Another Challenging Week

The Life of A Foreclosure Defense Attorney

¹Well, here it is another Saturday where I get to reflect upon the travails of the last seven (7) days.

This past week found me involved in Court hearings in the United States District Court for The District of Massachusetts, and the United States Bankruptcy Court at Bridgeport Connecticut.

I also faced deadlines in four (4) different cases, which required that I submit Oppositions to filed Motions for Summary Judgment, and Motions to Dismiss the Complaint.

However, probably the most excruciating part of the week was the case I argued before the United States District Court for The District of Massachusetts, before the Honorable Judge Young, William G. (“Judge Young”).

Judge Young is actually quite famous as the Judge that heard the infamous New Bedford Masachusetts “Big Dan’s” rape trial involving a horrific incident in 1983. This later became the subject of the 1988 movie “The Accused” starring Jodie Foster.

Those not familiar with the subject of foreclosure, or having only superficial exposure to mortgage foreclosure view the subject superficially as merely a loan that is not being paid, and therefore the “deabeat” must be “kicked to the curb”.

However, in the brave new world of “mortgage securitization”, most times the original lender that the borrower took the loan out from, very quickly (usually within 3 months) “sold” the “loan” into the secondary mortgage market.

A detailed description of the “securitization processs” would be well beyond the limited writing space available here. However, that said, the process involves myultiple transfers (sales) of “the right to payment” from the (Note [“loan”]).

The reason for this is the “securitization” is set up to be “bankruptcy remote”. That is the process wanted to insure the “institutional investors” [end user] purchasers that the stream of payments from the underlying notes would not be affected should one of the links in the chain go bankrupt.

However, the “geniuses” who set up the “securitization paradigm” failed to truly grasp the concept that there are mainly two different types of “mortgage theory” jurisdictions in the United States. These two types of jurisdictions are known as “Lien Theory”, and “Title Theory”. There is also an “Intermediary Theory”, in which 11 States use a “blending” of Lien and Title Theory, see the breakdown here.

A very brief explanation describing these theories is that in a “Title Theory” mortgage jurisdiction when you undertake a mortgage, you actually deed/convey the [defeasible fee] title to your property to the “lender” [to secure the Note], but retain the “right of redemption”, which is that if you pay off the Note, the title to the Property is then conveyed back to you. However, in a “Lien Theory State”, the borrower retains their title, and the lender possesses a lien that can be enforced upon default.

“Securitization” also is “predicated” upon the 1872 United States Supreme Court (“SCOTUS”) decision in Logan v. Carpenter, 83 U.S. (16 Wall) 271 (December 1872). The holding by SCOTUS in Logan stood for the proposition that “the mortgage follows the note”. Thus, the thought was that whenever the Note (right to payment) from the underlying mortgages was “sold”, “transferred”, or “assigned” in the securitization process, the mortgage “automatically followed along”.

The “Quants”, who are the mathmatical wizards that devised the extremely complicated permutations to extenuate multiple avenues from the same “payment stream” to market to investors, never considered the intersection with the various state real property law (at least with respect to “Title Theory Jurisdictions”)

These “genuises” also failed to understand that property laws vary in each state, and therefore a “unified” concept purporting to satisfy every states real property laws with regard to the securitization transfer of a mortgage was absurd.

For intance in a case I successfully argued before the Masssachusetts Supreme Judicial Court (“SJC”) in 2011, U.S. Bank, Nat’l Ass’n. v. Ibanez, 458 Mass. 637 (2011). This case made national and international news, as it was the first case from a state’s highest court to examine “mortgage securitization”. As a result of Ibanez, in 2013, I was also asked to present to the Federal Government in Washington D.C., before a four (4) day seminar before the Federal Housing Finance Agency (“FHFA”) and the Securities & Exchange Commission (“SEC”) as to how mortgage securitization works from a borrower’s perspective.

In Ibanez, the SJC held that “unlike many jurisdictions, in Massachusetts the mortgage DOES NOT automatically follow the note”, see Ibanez, at pp. 652-653:

“Second, the plaintiffs contend that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage. Barnes v. Boardman, 149 Mass. 106, 114 (1889). Rather, the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. Id. ("In some jurisdictions it is held that the mere transfer of the debt, without any assignment or even mention of the mortgage, carries the mortgage with it, so as to enable the assignee to assert his title in an action at law. . . This doctrine has not prevailed in Massachusetts, and the tendency of the decisions here has been, that in such cases the mortgagee would hold the legal title in trust for the purchaser of the debt, and that the latter might obtain a conveyance by a bill in equity"). See Young v. Miller, 6 Gray 152, 154 (1856). In the absence of a valid written assignment of a mortgage or a court order of assignment, the mortgage holder remains unchanged. This common-law principle was later incorporated in the statute enacted in 1912 establishing the statutory power of sale, which grants such a power to "the mortgagee or his executors, administrators, successors or assigns," but not to a party that is the equitable beneficiary of a mortgage held by another. G. L. c. 183, § 21, inserted by St. 1912, c. 502, § 6.”

Fast forward to later in 2011, where the Honorable Judge Young was presented with case requesting an examination of Mortgage Electronic Registration Systems Inc, (“MERS”), in Culhane v. Aurora Loan Servicing of Nebraska, Ca. No. 11-11098 (USDC MA). Judge Young set forth a prolific Opinion describing the Massachusetts historical case law (“ratio decidendi”) on mortgage examination and the “MERS system”, but ultimately still holding for Aurora Loan Sevices of Nebraska. Culhane was decided under a previous (and ridiculous) interpreation of the word “mortgagee” to mean only one in “possession of a mortgage”. This case was later appealed to the U.S.Court of Appeals for The First Circuit, in Culhane v. Aurora Loan Servicing of Neb, 708 F. 3d. 282 (2013) that was decided in the same week that I successfullly argued Juarez v. SPS Loan Servicing, 708 F. 3d. 269 (2013)

Subsequently, on June 22, 2012, the SJC decided Eaton v. Fed. Nat’l Mortgage Ass’n. 462 Mass. 569 (2012), which utilized some of the same case examination made by Judge Young in Culhane, to definitively hold (finally and obviously) that a “mortgagee” is one who either “owns the Note, or acts as agent of the Note owner, and is also in possession of the original mortgage, or [relying upon Ibanez], in possession of a chain of title to the mortgage that “traces” its ownership of the title to the mortgage from the original lender to the claimant [see Ibanez at p. 651].

Finally fast forward to this past Tuesday, where I appeared before the same Judge Young. My Opponents were Freedom Mortgage and Government National Morgage Association (“Ginnie Mae” or “GNMA”).

Leading up to this hearing I tirelessly spent many hours to set up two (2) outlines to argue two (2) Motion to Dismiss filings against my client. GNMA was represented by the Department of Justice.

The represntation to the public is that Freedom Mortgage was the “originator” of the loan, and still owns the loan, so whats the problem?

The problem is that companies do not assign mortgages they already own to themselves through MERS. Further in this case Freedom filed a document upon my client’s title definitively stating that “Ginnie Mae is the owner of the Note”, and that my Client’s “loan” is in a “Ginne Mae Trust”.

This case also involved purported transfers of my client’s title (under the mortgage) to various entity(s), but yet there was only one (1) assignment of mortgage on record from MERS as “nominee” for Freedom Mortgage (as the original owner) to Freedom Mortgage as mortgage servicer. Surely Judge Young need not be reminded of his concerns with MERS, right?

Reviewing the above paragraphs regarding the specifics of Massachusetts state law, and its “ratio decideni” examining the same, there are clearly missing assignments or “writings signed by the grantor assigning the mortgage”, see Ibanez, at p. 649:

“Like a sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor. See G. L. c. 183, § 3; Saint Patrick's Religious, Educ. & Charitable Ass'n v. Hale, 227 Mass. 175, 177 (1917). In a "title theory state" like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt. See Faneuil Investors Group, Ltd. Partnership v. Selectmen of Dennis, 458 Mass. 1, 6 (2010). Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee. See Vee Jay Realty Trust Co. v. DiCroce, 360 Mass. 751, 753 (1972), quoting Dolliver v. St. Joseph Fire & Marine Ins. Co., 128 Mass. 315, 316 (1880) (although "as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands," mortgagee has legal title to property); Maglione v. BancBoston Mtge. Corp., 29 Mass. App. Ct. 88, 90 (1990). Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone's home or farm and must be treated as such.”

I posted a blog on my website as to my defense of the renewed foreclosure against the LaRace family who was part of the Ibanez decision, which includes transcripts of Court hearings and the legal pleadings related thereto. This case truly showed the Judge’s personal views, which respectfully submitted in my Opinion were completely wrong

On Tuesday, the Hearing begins, and as Freedom and GNMA brought the Motions they are supposed to argue first, and then I am supposed to rebut.

Judge Young immediately states that he “has read the papers”, and is prepared to rule for both Defendants, but wanted to hear from me first. I was given approximately 10 minutes to discuss and review Maassachusetts state law, his decision, and recent updates in the law through case law holdings. In essence, it was basically a waste of everyone’s time, because Judge Young apparently had the case decided the second it was filed.

Judge Young [as if I never said a word] immediately rules that he is entering decision for Defendants [despite my reading into the record that the “Defendanyts failed to even extablish they own the note, the deficiency of the MERS system as it specifically applies under Massachusetts state law in 2024, that my client could not “agree” that MERS could act for the Lender and the Lender’s assigns as that conflicts with “Applicablor Law” as deined within my Client’s mortgage contract].

This is but a microcosim of the “cognitive dissonance” that Judges feel in examining foreclosure defense cases. On the one hand they seem to understand that there is something askew, but yet on the other say “your clients can’t expect to get a free house”.

Of course I never ask for a free house for my clients. I merely state that my client took a loan out from X, but I currently have Y here seeking to kick them to the curb, so I don’t have any right to ask how that happened? Even where the record includes a confusing morass of mismatched claims an conflicting arguments?

Especially in states like Massachusetts, where the foreclosure process plays out “extra judicially”. meaning that no Judge ever reviews the validity of documents prior to the sale, unless and until THE BORROWER files a lawsuit, and Motion for Preliominary Injunction seeking to halt the sale. Its like shooting fish in a barrel. No longer does the loacal bank grant a mortgage to a local borrower where there would be of course nothing to argue if the loan is niot being paid. Now we have the wonderful sale of the right to payment to unknown entity(s), and purported transfer(s) of title that do not comply with state law. But hey, we can’t upset the banking suystem, right? So we’ll just keep grinding the public into dust, so that Bonds representing the money streams from underlying notes can be marketed and sold to investors who get rich off the back off the unsuspecting public. Why thats the “American Way”.

This would appear to be an unconstitutional bar to due process and the borrower’s right to a fair hearing. Non-judicial foreclosure would appear to limit justice, and the right to be heard in a Court of law only to those that could afford a lawyer to competently represent them in this highly complex and esoteric area of the law. Hence this is why you see the majority of these case broought by pro se litlgant borrowers who face “tall building” law firms (think Christians s facing the Lions) This has developed a backlog of bad case law that is contiunally carried forward. Why James Madison (considered the father of due propcess), would be aghast.

Most of the cases are decided upon Motion to Dismiss pleadings are based only on a review of that particular litigants pleading and theory of relief. Yet later courts frequently cite to these cases even though the borrower before them makes no similar argument for relief as the cited case. In other words my client’s case should be dismissed upon what someone else pled for relief, even though I never made any similar argument. Sounds fair, right?

This continues to play out daily in Courtrooms across this Country, in large part because this is such a complicated area of the law that rarely has competent representation for the borrower.

There needs to be a spotlight and continuous dicussion about this topic, because the financial industry has been getting away with these ridiculous arguments for twenty (20) years. The Ibanez case came close to opening the can of worms, but afterwards the judiciary became reticent to push it any further. I was personally targeted by the financial industry for having the temerity to challenge them on this subject.

I’ll continue to call it as I see it.

I just know Ill have more “news” to report from the upcoming week

Take care, and be safe out there

GFR, Jr.

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