Monday, July 11, 2011


Nevada Supreme Court: You Gotta Prove Chain of Title


MEDIATION: The Creditor Must Show Up!

Nevada Supreme Court: You Gotta Prove Chain of Title

posted by Adam Levitin

A pair of very interesting foreclosure rulings were handed down today by the Nevada Supreme Court. They provide further evidence that documentation problems are rife in the mortgage industry, including documents showing chain of title. They also provide another example of a state supreme court demanding proof of valid chain of title before permitting foreclosure.
Both cases arise from Nevada’s foreclosure mediation program. In one case, Pasillas v. HSBC Bank USA, the Nevada Supreme Court ordered sanctions against HSBC for failing to mediate in good faith. What was the failure? HSBC failed to show up at the mediation with the required loan documentation, namely two pages of the mortgage note were missing, the assignment to HSBC was incomplete, a BPO rather than an appraisal was provided.  Moreover, HSBC didn’t show up at the mediation with authority to settle because it still required “investor approval.” The foreclosure mediator refused on these ground to authorize the foreclosure. The district court ordered the foreclosure to proceed, but the Nevada Supreme Court reversed the ruling and remanded with instructions for the district court to determine appropriate sanctions.  
Three things are of note in this case.  First, it shows that the Nevada Supreme Court takes a very serious view of enforcing the requirements of the state’s foreclosure mediation program. This was a unanimous decision. Second, it’s another illustratation of the mortgage documentation SNAFU. And third, there’s a very long footnote discussing and endorsing the Massachusetts Supreme Judicial Court’s ruling in Ibanez v US Bank:  ”We agree with the rationale that valid assignments are needed when the beneficiary of a deed of trust seeks to foreclose on a property.”  That’s now two states Supreme Courts now that are making clear that there’s got to be good chain of title.  We can add to that the NC Court of Appeals and arguably New Jersey. 
All of this brings us to the second case, Levya v. National Default Servicing, Inc.,another unanimous decision. Again, this case arose from a foreclosure mediation. At the mediation, Wells Fargo produced a certified original copy of the note and deed of trust naming another entity as the lender.  Wells did not produce any assignments, just a notarized statement that it was in possession of the original note and DOT and any assignments thereto. (Gosh, I wonder if that employee had personal knowledge of the fact or not… Do you really think the employee looked at the physical paper?). The mediator found that Wells Fargo hadn’t met the statutory requirements for the mediation, but didn’t make a finding of bad faith.  The homeowner petitioned the district court for review, arguing that Wells Fargo acted in bad faith and should be sanctioned.  The district court concluded that there was no bad faith. The Nevada Supreme Court reversed on appeal.
What’s interesting in this case is an extended discussion of what constitutes a valid assignment of deeds of trust and of notes. For starters, the court noted that the transfers “are distinctly separate.” Nevada, like Massachusetts, is a title theory state. That indicates that the mortgage follows the note theory just doesn’t work there. And it’s not as if the Nevada Supreme Court were unaware of UCC Article 9. The court discusses Judge Markell’s 9th Circuit BAP decision in In re Veal that includes a detailed discussion of the working of UCC Article 9. [In re Veal never addressed the issue of whether UCC 9-203(g) applies to deeds of trust (which are sale and repurchases, not liens); the language of 9-203(g) could be read not to apply, but that need not concern us here.]  Instead, Nevada’s views a deed of trust as a conveyance of land, so the state’s Statute of Frauds applies, and it requires a written assignment. Wells never produced a chain of assignments from the originator to whatever trust was involved. Maybe Wells could do so, but it didn’t.
Similarly, without being able to prove that the note had been endorsed or otherwise transferred to Wells (meaning that it was given to Wells for the purpose of enforcement), Wells “has not demonstrated authority to mediate the note.”  Put differently, Wells failed to prove standing.
Now let me emphasize that just because Wells didn’t prove standing doesn’t mean that it can’t. But this should be raising a lot of questions. Does the paper exist? Can we verify that it is in fact the original and the dating of the signatures? If so, why isn’t Wells producing it? Who is bearing the cost of these screw-ups? Is it MBS investors or is Wells eating it?
This strikes me as further evidence that the proposed BoA MBS settlement is just too hasty. There’s simply too much evidence of major problems in the system for investors to settle without knowing more. It’s a very different settlement if the documentation is fine, but the servicer’s just incompetent and can’t produce it than if the documentation was never done right in the first place and there’s nothing the servicer can do. If I were an MBS investor, I’d want to know which situation I was facing.
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5 Responses

  1. THAT’S the Huffington Post headline I’m waiting for:
  2. “the documentation was never done right in the first place”.
    EXACTLY. Until THAT is properly addressed, America will continue to sink…
    But, they don’t want to address that, because if they do the mega banks will fail.
  3. from article:
    The Justice Department is pressing state attorneys general to release the banks from liability for a host of alleged violations in exchange for a far-reaching settlement, people familiar with internal discussions said. The Justice Department declined to comment.
    BofA, JPMorgan, Wells Fargo, Citigroup and Ally Financial are willing to pay a large sum in fines for use in pools that will be used to lower monthly payments for struggling homeowners, but only in exchange for broad amnesty, these people said. In May, the banks offered just $5 billion for the alleged wrongdoing, angering the government officials on the other side of the negotiating table.
    In April, these banks signed consent orders with federal bank regulators, promising to clean up bad practices. They neither admitted nor denied wrongdoing.
    All five banks declined to comment for this story.
    State and federal authorities’ failure to collect more evidence of wrongdoing by mortgage servicers comes in contrast to the public statements of influential officials who have cast the banks as culprits in a national epidemic of foreclosures.
    Sheila Bair, the former chairman of the Federal Deposit Insurance Corporation, told a Senate panel in May that “flawed mortgage banking processes have potentially infected millions of foreclosures.”
  4. Technical violations related to the Modification Statutes for NV. Key points.
    Passillas – Must bring certified copies OR originals of Deed, Note and all Assignments to mediation. Lender did not do so.
    Assignment was in blank. No assignee listed. This matched the requirements of the PSA, but not NV law. Assignment needed assignee named.
    A Chain of Assignments was not called for, only all Assignments. Big difference in the two.
    Levya – Wells did not bring Assignments to the hearing, nor the endorsement of the Note. Probably used copies of the recorded documents
    Bottom line- Easily correctable. And if done prior to future Mediation Hearings, not an issue.
    They will not err like this again.
  5. awesome, the court is paying attention. nevada is non-judicial

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