GA Supreme Court: Security Deeds That Lack of Attestation in GA


Recorded Security Deed which lacks attestations does not provide constructive notice to subsequent bona fide purchasers
Posted on April 8, 2011 by Fletcher Jim

In US Bank Nat’l Ass’n v. Gordon, Case No. S10Q1564 (Ga. march 25, 2011), the Georgia Supreme Court answered in the negative the following certified question from the United States District Court for the North District of Georgia: The question is whether the 1995 Amendment to OCGA § 44-14-33 (See Ga. L. 1995, p. 1076, § 1) means that, in the absence of fraud, a security deed that is actually filed and recorded, and accurately indexed, on the appropriate county land records provides constructive notice to subsequent bona fide purchasers, where the security deed contains the grantor’s signature but lacks both an official and unofficial attestation (i.e., lacks attestation by a notary public and also an unofficial witness).

The Supreme Court reasoned that, under OC.G.A. § 44-14-33, “to admit a security deed to record, the deed must be attested by or acknowledged before an officer, such as a notary public, and, in the case of real property, by a second witness”, and that a” deed that shows on its face that it was “not properly attested or acknowledged, as required by statute, is ineligible for recording.”

The Court then approved the Bankruptcy Court’s holding:
under the 1995 Amendment, a security deed with a facially defective attestation would not provide constructive notice, while a security deed with a facially proper but latently defective attestation would provide constructive notice.

The absence of attestations at all being a facial (not latent) defect, the mere fact of recording does not give constructive notice to a purchaser because a contrary rule would “shift to the subsequent bona fide purchaser and everyone else the burden of determining [possibly decades after the fact] the genuineness of the grantor’s signature and therefore the cost of investigating and perhaps litigating whether or not an unattested deed was in fact signed by the grantor.”

The full text of the decision is as follows:

Case: US Bank Nat’l Ass’n v. Gordon
Court: Georgia Supreme Court
 Case No: S10Q1564
Date: March 25, 2011

Text: NAHMIAS, Justice.

The Honorable Supreme Court met pursuant to adjournment.

The following order was passed:

It appearing that the enclosed opinion decides a second-term appeal, which must be concluded by the end of the April term on April 14, 2011, it is ordered that a motion for reconsideration, if any, must be filed and received in the Clerk’s office by 4:30 p.m. on Monday, March 28, 2011.

The United States District Court for the North District of Georgia has certified a question to this Court regarding the 1995 Amendment to OCGA § 44-14-33. See Ga. L. 1995, p. 1076, § 1. The question is whether the 1995 Amendment means that, in the absence of fraud, a security deed that is actually filed and recorded, and accurately indexed, on the appropriate county land records provides constructive notice to subsequent bona fide purchasers, where the security deed contains the grantor’s signature but lacks both an official and unofficial attestation (i.e., lacks attestation by a notary public and also an unofficial witness).
For the reasons that follow, we answer the certified question in the negative.

1. In October 2005, Bertha Hagler refinanced her residence through the predecessor-in-interest to U.S. Bank National Association (U.S. Bank) and granted the predecessor a first and a second security deed to her residence. The security deeds were recorded with the Clerk of the Fulton County Superior Court in November 2005, but the first security deed was not attested or acknowledged by an official or unofficial witness. According to the district court’s certification order:
Gordon, the Chapter 7 Trustee in Hagler’s bankruptcy case, sought to avoid or set aside the valid, but unattested, first security deed to the residence through the “strong-arm” power of Section 544 (a) (3) of the Bankruptcy Code. See 11 U.S.C. § 544 (a) (3). Gordon argued that under the proper interpretation of § 44-14-33 of the Georgia Code, a security deed that is not attested by an official and unofficial witness cannot provide constructive notice to a subsequent purchaser even if it is recorded. U.S. Bank argued, in opposition, that a 1995 amendment to § 44-14-33 changed the law to enable an unattested security deed to provide constructive notice. Gordon argued in response that the 1995 amendment served only to recognize constructive notice from a security deed with a “latently” defective attestation, meaning an irregular attestation that appears regular on its face; a deed with a “patently” defective attestation, meaning an attestation that is obviously defective on its face, would not provide constructive notice.
 The bankruptcy court ruled in Gordon’s favor, concluding that, under the 1995 Amendment, a security deed with a facially defective attestation would not provide constructive notice, while a security deed with a facially proper but latently defective attestation would provide constructive notice. See Gordon v. U.S. Bank Natl. Assn. (In re Hagler) , 429 BR 42, 47-53 (Bankr. N.D. Ga. 2009). Concluding that the issue involved an unclear question of Georgia law and that no Georgia court had addressed the issue after the 1995 Amendment, the district court certified the question to this Court. We conclude that the bankruptcy court properly resolved the issue.
 2. OCGA § 44-14-61 provides that “[i]n order to admit deeds to secure debt . . . to record, they shall be attested or proved in the manner prescribed by law for mortgages.” OCGA § 44-14-33 provides the law for attesting mortgages:
 In order to admit a mortgage to record, it must be attested by or acknowledged before an officer as prescribed for the attestation or acknowledgment of deeds of bargain and sale; and, in the case of real property, a mortgage must also be attested or acknowledged by one additional witness. In the absence of fraud, if a mortgage is duly filed, recorded, and indexed on the appropriate county land records, such recordation shall be deemed constructive notice to subsequent bona fide purchasers.
The second sentence of this Code section was added by the 1995 Amendment.
 3. We first address Gordon’s contention that the 1995 Amendment does not apply at all to security deeds. He contends that only the first sentence of § 44-14-33, which expressly deals with attestation, is applicable to security deeds through § 44-14-61 and that, because the 1995 Amendment addresses constructive notice, it does not apply to security deeds. We disagree. The General Assembly chose to enact the 1995 Amendment not as a freestanding Code provision but as an addition to a Code provision clearly referenced by § 44-14-61. Moreover, “[t]he objects of a mortgage and security deed . . . under the provisions of the Code are identical —security for a debt. While recognizing the technical difference between a mortgage and security deed hereinbefore pointed out, this court has treated deeds to secure debts . . . as equitable mortgages.” Merchants & Mechanics’ Bank v. Beard , 162 Ga. 446, 449 (134 SE 107) (1926). The General Assembly is presumed to have been aware of the existing state of the law when it enacted the 1995 Amendment, see Fair v. State , 288 Ga. 244, 252 (702 SE2d 420) (2010), so the placement of the amendment makes complete sense. Indeed, no reason has been suggested why the General Assembly would want the same type of recording to provide constructive notice for mortgages but not for security deeds. Accordingly, we conclude that the 1995 Amendment is applicable to security deeds.

4. Turning back to the certified question, we note that the “recordation” that is deemed to provide constructive notice to subsequent purchasers clearly refers back to “duly filed, recorded, and indexed” deeds. U.S. Bank argues that a “duly filed, recorded, and indexed” deed is simply one that is in fact filed, recorded, and indexed, even if unattested by an officer or a witness. We disagree.

Particular words of statutes are not interpreted in isolation; instead, courts must construe a statute to give ” ‘”sensible and intelligent effect” to all of its provisions,’ ” Footstar, Inc. v. Liberty Mut. Ins. Co. , 281 Ga. 448, 450 (637 SE2d 692) (2006) (citation omitted), and “must consider the statute in relation to other statutes of which it is part.” State v. Bowen , 274 Ga. 1, 3 (547 SE2d 286) (2001). In particular, “statutes ‘in pari materia,’ i.e., statutes relating to the same subject matter, must be construed together.” Willis v. City of Atlanta , 285 Ga. 775, 776 (684 SE2d 271) (2009).

Construing the 1995 Amendment in harmony with other recording statutes and longstanding case law, we must reject U.S. Bank’s definition of “duly filed, recorded, and indexed.” Its definition ignores the first sentence of § 44-14-33, which provides that to admit a security deed to record, the deed must be attested by or acknowledged before an officer, such as a notary public, and, in the case of real property, by a second witness. See OCGA § 44-2-15 (listing the “officers” who are authorized to attest a mortgage or deed). Other statutes governing deeds and mortgages similarly preclude recording and constructive notice if certain requirements are not satisfied. See OCGA § 44-2-14 (“Before any deed to realty or personalty or any mortgage, bond for title, or other recordable instrument executed in this state may be recorded, it must be attested or acknowledged as provided by law.”); OCGA § 44-14-61 (“In order to admit deeds to secure debt or bills of sale to record, they shall be attested or proved in the manner prescribed by law for mortgages”). Indeed, U.S. Banks’ construction of the 1995 Amendment contradicts OCGA § 44-14-39, which provides that “[a] mortgage which is recorded . . . without due attestation . . . shall not be held to be notice to subsequent bona fide purchasers.”

Thus, the first sentence of § 44-14-33 and the statutory recording scheme indicate that the word “duly” in the second sentence of § 44-14-33 should be understood to mean that a security deed is “duly filed, recorded, and indexed” only if the clerk responsible for recording determines, from the face of the document, that it is in the proper form for recording, meaning that it is attested or acknowledged by a proper officer and (in the case of real property) an additional witness. This construction of the 1995 Amendment is also consistent with this Court’s longstanding case law, which holds that a security deed which appears on its face to be properly attested should be admitted to record, see Thomas v. Hudson , 190 Ga. 622, 626 (10 SE2d 396) (1940); Glover v. Cox , 137 Ga. 684, 691-694 (73 SE 1068) (1912), but that a deed that shows on its face that it was “not properly attested or acknowledged, as required by statute, is ineligible for recording.” Higdon v. Gates , 238 Ga. 105, 107 (231 SE2d 345) (1976).

We note that at the time the 1995 Amendment was considered and enacted, the appellate courts of this State had “never squarely considered” whether a security deed with a facially valid attestation could provide constructive notice where the attestation contained a latent defect, like the officer or witness not observing the grantor signing the deed. Leeds Bldg. Prods. v. Sears Mortg. Corp ., 267 Ga. 300, 301 (477 SE2d 565) (1996). The timing of the amendment suggests that the General Assembly was attempting to fill this gap in our law as the Leeds litigation worked its way through the trial court and the Court of Appeals before our decision in 1996. See Gordon , 429 BR at 50. We ultimately decided in Leeds that, “in the absence of fraud, a deed which, on its face, complies with all statutory requirements is entitled to be recorded, and once accepted and filed with the clerk of court for record, provides constructive notice to the world of its existence.” 267 Ga. at 302. We noted that Higdon remained good law, because in that case the deed was facially invalid, did “not entitle [the deed] to record,” and “did not constitute constructive notice to subsequent purchasers.” Leeds , 267 Ga. at 302. Because we reached the same result as under the 1995 Amendment, we did not have to consider whether the amendment should be applied retroactively to that case. See id. at 300 n.1.

Our interpretation of the 1995 Amendment also is supported by commentators that have considered the issue. See Frank S. Alexander, Georgia Real Estate Finance and Foreclosure Law, § 8-10, p. 138 (4th ed. 2004) (stating that “[a] security deed that is defective as to attestation, but without facial defects, provides constructive notice to subsequent bona fide purchasers”); Daniel F. Hinkel, 2 Pindar’s Georgia Real Estate Law and Procedure, § 20-18 (6th ed. 2011) (without mentioning deeds with facial defects, explaining that the 1995 Amendment to § 44-14-33 and Leeds “provide that in the absence of fraud a deed or mortgage, which on its face does not reveal any defect in the acknowledgment of the instrument and complies with all statutory requirements, is entitled to be recorded, and once accepted and filed with the clerk of the superior court for record, provides constructive notice to subsequent bona fide purchasers”); T. Daniel Brannan & William J. Sheppard, Real Estate , 49 Mercer L. Rev. 257, 263 (Fall 1997) (without mentioning deeds with facial defects, stating that the 1995 Amendment to § 44-14-33 resolves “the issue that was before the court in [Leeds ]“). As noted by the bankruptcy court, if Hinkel and the law review authors thought that the 1995 Amendment altered longstanding law with regard to deeds containing facial defects as to attestation, they surely would have said so. See Gordon , 429 BR at 52-53.

Finally, it should be recognized that U.S. Bank’s interpretation of the 1995 Amendment to § 44-14-33 “would relieve lenders of any obligation to present properly attested security deeds” and “would tell clerks that the directive to admit only attested deeds is merely a suggestion, not a duty,” and this would risk an increase in fraud because deeds no longer would require an attestation by a public officer who is sworn to verify certain information on the deeds before they are recorded and deemed to put all subsequent purchasers on notice. Gordon , 429 BR at 51-52. Moreover, while “it costs nothing and requires no special expertise or effort for a closing attorney, or a lender, or a title insurance company to examine the signature page of a deed for missing signatures before it is filed,” U.S. Bank’s construction would “shift to the subsequent bona fide purchaser and everyone else the burden of determining [possibly decades after the fact] the genuineness of the grantor’s signature and therefore the cost of investigating and perhaps litigating whether or not an unattested deed was in fact signed by the grantor.” Id. at 52.

For these reasons, we answer the certified question in the negative.

Certified question answered. All the Justices concur.

Trial Judge:

Attorneys: John B. Vitale and Lewis E. Hassett (Morris, Manning & Martin LLP), Atlanta, for appellant. Neil C. Gordon and Michael F. Holbein (Arnall Golden Gregory LLP), Atlanta, for appellee. Amicus Appellant: Edward D. Burch Jr. (Smith, Gambrell & Russell LLP), William H. Dodson II (Dodson, Feldman & Dorough LLP) and Craig K. Pendergrast (Taylor English Duma LLP), Atlanta.

About Fletcher Jim
 Jim Fletcher is a Georgia attorney whose real estate litigation practice includes the representation of parties regarding residential and commercial foreclosures. You may contact Jim at (404) 461-9771.
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Big Banks Save Billions As Homeowners Suffer, Internal Federal Report By CFPB Finds | National Association of Consumer Advocates


Big Banks Save Billions As Homeowners Suffer, Internal Federal Report By CFPB Finds | National Association of Consumer Advocates.

Release Date: 

March 28, 2011

Source: Shahien Nasiripour, The Huffington Post

NEW YORK — The nation’s five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007 by taking shortcuts in processing troubled borrowers’ home loans, according to a confidential presentation prepared for state attorneys general by the nascent consumer bureau inside the Treasury Department.

 That estimate suggests large banks have reaped tremendous benefits from under-serving distressed homeowners, a complaint frequent enough among borrowers that federal regulators have begun to acknowledge the industry’s fundamental shortcomings.

 The dollar figure also provides a basis for regulators’ internal discussions regarding how best to penalize Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial in a settlement of wide-ranging allegations of wrongful and occasionally illegal foreclosures. People involved in the talks say some regulators want to levy a $5 billion penalty on the five firms, while others seek as much as $30 billion, with most of the money going toward reducing troubled homeowners’ mortgage payments and lowering loan balances for underwater borrowers, those who owe more on their home than it’s worth.

 Even the highest of those figures, however, pales in comparison to the likely cost of reducing mortgage principal for the three million homeowners some federal agencies hope to reach. Lowering loan balances for that many underwater borrowers who owe less than $1.15 for every dollar their home is worth would cost as much as $135 billion, according to the internal presentation, dated Feb. 14, obtained by The Huffington Post.

 But perhaps most important to some lawmakers in Washington, the mere existence of the report suggests a much deeper link between the Bureau of Consumer Financial Protection, led by Harvard professor Elizabeth Warren, and the 50 state attorneys general who are leading the nationwide probe into the five firms’ improper foreclosure practices, a development sure to anger Republicans in Congress and a banking industry intent on diminishing the fledgling CFPB’s legitimacy by questioning its authority to act before it’s officially launched in July.

 Earlier this month, Warren told the House Financial Services Committee, under intense questioning, that her agency has provided limited assistance to the various state and federal agencies involved in the industry probes. At one point, she was asked whether she made any recommendations regarding proposed penalties. She replied that her agency has only provided “advice.”

 A representative of the consumer agency declined to comment on the presentation, citing the law enforcement nature of the federal investigation into the mortgage industry’s leading firms.

The seven-page presentation begins by stating that a deal to settle claims of improper foreclosures “provides the potential for broad reform.”

 In it, the consumer agency outlines possibilities offered by the settlement — a minimum number of mortgage modifications, a boost to the housing market — and how it could reform the industry going forward so that investors in home loans and the borrowers who owe them would be able to resolve situations in which borrowers fall behind on their payments without the complications of a large mortgage company acting in its own interest.

 The presentation also details how much certain firms likely saved in lieu of making the necessary loan-processing adjustments as delinquencies and foreclosures rose. Bank of America, for example, has saved more than $6 billion since 2007 by not upgrading its procedures or hiring more workers, according to the report. Wells Fargo saved about as much, with JPMorgan close behind. Citigroup and Ally bring the total saved to nearly $25 billion.

The presentation adds that the under-investment far exceeds the proposed $5 billion penalty that has been on the table. People familiar with the matter say the Office of the Comptroller of the Currency wants to fine the industry less than $5 billion.

 The alleged shortchanging of homeowners has prolonged the housing market’s woes, experts say, because distressed homeowners who are prime candidates to have their payments reduced aren’t getting loan modifications and lenders are taking up to two years to seize borrowers’ homes.

 The average borrower in foreclosure has been delinquent for 537 days before actually being evicted, up from 319 days in January 2009, according to Lender Processing Services, a data provider.

 The prolonged housing pain has manifested itself in various ways.

 Purchases of new U.S. homes dropped last month to the slowest pace on record, according to the Commerce Department. Prices declined to the lowest level since 2003, according to the National Association of Realtors. About 6.9 million homeowners were either delinquent or in foreclosure proceedings through February, according to LPS.

 A penalty of about $25 billion — based on mortgage servicing costs avoided — would have “little effect” on the five firms’ capital levels, according to the presentation, since the five banks collectively hold about $500 billion in tangible common equity, the highest form of capital. Those numbers notwithstanding, banks and Republicans in Congress have complained that such a large penalty would have a disproportionate impact on bank balance sheets, hurting their ability to lend or pay dividends to investors.

 The presentation adds that given the extent of negative equity — underwater homeowners owe $751 billion more than their homes are worth, according to data provider CoreLogic — “we have gravitated towards settlement solutions that enable asset liquidity and cast a wide net.” The solution is an emphasis on reducing mortgage debt and enabling short sales, thus allowing borrowers to refinance into more affordable loans or to sell their homes and move on.

Top Federal Reserve officials and other economists have pointed to the large numbers of underwater homeowners as being one of the reasons behind high unemployment, as underwater homeowners are unable to move to where the jobs are. More than 23 percent of homeowners with a mortgage are underwater, according to CoreLogic.

The proposed settlement, as envisioned by the consumer agency, could reduce loan balances for up to three million homeowners. If mortgage firms targeted their efforts at reducing mortgage debt for three million homeowners who owe as much as their homes are worth or have less than 5 percent equity, the total cost would be $41.8 billion, according to estimates cited in the presentation.

 If firms lowered total mortgage debt for three million homeowners who are underwater by as much as 15 percent and brought them to 5 percent equity, that would cost more than $135 billion, according to the presentation. That would include reducing second mortgages and home equity lines of credit.

 In its presentation, the consumer agency said the new program, titled “Principal Reduction Mandate,” could be “meaningfully additive to HAMP” — the Home Affordable Modification Program, the Obama administration’s primary mortgage modification effort.

 The CFPB estimates that there are about 12 million U.S. homeowners underwater, most of whom are not delinquent, according to its presentation. Of those, nine million would be eligible for this new principal-reduction scheme born from the foreclosure deal. The new initiative would then “mandate” three million permanent modifications.

News of the level of the consumer agency’s involvement in the state investigation would likely be welcomed by consumer and homeowner advocates, who have long complained of the lack of attention paid to distressed borrowers by federal bank regulators like the OCC and the Federal Reserve.

But Republicans will pounce on the news, creating yet another distraction for a fledgling bureau that was the centerpiece of the Obama administration’s efforts to reform the financial industry in the wake of the worst economic crisis since the Great Depression.

Meanwhile, the banking industry will likely celebrate government infighting as attention is diverted away from allegations of bank wrongdoing and towards the level of involvement of Elizabeth Warren, a fierce consumer advocate and the principal original proponent of an agency solely dedicated to protecting borrowers from abusive lenders.

Warren is standing up the agency on an interim basis. It formally launches in July, at which point it will need a Senate-confirmed director in order to carry out its full authority. One of those areas will be how mortgage firms process home loans for distressed borrowers.

A spokeswoman for JPMorgan Chase declined to comment. Spokespeople for the other four banks were not immediately available for comment.

Read the presentation attached.

The Beginning of the End?


Is this the beginning of the end for Lender Processing Services, LPS?
From the ruling.

IN RE:
 RON WILSON, SR.
 LARHONDA WILSON

The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court had less experience concerning the conduct of mortgage servicers. One too many times, this Court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry. With each revelation, one hopes that the bottom of the barrel has been reached and that the industry will self correct. Sadly, this does not appear to be reality. This case is one example of why their conduct comes at a high cost to the system and debtors.

The hearing on the Motion for Sanctions provides yet another piece to in the puzzle of loan administration. In Jones v. Wells Fargo, this Court discovered that a highly automated software package owned by LPS and identified as MSP administered loans for servicers and note holders but was programed to apply payments contrary to the terms of the notes and mortgages. In In re Stewart, additional information was acquired regarding postpetition administration under the same program, revealing errors in the methodology for fees and costs posted to a debtor’s account. In re Fitch, delved into the administration of escrow accounts for insurance and taxes. In this case, the process utilized for default affidavits has been examined. Although it has been four (4) years since Jones, serious problems persist in mortgage loan administration. But for the dogged determination of the UST’s office and debtors’ counsel, these issues would not come to light and countless debtors would suffer. For their efforts this Court is indebted.

For the reasons assigned above, the Motion for Sanctions is granted as to liability of LPS. The Court will conduct an evidentiary hearing on sanctions to be imposed.

New Orleans, Louisiana, April 6, 2011.

Hon. Elizabeth W. Magner

U.S. Bankruptcy Judge

From Nye Lavalle

I reduced the banking industry’s scams and abuses into three primary areas or categories OVER 12 YEARS AGO!!!!. The three (3) major issues I have informed you all of are as follows:

#1 BANKS CAN’T COUNT and the amounts they claim are owed for payoff, principal balance, escrow, payments due etc… can NEVER be trusted or accepted without a complete audit of the servicing history from origination to specific date (i.e. acceleration, payoff, foreclosure, bankruptcy etc…) I have informed all of you that the “computer systems” used can’t compute and once a so-called “mistake” is made (i.e. programmed financial engineering scheme) the system can’t go back and adjust the system and amortize the loan correctly. Affiants, as I have said over and over again in countless affidavits and reports, simply take numbers off a computer screen (garbage in – – garbage out) that is usually a third-party system and the affiant has NO INDEPENDENT OR RELEVANT KNOWLEDGE as to the facts of the amount and how those amounts were arrived at. With my scripted depo questions, time-and-time again, affiants never audit or simply conduct a “sample check” of the entire “servicing history” from origination to present date, to ascertain any errors, miscalculations, misapplications, wrongful charges, etc… The lawyers (foreclosure mills) prepare the affidavits and check the payments. As the EMC executive told me in mid 90s “you must sue the lawyers, they are ALL in on it!”

#2 BANKS CAN’T ACCOUNT for the chain of title and ownership of the note and who has authority to foreclose, accelerate, modify, approve assumptions etc… In other words, they can’t account for the actual note holder and how such status was established and if the note has been pledged, sold to others, hypothecated, traded, transferred etc… Affiants, as I have said over and over again in countless affidavits and reports, simply take the information off a computer screen (garbage in – – garbage out) that is usually a third-party system and the affiant has NO INDEPENDENT OR RELEVANT KNOWLEDGE as to the facts of note ownership and they have not reviewed the PSA, necessary assignments, wet ink original notes, indorsements, authorities for the indoresements, checks and wire transmittals, collateral and custodial records and other evidence that the actual holder took possession, control, and ownership of the note. They simply take the information from the last public recording and go with that ignoring all the intermediary assignments. This has been going on for decades now. Again, the lawyers (foreclosure mills) prepare the affidavits and check the title history and often charge a fee for the “title search” that isn’t worth the paper it is written on. As the EMC executive told me in mid 90s “you must sue the lawyers, they are ALL in on it!”

#3 WHEN CAUGHT WITH THEIR HAND IN THE COOKIE JAR (i.e. cooking the books jar) the banks and their lawyers will fabricate evidence, documents, provide perjured testimony, create false affidavits, destroy documents and claim its a gummy bear jar, not a cookie jar. In essence, NOTHING, ABSOLUTELY NOTHING A BANK, LENDER, SERVICER, OR THEIR LAWYERS place in pleadings, affidavits, summary judgment motions, assignments, indorsements, deposition testimony etc… CAN NEVER BE ACCEPTED AS TRUE OR AS FACT without a complete forensic review, audit, and examination of all wet ink docs, records, financial accountings etc… that PROVE EACH AND EVERY ALLEGATION AND FACT IN A PLEADING, AFFIDAVIT, OR TESTIMONY.

The bottom-line here is that lawyers must QUESTION EVERYTHING AND CHALLENGE EVERYTHING. If not, you may be mal-practicing knowing everything you know now. Money MUST be spent in depositions to make them prove up their cases (they can’t) and e-discovery is and will be critical since they will continue to fabricate evidence and testimony.

Deutsche Bank Sold Mortgage-Linked ‘Pigs’ as Market Buckled


Deutsche Bank Sold Mortgage-Linked ‘Pigs’ as Market Buckled, Lawmakers Say
 By Bob Ivry, Jody Shenn and Michael J. Moore – Apr 13, 2011 8:42 PM ET Bloomberg Opinion
 Bob Ivry, Jody Shenn and Michael J. Moore

The Frankfurt-based firm sold $700 million of the instruments, which lost most of their value within 17 months. Photographer: Hannelore Foerster/Bloomberg

Deutsche Bank underwrote 47 CDOs with a combined value of $32 billion from 2004 to 2008, according to the Permanent Subcommittee on Investigations. Photographer: Hannelore Foerster/Bloomberg
Deutsche Bank AG (DBK), whose bets against subprime mortgages helped it weather the financial crisis, pressed to sell a $1.1 billion collateralized debt obligation to clients in 2007 as the co-head of its CDO team foresaw a market slump, a U.S. Senate panel found.

“Keep your fingers crossed but I think we will price this just before the market falls off a cliff,” Michael Lamont, the group’s co-head, said in a Feb. 8, 2007, e-mail about Deutsche Bank’s Gemstone CDO VII Ltd., according to a report released yesterday by the Permanent Subcommittee on Investigations. The Frankfurt-based firm sold $700 million of the instruments, which lost most of their value within 17 months.

The bi-partisan panel, led by Michigan Democrat Carl Levin, placed Germany’s biggest bank in a spotlight alongside Goldman Sachs Group Inc. (GS), saying that the firms’ creation and sales of mortgage-backed investments “illustrate a variety of troubling and sometimes abusive practices.” The “case study” also focuses on Greg Lippmann, Deutsche Bank’s then-top CDO trader, who led its bets against subprime home loans and described some Gemstone VII collateral as “pigs” and “crap.”

“The bank sold poor quality assets from its own inventory to the CDO,” according to the report. Then “the bank aggressively marketed the CDO securities to clients despite the negative views of its most senior CDO trader, falling values, and the deteriorating market.”

Internal Disagreements
 CDOs package assets such as mortgage bonds and buyout loans into new securities with varying risks.

Lamont, who now works at New York-based hedge fund Seer Capital Management LP, declined to comment. So did Lippmann, 42, who left Deutsche Bank last year to start LibreMax Capital LLC, an investment firm based in New York.

While Lippmann’s trades yielded a $1.5 billion total return, the bank’s other executives long disagreed with his assessments. The firm’s New York-based residential mortgage- backed securities group and one of its London hedge funds amassed home-loan positions that reached a market value of more than $25 billion in 2007, the panel said. The company, led by Chief Executive Officer Josef Ackermann, 63, lost almost $4.5 billion on the mortgage-related investments that year after Lippmann’s gains.

“There were divergent views within the bank about the U.S. housing market,” Michele Allison, a spokeswoman for the company, said in an e-mailed statement. “Moreover, the bank’s views were fully communicated to the market through research reports, industry events, trading-desk commentary and press coverage.”

Biggest Trading Gain
Lippmann, whose bets against the housing market were also described in Michael Lewis’s “The Big Short,” had repeatedly tried to warn co-workers and clients in 2006 and 2007 about the poor quality of the mortgage securities underlying many CDOs, according to the report. The return on his bets against mortgages “was the largest profit obtained from a single position in Deutsche Bank history,” he told the subcommittee.

Disagreements among executives were common in firms across Wall Street as the mortgage market began to unravel, said Edward J. Grebeck, chief executive officer of Tempus Advisors, a debt- consulting firm in Stamford, Connecticut.

“I’m surprised the subcommittee’s report is focused only on Deutsche Bank and Goldman,” he said. “You could investigate any bank that put together structured products and look for conflicts.”

Hearings
Levin and Senator Tom Coburn of Oklahoma, the panel’s top Republican, held public hearings on the financial crisis last year, examining regulatory failures, the collapse of Washington Mutual Inc., the role of credit-rating firms in fueling bets on high-risk debt and the business practices of New York-based Goldman Sachs and rival investment banks.

Deutsche Bank underwrote 47 CDOs with a combined value of $32 billion from 2004 to 2008, according to the subcommittee. It made $4.7 million in fees from Gemstone VII, the report said.

The panel faulted the bank throughout Gemstone VII’s creation and sale. Nearly a third of the mortgages backing the CDOs were originated by three subprime lenders — New Century Financial Corp., Fremont General Corp. and Washington Mutual Inc.’s Long Beach mortgage unit — known for the poor performance of their loans, the report said.

While Deutsche Bank had “the right to reject” securities that were slated for Gemstone VII, Lippmann allowed bonds he viewed as toxic to be included, according to the report. He told the panel his responsibility was only to ensure that bonds bought by the CDO were priced accurately based on current market values, and an e-mail from him showed he sought to reduce the valuation of one.

Demand for Debt
About $27 million of the CDO’s assets came from the bank’s own inventory, including one bond that Lippmann referred to by asking another trader in an instant message, “DOESNT THIS DEAL BLOW,” according to the report.

“The way the politicians use these e-mails is to hang them out as evidence that misconduct occurred, but there is in fact a market for low-quality credit paper,” said Roy Smith, a finance professor at New York University’s Stern School of Business in Manhattan. “There has been for years, and the market is very legitimate.”

After assets set aside for Gemstone VII dropped in value, Abhayad Kamat, a member of the CDO group assembling the vehicle, told a Deutsche Bank sales team to use valuations from the CDO manager, Dallas-based HBK Capital Management, rather than from the bank’s traders, the report found. HBK’s values were 1.1 percent higher.

‘Significant Vintage Risk’
 When a member of the sales group asked about the decision, Kamat responded in an e-mail that the values “we got from Jordan are too low,” referring to Jordan Milman, then a trader on Lippmann’s team, according to the report. He emphasized that the salespeople should identify HBK as the source of the valuations, the report said.

Kamat didn’t return telephone messages seeking comment.

The Senate panel said that Lamont’s group prepared an internal report listing risks to the bank from the deal that cited the 88 percent concentration of the CDO’s portfolio in 2005 and 2006 residential bonds without highlighting the “significant vintage risk” in disclosures to investors.

‘A Lot Bumpier’
 “E-mails reviewed by the subcommittee show that CDO personnel at Deutsche Bank were well aware of the worsening CDO market and were rushing to sell Gemstone 7 before the market collapsed,” the report found. In a message on Feb. 20, 2007, the day before Gemstone VII was priced, Lippmann told Lamont that the CDO market was “going to get a lot bumpier very soon.”

Lamont, in his earlier e-mail that month about keeping “fingers crossed,” suggested turmoil may also present a buying opportunity. A plunge, “as usual will likely find you well- positioned to acquire new risk at a good price,” he wrote in the message to HBK’s collateral manager, who had authority to move assets in and out of the CDO. “We are all focused on pricing as soon as possible.”

Deutsche Bank failed to sell $400 million of the CDO’s slices. Buyers included M&T Bank Corp. (MTB), based in Buffalo, New York, and Charlotte, North Carolina-based Wachovia Corp., Frankfurt-based Commerzbank AG (CBK) and Standard Chartered Plc (STAN), based in London, according to the report. They lost “all or most of their investments,” the subcommittee said. Wachovia is now part of San Francisco-based Wells Fargo & Co. (WFC)

To contact the reporters on this story: Bob Ivry in New York at bivry@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net.

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; David Scheer at dscheer@bloomberg.net; Gary Putka at +1-617-210-4625 or gputka@bloomberg.net.

CORRUPTION WITHIN DOUGLAS COUNTY GEORGIA


Corruption within Douglas County Georgia, check out this site! If you know of anyone that can assist this man, I have talked with him, he is for real!

 http://georgiacorruption.blogspot.com/search?updated-min=2011-01-01T00%3A00%3A00-05%3A00&updated-max=2012-01-01T00%3A00%3A00-05%3A00&max-results=2

 

Court: Busted Securitization Prevents Foreclosure


On March 30, an Alabama judge issued a short, conclusory order that stopped foreclosure on the home of a beleaguered family, and also prevents the same bank in the case from trying to foreclose against that couple, ever again. This may not seem like big news — but upon review of the underlying documents, the extraordinarily important nature of the decision and the case becomes obvious.

No Securitization, No Foreclosure

The couple involved, the Horaces, took out a predatory mortgage with Encore Credit Corp in November, 2005. Apparently Encore sold their loan to EMC Mortgage Corp, who then tried to securitize it in a Bear Stearns deal. If the securitization had been done properly, in February 2006 the trust created to hold the loans would have acquired the Horace loan. Once the Horaces defaulted, as they did in 2007, the trustee would have been able to foreclose on the Horaces.

And that’s why this case is so big: the judge found the securitization of the Horace loan wasn’t done properly, so the trustee — LaSalle National Bank Association, now part of Bank of America (BAC) — couldn’t foreclose. In making that decision, the judge is the first to really address the issue, head-on: If a screwed-up securitization process meant a loan never got securitized, can a bank foreclose under the state versions of the Uniform Commercial Code anyway? This judge says no, finding that since the securitization was busted, the trust didn’t have the right to foreclose, period.

Since the judge’s order doesn’t explain, how should people understand his decision? Luckily, the underlying documents make the judge’s decision obvious.

No Endorsements

The key contract creating the securitization is called a “Pooling and Servicing Agreement” (pooling as in creating a pool of mortgages, and servicing as in servicing those mortgages.) The PSA for the deal involving the Horace mortgage is here and has very specific requirements about how the trust can acquire loans. One of the easiest requirements to check is the way the loan’s promissory note is supposed to be endorsed — just look at the note.

Sponsored Links

According to Section 2.01 of the PSA, the note should have been endorsed from Encore to EMC to a Bear Stearns entity. At that point, Bear could either endorse the note specifically to the trustee, or endorse it “in blank.” But the note produced was simply endorsed in blank by Encore. As a result, the trust never got the Horace loan, explained securitization expert Tom Adams in his affidavit.

But wait, argued the bank, it doesn’t matter if if the trust owns the loan — it just has to be a “holder” under the Alabama version of the UCC (Uniform Commercial Code), and the trust is a holder. The problem with that argument is securitization trusts aren’t allowed to simply take property willy-nilly. In fact, to preserve their special tax status, they are forbidden from taking property after their cut-off dates, which in this case was February 28, 2006. As a result, if the trust doesn’t own the loan according to the PSA it can’t receive the proceeds of the foreclosure or the title to the home, even if it’s allowed to foreclose as a holder.

Holder Status Can’t Solve Standing Problem

Allowing a trust to foreclose based on holder status when it doesn’t own the loan would seem to create yet another type of clouded title issue. I mean, it’s absurd to say the trust foreclosed and took title as a matter of the UCC, but to also have it be true that the trust can’t take title as a matter of its own formational documents. And what would happen to the proceeds of the foreclosure sale? That’s why people making this type of argument keep pointing out that the UCC allows people to contract around it and PSAs are properly viewed as such a contracting around agreement.

I’m sure the bank’s side will claim the judge was wrong, that he disagreed with another recent Alabama case that’s been heavily covered, US Bank vs. Congress. And there is a superficial if flat disagreement: In this case, the judge said the Horaces were beneficiaries of the PSA and so could raise the issue of the loan’s ownership; in Congress the judge said the homeowners weren’t party to the PSA and so couldn’t raise the issue.

But as Adam Levitin explained, the Congress decision was procedurally weird, and as a result the PSA argument wasn’t about standing, as it was in Horace and generally would be in foreclosure cases (as opposed to eviction cases, like Congress). And what did happen to the Congress proceeds? How solid is that securitization trust’s tax status now anyway?

In short, in the only case I can find that has ruled squarely on the issue, a busted securitization prevents foreclosure by the trust that thinks it owns the loan. Yes, it’s just one case, and an Alabama trial level one at that. But it’s still significant.

Homeowners Right to Raise Securitization Issue

As far as right-to-raise-the-ownership issue, I think the Horace judge was just being “belt and suspenders” in finding the homeowners were beneficiaries of the PSA. Why do homeowners have to be beneficiaries of the PSA to raise the issue of the trust’s ownership of their loans? The homeowners aren’t trying to enforce the agreement, they’re simply trying to show the foreclosing trust doesn’t have standing. Standing is a threshold issue to any litigation and the homeowners axiomatically have the right to raise it.

As Nick Wooten, the Horaces’ attorney, said:

“This is just one example of hundreds I have seen where servicers were trying to force through a foreclosure in the name of a trust that clearly had no interest in the underlying loan according to the terms of the pooling and servicing agreement. This conduct is a fraud on the borrower, a fraud on the investors and a fraud on the court. Thankfully Judge Johnson recognized the utter failure of the securitization transaction and would not overlook the fact that the trust had no interest in this loan.”All that remains for the Horaces, a couple with a special needs child and whose default was triggered not only by the predatory nature of the loan, but also by Mrs. Horace’s temporary illness and Mr. Horace’s loss of overtime, is to ask a jury to compensate them for the mental anguish caused by the wrongful foreclosure.

Perhaps BofA will just want to cut a check now, rather than wait for that verdict. (As of publication BofA had not returned a request for comment.)

No one is suggesting the Horaces get a free house; they still owe their debt, and whomever they owe it to has the right to foreclose on it. Wooten explained to me that the depositor –in this case, the Bear Stearns entity –i s probably that party. Moreover if the Horaces wanted to sell and move, they’d have to quiet title and would be wise to escrow the mortgage pay off amount, if that amount can be figured out. But for now the Horaces get some real peace, even if a larger mess remains.

Much Bigger Than A Single Foreclosure

The Horaces aren’t the only ones affected by the issues in this case.

Homeowners everywhere that are being foreclosed on by securitization trusts — many, many people — can start making these arguments. And if their loan’s PSA is like the Horaces, they should win. At least, Wooten hopes so:

“Judge Johnson stopped a fraud in progress. I am hopeful that other courts will consider more seriously the very serious issues that are easily obscured in the flood of foreclosures that are overwhelming our Courts and reject the systemic and ongoing fraud that is being perpetrated by the mortgage servicers. Until Courts actively push back against the massive documentary fraud being shoveled at them by mortgage servicers this fraudulent conduct will not end.”The issues stretch past homeowners to investors, too.

Investors in this particular mortgage-backed security, take note: What are the odds that the Horace note is the only one that wasn’t properly endorsed? I’d say nil, and not just because evidence in other cases, such as Kemp from New Jersey, suggests the practice was common. This securitization deal was done by Bear Stearns, which other litigation reveals was far from careful with its securitizations. So the original investors in this deal should speed dial their lawyers.

And investors in bubble-vintage mortgage backed securities, the ones that went from AAA gold to junk overnight, might want to call their attorneys too; this deal was in 2006, and in the securitization frenzy that followed processes can only have gotten worse.

Some investors are already suing, but the cases are at very early stages. Nonetheless, as cases like the Horaces’ come to light, the odds seem to tilt in investors’ favor — meaning they seem increasingly likely to ultimately succeed in forcing banks to buy back securities or pay damages for securities fraud connected with their sale. And that makes the Bank Bailout II scenario detailed by the Congressional Oversight Panel more possible.

The final, very striking feature of this case is what didn’t happen: No piece of paper covered in the proper endorsements –an allonge — magically appeared at the eleventh hour. The magical appearance of endorsements, whether on notes or on allonges, has been a hallmark of foreclosures done in the robosigning era. And investors, as you pursue your suits based on busted securitizations, that’s something to watch out for.

My, but the banks made a mess when they forced the fee-machine of mortgage securitizations into overdrive. The consequences are still unfolding, but one consequence just might be a whole lot of properties that securitization trusts can’t foreclose on.

See full article from DailyFinance: http://srph.it/eR4pO8

DeKalb County Probate Court, the Most Corrupt in the Country


Court Employee Keeps Job Despite Arrest Record
Judge’s Office Says It Knew Of Employee’s Legal History

WSB-TV
Posted: 6:27 pm EST November 9, 2010
Updated: 6:44 pm EST November 9, 2010

DEKALB COUNTY, Ga. — Channel 2 Action News has learned that a DeKalb County Probate Court employee has been arrested at least four times, but she remains on the job.

According to DeKalb County policy, an employee could be terminated for that, but probate employees are exempt from the policy.

Channel 2 Action News investigative reporter Jodie Fleischer went through records and learned that Jewel Margene Hendrix has been arrested twice for stealing and twice for drugs — yet she continues to work inside the DeKalb County courthouse.

Fleischer also tracked down the judge who oversees that division to ask her why Hendrix is still on the job as a probate technician.

The probate office handles things like wills, execution of estates and guardianships.

Fleischer found that Hendrix has been arrested at least four times. The first was in Gwinnett County in 2008 when she was picked up at a Target store for shoplifting. Court records show the solicitor dropped the charges in March of 2009 after Hendrix completed a pre-trial diversion program.

The solicitor told Channel 2 that she never knew Hendrix was re-arrested just five days earlier in DeKalb County. Hendrix pleaded guilty to shoplifting from a Macy’s store. She entered DeKalb County drug court.

Then earlier this year, she was arrested twice for violating the drug court contract by using drugs.

Fleischer went to the courthouse to try to ask Hendrix and her boss, Judge Jeryl Rosh, about the arrests. Neither was available.

Late Tuesday afternoon, the judge’s office issued a statement, which read in part: “We are aware that she (Hendrix) was involved in a legal situation. As such, she was put on administrative leave without pay. Subsequently, the matter was diverted to a rehabilitation program, she is being monitored closely, and her performance thus far is satisfactory.”

The judge has not returned Fleischer’s calls, so it was not known whether she knows about the two arrests this year for violating the drug court program.

A voice mail message and a sign in the office both said that Hendrix was at work Tuesday; however, she did not return calls, either.