Here is an article from www.wealthdaily.com
By Joseph Cafariello
Thursday, December 5th, 2013
After more than four years, the U.S. Justice Department is finally bringing to justice the banks responsible for the mortgage-backed securities scheme that triggered the 2008 real estate and financial crises.
Or is it really?
And the Justice Department has vowed it won’t stop there. “We have a number of investigations that are coming to a head at the same time,” U.S. Attorney General Eric Holder announced to Reuters yesterday. Not yet prepared to name names, the next big banks in the Justice Department’s cross-hairs have already been contacted. “It is my hope that the next round of these cases will be filed soon after the new year,” Holder informed of his department’s readiness to fight them all.
But is the DOJ really bringing the big banks to justice for their perpetration of such a devastating deception, which not only brought the nation’s housing market to its knees but also froze its credit market, triggering a global credit crisis that caused the gears of nearly every economy on Earth to grind to a halt?
Or is it simply putting on a show as part of a public relations campaign to placate the people’s demand for justice? The big banks certainly seem to be carrying on as though nothing has happened.
The Justice Department’s Hit List
Beginning in 2012, the U.S. Justice Department initiated lawsuits against more than a dozen banks for misrepresenting the risks of the mortgage securities they were selling, including Bank of America (NYSE: BAC), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS) JP Morgan Chase (NYSE: JPM), Credit Suisse (NYSE: CS), and a number of their subsidiaries.
BofA has elected to fight its charges, and it promises to be a long drawn out battle given the bank’s expectation of further charges next year, including an upcoming New York Attorney General’s suit against the defunct Merrill Lynch investment bank, which BofA bought in 2008.
Citigroup and Goldman Sachs are cooperating with Justice Department requests for documents, with expectations of increased liabilities through legal fees, fines, and penalties.
One of the first victories for the DOJ during this campaign was scored late in 2012, when JP Morgan and Credit Suisse agreed to fines of $296.9 million and $120 million respectively. The most recent tackle was made just last month when JP Morgan agreed to pay the $13 billion fine noted above.
Actions Betray Lack of Remorse
Yet despite repeated lawsuits, fines, penalties, outraged public protests, and scathing editorial exposés, the banks’ actions throughout the Justice Department’s crusade against them shows that they are really not afraid and that they really haven’t learned any lessons at all. They are still neglecting their fiduciary obligations to their customers, and they are still defying the DOJ’s authority.
In early 2012, 49 state Attorneys General joined the federal Attorney General in a suit against five major banks – which included BofA, Citigroup, JP Morgan Chase, Wells Fargo (NYSE: WFC), and GMAC, renamed Ally Financial – resulting in $25 billion worth of compensation to distressed home owners foreclosed upon, as well as to state and federal governments.
What was the basis of the charge? “The agreement settles state and federal investigations finding that the country’s five largest mortgage servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct,” explains the National Mortgage Settlement’s webpage. “Both of these practices violate the law.”
But more violations continued. Joseph A. Smith, who oversees the N.M. Settlement, revealed yesterday that BofA, JP Morgan, and Citigroup “each failed at least two of 29 metrics that measure standards over how to provide relief to homeowners under threat of foreclosure,” the Wall Street Journal transcribed Smith’s report. “In total, the three banks failed on seven metrics in the first half of 2013.”
This follows failures on three other metrics by JP Morgan, Citigroup, and Wells Fargo in the second half of 2012.
“The banks still have additional work to do in their efforts to fully comply with the National Mortgage Settlement and to regain their customers’ trust,” Smith put it rather mildly in his report. “I am hopeful that the corrective action plans and the new metrics will result in meaningful improvement in how the servicers treat their customers.”
But how hopeful can anyone be when after so many lawsuits, fines, and outcries, the banks are still carrying on business as usual? Taking the diplomatic approach, Smith deemed that “most of the failures are systems-related,” and he is satisfied “that the servicers have all implemented plans to address these failures.”
Until now, it seems the U.S. Justice Department’s bark has had no bite. It remains to be seen if next year’s batch of lawsuits finally pierces the banks’ thick skin.
Too Big and Getting Bigger
But some question what good any such fines will do when the big banks just keep getting bigger, and any fines and penalties are quickly recouped. To them, it’s just the cost of doing business, spurring little need for change.
Remember, too, that federally-backed mortgage agencies Freddy Mac and Fanny Mae keep buying mortgages from the banks, as does the U.S. Federal Reserve. This means the largest banks can collect revenues and service fees from closing new mortgages and quickly get their money from federal agencies to start the process all over again with new clients.
The banks are churning out mortgages without locking up their capital in the process. A fine or two means very little when the banks can generate revenues without tying up their money. Any money lost through fines would have been locked up in mortgages for 30 years anyway. The bank will make it all back quicker this way than they would if they had to wait 3 decades for homebuyers to return their capital in full.
Thickening their skin into a protective armor are new regulations due to take effect January 10th, 2014 under the 2010 Dodd Frank law requiring mortgage lenders to lower the cost of their loans. While the intent was to make mortgages more affordable to home owners, it may result in making the big banks even bigger and more resistant to fines and penalties.
The new regulations will make it tougher for smaller mortgage providers to survive. Jeff Taylor, co-founder of Digital Risk, a provider of risk management services, expressed his fear to CNN Money that these new regulations are coming at the worst possible time, right at the end of the rebounding phase of the housing market. “Now that the [refinancing] boom is over,” Taylor predicted, “we’ll see a lot of small banks fading away”.
“My concern,” David Stevens of the Mortgage Bankers Association voiced his worry to CNN Money, “is that we’re going to be in an environment where some lenders are too small to comply.”
And that would make the big banks too big to comply… with the Justice Department’s punishments. With less competition comes greater market share and larger revenues for the big boys, making any fines levied progressively less consequential.
Home Owners and Investors Must Prepare
While a repeat of the last housing collapse will likely not be repeated in similar magnitude, home owners would be wise to prepare for anything. Very few people saw the last crisis coming, and very few will see the next one ahead of time either.
Purchasing mortgage insurance from the Federal Housing Administration or other providers would give home owners peace of mind knowing that their mortgage payments would be covered – in whole or at least in part – should they lose their jobs or should interest rates rise sharply, as they are expected to when the U.S. Federal Reverse begins reducing its accommodation.
Investors also need to take some precautions of their own, knowing that several upcoming lawsuits against the major banks may cause their stocks to take a hit as the fines cut into banks’ revenues – even if it is just a little in some cases. This might be a good time for regional banks to outperform, as they are spared the recapitalization burdens of the Basel III accord requiring the larger banks to keep more of their cash in unused reserves.
But examine very carefully any mortgage provider firm you are considering investing in, as next year’s Dodd Frank regulations may weed many of them out of business. Watch out for those mortgage REITs, too, since higher interest rates in coming years will limit capital gains or even crush their stocks.
Deutsche Bank National Trust Company v. Herbert N. Elesh (Illinois 2013)
Plaintiff, Deutsche Bank National Trust Company, as trustee of Morgan Stanley ABS Capital I Inc. Trust 2005 HE-3, has filed this suit to foreclose defendant’s mortgage. Defendant contends that plaintiff lacks standing to pursue this suit and asks the Court to dismiss it. Because defendant attacks the factual basis of plaintiff’s standing, rather than the sufficiency of its jurisdictional allegations, the Court can consider matters outside of the pleadings in deciding this motion. See Apex Digital, Inc. v. Sears Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009). Plaintiff, which has the burden of proof on this issue, has constitutional standing to pursue this suit only if it suffered a “concrete and particularized” injury that is traceable to defendant’s conduct and is likely to be redressed by a decision in its favor in this case. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).
With respect to that issue, plaintiff alleges that it owns the promissory note defendant gave to his lender, Decision One Mortgage Co., and thus has been injured by defendant’s failure to make the payments due under it. As proof of this contention, plaintiff attached to its complaint what it claims is a true copy of the promissory note bearing an indorsement in blank. However, the note attached to the complaint bears no indorsement whatsoever as the purported indorsement language is not signed by the original owner or anyone else. In response to defendant’s motion to dismiss, plaintiff submitted what it represents is a better copy of the original note. However, the “better Deutsche Bank National Trust Company v. Elesh Doc. 65 Dockets.Justia.com
The only evidence plaintiff offered at the hearing was the testimony of one witness from the servicer of the note, Ocwen Loan Servicing. The witness had no personal knowledge of whether, when or by whom the contested note was indorsed or any other aspect of the transactions underlying this suit. Moreover, her testimony that Ocwen has a practice of seeking indorsements for notes without them is vitiated by her belief that an indorsement is a rubber stamp of the phrase “pay to the order of” rather than a signature by the obligee of the note.
For these reasons and those stated in open court, the Court finds that plaintiff has failed to establish that: (1) the purported original promissory note is authentic; (2) the note was properly indorsed by an agent of the obligee; or (3) that, when plaintiff filed this suit, it possessed or owned the original promissory note. Because plaintiff has failed to establish that it was injured by defendant’s default on the note, it does not have standing to pursue this suit. Accordingly, the Court grants defendant’s motion to dismiss  and dismisses this suit for lack of subject matte jurisdiction. The Court strikes as moot defendant’s motion to strike  and plaintiff’s motions for summary judgment, to appoint a special commissioner and to reassign [51, 54 & 60]. SO ORDERED ENTER: May 21, 2013
HERBERT ELESH vs. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC…..
This leaves Count 5, in which Elesh challenges the assignment of the mortgage to Deutsche Bank. Defendants argue that Elesh is not a party to the assignment and thus lacks standing to challenge it. Only one of the cases upon which defendants rely, however, is an Illinois case, and that case makes it clear that this supposed “rule” has exceptions. See Bank of America Nat’l Ass’n v. Bassman FBT, LLC, No. 2-11-0729, 2012 IL App (2d) 110729, 981 N.E.2d 1, 6-11 (2012). The basic requirements of standing are that the plaintiff suffered an injury to a legally cognizable interest and is asserting his own legal rights rather than those of a third party. See id. at 6. Elesh unquestionably meets the first requirement; the recorded assignment constitutes a cloud on his title, and Deutsche Bank recently relied on the assignment to prosecute a foreclosure action against him. Elesh also has a viable argument that in challenging the validity of the assignment, he is asserting his own rights and not someone else’s rights. For example, given Deutsche Bank’s apparent lack of possession of the original note, Elesh is put at risk of multiple liability as long as Deutsche Bank claims to hold the mortgage. See id. at 7-8 (citing cases indicating that an obligor has an interest in ensuring that he will not have to pay the same claim twice). In any event, Illinois law, to the extent there is much of it on this point, appears to recognize an obligor’s right to attack an assignment as void or invalid under certain circumstances. See id. The Court is also inclined to believe that the right to bring a quiet title action – a right that Elesh, as title holder to the property, clearly enjoys – implies the ability to challenge the validity of instruments that constitute clouds on title.
An action to quiet title in property is an equitable proceeding in which a party seeks to remove a cloud on his title to the property. A cloud on title is the semblance of title, either legal or equitable, appearing in some legal form but which is, in fact, unfounded or which it would be inequitable to enforce. Various forms of documents which appeared valid on their face have been held to constitute clouds on title [including subsequent deeds, recorded mortgages, and forged deeds].
Gambino v. Boulevard Mortg. Corp., 398 Ill. App. 3d 21, 52, 922 N.E.2d 380, 410 (2009) (internal quotation marks and citations omitted). Deutsche Bank’s assignment, which it has recorded, arguably constitutes a cloud on Elesh’s title, thus enabling him to challenge it or at least seek its removal via a quiet title action. For these reasons, the Court declines to dismiss Count 5.
DEUTSCHE BANK NATIONAL TRUST v. JAMES L. GILBERT (IL 2nd Appellate 2012)
The plaintiff, Deutsche Bank National Trust Company, filed a foreclosure suit against the defendant, James L. Gilbert. Gilbert raised the affirmative defense that Deutsche Bank lacked standing at the time it filed the suit. Gilbert also filed a counterclaim alleging violations of the federal Truth in Lending Act (TILA) (15 U.S.C. § 1601 (2006)) and seeking damages. The parties filed cross-motions for summary judgment. The trial court initially found in favor of Gilbert on the issue of standing and dismissed the foreclosure. However, following Deutsche Bank’s filing of a motion for reconsideration, the trial court reversed itself and granted summary judgment in favor of Deutsche Bank on all claims. Gilbert appeals, arguing that the trial court’s initial decision was correct, and that he is also entitled to summary judgment in his favor on the counterclaim. For the following reasons, we reverse the judgment of foreclosure and dismiss the cause, and affirm the dismissal of the counterclaim…
On March 10, 2008, Deutsche Bank filed a foreclosure action against Gilbert. In its complaint, it alleged that it was the current holder of the indebtedness. Copies of the note and the mortgage were attached to the complaint as exhibits.
On August 25, 2008, MERS (as nominee for WMC Mortgage) executed a document titled “Assignment of Mortgage” (Assignment). The Assignment stated that MERS, for certain consideration “the receipt of which is hereby acknowledged,” “assigned and transferred” to Deutsche Bank, “as Trustee under the Pooling and Servicing Agreement dated as of November 1, 2005, GSAMP Trust 2005-WMC2,” all interests in Gilbert’s mortgage. On September 12, 2008, Deutsche Bank filed an amended complaint, attaching the Assignment as an exhibit. Gilbert filed an answer, raising the affirmative defense of lack of standing on the ground that the Assignment showed that Deutsche Bank did not own the indebtedness when it originally filed the foreclosure. Gilbert also filed a counterclaim…
…Deutsche Bank contended that it did have standing at the time it filed suit, because the Assignment simply memorialized an earlier transfer of interest. In support, it submitted an affidavit from William F. Loch, an employee of a company that serviced loans for Deutsche Bank, in which Loch averred that, based on his review of “the documents contained in the Gilbert loan file,” MERS assigned its interest to Deutsche Bank on November 1, 2005. Loch did not state how he knew that this was when the assignment occurred, and he did not attach any documentary evidence that the assignment had occurred on this date…
…As to the standing issue, it granted Gilbert’s motion for summary judgment and dismissed the foreclosure, finding that Deutsche Bank was not the holder of the indebtedness at the time it filed the suit. The trial court noted Loch’s averment that Deutsche Bank was the holder on the date of filing, but found it “to be a legal conclusion and just because he says it does not make it so.” The trial court further noted that there was no document showing when the assignment took place….
Deutsche Bank filed a motion for reconsideration, arguing that the Assignment “clearly stated” that MERS assigned its interest to Deutsche Bank on November 1, 2005.
Standing to Bring the Foreclosure
The validity of Deutsche Bank’s foreclosure action against Gilbert rests on one issue: whether Deutsche Bank had standing—that is, whether it owned the mortgage—on the date that it filed the foreclosure action. There are no disputes about the relevant facts, and the issue is thus a purely legal one that was appropriate for disposition by summary judgment. 735 ILCS 5/2-1005(c) (West 2008). We review the grant of summary judgment de novo. Ioerger v. Halverson Construction Co., 232 Ill. 2d 196, 201 (2008).
“The doctrine of standing is designed to preclude persons who have no interest in a controversy from bringing suit.” Raintree Homes, Inc. v. Village of Long Grove, 209 Ill. 2d 248, 262 (2004). A party’s standing to sue must be determined as of the time the suit is filed. Village of Kildeer v. Village of Lake Zurich, 167 Ill. App. 3d 783, 786 (1988). “[A] party either has standing at the time the suit is brought or it does not.” Id. An action to foreclose upon a mortgage may be filed by a mortgagee, i.e., the holder of an indebtedness secured by a mortgage, or by an agent or successor of a mortgagee. See Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill. App. 3d 1, 7 (2010); see also 735 ILCS 5/15-1208, 15-1504(a)(3)(N) (West 2008). Lack of standing to bring an action is an affirmative defense, and the burden of proving the defense is on the party asserting it. Lebron v. Gottlieb Memorial Hospital, 237 Ill. 2d 217, 252 (2010).
Here, Gilbert raised the affirmative defense of lack of standing both in his answer and in his motion for summary judgment. To support his argument that on the date the foreclosure action was filed Deutsche Bank had no standing to sue him, Gilbert pointed to the note and the mortgage attached to the complaint, both of which identify the mortgagee as MERS—not Deutsche Bank. Moreover, the Assignment attached to the amended complaint was dated August 25, 2008, and Gilbert argued that this showed that MERS did not assign its interest in the mortgage until several months after the foreclosure action was filed. We find that this evidence met Gilbert’s burden to show that Deutsche Bank lacked standing when the suit was filed, because the note and the mortgage identified the lender as WMC Mortgage and the holder of the mortgage as MERS. Deutsche Bank’s name does not appear on either of these documents. Thus, so far as the documents attached to the complaint establish, Gilbert was correct that Deutsche Bank did not own the indebtedness. As he made out a prima facie showing that Deutsche Bank lacked standing, the burden shifted to Deutsche Bank to refute this evidence or demonstrate a question of fact. Triple R Development, LLC v. Golfview Apartments I, L.P., 2012 IL App (4th) 100956, ¶ 12.
Deutsche Bank attempted to rebut this apparent lack of standing by pointing to the Assignment and the Loch affidavit. However, these items lack evidentiary value. Before the trial court, Deutsche Bank argued that the language of the Assignment established that the transfer of the mortgage had occurred years earlier, on November 1, 2005. On appeal, however, Deutsche Bank wisely abandons that argument (which finds no support in the actual language of the Assignment), and now concedes that the Assignment “does not establish anything about when Plaintiff [Deutsche Bank] obtained its interest in the subject loan.” We agree with this statement. Although the Assignment contains two dates—the date of the trust for which Deutsche Bank is a trustee, and the date on which the Assignment was executed and notarized—it does not explicitly state when the mortgage was assigned to Deutsche Bank. All that can be known about when the assignment took place is that it was no later than the date on which the Assignment was executed.
18 Instead, Deutsche Bank now relies solely on the Loch affidavit to refute the lack of standing shown by the note and the mortgage. Deutsche Bank points to Loch’s statement that the assignment occurred on November 1, 2005, and contends that his statement must be taken as true in the absence of contrary evidence. This legal principle applies only to admissible evidence, however. Complete Conference Coordinators, Inc. v. Kumon North America, Inc., 394 Ill. App. 3d 105, 108 (2009) (only admissible evidence may be considered in support of or opposition to summary judgment). Loch’s statement about the date of the assignment was not admissible, because it was unsupported by any foundation.
The use of affidavits on motions for summary judgment is governed by Illinois Supreme Court Rule 191(a) (eff. July 1, 2002). Under that rule, affidavits must set out the facts on which the affiant’s claims are based, and attach all documents upon which the affiant relies. Loch, however, did not state how he knew that the assignment took place on November 1, 2005, and he failed to attach any documents supporting his assertion. (As we noted, the Assignment itself provides no support for Loch’s assertion.) Accordingly, Loch’s statement about the date of the assignment does not comply with Rule 191(a) and may be disregarded. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 132 (1992) (unsupported conclusions and opinions were insufficient to raise an issue of fact); Madden v. Paschen/S.N. Nielson, Inc., 395 Ill. App. 3d 362, 388 (2009) (legal conclusions and unsupported statements were properly stricken). Disregarding Loch’s unsupported statement, the sole evidence that Deutsche Bank ever became the holder of the indebtedness was the Assignment and, as Deutsche Bank concedes, that document does not establish when Deutsche Bank became the holder.
Deutsche Bank argues that, because lack of standing is an affirmative defense, Gilbert bears the burden of proving that it did not own the loan on the date that Deutsche Bank filed the foreclosure. This, of course, is true. U.S. Bank National Ass’n v. Sauer, 392 Ill. App. 3d 942, 946 (2009). However, Gilbert’s documentary evidence that Deutsche Bank did not own the loan (the mortgage and the note, and an assignment executed after the date of filing) constituted prima facie evidence of lack of standing. “ ‘A “prima facie” defense is sufficient at law unless and until rebutted by other evidence.’ ” Cordeck Sales, Inc. v. Construction Systems, Inc., 382 Ill. App. 3d 334, 366 (2008) (quoting Darling & Co. v. Pollution Control Board, 28 Ill. App. 3d 258, 264 (1975)). Deutsche Bank also argues that its standing to bring the action was established by its complaint, which alleged that it was the holder of the indebtedness and attached copies of the note and the mortgage. See Barnes, 406 Ill. App. 3d at 6 (a plaintiff sufficiently pleads a cause of action for foreclosure if it alleges that it holds the mortgage and attaches a copy of the note and the mortgage). However, the attached note and mortgage did not show that Deutsche Bank owned the loan, and thus they contradicted Deutsche Bank’s allegation that it did own the loan when it filed the suit. Burton v. Airborne Express, Inc., 367 Ill. App. 3d 1026, 1034 (2006) (“Exhibits are a part of the complaint to which they are attached,” and facts contained within an exhibit serve to negate inconsistent allegations contained within the body of the complaint). Moreover, it is well established that a party may not rely on the allegations of its pleadings to contradict evidence produced by the movant that would entitle it to judgment. Triple R Development, 2012 IL App (4th) 100956, ¶ 12. As Deutsche Bank produced no competent evidence rebutting Gilbert’s prima facie showing that the bank lacked standing at the time of filing, Gilbert was entitled to summary judgment in his favor on this issue.
In a last-ditch effort to avoid this result, Deutsche Bank argues that section 2-407 of the Code of Civil Procedure (Code) (735 ILCS 5/2-407 (West 2008)), which allows the joinder of necessary parties after the commencement of a suit, protects against the dismissal of its complaint for lack of standing. Deutsche Bank argues that its amendment of the complaint, which attached the recently executed Assignment, acted as a “joinder” of itself in a new capacity—as the now-undisputed owner of the loan. Not surprisingly, Deutsche Bank is unable to point to any case law supporting such a novel application of section 2-407 to cure a plaintiff’s lack of standing. To the contrary, standing must exist when the suit is filed. Village of Kildeer, 167 Ill. App. 3d at 786. As Deutsche Bank lacked standing at the time of filing, the foreclosure action was defective ab initio and Deutsche Bank could not cure this defect by “joining” the suit as a proper party at a later date.
In summary, Gilbert was entitled to judgment in his favor on the foreclosure, because Deutsche Bank lacked standing to bring that foreclosure. Bayview Loan Servicing, L.L.C. v. Nelson, 382 Ill. App. 2d 1184, 1186 (2008). We note that, although there is little case law on this specific issue in Illinois, our sister courts in New York have held repeatedly that, unless an assignment of a mortgage is executed prior to the date on which the foreclosure action is filed, the assignee lacks standing to bring the foreclosure and the action should be dismissed, even where the assignment was executed only a few months after the complaint was filed. See Wells Fargo Bank, N.A. v. Marchione, 887 N.Y.S.2d 615, 619 (N.Y. App. Div. 2009); LaSalle Bank National Ass’n v. Ahearn, 875 N.Y.S.2d 595, 597 (N.Y. App. Div. 2009). Other states have taken a similar approach. “It is a fundamental precept of the law to expect a foreclosing party to actually be in possession of its claimed interest in the note, and to have the proper supporting documentation on hand when filing suit, *** so that the defendant is duly apprised of the rights of the plaintiff.” U.S. Bank National Ass’n v. Baber, 2012 OK 55, ¶ 6, 280 P.2d 956; see also Wells Fargo Bank Minnesota, N.A. v. Rouleau, 2012 VT 19, ¶ 16, 46 A.3d 905; Davenport v. HSBC Bank USA, 739 N.W.2d 383, 385 (Mich. Ct. App. 2007) (foreclosure must be vacated where bank “did not yet own the indebtedness that it sought to foreclose”). We see no flaws in this reasoning. Accordingly, the order granting Deutsche Bank’s motion for reconsideration and entering judgment in favor of Deutsche Bank must be reversed, the judgment of foreclosure and the order confirming the sale must be vacated, and the foreclosure must be dismissed.
NOTE: Affidavits of corporate officers do not hold the same authority as those of private parties. An affidavit of a corporate officer must be supported with supporting documents. At the time of their filing, they must be in possession of all pertinent documents or they do not have standing. Assignment = legal process in which beneficial interest is transferred from one party to another
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