US Trustee Sides With Borrowers in Foreclosures With Questionable Assignments, MERS

Posted: 06 Jan 2011 10:57 PM PST

As we’ve suggested, a not-well-recognized effect of the widespread publicity on robo-siging abuses and more recently, the widespread failure of securitization industry participants to adhere to their own agreements is more pushback in the courts. It takes a while for new information to trickle into courtroom strategies, but as the abuses get more press, it isn’t just attorneys for borrowers that are taking a new stance, but also some judges and other official watchdogs.

An example today comes via the US trustee, which is a Department of Justice overseer of bankruptcy courts, in two cases in Albany, New York (hat tip April Charney). In both, the US trustee has filed responses which are effectively in support of the debtor (the bankrupt borrower) and in opposition to creditors, which in this case are servicers claiming to act on behalf of securitization trusts. The issue? The parties trying to foreclose haven’t presented a document trail that the bankruptcy trustee finds persuasive.

Both cases, one with GMAC, the other with BAC as the servicer, both involve a foreclosure mill, the Baum Law Firm, which had been sanctioned and fined for submitting pleadings with documentation defects. As the first pleading, the one with BAC as plaintiff, noted “The state court judge
called the Baum Firm’s actions ‘reprehensible.’”

The underlying issue is pretty simple, a failure to prove standing. Again from the BAC case:

The Debtor and his wife gave the Mortgage to Home Funding Finders,
LLC (“HFF”) on or about September 8, 2004 as collateral security for a Note in the principal amount
of $125,000 (“Note”)….

With respect to BAC, there is no document in the record establishing that either the Note or
the Mortgage were assigned to BAC. The assignment attached to the proof of claim shows a transfer
of the right in the mortgage to Countrywide. There is nothing to indicate that the Note also was
assigned. If BAC is not the holder of the Note, then there is no basis for the claim. As such, BAC is not a “creditor” of this Debtor as that term is defined in the Bankruptcy Code and lacks statutory
authority to file a proof of claim.

New York has new standards requiring that attorneys certify the accuracy of statements submitted to courts in foreclosure cases. This filing notes the failure to take these steps.

US Trustee Response to Debtor’s Motion Objecting to BAC Home Loans Proof of Claim[1]

The second response on the GMAC case is even more pointed:

Based on the documents in the record, neither GMAC nor Deutsche Bank have demonstrated that they have standing to file the proof of claim or to object to confirmation. Moreover, the assignment of mortgage relied on by GMAC and attached to the proof of claim was signed by
Elpiniki M. Bechakas, as “Assistant Secretary and Vice President” of the Mortgage Electronic Registration Systems, Inc. (“MERS”) on behalf of the original mortgagee, Homecoming Financial
Network, LLC.

Undisclosed to the Court by GMAC or its attorneys Steven J. Baum, P.C. (the “Baum Firm”)
is the fact that Ms. Bechakas is also an attorney with the Baum Firm. It appears that the Baum Firm
represents the assignee (GMAC) and that one of the Baum Firm’s attorneys is an officer of the
assignor (MERS).

US Trustee Response in Support of Debtor’s Objection to GMAC Proof of Claim[1]

It is important to recognize that these are only two court filings by a single bankruptcy trustee. At the same time, it shows the degree to which parties who have no dog in these foreclosure fights, namely judges and other neutral parties, recognize that the issue of standing is valid. And that in turn has major ramifications for the mortgage securitization industry and the balance sheets of major banks.