Bloomberg – BofA Mortgage Morass Deepens on Promissory Notes Issues

One risk to investors when notes remain with sellers acting as custodian is that an acquirer or creditor of those companies could walk in and take the notes, the banks that disclosed the practice in mortgage-bond prospectuses warned.


BofA Mortgage Morass Deepens on Promissory Notes Issues

By Prashant Gopal and Jody Shenn

Testimony by a Bank of America Corp. employee in a New Jersey personal bankruptcy case may give more ammunition to homeowners and investors in their legal battles over defaulted mortgages.

Linda DeMartini, a team leader in the company’s mortgage- litigation management division, said during a U.S. Bankruptcy Court hearing in Camden last year that it was routine for the lender to keep mortgage promissory notes even after loans were bundled by the thousands into bonds and sold to investors, according to a transcript. Contracts for such securitizations usually require the documents to be transferred to the trustee for mortgage bondholders.

In the case, U.S. Bankruptcy Judge Judith H. Wizmur on Nov. 16 rejected a claim on the home of John T. Kemp, ruling his mortgage company, now owned by Bank of America, had failed to deliver the note to the trustee. That could leave the trustee with no standing to take the property, and raises the question of whether other foreclosures could similarly be blocked.

Following the decision, the bank disavowed the statements by DeMartini, whom it had flown in from California to testify. It was the policy of Countrywide Financial Corp., acquired by Bank of America in July 2008, to deliver notes as called for in its securitization contracts, according to Larry Platt, an attorney at K&L Gates LLP in Washington designated by the bank to answer questions about the case.

“This particular employee was mistaken in what she said,” Platt said in a telephone interview.

Attorney Analysis

Wizmur’s ruling is being scrutinized by lawyers for borrowers seeking to stall repossessions as a way to press lenders to modify their debt. Attorneys for homeowners have already won cases by calling into doubt the legitimacy of affidavits used to take back properties.

“If this is correct, many, many, many foreclosures already occurred in which this plaintiff didn’t have the note,” said Bruce Levitt, the South Orange, New Jersey, attorney representing Kemp. “This could affect thousands or hundreds of thousands of loans.”

Companies that service loans, including Bank of America, temporarily halted home seizures in the wake of disclosures that they relied on employees to sign thousands of affidavits without reading them, a practice that has become known as robo-signing. The attorneys general of all 50 states are jointly investigating foreclosure practices of servicers.

Bank of America, based in Charlotte, North Carolina, is the largest U.S. mortgage servicer, overseeing $2.09 trillion of loans as of Sept. 30, according to industry newsletter Inside Mortgage Finance.

Investor Impact

The Kemp case is also being examined by lawyers for investors in mortgage-backed securities. Owners of the bonds have been cooperating in an effort to force sellers to take back loans, saying they were misled about their quality. The Wizmur ruling may give investors an additional opportunity to push for mortgage buybacks on grounds that the bonds weren’t created in keeping with securitization contracts.

“It may mean investors who think they bought mortgage- backed securities bought securities that aren’t backed by anything,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.

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5 Responses to “Bloomberg – BofA Mortgage Morass Deepens on Promissory Notes Issues”
  1. A “QUALIFIED WRITTEN REQUEST” is a great way to make BOA give up the NOTE. (RESPA) Real Estate Settlement Procedures Act, enfored by the Department of Housing and Urban Development. Who ever Services your loan MUST respond promptly to your written inquires under RESPA. Within 20 business days of receiving your inquiry, the servicer must send you a written acknowledgment. Within 60 business days, the servicer either must correct your account or determine that there is nothing wrong. You must send it certified and write QWR on the front of your letter to them and on the 1st page of the letter. Do not send it with your house payment. You may request:

    Copies of all documents pertaining to the origination of loan/including loan application
    Right to Cancel/ Deed of Trust/ Promissory note
    Note payment period
    Truth in Lending Statements
    Good faith Estimate/ HUD 1/ Appraisal
    A copy of the life of the loan, including all payments made, all fees incurred, what has been paid and how all payments were applied. The copies should be legible and all documents should be copied in their entirety.

    PLEASE PRODUCED THE NOTE. I have reason to believe that the loan terms were misrepresented to me/ poperty appraisal was falsely inflated/ I was not given a 3 day right to recind. If they forgot to allow you to sign a right to change your mind, you must be given that right , now. I started the process of modifing my loan about a year ago and have been given the run around and false hope. Can you let me know your intentions in regards to helping me keep my home.

    I understand that under RESPA Sec 6, you must respond or I may sue you. THANK YOU. Google “RESPA”

    Also BOA and other Banks sometimes will use law firms which have violated State and Federal Laws to 4 close on your property. If this should happen, you can stop your 4 closure by writting the law firm and the bank informing them of the illegal action. They will pull your 4 closure for sure. They stoped mines in 2010.

    392.306. A creditor may not use an independent debt collector if the creditor has actual knowledge that the independant debt collector repeatedly or continuously engages in acts or practices that are prohibited by this chapter. You may sue should they not stop.

    We sued, Barrett Burke Wilson Castle Daffin Frappier, now known as Barrett Daffin Frappier Turner & Engel for violating our 2000 discharge order. They violated the FDCPA, and other laws, court case # 08CV0102 James Green v. Cenlar Federal Savings Banks, 405th, Galveston, Texas (case on appeal) 2010.

  2. MisterKeitel says:

    Wow! This is all very hard to follow. And, I guess that’s part of the point. The Big Shots make this deal such a maze of legal mumbo-jumbo and lost paperwork, with all the doors guarded by corrupt courts and all the keys held by slick lawyers. There is just no way a Common Jack or Jill can navigate all this. It makes me mad! When will the outrage happen? When will people take to the streets with flaming torches and ptichforks? What will it take? A spike in gasoline prices? A leak from WikiLeaks showing how the banksters just loath us common people? What?

  3. Carrie says:

    Your comments are the heart of the produce-the-note, or even produce-the-ORIGINAL-note matter. The servicer might produce even the original note, but that does not mean it has the right to seize the home.

  4. kravitz says:

    Interesting how Bloomberg picks up on all this well after Yves Smith, Mike Konzai, Dave Dayen, Adam Levitin, And even Abby (Daily Finance) have gone through this.

    A clue to how this plays out may be in how this resolved…

    Bank of America Bailout Weighed by SEC, Report Says

    “Bank of America Corp. obtained “favorable” terms to resolve disclosure violations related to its purchase of Merrill Lynch & Co. because the bank had received billions of dollars of bailout funds, a report said.”

    And don’t forget, the Democrats borrowed (or got as a gift) a chunk from Bank Of America. They’re gonna be saved. Even at the cost of a political party.

  5. Concerned says:

    Okay, so consider the following scenario: No original note has been produced at all, other than the debt-collector acquiring a new print-out of a previously scanned, never-endorsed copy of the note from the TITLE company. (document is so stamped).

    Add to that an assignment of the Deed by the current debt-collector/servicer. This debt-collector appeared on the scene in May 2009.

    The mortgage originated in 2005 and the original Deed was filed in Sept. 2005 with “America’s Wholesale Lender” as the supposed lender. Only that was just a guise used by CountryWide.

    Now the assignment of the deed of trust is dated in 2010 and filed in 2010. It is signed by an attorney-employee of LItton but uses MERS to justify the attempt to do this late assignment from AWL directly to the CWABS 2005-10 pool with BoNY-Mellon as Trustee. I keep reading that these assignments that skip the ‘chain’ that was specified by the PSA are not valid.

    The assignment is a fraudulent document on other grounds.

    The assignment would seemingly assign a mortgage into a long-closed pool. The company whose employee signed the document contends the mortgage was in default a year prior to the assignment. Both issues cause this assignment to be non-compliant with the PSA, the IRS code for REMICs and NY trust law.

    Litton would seemingly have been put in power in 2009 by BoNY-Mellon. The assignment generated by Litton in 2010 does an assignment FROM ‘AWL’ to CWABS 2005-10 with BoNY-Mellon as trustee.

    That sure looks like a BIG conflict of interest to have the assignment be so self-serving!

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