“Substantial Evidence” of “Forged” Endorsements: Wells Fargo Loses One

The money quote (pun very much intended) from Judge Robert Drain’s Memorandum of Decision, filed yesterday in a New York bankruptcy case regarding a Texas property in which attorney Linda Tirelli is representing the homeowner:

I conclude that the foregoing evidence cumulatively shifts the burden to Wells Fargo under Tex. Bus. & Com. Code §§ 3.308(a) and 1‐206(a) to show the authenticity of the blank ABN Amro indorsement to establish its status as a holder of the Note under Tex. Bus. & Com. Code §§ 3.301(i) and 3.201(a). It constitutes substantial evidence that Wells Fargo’s administrative group responsible for the documentary aspects of enforcing defaulted loan documents created new mortgage assignments and forged indorsements when it was determined by outside counsel that they were required to enforce loans. Given that evidence, Wells Fargo should have the burden to establish the bona fides of the blank ABN Amro indorsement that did not appear on the Note attached to Claim No. 1‐1 but did appear on the Note attached to Claim No. 1‐2. (p. 20)

It bears repeating that this is a finding of a court, not a pleading or a statement from a homeowner, pro se litigant, or attorney.  It’s also significant that the judge was able to come to this conclusion even without additional discovery relating to the now-notorious Wells Fargo document-fixing manual.  The judge had apparently allowed discovery in the case to be re-opened after the manual came to light, but would only allow discovery relating to “the loan and Note at issue” (p. 9) presumably meaning that if Tirelli could provide information that the dictates of the manual were used in this particular case, it would be allowed.  However, neither Wells Fargo nor Tirelli ended up submitting any such information.

In the memorandum, Drain framed the big question at stake herein in these terms:

In accordance with the foregoing sections of Texas’ U.C.C., therefore, if the blank ABN Amro indorsement is bona fide, Wells Fargo is the holder of the Note, entitled to enforce it. Trimm v. U.S. Bank, N.A., 2014 Tex. App. LEXIS 7880, at *13; Das v.Deutsche Bank Nat’l Trust Co., 2014 Tex. App. LEXIS 2541, at *6 (“An instrument containing a blank
endorsement is payable to the bearer and may be negotiated by transfer of possession alone.”). On the other hand, if the indorsement is forged, it is not valid, and – the only other indorsement on the Note being a specific indorsement to ABN Amro – Wells Fargo could not rely on the foregoing statutory provisions to establish that it is the holder of the Note. p. 12

For all intents and purposes, the note to which the court is referring (on p. 12) is the original—the actual original, i.e., the one put in front of Tirelli’s client at closing lo these many years ago.  I’m not sure I buy that, but the court indicates that for its purposes, the piece of paper it saw was the original note.  Indeed, we must recall that in a certified transcript of a 2007 meeting of the Texas “Task Force on Judicial Foreclosure Rules,” Michael Barrett, who identified himself as the “chairman” of Barrett Burke Wilson Castle Daffin & Frappier, stated the following on p. 8 of the PDF found here:

“So finding a document that says, “I am the owner and holder, and I hereby grant to the servicer the right to foreclose in my name” is an impossibility in 90 percent of the cases.”

Despite this, as noted above, there was no objection from the homeowner regarding whether or not the note was the original or not.

This is obviously a victory even though it doesn’t–as Drain took pains to point out on page 30—give the homeowner the much-maligned “free house.”  The victory is that a judge was actually able to see through the endorsement fraud and even:

Because Wells Fargo does not rely on the Assignment of Mortgage to prove its claim, the foregoing evidence is helpful to the Debtor only indirectly, insofar as it goes to show that the blank indorsement, upon which Wells Fargo is relying, was forged. Nevertheless it does show a general willingness and practice on Wells Fargo’s part to create documentary evidence, after‐the‐fact, when enforcing its claims, WHICH IS EXTRAORDINARY. pp. 17-18

The caps-lock in the above quote is actually in the original.  Unfortunately, a “general willingness” of a bank “to create documentary evidence after the fact when enforcing its claims” is in fact quite ordinary.  For a good cataloging of such ordinary behavior, see the following article:

JPMORGAN CHASE DEPOSITION: VOIDING ENDORSEMENTS, CREATING ALLONGES AND ENDORSEMENTS, THE “SWIRL”

Read the whole thing for yourself here:

https://www.scribd.com/doc/254148120/109-Court-Memorandum-Show-temp-15012ccflt

POSTSCRIPT

There is much more of great interest in this order, particularly about the dubious role of MERS and the dubious laxity with which Texas (and the 5th Circuit Appeal Court) deals with MERS.  Two footnotes illustrate this:

Footnote 19 As discussed in note 7 above, within the last few years several Texas courts have accepted the general proposition that MERS had the power to transfer interests in mortgages and deeds of trust, at least where, as was not the case here, the original deed of trust named MERS and specifically conferred on it the power to sell the collateral and transfer interests therein in the name not only of its nominee but also to its own successors in interest. What these courts do not address, perhaps because the issue was not raised, is that the authorized signing “officers” of MERS, if Mr. Kennerty is a typical example, never actually worked for that company, never had an agreement with that company, never received a paycheck from that company and were, in reality, really officers and employees of the lenders who were MERS members, Dep. Tr. at 99‐102, and, therefore, that MERS could readily be used as a vehicle for self‐dealing and fraud. That is, under the guise of being a MERS officer, an employee of Bank X could purport to transfer a mortgage held by MERS as nominee for Bank Y without Bank Y knowing about it or authorizing it with the exception of the fact that MERS had conferred signing authority on employees of its members, including employees of Bank X. See Culhane v. Aurora Loan Servs. of Nebraska, 826 F. Supp. 2d 352, 374 (D. Mass. 2011), decision reached on appeal, 708 F.3d 282 (1st Cir. 2013) (“Equally troubling is the conflict of interest posed by these certifying officers wearing ‘two hats’ simultaneously: that of assignor (as agent for MERS) and assignee (as employee of the note holder or its servicing agent).”). p.18

And here’s footnote 9, noting the problematic tendency of Texas to give PETE (“person entitled to enforce”) status to holders of security instruments as well as to holders of notes:

9 Since this Court’s March 1, 2012 bench ruling on the Debtor’s summary judgment motion, many courts applying Texas law have held not only that the holder of a note can enforce it in a foreclosure proceeding notwithstanding that the noteholder does not hold the deed of trust or mortgage (the so‐called “mortgage follows the note” rule that applies in most jurisdictions and traces back at least to Carpenter v. Longan, 83 U.S. 271, 274 (1872)), see Kiggundu v. Mortg. Elec. Registration Sys., 469 Fed. Appx. at 332, but also that the secured party to a deed of trust may enforce it against the collateral even if it does not hold the note secured thereby. See Morlock, L.L.C. v. Bank of N.Y., 2014 Tex. App. LEXIS 9135, at *5‐9 (Tex. App. Houston 1st Dist. Aug. 19, 2014), reh’g den., 2014 Tex. App. LEXIS 13907 (Tex. App. Houston 1st Dist. Dec. 30, 2014); Morlock, L.L.C. v. JPMorgan Chase Bank, N.A., 2014 U.S. App. LEXIS 17968, at *4‐5 (5th Cir. Sept. 19, 2014); Thomas v. Wells Fargo Bank, N.A., 2013 U.S. Dist. LEXIS 113220, at *14‐15 (N.D. Tex. July 16, 2013); Calvino v. Conseco Fin. Servicing Corp., 2013 U.S. Dist. LEXIS 124343, at *18‐20 (W.D. Tex. Aug. 29, 2013), and the cases cited therein. Not all jurisdictions follow the latter rule, see, e.g., Eaton v. Fannie Mae, 969 N.E.2d 1118, 1131‐33 (Mass. 2012); Bank of N.Y. v. Silverberg, 926 N.Y.S.2d 532, 539 (N.Y. App.
Div. 2d Dep’t 2011); Foreclosures and Failures, 46 Conn. L. Rev. at 526. During the same period courts applying Texas law have held that a borrower lacks standing to contest the fraudulent (as opposed to forged) assignment of a deed of trust in certain circumstances, although the extent of the rule is not free from doubt. Morlock, L.L.C. v. Bank of N.Y., 2014 Tex. App. LEXIS 13907, at *2‐5; Reinagel v. Deutsche Bank Nat’l Trust Co., 735 F.3d 220, 224‐25 (5th Cir. 2013); Brinson v. Universal Mortg. Co., 2014 U.S. Dist. LEXIS 121685, at *10‐13 (S.D. Tex. Sept. 2, 2014); Venegas v. U.S. Bank, Nat’l Ass’n, 2013 U.S. Dist. LEXIS 66000, at *13‐16 (W.D. Tex. May 9, 2013). As noted above, however, Wells Fargo has relied solely on being a holder of the Note to sustain Claim No. 1‐2 and has not raised the foregoing arguments.

Indeed, the circumstances in which the note and deed of trust at issue here ever came to be involved with MERS are very questionable:  ABN Amro tries to make the note follow the mortgage by “assigning” the DOT to MERS in its supposed capacity as “nominee” for WAMU (which would soon, in 2008, be one of the biggest bank failures in history and then be acquired by Chase)—together with the note, supposedly—back in 2002.  The purpose of this assignment was obvious—this transaction had to be fed into the opaque machinery of the “MER-LPS Racketeering Enterprise.”

Then MERS purports to do an “Assignment of Mortgage”—even though the document was not in fact a mortgage but rather was a deed of trust in the non-judicial foreclosure state of Texas—to Wells Fargo in 2010.  The language of this bizarre document said that the assignment was being done by MERS, still supposedly as the “nominee” of WAMU, a bank which had ceased to exist 2 years earlier.

And the deposition testimony of one John Kennerty is not to be missed—it starts on p. 18.