by Adam Levitin, excerpt:
I have generally been willing to give mortgage servicers, servicer support shops (like LPS), and foreclosure attorneys the benefit of the doubt when it comes to documentation irregularities (to put it mildly) in foreclosures. My working assumption up to this point has been that the documentation problems have been a function of corner cutting with securitization based on the assumptions that (1) the loans would perform better than they did and (2) those that defaulted would result in default judgments in foreclosure, so no one would ever notice the problems. I’ve also assumed that lack of capacity has played a critical role in problems in the default management chain–the system is held together by Scotch tape at this point. In other words, the problems in the system weren’t caused by malice.
Max Gardner on AllongesO. Max Gardner Newsletter excerpt below:
That “technical” requirement exists for good reason: it ensures that a clear, sequential record of transfer exists.
Without that clear, sequential record, the chain of ownership interests is questionable. And if ever there was a
time when consumer attorneys might reasonably have given banks and mortgage servicers the benefit of the
doubt and assumed that although a document had been paper clipped instead of glued, it was otherwise valid
and an accurate reflection of history…well, recent revelations have certainly set us straight on assumptions like
that. An industry that will pay people to sit in a room and forge signatures hour after hour can’t be trusted. An
industry that will mysteriously produce notes at the 11th hour after swearing that they were lost and expect the
courts to overlook discrepancies in dates and notary signatures will create an “Allonge” prove up the chain of
transfer it needs to make its case. And attorneys who will submit other fraudulent documents to the court won’t
draw the line at an “Allonge” created after the fact.
The purpose of an Allonge—inherent in its name, which is the French word for “lengthen”—is to create more
space on an instrument. A separate sheet of paper isn’t an imperfect Allonge; it isn’t an Allonge at all.
And even in homeowner hostile territory, aka Arizona, Judge Hollowell has held that the allonge has some import, and is not just a made up requirement:
At the end of the evidentiary hearing, Deutsche asserted it had
met its standing burden based on the Allonge and the Endorsements.5 The Allonge, however, does
not demonstrate that Deutsche had standing to seek relief from stay when it
filed the MRS or anytime thereafter.
Deutsche’s witness admitted that the Allonge was created after the
MRS was filed to “get the attorneys the information they needed .” (Tr. 36, 47,
73.) Creation of evidence to support a motion for relief from stay, after
filing has been found to violate Fed. R. Bankr.P.
9011(b)(3). See In re Maisel, 378 B.R. 19, 22
(Bankr.D .Mass.2007) (“parties seeking relief from stay must be aware
that by presenting a motion to the court, they represent that ‘the allegations’
and other factual contentions have evidentiary support”).
Deutsche’s witness also admitted that the Allonge had not been
attached to the Original, but to a copy. (Tr. 79.) The Allonge,
therefore, was never properly affixed to the Note and could not accomplish a
transfer of the Note under ARIZ.REV.STAT. ANN.
§ 47-3204(A) (2010).
Last, but certainly not least, even if the Allonge had been affixed to the
Original, it would have been ineffective to transfer the Note to Deutsche
because the party executing the Allonge had no authority to do so. First, while
the Allonge is executed by Kathy Smith “as an Assistant Secretary and Vice
President” of Argent, the evidence presented by Deutsche demonstrates that she
was instead a “Special Officer of Citi Residential Lending Inc.” exercising the
LPA. But the LPA only authorized assignments in specific circumstances not
present here. The LPA is very similar to limited powers of attorney addressed
in two other reported decisions. In re Samuels, 415 B.R. 8, 17
(Bankr.D.Mass.2009); In re Hayes, 393 B.R. 259, 264
(Bankr.D.Mass.2008). Both cases also involved Deutsche Bank, Argent
Mortgage and Citi Residential. In those cases, as here, the limited powers of
attorney in question authorized assignments only in connection with certain
events such as a repurchase (# 6 of the LPA), pay off or refinancing of a note
(# 7 of LPA).
In this case, as in Samuels and Hayes, the Allonge
was not executed in connection with a repurchase or a refinancing of the Note
or any other event set out in the LPA. Accordingly, the LPA did not authorize
the transfer in the Allonge. Deutsche not only created the Allonge after it
filed its MRS and falsely represented that it was affixed to the Original, but
it also relied on the LPA authorizing the transfer of the Note when
substantially identical powers of attorney have been held to be ineffective in
reported decisions involving Deutsche.
Because the Allonge was ineffective (as well as fabricated after
the fact), Deutsche’s standing depends on the validity of the Endorsements.
Deutsche claims that it is the holder of the Note because when the Original was
finally produced, it contained an endorsement in blank.
Under Arizona law, when an instrument is endorsed in
blank, it becomes a bearer instrument, and may be negotiated by transfer of
possession alone. ARIZ.REV.STAT. ANN.
§ 47-3205(B). Normally, under Fed.R.Evid. 902(9),
the Original, as commercial paper, is entitled to a presumption of
authenticity. Furthermore, U.C.C. § 3-307
(ARIZ. REV. STAT ANN. § 47-3307(B) presumes the genuineness of
signatures in negotiable instruments. But, under ARIZ.REV.STAT. ANN.
§ 47-3308, when the validity of an endorsement is challenged, the
burden of demonstrating authenticity is on the party asserting it.6
In its closing brief, Deutsche asserts that the difference between
the Original and the versions of the Note attached to the MRS and POC can be
explained by the so-called “common practice” in the mortgage industry of
imaging notes and deeds of trust at the time a loan is originated and not
updating the electronic file thereafter. However, there is nothing in the
record which demonstrates that this was the common practice of Argent Mortgage.
In fact, the testimony of Deutsche’s witness was based on the practices of
AHMSI, which was not the originator of the Note and did not become the
servicer until 2008. The witness’ explanation as to why the copies of the Note
on the “imaging system” did not contain the Endorsements is nothing more than
speculation. Therefore, in light of Deutsche’s admission that it fabricated the
Allonge, and in the absence of any credible explanation for the difference of
the Original from other filed versions of the Note, the court will not apply
the usual evidentiary presumptions of validity to the Endorsements.