Bankers Apoplectic Over Arizonas Republican Dominated Senate Passing Chain of Title Bill, 28-2

Frankly, I don’t know where to begin. There’s just so much to say. It’s like a cornucopia of… well, lots of stuff to say. Bankers everywhere must be walking in circles, muttering to themselves, perhaps breaking out in hives. And I have to imagine that banking industry lobbyists are in some kind of trouble with their masters today, with phones being slammed down after CEOs have screamed:

“Damn it, how could you have let this happen? We gave you an open checkbook filled with blank checks… and you couldn’t even scare off, or buy off, the Arizona Senate… the Republican controlled Senate? And you call yourselves lobbyists?”


You see, the Arizona State Senate has passed Senate Bill 1259, sponsored by Michele Reagan, which would require the lenders that didn’t originate a loan to produce the full chain of title, or risk the foreclosure sale being voided. The bill now goes to the House for a vote, but with the Senate having passed it by an overwhelming margin of 28-2, it would seem that its passage is a fait accompli.

According to the Arizona Senate’s FACT SHEET FOR S.B.1259, foreclosures; proof of ownership, the Bill’s purpose is as follows:

“Provides a chain of ownership during foreclosure proceedings and allows reimbursement of lawyer fees for injunctions or court cases that fail to prove ownership.”

Well, I’ll be a monkey’s uncle. A Republican dominated Senate, you say?

You don’t say. Are you sure?

Quite sure.

So, are these Republicans in any way related to the Republicans in Washington D.C. or is the word “Republican” pronounced differently in Arizona and there’s no relation between the two groups?

(That was originally intended to be a rhetorical question, but if anyone feels capable of actually answering it, please… by all means… write to me… because I’m so confused.)

And attorneys fees to be awarded to the victor as well? Well, I’ll say… so, very good then. That means that homeowners who believe there is cause for a challenge to the servicer’s chain of title assertions, will have a much easier time finding and funding their legal representation, I would think that would be the case, anyway, don’t quote me…. or, no… go ahead and quote me, why the heck not?

And, in a related story… Arizona’s foreclosure defense plaintiff’s attorneys have been spotted across the state dancing in the streets with some of the state’s distressed homeowners. Many observers of this admittedly unusual phenomenon claim that for the most part, the attorneys and homeowners were doing the Hokey Pokey, with several people reporting that after rolling down their windows as they drove by, they heard the dancers exclaim: “That’s what it’s all about!”

The Senate’s S.B. 1259 FACT SHEET also listed five key “Provisions” of the bill:

1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.

2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.

3. Stipulates that failure to properly record the summary document that demonstrates evidence of title for the foreclosing beneficiary as of the date of the trustee’s sale will result in a voidable sale.

4. Allows any person with an interest in the trust property to file an action to void the trustee’s sale for failure to comply and is entitled to an award of attorney fees and damages, to include an award of attorney fees for any injunction or other provisional remedy related to the claim.

5. Becomes effective on the general effective date.

So, get this… I’m as curious as the bankers must be as to how in the world something like this happened. I mean, I’ve been accusing our country’s politicians of perpetual kowtowing to the banking lobby, and of having no first hand knowledge of what’s going on in real life, as far as the foreclosure crisis goes… and then the Arizona’s political types go and pass something like this? I mean… go figure, right?

So… how did it happen?

Well, funny story… it seems that State Senator Michele Reagan, a Republican of all things, who was first elected to serve in the Arizona House of Representatives in 2002, and in 2010 was elected to the Arizona State Senate… and who is Vice-Chairman of the Banking and Insurance Committee, and Chairman of the Committee on Economic Development and Jobs Creation… well it seems that she and her husband were sued by their servicer, Texas-based Colonial Savings FA, when they sent the bank a letter last July stating that they were planning to rescind their loan due to violations of the Truth in Lending Act or TILA .

According to Bloomberg’s story on the bill’s passage:

“They claim that the bank failed to disclose certain fees, and that the underwriter of their loan inflated their income by 12%, which violates the Truth in Lending Act.”

Colonial Savings then asked the court to declare that the couple were not entitled to rescind the loan, it should go without saying.

Reagan and her husband, David Gulino filed their own counter claim type lawsuit, in which they argued that they were manipulated into accepting an adjustable-rate mortgage, and that Colonial Savings, in true servicer-style, won’t tell them who owns their loan.

According to Bloomberg, Janet Walter, a spokeswoman for Colonial Savings, declined to comment, so I see no point in ringing her myself. And, Reagan’s attorney Beth Findsen, who told Bloomberg that she also helped write the bill, said the following:

“It makes Michele mad that the bank servicers will not disclose to a borrower the true noteholders,”

Findsen said. “She was taken aback that such basic information was not readily available.”

And I can imagine she would be taken aback. I know I would be… and in fact was… when I was first exposed to the problems being caused by Servicers, and I remain taken aback to this day.

Again, quoting from the Bloomberg story…

“If you foreclose on somebody you should have to tell them who owns the property,” Michele Reagan, who sponsored Senate Bill 1259, said in a telephone interview. “People have the right in this country to face their accusers.”

I like the way she thinks, don’t you? Even though, if I were to be picky about it, I’m not entirely sure that the reason for passing a law that requires the banksters to produce or report on all of the specific beneficiaries comprised in the Chain of Title has anything to do with our right to confront one’s accuser, as described in the Sixth Amendment to the U.S. Constitution, but if that’s what works, then let’s by all means run with it.

Strong opposition to the bill’s passage is coming from the Arizona Bankers Association, the Arizona Trustees Association, and Merscorp Inc., three great tastes that taste great together. MERS, in case you’ve been incarcerated in a Turkish prison over this past year, is an industry-owned organization that maintains a database containing more than 50% of all mortgages, that claims to be able to represent the trustees that conduct foreclosure auctions on behalf of lenders. Many vehemently disagree.

Paul Hickman, chief executive officer of the Arizona Bankers Association in Phoenix, showed up in the Bloomberg article, to issue the banking industry’s standard WARNING & THREAT package… the one they draw like a gun every time anything might change that affects them in any way.

“If Arizona passes this, it will be the only state in the union that will require a production of chain of title. States that pass these types of laws will be riskier environments to lend in and more difficult environments to get a loan in.”

Or, in other words… pass this bill and none of you in AZ will ever buy a home again because there will be no credit available to you. Hickman didn’t add the popular refrain about how the change will also paralyze the housing market, which will derail the recovery and basically end the world as we know it. Oooooo… scary bedtime stories for legislators.

And by the way, Mr. Hickman… the whole chain of title thing is already the law in Arizona and elsewhere.  This new law just requires your membership to follow the existing laws and actually make sure the chain of title is not destroyed by banker incompetence or blatant disregard for the law.

So, why would your banker buddies having to follow the law transform a geographic locale into a “riskier environment?”  Riskier for whom, exactly?  Just tell the bankers that they may have to work past three and actually care about doing things in compliance with the law from now on, and everything will be fine… see… risk gone.  Happy now?

Also, appearing alongside Hickman, the president of the Arizona Trustees Association in Phoenix, Richard Chambliss… I prefer to call him “Dick,” echoed the industry’s message as well:

“Reagan’s bill has both technical and conceptual problems, and could add to uncertainty over title.

Lenders that don’t file mortgage assignments with county recorders offices could face borrower challenges if the bill passes, even though the assignments weren’t required by state law.”

Dick Chambliss went on… sounding to me like he was getting a bit hot under the collar as he did…

“Is this bill intended to punish the lenders and screw up the process or address the problem that needs to be solved?”

Actually, two out of three, Dicky my boy… it’s definitely intended to punish the lenders, although nowhere near as severely as they should be punished, and now that we can all see how it upsets you and your peer group, we’re more confident than ever that it will also go a long way towards solving a couple of key problems inherent to the foreclosure crisis to-date as a result of servicer practices…

1. That servicers and lenders will actually have to follow the laws related to the chain of title, and therefore won’t be bringing fraudulent documents into court anymore.

2. That servicers that haven’t followed the laws and therefore that have broken the chain of title will now have an incentive to modify loans, instead of perpetuating illegal foreclosures.

But, look at the bright side… think of the money you’ll save on robo-signers, depositions, the creation of garbage alonges… you’ll come out ahead, I just know it.

Dick had yet another question to pose…

“What is it accomplishing by requiring that the history from the birth of the deed of trust to 20 assignments down the road have to be fully identified?”

Ooohh.. ohoo… I know this one, can I answer this one?

It’s a law to make sure that bankers tell the truth and follow our state and federal laws when foreclosing on someone’s home. Is that not an easy thing to see and understand? Even the banksters see the writing on the proverbial wall this time out, which is undoubtedly why they are so distressed at the prospect of the bill passing the House of Representatives and becoming law in Arizona.

See what I mean?  Doesn’t “Dick” fit him better than Richard.  For sure, right?  I don’t even know the guy and I can tell from the way he talks that he’s definitely a “Dick”.

With Arizona being a non-judicial foreclosure state, meaning that property can be legally repossessed there without a court order, the banksters are not used to being asked such questions related to foreclosure and therefore are likely to be nowhere near as prepared to create fraudulent documents as they have been in the judicial foreclosure states where they appear to have a rich history of forgery going back many years.

Most mortgages that were originated during the last ten years were securitized and therefore supposedly assigned to trusts, with “pass-through certificates” entitling their holders to receive a percentage of the payment streams generated by the mortgages in the pool offered for sale to investors. As a result, many, many of these loans were sold more than three times before ever getting into the trust, assuming they ever arrived.

Banks using the Merscorp’s system typically don’t file assignments because the says that the ownership information is tracked electronically, whatever that actually means. Numerous judges don’t agree, most notably of late, Federal Bankruptcy Court Judge Grossman in New York whose opinion a few weeks ago, although non-binding for several reasons, removed all uncertainty as the argument as to whether MERS should be allowed to foreclose. He says, clearly… not a chance.

Walter E. Moak, who is apparently a bankruptcy attorney in Chandler, Arizona, was quoted in the Bloomberg story, saying that this Arizona legislation would make it easier for borrowers to negotiate loan workouts, and depending on the details, I might even agree. But, then the story quotes this bankruptcy lawyer as saying something that I would have to take issue with…

“Servicers often reject modification requests because the borrower doesn’t meet investor guidelines, even as they refuse to identify the investors,” Moak said.

“The person who has decision-making power is not the servicer, it’s the investors,” he said.

I realize that servicers say this a lot… I realize that many people believe this to be the case… I know that intellectually it may even makes sense … and I’ll even allow for some small percentage of cases where this statement is accurate to whatever degree… BUT… for the most part, Mr. Moak’s statements are at best incomplete, and in many instances wrong.

When a servicer tells a homeowner that they are unable to modify their loan due to something about not meeting investor guidelines or because the investor said they won’t modify loans… well, I’m sorry Mr. Moak, but assuming the loan has been securitized… it’s almost never true. At least nine times out of ten, they’re just plain old lying… or shall we say they’re embroidering… or perhaps we should call it, embellishing… no, let’s go back to just plain lying.

Pooling and Servicing Agreements, in the vast majority of cases, do not prohibit servicers from modifying a loan that is at risk of imminent default, and besides that… servicers don’t have a relationship with the investors… they report to a Master Servicer, who in turn reports to a Trustee, and that trustee could theoretically contact investors, but even that is extremely unlikely as the investors we’re talking about are often pension plans, insurance companies and sovereign wealth funds… not exactly the kind of investors you just pick up the phone and call… and then you would have to reach some sort of a majority… I mean… it’s just a ridiculous proposition.

Georgetown Law Professor, Adam Levitin, in conjunction with Tara Twomey of National Consumer Law Center, two of the country’s leading experts in the intricacies of mortgage servicing as related to loan modifications, have just published a 90-page research paper that represents “the first comprehensive overview of the residential mortgage servicing business,” and although the subject is nothing if not complex, some things are clear.

(I actually know Tara from the judicial conference held last April for the 9th Circuit judges… she and I were on the same panel speaking to the judges about the foreclosure crisis and the impacts of securitization.)

From the Levitin/Twomey research paper on mortgage servicing:

Mortgage servicing has begun to receive increased scholarly, popular, and political attention as a result of the difficulties faced by financially distressed homeowners when attempting to restructure their mortgages amid the home foreclosure crisis.  In particular, the mortgage servicing industry has been identified as a central factor in the failure of the various government loan modification programs.

No one has a firm sense of the frequency of contractual limitations to modification for PLS. A small and unrepresentative sampling by Credit Suisse indicates that nearly all PLS PSAs permit modification when a loan is in default or default is reasonably foreseeable.  Almost 60% of the sampled PSAs had no other restrictions to modification.  Of the PSAs with additional restrictions, 27% capped loan modifications at 5% of the loan pool, either by count or balance.

The PSA sets forth two exceptions to this general limitation on loan modification. First, for defaulted loans, the PSA provides that the servicer may write down principal or extend the term of the loan.  Thus, it appears that the servicer may write down the principal on a defaulted or distressed loan or may extend the term of the loan.

Look, the fact is that servicers lie all the time to the homeowners who apply to have their loans modified, and I’ve got a front row seat to that behavior almost every single day. They want to foreclose because they make more money when they foreclose, and if they can say something to get a homeowner to give up, they will… and they do… all the time. I can’t count the number of times when I’ve told a homeowner to not give up and the result has been a modified loan.

If a servicer tells me that the sky is blue, I go outside and check for myself… and that’s all I have to say about that.

See why I have to check for myself?

Here’s the conslusion from the Levitin/Twomey paper…


This Article presents the first comprehensive overview of the residential mortgage servicing business and shows that mortgage servicing suffers from an endemic principal-agent conflict between investors and servicers.

Securitization separates the ownership interest in a mortgage loan and the management of the loan. Securitization structures incentivize servicers to act in ways that do not track investors‘ interests, and these structures limit investors‘ ability to monitor servicer behavior. Monitoring proxies, such as ratings agencies and trustees, are themselves subject to perverse incentives and are limited in their ability to monitor servicer behavior.

As a result, servicers are frequently incentivized to foreclose on defaulted loans rather than restructure the loan, even when the restructuring would be in the investors‘ interest. The costs of this principal-agent conflict are not borne solely by MBS investors. The principal-agent conflict in residential mortgage servicing also has an enormous negative externality for homeowners, communities, and the housing market.

The principal-agent problem in residential mortgage servicing could be addressed by restructuring servicing compensation. Other types of securitizations use measures that mitigate the principal-agent conflict between servicers and investors.

There are costs to applying these measures to residential mortgage securitization, which are likely to be borne partly by borrowers in the form of higher mortgage costs. Yet, correcting the principal agent problem in mortgage servicing is critical for mitigating the negative social externalities from uneconomic foreclosures and ensuring greater protection for investors and homeowners.

And if I can wrap that conclusion up in a tidy little package with a bow on top, it says that it’s the mortgage servicers who are letting our nation down and causing unfathomable amounts of pain to our country’s homeowners across all socio-economic demographic segments.

The Bloomberg story also quoted Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City, who said that he thought the legislation would, “test the completeness and accuracy of bank records. The law could also have the unintended consequence of pushing more lenders to modify loans rather than face a voided sale.”

“I like it because it forces the financial institution into providing information about who owns loans and rebuild transparency,” Peterson said. “It makes it significantly more difficult to foreclose if they don’t have good records of the history of ownership of the loan.”


1. In its simplest form, this is a bill that would create a law that would say that bankers have to follow our existing laws before foreclosing on someone’s home.  And yet the bankers don’t like it and say that if they were forced to follow our laws, we would have a harder time getting loans.

2. And to that I would say: Fine… if we have a harder time getting loans, then it occurs to me that we’ll owe less money and you bankers will have a harder time making as much money.  So who’s really going to suffer here if this becomes a law?

3. Bankers argued throughout the last 20 years that no laws should restrict sub-prime lending because then lower income Americans wouldn’t have access to credit, which is a lot like saying that poor neighborhoods need access to LOAN SHARKS.

4. Why wouldn’t every state in the country have a law like this one on the books?  It’s a law that makes banks follow the law.  How could that be a bad thing?  I’d like to encourage everyone to write to their state representatives and tell them that you want them to enact such a law.

5. The only reason this bill is being pushed through the Arizona legislature is that one of that state’s senators actually tried to rescind her own predatory loan and found out first hand what it’s like to have to deal with a servicer.  Is she an irresponsible borrower?  I don’t hear anyone calling her names, asking her if she’s living beyond her means.  WHY NOT?

6. What should we do, wait for more of our elected representatives to fall fare enough down the economic ladder so that they too have the experience of dealing with a servicer?  And only then we should stop the pain and suffering being caused by the foreclosure crisis.  I’ve said it before, but our elected representatives have long-since forgotten what it’s like to not be rich.  They need to be reminded…

I have a call in to Sen. Michele Reagan’s office in Phoenix and I hope to hear back from her.  But until I do, there’s only one thing that’s making me feel uneasy about S.B. 1259… and here it is…

Remember the first and second provisions I listed, from the FACT SHEET:

1. Requires a non originating beneficiary on a deed of trust, to record a summary document that contains past names and addresses of prior beneficiaries, the date, recordation number and a description of the instrument that conveyed the interest of each beneficiary.

2. Requires the summary document to be recorded at the same time and place that the notice of trustee’s sale is recorded and that a copy be attached to any notice of trustee’s sale that is required.

Yeah, well you see the 800lb. gorilla now, right?  Is this bill saying that all the bankers will be required to do under the new law is type up a list of what shouldn’t happen but didn’t… without having to prove anything?  Because if that’s the case, then I just wasted a huge amount of time writing about something that will soon be proven useless, and I’m not happy about that possibility at all.

I mean, typing up a chronology of what was supposed to happen and when, even though it didn’t… strikes me as being much easier than having a robo-signer sign 10,000 lost note affidavits each month

So, all I can say is… I’m going to find out for sure tomorrow by talking to the Senator’s office, and until then I’m going to pretend that I never even noticed that little issue, and pray like hell that this isn’t just another Charlie Brown run at that same stupid football.

From the Bloomberg article:

Matthew Benson, a spokesman for Arizona Governor Jan Brewer, a Republican, said she doesn’t comment on legislation until it reaches her desk.

Mandelman out.

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