Hawaii Court rules: No valid assignment means Deutsche has no standing to foreclose
Last week, Hawaii homeowners at risk of foreclosure had reason to be pleased. Not ecstatic… not jubilant… and certainly not electrified, as other bloggers have intimated might be appropriate. The decision is not cause for any of those emotions… there’s no curtain lifting on a big show, if you will.
District Court Judge J. Michael Seabright ruled in favor of a Hilo homeowner, dismissing a complaint filed by Deutsche Bank as Trustee, who was seeking to foreclose. According to the court’s ruling, the plaintiff failed to establish that it was validly assigned the Mortgage and Note and therefore lacked standing to foreclose on the defendant’s property.
The court’s decision was very straightforward and should be easy to understand. (Deutsche v, Williams)
Basically, Deutsche Bank produced an assignment from Home 123/New Century Mortgage on January 13, 2009… but Home 123 was in bankruptcy liquidation as of January 13, 2009, having filed for bankruptcy in 2007, and a liquidation plan was confirmed in July 2008 as part of the bankruptcy of New Century Mortgage. So, obviously that assignment was not valid.
Deutsche then claimed that it was assigned the loan in 2007 through the Pooling & Servicing Agreement (“PSA”), dated January 1, 2007. Judge Seabright, however, pointed out that although the plaintiff MIGHT have been assigned the Mortgage and Note through this PSA, the plaintiff offered no evidence for the record establishing which mortgages were included in the PSA.
In a nutshell, all the judge said is that he wants some admissible evidence of the transfer of the loan to Deutsche Bank. The 2009 assignment was obviously not valid… and if it was assigned through the PSA in 2007, then Deutsche Bank needed to present some evidence of that fact… and they didn’t… this time around anyway.
As such, the judge granted the homeowner’s motion to dismiss Deutsche’s complaint, but he did so “without prejudice,” which means that he left the door open for Deutsche Bank to come back to court with evidence of the assignment, and re-file the foreclosure complaint.
Of course, some people will say that Deutsche Bank won’t be able to produce a valid assignment of the loan, while others will say that’s just wishful thinking. If you want my vote… I’d have to say that Deutsche will be back for sure, so this decision will likely represent a delay, which I’d have to say is something short of extraordinary, as far as ramifications are concerned.
The better question really is… when they return to foreclose, what will they bring with them in the way of an assignment?
What if they lost the note?
If Deutsche Bank can’t find the original note it doesn’t mean that they can’t foreclose… there are a number of other ways the bank could establish that they have the right to foreclose.
Judge Seabright left it open as to what would constitute acceptable evidence of the assignment, so it doesn’t necessarily have to be the note itself, rather it could be a schedule of loans that accompanied the PSA… it could be a lost note affidavit, or an affidavit by the custodian of records, or some sort of acknowledgement of receipt.
This is a court of equity, and it’s not giving away free houses as a reward for being delinquent on a mortgage just because the foreclosing party doesn’t have the actual note.
In fact, the Uniform Commercial Code (“UCC”) sets forth conditions related to enforcing lost, destroyed or stolen instruments in section 3-309, subsection (b) as shown below.
§ 3-309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN INSTRUMENT.
- (a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.
- (b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, Section 3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.
What a difference a day makes…
According to Massachusetts attorney Glenn Russell (one of the lead attorneys in the now famous Ibanez decision), if Deutsche Bank did in fact buy the loan from New Century in 2007, the precise date of the assignment they present to the court is going to matter… a lot.
The PSA that Deutsche presented to the court was dated January 1, 2007. But according to the transcript of the First Day Hearing of the New Century bankruptcy, dated April 03, 2007, at the time of New Century’s bankruptcy, the company only owned 2,000 loans, and their internal term for these loans was LNFA, which stood for: “Loans Not Financed Anywhere.”
And, these loans, by the way, were sold to Ellington Capital Management Group LLC Capital, and the servicing rights were sold to Carrington. So, because the closing date for the PSA would be sometime in March of ’07, the date of the assignment of this loan to Deutsche would have to be sometime in March ’07, but before April 3, 2007.
To see for yourself… here are links to the Exhibit documents from the New Century bankruptcy proceedings.
Exhibit F – Opening Day Hearing of New Century Bankruptcy
Exhibit H – Amended Disclosure, February 2, 2008
So, that’s as far as it goes for the Deutsche v. Williams decision. It’s not exactly the second coming, but it is reason to be pleased. It’s probably worth noting that this decision seems to have gone the way it did because of the transfer from a company that was in bankruptcy… that seems to be what led Judge Seabright to his ultimate conclusion.
Also, you can’t assume that this decision will carry over into your state. In California, for example, this wouldn’t have been a problem because California state law says that the deed automatically follows the note, you can’t separate the two.
According to Honolulu attorney, Gary Dubin, Hawaii state law is unclear as to whether the mortgage automatically follows the note. I spoke to him, and he was nothing short of thrilled at the court’s decision. (Watch for a podcast with Gary as my guest coming up soon.)
Gary has been fighting foreclosures and various other mortgage improprieties in Hawaii for a long time… in fact, when he started his practice, I don’t even think the Big Island was above sea level yet. (Kidding, just kidding… I love Gary… I just couldn’t help myself.)
I understand why Gary was so excited by the decision… he even told me that he’s fought for this same sort of outcome in Hawaii’s state courts on numerous occasions only to find the courts all to willing to disregard anything but the borrower’s delinquent status, and I do understand how frustrating that can be and often still is for foreclosure defense lawyers all over the country.
The Notes Are NOT Lost…
Florida foreclosure defense attorney Matt Weidner says that he’s tried thousands of cases and he’s NEVER has had a case in which the bank didn’t eventually show up with the actual note. “They’re not lost… they know where they are. They just don’t want to go to the trouble of producing then. But when push comes to shove, they always manage to find them,” Matt explains.
According to Weidner…
“I’ve taken depositions that have explained how the LPS system for tracking notes is very sophisticated. To take a note out of the vault, the system generates something called a Dailee Agreement, and there’s even an insurance policy that travels with that note in case it’s lost or damaged. But it’s time consuming. And the compensation system encourages foreclosing attorneys to do everything fast and faster above all else, so if they can get away not producing the note, so much the better.”
Tom Cox, the foreclosure defense lawyer from Maine, agrees. He says you can absolutely count on the bank to show up with the note every single time… if they have to. He’s never seen them not do it… ever. “Oh, they’ve got the notes… of course they do.”
Coincidentally, Matt Weidner just days ago lost a case for the first time and that has him ready to chew on glass. Incredibly, none other than “Linda Green signed the assignment and yet the judge in the Florida court just did not care.
Here’s an excerpt of Matt in court, from the transcript…
This plaintiff has come into your courtroom asserting they’re the service that asserts that they’re an agent-ship for someone else. They haven’t disclosed who the principal is. They’ve given you zero evidence that they have any authority to be here on behalf of the principal.
The plaintiff has failed to introduce any evidence whatsoever that either one of the witnesses that they have called have any relationship to the note or mortgage in question. They have, in fact, said, both witnesses, we are the servicer but they have not introduced a single piece of evidence which gives them the authority to be here in front of the Court.
Misinformation and hyperbole making a bad situation worse…
The blog, Deadly Clear, reported on this story a few days ago, but rather than stopping where the case stopped, the author made the decision sound like much more than it is. Here’s an example…
Attorney Bickerton faced off in court and explained to the Judge oral argument that the banks didn’t just miss the date to file their assignments or needed to tidy up paperwork, this was a ‘Business model using the loans for overnight lending.’ Bickerton told the Court that if this wasn’t dismissed, his first line of discovery would be geared to uncover the outside financial advantages being derived from the use of the Williamses’ loan.
This is the thinking that ultimately leads to believing that the borrower doesn’t owe any money because some combination of insurance policies and credit default swaps have combined to pay off all of the loans, making all of the investors whole and allowing the servicers to now collect again from the homeowners who actually own their homes free and clear.
It’s not true. Neither default insurance, which is issued by monoline insurers, nor credit default swaps ever pay off loans. If you want to know how these deals work in detail, I just published a couple of articles on the topic, “If WE Owned a Pool of Loans, Would WE Allow Principal Reductions.” AND… “An Insider’s View of an Actual RMBS Securitization at Mandelman U.”
The writer seems to be saying that Deutsche is profiting from the loan so there should be an offset of some kind. This line of thinking is not only not true, but it’s also not relevant. The actual loss by the bank in a default is not relevant to the amount owed by the borrower.
And the writer goes on… and on…
Understanding the premeditated intentions of these banks, how they pledge, collateralize, swap, sell, lease, and trade these loans that are SUPPOSED to have been in a static trust will open the eyes of lawmakers to the real moral hazard – the fraud upon the homeowners, the courts and the state.
Look, the writer is obviously passionate, and I don’t want to take anything away from that, but we can’t fall into the trap of not being accurate and correct in what we say and do…. or we will lose.
Let’s discuss the trusts. We can see by the assignments that they were not made timely and NY trust laws call them VOID.
This is the REMIC trust issue. REMIC trusts are the type of trust used when issuing mortgage-backed securities, and while the writer may be right, in some instances, it just doesn’t matter because the Internal Revenue Code is not something homeowners can enforce. The IRS has made it clear that they have no interest in going after this issue, and it isn’t something that impacts the borrower… so it’s a distraction, nothing more.
And let’s suppose we can see the trading in the trust is active, numerous investors have already been paid off – where is the “injury”….hmmm?
Okay, I hear this type of thing every day lately… I don’t know where this rumor came from but it’s NOT TRUE. Investors have NOT been paid off… not even close. Just read any of the lawsuits being brought by investors against the issuers of mortgage-backed securities and you’ll get the message in a damn hurry.
We’re connecting the dots, people with above average intelligence are realizing, just like Judge Seabright, that there are huge schemes behind the scenes of an everyday mortgage that the borrower never intended to participate in… and eventually we’ll know whether the application for a mortgage started the securitization process before the borrower signed the note making them securities with no disclosure, how many insurance policies were attached to the loans and when (we never agreed to be over insured which would give someone the incentive to “off” us)… it’s coming soon – to a court room near you…
The borrower didn’t have to intend to participate in anything having to do with securitization, and borrowers are not securities without disclosure. These are rumors dreamed up by someone who wants to sell homeowners on signing up for a lawsuit. Someone showed it to me about a year ago. It’s grown out of control.
Don’t buy into these things… don’t write anyone a check to join such a lawsuit. It’s nothing but a rip-off, I promise. And you don’t have to take my word for it… for any of this… call experts all over the country… ask them. You’ll see…
Look, I know how homeowners feel today, and the stress is increasing as things get progressively worse, so many people want to believe that there’s something out there that can save them… that’s why the scammers are so successful… at some point people buy magic beans.
The key to getting through this is education… educate yourself… double check everything… read books, articles… listen to my podcasts with the country’s leading experts. That’s how we will win… because the more you learn the more powerful you become. And that’s a fact.
So, be pleased about this decision… it’s a good decision. But that’s all it is… the race is long… and in the end it’s only with yourself.