Action Date: June 12, 2011
Location: Phoenix, AZ
On June 10, 2011, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit issued an important and lengthy analysis of standing and real-party-in-interest issues in a foreclosure case in Veal v. American Home Mortgage Servicing, BAP No. AZ-10-1055-MkKiJu.
GSF Mortgage Corporation was the original lender in this case. Wells Fargo Bank, as Trustee for Option One Mortgage Loan Trust 2006-3, and its servicer, American Home Mortgage Servicing, Inc., sought to set aside the automatic bankruptcy stay in order to foreclose on the Veals. The note was not endorsed to Wells Fargo or to the trust. As part of their efforts to establish standing, and real-party-in-interest status, Wells Fargo and American Home Mortgage Servicing, the servicer for the Trust, filed a mortgage assignment.
The Assignment was prepared by Docx, LLC in Alpharetta, GA, the document mill made famous by Fraud Digest, then by 60 Minutes, Reuters, The Washington Post, the New York Times, Huffington Post, Firedoglake, Naked Capitalism, Foreclosure Hamlet, 4closure Fraud, Stop Foreclosure Fraud, the Wall Street Journal, and many others. While Docx is now closed, its documents live on in courts and recorders offices across the country.
The Veal Assignment was signed by Tywanna Thomas and Cheryl Thomas who claimed to be officers of Sand Canyon Corporation formerly known as Option One Mortgage. From deposition testimony of Cheryl Thomas, it is known that both Cheryl and Tywanna Thomas were actually employees of Lender Processing Services, the company that owned Docx. There are many different versions of the Tywanna Thomas signature because, as we now know, the employees in Alpharetta forged each other’s names on witnessed and notarized documents.
The Assignment was signed (by someone) on November 10, 2009, but a line on the Assignment right underneath the legal description of the property states:
“Assignment Effective Date 10/13/2009.”
The closing date of the trust was October 27, 2006, almost three years prior to the Assignment effective date. Investors were told the trust would obtain actual Assignments to the Trust of the mortgages pooled in that trust by the closing date.
Dale Sugimoto, the president of Sand Canyon, said in a sworn affidavit on March 18, 2009, filed in the Ron Wilson bankruptcy case in the Eastern District of Louisiana, Case No. 10-51328, Document 52-3, that Sand Canyon does not own any residential mortgages and has no servicing rights.
1. Cheryl Thomas and Tywanna Thomas were not officers of Sand Canyon, as represented on the Assignment. Someone other than Tywanna Thomas and Cheryl Thomas often forged their names.
2. The Veal loan was not transferred to the Option One trust effective October 13, 2009, as represented on the Assignment.
3. Sand Canyon did not own the Veal mortgage and, therefore, had no authority to assign the mortgage to the Option One Trust. The Latin phrase – Nemo dat quod non habit – best covers this situation. Translation: one cannot give what one does not have.
Investors in this Option One trust, the Bankruptcy Judge in the Veal case, bankruptcy trustees with similar documents, homeowners and their lawyers, the SEC, and the Justice Department must all demand answers (and reparations) from the Trustee, the document custodian, the servicer and Lender Processing Servicing.
Some other key takeaways referenced by Matt Weidner…
Read the opinion and pay particular attention to the discussion of what it means to be a “Holder” under the UCC. This more or less destroys the whole servicer fiction. I hesitate to break out any highlights from this opinion, because every word of it is important, but following are some of the key take aways:
- The concept of a “holder” is set out in detail in UCC § 1-201(b)(21)(A), providing that a person is a holder if the person possesses the note and either (i) the note has been made payable to the person who has it in his possession or (ii) the note is payable to the bearer of the note. This determination requires physical examination not only of the face of the note but also of any indorsements.
- under the common law generally, the transfer of a mortgage without the transfer of the obligation it secures renders the mortgage ineffective and unenforceable in the hands of the transferee. Restatement (Third) of Property (Mortgages) § 5.4 cmt. e (1997) (“in general a mortgage is unenforceable if it is held by one who has no right to enforce the secured obligation”). As stated in a leading real property treatise: When a note is split from a deed of trust “the note becomes, as a practical matter, unsecured.” Restatement (Third) of Property (Mortgage) § 5.4 cmt. a (1997). Additionally, if the deed of trust was assigned without the note, then the assignee, “having no interest in the underlying debt or obligation, has a worthless piece of paper.”
- (“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”); Orman v. North Alabama Assets Co., 204 F. 289, 293 (N.D. Ala. 1913); Rockford Trust Co. v. Purtell, 183 Ark. 918 (1931).
- As a result, to show a colorable claim against the Property, Wells Fargo had to show that it had some interest in the Note, either as a holder, as some other “person entitled to enforce,” or that it was someone who held some ownership or other interest in the Note. See In re Hwang, 438 B.R. 661, 665 (C.D. Cal. 2010) (finding that holder of note has real party in interest status). None of the exhibits attached to Wells Fargo’s papers, however, establish its status as the holder, as a “person entitled to enforce,” or as an entity with any ownership or other interest in the Note.
- AHMSI apparently conceded that Wells Fargo held the economic interest in the Note, as it filed the proof of claim asserting that it was Wells Fargo’s authorized agent. Rule 3001(b) permits such assertions, and such assertions often go unchallenged. But here the Veals did not let it pass; they affirmatively questioned AHMSI’s standing. In spite of this challenge, AHMSI presented no evidence showing any agency or other relationship with Wells Fargo and no evidence showing that either AHMSI or Wells Fargo was a “person entitled to enforce” the Note. That failure should have been fatal to its position.
- If, however, the maker pays someone other than a “person entitled to enforce” – even if that person physically possesses the note the maker signed – the payment generally has no effect on the obligations under the note. The maker still owes the money to the “person entitled to enforce,” Miller & Harrell, supra, ¶ 6.03[b][ii], and, at best, has only an action in restitution to recover the mistaken payment. See UCC § 3-418(b).
And some interesting notes from Foreclosure Hamlet…
More false statements based on the May 2011 Investor Report – SEE Page 23 Row 1126 for the Veal’s loan
The investor report shows the Veal’s IL loan in the eye-opening “foreclosure” list (pp 22-35) , not in the bankruptcy list (pp 36-41). It lists the “current actual balance” as $149,766.20. The Veals listed the debt as $150,586.92 as of their June 29, 2009 bankruptcy petition per on page 4 of the AZ Court’s decision. I wonder how LESS is reported as owed to the investors a full two years of delinquency (and accrued interest) later? Why were the Veals under the impression that they owed $150K two years ago? Bogus fees, force-placed insurance, escrow manipulation, etc? Any and all are common and possible reasons for inflated mortgage balances
It also shows foreclosure starting in March 2010, which is not an accurate reflection of the facts revealed in the AZ court decision on page 4 (http://www.scribd.com/doc/57568003/IN-RE-VEAL-w)
On June 29, 2009, the Veals filed a chapter 13 bankruptcy. …
As I study these reports I am increasingly alarmed by the impending “realized losses” (see long lists of pending foreclosure & bankruptcy status loans) yet to be booked to these trusts. If I am reading them correctly, realized loss is only booked when the loan is sold to a third party (new buyer) out of REO status. The 1146 loans in this trust that are delinquent, in foreclosure, bankruptcy, or REO status have a value of $275million (pg 9)
Full opinion below…