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.
In a significant decision handed down on Thursday, July 7, 2011, the Nevada Supreme Court has clarified that a mortgage investor seeking to foreclose in Nevada needs to be the holder of a properly negotiated promissory note.  The Court also clarified that the foreclosing entity also needs a written mortgage assignment, in essence embracing the holding of the Massachusetts Supreme Court in Ibanez.

The case is Leyva v. National Default Servicing Corp.  An advance copy of the decision appears at the web site of the Nevada Supreme Court at:

Leyva v. National Default Servicing Corp, No. 55216, 27 Nev. Adv. Op. No. 40 (Nev. 2011)


I have also posted a copy of the decision at Scribd:

 

http://www.scribd.com/doc/59663706/Leyva-v-National-Default-Servicing-07-Jul-2011


Consider this language from the decision:

A deed of trust is an instrument that “secure[s] the performance of an obligation or the payment of any debt.”  NRS 107.020.  This court has previously held that a deed of trust “constitutes a conveyance of land as defined by NRS 111.010.”[5]  Ray v. Hawkins, 76 Nev. 164, 166, 350 P.2d 998, 999 (1960).  The statute of frauds governs when a conveyance creates or assigns an interest in land:

No estate or interest in lands, . . . nor any trust or power over or concerning lands, or in any manner relating thereto, shall be created, granted, assigned, surrendered or declared . . . , unless . . . by deed or conveyance, in writing, subscribed by the party creating, granting, assigning, surrendering or declaring the same, or by the party’s lawful agent thereunto authorized in writing.

NRS 111.205(1) (emphases added).  Thus, to prove that MortgageIT properly assigned its interest in land via the deed of trust to Wells Fargo, Wells Fargo needed to provide a signed writing from MortgageIT demonstrating that transfer of interest.  No such assignment was provided at the mediation or to the district court, and the statement from Wells Fargo itself is insufficient proof of assignment.  Absent a proper assignment of a deed of trust, Wells Fargo lacks standing to pursue foreclosure proceedings against Leyva.

*

 

The decision contained the following language relating to the note:

 

Wells Fargo argues that, under Nevada law, possession of the original note allowed it to enforce the note.  We disagree and take this opportunity to clarify the applicability of Article 3 to mortgage notes, as we anticipate increasing participation in the Foreclosure Mediation Program, as well as a corresponding increase in the number of foreclosure appeals in this state.  As discussed below, we conclude that Article 3 clearly requires Wells Fargo to demonstrate more than mere possession of the original note to be able to enforce a negotiable instrument under the facts of this case.

 

. . .

 

Because the mortgage note is payable to the order of a specific party, MortgageIT, to negotiate the note to a new party, in this case Wells Fargo, Wells Fargo must have possession of the note and the note must be properly endorsed by MortgageIT.  See NRS 104.3201(2).  No such endorsement was included in the documents produced at mediation or in the documents filed with the district court, nor was a valid assignment produced as proof of the note’s transfer, and mere possession does not entitle Wells Fargo to enforce the note.  Therefore, because the mortgage note is payable to MortgageIT, unless Wells Fargo can prove that the note was properly endorsed or validly transferred, thereby making it the party entitled to enforce the note, it has not demonstrated authority to mediate the note.

The foreclosure landscape just changed in Nevada!

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Texas
Thanks William.

As I have always said, I have no issue with endorsement in blank if done legally.

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William A. Roper, Jr.
Although I learned of the Nevada Supreme Court decisions independently, another foreclosure defense activist brought to my attention Adam Levitin's post on CreditSlips yesterday morning, which well preceded my early morning posts today.  Of course, Professor Levitin's analysis always merits a read and a link seemed to appropriately belong here:
CreditSlips: "Nevada Supreme Court: You Gotta Prove Chain of Title", by Adam Levitin (July 8, 2011)
http://www.creditslips.org/creditslips/2011/07/you_gotta_prove_chain_of_title.html
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Bill

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Because we conclude that strict compliance is necessary, we must discuss what constitutes a valid assignment of deeds of trust and mortgage notes.  Transfers of deeds of trust and mortgage notes are distinctly separate, thus we discuss each one in turn.

The deed of trust, with any assignments, identifies the person who is foreclosing

            In this case, Wells Fargo was not the original named beneficiary on the deed of trust, but it contends on appeal that it has the right to foreclose as the assignee of the original beneficiary, MortgageIT.  Although Wells Fargo conceded during oral argument that it did not provide the written assignment, it claims that because it provided a certified copy of the deed of trust and a notarized statement from its employee claiming that it was the rightful owner of the deed of trust, no written assignment was necessary.  We disagree.

            A deed of trust is an instrument that “secure[s] the performance of an obligation or the payment of any debt.”  NRS 107.020.  This court has previously held that a deed of trust “constitutes a conveyance of land as defined by NRS 111.010.”[5]  Ray v. Hawkins, 76 Nev. 164, 166, 350 P.2d 998, 999 (1960).  The statute of frauds governs when a conveyance creates or assigns an interest in land:

No estate or interest in lands, . . . nor any trust or power over or concerning lands, or in any manner relating thereto, shall be created, granted, assigned, surrendered or declared . . . , unless . . . by deed or conveyance, in writing, subscribed by the party creating, granting, assigning, surrendering or declaring the same, or by the party’s lawful agent thereunto authorized in writing.

NRS 111.205(1) (emphases added).  Thus, to prove that MortgageIT properly assigned its interest in land via the deed of trust to Wells Fargo, Wells Fargo needed to provide a signed writing from MortgageIT demonstrating that transfer of interest.  No such assignment was provided at the mediation or to the district court, and the statement from Wells Fargo itself is insufficient proof of assignment.  Absent a proper assignment of a deed of trust, Wells Fargo lacks standing to pursue foreclosure proceedings against Leyva.



Hopefully this will also open an attack on MERS.  While MortgageIT is still in business, there are many lenders that are not.  Hopefully someone will pick up on this with a defunct lender and attack whether or not a MERS assignment for a defunct lender is a "valid" assignment of deeds of trust.

It appears that the defendant has a pretty sharp lawyer.  It will be interesting to see how they proceed claiming they are the owner of an unendorsed note and if they try now to introduce an endorsed copy. 

Quote:

[7]        Since the documents provided at the mediation did not establish transfer of either the mortgage or the note, we express no opinion on the issue addressed in the Restatement (Third) of Property section 5.4 concerning the effect on the mortgage of the note having been transferred or the reverse

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James
Texas, what do you mean by "done properly." I thought an indorsement in blank was proper, almost without reason to dispute, if done through the original lender.  Can I infer from this case that, generally, an indorsement in blank is not proper with a deed of trust, but is proper with a mortgage?

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Texas

I am sure Roper is going to chime in here somewhere.

I said "legally," not “properly.” As I said, not problem with "in blank" if done legally.

Original Lender "A" indorses the paper note "in blank" and under cover of some form of a Bailee's letter, offers the paper note to a subsequent party "B" who either accepts or returns. Upon acceptance, "B" completes negotiation by filing in the "In Blank" left by "A".

"B" then has become the 1st subsequent Lender with rights to enforce the paper note. If "B' then wishes to sell the paper note to "C" then "B" indorses the paper note "in blank" and it travels to "C". If "C" accepts then "C" would fill in the "In Blank" left by "B" which then would make "C" the 2nd subsequent Lender with rights to enforce the paper note.

If "C" then wishes to sell the paper note to "D" then "C" indorses the paper note "in blank" and it travels to "D". If "D" accepts then "D" would fill in the "In Blank" left by "C" which then would make "D" the 3rd subsequent Lender with rights to enforce the paper note.

But as the facts are now being revealed in case law, the movement of the paper note reflects "A" indorses the paper note "in blank" and sells the paper note to "B" who then sells the paper note to "C" who then sells the paper note to "D" with only an "A" providing an endorsement on the face of the paper note.

The intervening E (I)ndorsers’ (B & C) and E (I)ndorsee’s (B & C) names are not identified.

On a paper note alone under UCC Article 3, this would not be an issue, as all the missing intervening endorsements could be applied to the paper note to show a complete chain of negotiation to “D” who would then have rights to enforce the paper note.

The Security Instrument, whether that be a Mortgage, Deed of Trust or Security Deed as affecting “Real Property” is excluded from UCC Article 9 as the laws of local jurisdiction apply to those instruments.

When you apply MERS to the equation, things get even worse. Where MERS is named as an agent for “A” on the original security instrument may or may not be legal, and I will not address this issue, the courts of each state will need to decide this factor.

A legal fault does become very apparent when MERS cannot show they represent “B” or “C” as an agent. As “B” & “C” are not identified anywhere on the face of the paper note or of record, caution needs to be applied to bringing outside contracts into the equation, such as Pooling and Servicing Agreements, Private Place Memorandums of any other secondary market collateralization documents. Recording laws in some states require the identities of all parties to be known, the chain of negotiation of the note would need to match the chain of record of the security instrument.

“But as the facts are now being revealed in case law, the movement of the paper note reflects "A" indorses the paper note "in blank" and sells the paper note to "B" who then sells the paper note to "C" who then sells the paper note to "D" with only an "A" providing an endorsement on the face of the paper note.” Even this perception is in error. “A” indorses the paper note “In blank”, scans all the paper documents into an electronic digitized graphic file (EDGF).

Now enter the World of E-SIGN and UETA

15 USC 7001, Exclusions 15 USC 7003-UCC Article 3 & 9

The EDGF is a Payment Intangible governed by UCC Article 9. The collateral (security) for the EDGF is the payment stream coming from payments upon the paper note. The indorsed “A” “in blank” paper note is either vaulted or destroyed. (Not relevant as to which.)

The EDGF is then electronically transmitted to an aggregator (seller/securitizer “B”) who assembles many EDGF’s into a securitization package (SP), which by the securitization documents is required to be a true sell of the paper note to “B”.

The SP is then swapped for Certificates to the depositor “C” which should have represented another true sale of the paper note.

 The final true sale of the paper note would have been to the Security Trust “D”, but the Trust only received the EDGF’s.  Herein, the Securitization Documents is the only place the identity of “B” & “C” can be obtained, but the paper note and the security securing the paper note cannot be in electronic format as many try to lead us to believe. So as not shown on the face of the paper note and not filed of record in public records are the identities of “B” & “C”.

As such, “D” has not legally become the holder in due course of the paper note or owner of the security for the paper note. Whether or not the security is perfected in “D” will depend upon each state law.

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William A. Roper, Jr.
Quote:
James said:
Texas, what do you mean by "done properly." I thought an indorsement in blank was proper, almost without reason to dispute, if done through the original lender.

 
Yes!
 
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James said:
Can I infer from this case that, generally, an indorsement in blank is not proper with a deed of trust, but is proper with a mortgage?


No!

*

James:

Neither this decision nor Ibanez stands for any proposition that an absence of an intervening indorsement creates a negotiation problem under the UCC.

Mr. Levitin has another different argument about the sufficiency of a blank indorsement in respect of provisions of the PSA, trust indenture and/or registration statements which he believes requires intervening indorsements.

That argument was not presented for review in either Ibanez or Leyva and therefore isn't discussed.

There are a couple of KEY issues.

First, can a non-holder of the promissory note enforce the security instrument through a private sale?

Second, can a valid holder of the promissory note enforce the security instrument if the instrument is made out in favor of another Lender and there is no written assignment.

These questions can each get a little furher muddled in respect of an entity with a right of enforcement of either a lost instrument OR as transferee under the UCC.

Leaving those questions aside, there exists a line of cases which generally support the view that the negotiation of the note carries with it the mortgage or deed of trust.  But another alternative theory as to the disposition of the mortgage or deed of trust is that the note does NOT carry with it the mortgage or deed of trust or, at best, that what is carried is an equitable right to the mortgage or deed of trust.

*

Permit me to give you an analogy.  Suppose that you and I enter into a contract for the sale a a vehicle.  Let us set aside the possibility that a state's statute of fraud or motor vehicle laws have some express provision governing the sufficiency of contracts for the sale of vehicles.  Let us assume for a moment that laws govern the transfer of the vehicle title, but are silent as to the the adequacy and sufficiency of a contract for the sale of the vehicle.

Suppose that I AGREE to sell you an older model vehicle for $1,000 case.  You pay me $1,000 cash.  I draw up a bill of sale acknowledging receipt.  I give you the keys to the vehicle.

Later, you go to the registry of motor vehicles and learn that in order to register the vehicle, you need a valid title.  But I didn't give you the title.

Who owns the vehicle?

Under rather traditional concepts of contract law, it is pretty clear that the valid voluntary conveyance of the vehicle by our agreement, inclusive of your payment and my written acknowledgement by a bill of sale is probably sufficient to transfer what most consider to be ownership.

But by the creation of vehicle titles by statute, the legislature has seen fit to create a special indicia of ownership.

In some places, my bill of sale might be sufficient for you to obtain a title to a vehicle, not otherwise encumbered.  (Bear in mind that IF I purchased the vehicle and financed it, the title might reflect the encumbrance of my financing arrangement.)

In other places, I might need to either give you the title instrument or obtain a replacement myself to sign over to you.

Suppose, that your state doesn't allow you to register a vehicle simply on the strength of the otherwise valid bill of sale.  You probably would have a valid cause of action to require me to deliver up a title, absent some express written provision in the agreement that constituted an agreed waiver that I would give you a title to the vehicle.

Basically, with or without title, you have many of the incidents of ownership when I give you both a bill of sale and physically deliver the vehicle to you with the key.

*

But if the title is still in my name, this may affect our respective rights in several ways.

First, suppose that I am a crook.  After taking your $1,000, I might go down to a place that specializes in loans on titles.  I might then pledge the title (to the car I already sold) to ABC Finance to borrow $500.  ABC Finance THINKS that they are getting a valid lien on the vehicle!

Your failure to secure the title presents some peril!

Second, suppose that you get drunk and get involved in a serious accident killing or injuring someone.  The injured party or their estate might sue YOU as the operator, but also ME as the record owner of the vehicle!  WHY did I allow YOU to drive it?  Especially if I KNEW you were a drunk?

There are a variety of other possibilities.

What I am trying to get across is that ownership isn't always totally cut and dry.  There are various thresholds which have legal meaning.  There are some gray areas. 

What if we had agreed to the sale, shaken hands and you had given me the money, but instead of giving you the keys, I had tehn driven the car to the bank, with you as a passenger and we got into an accident en route?  Is the car yours or mine? 

What if I gave you the keys, but you asked me to drive the vehicle to your house and gave them back to me?

*

Back to mortgages and deeds of trust, here is the key idea.  IF there is a valid negotiation or other valid transfer of the promissory note, there might or might not be a valid transfer of the mortgage or deed of trust.

Valid negotiation PLUS a valid written assignment of the mortgage or deed of trust is going to be satisfactory pretty much everywhere. 

Valid negotiation without a written assignment is probably going to carry an equitable interest in the mortgage to the valid holder in most places (leaving aside the MERS special cases).  But it might not carry the mortgage or deed of trust itself.

The holder might have a valid cause of action to require an assignment or might sue in equity for a reformation of the mortgage or deed of trust to recognize the validity of the lien.  But having a valid cause of action is very different from having the absolute and precise rights that one might have gained through valid assignment.

This is less important within the context of a judicial foreclosure.  Basically the plaintiff jsut adds counts to the complaint to obtain a judicial recognition of the mortgage lien.  But with a non-judicial foreclosure, the purported mortgage investor was seeking to transfer title without having to go to court.  Lack of a valid written assignment in some places might therefore preclude the enforcement of the deed of trust through private sale without first goign to court, which was precisely what the servicer was seeking to avoid though non-judicial sale!

Both the Ibanez and Leyva decisions distinguish that Massachusetts and Nevada are "title theory states".

That is my best extemporanous explanation given my limited time!  Hope this helps!!

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James
Texas, I apologize for misquoting you. I'll be more careful next time.

Thanks to both of you for your help.
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William A. Roper, Jr.
Someone posted the oral arguments before the Nevada Supreme Court in the Leyva case back in February:

Leyva vs. NDSC - Arguments Before the Nevada Supreme Court (Part I)

 

Leyva vs. NDSC - Arguments Before the Nevada Supreme Court (Part II)


Those with a singular interest in this case might find the arguments to be of interest.

These stories within the Las Vegas Review-Journal also inform our understanding of the decision:

LVRJ: "Monday's high court arguments include first foreclosure mediation appeal" (February 2, 2011)
http://www.lvrj.com/blogs/lvlegalnews/Mondays_high_court_arguments_include_first_foreclosure_mediation_appeal.html

 

LVRJ: Foreclosure mediation in justices' hands (February 7, 2011)
http://www.lvrj.com/news/foreclosure-mediation-in-justices-hands-115466684.html

 

LVRJ: "Appeal in mediation case heard by court" (February 8, 2011)
http://www.lvrj.com/news/appeal-in-mediation-case-heard-by-court-115546499.html

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William A. Roper, Jr.

It is truly ironic that, after devoting so much coverage to the oral argument in this case, the Las Vegas Review-Journal hasn't actually covered the decision AT ALL!


http://www.lvrj.com/


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     Las Vegas Review Journal is Public Enemy #2
 
    Right behind Nevada Bar!!!
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Texas
James: No offense taken, remember, precision, precision, and precision.

I even appreciated Roper's critique, in dealing with the mentality of the court, Roper better addresses how to deal with them.

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William A. Roper, Jr.
Housing Wire has finally weighed in with a story on last weeks' Nevada Supreme Court decisions:

HousingWire: "Nevada Supreme Court offers foreclosure guidance to mortgage firms", by Kerri Panchuk (July 11, 2011)

http://www.housingwire.com/2011/07/11/nevada-supreme-court-offers-foreclosure-guidance-to-mortgage-firms


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William A. Roper, Jr.
A Nevada news outlet finally noticed the Nevada Supreme Court's decisions this morning:

CBS Las Vegas: "Court Warns Banks About Foreclosures" (July 11, 2011)
http://lasvegas.cbslocal.com/2011/07/11/court-warns-banks-about-foreclosures/

 

Clearly, the news media does not yet appreciate the significance of this decision!

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William A. Roper, Jr.
Las Vegas' Channel 8 Television News also now seems to have learned of the Leyva decision, but seems to fail to appreciate its full dimensions"

 

"Homeowners Get Help Combating Foreclosure" (July 11, 2011)

http://www.8newsnow.com/story/15062677/homeowners-get-help-combating-foreclosure


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Texas
Ignorance, the process of educating is not easy.
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William A. Roper, Jr.
Las Vegas television station KSNV-TV NBC Channel 3 featured the Nevada Supreme Court's decisions on an evening edition of the news program Face to Face with Jon Ralston:

http://www.mynews3.com/category.php?id=5392&n=5035


See a teaser introduction and full segments 3 and 4.  Mr. Ralston's guests were Attorney David Crosby and a representative of Legal Aid Center of Southern Nevada, Venicia Considine.

Ms. Considine encouraged borrowers to visit the Treasury's FREE NPV calculator:

https://checkmynpv.com/

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William A. Roper, Jr.
I am advised that the link above to the KSNV-TV NBC Channel 3 Face to Face segments with Jon Ralston on the Nevada Supreme Court decisions is actually only a link to the current days' show.

The better permanent link is:
 

http://www.lasvegassun.com/videos/2011/jul/11/5327/

 

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