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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Sandy
http://www.efanniemae.com/is/doccustodians/pdf/dcreqdoc.pdf

Lost notes are discussed on page 25 and indorsements on pages 28-29. Easy to see no one is minding the store.
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Texas
Glad to see somebody else is looking into the Fannie kitchen.

Two important excerpts.

The note is endorsed in blank, without recourse, and there is no break in the chain of endorsements (ending to blank),

The signature on the last endorsement (to blank) to the note generally must be an original signature.

I have always said, I have no issue with "Indorsements In Blank" if they are done legally.

That is why, if the only Indorsement is from the Loan Originator, the chain of Indorsement is is incomplete to a 3rd subsequent purchaser.

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As with most things written by lawyers they include wiggle room:

The signature on the last endorsement (to blank) to the note generally* must be an original signature.


*Ambiguous

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William A. Roper, Jr.
Texas:

Once again you seem to be CONFUSING and CONFLATING the the requirement that there be NO BREAK IN INDORSEMENTS (which is a VALID requirement) with an ASSUMPTION that there is a necessity under the law (OR the FNMA guidelines) that there be individual indorsements for EACH intervening holder (which is NOT required under the black letter law of the UCC).

A SINGLE indorsement in blank by the original payee of the negotiable instrument would be VALID under the UCC for the negotiation of the instrument through any number of intervening holders.

WITHOUT ANY INTERVENING INDORSEMENTS, such a single indorsement in blank would be both COMPLETE and devoid of BREAKS.

*

A BREAK in the indorsement chain would occur where an indorsement was expressly restrictive as in "PAY TO COLOSSAL BANK, N.A.", with no corresponding indorsement OUT OF that indorsee.

In other words, if "A" is the original payee and "A" indorses with a restrictive indoorsement "PAY TO B", but "B" delivers the instrument to "C" WITHOUT INDORSING the instrument, "C"s indorsement to "D" or indorsement in blank is INEFFECTIVE due to the BREAK in indorsement (there being no valid indorsement INTO "C").

*

Bear in mind that most of the cases clarifying the meaning of such indorsements relate to CHECKS rather than promissory notes, but both are covered by the SAME article of the UCC.

While any particular party could DEMAND a new indorsement and MIGHT DO SO if the party wanted to make an indorser LIABLE for the non-payment of the instrument, such a new indorsement as to a blank instrument is NOT LEGALLY NECESSARY to a valid negotiation.  And where the indorsement is WITHOUT RECOURSE, no such liability arisees.

It is expressly for the purpose of AVOIDING anomalous and broken indorsement chains that blank indorsement is actually USED.  That is, the CORE PURPOSE of obtaining an indorsement in blank and then negotiating the instrument through delivery alone is to PRECLUDE the possibility that an incorrect intervening indorsement creates a broken chain.

This is NOT a matter of idle speculation.  This is a matter of five centuries of commercial law!

Your continued misleading posts as to the meaning of these terms can do much injury to borrowers whose homes are at risk.

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William A. Roper, Jr.
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Way To Go said:
The signature on the last endorsement (to blank) to the note generally* must be an original signature.


See pages 28-9 of the FNMA link originally posted by Sandy.  The UCC is generally silent as to the use of facsimile signatures for indorsements and questions may arise as to whether the person identified in a facsimile signature has actually assented.

Thus, FNMA requires some evidence by corporate resolution that the use of the facsimile signature has been expressly authorized.

This is really pretty good information and gives defendants some better idea of the kind of things they should be asking about in discovery.

While the burden of proof as to any signature is on the proponent of that signature, the signature is going to be PRESUMED to be valid unless EXPRESSLY DENIED WITHIN THE PLEADINGS and unless the defendant can overcome this presumption, so it is difficult to get a lot of traction in this area.

Note that there is NO SUCH PRESUMPTION when the purported signatory is DEAD.  So it is mildly useful to ascertain that the signer is now deceased, which is probably MORE IMPORTANT than discovering that a facsimile signature was used.

The use of a facsimile signature where the signatory is now DEAD could create quite a PROOF PROBLEM for a plaintiff in respect of an UNDATED indorsement.

See, generally:

 
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Alina
It is correct that under the UCC, there is no requirement for a note to contain intervening indorsements.  The notes may be indorsed A - D.

However, a valid argument has been made that under UCC-1-302, the parties may deviate from the UCC by agreement which is the case in most of the securitized trusts.  Under most of the PSAs I have read, the relevant section states:
With respect to the transfer and assignment of the note, Section 2.01(b)(ii)(A) states:
“the original Mortgage Note bearing all intervening endorsements and including any riders to the Mortgage Note, endorsed “Pay to the order of __________, without recourse” and signed in the name of the last named endorsee by an authorized officer” [Emphasis Added] 

Therefore, the terms of the PSA requires that the note bear all intervening endorsements. 

 

Here is a link to a great post by Yves Smith:

http://www.nakedcapitalism.com/2011/01/past-rulings-by-new-york-judge-schack-reached-ibanez-like-conclusions.html

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William A. Roper, Jr.
Alina:

I am well aware of Yves SMITH's postings.  And while she makes some interesting points, she is, in many respects POORLY INFORMED about many aspects of the law.  Nor is she interested in actually confronting and disputing points of fact or law.  She simply DELETES posts to her own naked capitalism site which disagree with her hypotheses or thesis or which show the ERROR of her writings.  As far as I am concerned, I have LITTLE RESPECT for someone who is UNABLE to either confront and refute contrary arguments OR to ADMIT HER MISTAKES.

As to the particular point as to the necessity of producing indorsements from intervening holders, the argument originates from Mr. Adam LEVITIN, whom I DO much respect.  And perhaps Mr. LEVITIN can persuade a court to hold consistent with his theory.

To the CONTRARY, I have read the cited language and do NOT believe that it MEANS what Mr. LEVITIN is claiming that it means.  And I have discussed my misgivings in other threads at this Forum.  I have yet to see ANYONE take issue with my analysis, other than occasional posts by the likes of Texas, who simply makes false statements about the law without engaging in any really meaningful discussion.

The language which you cite in your post requiring delivery of instruments with "BEARING ALL INTERVENING ENDORSEMENTS" does NOT say "BEARING INDORSEMENT FROM ALL INTERVENING HOLDERS".  And there IS a distinction.  Where there IS an intervening indorsement, IT MUST BE DELIVERED.  Where there is NONE, I do NOT believe that this language REQUIRES an intervening indorsement in instances where the negotiation is of an instrument indorsed in blank and negotiated through delivery alone.

You may agree or disagree with my interpretation.  The COURTS would ultimately tend to look to the express language of the PSA, the enunciated intentions of the parties to the PSA (which do NOT include the defendant borrower) and customary industry practice.

As far as I know, there are ZERO cases actually holding that Mr. LEVITIN's reading is correct.

I have encouraged others to MAKE Mr. LEVITIN's argument within their pleadings.  This PRESERVES the argument.

And I have asked others to ALERT ME if they learn of ANY case which supports this argument.  I have also asked anyone to let me know if they find a better articulation of Mr. LEVITIN's argument to include cases which (although NOT related to mortgages) would support the argument.  That is, I would LOVE to see the argument properly briefed.

I am at a loss as to precisely how to MAKE this argument, in part because I haven't seen it yet made in a compelling pleading.

*

My point here within this thread is NOT to dismiss or minimize Mr. LEVITIN's argument, but rather to clarify that ANY assertion that the UCC REQUIRES intervening indorsements OR that such indorsements have EVER BEEN the commerical practice in the mortgage industry in the modern era are without foundation in either law or fact.  And I would CAUTION those reading Texas' ill-informed posts against betting their house on arguments proffered by this individual, who is seriously mistaken about a number of critical points of law.

I remain much in favor of thoughtful and judicious research, investigation, analysis and argument which endeavors to explore and examine new and novel theories which could prove beneficial to a defendant borrower.  But just as I believe that a patient offered an experimental medication (which might prove life saving) DESERVES TO BE INFORMED ABOUT THE EXPERIMENTAL NATURE OF THE MEDICINE AND ITS ASSOCIATED RISKS, I would like to see those whose homes at are at risk to be treated to a similar courtesy!

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William A. Roper, Jr.
Alina:

I should also ADD that the MOST COMPELLING discussion or treatment of the LEVITIN argument I have seen to date is that which was articulated in the links posted recently by Forum participant Bob G in another thread within the past few days.

I have been remiss in commenting about these documents, in part because I was sidetracked.

I believe that the expert affidavit of Thomas ADAMS sets forth this theory of the meaning of the PSA provisions very nicely:


While I actually think that his conclusion is probably erroneous, I believe that this affidavit is sufficiently credible and from a person who is sufficiently well qualified as an expert that it OUGHT TO PRECLUDE SUMMARY JUDGMENT!

So, however one pleads the LEVITIN defensive argument, I would probably SEEK OUT an expert such as Mr. ADAMS and obtain an affidavit.  It think that the prospects are very good that summary judgment can be precluded.

IF the matter were then to proceed to trial, a well represented plaintiff OUGHT to be able to find an expert who could testify to the contrary.  But one lesson from Ibanez is just how CARELESS and INCOMPETENT the foreclosure mills can be.

On balance, I think it is far more likely that the plaintiff will show up with NO EXPERT AT ALL or with witnesses with less credibility than Mr. ADAMS.  So it might very well be possible to WIN the argument, simply by MAKING the argument, bringing a good expert defense witness and just showing up!  And that is a pretty good reason to make the argument.  But a Defendant would probably NOT want me as a witness on this particular point.

It should probably be noted that the very best witnesses for the plaintiffs would be securities lawyers who actually drafted the PSAs.  These are mostly in NYC and charge more than several hundred dollars per hour.  Bringing such a lawyer to Florida for a trial is probably going to cost $$$$.

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Alina
Mr. Roper,

Even Levitin points out that there is no case law to back up his arguments.  However, he does point to long standing NY trust law that he believes support his arguments.

I have read many of Levitin's articles, posts on Creditslips.org, and listened to his Congressional testimony.

Combining Levitin's arguments, Adam's arguments, UCC-1, NY trust law, and Bloom's arguments make for one very powerful argument in court.  I believe that was what Yves was attempting to show in the post above.  Judge Schack has been addressing the issue in his decisions.  The real problem has been that no defendant has actually brought the argument into court for a judge to rule.

IMHO, this argument would be best made first in a NY case with the proper experts testifying.  I hope we see that happen soon.
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William A. Roper, Jr.
Alina:

I do NOT disagree with anything that you have said, EXCEPT that the core arguments relate both to the construction of the PSA contract, which will reduce to the intention of the parties and also law relating to ultra vires.

Ideally, someone would get this argument into a defensive answer and memorandum of law in a case decided by Justice Arthur SCHACK!  With a nice supporting affidavit from the likes of ADAMS or BLOOM, there could be a published case supporting this conclusion.

If the plaintiff failed to address the issue with evidence in a summary judgment submission and the defendant got the affidavits in front of SCHACK, I think an explosive result could occur.

We really should try to find some good defensive pleadings which make this argument and get them posted!

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I should have an opportunity to produce one of these shortly. I'm taking a 50% fee simple interest in a property wherein the mortgage is in default, but no summons and complaint or lis pendens has been filed. EMC is the servicer. I want to be on title when the action is filed for this very reason.
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Sandy
I was just looking at the Fannie Mae document again. I see a few points I'd like someone to help me understand better. See the red emphasis.

This entire section seems to be confusing the note and the mortgage. Please tell me Fannie Mae lawyers know the difference between the two!


8.1 Mortgage (or Deed of Trust) Note

The Document Custodian must receive the original mortgage (or deed of trust) note for each mortgage listed on the Schedule of Mortgages (Form 2005). If the original note is missing and the Seller has exhausted all reasonable means of obtaining the original note or an original duplicate note, Fannie Mae may authorize the Seller to substitute a Lost Note Affidavit, or similar substitute documentation for a missing note. [What is an "original duplicate" note?] There are limitations on the number of Lost Note Affidavits that can be accepted in any individual pool although the Document Custodian is not required to determine if the Seller has been authorized by Fannie Mae to substitute a lost note affidavit [Is this step happening at all?] or any limitations on the numbers. Adherence to those limitations remains the obligation of the seller to Fannie Mae. The Document Custodian’s review of each note must determine that:

The document is an “original” that has been signed by all of the borrowers. NOTE: in the case of an inter vivos revocable trust, the note must contain at least one Trustee signature and a signature of at least one individual whose income and assets are used to qualify for the mortgage. (see 8.1.1).

All blanks have been filled in or crossed out, as applicable. [Is this referring to the note with intervening indorsements or the mortgage?]

Any “white outs” or changes to the document or to the information inserted in the blanks have been initialed by the borrower(s). [Would this mean a borrower must initial the intervening indorsements, whether A, B, C, D or A to D?]
o
If the borrower(s) did not initial changes that materially affect the terms of the note (e.g., changes to the original loan amount, interest rate, monthly payment, or maturity date, or deletion of one of the mortgage covenants) the document is not acceptable. [Again, seems to be confusing the note and the mortgage. Are mortgage covenants even included in the note?]
o
If the borrower(s) did not initial changes that do not materially affect the terms of the note (e.g., corrections to the property street address, city, state, and/or ZIP code) the document will still be acceptable.

NOTE: If the delivery involves a seasoned mortgage (i.e., at least 12 months of payments have been made) and the borrower(s) did not initial material changes to the document, the Seller should make a reasonable effort to obtain their initials. However, if that is not possible, the Seller must give the Document Custodian a letter explaining why the borrower(s)’ initials were not obtained, which the Document Custodian must retain as a custody document.




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William A. Roper, Jr.
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Bob G.:
I should have an opportunity to produce one of these shortly. I'm taking a 50% fee simple interest in a property wherein the mortgage is in default, but no summons and complaint or lis pendens has been filed. EMC is the servicer. I want to be on title when the action is filed for this very reason.


Bob, you seem to be pretty sophisticated.  But for both your benefit and the benefit of others who might consider taking on a "partner" of sorts in a property, BE AWARE that almost all residential mortgages and deeds of trusts contain a due on sale provision, providing for the acceleration of the outstanding balance upon a sale of an interest in the subject property.

To the extent that the property is already in default and a notice of acceleration has already been served, this may not matter.  But this approach might also preclude some loan modifications and/or workouts that contemplate reinstatement of the original borrower.

*

Best of luck in your undertaking!  I am much interested in seeing your defensive pleading in this regard!
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Bill

I have just found this amicus curiae from one James McGuire at livinglies, it makes some good points.  Just wondering what your take on it might be...

http://livinglies.files.wordpress.com/2011/01/amicuscuriae-james-mcguire.pdf 
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William A. Roper, Jr.
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Angelo said:
I have just found this amicus curiae from one James McGuire at livinglies, it makes some good points.


I wouldn't waste any time reading that fellow's material.  You can be rather assured that the NJ Courts won't give it much attention.
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seeking2learn
This brief was discussed at:

http://ssgoldstar.websitetoolbox.com/post?id=5042928
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Got ya, I was unaware that was the person you guys were talking about in the other thread.  My apologies.

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Bob G
William R

Good points.  Note/Mortgage is already in default, so this isn't going to be an issue.  If it weren't, I'd get a purchase contract on the prop and test theories that way. We will see.  

Still trying to get my guy back into the ring on his default judgments. Difficult, but not impossible. Some case law on pro se litigs being excused for default. Also shooting for the fraud, misconduct, misrep grounds.
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Texas
Amicus was written at request.
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Hello, I found these threads exciting, but had a bit of a time following. I am a paralegal student. I am also in default on my countrywide now BofA/Fannie Mae borrower. Like most I tried and tried to modify while my credit was still good and it was for naught.

The loan processor has made several attempts to serve me foreclosure papers. I am afarid. I love my house, even though the roof leaks and the heater does not work.

I would like if it is possible to fight this. I am uncertain how to proceed. I live in Hanahan S.C. I would be prose. If any of you gents or ladies can lead me where to go. I would appreciate it.

I realize the best place to start is the complaint. I have heard about the produce the note defense but have not found many successful cases.

I did learn a lot reading these threads. I am taking Property Law this semester.
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If you plan to go Pro se, check out http://www.prose.com. Take the law class Civil Practice Trial Procedure, it will help you to understand the court room procedures you will endure during the lawsuit, motions, discovery etc. I have collected lots of info on foreclosure defense including case law at http://www.scribd.com/winstons2311, click on the Collection link on the top right.
If you need foreclosure defense manuals, e-mail me at ocean11@the-beach.net. I am at 1L.
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