Here at LRM, I have written a lot about the importance of endorsements on promissory notes, specifically what has come to be known as a “ta-da” endorsement, which is roughly defined thusly:
“…endorsements that magically turn up on promissory notes after a lawsuit has been going for some time with banks relying on notes that have no endorsements.”
So why are endorsements so important in a foreclosure fraud case? Because the endorsements establish who actually does—or doesn’t, as the case may be—have the right to take someone’s house from them. In my research and in my personal belief, banks routinely did not endorse notes in order to effect negotiation of said notes to the various securitization trusts/pools into which they were supposedly bundled and sold. In my view, the question of endorsements is the question when it comes to the propriety of foreclosure in any given case, and improper or missing endorsements lead to not only securitization fail, but also to foreclosure fraud.
Attorney Linda Tirelli—who famously quipped that “If you don’t have the documents, perhaps you just don’t have the right to foreclose” on Fox Business Channel–has been relentlessly pursuing banks regarding issues of foreclosure fraud (read LRM articles about her here), and just yesterday, she got a big win in the case of Wells Fargo v. Cynthia Carssow-Franklin. A New York bankruptcy court had ruled against Wells Fargo on the grounds that a note with a ta-da endorsement that Wells had provided in Carssow-Frankin’s bankruptcy case was invalid. The opinion that was filed yesterday in the appeals case from the Southern District of New York upholds the idea that the endorsement was not “genuine,” thereby proving that Wells Fargo is not the holder of the note in question. This is a stunning turn of events, and one that is long overdue.
The opinion itself is a great and encouraging read for anti-foreclosure fraud activists. You can read it here. What follows are some really good excerpts from a really good decision.
How the ta-da endorsement came into play
“The proof of claim attached a number of documents, including a copy of the Note, dated October 30, 2000, payable to Mortgage Factory in the amount of $145,850, which was signed by Debtor. (See Order 2; see also A67–A105.) The version of the Note attached to Claim No. 1-1 bears a specific indorsement by Mortgage Factory to ABN Amro and no other indorsements. (Id.; see also A71.) Claim No. 1-1 also attached the aforementioned assignments, including the Assignment of Lien, dated October 30, 2000, pursuant to which Mortgage Factory assigned its rights under the Note and related liens to ABN Amro, and the “Assignment of Deed of Trust” by ABN Amro, dated June 20, 2002, pursuant to which ABN Amro assigned “all beneficial interest in” the Deed of Trust securing the Note, “together with the [N]ote,” to MERS, “as nominee for Washington Mutual Bank, FA.” (See A100–A102; Order 2.) Also attached to Claim No. 1-1 was an “Assignment of Mortgage,” pursuant to which MERS purported to assign to Wells Fargo Case “a certain mortgage” made by Debtor pertaining to the Note. (See A104–A105.) The Assignment of Mortgage is dated July 12, 2010, which is three days before Wells Fargo filed Claim No. 1-1, and is executed on behalf of MERS “as nominee for Washington Mutual,” by John Kennerty (“Kennerty”), who is identified only as an “Assistant Secretary.” (See A105; see also Order 3.)
In the underlying Claim Objection, Debtor’s counsel represented without dispute that
after reviewing Claim No. 1-1, she contacted Wells Fargo’s then-counsel with questions
regarding Wells Fargo’s standing to assert Claim No. 1-1. (Order 3.) Eventually, on September 23, 2010, Wells Fargo filed another proof of claim, amended Claim No. 1-2, which was the same as Claim No. 1-1 in all respects, except that the copy of the Note attached to Claim No. 1-2 had a second indorsement (in addition to the specific indorsement from Mortgage Factory to ABN Amro): a blank indorsement, signed by Margaret A. Bezy, Vice President, for ABN Amro. (Order 4; compare A110, with A71.)” (p. 4-5)
Finally, the bad behavior of the banks may be catching up to them
I say this for two reasons: 1) usually a court takes any document proffered by a bank as true, often without being validated by an affidavit or declaration, but especially if it is—but this time it was different, and 2) Wells Fargo in particular, having been in the news very much in the last couple weeks for its unconscionable involuntary debt trap scam, may have at least confirmed for the court (if not actively guided its thinking while drafting its opinion) that at least Wells Fargo, if not all banks in general, are not to be trusted anymore. Which leads the court to a conclusion like this:
Even granting Wells Fargo this point, the Assignment of Mortgage remains probative evidence of the possible invalidity of the blank indorsement because of MERS’s apparent lack of authority to assign the Deed of Trust in light of Washington Mutual’s non-existence and, more importantly, the assignment’s timing. The Assignment of Mortgage was signed July 12, 2010, just three days before Proof of Claim No. 1-1 was filed. (See A104–A105; see also A67.) If Wells Fargo already possessed the Note with a blank indorsement, which would be sufficient to confer standing to enforce the Note three days later, what would have necessitated the Assignment of Mortgage three days before filing the proof of claim? The decision to execute such an assignment is even more unusual given the likelihood that MERS lacked authority to assign a Deed of Trust as nominee for a defunct entity.
Based on the timing of the Assignment of Mortgage and the lack of authority (as well as Kennerty’s deposition testimony, discussed below), the Court cannot find that the bankruptcy court’s factual finding that the Assignment of Mortgage “was prepared by Wells Fargo’s then counsel to ‘improve’ the record supporting Wells Fargo’s right to file a secured claim,” (Order 16), was clearly erroneous. (p. 19)
The court goes on to politely call Wells’ ta-da endorsement an attempt to “improve the record.” An elegant—but damning—phrase, that. It’s just a hop, skip and jump away from another damning phrase: “committing perjury.” Indeed, the Court also found that:
“However, such assignment, like the allonge in In re Tarantola, remains evidence of the fact that Wells Fargo felt compelled to create a better record regarding its standing, despite purportedly possessing a note indorsed in blank, which, under Texas law, provided Wells Fargo standing to enforce the Note as a holder.” (p. 20-21)
The court also heard testimony regarding Wells’ procedures in which Wells would manufacture assignments and endorsements as needed to “improve the record” (i.e., commit perjury or an offense tantamount to it). Here’s the court’s take on the testimony:
Kennerty also testified to a seemingly similar process with respect to indorsements. “The request would come in” and the indorsement team “would check to see if [they] had the collateral file” and the note and once they located the note they would “check to see if there was any [i]ndorsement on the back of the note.” (A1250.) Kennerty did not specifically recall how the indorsement team would go about indorsing the note if there was no indorsement, but, to the best of his recollection, “a stamp was involved but then it had to be signed.” (A1251.)
The Court agrees with the bankruptcy court that, while “it is conceivable that all of Wells Fargo’s newly created mortgage assignments and newly created indorsements were proper . . . that interpretation certainly does not leap out from . . . Kennerty’s testimony.” (Order 21.) As such, the Court cannot say that it is “left with the definite and firm conviction that a mistake has been made,” Travellers, 41 F.3d at 1574 (internal quotation marks omitted), and thus cannot say that the bankruptcy court’s findings with respect to the testimony were clearly erroneous. (p. 22)
Thus, the court concludes:
“…a reasonable fact-finder could infer that the blank indorsement was not genuine, eliminating the indorsement’s presumption of validity.” (p. 23)
According to the court, this lack of validity means that Wells Fargo is not the holder of the note! After all, that is the only conclusion that one can reach!
The burden thus shifted to Wells Fargo to establish, by a preponderance of the evidence, that the indorsement was genuine. The bankruptcy court found that Wells Fargo failed to do so. As noted above, Wells Fargo did not argue in its briefing before this Court that it made such a showing in the event the presumption of authenticity was overcome. Accordingly, the Court affirms the bankruptcy court’s ruling that Wells Fargo lacks standing to file its proof of claim as a holder of the Note. (p.24)
Congrats to Linda Tirelli and Carssow-Franklin! Hopefully we will begin to see more cases with this result, and hopefully in rapid succession. Because we all know that this one case is far from an isolated incident…
UCC § 3-407. ALTERATION.
(a) “Alteration” means (i) an unauthorized change in an instrument that purports to modify in any respect the obligation of a party, or (ii) an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.
(b) Except as provided in subsection (c), an alteration fraudulently made discharges a party whose obligation is affected by the alteration unless that party assents or is precluded from asserting the alteration. No other alteration discharges a party, and the instrument may be enforced according to its original terms.
(c) A payor bank or drawee paying a fraudulently altered instrument or a person taking it for value, in good faith and without notice of the alteration, may enforce rights with respect to the instrument (i) according to its original terms, or (ii) in the case of an incomplete instrument altered by unauthorized completion, according to its terms as completed.
Official Comment § 3-407 109
Legal Information Institute, Cornell Law School (Mar. 2004 ed.)
1. This provision restates former Section 3-407. Former Section 3-407 defined a “material” alteration as any alteration that changes the contract of the parties in any respect. Revised Section 3-407 refers to such a change as an alteration. As under subsection (2) of former Section 3-407, discharge because of alteration occurs only in the case of an alteration fraudulently made. There is no discharge if a blank is filled in the honest belief that it is authorized or if a change is made with a benevolent motive such as a desire to give the obligor the benefit of a lower interest rate. Changes favorable to the obligor are unlikely to be made with any fraudulent intent, but if such an intent is found the alteration may operate as a discharge.
Discharge is a personal defense of the party whose obligation is modified and anyone whose obligation is not affected is not discharged. But if an alteration discharges a party there is also discharge of any party having a right of recourse against the discharged party because the obligation of the party with the right of recourse is affected by the alteration. Assent to the alteration given before or after it is made will prevent the party from asserting the discharge. The phrase “or is precluded from asserting the alteration” in subsection (b) recognizes the possibility of an estoppel or other ground barring the defense which does not rest on assent.
2. Under subsection (c) a person paying a fraudulently altered instrument or taking it for value, in good faith and without notice of the alteration, is not affected by a discharge under subsection (b). The person paying or taking the instrument may assert rights with respect to the instrument according to its original terms or, in the case of an incomplete instrument that is altered by unauthorized completion, according to its terms as completed. If blanks are filled or an incomplete instrument is otherwise completed, subsection (c) places the loss upon the party who left the instrument incomplete by permitting enforcement in its completed form. This result is intended even though the instrument was stolen from the issuer and completed after the theft.
Reblogged this on California Freelance Paralegal.
Felons or future felons wanted? Betcha SPS does not hire Dave Krieger or Marie McDonnell.
but the Court said “Just come back and file your claim as the servicer”. WTF! No unclean hands finding.