your post immediately above is responsive to my comment about respect for copyrights.

I think that posting a link to the Adam LEVITIN CreditSlips post was a good thingThank you for that.  I am pleased to see that LEVITIN is coming around on the allonge forgery issue.

The thing that I found most surprising was that LEVITIN was only just now coming around to the realization that allonges were being forged.  This seems to show how disconnected he actually is from what is happening in the trenches of foreclosure defense.

I already posted a comment to LEVITIN's post at CreditSlips.  You are welcome to review my comment at the CreditSlips site and feel free to refute or point to errors you perceive in my analysis.

The reason for your hostility is unclear.  We have recently had several civil exchanges.  I do read your posts to the Forum. 

I was NOT criticizing your crosslinking.  I think that was just fine and useful.  But I think that we owe it to other sites to refrain from reposting the entire text.  Let CreditSlips benefit from the original content posted there.  I am not suggesting anything unreasonable, nor suggesting that you follow procedures that I do not follow.  To the contrary, you will find that I persistently LINK rather than repost information.


If you feel you are being singled out, it is NOT based upon content nor hostility towards YOU.  But you are a regular Forum participant.  And I would expect you to be around for a while.  Critiquing a similar text repost by a first time visitor (a) would be more likely to discourage the person from participating and (b) might be useless if the person was just passing through and didn't linger to apply the suggestion.

I think that Forum regulars ought to set a high standard for others to emulate.  So take my criticism as a complement to your persistent participation and my belief (hopefully not misplaced) that your ego could handle the mild rebuke! 
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No hostility intended, you just are not in the same loop as I am.
Not being in that loop, you have no idea of what that loop is doing.

Where one does not own the copyright, one would not know what permissions were granted or granted.

Many have taken my writings and incorporated into their own, will I complain, "HELL NO", truth and justice must be regained by the courts or the people will forever be in servitude to evil doers as HELL should be reserved to the evil doers.

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William A. Roper, Jr.
Texas said:
Where one does not own the copyright, one would not know what permissions were granted or granted.


I absolutely acknowledge that a copyright owner can and sometimes does give express permissions to reprint or distribute original work.  And I also have no knowledge of the permissions given in respect of Mr. Levitin's recent post.

If you had explicit or implicit permission from Mr. Levitin to re-post, my apologies.

I stand by my general admonition about the general advisability to post a disillation and/or summary and a link, or a few lines of teaser text and a link.

To the extent that one HAD obtained permission, it is usually better to add an express indication "Reprinted (or Reposted) by permission".


For those who are unfamiliar with copyright, copyright inures with authorship.  But unless copyright is expressly claimed or reserved, such rights can be lost.

Failing to assert or act to preclude infringement can also lead to loss of the material to the public domain.

I believe that we should be generally respectful of the rights of others and that should include acknowledgement of the authorship of others and their choice of venue to present their original material.

But as pointed out by Texas, we also have shared interest in the success of certain ideas and arguments.  Copyright protects the form of expression, but not the underlying idea or argument presented.
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Over 2000 years ago, Jesus began this fight with the money changers and today, God has set forth the stampede of Pale horses to fight this evil and the riders’ names are “The People.” (Released to Public Domain by the Author, as the author, it matters not who uses it, so long as truth be known.)

This country is the greatest country on the planet and has laws of justice unparalleled by any other country; the financial institutions have made a mockery of America’s judicial system by use of slickery trickery wording, lies, fraud and deceit and manipulation of lawmakers to create laws to help conceal the fraud.  Sufficient laws do exist and they are just laws, but just not followed by the financial institutions.

Saddle up and fight the evil. Roper and I may wear different saddle, but he is correct, we all are fighting the same evil.

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Texas said:
"Many have taken my writings and incorporated into their own, will I complain, "HELL NO"..."

Just an FYI - Others are not as generous. Don't try this with any of the  MediaNews Group
(Denver Post is their flagship paper) or Las Vegas Review Journal newspaper articles. They have partnered with a law firm who is suing, with NO WARNING of infringement issues AT ALL.

Lawyers Sparring Over Righthaven Copyright lawsuits issues
May 24, 2011, VEGASINC.

Quoted from the article, emphasis added:
It has filed 274 lawsuits over alleged online infringements of material from those newspapers since March 2010, attracting national attention in part because of its policy of suing before trying to resolve infringement issues out of court.
This particular law firm is catching some heat on a few issues for these suits, but one certainly does not want to inadvertently get caught up in this, or something similar, (like the 35 suits that are on hold until the law firm's issues  are resolved), and have to pay a lawyer to get you out of this sort of mess. 

I think Mr. Roper's comment was a constructive word to the wise, and should not be taken as a criticism.

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This poor kid didn't see it coming.....

Brian Hill: Hobby blogger sued by MediaNews & Righthaven is 20, chronically ill, autistic
Denver Westword blogs: Feb. 15, 2011

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One of the rights accorded to the owner of copyright is the right to reproduce or to authorize others to reproduce the work in copies or phonorecords. This right is subject to certain limitations found in sections 107 through 118 of the copyright law (title 17, U. S. Code). One of the more important limitations is the doctrine of “fair use.” The doctrine of fair use has developed through a substantial number of court decisions over the years and has been codified in section 107 of the copyright law.

Section 107 contains a list of the various purposes for which the reproduction of a particular work may be considered fair, such as criticism, comment, news reporting, teaching, scholarship, and research. Section 107 also sets out four factors to be considered in determining whether or not a particular use is fair:

    1. The purpose and character of the use, including whether such use is of commercial nature or is for nonprofit educational purposes
    2. The nature of the copyrighted work
    3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole
    4. The effect of the use upon the potential market for, or value of, the copyrighted work

The distinction between fair use and infringement may be unclear and not easily defined. There is no specific number of words, lines, or notes that may safely be taken without permission. Acknowledging the source of the copyrighted material does not substitute for obtaining permission.

As in any arena, know all there is to know before you step off a cliff like a little lemming. Roper and I may be on different mountain tops, but have not seen him jump of a cliff without a parachute.

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Righthaven has had its wings clipped permanently by a Federal Judge:


A federal judge’s ruling that a copyright troll had no standing to sue for copyright violations has bloggers who already settled lawsuits mulling their next step.

Chief U.S. District Judge Roger Hunt of Nevada tossed the suit against Righthaven on Tuesday. The judge ruled the company had no standing to sue over copyright violations of articles published by the Las Vegas Review-Journal because the newspaper’s parent company, Stephens Media, had retained rights to the articles. He also issued an order to show cause why Righthaven should not be sanctioned. The MediaPost blog and Wired's Threat Level blog have stories.

An agreement between the two companies assigns to Righthaven “the mere right to sue,” Hunt wrote in his opinion (PDF), and Righthaven’s claim to the contrary is “disingenuous, if not outright deceitful.” Hunt also labels “disingenuous” Righthaven’s citation to other courts that found standing. Those courts had been led to believe that Righthaven was the true owner of the copyright and had not been told Stephens Media was an interested party, despite a right to lawsuit proceeds, Hunt wrote.

Hunt ruled in a suit against the Democratic Underground blog. His opinion has bloggers who already settled with Righthaven considering their options, according to the Wired blog Threat Level.

Marc Randazza, a Miami lawyer who represented about a dozen Righthaven defendants who settled, mentioned the idea of a class action in a phone interview with Threat Level. He said he was discussing the situation with his clients.


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Yes, you are right about this law firm.  As I said, I just wouldn't want to be caught up in that mess while the law firm is working out it's own issues.  Regardless of that particular firm's problems, the newspaper companies are adamant about this issue, are now trolling for infringements, and are fighting for their survival, so they will find another way. They will be cracking down more and more, as they attempt to begin charging for their online content.

I didn't intend to hijack the thread and take it a different direction - just wanted to give some support to the comment.

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