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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I've been reading a lot of posts and wanted to make sure I understand what William is suggesting an effective defense would be.  While an assignment from a MERS officer can be proven to be a forgery and fraud this argument can be dismissed because the mortgage follows the note.  A more effective strategy would be attack the transfer of the note and who the true legal owner of the note is by using discovery to form a chain from the originator to the owner that had the last legal transfer which would be endorsement and delivery. 

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William A. Roper, Jr.
Bill, this is probably an oversimplification of a rather complex and daunting problem.

I would AGREE with your concise statemetn that it is most critical to attack the ownership and holdership of the promissory note.  And this certainly has been a consistent theme of mine.

But to the extent that a plaintiff is relying upon an assignment forgery, I certainly wouldn't give the paliintiff a BYE in this regard.

Discovery can be used to flesh out the basis for the plaintiff's allegation that it is the owner and/or the holder.  If you can get the plaintiff to state in interrogatories and/or requests for admissions that the forged assignment forms the basis of their proof and their claim, then attacking the assignment becomes more central.

Separately, if a defendant pleads the clean hands doctrine as an equitable defense, the assignment forgery can be used to help prove UNCLEAN HANDS.  Moreover, asking direct discovery questions about the plaintiff's involvement in document fabrication or forgery can further flesh out the clean hands argument.  (See my posts relating to some suggested discovery questions.)  

When effective discovery is conduted, the plaintiff is presented with a paradox.  The plaintiff can either ADMIT the assignment forgery in sworn discovery responses, or DENY the fact of the forgery and evidence fabrication, at the risk that when this is PROVEN the sworn discovery responses can be shown to be perjured.

Either could make the clean hands defense more potent.


My relentless focus on indorsement and delivery, though, reflects the fact that aside from the evidence fabrication and forgery issues as a basis for clean hands or sanctions, proving the fact that the assignment is a forgery can be a Pyrric victory.  If the plaintiff proves indorsement and delviery and that it is the holder, the plaintiff can win WITHOUT a valid assignment (EXCEPT possibly in Ohio).

It is important to appreciate that the value and use of the forged assignment is in giving the plaintiff a convenient means of pleading false evidence as proof.  Absent the assignment, the kneejerk tendency is for the plaintiff to rely upon a conclusory, perjured affidavit from a witness clearing lacking personal knowledge.

Defeat the proof and you can win!


One other complexity involves the status of the mortgage and/or deed of trust in an MERS situation.  IF the mortgage and the note are actually bi-furcated, then the mortgage investor may have at best an unsecured loan.  This argument has been most successful in a Bankruptcy setting.  Things get complicated quickly in Bankruptcy.

ALWAYS look to the unique facts of YOUR CASE and do independent research relating to those facts and the laws of yoru jurisdiction.

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Another BIG question I have is how do you know when the note and mortgage is seprated?  On my Mortgage MERS is a nominee for the lender.  My lender is out of business.  My state requires you to record a mortgage/lease/conveyance of any interest in property.  MERS being a nominee cannot transfer anything on it's own.  It would have to be given the power from the principal.  When the principal dies, the nominee relationship ends.  While the Plaintiff can claim the note was transfered while they were still in business (that is another fight) is the note and mortgage seperated by the transfer of the note and not transferring the mortgage?  Does the originator keep the mortgage?  Can they keep the mortgage and assign the debt/note?  If MERs claims they own the title regardless of if the originator is in business would the note and mortgage be seperated on the loan/mortgage documents excution?   Or is this going to lead to the argument that the mortgage follows the note and even if it isn't recorded the asignee of the note has the equitable right to the mortgage? 
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William A. Roper, Jr.

You are right on the money asking these important questions.  Courts are answering these questions in a variety of ways, in part due to differences in facts, in part due to pleading differences and in part due to arcane differences in law from jurisdiction to jurisdiction.

You need to read ALL of the key MERS decisions to fully appreciate the nuances.  Then you need to craft the answers from these decisions and SHOW the Court that your approach gives the most reasonable result.

Bear in mind that MERS NEVER has ANY interest in the promissory note.  This is the KEY take away from the Nebraska case.  If one accepts that MERS is the legal owner of the mortgage, deed of trust or other security instrument, bi-furcation must have occured.  If this is true, then a Bankruptcy might be used to discharge the unsecured debt.  But if MERS or the mortgage investor argues in Bankrutpcy that MERS is merely the nominee of the Lender, it would seem that upon discharge, that MERS can hardly act on behalf of an extinct entity.

Take your pick, run some discovery in foreclosure and then file for Bankruptcy or file for Bankruptcy, get the mortgage investor or servicer to take a position and then defeat the claim in foreclosure.  CONSULT A REALLY GOOD LAWYER, BUT STUDY YOURSELF, AS WELL.
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What are your thoughts on the best time to file bankruptcy?  I have a motion to dismiss and discovery pending.  I have not filed an answer yet.  Do I file now?  Do I file after the motion to dismiss?  Do I wait untill after summary judgement?  If I lose summary judgement do I wait until a week before they sell my house?  I've spoken to 3 different bankruptcy attorneys and I'm not sure they are understanding the question.  They keep saying that when I file it will stop the foreclosure, maybe I'm asking the wrong question.  

Should I file bankruptcy before the Plaintiff gets a final judgement or after?

Which one benifits me the most?

The attorneys just tell me it will stop foreclosure depending on 7 or 13 which I understand but there has to be a difference whether or not someone has a judgement.

Anyone have any thought on the difference would be a great help. 
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    I can speak to this question of filing prejudment or post judgement by my
first hand experience in Florida which has an unlimited homestead exemption.
    Filing Ch 7 prejudgment is a waste of time. All it will do is slow down the
process of foreclosure. The plaintiff will file a motion to lift the stay and as
far as I can tell, it is always granted so the defendant winds up back in
State court, worse off because of admitting the mortgage lien. My research
shows that in 99% of the cases, this is what people do, even when they have a lawyer helping them.
    The correct thing to do, is fight it out in State court until a judgment is
entered AND THEN FILE CH7. The reason for this is that the Judgment takes
the place of the Note and mortgage and for a brief period of time, the lien
no longer exists. If you file ch7 during this window of time and list the debt
as unsecured (which it is if the debt is more than the value of the property)
and list the property as homesteaded, you will avail yourself of the States
Homestead exemption. If the homestead exemption is greater or equal to the
value of the property, the trustee will "abandon it", ie return it to you.
     If the homestead exemption is less than the value of the property, the
trustee will sell the property, but you should get some money back, the
value of the exemption. That's better than a boot in the pants you will get
if you let it go on the State Courthouse steps.
     If the judgement is for less than the value of the property, Ch 13 is the
way to go if it is homesteaded. This gives you a breather of three years to
refinance the property while making negotiated payments to bring it current.
     Pre judgment, for non homestead rental properties, Ch 13 is the way to
go. You might be able to "cram down" the principal owed and reschedule over
3 to 5 years depending on your income before having to refinance and pay
off the creditor. The rule of thumb is that the creditor can not get less in a
Ch13 than they would have gotten in a Ch 7. If you keep it within that guide
line, you should do OK.
      Here is an example of a case I did. Value of property $75,000, judgment
$240,000. Filed Ch 7 post judgement with Florida Homestead exemption. Result was a discharge of the $240,000 judgement and the property was
abandoned, ie returned to the debtor. Listed property as Homesteaded,
listed judgement as unsecured and disputed (which it was).
       Of course each State is different so consult your States homestead
exemption laws.
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Thanks for the response Mike.  I don't know why this was such a hard question to get an answer to from a lawyer.  I guess they wanted to file as soon as possible to get a paycheck.   If there is no benefit to doing it pre judgment guess we're going to court.  Anyone else have any opinions please let me know.  Thanks

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William A. Roper, Jr.

I am a little reluctant to get into a serious discussion of Bankruptcy law because it is the area pertaining to foreclosure in which I have probably the very least knowledge and experience.  I have NEVER been involved in any Bankruptcy litigation.  As you should already know from my other posts, I am NOT an attorney and cannot give you legal advice.

Based upon my limted understanding of the issues, there are several dimensions to the dynamic which is the subject of your inquiry.

One dynamic played out nationally, is whether a particular debtor is in a judicial or non-judicial foreclosure state.  In judicial foreclosure states, you have a variety of possibly effective defenses available to you in court and the foreclosure process can be quite drawn out.  Rushing into a bankruptcy in a judicial foreclosure setting may therefore be ill advised (though consider the other dimensions below).

By contrast, in a non-judicial foreclosure setting there are really only three broad strategies.  These include filing a bankruptcy petition, going to court to seek a TRO and injunction, and acquiescing in a possibly defective private sale and then later suing to attack the deed through a quiet title action or trespass to try title action, or some combination of these.

In non-judicial foreclosure states, filing for bankruptcy is very often the surest means of at least delaying a private sale, though very often attorneys treat this as merely a speed bump rather than a means of actually litigating and defending.

But as has been shown in several MERS related cases, as well as a few other miscellaneous bankruptcies, the mortgage servicer and/or investor sometimes makes some rather serious MISTAKES in bankruptcy which can be pressed to advantage.

So as to the very first dimension, generally bankruptcy is probably a more effective early defensive strategy in non-judicial foreclosure states.


A second really important consideration is the debtors overall financial situation, including other unsecured indebtedness, as well as cash flows, together with the value of the subject property.

Lets take a couple of rather extreme cases to illustrate how these dynamics might cut different ways.

First, suppose that the debtor has existing value and net equity in subject property, continued employment and cash flow, but excessive unsecured obligations and a lot of expense associated with unsecured debt service.  In such circumstances, there might be some good reasons to seek bankruptcy protection under Chapter 13 even if one wasn;t seeking to deny or avoid the mortgage.

A Chapter 13 filing might suspend a foreclosure and help get the unsecured debt under control.  This borrower might be able to readily manage the regular mortgage payments absent the burden of service of the unsecured debt.

My point is that the factual situation of the borrowers' financial circumstances can drive this answer even independent of jurisdiction.

By contrast, take the situation of a debtor with essentially no other debt, a loss of income and cash flow due to job loss or disability and a property with an underwater mortgage and unaffordable payments.

Absent the income to support a Chapter 13 plan, Chapter 13 isn't really even an option.

Absent other debt or debt service payments to discharge, there is no compelling reason to file bankruptcy early.  The mortgage is the whole show.

I think these examples illustrate how financial circumstances are an important dimension to this dynamic.


Yet another dynamic is nature of the Constitution and laws of your jurisdiction as to homestead and exempt property in a bankruptcy.  This topic well defies the scope of this post and is well beyond any expertise and experience I can readily articulate.  Suffice it to say that the national bankruptcy laws operate in tandem with state laws and results differ across jurisdictions.

You need to research the unique aspects of your jurisdictions laws as to homestead and exempt property.


Another dimension is occupancy of the subject property.  While there are many borrowers who are defending only their primary residence, there are others who are defending against a foreclosure of a second home or a rental property.  The dynamics differ.  Appropriate strategies can also differ.

Let me give you a particularly stark example.  Suppose that a mortgage investor in a non-judicial foreclosure state institutes a private sale on forged or otherwise fabricated documents or otherwise defective documents on a property other than the borrower's residence.

One strategy might be to stand and fight.  Another strategy might be to acquiesce in the sale and WAIT.  After waiting until AFTER the limitations period to bring a suit on the accelerated note or to sell under a private power of sale, the borrower might then bring a quiet title action.

Whether this is a viable strategy at all depends upon the length of respective limitations periods, as well as laws pertaining to the validity and challenge to deeds.  But one rather interesting detail is that in many places, a deed granted by a person with no interest in a property may very well be a NULLITY.  While a defective deed by a person with authority may enjoy some immunity, a deed from a stranger to the property may convey no title at all.

In a typical non-judicial foreclosure setting, mortgage investors have been FORGING an assignment which purports to grant a deed of trust to the investor.  Then, on the basis of this forged assignment, the mortgage servicer or investor executes an appointment of substitute trustee. 

If EITHER the assignment or the appointment of substitute trustee (or both) is found to be VOID, the trustee may be a stranger to the property and have no interest to convey AT ALL.

Getting this deed set aside is probably of relatively little value if the problems can be easily corrected through another more careful and meticuous private sale.

The idea of walking away from a property and then coming back four, five, or six years later and getting the trustee's deed set aside is a rather risky strategy in respect of a property in which the borrower has any substantial equity and/or enjoys the continued occupancy of the property.  But it might be a more viable strategy with an investment property, particularly where the mortgage is totally underwater and especially in jurisdictions where the lender cannot pursue a deficiency judgment!


Yet another dimension and consideration involves the peculiar fact situation as to the continued existence of the originating Lender, the involvement of MERS in the loan, transfers of servicing, the existence of other evidence of egregious servicing fraud, etc.

Several U.S. Bankruptcy Courts have found that a mortgage investor was an unsecuted creditor in consideration of the bi-furcation of the note and deed of trust.  If I was in a jurisdiction where the Court has already reached such a holding and I had an MERS mortgage or deed of trust, I might be much more eager to find my way to bankruptcy court than under circumstances where a mortgage assignment in favor of the mortgage investor had been properly recorded well in advance of the alleged default.

Where the facts of the case present a lot of good defenses in a judicial foreclosure state, you may want to litigate the foreclosure in state court, at least for a while.

Where you have fewer defenses EXCEPT perhaps the bi-furcation and are in a non-judicial foreclosure state, seeking bankruptcy protection earlier may make sense.


The real bottom line is that there is no one size fits all.  It would be a good idea to consult a lawyer well familiar with bankruptcy law.  But also, look for someone who knows how to litigate a foreclosure case and who is well familiar with some of the emerging new foreclosure dynamics.  Unfortunately, these are very hard to find!

Read widely, but focus on reading the appellate and Federal cases.  Be very careful about basing your strategy upon the posts of others (including myself) no matter how certain or authoritative they appear to be.  Ask folks to back up or explain their point of view and look to the cases for authority. 
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William A. Roper, Jr.
I want to add one additional post script relating to the possible strategic timing of a bankruptcy filing in a judicial foreclosure setting.

If your discovery is going well and you are getting some useful support from the court as to orders to compel (or at least denial of motions for protection), there is more than a little merit in using effective discovery to defeat the foreclosure on the merits.

But if the plaintiff engages in repeated discovery abuse and you are unable to get help from the state court in enforcing the discovery rules, a well conceived and well drafted Federal Bankruptcy petition might put you into a more friendly forum.

If you properly draft your bankruptcy petition, the creditor may need to come into Federal Court with both a proof of claim and a motion for relief of stay.  You might also file an adversary proceeding.  This will require the creditor to marshal its evidence before the U.S. Bankruptcy Court.  You may also be able to conduct discovery under Federal Bankruptcy Rules.

The Bankruptcy proceeding may then smoke out the creditor's position and the creditor's evidence.  You may then use this evidence against the creditor in the state court proceeding when the matter is discharged from bankruptcy.


In ALL cases, special care needs to be taken to comply exactly with the Federal Bankrupcy Rules.  This may include some prefiling credit counseliing.  MAKE SURE THAT YOU DO EVERYTHING THAT IS REQUIRED OR YOU MAY FIND THAT YOUR PETITION IS DISMISSED ON A TECHNICALITY.


Finally, bear in mind that attorneys, including bankruptcy attorneys are NOT CHEAP.  In many, if not most cases, bankruptcy seems to only DELAY rather prevent a foreclosure.  You should weigh the time and expense of a spirited defense against your interest in the property and alternatives, including just moving on.  Again, your financial circumstances may dictate the answer.  Your ability to read, research, write and litigate pro se may drive the answer.  It may be hard to do this effectively while holding a full time job.

There are almost certainly cases where the very best alternative would be a negotiation of a deed in lieu to include the mortgage investor's waiver in persuing a deficiency judgment.  There are other cases where a borrower has little to lose and much to be gained by mounting a spirited defense.

Let your self-interest be your guide.  You may be assured that Donald Trump is NOT asking himself, "Which of these alternatives is going to help me to pay the most to my creditors".  To the contrary, every time a Trump enterprise emerges from Bankruptcy, Donald seems to be a little wealthier.
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I'm currently layed off so I have a lot of time to work on my case.  I'm in a judical foreclosure state.  Most of the (the 3 I've spoken with) bankruptcy attorneys I've consulted with were not expensive.  1000-1200.  You really can't rent much of a place for that amount.  So even a delay will pay for itself.  I think I'll try to find an attorney that specifically does adversiary proceedings in bankruptcy.  Maybe that is the problem right now.  While I do have time, my main focus has been on fighting the complaint in state court.

While not legal advice all the info I received from this website has really helped me.  No Job means no attorney (bottom line).  You can't get the correct answer if you don't know the right question.   Thanks for all the sugestions.
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Willilam A. Roper, Jr.

Be sure to discuss with the attorney ways to truthfully disclose and express the identity of POSSIBLE creditors WITHOUT ADMITTING TO THEIR CLAIM.

For example, suppose that the original alleged Lender was Option One Mortgage Corporation, the current alleged servicer is American home Mortgage Servicing and the foreclosure law suit was brought in the name of "Deutsche Bank as Trustee for Soundview . . .".  Further suppose that the original alleged mortgage amount was $100,000, the alleged amount outstanding asserted by AHMS in the last statement was $102,500, and the amount sought by Deutsche bank in the foreclosure suit was $105,100.  Further suppose that this was an MERS mortgage (usually an invalid supposition in the case of OOMC).  Ask your attorney whether you could show something like the following:


Option One Mortgage Corporation ("OOMC"), $100,000*

* Option One Mortgage Corportation is a possible claimant of a purported promissory note allegedly dated 01 Jan 2006 with a purported original face amount of $100,000.  This is believed to be, at best, an unsecured debt.

Mortgage Electronic Registration Systems ("MERS"), $100,000**

** MERS may claim to be the mortgagee of a mortgage dated 01 Jan 2006 with a purported original face amount of $100,000.  MERS is not believed to have any interest whatsoever in the promissory note allegedly made out in favor of OOMC shown above.  MERS is NOT believe by the debtor to hold ANY interest in indebtedness whatsoever.    

American Home Mortgage Servicing, $102,500***

*** American Home Mortgage Servicing ("AMHS") is a possible claimant of a purported promissory note in the original amount of $100,000, with a purported balance of $102,500.  AHMS may be asserting a claim as a holder or as a servicer on behalf of another alleged mortgage investor.  It is believed that any claim by AHMS is the SAME claim which is or might be asserted by OOMC.  This is believed to be an unsecured claim.  MERS may claim to be mortgagee of the property which purportedly secures this claim.

Deutsche Bank, as Trustee for Soundview . . . , $105,100****

**** Deutsche Bank is a possible claimant of a purported promissory note in the original amount of $100,000, with a purported balance of $105,100.  Deutsche bank may be asserting a claim as an owner or holder.  It is believed that any claim by Deutsche Bank is the SAME claim which is or might be asserted by OOMC and AHMS.  This is believed to be an unsecured claim.  MERS may claim to be mortgagee of the property which purportedly secures this claim.

* * *

I am NOT suggesting or recommending that you use this particular language in a Bankruptcy filing.  To the contrary, I am merely suggesting that you discuss with a qualified bankruptcy attorney whether you can submit a petition which truthfully and correctly identifies possble alternative claimants (giving these notice and an opportunity to come forward and present their claims), WITHOUT making any admission or even taking a position as to WHICH claim might be valid.

IF your attorney were to find a way to characterize your creditors which AVOIDS unnecessarily admitting any aspect of the debt, this puts the alleged mortgage investor in the position of having to come into court to assert its claim.

These are just ideas for further research and discussion with a capable and well qualified attorney specializing in bankruptcy! 
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   For bk info, I highly recommend the Nolo series on ch7 and ch13. You
can find them in most bookstores. Make sure you get the latest versions.
   Also study your States laws on the Homestead exemption then put 2+
2 together. I also recommend Trawick on judgements. You will find some
really good info there which I do not want to divulge because the info might
fall into the wrong hands.
    When it comes to Bk most lawyers are as ignorant as a laymen and even
if they know certain things, they won't tell you. It's all about the money.
I have seen lawyers totally rip off their clients and give them false info. causing them to lose when they could have won.
     Once you read both Nolo books cover to cover, study the forms and
trully understand the process, you will realize it is not rocket science, it
only seems that way at first.
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I was kind of wondering that.  Maybe the attorneys I spoke with are on the newer side and are doing the bare min as far as the options available.  The next one I talk to I'm going to see if they will do an advisary bankruptcy filing.  Or list the debt as unsecured.

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William A. Roper, Jr.

The sad truth is that most of the attorneys practicing in the Bankruptcy area haven't bothered to keep up with the more effective foreclosure defense strategies.

Most treat Bankruptcy filings as a formulaic ritual where the Chapter 13 goal is to preserve the borrower's residence where cash flow will support the post petition payments or, where the borrower lacks cash flows to make mortgage payments, the bankruptcy protection is viewed merely as a speed bump in an inevitable foreclosure process.

Mike H. and others are correct to advise you to read widely and to undertake to understand the law and Rules.  And while I would encourage you to seek a capable and qualified attorney with Bankruptcy experience, I would also encourage you to interview any prospective attorney to ascertain his qualifications and his approach to Bankruptcy practice.

Good luck!
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