Missing or incomplete endorsements? Then who can foreclose or sue for priority?

I have not posted for some time. It has not been for lack of interesting stuff happening in the industry. It is because that stuff has been so widely reported in the mainstream media. I have had little to add that would be of interest or which would make the widely distributed news more useful.

But the Maryland Court of Appeals has reported Anderson v Burson ( http://mdcourts.gov/opinions/cosa/2010/434s09.pdf ) on December 22, 2010. This is an opinion worth reading if you are involved in title insurance, foreclosure or bankruptcy work. It clarifies how a lender or servicer may demonstrate its standing to sue for lien priority where the chain of endorsements and assignments is unclear or incomplete.

The case presents a very common fact pattern: The "XYZ Trust" alleges standing to appoint a substitute trustee for purposes of foreclosing a deed of trust naming a prior lender and trustee. The title chain is missing a clear endorsement of the note over to the "XYZ Trust." The borrowers thus moved to enjoin the foreclosure.

The core of this opinion is the Specials' review of the commercial law defining "holders," and the transfer of instruments. In sum, where "XYZ Trust" is not linked into the chain of title by an express endorsement or allonge, it will have standing to sue or appoint substitute trustees if it meets the definition of "a non-holder in possession" as the term presents in the Commercial Code.

For outside counsel, this means some adjustment to our pleading of the issue. It also lessens our burden of proof, since absence of that exact endoresment is no longer fatal to the standing issue. Now, please excuse me as I must amend a few complaints!

Wall papering over the hole in the wall

The Wall Street Journal reports that the largest title insurers have made an agreement with Bank of America and other large lenders that will allow the lenders to obtain title insurance even when there is a Maryland foreclosure in the chain of title. Fear of "bad affidavits" runs deep within the industry, now.

But those of us who litigate in this area know that other ripples are crossing the pond. In lawsuits over bad settlements (whether brought by buyer, seller, or lender) the settlement officer's standard of care is always made an issue. Because of the many hats worn by a settlement officer (title agent, seller's escrow officer, buyer's escrow officer, etc.) the claim is always made that the settlement company breached its standard of care. Perhaps the settlement company is alleged to have closed over bad documents, affidavits, or it improperly disbursed, missed a lien or encumbrance, ignored closing instructions, or violated title underwriting guidelines (by the way, who would want to be in that business?).

Expect claims of "you should have known" wherever a Maryland foreclosure appears in the title chain. The agreement to insure over this stuff may make title "insurable," but it certainly doesn't mean it will always be deemed "marketable." And that claim will be made against the title agent/settlement company, in addition to the seller. And don't forget the underwriter, ready to pounce for breach of underwriting guidelines, seeking indemnity under that agency agreement!

The standard of care for a reasonable settlement company (and its non-delegable duty to search title and disclose) has been raised because of the recent "bad affidavit" issues created by our friends in the foreclosure bar. With the actual knowledge imparted by the sheer volume of reports in the popular media about the issues, the lender's remedial actions, and the Court's recent emergency rule changes, how can a settlement officer/abstractor ignore reference to a foreclosure action in the title chain? He must review that file! That is what the reasonable settlement agent in Maryland now must do...period.

The fallout begins.

So, the rules committee starts meeting, today, to discuss adjustments to foreclosure rules relating to affidavits. It appears PG County, alone, is reviewing over 14,000 open cases.

The article suggests a rule whereby the filing of a corrective affidavit would trigger a hearing where the offending lawyer would appear in court to testify to the facts and circumstances of the affidavit. Others could examine and cross-examine the lawyer.

Considering 400+ corrective affidavits by two lawyers, that is a lot of "testifying" by two men!

But who is thinking of the lawyers!

With Bank of America's announced freeze on foreclosures, nationwide, I wonder about the foreclosure mills, and the hundreds of lawyers that fan out throughout the state each day to conduct their sales. And there are the hundreds of processors (they rarely answer the phones, but they are there, trust me) who manage the pre-sale and post-sale processes. What is to become of them? Can they be bailed out?

I'm guessing they will have more time to focus on title, and generating new and more interesting title claims. C'mon folks, I'm waiting!

Can you face your own Facebook?

A New York state court has ordered that a plaintiff give over to the defendant specific authorization to access her Facebook and Myspace accounts. The court has ordered that she disclose both current content, archived content, and deleted content.

The defendant's motion requesting the disclosure was based on deposition testimony that was at odds with the public portions of the plaintiff's Facebook page. She alleged injuries that limited her to staying indoors. But her publicly posted pictures showed her smiling and out-and-about, and not in her home. Imagine that!

I love this decision, as a parent and a lawyer! I've been telling kids I know and coach, for years, that nothing is private, and every disclosure creates impressions and attitudes. At the office, my law clerks and paralegals search all social media for background on every lawyer and witness we deal with in a case. We've caught more than one witness sleeping at the wheel!

Another reason for all counsel in the title industry to take a deep breath.

Today, the Washington Post reported that Bank of America has suspended foreclosures in 23 states, following the admission of a foreclosure processor that she signed thousands of affidavits without reading them. In deposition testimony given in Massachussetts, the employee admitted to signing over 7,000 items per month. She also admitted to mis-identifying herself as an employee of Bank of New York Mellon.

This puts us all in a delicate position with the Circuit Courts. I routinely proffer affidavits from various bank officers, particularly where I seek default judgment orders. I have always relied upon the bona fides and representations of the client when preparing their affidavits. It now appears necessary to ask for further verification of job title and authority, doesn't it?

Add this to the list, right after "prove to me that you are the true owner of the beneficial interest in the trust before I file suit in your name."

Alternative fee arrangements build relationships.

This September 27th article from the Daily Record struck a chord with me. Alternative fee arrangements are not new to me. They have been a topic of conversation in every firm I have been a part of for the last 20 years. For the most part, clients have been distrustful of alternate fee arrangements suggested by outside counsel. The unspoken suspicion was that the lawyer sought to "get over" on the client, and so the relationships continued to chug along on the basis of the billable hour.

Current economic pressures on our corporate and insurance clients now have the pressure for alternate fee arrangements flowing in the other direction. The trend now is for the sophisticated legal consumer to demand alternate fee arrangements. Whether the alternate arrangement is negotiated, or unilaterally imposed by the client, this article cites to the most important component of any fee arrangement---trust. Counsel must trust that he is being fairly valued, and paid for the value he provides to the client. The client must trust that its work is receiving the attention and care it deserves, and that the work is offered at a fair market rate.

Near the end of this article, an in-house counsel hits the nail on the head. Having practiced in the real world, he acknowledged the daily pressure of having multiple phone messages to return, and the need to prioritize among his clients. As in-house counsel, he now wants his calls to be returned first, "not because [he] pays a lot of money, but because the working relationship is good."

Both the client and the lawyer have a shared goal of prospering and coming out of this economic downturn. Neither will do this at the sole expense of the other. Let's build trust through a fair engagement.

GMAC decision to stop foreclosure does not apply to Maryland actions

Click the title to link to the Sept. 20th article. GMAC is unilaterally stopping foreclosures in 23 states (but not Maryland) because various documents and affidavits were incorrectly prepared and executed. One processor at GMAC admitted to signing off on 10,000 items per month without reading them. Amazing.

A more recent Washington Post article on September 29th reports that JP Morgan Chase is doing the same thing. JP Morgan is unilaterally asking courts to hold off issuing final judgments in 56,000 foreclosure actions. The article doesn't identify the state jurisdictions involved.

These reports dovetail nicely with Judge Pierson's recent admonishment to foreclosure lawyers practicing in Baltimore City to make sure the new rules are scrupulously followed.

Lawyers can't be two-faced on Facebook.

A New York ethics opinion says that lawyer can't create fake accounts and identities on Facebook and Youtube to entice contact with potential witnesses. When done by a lawyer, this is considered "dishonest" and is sanctionable.

But yet, a 30 year old male cop can pose as a 13 year old girl on-line to entice contact with the potential pedophile?

And what of the many ruses used to entice an evading defendant to accept service of legal process? This is done through an agency relationship with counsel, so isn't this effectively his dishonest behaviour?

Last minute rush to register ground rents.

I love this article's reference to someone dropping off a disk containing hundreds of registration forms. These folks had three years to register. I bet many delayed to the last minute intentionally to punish the State for requiring registration.

But if you are dealing with a ground rent issue, don't count on the registry to be accurate or up-to-date for many months. The better practice is to continue to collect three years of ground rent and hold in escrow.

Foreclosure practice in Baltimore City- pushing the "envelope."

On September 28th, I attended a meeting of approximately 40 foreclosure lawyers and Judge Michel Pierson, of the Baltimore City Circuit Court. While I don't conduct foreclosures, I was invited by the Court because my name appears in various foreclosure files as counsel seeking to alternately stay a case, consolidate with a quiet title/declaratory judgment action, or vacate a judgment improperly taken. This was a wonderful chance to catch up with old friends, and to hear how the Court and its hired staff intend to interprete the recent changes to how due process is administered in foreclosure cases.

One issue that seemed to confuse the Court, though, was the new rules' reference to filing of the "envelope" containing certain disclosures and notices to the borrower. The legislature didn't consider that the actual envelope gets mailed to the borrower. The clerk tells us that filing of a "copy" of the envelope will suffice as proof of mailing. However, this ignores the fact that many offices e-mail .pdf files to their process servers, who may then stuff their own envelopes. Jeff Fisher, a very practical fellow, suggested that the clerk accept an affidavit in lieu of a copy of the process server's envelope. Judge Pierson acknowledged the confusion created by our beloved legislature, but declared "the rule says 'envelope', not affidavit..."

The lesson of the day is that the Court and the clerks will demand strict adherence to the new rules. For those of use who routinely vette foreclosure files, we will be looking to the form of affidavits and every required notice described in the rules. Saavy foreclosure counsel will take a close look at the new rules and educate their staff.

Ameriquest- it's like jogging in deep snow.

The Maryland Court of Appeals decided this "bad affidavit" case on August 31, 2010. It has now been left to the bankruptcy court to deal with over 100 pending cases where Trustees are suing to invalidate, or "strip", liens. This office, alone, has over 20 cases, valued at close to $6 million. Each is a potential total loss under a title policy, as each lender may potentially be stripped of its lien and relegated to "general unsecured" status.

I have heard that Judge Kier, Chief Judge of the bankruptcy court, has assigned one law clerk to research the issue for all the judges. I think he wants to avoid potentially conflicting results from the four judges handling the cases.

It has become rather comical, though, to see both Trustees and counsel for the lienholders declare victory when the Ameriquest decision really does little more than amplify exisiting law.

But enough, for now. I have 20+ briefs to write!

Ground Rents come out of the shadow and into the light

The deadline for registering ground rents is here! By statute, an unregistered ground rent may not be sued upon or foreclosed if not registered with the State Department of Assessents and Taxation. However, the Anne Arundel County litigation by ground rent owners that are contesting the constitutionality of the statute has left settlement companies and title insurers to continue with the old practice--"escrow three years of payments."

Waiting for Ameriquest to resolve the bad affidavit cases

We are now handling over 20 "bad affidavit" cases in the courts, and mostly in the bankruptcy court. Ten of them have been filed within the last three months. The most common question I get from my in-house friends is "why now?" and "why this claim?"

The trustees are counting on a positive outcome in the Maryland Court of Appeals case we call "Ameriquest." One issue in that case is whether the Curative Act, which says certain document drafting errors are self-curing if not challenged by a party to the instrument within 6 months, actually means what it reads. If the Court of Appeals does not make a clear statement that the statute is clear and unambiguious on its face, then the bankruptcy trustees can argue to avoid millions of dollars in encumbrances on real property.

Now, this will not dispose of the underlying debts. After all, the lenders will continue to participate in the estates as large, if not the largest, unsecured creditor. But it would give the trustees a toehold from which they will negotiate for some payment of tribute in order for the lender to keep its lien.

Until then, we are checking the docket, daily!

The Good Guys win one!

A couple that lost their home to a PHIFA foreclosure rescue scam has been awarded $700,000 in damages against the fraudsters. Kudos to my friend Phil Robinson, at Public Justice, for shooting these fish in their barrel. The real issue in these cases is not proving the cause of action, it is getting paid.

But for the title professional, the key element of this Baltimore Sun article is its description of the 2007 lawsuit, where the homeowners regained title to their house, and an "new" mortgage in their name. This is describing the "bona fide" lender that retained a lien on the real property to the extent it paid off the homeowner's existing loan secured by the property.

Now, Phil, go get paid!

Want free rent? Stop paying your mortgage.

Jay Hancock, of the Baltimore Sun, takes note of a disturbing trend that title insurance claim counsel has seen over the last two years: it takes too long to evict. Add a title claim, and the borrower is living large for two to three years as the case drags.

Foreclosure avoidance success story, an oxymoron?

The Baltimore Sun, and its real estate blog, seeks "foreclosure avoidance success stories." Two days after the posting, not a single post.....As a lawyer, the only success stories I have experienced were the product of one thing--litigation!

Baltimore City auctions liens, seeds future title claims!

Baltimore City auctioned over 12,000 property liens, this week, in order to recoup about $203 Million in delinquent taxes and other charges against real property owners. If you're not from these parts, pay attention: The lien purchaser pays the amount of accrued and delinquent taxes or water charges to the municipality. In return the purchaser gets a lien certificate, which states an 18% interest rate. The lien purchaser can then file a petition to extinguish the equities of redemption in the real property. When I last checked, the petition could be filed up to two years later. And so, between the time of sale and the filing of a petition, the only evidence of this unrecorded equity is a notation on the City Lien Sheet, if at all. Also, when a petition is filed, it will often list a dozen or more properties and defendants, making traditional title searching difficutl since there is such a great chance of mis-indexing. But once that petition is filed, title is clouded, even if service is not completed.

Beware the City lien process! Check those settlement files for current lien sheets, and double check every case docket!

Mediation in the Maryland Court of Special Appeals

I spent over five hours in a mediation session scheduled by the Court of Special Appeals. This is a relatively new program, and I was told that my case was approximately the twentieth case to make use of the program. I am optimistic that this will resolve many cases that could not be resolved at the trial level.

To start, the nine parties and lawyers were introduced to a semi-retired Circuit judge and the head mediator. Unlike mediations held at the trial court level, often conducted before all the facts are developed, and certainly before any legal theories have been tested before a finder of fact, this mediation involved lawyers who knew all the ins-and-outs of the case. This made for a much higher level of discussion, and a more realistic view of each parties "best case" and "worst case" positions. My case did not readily settle, but we have a framework that may bear fruit before the first brief comes due!

Backdating documents in litigation is just wrong.

Some of our lender/servicer clients buck when we request "proof" of assignments into the current lender or owner of the note and beneficial interest in a trust. But a quick read of this ABA Journal article informs of the importance of this simple inquiry.

In the posted story, well known institutions were found to have misrepresented the authenticity of assignments into the named plaintiff. The court found that the plaintiff did not own the mortgage it was suing upon, at the time the complaint was filed.

The Florida court went on to suggest that the law firm employees involved should be deposed to examine their possible complicity.

Due diligence is everything.

A bit of Due Process stripped out of tax sale foreclosures by Baltimore City

The Gov. signed SB373, which alters the notice and timing provisions of tax sale foreclosure actions against the right of redemption WHEN the tax sale certificate is held by Baltimore City AND the action is against a vacant lot or improved property that is cited as "vacant and unfit for habitation" by formal violation notice. The complaint to foreclose the equity of redemption can now be filed at "any time after the date of sale," and certain notices are excused.

This will modify, slightly, how we review tax sale files in connection with claims for intervening liens and interest. The City has less Due Process to adhere to when foreclosing equities of redemption than a private citizen.

Mediation during foreclosure closer to reality, but what does it change?

On Saturday, our Legislature continued to rearrange the Titanic's deck chairs, tinkering with a Bill that would permit borrowers to demand mediation with their lender while in the midst of a foreclosure. The lender would be compelled to pay $300 toward the mediation, and the borrower would pay $50. Sen. Frosh says "anything the parties want to negotiate, they can negotiate." And most of the time, that will be nothing!

(and if you are interested in reading the Bill, it is HB 472, not HB475, as cited in the Daily Record article)

I hate to sound jaded, but borrowers who couldn't afford the home in the first instance, and can't afford it during the foreclosure process, bring little to the table. Add to that the mess of relationships that define the "loan-servicer-clearinghouse-mortgage trust-investor" holding the note and beneficial interest in the deed of trust, and you have a process that is poised to do absolutely nothing. Now, the Bill would require disclosure of the entity authorized to modify the loan when the notice for foreclose is filed, but I wouldn't expect the notifications to be complete and accurate, merely pro forma.

Even when you represent a "lender," it can take weeks or even months to get a clear answer on exactly who the "client" is in a particular case.

The Bill does add a whole new layer of litigation to the foreclosure process. If the borrower demands mediation, the lender may petition the court to dismiss the petition, alleging various listed factors. The Bill is not clear whether the borrower and/or the lender will be entitled to any pre-hearing discovery on the issues.

I can't wait to play in the sandbox with this new toy!

You can't rely on the Will as evidence of title!!

Here's a common situation, as evidenced by the several questions I've gotten over the last week, alone: A settlement is done to secure a loan to real property, and the only evidence of "ownership" of one or more parties is a copy of a Will, showing the "owner" is an heir to some interest in the real property. The loan is made, the deed of trust is executed by the heir and is recorded, and the title policy is issued to the lender to assure "ownership" of the heir.

But no title document is recorded in the land records showing "ownership." Faux pas!

The Will merely directs the PR or Special Administrator on how property should be passed. Upon death, the entire recorded interest of the decedent becomes estate property. Any interest stated in the Will must be passed out of the estate, by the PR, and that instrument must be recorded in the land records. Period. Reliance by the settlement company/title agent solely on the Will is just wrong! The Will merely evidences the decedent's intent....nothing more.

A lien created after the death of the debtor may not be a lien, at all.

If you have a claim involving an estate, and claims against that estate, take a look at Elder v. Smith, No. 34, September Term 2009, released January 13, 2010. Here, the ex-wife of the decedent reduced a marital award of over $30,000 to judgment AFTER hubby died. The Orphan's Court ordered her to release the lien. Both appellate courts upheld the Orphan's Court determination that the post-death creation of a judgment lien for a pre-death claim is not a permitted way to enhance the priority of a claim against the decedent's estate.

The Court of Appeals went further, saying that it was behond the jurisdiction of the Orphan's Court to invalidate a judgment of the Circuit Court. The Orphan's Court can only administer the estate of the dead fellow, and can only elect to disregard the relative lien priority created by the Circuit Court judgment.

It appears that this factual situation may require litigation in BOTH the Circuit Court and the Orphan's Court.

The purchaser out of foreclosure is not hogtied by an appeal by the borrower if no bond posted.

The new appellate decisions are a treasure trove of obvious answers to frequently asked questions. Among them is Mirjafari v. Cohn, reported February 16, 2010, No. 38. It confirms that a purchaser out of foreclosure, if bona fide at the time of the sale, is free to devise the foreclosued property if the borrowers take an appeal but fail to obtain an order staying the effect of the judgment overruling the borrower's exceptions.

This question has come to me three times over the last month, by three different insurance adjusters. It's nice to finally have a black letter case declaring the obvious proposition. My partner and I refer to this as a "the sky is blue" propositions-- the legal maxim is obvious, but there doesn't seem to be a reported decision on the issue.

Of course, if the court holds the foreclosure purchaser is not bona fide, he takes title subject to the outcome of the appeal. It is the finding of bona fide status that is key.

There is still no zoning estoppel in Maryland.

The dissent captures the essence of this reported opinion. Judge Harrell declares that "[t]he Court of Appeals again wimps-out on adopting the doctrine of zoning estoppel, the contours of which are well established in a number of our sister states."

Of course, I invite you to check out the official group photo of this court. No wimps here, no sir.

Keep up to date on the U.S. Attorney's Mortgage Fraud task force

The phrase "tip of the iceberg" comes to mind as I read the press releases on the U.S. Attorney's website. His collection of prosecutions and pleas are significant, surely, but my own experience is that dozens of settlement companies and their owners have simply melted away into the mist with their ill-gotten gains.

We have brought prosecutors iron clad cases of fraud, with deposition transcripts and documented transactions, only to be told that sums in the range of $300,000 are not big enough for prosecution. Worse, we are told that "its a business matter," and we should continue to pursue our civil remedies.

Do you have claims involving Maryland Title and Escrow and David Wehrs?

Maryland Title & Escrow is owned by David Wehrs. He appears in many of our claims. On February 1, 2010, the SEC sued him for a $1.96 offering fraud scheme. The SEC Complaint is fun reading. It alleges a scheme where money was solicited in order to support "day trading," a self-owned home improvement business, and vacations in the British Virgin Islands.

And as the the late-night television ads declare, "wait, there's more!"

On March 1, 2010, Mr. Wehrs pleaded guilty in the U.S. District Court for the District of Maryland to one count of wire fraud, in connection with the same scheme. The Government's recitation of facts says that at least $630,000 was diverted from a real estate settlement fund intended to payoff mortgages. The Government got him for wiring stolen funds to a brokerage located in another state. If you have access to PACER, you can read the sordid details in case number 1:10 cr 00038. Mr. Wehrs will be sentenced in May, and faces 20 years, plus a restitution order.

If you think you may have a claim against Mr. Wehrs or his entity, arising from his conduct of real estate settlements, you will be at the end of a long line.

It's getting easier to locate estates in Maryland.

The latest addition to Maryland's on-line databases is here! You may now search all estates, across the state, on the new Register of Wills page. We may all search by decedent, interested party, and other categories. The search gives access to the docket.

But this is not like the PACER system, where you may download .pdf documents with a few clicks of the mouse, and payment of $.08 per page. This site only gives you document titles, and the number of pages. The document must be ordered, at a cost of $.50 per page. This involves filling out a form, and mailing or delivering the form., and then awaiting delivery of the documents through snail mail...*yawn*.

This is still a great tool to replace having to send our paralegals and assistants out to various courhouses to search for the existence of estates. But it does not vitiate the need to review the actual file (or microfilm) at the courthouse, and obtain copies.

Is that Deed of Trust fully and properly executed?

Do you have a claim or case involving a deed of trust with missing or mistakenly executed affidavits of consideration and disbursement? This is all the rage among several bankruptcy trustees, who have been filing adversary cases seeking to invalidate recorded liens. The black letter law says that this type of defect is "self-cured" if a party to the instrument fails to make a formal challenge to the documenet within six months.

We have at least six of these cases in the office. All parties in these cases are anxiously awaiting the Maryland Court of Appeals decision in Ameriquest Mortgage v. Paramount, #52, argued on January 7, 2010. It will decide whether a lienholder may challenge an earlier recorded deed of trust on the basis of an allegedly defective affidavit of consideration and disbursement where that challange was made a full eighteen (18) months after the instrument was recorded.

We have stayed some of the cases, by agreement of the parties, as we await this important court decision.

Baltimore County is attempting to recalculate recording tax on old transactions!

We recently assisted a client that could not get a refinance deed of trust recorded in Baltimore County. The tax office demanded over $5,000 it claimed was due on two prior deeds in the chain of title for transactions one year prior to the deed of trust! Even though the lien sheet for the client's refi was clear, the County claimed the entitlement to recalculate and recapture the tax, and further refused to record the client's deed of trust until the funds were paid. We communicated directly with the County Attorney's Office, explained the operation of the various tax and recording provisions, and arranged for the County's acceptance of the deed of trust for recording within one week's time.

At risk, of course, is that the County's refusal to accept the instrument could have pushed the recording outside the bankruptcy code's "safe harbor" period in the event the borrower files for bankruptcy sometime in the near future. There was also the risk of intervening liens, and a loss of lien priority.

If the County had not accepted our analysis, the client would have had to advance the funds, and then file a claim for reimbursement with the Comptroller's office. This would have cost additional legal fees. The poorest choice would have been for the client to withhold the instrument while chasing the borrower in court to compel payment of the $5,000.

The lesson: Get it recorded! We can help you sort through the recoupment issues, after the lender's lien is perfected.

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