Professional Documents
Culture Documents
SUDDENLY APPEARING
ENDORSEMENTS USED BY
BANK-TRUSTEES IN
FORECLOSURES
ʘ MULTIMEDIA
“The Court is concerned, as a result, that OneWest does not hold the Endorsed
Note. But, perhaps more significantly, the Court is concerned that OneWest has
determined that business expediency and cost containment are more important
than complete candor with the courts.”[1]
– In Re Jessie M. Arizmendi (At the time of this California foreclosure decision in 2011,
the homeowner/debtor, Ms. Arizmendi, was a frail 86-year-old with hearing loss and
difficulty walking.)
This article discusses 42 cases with suddenly appearing (often called “ta-da”)
endorsements. In each case, a bank-trustee tried to foreclose on behalf of a mortgage-
backed trust. Most of these cases began with the filing of an unendorsed note that was
described in the bank’s pleadings as a true and correct copy of the original note. Several of
the Florida cases began with a Lost Note claim, alleging that the bank at one point had the
note in its custody and control, but somehow lost the note. Later in the litigation, these lost
notes were invariably and inexplicably found.
In a few cases, the judges expressed their disbelief and frustration with the documents
presented by the banks and the claims made. These cases are the exception, however, not
the norm. Very few cases address the issue of whether the endorsements or found notes
were illegally fabricated or forged.
Most homeowners borrow money to purchase their homes. When these homeowners
“close” on their home loan, they sign a promissory note and mortgage or deed of trust. The
note obliges the homeowners to pay back the loan under the specified terms. The
mortgage or deed of trust gives the lender the right to foreclose on the home if the
homeowners default under the terms of the loan. The note and the mortgage are two
separate and distinct documents – or “instruments.”
Generally, almost all residential mortgage notes start as notes payable “to order,” that is,
payable to the lender of the money. Beginning in approximately 2004, the era of mortgage
securitization, most mortgage notes (notes secured by a mortgage) were sold to third
parties, usually called Depositors. These Depositors bought loans from originators, pooled
loans together, and sold the pools to form securitized trusts. The agreements governing
almost every securitized trust required that the notes that were sold to the depositor, and
made part of the trust loan pool, be both endorsed and delivered to the trustee or the
document custodian for the trust. The governing trust documents specified both how the
notes were to be endorsed, and how (when, where and to whom) they were to be
delivered.
Five different major problems occur with notes that have been securitized:
3. The endorsed notes are not filed at the time the complaint is filed, making it
impossible for a court to determine whether the bank had the endorsed note at the
time it commenced the foreclosure;
4. There are seldom any records presented in foreclosure cases recording when and
where the delivery of the notes occurred; and
5. Different versions of the notes are presented to the Court in the same case, with
the differences almost always involving the endorsements.
The Supreme Court of New Mexico became the third state highest court, joining Vermont
and Oklahoma, to confront the issue of conflicting promissory note endorsements[2] in
foreclosures, in a decision filed February 13, 2014, Bank of New York v. Romero.[3] The
Romero case involves a fact pattern that arises frequently in foreclosure litigation: the copy
of the note attached to the complaint when the action was first filed contained no
endorsements, but by the time of the Summary Judgment hearing or trial, the bank-trustee
has filed another copy of the note, this one with endorsements.
In the Romero case, the first newly appearing endorsement was a blank endorsement (no
stated payee) from Equity One, Inc., the original lender. The second endorsement was a
special endorsement (payee stated) made payable to JP Morgan Chase Bank. There was no
endorsement to Bank of New York Mellon (BONY), the plaintiff who filed the foreclosure
action in its capacity as trustee for a mortgage-backed trust. Both copies were purported to
be copies of the “original note.”
The New Mexico Supreme Court held that Bank of New York did not establish its lawful
standing to file a foreclosure.[4] The New Mexico Supreme Court reversed the Court of
Appeals and the District Court and remanded the case to the District Court with
instructions to vacate its foreclosure judgment and to dismiss the Bank of New York’s
foreclosure action for lack of standing.
Joseph and Mary Romero borrowed $227,240 on June 26, 2006, from Equity One, Inc. to
refinance their home in Chimayo County, New Mexico. They signed a mortgage that
identified Equity One, Inc. as the lender and Mortgage Electronic Registration Systems, Inc.,
as Nominee for Equity One, as the mortgagee. The Romeros became delinquent in 2008.
Bank of New York, as Trustee for Popular Financial Services Mortgage Pass-Through
Certificates Series #2006, filed a foreclosure action on April 1, 2008. The copy of the
promissory note that was attached to the complaint when the Romero case was filed had
no endorsements. The note itself identified only Equity One as the lender.
The Romeros argued at trial that the “original” note introduced by BONY at trial and
purportedly authenticated was different from the copy of the original note attached to the
Complaint that did not include any endorsements. A document custodian from Litton Loan
Servicing, the servicer for the trust, testified that BONY had physical possession of both the
note and mortgage at the time it filed the foreclosure complaint, but this testimony was
largely disregarded because the document custodian claimed to rely on a Pooling and
Servicing Agreement from the trust, but that agreement was not offered into evidence.
In Romero, the Supreme Court held that possession of the note, with a special endorsement
to JP Morgan Chase, did not establish BONY as a Holder under the New Mexico UCC
provision, UCC § 55-3-301, defining a person entitled to enforce a negotiable instrument
such as a home loan. The Court stated that:
Possession of an unendorsed note made payable to a third party does not establish
the right of enforcement, just as finding a lost check made payable to a particular
party does not allow the finder to cash it…[5]
Regarding the conflicting versions of the Note – one without endorsements, and one with
two endorsements, the Supreme Court stated:
Without explanation, the note introduced at trial differed significantly from the
original note attached to the foreclosure complaint, despite testimony at trial that the
Bank of New York had physical possession of the Romeros’ note from the time the
foreclosure complaint was filed on April 1, 2008. Neither the unendorsed note nor the
twice-indorsed note establishes the Bank as a holder.[6]
The Court found that even the version of the note with endorsements was still insufficient
to establish standing, noting:
The trial copy of the Romero’s note contained two undated indorsements: a blank
indorsement by Equity One and a special indorsement by Equity One to JP Morgan
Chase. Although we agree with the Bank that if the Romero’s note contained only a
blank indorsement from Equity One, the blank indorsement would have established
the Bank as a Holder because the Bank would have been in possession of bearer
paper, that is not the situation before us. The Bank’s copy of the Romero’s note
contained two indorsements, and the restrictive, special indorsement to JP Morgan
Chase established JP Morgan Chase as the proper holder of the Romero’s note absent
some evidence by JP Morgan Chase to the contrary. (citation omitted).[7]
The Bank also made an argument that the Court should ignore the special endorsement,
but the Court rejected that argument, stating:
Rather than demonstrate timely ownership of the note and mortgage through JP
Morgan Chase, the Bank of New York urges this Court to infer that the special
indorsement was a mistake and that we should rely only on the blank indorsement.
We are not persuaded. The Bank provides no authority and we know of none that
exists to support its argument that the payment restrictions created by a special
indorsement can be ignored contrary to our long-held rule on indorsements and the
rights they create…[8]
The issue of whether such trust actually existed was never raised. The Romeros did try to
question the ownership of their note, as the Supreme Court opinion states:
According to the Romeros, Security and Exchange Commission filings showed that
their loan certificate series was once owned by Popular ABS Mortgage and not
Popular Financial Services Mortgage and the owner was JP Morgan Chase. [9]
If this issue had been properly raised, the court could have determined at the outset that
the name of the plaintiff was incorrect, because such a trust did not exist and never existed.
There is no such trust, Popular Financial Services Mortgage Pass-Through Certificates Series
#2006, registered with the SEC, rated by any rating organization or listed by any servicer or
trustee. Such a trust is not the plaintiff in any other lawsuit filed in federal court or any
reported state court case.
An examination of the Schedule of Loans from an entirely different trust indicates that the
plaintiff was not only incorrectly identified and did not exist, but also that another trust,
Popular ABS Mortgage Pass-Through Trust 2006-D, claimed in documents filed with the SEC
and distributed to investors that it owned a loan for the same amount as the Romero loan,
initiated in the same year, and from the same county in New Mexico, making it very likely
that this trust actually owned the Romero’s note.
If the loan in the Romero case were actually held by Popular ABS, Inc. Mortgage Pass-
Through Certificates Series 2006-D, the trial court may have addressed the issue of the
endorsement by JP Morgan Chase with the additional knowledge the JP Morgan Chase was
the original trustee, but withdrew from acting as trustee for hundreds of trusts, and was
replaced by BONY. This may not have been a critical fact, but it does help explain the
endorsement to JP Morgan Chase on the note presented by BONY at trial. It also helps
explain why the Pooling and Servicing Agreement was not presented to the Court as
evidence. The plaintiffs may have known they had named the wrong trust.
Johnny Lance Johnston is a disabled Vietnam veteran who represented himself at trial. His
request to present the testimony of Lynn Szymoniak (the author of this article) regarding
fraudulent documents used in his case was denied at trial.
Three months after the New Mexico Supreme Court’s decision in Romero, in Deutsche Bank
National Trust Company v. Beneficial NM, Inc.,[10] a New Mexico appellate court reversed a
foreclosure entered after a bench trial because the bank failed to establish that it had
standing when it filed its complaint. At the initial filing, the bank attached unendorsed copy
of the note made payable to New Century Mortgage Corporation. At trial, 20 months after
the complaint was filed, Deutsche Bank introduced the original note, this time endorsed in
blank, and argued that its possession of the note at trial with an undated blank
endorsement was sufficient to establish its right to enforce the note, stating:
In this case, the blank indorsement on the note the Bank introduced at trial was not dated,
making it impossible to tell when the indorsement was executed. Therefore, while the
indorsed note was sufficient to show that the Bank was the holder of the note at the time
of trial, it failed to show that the Bank was the holder at the time it filed its complaint for
foreclosure. We conclude that neither the unindorsed copy of the note produced with the
foreclosure complaint nor the indorsed note produced at trial were sufficient to show that
the Bank held the note when it filed the complaint. The Bank offers no explanation as to
why it produced an unindorsed copy of the note made payable to New Century instead of
the indorsed note if it indeed had possession of the indorsed note when the complaint was
filed. The bottom line is the Bank needed to show it possessed the proper supporting
documentation when it filed the foreclosure complaint. Kabba, 2012 OK 2013, ¶ 11.[11]
Prior to the New Mexico Romero decision, two state Supreme Court decisions dealt with
the issue of conflicting endorsements. The first such case was U.S. Bank National Ass’n v.
Kimball,[12] decided by the Vermont Supreme Court in 2011. In Kimball, U.S. Bank filed its
complaint with a copy of a note attached. An undated allonge was attached to the note,
signed by a corporate officer of Accredited Home Lenders, Inc., the original lender,
endorsing the note in blank. The homeowners filed an answer and the bank moved for
summary judgment.
In its summary judgment motion, the bank asserted that it had the original note, and that it
was endorsed from Accredited to RFC and then to U.S. Bank. No dates, however, were
provided for these endorsements. In support, U.S. Bank attached an affidavit attesting to
these facts, but the affidavit was devoid of any dates. The copy of the note attached had an
allonge. The trial court noted that the allonge submitted at summary judgment appeared
to be the same allonge previously submitted as endorsed in blank, but this time with “RFC”
stamped in the blank spot and containing a second endorsement from RFC to U.S. Bank.
The court held that U.S. Bank lacked standing when the complaint was filed, and dismissed
the complaint “with prejudice.”
On appeal, U.S. Bank asserted that it was entitled to enforce the note as a holder of the
instrument. The Supreme Court set forth the bank’s burden of proof:
The Supreme Court concluded that U.S. Bank failed to satisfy either requirement. When
U.S. Bank submitted its note with two undated specific endorsements, after submitting a
note with a blank endorsement, the bank failed to explain when the additional
endorsements were made, and why the complaint was originally submitted with a blank
endorsement. The Supreme Court concluded that the trial court did not err in dismissing
the complaint because of the “contradictory and uncertain” documentation.
The Oklahoma Supreme Court decided a similar case the following year, Deutsche Bank
National Trust, as Trustee for Long Beach Mortgage Loan Trust 2002-1 v. Brumbaugh,[14] where
the original petition for foreclosure, filed in January, 2009, included a copy of an
unendorsed note payable to Long Beach Mortgage Company. On April 1, 2010, JP Morgan
Chase Bank, as the servicing agent for the trust, filed a motion for summary judgment,
again attaching a copy of the unendorsed note. The respondent homeowners argued that
the bank was not the real party in interest because there was no endorsement whatsoever.
In reply to the homeowners’ response, and at the hearing, a copy of the note with a blank,
undated indorsement signed by Long Beach Mortgage Company was attached and
presented. The bank argued that this allonge was inadvertently omitted from the copy of
the note attached with its motion for summary judgment.
The trial court reviewed the note presented at the hearing and agreed with Appellee that
Appellee was the holder of the note because it had possession of the note and it was
indorsed in blank. The court granted summary judgment in favor of Appellee on January 27,
2011.
The Oklahoma Supreme Court reversed, finding that there was a question of fact as to
when the bank became a holder, and thus, a person entitled to enforce the note making
summary judgment inappropriate. The Court noted that to commence a foreclosure action
in Oklahoma, a plaintiff must demonstrate that it has a right to enforce the note and,
absent a showing of ownership, the plaintiff lacks standing, stating:
The New Mexico appellate court in the Johnston case (#2, above) also relied in part on a
2013 Oklahoma Supreme Court decision, Bank of America v. Kabba.[16] There, the Bank filed
its foreclosure petition claiming to be the holder of the note, as successor in interest to
LaSalle Bank, as Trustee for a trust, SAIL 2004-BNC2 in March, 2010. The Bank did not
attach a copy of the note to its petition, but filed the note, with a blank endorsement, with a
Motion for Summary Judgment, that was granted on June 13, 2011. The Oklahoma
Supreme Court reversed, finding that it was impossible to determine from the record when
Bank of America acquired its interest in the underlying note.
In Deutsche Bank National Trust Co. v. Matthews,[17] Deutsche Bank filed a foreclosure
petition as trustee of JPMorgan Acquisition Trust 2007-CH3 on January 14, 2009, claiming
that it held the note and mortgage. The note filed with the petition was unendorsed
(despite an allegation saying it was endorsed), but eventually, six months later with a
Motion for Summary Judgment, Deutsche Bank produced a note with two allonge
endorsements, the second being an endorsement in blank. Both allonges were dated
January 9, 2007, meaning Deutsche Bank was claiming to have acquired the note only five
days before it filed for foreclosure, if the note was assumed to have been delivered the
same day it was endorsed.
The first allonge was a special endorsement from the lender, Chase Bank USA, N.A. payable
to Chase Home Finance, LLC. The second allonge was a blank endorsement from Chase
Home Finance, LLC.
While the endorsement in blank pre-dating the filing of the petition would ordinarily have
been enough to establish the bank’s right to foreclose, the unendorsed note attached at the
original filing and the bank’s own allegations in the Summary Judgment motion made the
court conclude otherwise. In the motion for summary judgment, Deutsche Bank stated
that it acquired Chase Bank USA, N.A.’s interest in the note and mortgage subsequent to
the filing of the original action. Because of this admission by Deutsche Bank, the Oklahoma
Supreme Court reversed a summary judgment of foreclosure granted by the trial court with
instructions to dismiss the case without prejudice because there was no evidence showing
Deutsche Bank was a person entitled to enforce the note prior to the filing of the action.
In Deutsche Bank National Trust Co. v. Richardson,[18] Deutsche Bank again filed a
foreclosure without attaching the note. The initial pleading, filed October 15, 2010, alleged
that Deutsche Bank was the present holder of the note and mortgage, but did not refer to
any endorsement of the note. Deutsche Bank then filed for Summary Judgment on May 26,
2011, attaching for the first time a copy of the note, endorsed in blank, by WMC Mortgage
Corporation, the original lender. Deutsche Bank. Summary judgment was entered in favor
of Deutsche Bank.
The Oklahoma Supreme Court reversed, noting that summary judgment is improper if,
under the evidentiary materials, reasonable individuals could reach different factual
conclusions. The court found that the timeliness of the transfer was a disputed fact issue
because Deutsche Bank did not file the blank endorsement until it filed its motion for
summary judgment, making it impossible to determine from the record when Deutsche
Bank acquired its underlying interest in the note.
In CPT Asset Backed Certificates Series 2004-EC1 v. Cin Kham,[19] the copy of the note
attached to the original petition was unendorsed. No endorsed note was ever entered into
the record, though the bank’s counsel claimed to have a copy of the endorsed note at a
hearing on the homeowner’s motion to vacate a default judgment that was entered in the
case. Because the only note found in the record contained no endorsements, the
Oklahoma Supreme Court vacated the judgment.
In BAC Home Loan Servicing, LP v. Swanson,[20] the petition filed by BAC had an attached
copy of a note with an allonge transferring the note to Countrywide Bank, N.A. signed by a
warehouse manager of Magnus Financial Corporation. There was no evidence presented
showing the note was endorsed to BAC until the summary judgment motion when a copy
of the allonge was filed which also showed a blank endorsement. The Supreme Court found
that there was a question of fact as to when BAC acquired the note making summary
judgment inappropriate.
In NTEX Realty LP v. Tacker,[21] the original note was payable to Home Funds Direct, Inc. and
the original non-endorsed note was attached to the petition for foreclosure. NTEX moved
for summary judgment, again attaching the unendorsed note, alleging that it was a “full,
true and correct copy of the note.” When the homeowners again raised the issue in
opposition that NTEX lacked standing, NTEX filed a supplement to its motion that included
an undated allonge which transferred the note to NTEX, and the trial court granted
summary judgment to NTEX. The Supreme Court reversed because a question of fact
remained as to when NTEX acquired the note.
In U.S. Bank v. Alexander,[22] the original lender was MILA, Inc. DBA Mortgage Lending
Associates, Inc. Wells Fargo originally brought the case, with only an unendorsed note and
part of the original mortgage attached. U.S. Bank as trustee for Credit Suisse First Boston
HEAT 2005-4 was substituted as plaintiff. This new plaintiff filed an amended petition, but
again, only the unendorsed note was attached. The bank filed for summary judgment,
again relying on the unendorsed note. At a second motion for summary judgment, the
bank for the first time, attached a copy of the note with a blank allonge. Again, summary
judgment was reversed because the bank did not demonstrate that it was the holder of the
note at the time it filed its first amended petition.
In Wells Fargo Bank v. Heath, [23] the original lender was Option One Mortgage Corporation.
The foreclosure petition was filed by Wells Fargo Bank as Trustee for Option One Mortgage
Loan Trust 2005-4. Wells Fargo attached a copy of an unendorsed note to the petition. A
final summary judgment was entered in favor of Wells Fargo and the property was sold at
sheriff’s sale. The original homeowners obtained new counsel who filed a petition to vacate
the sale. At the hearing on that petition, the bank presented the original note, but this time
with an undated allonge attached. The Supreme Court decided that because Wells Fargo
never established standing at the time suit was commenced, summary judgment was
wrongly entered, reversed the lower court decisions, and remanded.
The court in the Johnny Lance Johnston case (see #2 above) also relied on a Florida
appellate court decision, Green v. JPMorgan Chase Bank, NA.[24] In the Green case, the copy
of the note attached to the bank’s original complaint did not contain an endorsement. The
bank later filed a note with an undated endorsement and summary judgment was granted
for the bank. The appellate court reversed, noting that although the filing of the original
blank-indorsed note showed the Bank’s possession of the note, that filing occurred more
than a year after the Bank filed suit. This late filing failed to refute the homeowner’s
affirmative defense of lack of standing.
In BAC Funding Consortium, Inc. v. Jean-Jacques,[25] a foreclosure was filed in December, 2007, that
included a count for reestablishment of a lost note. Subsequently, U.S. Bank filed a motion for summary
judgment and dismissed its count for reestablishment of the note, and filed an “original mortgage and
note” with the court. Summary judgment was granted in favor of U.S. Bank. Reversing, the appellate
court concluded that summary judgment was improper because U.S. Bank never established its standing
to foreclose, stating:
Moreover, while U.S. Bank subsequently filed the original note, the note did not
identify U.S. Bank as the lender or holder. U.S. Bank also did not attach an
assignment or any other evidence to establish that it had purchased the note and
mortgage. Further, it did not file any supporting affidavits or deposition testimony to
establish that it owns and holds the note and mortgage. Accordingly, the documents
before the trial court at the summary judgment hearing did not establish U.S. Bank’s
standing to foreclose the note and mortgage, and thus, at this point, U.S. Bank was
not entitled to summary judgment in its favor.[26]
In Verizzo v. Bank of New York,[27] the Florida Second District Court of Appeal reversed a
Summary Judgment in a foreclosure case originally filed with a count to reestablish a lost
note, but later produced what it alleged to be an original note, endorsed to JP Morgan
Chase Bank, as Trustee. The trial court entered summary judgment in favor of Bank of New
York, but the appellate court reversed, noting that because the note was assigned to
JPMorgan Chase, not to the Bank of New York, there was a genuine issue of material fact as
to whether The Bank of New York has standing to foreclose the mortgage.
Circuit Judge J. Michael Traynor in St. Johns County, Florida, was one of the first judges to
challenge the authenticity of a suddenly appearing allonge. In M & T Bank v. Lisa D. Smith,
[28] Judge Traynor granted the homeowner’s Motion to Dismiss the Second Amended
Complaint and scheduled a special evidentiary hearing to determine the authenticity of
documents filed by M & T Bank, stating:
Additionally, the Court is concerned with the authenticity of the documents filed.
Plaintiff is asking the Court to ignore the documents filed in the first two Complaints,
and to rule solely on the most recent Complaint. However, all three of these
documents appear to be inconsistent with one another and have changed as needed
to benefit the Plaintiff. For instance, the blank Allonge as filed on both February 10,
2009, and September 22, 2009, remarkably turned into a stamped Allonge on March
3, 2010, with Wells Fargo’s information in the previously blank area. This
transformation is most interesting, given that it was argued that the Office of the
Comptroller of the Currency closed the First National Bank of Nevada on July 25,
2008, and the stamp did not appear in either of the February or September 2009
filings. Similarly, Assignments appeared and vanished as needed, and the Allonge
changed to fit the Plaintiff’s particular purpose at that moment. Accordingly, an
evidentiary hearing will be held to determine the authenticity of the Allonge and the
appearance of the Assignment.
Gee v. U.S. Bank, N.A.[29] began with a complaint to reestablish a lost note and mortgage.
The original lender was Advent Mortgage, LLC, but U.S. Bank claimed that Advent assigned
the mortgage to Option One Mortgage Company who in turn assigned the mortgage to U.S.
Bank. Gee denied the bank’s allegations. U.S. Bank subsequently filed a Motion for
Summary Judgment. The motion was silent regarding the reestablishment claim, and
asserted instead that the original promissory note would be filed “on or before the
hearing.” At the hearing, however, the court considered a lost document affidavit and
granted summary judgment on the reestablishment claim and foreclosed the reestablished
mortgage. The appellate court reversed, finding genuine issues of material fact.
In Feltus v. U.S. Bank,[30]the bank filed a Lost Note count, but attached a copy of the note to
the complaint. The copy showed the lender to be Countrywide Bank, N.A. There were no
endorsements. After the homeowner filed a Motion To Dismiss for lack of standing, U.S.
Bank filed another copy of the note as a supplemental exhibit to its complaint. This copy
included two endorsements, a special endorsement by Countrywide Bank, N.A. to
Countrywide Home Loans, Inc., and a blank endorsement by Countrywide Home Loans, Inc.
Approximately six months later, however, U.S. Bank filed a motion for summary judgment,
again alleging that the note had been lost. Approximately 10 days later, U.S. Bank filed a
reply to Feltus’s affirmative defenses in which it asserted that it was now in possession of
the original note and attached a copy of the note with the two endorsements. The trial
court entered judgment for the bank. Reversing, the appellate court found that the
endorsed note that U.S. Bank claimed to have in its possession was not properly before the
court at the summary judgment hearing because U.S. Bank never properly amended its
complaint. The documents properly before the court did not establish conclusively that
U.S. Bank was entitled to foreclose the Feltus mortgage as a matter of law.
McLean v. JPMorgan Chase Bank[31] also began with a Lost Note count. The copy of the
mortgage attached to the complaint identified the lender as American Brokers Conduit.
After McLean filed an Answer and Affirmative Defenses and two Motions to Dismiss, Chase
filed the alleged original note and mortgage. The note included an undated special
endorsement, “Pay To The Order of JPMorgan Chase Bank, N.A. as Trustee Without
Recourse By: American Brokers Conduit.” Chase filed a Motion for Summary Judgment that
was granted by the trial court. The appellate court vacated the summary judgment because
Chase failed to submit any record evidence proving that it had the right to enforce the note
on the date the complaint was filed.
Gonzales v. Deutsche Bank National Trust Company[32] was filed with a missing note count.
Approximately 10 weeks later, Deutsche Bank dismissed that count and filed a “Notice of
Filing Original Note and Mortgage.” The note had an undated blank endorsement. Because
the endorsement was not dated, and the original endorsed note was not filed at the time
the case was filed, summary judgment was reversed.
Zervas v. Wells Fargo Bank, N.A.,[33] the mortgage and note attached to the complaint
showed the lender to be Fremont Investment and Loan. On April 1, 2010, approximately six
months after the complaint was filed, Wells Fargo filed a lost note affidavit, alleging that the
note was lost by its attorney sometime after the attorney received it on November 2, 2009.
Then on July 26, 2010, seven days before a hearing on the bank’s motion for summary
judgment, Wells Fargo filed the note as a supplemental exhibit to its complaint and
summary judgment was granted for the bank. In reversing, the appellate court noted that
the bank was required to prove the endorsement in blank was effectuated before the
lawsuit was filed.
Cutler v. U.S. Bank[34] was also filed with a Lost Note count. The homeowners challenged
U.S. Bank’s standing. Approximately five months later, U.S. Bank moved for summary
judgment, attaching what was represented to be the original note, with an attached
allonge, signed in blank and undated. The trial court granted the bank’s summary
judgment motion. The appellate court reversed, finding that a genuine issue of material
fact existed as to whether U.S. Bank was the proper holder of the note at the time it filed
the foreclosure action.
Vidal v. Liquidation Properties[36] also involved a complaint filed with a Lost Note count. At
summary judgment, Liquidation filed the original note and an undated allonge to the note
endorsed in blank. Liquidation did not file an affidavit demonstrating that the note was
transferred prior to the filing of the complaint. Liquidation also filed an assignment of
mortgage reflecting transfer of only the mortgage, not the note. Although the Assignment
of Mortgage was sworn to on February 6, 2009, it included the statement: “ASSIGNMENT
EFFECTIVE AS OF 01/15/2009.” The appellate court found that two inferences could be
drawn from the effective date language. One could infer that ownership of the note and
mortgage were equitably transferred to Liquidation on January 15, 2009, but one could also
infer that the parties to the transfer were attempting to backdate an event to their
benefit.Because the language yields two possible inferences, proof was needed as to the
meaning of the language, and a disputed fact existed, making summary judgment
inappropriate. In a footnote, the appellate court added: “Allowing assignments to be
retroactively effective would be inimical to the requirements of pre-suit ownership for
standing in foreclosure cases.” This is one of the few cases to address the fact that many of
the mortgage assignments filed in foreclosure cases attempt to make the assignments
effective prior to their creation.
In Wells Fargo Bank v. Bohatka,[37] the trial court dismissed Wells Fargo’s complaint with
prejudice. On appeal, the dismissal with prejudice was reversed, with the appellate court
stating that dismissal without prejudice was appropriate. This was a case where the note
and the mortgage identified Option One as the lender. The note contained no
endorsement. At a hearing on the Bohatka’s Motion to Dismiss, the bank produced a
photocopy of an allonge to the note. The Court examined the original note in the court file,
made a finding that the allonge had never been affixed to the note, and dismissed with
prejudice, and filed a formal complaint with the Attorney General.
In Focht v. Wells Fargo Bank,[38] Wells Fargo, as trustee, filed a foreclosure complaint with a
Lost Note count in January, 2008. Six months later, Wells Fargo produced and filed what
was represented to be the original note, endorsed in blank, and a mortgage assignment
dated September, 2008. The trial court granted Wells Fargo’s motion for summary
judgment. The appellate court found that Wells Fargo’s submission of a post filing
assignment did not establish that it had standing when it filed the lawsuit and that nothing
else in the record established that Wells Fargo possessed the note when it filed the lawsuit.
One of the most thorough examinations of a suddenly appearing allonge came in the
bankruptcy decision, In Re Canellas,[40] where the court painstakingly explained the
insufficiencies of the documents presented by U.S. Bank that resulted in a denial of the
bank’s motion for relief from stay:
The Affidavit executed by Movant’s loan servicer makes no mention of the location of
the original Note or who has possession of it. Movant proffered no business records
or testimony tracing ownership of the Note and establishing Movant is the present
holder of
the Note.
The veracity of the Allonge and Assignment is questionable. The dates contained in
the Allonge are chronologically impossible. The Allonge is dated August 1, 2006, but
references a trust that came into existence on October 31, 2006. The signature of
Jennifer Henninger is undated and not notarized. The Allonge was not referenced in
or filed with Movant’s Motion in October 2009, but was presented three months later
as an attachment to its post-hearing brief.
The Assignment was executed and recorded post-petition approximately two weeks
prior to Movant’s filing of the Motion for Relief. It was prepared by Jennifer
Henninger, who executed the Allonge, and was recorded by the law firm that is
representing Movant in this proceeding. Jack Jacob’s execution of the Assignment was
notarized by Jennifer Henninger and witnessed by Louis Zaffino, the affiant of
Movant’s Affidavit. It appears the Allonge and the Assignment were created post-
petition for the purpose of the relief from stay proceeding. Movant did not establish
Jennifer Henninger and Jack Jacob had authority to execute the Allonge and
Assignment.[41]
In June, 2010, a New Jersey bankruptcy court decided In Re Kemp,[42] a case that received
attention in the national press and revealed the scope of the mortgage loan documentation
problems. In Kemp, the debtors sought to expunge the proof of claim filed on behalf of
BONY by Countrywide Home Loans, Inc. as servicer. The debtor argued that the note was
never properly endorsed to the transferee and was never placed in the transferee’s
possession. Under the New Jersey Uniform Commercial Code, the note, as a negotiable
instrument, would not have been enforceable under those circumstances.
The trust involved in the Kemp case was CWABS Series 2006-8. The Court examined the
PSA and focused on the endorsement provision PSA § 2.01(a) at 52 that expressly provided
that in connection with the transfer of each loan, the depositor was to deliver “the original
Mortgage Note, endorsed by manual or facsimile signature in blank in the following form:
‘Pay to the order of ____________ without recourse’ with all intervening endorsements that
show a complete chain of endorsement from the originator to the person endorsing the
Mortgage Note.” PSA § 2.01(g)(i) at 56. The Court found that, “most significantly,” the note
in question was never endorsed in blank or delivered to BONY as required by the PSA.
In Kemp, BONY originally filed a note with no endorsement and an unsigned allonge with its
proof of claim. The unsigned allonge was specially endorsed in favor of “America’s
Wholesale Lender”, directing that the debtor “Pay to the Order of Countrywide Home
Loans, Inc., d/b/a America’s Wholesale Lender.”
At the Kemp trial, Countrywide produced a new undated allonge with an endorsement
stating “Pay to the Order of Bank of New York, as Trustee for the Certificateholders CWABS,
Inc., Asset-backed Certificates, Series 6006-8.”The new allonge was signed by a vice
president of Countrywide Home Loans, Inc., in the Bankruptcy Risk Litigation Management
Department. Linda DeMartini, a supervisor and operational team leader for the Litigation
Management Department for BAC Home Loans Servicing testified that the new allonge was
prepared in anticipation of the litigation, and that it was signed several weeks before the
trial.
As to the location of the note, Ms. DeMartini testified that to her knowledge, the original
note never left the possession of Countrywide, and that the original note appears to have
been transferred to Countrywide’s foreclosure unit, as evidenced by internal FedEx tracking
numbers. She also confirmed that the new allonge had not been attached or otherwise
affixed to the note. She testified further that it was customary for Countrywide to maintain
possession of the original note and related loan documents. The testimony that the notes
were never endorsed and delivered to the trusts was a bombshell disclosure because every
trust required endorsement of the notes, and delivery to the trustee or custodian. A
process was described in the PSAs where the document custodian would accept the
mortgage files containing these documents, review the files to make sure each was
complete, and then notify the originators of any missing documents, so that the originators
could provide the missing documents or substitute a qualified loan for any loan with the
missing paperwork. The DeMartini testimony supported a conclusion that none of these
steps were followed, in violation of the representations and warranties in the PSAs.
The Kemp Court disallowed Countrywide’s claim, finding that it was unenforceable under
New Jersey law on two grounds. First, under New Jersey’s UCC provisions, the fact that the
purported owner of the note, BONY, never had possession of the note was fatal to its
enforcement. Second, the fact that the note was not properly endorsed to the new owner
also defeated its enforceability. The Court also commented on the conflicting versions of
the note possession, noting:
The Kemp case, and the DeMartini testimony in particular, were the subject of articles in the
New York Times,[44] Fortune,[45] Daily Finance,[46] Naked Capitalism,[47] American
Banker[48]and Firedoglake.[49] In an article for Fortune, Abigail Field investigated whether,
as DeMartini testified, the notes lacked the proper endorsements. Field examined 130
foreclosures filed in two New York counties between 2006 and 2010 where the Bank of New
York was foreclosing on behalf of a Countrywide mortgage-backed trust. In 104 of those
cases, where the loan was originally made by Countrywide, none of the 104 Countrywide
loans were endorsed by Countrywide. Two-thirds of the 26 loans made by other banks also
lacked endorsements.
In a similar study conducted in June, 2014, The Housing Justice Foundation reviewed filings
by Bank of New York as Trustee for a mortgage-backed trust in bankruptcy cases ending in
a standard discharge in three different jurisdictions, the Middle District of Florida,
Massachusetts and South Carolina. In the cases where a note was submitted, the note was
unendorsed in 78.899% of the cases filed in 2008 and 2009.
On March 12, 2014, a story by Catherine Curan in the New York Post,[50] reported that
allegations in a bankruptcy case in the Southern District of New York involved a 150-page
Wells Fargo Foreclosure Attorney Procedures Manual created November 9, 2011 and
updated February 24, 2012, which, according to the homeowner/debtor’s attorney, Linda
Tirelli, was a detailed procedure to be followed when mortgage notes lacked
endorsements. The process involved the attorney notifying the Wells Fargo “Default Docs
Team” of exactly “what entities the attorney needs the note endorsement to reflect.” This
process raises the question of why Wells Fargo employees were adding any endorsement
other than a Wells Fargo endorsement to any note. Even in cases where Wells Fargo should
have been the endorser, in the case of mortgage-backed trusts, the endorsement would
have been added six to sight years after the trust closing date. The language, however,
regarding “what entities” certainly indicates that Wells Fargo employees were adding
endorsements from lenders other than Wells Fargo.
Unendorsed notes were presented three times to the bankruptcy court in In Re Doble,[51] a
2011 case from the Southern District of California, and finally replaced with an endorsed
copy of the note. Bankruptcy Judge Margaret M. Mann found this especially troubling,
noting:
The most disconcerting misrepresentation to the Court was Defendants’ submission
of multiple “true and correct” copies of the Note under penalty of perjury without any
endorsement from Plaza. Whether the Note was endorsed is central to the merits of
this case. When Defendants finally submitted an endorsed copy of the Note on
November 8, 2010, they attempted to pass off the first three unendorsed copies of
the Note as “illegible.” The first three copies of the Note were fully readable, so the
phantom endorsement page was not a problem with legibility. The timing of this
tardily produced endorsement, produced after several requests, suggests it was
added [*19] only in response to the litigation. To add to the Court’s incredulity,
Defendants have never answered the Court’s specific questions as to when and under
what circumstances this newly proffered endorsement was executed. For the
purpose of its analysis on the merits, the Court finds that the endorsement was not
made until it was presented to the Court on November 8, 2010.[52]
Bankruptcy Judge Laura S. Taylor does not hide her frustration with the evidence presented
by OneWest in In Re Jessie M. Arizmendi,[53] this 2011 case from the Southern District of
California:
“…there are key assumptions that the Court must make in order for this set of facts
to withstand scrutiny. And they are that OneWest, in fact, holds the Endorsed Note
and held the Endorsed Note at all appropriate points in time. Frankly, the Court is not
willing to make such assumptions at this time. OneWest attached the Unendorsed
Note to both its Proof of Claim and the Declaration. The Declaration stated under
penalty of perjury, that the Unendorsed Note was a true and accurate copy of the
Note held by OneWest. The Proof of Claim implicitly stated the same and OneWest, of
course, is obligated to provide only accurate information in connection with its Proof
of Claim. The problem is that the Unendorsed Note does not bear the endorsement
or attach the allonge found on the Endorsed Note, a document produced only after
trial and the close of evidence. One West, thus, leaves the Court with the quandary of
guessing which promissory note OneWest holds, whether and when One West held
the Endorsed Note, and what the explanation is for the failure to provide the
Endorsed Note prior to the close of evidence.
Further, this is not the first time that OneWest has provided less than complete
information in the Southern District of California.[54]
Other bankruptcy decisions that have focused on whether movant banks have sufficiently
established themselves as the holders of the notes include several cases involving suddenly
appearing endorsements. In In Re Weisband,[55] an allonge with a special endorsement was
presented at an evidentiary hearing, but the allonge had not been included when GMAC
filed its proof of claim, as the Court noted:
Yet again, the court is called upon to decide whether the purported holder of a note
allegedly transferred into a securitized mortgage pool has standing to obtain
relief from the automatic stay. Yet again, the movant has failed to demonstrate that it
has standing. To make matters worse, the movant filed its motion without evidentiary
support of its claim, attempted to create such evidentiary support after the fact, and
only disclosed its “real” evidence on the day of the final evidentiary hearing. The relief
will be denied.[58]
Also in 2014, an Ohio appellate court also dealt with the issue of conflicting endorsements
in Deutsche Bank National Trust Company v. Holden,[59] where the Court noted:
Thus, Deutsche Bank has filed two different copies of the same note – one with and
one without an endorsement. Both copies purport to be true and accurate copies of
the original note. Ms. Theodoro’s affidavit fails to explain why the copy of the note
attached to her affidavit differs from the one attached to her complaint when, from
her averments, the note, while in Chase’s possession, had always contained a blank
indorsement from Novastar to Deutsche Bank…Due to the inconsistencies between
the copies of the note and the lack of an explanation based on personal knowledge
as to how Deutsche Bank came to offer two different copies of the note into the
record, this Court concludes that there is a genuine issue of material fact as to
whether Deutsche Bank was the holder of the note at the time the complaint was
filed. Accordingly, the trial court erred in granting Deutsche Bank’s motion for
summary judgment on its foreclosure complaint.[60]
The Court in Holden noted two similar cases where Summary Judgments were also
reversed: U.S. Bank, N.A. v. McGinn,[61] and Fannie Mae v. Trahey.[62]
The McGinn case involved a note changing from two endorsements at filing to a note with
three endorsements at Summary Judgment. In this case, the third endorsement was to U.S.
Bank, the bank-trustee that had filed the foreclosure action. The original filing had two
endorsements: an endorsement from Intervale Mortgage Corporation, the original lender,
to Decision One Mortgage Company and a blank endorsement from Decision One
Mortgage. By Summary Judgment, the blank endorsement had been signed over to
Residual Funding Corporation, who then executed the third endorsement to U.S. Bank. In
addition to the third endorsement, US. Bank attached an Assignment of Mortgage executed
on June 12, 2008, twelve days after the complaint was filed. U.S. Bank also attached an
affidavit from Peter Knapp who was identified as a senior litigation analyst for GMAC
Mortgage, LLC to explain the inconsistency of the notes. Knapp’s affidavit stated, in
pertinent part:
U.S. Bank argues that Knapp’s second affidavit resolves any issue concerning the
difference in the original note and the copy that was attached to the complaint.
However, the language of that affidavit is indecisive. Rather than providing a
definitive explanation for the additional endorsements on the original note, Knapp
states that he believes that the wrong copy of the complaint was inadvertently
attached to the foreclosure complaint. However, Civ.R. 56(E) requires personal
knowledge. Indeed, believing something to be true is different that knowing
something is true.
While it may be true that U.S. Bank met its initial burden of demonstrating that no
genuine issue of material fact existed, appellants responded by showing that a
genuine issue of material fact did exist by pointing to the inconsistency in the two
notes. The difference in the two notes calls into question whether U.S. Bank actually
possessed the original note prior to filing the complaint. If U.S. Bank did not, it was
not a holder and, thus, lacked standing to bring the foreclosure action in the first
place. Construing the evidence in a light most favorable to appellants, we conclude
that the trial court erred when it granted U.S. Bank’s motion for summary judgment.
Accordingly, appellants’ assignment of error is well-taken.[64]
The Trahey case involved a note executed in favor of Sirva Mortgage, Inc. There was a MERS
Assignment to Fannie Mae in May, 2011. In June, 2011, Fannie Maw filed a foreclosure
action against the Traheys. Fannie Mae attached a note with an undated endorsed in blank
by Sirva Mortgage.
In September 2011, Fannie Mae filed an amended complaint “to attach the fully negotiated
note with all [i]ndorsements.” The promissory note attached showed Sirva had indorsed the
note to CitiMortgage, Inc. and that CitiMortgage, Inc. had indorsed the note in blank. Unlike
the note attached to the original complaint, this copy of the note did not include an
endorsement from Sirva in blank. The new endorsements were also undated.
Fannie Mae filed a Motion for Summary Judgment that which was granted by the trial
court. The appellate court reversed, noting the problem with the endorsements:
Here, Fannie Mae filed two copies of the promissory note, each containing different
indorsements. The first note, attached to the original complaint, was indorsed by
Sirva to blank. Therefore, Fannie Mae could have established that it was the real party
in interest by proving that it had possession of the note. See R.C. 1303.25(B). However,
a second copy of the promissory note, attached to the amended complaint, reflects
that Sirva indorsed the note to CitiMortgage, and CitiMortgage indorsed the note to
blank. Neither copy indicates when the various indorsements were made.
The inconsistencies between the indorsements contained in the two copies of the
promissory notes raises a genuine issue of material fact. In reviewing the record, we
cannot determine what the status of the note was at the time the complaint was filed.
Because there is a genuine issue of material fact as to whether Fannie Mae was a
holder of the promissory note at the time the complaint was filed, the court erred in
granting Fannie Mae’s motion for summary judgment. Accordingly, Trahey’s first
assignment of error is sustained.[65]
In Deutsche Bank National Trust Company v. Heller,[66] Deutsche Bank submitted a copy of a
note with an undated endorsement to Deutsche Bank to support its motion for Summary
Judgment, but the copy of the note annexed to the plaintiff’s original complaint contained
no such endorsement. The appellate court found that Summary judgment was
inappropriate because it was not clear from the undated endorsement whether the
endorsement was effectuated prior to the commencement of the action.
In Deutsche Bank National Trust Company v. Hossain,[67] summary judgment for Deutsche
Bank was denied where Deutsche Bank originally filed an unendorsed note, then filed a
note with an allonge endorsing the note in blank in support of Summary Judgment, with an
explanation by the bank’s lawyer that the endorsement page had been inadvertently
omitted. The court found this explanation to be insufficient.
An undated allonge similarly appeared mid-litigation in U.S. Bank Natl. Assn. v. De Los Rios,
[68] where the Court denied Summary Judgment, noting, in part, “Furthermore, the plaintiff
has not provided an explanation as to why a different version of the note without the
without the allonge was produced by it.”
Deutsche Bank Natl. Trust Co. v. McRae,[69] also involved an unendorsed note that was later
replaced with a note with an endorsement in blank. The court found this suspect and
insufficient, stating:
By way of the September 8, 2009 Order, this court previously determined that
Plaintiff lacked standing, because it failed “to submit evidence of proper
assignment/delivery of mortgage and note.” Thereafter, Plaintiff submitted a second
copy of the Note, which for the first time contained an endorsement by First Franklin,
a Division of National City Bank of Indiana, to First Franklin Financial Corporation, and
an endorsement in blank by First Franklin Financial Corporation. The endorsement in
blank, however, is undated. In stark contrast, the copy of the Note attached to the
complaint bears no such endorsements. Obviously, the endorsements were made in
response to the September 8, 2009 Order, which post-date the commencement of
this case (in January 2009), and are ineffective.
The endorsements in Deutsche Bank National Trust Company v. Barnett,[70] were also found
to be insufficient to confer standing, and the inconsistencies raised an issue of fact as to the
plaintiff’s standing to commence the action where the plaintiff submitted copies of two
different versions of an undated allonge.
An allonge also appeared mid-litigation in a Kentucky case, Morgan v. HSBC Bank USA,[71]
where initially, HSBC produced a note between Ownit and Morgan, and subsequently, at
the summary judgment stage, produced another note with an allonge purporting to assign
the note to HSBC. In its order granting summary judgment, the trial court held that the
endorsement in the note allonge by Richard Williams, as president of Litton Loan Servicing
LP and attorney-in- act for Ownit, was sufficient proof that HSBC was a holder of the note.
The appellate court reversed and stated that it found it “troubling” that when HSBC initially
filed suit, a copy of this note was not attached and that later, this undated note allonge
purporting to indorse the note to HSBC appeared in the record.
1. Was the note endorsed in blank or by special endorsement to the party seeking
to foreclose?
2. Was the note endorsed and delivered before the foreclosure complaint was
filed?
A plaintiff must tender the original promissory note to the trial court or seek to
reestablish the lost note under section 673.3091, Florida Statutes… Moreover, if the
note does not name the plaintiff as the payee, the note must bear a special
indorsement in favor of the plaintiff or a blank indorsement. Alternatively, the
plaintiff may submit evidence of an assignment from the payee to the plaintiff or an
affidavit of ownership to prove its status as the holder of the note.[74]
The Pooling and Servicing Agreements (“PSA”) for almost every trust specifically address the
documents that the trustees and servicers are supposed to use in foreclosures. According
to the trust documents, when there is a foreclosure, the servicer is supposed to send a
Request for Release of Mortgage Documents form to the document custodian. Within
three business days, the custodian us supposed to send the original mortgage file,
including the properly endorsed note, by overnight mail, to the servicer to be used in the
foreclosure proceeding. These requirements are usually set forth in a provision of the PSA
titled “Trustee to Cooperate; Release of Mortgage Files.” In Soundview Home Loan Trust
2006-OPT2, for example, this provision is found in section 3.17(b) which states, in pertinent
part:
From time to time and as appropriate for the servicing or foreclosure of any
Mortgage Loan… the Custodian, pursuant to the Custodial Agreement, shall, upon any
request made by or on behalf of the Servicer and delivery to the Custodian of two
executed copies of a written Request for Release… release the related Mortgage File
to the Servicer or its designee within three Business Days, which, shall be sent by
overnight mail, at the expense of the Servicer or the related Mortgagor, and the
Trustee (or the Custodian on behalf of the Trustee) shall, at the written direction of
the Servicer, execute such documents provided to it by the Servicer as shall be
necessary to the prosecution of any such proceedings.
The term “Mortgage File” is defined in the definitions section of the PSA as “The mortgage
documents listed in Section 2.01 pertaining to a particular Mortgage Loan and any
additional documents required to be added to the Mortgage File pursuant to this
Agreement.”
Section 2.01 lists six documents that are to be contained in each mortgage file for each loan
in the pool: 1) the original Mortgage Note endorsed either (A) in blank or (B) in the following
form: “Pay to the Order of Deutsche Bank National Trust Company, without recourse;” 2)
the original mortgage with evidence of recording thereon; 3) unless the mortgage is a MERS
loan, an original Assignment, in form and substance acceptable for recording, assigned
either (A) in blank or (B) to “Deutsche Bank National Trust Company, as trustee, without
recourse;” 4) an original of any intervening assignment of Mortgage, showing a complete
chain of assignments or to MERS if the mortgage loan is a MERS loan; 5) the original or a
certified copy of the lender’s title insurance policy; and 6) the original or copies of each
assumption, modification, written assurance or substitution agreement, if any.
In many cases, when the original note was eventually filed, the note differed from the note
that was filed at the commencement of the foreclosure action. This failure to use the
original endorsed note is a breach of the PSA provisions set forth above. This short-cut
used in a rush to foreclose has resulted in significant increased expense for the foreclosing
banks and for the homeowner litigants. Nevertheless, perhaps because law firms received
the bulk of their fees when the complaint was commenced, the common practice was a
“shoot first – ask questions later” approach in foreclosure litigation.
It is a reality of commerce that virtually all paper documents related to a note and
mortgage are converted to electronic files almost immediately after the loan is closed.
Individual loans, as electronic data, are compiled into portfolios which are transferred
to the secondary market, frequently as mortgage-backed securities. The records of
ownership and payment are maintained by a servicing agent in an electronic
database.
The reason “many firms file lost note counts as a standard alternative pleading in the
complaint” is because the physical document was deliberately eliminated to avoid
confusion immediately upon its conversion to an electronic file. See State Street Bank
and Trust Company v. Lord, 851 So. 2d 790 (Fla. 4th DCA 2003). Electronic storage is
almost universally acknowledged as safer, more efficient and less expensive than
maintaining the originals in hard copy, which bears the concomitant costs of physical
indexing, archiving and maintaining security. It is a standard in the industry and
becoming the benchmark of modern efficiency across the spectrum of commerce—
including the court system.
There is also some evidence that original loan documents could be sitting in warehouses
after the lenders filed for bankruptcy and closed their offices. In the bankruptcy case of
Mortgage Lenders Network USA, the U.S. Attorney in Delaware formally objected to a
trustee’s request to destroy 18,000 boxes of records to eliminate the storage costs.
Similarly, in the American Home Mortgage bankruptcy case, thousands of boxes of
documents were stored or destroyed. The New Century Mortgage Liquidating Trust Trustee
in February, 2013 also sought permission to destroy thousands of boxes of loan
documents.
These lawsuits generally claim that representations and omissions regarding the transfer of
good title to the mortgage loans were false and misleading. The discovery in these cases
will certainly involve testimony by the employees who were responsible for receiving and
safeguarding the loan documents for the trusts, the employees who found the tens of
thousands of lost notes and the litigation “specialists” who added the missing
endorsements.
Before investors can regain the confidence to again make significant investments in
residential mortgage-backed securities, issues regarding missing notes, endorsements, and
possible fabrication of loan documents need to be resolved, including:
• Were the actual promissory notes never delivered, or delivered and destroyed,
or delivered, but in non-negotiable, unendorsed form?
• Did the trustees fail to examine the loan documents and reject any loan with
defective documentation?
• How often did “litigation specialists” recreate the missing notes and/or add the
missing endorsements?
• How do we compensate past investors and protect future investors from these
crimes and failures?