Mortgage Foreclosure Defense and Foreclosure Alternatives No, “mortgage foreclosure defense” is not an oxymoron despite the fact that borrowers know they can lose their property if they don’t pay their mortgage. Though the defenses probably will not relieve borrowers of the obligation to pay, borrowers might employ them to slow things down or get some leverage in modification negotiations. To fully appreciate the defenses, you have to understand how we ended up in a mortgage crisis. The root cause was the demand for mortgage-backed securities (“MBS”). The MBS issuer buys and pools mortgages and then sells to investors the right to receive what amounts to a fractional share of the pooled mortgage payments. The issuer either retains ownership of all the mortgages in the pool or installs a trustee to assume ownership. The owner hires a “servicer” to handle the day-to-day activities associated with the loans, including receiving the payments. Rating agencies rated the relative strength of the MBS by estimating the number of defaults that would occur in the pool. The secondary mortgage market is the link between the loan’s “originator” (essentially the original lender) and the MBS issuer. The originator either sells the loan directly to the issuer or sells it to someone else who sells it to the issuer. In some cases, a loan can change ownership many times before it ends up in a pool. The servicer may or may not change when a loan is sold on the secondary mortgage market. As investor demand for MBS increased, the issuers’ demand for mortgage loans to pool increased. The increased demand trickled down to the originators, many of whom relaxed or ignored underwriting standards to meet the demand for loans. As a result, people who could not realistically make the mortgage payments nonetheless received loans. This easy credit meant more real estate buyers, which in turn meant rising real estate prices, which in turn made it easier for existing borrowers to refinance. Christopher G. Brown [email protected]203.226.9990
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Mortgage Foreclosure Defense and Foreclosure Alternatives
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Mortgage Foreclosure Defense and Foreclosure Alternatives
No, “mortgage foreclosure defense” is not an oxymoron despite the fact that borrowers know
they can lose their property if they don’t pay their mortgage. Though the defenses probably will not
relieve borrowers of the obligation to pay, borrowers might employ them to slow things down or get
some leverage in modification negotiations.
To fully appreciate the defenses, you have to understand how we ended up in a mortgage crisis.
The root cause was the demand for mortgage-backed securities (“MBS”). The MBS issuer buys and
pools mortgages and then sells to investors the right to receive what amounts to a fractional share
of the pooled mortgage payments. The issuer either retains ownership of all the mortgages in the
pool or installs a trustee to assume ownership. The owner hires a “servicer” to handle the day-to-day
activities associated with the loans, including receiving the payments. Rating agencies rated the
relative strength of the MBS by estimating the number of defaults that would occur in the pool.
The secondary mortgage market is the link between the loan’s “originator” (essentially the
original lender) and the MBS issuer. The originator either sells the loan directly to the issuer or sells
it to someone else who sells it to the issuer. In some cases, a loan can change ownership many times
before it ends up in a pool. The servicer may or may not change when a loan is sold on the
secondary mortgage market.
As investor demand for MBS increased, the issuers’ demand for mortgage loans to pool
increased. The increased demand trickled down to the originators, many of whom relaxed or ignored
underwriting standards to meet the demand for loans. As a result, people who could not realistically
make the mortgage payments nonetheless received loans. This easy credit meant more real estate
buyers, which in turn meant rising real estate prices, which in turn made it easier for existing
with foreclosure so the servicer signed an assignment and sent it back to the foreclosure
administrator to be notarized.
Judge Arthur M. Schack in New York has refused to grant foreclosure relief based on bubious
documentation. The foreclosing party proffered an assignment from Indymac Bank to Deutsche
Bank National Trust Company. The assignment recited the same address for Indymac and Deutsche
Bank and was executed for Indymac by the same person who executed the affidavit for Deutsche
Bank in support of foreclosure. In suggesting that the anomalous assignment may be an attempted
fraud, the Judge Schack
wonder[ed] if the instant foreclosure action is a corporate “Kansas City Shuffle,” acomplex confidence game. In the 2006 film, Lucky Number Slevin, Mr. Goodkat, (ahitman played by Bruce Willis), explains ... [that] “[a] Kansas City Shuffle is wheneverybody looks right, you go left ... It's not something people hear about. Falls on deafears mostly ... No small matter. Requires a lot of planning. Involves a lot of people.People connected by the slightest of events. Like whispers in the night, in that place thatnever forgets, even when those people do.” In this foreclosure action is plaintiff ... withits “principal place of business” in Kansas City attempting to make the Court look rightwhile it goes left?
Deutsche Bank National Trust Company v. Maraj, 18 Misc.3d 1123(A), 2008 WL 253926
(N.Y.Sup.), 2008 N.Y. Slip Op. 50176(U) (a copy is in the materials).
Some foreclosing plaintiffs have taken the position that the law should yield to the industry’s
practices. As Judge Boyko, of the United States District Court for the Northern District of Ohio,
observed in In re Foreclosure Cases, 2007 WL 3232430, *3 n. 3 (N.D.Ohio, Oct. 31, 2007) (copy
is in the materials), the repetitive turnover nature of the residential mortgage after-market does not
relieve a foreclosing party from proving standing:
Plaintiff's, “Judge, you just don't understand how things work,” argument reveals acondescending mindset and quasi-monopolistic system where financial institutions havetraditionally controlled, and still control, the foreclosure process. Typically, the
homeowner who finds himself/herself in financial straits, fails to make the requiredmortgage payments and faces a foreclosure suit, is not interested in testing state orfederal jurisdictional requirements, either pro se or through counsel. Their focus iseither, “how do I save my home,” or “if I have to give it up, I'll simply leave and findsomewhere else to live.”... There is no doubt every decision made by a financialinstitution in the foreclosure process is driven by money. And the legal work whichflows from winning the financial institution's favor is highly lucrative. There is nothingimproper or wrong with financial institutions or law firms making a profit-to thecontrary, they should be rewarded for sound business and legal practices. However,unchallenged by underfinanced opponents, the institutions worry less aboutjurisdictional requirements and more about maximizing returns. Unlike the focus offinancial institutions, the federal courts must act as gatekeepers, assuring that only thosewho meet diversity and standing requirements are allowed to pass through. Counsel forthe institutions are not without legal argument to support their position, but theirarguments fall woefully short of justifying their premature filings, and utterly fail tosatisfy their standing and jurisdictional burdens. The institutions seem to adopt theattitude that since they have been doing this for so long, unchallenged, this practiceequates with legal compliance. Finally put to the test, their weak legal arguments compelthe Court to stop them at the gate. The Court will illustrate in simple terms its decision:“Fluidity of the market”-“X” dollars, “contractual arrangements between institutions andcounsel”-“X” dollars, “purchasing mortgages in bulk and securitizing”-“X” dollars,“rush to file, slow to record after judgment”-“X”dollars, “the jurisdictional integrity ofUnited States District Court”-“Priceless.”
B. Predatory Lending / Unconscionability
Some states have predatory lending statutes intended to protect consumers from unfair loans.
Because the statutes typically do not afford a private right of action, borrowers cannot raise violation
of the statutes as a counterclaim. But, the borrowers may be able to raise violations as defenses,
particularly if mortgage foreclosure actions in the jurisdiction are equitable. The theory is that it is
inequitable to enforce a mortgage loan that violates the predatory lending statutes.
The common law counterpart to predatory lending statutes is the doctrine of unconscionability.
In most jurisdictions that recognize the doctrine as applying to mortgages, the court considers two
factors. The first is procedural unconscionability, which is whether the borrower had a meaningful
choice in taking the loan. The analysis probes the loan creation process. The focus is on such matters
1As discussed below, the term “holder” has a specific meaning when used in connectionwith a promissory note.
2Ms. Rubens identifies herself as “a Senior Counsel for ACC Holdings Corporation(“ACC”) and the Assistant Secretary for the ACC subsidiaries Ameriquest Mortgage Company(“Ameriquest”) and AMC Mortgage Services, Inc. (“AMC Mortgage Services”).” RubensAffidavit at ¶ 1.
2
P.C.” as well as the firm’s address. The same schedule also lists “Ameriquest Mortgage
Company Representing: Norwest Bank Minnesota, NA, Tr” and “Buchalter, Nemer, Fields et al
Representing: Norwest Bank Minnesota, NA, Tr” and their respective addresses. Ameriquest,
Norwest Bank Minnesota, NA, Tr. and the Buchalter firm are listed on the amended creditor
matrix. Throughout the course of the bankruptcy case and Adversary Proceeding 04-4517,
Ameriquest and its attorneys have represented that Ameriquest was the “holder” of a note and
mortgage given by the Debtor/Plaintiff to Ameriquest.1 The Court’s judgment in Adversary
Proceeding 04-4517 is currently on appeal before the Court of Appeals for the First Circuit.
On July 27, 2007 the Debtor commenced Adversary Proceeding 07-4109 against
Ameriquest and the two standing Chapter 13 Trustees for the District of Massachusetts and
sought, among other things, an order for trustee process. On September 27, 2007 Ameriquest
filed an opposition [# 20] and in it, for the first time in this case, informed the Court that
“Ameriquest merely collects these funds [which the Debtor sought to attach] on behalf of their
owners. It does not own these funds....” The Affidavit of Eileen Driscoll Rubens,2 dated
September 27, 2007, reads in part:
Prior to March, 2005, Ameriquest acted as a loan servicer both forcertain of the loans it originated and for loans originated by otherparties.
4The trial in Adversary Proceeding 04-4517 began on November 28, 2005. At that timeAmeriquest, while it could be held accountable for its past behavior, had no role with respect tothe note and mortgage, a fact not disclosed to the Court.
4
Services.4
Despite the above chronology which indicates that Ameriquest was the loan originator
and had not held the note since November 30, 1997 and despite the fact that Ameriquest ended
its servicer role as of March 31, 2005, the Court noted that Ameriquest and its attorneys made
contrary representations as to Ameriquest’s status. For example
• On February 13, 2003, Ameriquest filed a proof of claim [Claim # 1], which was
amended by a proof of claim dated April 22, 2003 [Claim #16] and signed by one
John Teston, to which the note and mortgage were attached without any reference
to the assignment.
• In the February 17, 2003 Response to Debtor’s Objection to Ameriquest’s Proof
of Claim, attorney Jennifer G. Haskell of the law firm of Ablitt & Caruolo, P.C.
signed the pleading containing the following statement: “That Ameriquest is the
holder of the first mortgage on real property known as 60 Bolton Road, South
Lancaster, Massachusetts, and [sic] was recorded in the Worcester County
(Worcester District) registry of Deeds in Book 19404, Page 164.” (Emphasis
added).
• By letter dated October 26, 2002 Ameriquest’s Customer Service Department sent
the debtor a letter in which Ameriquest stated “Ameriquest Mortgage Company
(AMC) holds an Adjustable Rate Note secured by a mortgage (or Deed of Trust)
5Ameriquest sent more than one letter containing this language. See for example,Ameriquest’s letter of April 26, 2003.
6Failure to identify Norwest as the subsequent holder of the obligation and identifyAmeriquest as the agent for the holder violates the current iteration of MLBR 4001-1(b)(2)(F), arequirement not contained in the local rules then in effect. There is nothing in MLRB 4001-1, asit existed when the motion was filed, that permits the misrepresentation of the movant’s role,however.
7At the time of the trial, Ameriquest was no longer the servicer.
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against the residential real property....”5
• On or about February 24, 2003 attorney Jennifer G. Haskell signed a Motion for
Relief in the Debtor’s bankruptcy case on behalf of Ameriquest and represented
that “[t]he movant is the holder of a first mortgage ....”6
• On January 3, 2005 attorney William J. Amann of the law firm of Ablitt &
Caruolo P.C. signed an answer to the complaint in Adversary Proceeding 04-4517
in which he admitted the allegation in the complaint filed December 2, 2004 that
Ameriquest “is” the holder of the first position mortgage.
• Attorney Robert F. Charlton defended Ameriquest in the 8-day trial in Adversary
Proceeding 04-4517 without advising the Court that Ameriquest was neither the
noteholder nor mortgagee.7
• Attorney Jeffrey K. Garfinkle of the law firm of Buchalter Nemer filed an
appearance in Adversary Proceeding 04-4517 on July 17, 2006 and failed to
advise the Court until the pleadings of January 9, 2008 filed in Adversary
Proceeding 07-4109 of Ameriquest’s true role in these proceedings.
Consequently the Court issued its Order to Show Cause requiring Ameriquest; John Teston, who
8At some point prior to the trial in Adversary Proceeding 04-4517, the law firm of Ablitt& Caruolo, P.C. became Ablitt & Charlton, P.C. A response was filed on behalf of Ablitt &Charlton, P.C. (The “Ablitt Firm”).
9The Debtor’s attorney had advised the Court that he was also unaware of the assignmentuntil learning of it in the most recent adversary proceeding.
10The Transfer of claim form indicates that claim # “16 (Amended #1)” was transferred. There is no amended proof of claim regarding claim #16.
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signed proofs of claim on behalf of Ameriquest; the law firm of Ablitt & Caruolo, PC;8 Attorney
Jennifer G. Haskell; Attorney William Amann, Attorney Robert F. Charlton; the law firm of
11Ameriquest advised the Court that Mr. Teston was no longer employed by Ameriquestand that his current whereabouts are unknown. Although Ameriquest mailed a copy of the Orderto Show Cause to Mr. Teston’s last known address, Ameriquest is unsure whether he receivedthe Order. The Court will not proceed against Mr. Teston given this uncertainty and in light ofBuchalter’s acceptance of responsibility for the preparation of the proofs of claim.
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requested that the Court take judicial notice of the fact that Ameriquest is listed as the transferor;
Ameriquest responded that it was entitled to file the proof of claim in its own name pursuant to a
“Pooling and Servicing Agreement” dated June 1, 1998, a copy of which was filed at the hearing
on the Order to Show Cause on February 21, 2008 [docket #214].
All of the individuals and entities named in the Order to Show Cause, with the exception
of John Teston, filed written responses as required by the Order.11 The responses focused on
several common themes: first, nobody intended to mislead the Court; second, the Debtor and her
attorney knew that Ameriquest was not the noteholder and thus she was not harmed; third, notes
and mortgages are bought and sold so frequently, that it is difficult to know at any given moment
who holds the note and mortgage; and fourth, that the Pooling and Service Agreement permitted
Ameriquest to undertake some actions in its own name. In addition, Ablitt & Caruolo and its
attorneys urged the Court to find that their reliance on representations of individuals at the
Buchalter firm was reasonable. The Court held a hearing on the Order to Show Cause at which
these same points were reiterated and took the matter under advisement.
DISCUSSION
Throughout most of these proceedings, Ameriquest and its attorneys represented that
Ameriquest was the “holder” of the note of the note and mortgage. The word “holder” has a
very specific definition when used in connection with a negotiable instrument such as a note.
“Holder” with respect to a negotiable instrument, means the personin possession if the instrument is payable to bearer or, in the caseof an instrument payable to an identified person, if the identifiedperson is in possession....
M.G.L.A. 106 § 1-201(20). The term “holder” is similarly defined when used in connection
with a mortgage. See BLACK’S LAW DICTIONARY, 1034 (8th ed. 2004)(mortgage-holder or
mortgagee is “one to whom property is mortgaged; the mortgage creditor or lender”).
Unfortunately the parties’ confusion and lack of knowledge, or perhaps sloppiness, as to
their roles is not unique in the residential mortgage industry. In re Maisel, 378 B.R. 19 (Bankr.
D. Mass. 2007); In re Schwartz, 366 B.R. 265 (Bankr. D. Mass. 2007). See also In re
Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio 2007). Nor are “mistakes” and
misrepresentations limited to the identification of roles played by various entities in this
industry. In re Schuessler, 2008 WL 1747935, *3 (Bankr. S.D.N.Y. 2008) (movant’s motion
misrepresented debtor’s equity); Porter, Katherine M., “Misbehavior and Mistake in Bankruptcy
Mortgage Claims” (November 6, 2007). University of Iowa Legal Studies Research Paper No.
07-29. Available at SSRN: http://ssrn.com/abstract=1027961. As this Court has noted on
more than one occasion, those parties who do not hold the note or mortgage and who do not
service the mortgage do not have standing to pursue motions for relief or other actions arising
from the mortgage obligation. Schwartz, 366 B.R. at 270. The Court has had to expend time and
resources, as have debtors already burdened in their attempts to pay their mortgages, because of
the carelessness of those in the residential mortgage industry and the bombast this Court and
others have encountered when calling them on their shortcomings. In re Foreclosure Cases,
2007 WL 3232430 at *3, n.1.
“The purpose of Rule 9011 is to deter baseless filings in bankruptcy and thus avoid the
12All parties, except Mr. Teston, who did not respond, submitted affidavits. None of theparties requested an evidentiary hearing.
13In determining whether the imposition of sanctions is appropriate in [a] case, the Courtmay look to authorities interpreting Fed. R. Civ. P. 11 as a guidepost. In re M.A.S. Realty Corp.326 at 38, n.7.
9
expenditure of unnecessary resources by imposing sanctions on those found to have violated it.”
In re MAS Realty Corp., 326 B.R. 31, 37 (Bankr. D. Mass. 2005). Pursuant to Fed. R. Bankr.
9011(b), an attorney or unrepresented party who signs “a pleading, written motion, or other
paper” is, among other things, certifying to the Court that “the allegations and other factual
contentions have evidentiary support, or if specifically so identified, are likely to have
evidentiary support after a reasonable opportunity for further investigation or discovery....” The
certification is not an absolute guaranty of accuracy, however; the rule expressly permits the
representations to be based upon the signer’s best knowledge, information, and belief “formed
after an inquiry reasonable under the circumstances.” The standard to be applied is “an objective
standard of reasonableness under the circumstances.” Cruz v. Savage, 896 F.2d 626, 631 (1st
Cir. 1990). “Courts, therefore, must inquire as to whether ‘a reasonable attorney in like
circumstances could believe his actions to be factually and legally justified.’” Cabell v. Petty,
810 F.2d 463, 466 (4th Cir.1987). Cullen v. Darvin, 132 B.R. 211, 215 (D. Mass. 1991). A
finding of unreasonableness must be shown by a preponderance of the evidence. Miller-
Holzwarth, Inc. v. U.S., 2000 WL 291728, 3 (Fed. Cir. 2000).12
When Fed. R. Civ. P. 11 was amended in 1983,13 the Advisory Committee noted that
what constitutes a reasonable inquiry may depend on such factorsas how much time for investigation was available to the signer;whether he had to rely on a client for information as to the factsunderlying the pleading, motion, or other paper; whether the
pleading, motion, or other paper was based on a plausible view ofthe law; or whether he depended on forwarding counsel or anothermember of the bar.
In commenting upon the revisions made to subdivisions (b) and (c) of the Rule in 1993, the
Advisory Committee explained
The revision in part expands the responsibilities of litigants to thecourt, while providing greater constraints and flexibility in dealingwith infractions of the rule. The rule continues to require litigantsto “stop-and-think” before initially making legal or factualcontentions. It also, however, emphasizes the duty of candor bysubjecting litigants to potential sanctions for insisting upon aposition after it is no longer tenable and by generally providingprotection against sanctions if they withdraw or correct contentionsafter a potential violation is called to their attention.
If Rule 9011 is violated, the Court may impose sanctions. “The imposition of sanctions
under Rule 9011 is a very serious matter. The decision regarding whether they should be
imposed requires a great deal of thought and care. Only those actions deemed to fall squarely
within the purview of Rule 9011 will result in a finding that it has been violated and the
concomitant imposition of sanctions by this Court.” In re M.A.S. Realty Corp., 326 B.R. at 37.
If sanctions are imposed, “the Court must limit the amount imposed to ‘what is sufficient to deter
repetition of such conduct or comparable conduct by others similarly situated.’ Fed. R. Bankr. P.
9011(c)(2); Arcari v. Marder, 225 B.R. 253, 257 (D. Mass. 1998).” Id. at 38.
With these tenets as a guide, the Court must examine the conduct of each party required
to show cause but before doing will dispense with some common arguments. Virtually all of
parties argue that there was no intent to mislead the Court. Because the standard to be applied is
an objective one, the Court may quickly dispatch this argument. Intent is irrelevant. The
argument that the assignment of the note and mortgage was a matter of public record and
14The Court notes that the Buchalter firm and Attorney Garfinkle filed pleadings onbehalf of Norwest/Wells Fargo in Adversary Proceeding 07-4109. None of the pleadings filed inresponse to the Order to show cause address the firm’s current and historical relationship withNorwest or Wells Fargo. It would be curious indeed if the firm was national counsel to both yetincapable of distinguishing between the roles each played in a given case.
15
Attorney Charlton was a partner at the Ablitt firm at the time he conducted the trial in
this matter but in his response he avers that he had not been involved in this matter since October
2006 and that he never heard of Norwest. The response begs the question; should he have
known about Norwest. For the same reasons that the Ablitt firm knew of Norwest, so should
Attorney Charlton. Therefore Attorney Charlton is sanctioned $25,000.
“K&L GATES” AND ATTORNEY R. BRUCE ALLENSWORTH
K&L Gates did not enter this matter until February 2008. The Court finds that the
conduct of the K&L Gates attorneys did not violate Rule 9011.
THE BUCHALTER FIRM AND ATTORNEY JEFFREY GARFINKLE
The Buchalter firm is one of the prime sources of the problem in this case. One of its
unnamed paralegals prepared the proof of claim forms and by its own admission, the firm cannot
determine whether it had information as to the identity of the owner at the time the forms were
prepared, although it was aware of the Pooling and Servicing Agreement. But as the Court has
noted, that agreement cannot change the requirements for filings proofs of claim in accordance
with the Bankruptcy Rules or Official Form 10. The Buchalter firm’s response blithely ignores
the role it played in setting the series of misrepresentations in motion. As national counsel to a
mortgage lender, it has a responsibility to know its client’s role in a case.14 It cannot rely on the
representations of its client; it has a responsibility to question and probe to the extent necessary
to ensure that it has elicited correct information. The firm fell far short of what was required.
Deutsche Bank Nat. Trust Co. v. Maraj N.Y.Sup.,2008. NOTE: THIS OPINION WILL NOT BE PUB- LISHED IN A PRINTED VOLUME. THE DIS- POSITION WILL APPEAR IN A REPORTER TA- BLE.
Supreme Court, Kings County, New York. DEUTSCHE BANK NATIONAL TRUST COM- PANY As Trustee under the Pooling and Servicing
Agreement Series Index 2006-AR6, Plaintiff, v.
Ramash MARAJ a/k/a Ramish Maraj, et al., De- fendants.
No. 25981/07.
Jan. 31, 2008. Kevin M. Butler, Esq., Eschen Frenkel Weisman &Gordon, De Rose & Surico, Bayside NY, forPlaintiff. No Opposition submitted by defendants toplaintiff's Judgment of Foreclosure and Sale. ARTHUR M. SCHACK, J. *1 Plaintiff's application, upon the default of all de-fendants, for an order of reference for the premiseslocated at 255 Lincoln Avenue, Brooklyn, NewYork (Block 4150, Lot 19, County of Kings) isdenied without prejudice, with leave to renew uponproviding the Court with a satisfactory explanationto various questions with respect to the July 3, 2007assignment of the instant mortgage to plaintiff,DEUTSCHE BANK NATIONAL TRUST COM-PANY AS TRUSTEE UNDER THE POOLINGAND SERVICING AGREEMENT SERIES IN-DEX 2006-AR6 (DEUTSCHE BANK). The ques-tions deal with: the employment history of oneErica Johnson-Seck, who assigned the mortgage toplaintiff DEUTSCHE BANK, and then sub-sequently executed the affidavit of facts in the in-stant application as an officer of DEUTSCHEBANK; plaintiff DEUTSCHE BANK's purchase ofthe instant non-performing loan; and, why IN-DYMAC BANK, F.S.B., (INDYMAC), Mortgage
Electronic Registration Systems, Inc. (MERS), andDEUTSCHE BANK all share office space at Build-ing B, 901 East 104th Street, Suite 400/500, KansasCity, MO 64131 (Suite 400/500). Defendant RAMASH MARAJ borrowed$440,000.00 from INDYMAC on March 7, 2006.The note and mortgage were recorded in the Officeof the City Register, New York City Department ofFinance on March 22, 2006 at City Register FileNumber (CRFN) 2006000161303. INDYMAC, byMortgage Electronic Registration Systems, Inc.(MERS), its nominee for the purpose of recordingthe mortgage, assigned the note and mortgage toplaintiff DEUTSCHE BANK, on July 3, 2007, withthe assignment recorded on September 5, 2007 atCRFN 2007000457140. According to plaintiff's application, defendant MA-RAJ's default began with the nonpayment of prin-cipal and interest due on March 1, 2007. Yet on Ju-ly 3, 2007, more than four months later, plaintiffDEUTSCHE BANK accepted the assignment of theinstant non-performing loan from INDYMAC. Fur-ther, both assignor MERS, as nominee of IN-DYMAC, and assignee DEUTSCHE BANK listSuite 400/500 on the July 3, 2007 Assignment astheir “principal place of business.” To compoundcorporate togetherness, page 2 of the recorded As-signment, lists the same Suite 400/500 as the ad-dress of INDYMAC. The Assignment by MERS, on behalf of IN-DYMAC, was executed by Erica Johnson-Seck,Vice President of MERS. The notary public, MaiLa Thao, stated in the jurat that the assignment wasexecuted in the State of Texas, County of William-son (Williamson County is located in the Austinmetropolitan area, and its county seat is Geor-getown, Texas). The Court is perplexed as to whythe assignment was not executed in Kansas City,the alleged “principal place of business” for boththe assignor and the assignee.
Twenty-eight days later, on July 31, 2007, the sameErica Johnson-Seck executed plaintiff's affidavitsubmitted in support of the instant application for adefault judgment. Ms. Johnson-Seck, in her affi-davit, states that she is “an officer of DeutscheBank National Trust Company as Trustee under thePooling and Servicing Agreement Series INDX2006-AR6, the plaintiff herein.”At the end of theaffidavit she states that she is a Vice President ofDEUTSCHE BANK. Again, Mai La Thao is thenotary public and the affidavit is executed in theState of Texas, County of Williamson. The EricaJohnson-Seck signatures on both the July 3, 2007assignment and the July 31, 2007 affidavit areidentical. Did Ms. Johnson-Seck change employersfrom July 3, 2007 to July 31, 2007, or does she en-gage in self-dealing by wearing two corporate hats?The Court is concerned that there may be fraud onthe part of plaintiff DEUTSCHE BANK, or at leastmalfeasance. Before granting an application for anorder of reference, the Court requires an affidavitfrom Ms. Johnson-Seck, describing her employ-ment history for the past three years. *2 Further, the Court requires an explanation froman officer of plaintiff DEUTSCHE BANK as towhy, in the middle of our national subprime mort-gage financial crisis, DEUTSCHE BANK wouldpurchase a non-performing loan from INDYMAC,and why DEUTSCHE BANK, INDYMAC andMERS all share office space in Suite 400/500. With the assignor MERS and assignee DEUTSCHEBANK appearing to be engaged in possible fraudu-lent activity by: having the same person execute theassignment and then the affidavit of facts in supportof the instant application; DEUTSCHE BANK'spurchase of a non-performing loan from IN-DYMAC; and, the sharing of office space in Suite400/500 in Kansas City, the Court wonders if theinstant foreclosure action is a corporate “KansasCity Shuffle,” a complex confidence game. In the2006 film, Lucky Number Slevin, Mr. Goodkat, (ahitman played by Bruce Willis), explains (in mem-orable quotes from Lucky Number Slevin, at
www.imdb.com/title/tt425210/quotes). A Kansas City Shuffle is when everybody looksright, you go left ... It's not something peoplehear about. Falls on deaf ears mostly ... No smallmatter. Requires a lot of planning. Involves a lotof people. People connected by the slightest ofevents. Like whispers in the night, in that placethat never forgets, even when those people do.
In this foreclosure action is plaintiff DEUTSCHEBANK, with its “principal place of business” inKansas City attempting to make the Court lookright while it goes left?
Conclusion Accordingly, it is ORDERED, that the application of plaintiff,DEUTSCHE BANK NATIONAL TRUST COM-PANY AS TRUSTEE UNDER THE POOLINGAND SERVICING AGREEMENT SERIES IN-DEX 2006-AR6, for an order of reference for thepremises located at 255 Lincoln Avenue, Brooklyn,New York (Block 4150, Lot 19, County of Kings),is denied without prejudice; and it is further ORDERED, that leave is granted to plaintiff,DEUTSCHE BANK NATIONAL TRUST COM-PANY AS TRUSTEE UNDER THE POOLINGAND SERVICING AGREEMENT SERIES IN-DEX 2006-AR6, to renew its application for an or-der of reference for the premises located at 255Lincoln Avenue, Brooklyn, New York (Block 4150,Lot 19, County of Kings), upon presentation to theCourt, within forty-five (45) days of this decisionand order, of: an affidavit from Erica Johnson-Seckdescribing her employment history for the pastthree years; and, an affidavit from an officer ofplaintiff DEUTSCHE BANK NATIONAL TRUST COM-PANY AS TRUSTEE UNDER THE POOLINGAND SERVICING AGREEMENT SERIES IN-DEX 2006-AR6, explaining why (1) plaintiff pur-chased a nonperforming loan from INDYMAC
BANK, F.S.B., (2) shares office space at BuildingB, 901 East 104th Street, Suite 400/500, KansasCity, MO 64131 with Mortgage Electronic Regis-tration Systems, Inc. and INDYMAC BANK,F.S.B., and (3), claims Building B, 901 East 104thStreet, Suite 400/500, Kansas City, MO 64131 asits principal place of business in the Assignment ofthe instant mortgage and yet executed the Assign-ment and affidavit of facts in this action in Willi-amson County, Texas. *3 This constitutes the Decision and Order of theCourt. N.Y.Sup.,2008. Deutsche Bank Nat. Trust Co. v. Maraj Slip Copy, 18 Misc.3d 1123(A), 2008 WL 253926(N.Y.Sup.), 2008 N.Y. Slip Op. 50176(U) END OF DOCUMENT
Oct. 31, 2007. Benjamin N. Hoen, Weltman, Weinberg & Reis,Cleveland, OH, for Plaintiff. Joseph T. Chapman, Office of the AttorneyGeneral, Columbus, OH, for Defendant.
OPINION AND ORDER
CHRISTOPHER A. BOYKO, J. *1 On October 10, 2007, this Court issued an Orderrequiring Plaintiff-Lenders in a number of pendingforeclosure cases to file a copy of the executedAssignment demonstrating Plaintiff was the holderand owner of the Note and Mortgage as of the datethe Complaint was filed, or the Court would enter adismissal. After considering the submissions, alongwith all the documents filed of record, the Courtdismisses the captioned cases without prejudice.The Court has reached today's determination after athorough review of all the relevant law and thebriefs and arguments recently presented by theparties, including oral arguments heard on PlaintiffDeutscheBank's Motion for Reconsideration. Thedecision, therefore, is applicable from this dateforward, and shall not have retroactive effect.
LAW AND ANALYSIS A party seeking to bring a case into federal court ongrounds of diversity carries the burden of
establishing diversity jurisdiction. Coyne v.American Tobacco Company, 183 F.3d 488 (6thCir.1999). Further, the plaintiff “bears the burden ofdemonstrating standing and must plead itscomponents with specificity.”Coyne, 183 F.3d at494;Valley Forge Christian College v. AmericansUnited for Separation of Church & State, Inc., 454U.S. 464, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982).The minimum constitutional requirements forstanding are: proof of injury in fact, causation, andredressability. Valley Forge, 454 U.S. at 472. Inaddition, “the plaintiff must be a proper proponent,and the action a proper vehicle, to vindicate therights asserted.”Coyne, 183 F.3d at 494 (quotingPestrak v. Ohio Elections Comm'n, 926 F.2d 573,576 (6th Cir.1991)). To satisfy the requirements ofArticle III of the United States Constitution, theplaintiff must show he has personally sufferedsome actual injury as a result of the illegal conductof the defendant. (Emphasis added).Coyne, 183F.3d at 494;Valley Forge, 454 U.S. at 472. In each of the above-captioned Complaints, thenamed Plaintiff alleges it is the holder and owner ofthe Note and Mortgage. However, the attached Noteand Mortgage identify the mortgagee and promiseeas the original lending institution-one other than thenamed Plaintiff. Further, the Preliminary JudicialReport attached as an exhibit to the Complaintmakes no reference to the named Plaintiff in therecorded chain of title/interest. The Court'sAmended General Order No.2006-16 requiresPlaintiff to submit an affidavit along with theComplaint, which identifies Plaintiff either as theoriginal mortgage holder, or as an assignee, trusteeor successor-in-interest. Once again, the affidavitssubmitted in all these cases recite the averment thatPlaintiff is the owner of the Note and Mortgage,without any mention of an assignment or trust orsuccessor interest. Consequently, the very filingsand submissions of the Plaintiff create a conflict. Inevery instance, then, Plaintiff has not satisfied itsburden of demonstrating standing at the time of thefiling of the Complaint.
*2 Understandably, the Court requestedclarification by requiring each Plaintiff to submit acopy of the Assignment of the Note and Mortgage,executed as of the date of the ForeclosureComplaint. In the above-captioned cases, none ofthe Assignments show the named Plaintiff to be theowner of the rights, title and interest under theMortgage at issue as of the date of the ForeclosureComplaint. The Assignments, in every instance,express a present intent to convey all rights, titleand interest in the Mortgage and the accompanyingNote to the Plaintiff named in the caption of theForeclosure Complaint upon receipt of sufficientconsideration on the date the Assignment wassigned and notarized. Further, the Assignmentdocuments are all prepared by counsel for thenamed Plaintiffs. These proffered documents beliePlaintiffs' assertion they own the Note andMortgage by means of a purchase which pre-datedthe Complaint by days, months or years. Plaintiff-Lenders shall take note, furthermore, thatprior to the issuance of its October 10, 2007 Order,the Court considered the principles of “real party ininterest,” and examined Fed.R.Civ.P. 17-“PartiesPlaintiff and Defendant; Capacity” and itsassociated Commentary. The Rule is not apropos tothe situation raised by these ForeclosureComplaints. The Rule's Commentary offers thisexplanation: “The provision should not bemisunderstood or distorted. It is intended to preventforfeiture when determination of the proper party tosue is difficult or when an understandable mistakehas been made.... It is, in cases of this sort, intendedto insure against forfeiture and injustice ...”Plaintiff-Lenders do not allege mistake or that aparty cannot be identified. Nor willPlaintiff-Lenders suffer forfeiture or injustice by thedismissal of these defective complaints otherwisethan on the merits. Moreover, this Court is obligated to carefullyscrutinize all filings and pleadings in foreclosureactions, since the unique nature of real propertyrequires contracts and transactions concerning realproperty to be in writing.R.C. § 1335.04. Ohio lawholds that when a mortgage is assigned, moreover,the assignment is subject to the recordingrequirements of R.C. § 5301.25.Creager v.
Anderson (1934), 16 Ohio Law Abs. 400(interpreting the former statute, G.C. § 8543).“Thus, with regards to real property, before an entityassigned an interest in that property would beentitled to receive a distribution from the sale of theproperty, their interest therein must have beenrecorded in accordance with Ohio law.”In reOchmanek, 266 B.R. 114, 120 (Bkrtcy.N.D.Ohio2000) (citing Pinney v. Merchants' National Bankof Defiance, 71 Ohio St. 173, 177, 72 N.E. 884(1904).FN1 FN1. Astoundingly, counsel at oral argument stated that his client, the purchaser from the original mortgagee, acquired complete legal and equitable interest in land when money changed hands, even before the purchase agreement, let alone a proper assignment, made its way into his client's possession. This Court acknowledges the right of banks,holding valid mortgages, to receive timelypayments. And, if they do not receive timelypayments, banks have the right to properly fileactions on the defaulted notes-seeking foreclosureon the property securing the notes. Yet, this Courtpossesses the independent obligations to preservethe judicial integrity of the federal court and tojealously guard federal jurisdiction. Neither thefluidity of the secondary mortgage market, normonetary or economic considerations of the parties,nor the convenience of the litigants supersede thoseobligations. *3 Despite Plaintiffs' counsel's belief that “thereappears to be some level of disagreement and/ormisunderstanding amongst professionals,borrowers, attorneys and members of the judiciary,”the Court does not require instruction and is notoperating under any misapprehension. The “realparty in interest” rule, to which thePlaintiff-Lenders continually refer in their responsesor motions, is clearly comprehended by the Courtand is not intended to assist banks in avoidingtraditional federal diversity requirements.FN2
Unlike Ohio State law and procedure, as Plaintiffsperceive it, the federal judicial system need not, and
will not, be “forgiving in this regard.” FN3 FN2. Plaintiff's reliance on Ohio's “real party in interest rule” (ORCP 17) and on any Ohio case citations is misplaced. Although Ohio law guides federal courts on substantive issues, state procedural law cannot be used to explain, modify or contradict a federal rule of procedure, which purpose is clearly spelled out in the Commentary. “In federal diversity actions, state law governs substantive issues and federal law governs procedural issues.” Erie R.R. Co. v. Tompkins, 304 U.S. 63 (1938); Legg v. Chopra, 286 F.3d 286, 289 (6th Cir.2002); Gafford v. General Electric Company, 997 F.2d 150, 165-6 (6th Cir.1993). FN3. Plaintiff's, “Judge, you just don't understand how things work,” argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process. Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is either, “how do I save my home,” or “if I have to give it up, I'll simply leave and find somewhere else to live.” In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the property. There is no doubt every decision made by a financial institution in the foreclosure process is driven by money. And the legal work which flows from winning the
financial institution's favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit-to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers, assuring that only those who meet diversity and standing requirements are allowed to pass through. Counsel for the institutions are not without legal argument to support their position, but their arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate. The Court will illustrate in simple terms its decision: “Fluidity of the market”-“X” dollars, “contractual arrangements between institutions and counsel”-“X” dollars, “ purchasing mortgages in bulk and securitizing”-“X” dollars, “rush to file, slow to record after judgment”-“X” dollars, “the jurisdictional integrity of United States District Court”-“Priceless.”
CONCLUSION
For all the foregoing reasons, the above-captionedForeclosure Complaints are dismissed withoutprejudice. IT IS SO ORDERED. N.D.Ohio,2007. In re Foreclosure Cases Slip Copy, 2007 WL 3232430 (N.D.Ohio) END OF DOCUMENT