Incredible story making the rounds the last few days about a rather high percentage of unendorsed notes being offered by the Bank of New York in foreclosure/bankruptcy cases. As high as 79%. That’s more than three quarters of the notes unendorsed, y’all! From the Housing Justice Foundation study:
There is a very clear picture of what was supposed to happen whenever a trust wanted to foreclose on a loan in the trust: the servicer was to file a form, and the trustee was to deliver the endorsed note to the servicer to use in the foreclosure. This is what actually happened: in nearly 80% of the cases, Bank of New York used unendorsed notes, and an unsupported allegation that it had the right to foreclose for mortgage-backed trusts.
My personal belief is that the big banks did not endorse notes as a matter of course. The only time notes were “endorsed” was for litigation. Linda DeMartini of Countrywide testified to exactly that in Kemp v. Countrywide. Abigail Field wrote about a survey of Countrywide notes used in foreclosure cases in which the vast majority of the sample–104 of 130–were not endorsed. The 2011 OCC Consent Order with Bank of America acknowledged that Bank of America did not always make sure that notes were “properly endorsed.” Links to all of these stories can be found here: “Bank of America’s Magic Wand.” Note: For more on why endorsements of promissory notes are so important, see this. And this.
Not just BONY or Countrywide–also Wells Fargo
And one can rest assured that if one bank–in this case, BoA/Countrywide–was actively not endorsing notes, they were all doing the same thing. Indeed, news has surfaced that Wells Fargo has/had a manual which explains how to fix problems with promissory notes that come up in litigation, including notes without endorsements. Here’s an excerpt from one of the first stories that I became aware of about the Wells Fargo manual:
“In a filing in New York’s Southern District in White Plains for a local homeowner in bankruptcy, attorney Linda Tirelli described a 150-page Wells Fargo Foreclosure Attorney Procedures Manual created November 9, 2011 and updated February 24, 2012. According to court papers, the Manual details ‘a procedure for processing [mortgage] notes without endorsements and obtaining endorsements and allonges.’”
So unendorsed notes are very much a big issue.
A personal anecdote about endorsements
What I may never have mentioned is this: throughout my entire foreclosure defense lawsuit against Bank of America, Fannie Mae, MERS, and Recontrust, the defendants relied on an unendorsed note. Every time they submitted a note along with a motion, it was an unendorsed note. They even produced two affidavits that the unendorsed version of the note was “true and correct” and attached those to their motion for summary judgment.
In my reply to that motion, I pointed out that the note was unendorsed. I had been hoping that they would attempt to get a summary judgment on an unendorsed note, and sure enough, that’s exactly what they did. In my mind, that was all the proof any judge would need to rule that Fannie Mae could not be the owner or holder of the promissory note I had signed with Countrywide.
After all, every judge and every attorney knows that negotiation is only valid after fulfilling both of two requirements: 1) endorsement and 2) transfer. That is to say, Fannie Mae can only become the owner/holder of my note if Countrywide had endorsed and transferred it to Fannie Mae. And according to their own affidavits, they hadn’t done the endorsing, because they said the unendorsed note was “true and correct.”
Well, the judge didn’t rule on the summary judgment right away. He didn’t rule on it for a month. Or two. We got up until roughly two weeks before the trial was scheduled and the judge still had not ruled on the summary judgment. I’m told this is pretty unusual, but I don’t know that for sure. Whatever.
At no time between Bank of America’a summary judgment and the impending trial was any endorsed note presented to the court. It wasn’t until I made a motion in limine asking the judge to keep any endorsed note, or copy of same, or any note purported to be endorsed, or any “original” note with endorsement, etc. out of the trial that I finally got their attention. In the motion, I argued that, having made their bed with an unendorsed note for the entire length of the lawsuit (which had gone on roughly 2 years by that point), they should now be forced to lie (pun intended) in that bed at trial. I stated that I knew that both the bank attorneys and the judge knew that an unendorsed note was fatal to Bank of America/Fannie Mae’s case. I told them that I knew that, too.
So what was their response? To produce an endorsed note, of course! Ta-da!
Sjolander strikes again
The ta-da endorsement they produced bore the names of Michele Sjolander and Laurie Meder, both mentioned in this Housing Justice Foundation story. As mentioned before in these pages, I deposed Sjolander in 2012. The deposition can be found here: “Robo-Stamped: Full Deposition of Michele Sjolander Executive Vice President of Countrywide Home Loans.” Sjolander testified to the following:
a) she never performs the endorsements (even though her name is used on them),
b) she does not know the names of the people who performed the endorsements,
c) she is generally not present when the endorsements are supposedly done, and
d) she cannot say with any certainty when the endorsements were placed on the notes.
Long story short, Sjolander has no personal knowledge of these endorsements. It is my belief and opinion that, as Linda DeMartini said (as mentioned above), my note was never endorsed and that an endorsement was placed on a copy of my note only because I made such a big stink about it. And that copy with a brand new endorsement–that had never been there previously–was passed off to the court as an original document that had been produced 4 years earlier in the normal course of business. Even if that were the case (which of course it isn’t), Sjolander didn’t/doesn’t have the requisite personal knowledge to testify to the provenance of the endorsement. So what happened, you may be wondering? I lost, of course. The judge bought their story and took the ta-da endorsement to be true. That of course begs the question: “Judges–dupes or in on it?” Hint: they can’t be dupes…you gotta be pretty smart to be a judge, right?
The endorsements they did find in this study are likely fake
This leads me to believe that the 21% of notes in the Housing Justice Foundation’s study that did have endorsements had fake endorsements. That is, they were probably produced like the ta-da endorsement that magically appeared in my case or using the methods described in the Wells Fargo manual. In other words, it is my opinion–based on all of the above–that the endorsements the Housing Justice Foundation did find were made up out of whole cloth because of some pesky pro se litigant or foreclosure defense attorney who just wouldn’t shut up about the endorsements.
The implications are huge
The implications of this non-endorsement of promissory notes are mind-blowing. The securitization that was supposed to have taken place–i.e., the selling of these promissory notes to trusts/pools/tranches to make up “mortgage-backed” securities (MBS)–is completely non-existent and fictional since the majority of the notes were not endorsed (and the ones that are endorsed are likely to be fakes). This is because securitization requires negotiation. And negotiation requires endorsement. And lack of endorsement and securitization means that the foreclosures using these methods shouldn’t be happening. And it is becoming ever clearer, with stories like this one, and the Wells Fargo manual, that banks did not endorse the notes. And I believe that the ones that are endorsed are fakes.
And now that I think about it, maybe that was the point all along: the notes weren’t endorsed and therefore weren’t negotiated or securitized. But there was a pretense that there was securitization to get money in two ways: 1) investors would buy certificates that were empty paper bags like the one pictured above and that gave the banks money, and 2) when it inevitably came to light, the banks knew they’d be “bailed out” and given QE–and make even more money.
But that’s probably just a conspiracy theory…just like the conspiracy theory that banks don’t always endorse and transfer notes…oh wait, that one is quickly becoming conspiracy fact.
IMPORTANT NOTE/DISCLAIMER: The above article is not legal advice and was not written by an attorney. It is merely a collection of common-sense, rational observations written by a sane, rational layperson with common sense. It is recommended that you consult with an attorney for any and all legal advice and/or action.