«DECONSTRUCTING THE BLACK MAGIC OF SECURITIZED TRUSTS: HOW THE MORTGAGE-BACKED SECURITIZATION PROCESS IS HURTING THE BANKING INDUSTRY’S ABILITY TO ...»
[t]he type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and ultimately the sale of mortgage-backed securities, are not barred or even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments.164 An Alabama state court has also seen the light, and in the process gave a dressing-down to the banks in Horace v. LaSalle Bank National Association.165 In that case, the borrower brought suit prior to the initiation of a foreclosure action by the bank upon her receipt of a Notice of AcceleraN.E. 2d 40 (Mass. 2011).
162. Id. at 44.
163. Id. at 53.
164. Id. at 56.
165. Horace v. LaSalle Bank Nat’l Ass’n, 57-cv-2008-000362.00 at *1, (Russell Co. cir.
Ct., March 25, 2011).
tion.166 In seeking summary judgment in her suit for an injunction preventing the subject lender from foreclosing on her, the Plaintiff argued that the trust failed to properly establish standing to enforce the mortgage and note against her, and prevailed in her argument.167 The court, in granting summary judgment in favor of the borrower, admonished the Plaintiff for their failure to
comply with their own internal documents:
First, the Court is surprised to the point of astonishment that the defendant trust... did not comply with the terms of its own Pooling and Servicing Agreement and further did not comply with New York Law168 in attempting to obtain assignment of [plaintiff’s] note and mortgage. Second, plaintiff... is a third party beneficiary of the Pooling and Servicing Agreement created by the defendant trust... [i]ndeed without such Pooling and Servicing Agreements, plaintiff... and other such mortgagors similarly situated would never have been able to obtain financing.169 The Court then entered an order permanently enjoining the defendant trust from foreclosing on the subject property and borrower.170 In a recent decision by a Florida state court, the Fourth District Court of Appeal for the State of Florida wrote an opinion that will perhaps prevent summary judgment in the favor of any securitized trust in the future.171 In Glarum v. LaSalle Bank National Association as trustee for Merill Lynch Mortgage Investors Trust, Mortgage Loan Asset-Backed Certificates, Series 2006-FFI, it was not the documents purportedly transferring the note and mortgage which were at issue for once, but the affidavit of indebtedness filed by the lender based on alleged “personal knowledge” of a bank employee.172 For years lenders have been filing similar affidavits of indebtedness such as the type seen in Glarum while failing to attach any business records, and failing to establish that the employee signing them had any idea who entered the data, how it was computed, or even which lender or servicer was
167. Horace v. LaSalle Bank Nat’l Ass’n, 57-cv-2008-000362.00, Memorandum in Support of Motion for Summary Judgment, at *2 (Jan. 13, 2011).
168. Horace v. LaSalle Bank Nat’l Ass’n, 57-cv-2008-000362.00 at *1, (Russell Co. Cir.
Ct., March 25, 2011).
170. Id. at *2.
171. Glarum v. LaSalle Bank National Association as trustee for Merill Lynch Mortgage Investors Trust, Mortgage Loan Asset-Backed Certificates, Series 2006-FFI, No. 4D10-1372, slip op. at 1 (Fla. 4th Dist. Ct. App. Sept. 7, 2011).
2011] THE SECURITIZATION CRISIS 29 doing the record keeping.173 In a win for foreclosure defense attorneys and homeowners everywhere, the court finally held that such affidavits were inadmissible hearsay, validating the argument that borrowers and their counsel had been making for years.174 So what does this mean in Florida? It means that a trust, or its servicer, would have to establish actual personal knowledge of the person who entered payments made by the borrower into the computer system, how the system works, who was responsible for maintaining the records and whether the records were correct.175 And, most importantly, would have to establish the same foundational requirements in the affidavit for every lender or servicer who collected the payments on behalf of the trust.176 With the poor state of recordkeeping by the banks, as evidenced throughout the entire article, such a task is tantamount to climbing Mount Everest for the foreclosing banks.
Finally, in a decision by the Fifth District Court of Appeals on September 30, 2011 in the case of Gee v. U.S. National Association, as trustee, the court reversed a summary judgment which was entered on grounds not even raised in the summary judgment motion.177 In doing so, the court found that the bank lacked the documentation to properly establish standing, finding that “incredibly, U.S. Bank argues that ‘[i]t would be inequitable for [borrower] to avoid foreclosure based on the absence of an endorsement...
.’”178 In reversing summary judgment, the Fifth District established that the traditional argument made by banks that “the borrower defaulted so who cares if we have the right documents” will no longer prevail in foreclosure actions.179 Moreover, the issue of standing, particularly in securitized trusts, will now be front and center stage in foreclosure defense.
174. Oppenheim, Foreclosure Jurisprudence, supra note 3.
175. Id. In fact, some counsel for the major banks have sounded the alarm to their clients as to the potential repercussions this decision could have on their ability to bring and prevail on Motions for Summary Judgment. Greenberg Traurig, Client Alert: The Changing Landscape of the Business Record Exception under Florida Law and its Impact on Florida Foreclosures, Sept. 14, 2011.
176. Glarum, No. 4D10-1372, slip op. at 3.
177. Gee v. U.S. Nat’l Bank Ass’n as trustee, No. 5D10-1687, slip op. at 1 (Fla. 5th Dist.
Ct. App. Sept. 30, 2011).
178. Id. at 4.
179. Id. at 8.
YOU CAN FOOL ALL OF THE PEOPLE SOME OF THE TIME, AND SOME OF THE
PEOPLE ALL OF THE TIME, BUT YOU CANNOT FOOL ALL OF THE PEOPLE ALL
OF THE TIMEThe goal of this article is not to deny, by any means, the right of a mortgage lender to foreclose on a borrower who has failed to meet their financial obligations. However, it is intended to elucidate for fellow attorneys and members of the judiciary that while these financial obligations exist, so do the legal protections of our judicial system that were instituted to protect the property rights of Americans that are rooted in the United States and Florida State Constitutions. The judicial system was never meant to be evaluated by how swift justice could be dispensed or by how quickly a particular judge could dispose of cases on his or her docket. As officers of the court, both judges and attorneys are responsible for protecting the integrity of the system, ensuring that the system is never compromised solely for financial expediency.
Unfortunately, for the past several years it is as if the Florida judicial system had adapted a set of “lore” that was not rooted in any legal construct.
The standing issue concerning securitized trusts is particularly glaring since it has been argued tens of thousands of times in judicial chambers throughout the state with courts, for whatever reason, turning a deaf ear and a blind eye on these fundamental issues.180 We will not attempt to address the conflicting motivations that allowed this unfortunate set of events to have occurred, but it is clearly one of Florida’s judicial branch’s darkest hours. We are encouraged, as a profession, by the new case law developing in Florida which would suggest that the judiciary has finally seen the light, and that homeowner’s may finally see foreclosure by the proper lender, in compliance with their due process and constitutional rights. In the long run, ensuring the integrity of the system will preserve the judiciary and will re-establish respect for the judicial system.
180. In 2008, the author appeared before a particular court in defending a foreclosure, at which time the judge was rubber stamping a large stack of uncontested summary judgments.
Counsel remarked to the judge that in many of those cases, the bank did not establish the necessary predicate for filing foreclosures based on issues of standing and other legally required foundations. The court asked if the author was representing the defendants in those files, and the author said he was not. The author then suggested to the court that his honor had sworn the judicial oath of office, including to uphold the Code of Judicial Conduct which in relevant part requires a judge to “respect and comply with the law and act at all times in a manner that promotes public confidence in the integrity and impartiality of the judiciary.” The court then said to counsel that if he continued in that line of discussion that he would be held in contempt in his court. Interestingly enough, this judge has recently stepped down to accept a position at a Florida foreclosure mill.