What I like about the Federal Judge decisions is that they express the reasons for their orders and judgments with much greater specificity than State Court judges tend to do — probably because they have a lighter case load and when they get promoted it can go pretty high (like the US Supreme Court). So it should come as no surprise that a New York Federal Bankruptcy Judge issued a 30 page opinion that essentially said what people have been saying since 2007 — the entire foreclosure process is an exercise in illegal patterns of conduct to the detriment of the homeowners. Since he also made clear that the debt remains, we have yet to get a definitive opinion from a Judge that questions whether the original closing was valid and enforceable. for that we still need to wait.
But by ruling on the specifics of how to rebut presumptions that are used in cases involving negotiable instruments, this Court has definitely opened the door to requiring the banks to do something that he suspects and I know the banks cannot do — prove the loan transaction, and the loan transfers with actual transactions in which a purchase and sale occurred and money exchanged hands after which there was delivery of the paper. Once THAT cat is out of the bag, the banks are doomed. People are going to start asking the question they have been asking for years — except this time it won’t be a rhetorical question: “If the originator didn’t loan the money then who did? And if there was no consideration for the transfer of the loan documents then whose money was used to originate or acquire the loan?” The answers will surprise even veterans of this war.
The debtor herein (the “Debtor”) has objected to a claim filed in this case by Wells Fargo Bank,
NA (“Wells Fargo”), Claim No. 1?2, dated September 29, 2010 (amending Claim No. 1?1), on the basis that Wells Fargo is not the holder or owner of the note and beneficiary of the deed of trust upon which the claim is based and therefore lacks standing to assert the claim.1 This Memorandum of Decision states the Court’s reasons, based on the record of the trial held on December 3, 2013 and the parties’ pre? and post?trial submissions, for granting the Claim Objection….
(i) how could Wells Fargo or Freddie Mac assert a claim under the Note when the Note was neither specifically indorsed to either of them nor indorsed in blank (and was specifically indorsed to ABN Amro, although ABN Amro had subsequently assigned its interest therein to MERS as nominee for Washington Mutual Bank, FA), and (ii) how could Wells Fargo properly assert any rights under the July 12, 2010 Assignment of Mortgage when the person who signed the Assignment of Mortgage from MERS in its capacity “as nominee for Washington Mutual Bank, FA” to Wells Fargo was an employee of Wells Fargo (as well as of MERS),3 and there was no evidence that Washington Mutual Bank, FA authorized MERS to assign…….
if Freddie Mac was the owner of the loan, as both Wells Fargo and Freddie Mac contended, why was Claim No. 1?1 filed by Wells Fargo not as Freddie Mac’s agent or servicer, but, rather, in its own name? (The ownership/agency issue had practical as well as possible legal consequences because counsel for Wells Fargo contended that Freddie Mac guidelines precluded Wells Fargo from considering loan modification proposals for the Debtor.)….
the parties engaged in discovery disputes that resulted in an order compelling the deposition of John Kennerty, who by then no longer worked for Wells Fargo, see Kennerty v. Carrsow?Franklin (In re Carrsow?Franklin), 456 B.R. 753 (Bankr. D. S.C. 2011), and Wells Fargo’s production of a woefully unqualified initial Rule 30(b)(6) witness…..
Wells Fargo responded that it did not need to be the owner of the loan in order to enforce the Note and a secured claim for amounts owing under it. Instead, Wells Fargo relied, under Texas’ version of Article 3 of the Uniform Commercial Code (the “U.C.C.”), solely on being the “holder” of the Note indorsed in blank by ABN Amro that appeared for the first time as an attachment to Claim No. 1?2.7…
In a bench ruling on March 1, 2012, memorialized by an order dated May 21, 2012, the Court agreed with Wells Fargo, concluding that, under Texas law, if Wells Fargo were indeed the holder of the Note properly indorsed in blank by ABN Amro, Wells Fargo could enforce the Note and the Deed of Trust even if it was not the owner or investor on the Note or properly assigned of Deed of Trust,8 citing SMS Fin., Ltd. Liab. Co. v. ABCO Homes, Inc., 167 F.3d 235, 238 (5th Cir. 1999) (under Texas law, “[t]o recover on a promissory note, the plaintiff must prove: (1) the existence of the note in question; (2) that the party sued signed the note; (3) that the plaintiff is the owner or holder of the note; and (4) that a certain balance is due and owing on the note”) (emphasis added), and In re Pastran, 2010 Bankr. LEXIS 2237, ….
Perhaps wary of relying on an assignment by the assignee to itself without authorization by the purported assignor, Wells Fargo has waived reliance on the July 12, 2010 Assignment of Mortgage to establish its right to assert Claim No. 1?2, looking only to its status as a holder of the Note. It indeed appears that Mr. Kennerty’s signature on the Assignment of Mortgage was improper in either of his capacities, as an officer of Wells Fargo or as an officer of MERS, without further authorization from Washington Mutual Bank, FA, because ABN Amro assigned MERS the Deed of Trust solely in MERS’ capacity as nominee for Washington Mutual Bank, FA, without the power of foreclosure and sale in its own right and not for its own successors and assigns as well as Washington Mutual Bank, FA’s; and MERS (through Mr. Kennerty) executed the Assignment of Mortgage solely as nominee for Washington Mutual Bank, FA. Compare Kramer v. Fannie Mae, 540 Fed. Appx. 319, 320 (5th Cir. 2013), cert. denied, 134 S. Ct. 1310, 188 L. Ed. 2d 305 (2014) (MERS could assign deed of trust made out to it that specifically granted MERS the power to foreclose and assign its rights); Silver Gryphon, L.L.C. v. Bank of Am. NA, 2013 U.S. Dist. LEXIS 168950, at *11?12 (S.D. Tex. Nov. 7, 2013) (same); Richardson v. CitiMortgage, Inc., 2010 U.S. Dist. LEXIS 123445, at *3, *13?14 (E.D. Tex. Nov. 22, 2010) (same), and Nueces County v. MERSCORP Holdings, Inc., 2013 U.S. Dist. LEXIS 93424, at *20 (S.D. Tex. July 3, 2013); In re Fontes, 2011 Bankr. LEXIS 1792, at *11?13 (B.A.P. 9th Cir. Apr. 22, 2011); and In re Weisband, 427 B.R. 13, 20 (Bankr. D. Az. 2010) (MERS as mere “nominee” of mortgage holder lacks power to transfer enforceable mortgage)…..
Because it is undisputed that (a) the Debtor signed the Note (and received the loan proceeds)11 and (b) a properly recorded lien on the Property secures the Debtor’s obligation under the Note (albeit that Wells Fargo does not rely independently on the Deed of Trust assigned to ABN AMRO and then
10 See Supplement to Emergency Motion to Reopen and for Leave to Propound Additional Discovery to Defendant for Additional Evidence Withheld Prior to Trial, dated March 11, 2014.
11 See Trial Tr. at 95?6 (testimony of the Debtor).
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assigned to MERS as nominee for Washington Mutual Bank, FA (none of which has filed a proof of claim) or the Assignment of Mortgage to sustain its claim), the only issue addressed by the parties is whether Wells Fargo has standing to enforce the Note, and, thus, assert Claim No. 1?2.12 This is because, as stated above, Texas follows the majority rule that “[w]hen a mortgage note is transferred, the mortgage or deed of trust is also automatically transferred to the note holder by virtue of the common?law rule that ‘the mortgage follows the note.’” Campbell v. Mortg. Elec. Registration Sys., Inc., 2012 Tex. App. LEXIS 4030, at *11?12 (Tex. App. Austin May 18, 2012), quoting J.W.D., Inc. v. Fed. Ins. Co., 806 S.W.2d 327, 329?30 (Tex. App. Austin 1991). See also Kiggundu v. Mortg. Elec. Registration Sys., Inc., 469 Fed. Appx. 330, 332; Richardson v. Ocwen Loan Servicing, LLC, 2014 U.S. Dist. LEXIS 177471, at *13 n.4 (N.D. Tex. Nov. 21, 2014); Nguyen v. Fannie Mae., 958 F. Supp. 2d 781, 790 n.11 (S.D. Tex. 2013); Trimm v. U.S. Bank., N.A., 2014 Tex. App. LEXIS 7880, at *14 (Tex. App. Fort Worth July 17, 2014)…..
Wells Fargo’s right to enforce the Note, and thus its standing to assert Claim No. 1?2, derives from the Note’s status as a negotiable instrument under Texas’ version of the U.C.C. See Tex. Bus. & Com. Code § 3.104(a). The Debtor has not disputed that the Note is negotiable, and the Note in any event satisfies the requirements of a negotiable instrument under Texas law, as it is “an unconditional promise . . . to pay a fixed amount of money . . . payable to . . . order at the time it [was] issued; . . . payable . . . at a definite time; and does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money” except as permitted by the statute. Id. See also Farkas v. JP Morgan Chase Bank, 2012 U.S. Dist. LEXIS 190194, at *6?7 (W.D. Tex. June 22, 2012), aff’d, 544 Fed. Appx. 324 (5th Cir. 2013), cert. denied, 134 S. Ct. 628, 187 L. Ed. 411
12 One might argue, although Wells Fargo has not, that the parties’ pre?bankruptcy course of dealing, including the Loan Modification Agreement signed by the Debtor on February 12, 2008 and attached to Claim No 1?2 (See also Trial Tr. at 96?104), would independently support Wells Fargo’s right to assert Claim No. 1?2; however, if the blank ABN Amro indorsement were forged, the Loan Modification Agreement and course of dealing would ultimately improperly derive from Wells Fargo’s fraudulent assertion of the right to enforce the Note and Deed of Trust.
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(2013); Steinberg v. Bank. of Am., N.A., 2013 Bankr. LEXIS 2230, at *12?14 (B.A.P. 10th Cir. May 30, 2013)…..
“The presumption rests upon the fact that in ordinary experience forged or unauthorized signatures are very uncommon, and normally any evidence is within the control of, or more accessible to, the defendant.”15 Official Comment to Tex. Bus. & Com. Code § 3.308 (“Off. Cmt.”). The presumption is effectively incorporated into Fed. R. Evid. 902(9), which provides that no extrinsic evidence of authenticity is required to admit “[c]ommercial paper, a signature on it, and related documents, to the extent allowed by general commercial law,” and it is loosely analogous to the rebuttable presumption of the prima facie validity of a properly filed proof of claim under Fed. R. Bankr. P. 3001(f).
While Tex. Bus. & Com. Code §§ 3.308(a) and 1.206(a) provide that the presumption of an authentic signature applies “unless and until evidence is introduced that supports a finding of nonexistence,” they do not state the quantum of evidence to overcome the presumption. The Official Comment to § 3.308, however, refers to “some evidence” and to “some sufficient showing of the grounds for the denial before the plaintiff is required to introduce evidence,” and then states, “[t]he defendant’s evidence need not be sufficient to require a directed verdict, but it must be enough to support the denial by permitting a finding in the defendant’s favor.” Off. Cmt. 1 to § 3.308.16 This suggests that the required evidentiary showing to overcome the presumption is similar to that needed to defeat a summary judgment motion: the introduction of sufficient evidence so that a reasonable trier of fact in the context of the dispute could find in the defendant’s favor. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587?88 (1986); 11 Moore’s Fed. Prac. 3d § 56.22 (2014). Because of the general factual context described in the Official Comment, which recognizes that “in ordinary experience forged or unauthorized signatures are very uncommon,” Off. Cmt. 1 to § 3.308, courts have nevertheless required a significant amount of evidence to overcome the presumption. See In re Phillips, 491 B.R. 255, 273 n. 37 (Bankr. D. Nev. 2013) (“This evidence was inconclusive at best. Against this background, the court is prepared to believe that it is more likely that [the claimant] negligently failed to copy the Note and First Allonge when it filed its [first] Proof of Claim rather than it forged the First Allonge later on. In short, when both are equally likely, the court picks sloth over venality.”); see also Congress v. U.S. Bank. N.A., 98 So. 3d 1165, 1169 (Civ. App. Ala. 2012) (referring to requirement of substantial, though not clear and convincing, evidence to rebut the presumption under U.C.C. §§ 3?308(a) and 1?206(a), although directing trial court on remand to apply preponderance?of? the?evidence standard to whether the presumption was overcome)….
See People v. Richetti, 302 N.Y. 290, 298 (1951) (“A presumption of regularity exists only until contrary substantial evidence appears. . . . It forces the opposing party (defendant here) to go forward with proof but, once he does go forward, the presumption is out of the case.”). Thus, in In re Phillips, 491 B.R. at 273 n. 37, quoted above, if the presumption had been overcome by a preponderance of the evidence and the burden shifted and forgery and negligence were found to be equally likely, the holder of the note should lose.
Because Wells Fargo does not rely on the Assignment of Mortgage to prove its claim, the foregoing evidence is helpful to the Debtor only indirectly, insofar as it goes to show that the blank indorsement, upon which Wells Fargo is relying, was forged. Nevertheless it does show a general willingness and practice on Wells Fargo’s part to create documentary evidence, after?the?fact, when enforcing its claims, WHICH IS EXTRAORDINARY…..
Wells Fargo has not carried that burden. To do so, it offered only Mr. Campbell’s testimony and, through him, certain exhibits copied from Wells Fargo’s loan file. That testimony was not helpful to it. Mr. Campbell was not involved in the administration of the Debtor’s loan until he became a potential witness in 2013. Trial Tr. at 37. He was not involved in the preparation of Claim No 1?2. Id. at 37. He had nothing to say about the circumstances under which the blank ABN Amro indorsement appeared on the Note attached to Claim No. 1?2, with the exception that he located the earliest entry in the electronic loan file where that version of the Note was recorded, pulled up its image and compared it to the original shown him by Wells Fargo’s counsel. Id. at 33, 36, 49?50. He was offered, therefore, only to qualify Wells Fargo’s proposed exhibits, copied from Wells Fargo’s loan file, as falling within Fed. R. Evid. 803(6)’s business records exception to a hearsay objection under Fed. R. Evid. 802 and to testify that a copy of the Note with the blank ABN Amro indorsement appears in Wells Fargo’s electronic records before the preparation of Wells Fargo’s initial proof of claim in this case….
In large measure, Mr. Campbell was not up to that task (and Wells Fargo offered no other evidence to meet that standard, were the Court to impose it). Mr. Campbell did not know whether there was any person overseeing the accuracy of how the records in the system were stored and maintained. Id. at 32, 40, 42?3. He did not know who controlled access to the system or the procedure for limiting access, except to say “[A]ccess is granted as needed.” Id. at 40?1. He did not know of any procedures for backing up or auditing the system. Id. at 42. He stated, “I am not a technology person” and was not able to answer what technology ensures the accuracy of the date and time stamping of the entry of documents into the imaging system. Trial Tr. at 22. In his deposition, he testified that he did not know whether the dates and times of the entry of documents in the system could be changed, but at trial he stated that, after his deposition, “I attempted to look into this, and, to my knowledge, I am not aware of any way to change or remove attachments into the imaging system,” id. at 43, which, given his general lack of knowledge about how the system works and failure to explain the basis for his assertion, did not inspire confidence….
Moreover, in addition to the fact that the specially indorsed version of the Note appears on its own in the file on March 27, 2007, and not as part of an “origination file,” Wells Fargo has offered no explanation, let alone evidence, of who else, if not Wells Fargo, held the original of the Note with the blank ABN Amro indorsement before December 28, 2009, if, in fact, such a version then existed. The file provided by the transferor should have included it, if it did exist during that period, because Washington Mutual Bank, FA would not have been able to enforce the Note, either, without the blank indorsement, and the Assignment of Deed of Trust attached to the proofs of claim states that both the Note and Deed of Trust were transferred to MERS as nominee for Washington Mutual Bank, FA on June 20, 2002, effective November 16, 2001. In other words, why would only an outdated and unenforceable version of the Note have been logged in by Wells Fargo when it took over the file in February 2007 if the only enforceable version of the Note had in fact existed at that time (and should have existed since 2002)? The far more likely inference, instead, is that when the loan was transferred to Wells Fargo, the Note with the blank ABN Amro indorsement did not exist.
Why would the Note with the blank ABN Amro indorsement have appeared in Wells Fargo’s file only on December 28, 2009, twenty?two months later? Wells Fargo has not provided an explanation, supported by evidence, replying only that the question is irrelevant. All that matters, Wells Fargo contends, is that the enforceable document was imaged into its records before the Debtor’s counsel started raising questions about Claim No 1?1.