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Posted at 10:53 AM ET, 11/24/2010

BofA official: Countrywide mortgage documents were not transferred properly to trusts

By Ariana Eunjung Cha

Testimony by a Bank of America executive in a bankruptcy case in New Jersey seems to indicate that Countrywide Financial wasn't passing along some crucial mortgage documents during the securitization process for residential mortgages.

Countrywide was one of the nation's largest mortgage lenders during the housing boom. By creating new types of home loans, or subprime mortgages, that encouraged borrowers to buy bigger houses than some could afford, Countrywide became a prominent player in the mortgage crisis. The company was purchased by Bank of America in 2008.

Linda DeMartini is a supervisor and operational team leader for the Litigation Management Department for BAC Home Loans Servicing L.P. In her testimony, according to the case file:

As to the location of the note, Ms. DeMartini testified that to her knowledge, the original note never left the possession of Countrywide, and that the original note appears to have been transferred to Countrywide's foreclosure unit, as evidenced by internal FedEx tracking numbers. She also confirmed that the new allonge had not been attached or otherwise affIixed to the note. She testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents.

In a decision issued Nov. 16, Chief Judge Judith H. Wizmur of U.S. Bankruptcy Court of Camden, N.J., said that because the debt note was not transferred correctly it was not enforceable.

The decision raises questions about the ownership chain of the mortgage and the ability of certain parties to foreclose. The document transfer could be a violation of the pooling and
servicing agreement for the trusts that bought these loans, making them vulnerable to lawsuits.

In the wake of questions about lost, improperly prepared and transferred paperwork in foreclosures, the financial services industry has stood by its practices, saying that except for the "robo-signing" everything was done properly.

As Adam Levitin, an associate professor of law at Georgetown University, explained at a House Financial Services Committee hearing last week:

If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever.

Mike Konczal, who researches financial reform at the Roosevelt Institute, points out:

[In] New York trust law and the Pooling and Service Agreements there are very specific requirements to passing these notes down the chain. They are required to protect investors from both malfeasance, to avoid fraudulent transfer concerns, and to create 'bankruptcy remoteness' of that asset from the originator/sponsor.

Yves Smith, who blogs at Naked Capitalism, argues:

This is significant for two reasons: first, it points to pattern and practice, and not a mere isolated lapse. Second, Countrywide, the largest subprime originator, reported in SEC filings that it securitized 96% of the loans it originated.

New York Times reporter Gretchen Morgenson spoke with Larry Platt, outside counsel for Bank of America, to get the company's take on the testimony:

He said the New Jersey decision did not constitute a basis for broad mortgage repurchase requests. "We believe the loan was sold to the trust even if there wasn't an actual delivery of the note," he said. "The risk of repurchase is going to depend on the unenforceability of the loan and we think the loan is enforceable. We think this is an aberration; Countrywide's practice was to deliver the notes."

By Ariana Eunjung Cha  | November 24, 2010; 10:53 AM ET
Categories:  Housing  
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There needs to be a receiver or trustee to take in and reissue the documentation in many of these transactions.

Proper foreclosures certainly cannot occur, and those foreclosures which do occur may be overturned at a future date.

The homeowners in many cases will have the legal right to ownership of their homes if they've been there for seven years due to adverse possession rights, even if the loan and ownership paperwork are completely inadequate.

The holders of mortgage backed securities are in the worst position of all, even worse than homeowners who have arguably and adverse possession claim to stand on.

Mortgage backed securities holders have a claim for fraud, and given the level of proof required to show fraud, that claim is not worth much.

Posted by: googlesmoogle | November 24, 2010 11:58 AM | Report abuse

Not only do the mortgage documents need to be transferred properly, the transfer needs to be recorded properly in the land records of the relevant jurisdiction. In its desire to slice, dice, and rapidly trade the securities and its greed for the resulting bonuses and profits, Wall Street bypassed all the legal land recording and set up an illegal recording system called MERS. That system is at the root of all the mess in securitization and foreclosure. The document falsification, fraud, perjury, and robosigning all happened because the laws weren't followed.

I look forward to some bankers and their lawyers taking perp walks as a result.

Posted by: Anonymous | November 24, 2010 1:05 PM | Report abuse

No matter how one tries to dice it, final responsibility for failing to police the risk that was taken falls back onto us. I for one want to remember the past only to learn from mistakes and use such knowledge in renewed efforts aimed at creating economic growth.
Where some recognize foreclosed homeowners to be irresponsible, I recognize the irresponsibility to be all ours, they couldn't have been placed in unaffordable homes without our help, even if our assistance was failure to react to warnings.
Where some see no reason to build new homes due to the overabundance of foreclosures, I recognize opportunity to assist millions of foreclosed families in obtaining financing for new homes, such that are certified to be affordable to them.
Where some suggest that excessive risk caused our problems, I recognize it was our failure to police the risk and suggest that if done, losses from risk would be affordable.
Where some suggest that our economy will stagnate for decades I recognize opportunity to undertake new efforts aimed at creating economic growth that will reduce deficits, make programs affordable and restore acceptable levels of employment. I suggest we use past methods, including renewed housing expansion, using what we've learned in failure to help ensure future success.
Where some fear to undertake new risk I recognize greater risk from failing to undertake new risk.
What is the real cause of our failures during the past decade? What percentage of contracts, including mortgages, might be performing today, even those containing subprime and low down payments, if information contained within were factual? Did the high profile people we condemn today for taking what we suggest to be excessive risk really take such excessive risk, they put a whole lot at stake, or was it an unexpected failure to police the risk that really created our financial meltdown?
This is an intervention. We must first recognize that we created our problems and we've become a problem by being unable to recognize what's happened, what's happening today and what we must do to make a better tomorrow. Only we can solve our problems today. Don't expect help from others, they recognize how we've treated the last titans who tried to help us. We face opportunity to overcome fears and become active participants in successfully redirecting our economic activity and we have opportunity to become recipients. Recognize that recipients often endure long waits.

Posted by: Don Steele | November 24, 2010 1:39 PM | Report abuse

CitiMortgage and its law firm, Brice Vander Linden & Wernick, illegally foreclosed on us.

They then illegally entered the house, removed our property, changed the locks, made changes to the house and listed it for sale.

The buyer appears to be an employee of the law firm that illegally foreclosed.

We informed CitiMortgage, HUD, Fannie, the OCC and our state AG.

The OCC handed our complaint to CitiMortgage to self-investigate.

After 6 weeks of trying to talk to a CitiMortgage employee, I finally got Christian on the phone two days ago.

He informed me that CitiMortgage had every right to illegally foreclose on me -- because I was not current on my mortgage.

He told me that it was perfectly acceptable for CitiMortgage to use fraudulent docs to foreclose - because I was not current on my mortgage.

He told me CitiMortgage was within its rights to illegally enter my house, remove property, change the locks and list it for sale - because I was not current on my mortgage -- even though Citi and its law firm did not notify me of the sale, had told me that they were postponing foreclosure indefinitely and I was attempting foreclosure alternatives.

Christian told me "so what?" when I told him that the law firm that illegally foreclosed has an employee with the same name as the buyer of my home.

He then proceeded to yell at me and verbally abuse me. I was calm and respectful. He was abusive and a bully.

I asked to speak with his supervisor.

That's when he hung up on me.

According to Christian (an offshore employee, perhaps?), CitiMortgage has the right to illegally foreclose, use fraudulent documents to do so, refuse access to our house, make changes to the house, refuse to correct title (even though the law firm admitted it illegally foreclosed) and then sell our house -- to what appears to be an employee of the law firm that illegally foreclosed.

How about an investigation of these crooks and criminals?!

In fact, how about a 'perp walk?

Posted by: bluebonnetsandbbq | November 24, 2010 5:26 PM | Report abuse

The Kemp case may very well turn out to be a particularly crucial case in the collapse of Bank of America, but NOT for the reasons asserted by Yves SMITH or others who believe that the testimony presents evidence of systemic failures in the delivery of the promised mortgage collateral.

To the contrary, I believe that it is far more likely that a further inquiry will reveal that the actual problem is the routine and widespread subornation of perjury and perjury under oath by bank employees seeking to explain various documentary anomalies and to craft plausible explanations for document forgery and evidence fabrication.

Ms. SMITH and others ASSUME that the testimony is TRUE and that this PROVES that the transfer of the mortgage collateral to the mortgage trusts was defective. By contrast, I believe that this testimony will be proven to be FALSE and that the real problem is system evidence fabrication and perjury in almost every foreclosure case in which Bank of America is a party.

Countrywide was already FOUND by a U.S. Bankruptcy Court to have engaged in evidence fabrication in the In Re Hill case. And U.S. Judge Thomas AGRESTI also found that a Bank of America Asst. General Counsel seems to have given sworn false and misleading testimony in the ensuing investigation. See:


Posted by: waroper | November 24, 2010 6:22 PM | Report abuse

No. You are under no obligation to remain with your current lender. But it is a good idea to let them know what you're planning to do so they'll offer you their best rate. If you need quotes from other companies search "123 Mortgage Refinance" they found me the lowest refinance rate i could get.

Posted by: Anonymous | November 25, 2010 5:14 AM | Report abuse

Hi Arianna,

Considering the article's topic - Notes (mortgages) not being transferred...

What impact do you think this should have on law firms such as Bierman, Geesing & Ward, that "knowingly" forged documents to HIDE the fact that these loans were not Transferred?

Here's the issue - these foreclosure mills are "hired" by the Trustee or Servicer of the Trust. However, if those loans were never transferred, then the Trustee has NO authority to hire a law firm to foreclose on "that" loan. In fact, that Servicer has NO right to demand payment - because ALL of them are strictly governed by the PSA and other documents specifically limited to the LOANS within the Trust.

In MD - Gov O'Malley's Mortgage Fraud Act was very specific to point-out that anyone (presumably including lawyers) that filed FALSE AFFIDAVITS - FRAUDULENT ASSIGNMENTS - used FORGERY etc - would be GUILTY of MORTGAGE FRAUD...

That means then - any "allonge or assignment" made "AFTER" the closing date of the Trust. Those loans are "unsecured" and cannot be foreclosed. Yet, the courts are ignoring long standing real property, UCC, and contract laws, to permit these illegal foreclosures.

Is it possible Judges are allowing it because these specific mortgages are attached the Retirement Funds of Unions & Gov Pensions? Without these foreclosures the loans collapse - no loan = no MBS - that means NO INVESTMENT and no pension...?

The Loans Countrywide NEVER transferred are "legally" considered "wild-deeds" and are not enforceable. Yet, foreclosure mills such as Bierman, Geesing & Ward, know this and continue "aiding & abbetting" their clients - making them an accomplice to the CRIMES committed against these borrowers.

AG Gansler should be questioned as to WHY the double-standard...?

Further, because of the FORGERIES submitted by Bierman Geesing & Ward - MD appointed a "so-called" TASK FORCE - but has anyone bother to find out WHAT exactly are they looking to find? Do they even KNOW what they are doing?

Thanks for keeping this topic alive...

Posted by: Anonymous | November 26, 2010 3:51 PM | Report abuse

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