Main Contents

Court Order For Following Post

January 19, 2009

United States Bankruptcy Court District of Massachusetts

In re: ) )

JACALYN S. NOSEK, ) Chapter 13  DEBTOR. ) Case No. 02-46025 -JBR

____________________________________) )

JACALYN S. NOSEK, ) Adversary Proceeding PLAINTIFF, ) No. 04-4517 and

) No. 07-4109 v. ) AMERIQUEST MORTGAGE COMPANY, ) et al. )

DEFENDANTS )                                                                         )

MEMORANDUM OF DECISION REGARDING ORDER TO SHOW CAUSE

This matter came before the court for a hearing on the Court’s Order to Show Cause why

sanctions should not be imposed for apparent misrepresentations as to the status of Ameriquest

Mortgage Company as the holder of the note and mortgage at issue in this case and adversary

proceedings.

FACTS

The facts surrounding the dispute between the Debtor and Ameriquest Mortgage

Company (“Ameriquest”) as found by the Court after trial in adversary proceeding 04-4517 are

set forth in In re Nosek,   2006 WL 1867096 at *6 (Bankr. D. Mass. June 30, 2006).  The facts

pertinent to the issues now before the Court can be summarized as follows.  On October 2, 2002

the Debtor filed a voluntary petition pursuant to Chapter 13 of the United States Bankruptcy

Code.  On November 1, 2002 she filed her schedules, including Schedule D on which she listed a

secured, albeit disputed, debt owed to “Norwest Bank Minnesota, NA, Tr, c/o Ablitt & Caruolo,



P.C.” as well as the firm’s address.  The same schedule also lists “Ameriquest Mortgage

Company Representing: Norwest Bank Minnesota, NA, Tr” and “Buchalter, Nemer, Fields et al

Representing: Norwest Bank Minnesota, NA, Tr” and their respective addresses.  Ameriquest,

Norwest Bank Minnesota, NA, Tr. and the Buchalter firm are listed on the amended creditor

matrix.  Throughout the course of the bankruptcy case and Adversary Proceeding 04-4517,

Ameriquest and its attorneys have represented that Ameriquest was the “holder” of a note and

mortgage given by the Debtor/Plaintiff to Ameriquest.1  The Court’s judgment in Adversary

Proceeding 04-4517 is currently on appeal before the Court of Appeals for the First Circuit. 

On July 27, 2007 the Debtor commenced Adversary Proceeding 07-4109 against

Ameriquest and the two standing Chapter 13 Trustees for the District of Massachusetts and

sought, among other things, an order for trustee process.  On September 27, 2007 Ameriquest

filed an opposition [# 20] and in it, for the first time in this case, informed the Court that

“Ameriquest merely collects these funds [which the Debtor sought to attach] on behalf of their

owners.  It does not own these funds….”  The Affidavit of Eileen Driscoll Rubens,2 dated

September 27, 2007, reads in part:

Prior to March, 2005, Ameriquest acted as a loan servicer both for certain of the loans it originated and for loans originated by other parties. 

Rubens Affidavit at ¶ 8 (emphasis added).

1As discussed below, the term “holder” has a specific meaning when used in connection with a promissory note.

2Ms. Rubens identifies herself as “a Senior Counsel for ACC Holdings Corporation (“ACC”) and the Assistant Secretary for the ACC subsidiaries Ameriquest Mortgage Company (“Ameriquest”) and AMC Mortgage Services, Inc. (“AMC Mortgage Services”).”  Rubens Affidavit at ¶ 1. 

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A flurry of motions and cross-motions ensued, including Ameriquest’s cross-motion to

dismiss Adversary Proceeding 07-4109 on the grounds that the Court lacked jurisdiction because

of the pending appeal and the Debtor’s motion to amend the complaint in Adversary Proceeding

07-4109 to add Norwest Bank, Minnesota, N.A. (“Norwest”) as a defendant.3  Ameriquest

opposed the motion to amend the complaint on the grounds that the Plaintiff had elected to sue

Ameriquest instead of Norwest, its allegedly disclosed principal.  The complaint was dismissed

as to Ameriquest but the Debtor was permitted to amend her complaint to add Norwest as the

Defendant. 

On January 9, 2008 Norwest Bank, Minnesota, N.A., now known as Wells Fargo Bank,

N.A., as Trustee for Amresco Residential Securities Corp. Mortgage Loan Trust, Series 1998-2

filed a Request for Judicial Notice, which, along with its attached exhibits, evidence the

following:

1.  On November 25, 1997 the Debtor gave Ameriquest a note and mortgage on her

principal residence to secure the note.

2.  On November 30, 1997, five days after Ameriquest originated the loan, Ameriquest

assigned the note and mortgage to Norwest.

3.  On May 22, 2000 the assignment of the note and mortgage was recorded.

4.  On March 31, 2005 an assignment of the servicing rights in connection with the

November 30, 1997 note and mortgage were assigned by Ameriquest to AMC Mortgage

3The Debtor also sought to add Citi Residential Lending, Inc. as a trustee defendant.  Citi Financial is not a party to this Order to Show Cause.

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Services.4

Despite the above chronology which indicates that Ameriquest was the loan originator

and had not held the note since November 30, 1997 and despite the fact that Ameriquest ended

its servicer role as of March 31, 2005, the Court noted that Ameriquest and its attorneys made

contrary representations as to Ameriquest’s status.  For example

• On February 13, 2003, Ameriquest filed a proof of claim [Claim # 1], which was

amended by a proof of claim dated April 22, 2003 [Claim #16] and signed by one

John Teston, to which the note and mortgage were attached without any reference

to the assignment.

• In the February 17, 2003 Response to Debtor’s Objection to Ameriquest’s Proof

of Claim, attorney Jennifer G. Haskell of the law firm of Ablitt & Caruolo, P.C.

signed the pleading containing the following statement: “That Ameriquest is the

holder of the first mortgage on real property known as 60 Bolton Road, South

Lancaster, Massachusetts, and [sic] was recorded in the Worcester County

(Worcester District) registry of Deeds in Book 19404, Page 164.”  (Emphasis

added).

• By letter dated October 26, 2002 Ameriquest’s Customer Service Department sent

the debtor a letter in which Ameriquest stated “Ameriquest Mortgage Company

(AMC) holds an Adjustable Rate Note secured by a mortgage (or Deed of Trust)

4The trial in Adversary Proceeding 04-4517 began on November 28, 2005.  At that time Ameriquest, while it could be held accountable for its past behavior, had no role with respect to the note and mortgage, a fact not disclosed to the Court.

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against the residential real property….”5

• On or about February 24, 2003 attorney Jennifer G. Haskell signed a Motion for

Relief in the Debtor’s bankruptcy case on behalf of Ameriquest and represented

that “[t]he movant is the holder of a first mortgage ….”6

• On January 3, 2005 attorney William J. Amann of the law firm of Ablitt &

Caruolo P.C. signed an answer to the complaint in Adversary Proceeding 04-4517

in which he admitted the allegation in the complaint filed December 2, 2004 that

Ameriquest “is” the holder of the first position mortgage.

• Attorney Robert F. Charlton defended Ameriquest in the 8-day trial in Adversary

Proceeding 04-4517 without advising the Court that Ameriquest was neither the

noteholder nor mortgagee.7

• Attorney Jeffrey K. Garfinkle of the law firm of Buchalter Nemer filed an

appearance in Adversary Proceeding 04-4517 on July 17, 2006 and failed to

advise the Court until the pleadings of January 9, 2008 filed in Adversary

Proceeding 07-4109 of Ameriquest’s true role in these proceedings.

Consequently the Court issued its Order to Show Cause requiring Ameriquest; John Teston, who

5Ameriquest sent more than one letter containing this language.  See for example, Ameriquest’s letter of April 26, 2003. 

6Failure to identify Norwest as the subsequent holder of the obligation and identify Ameriquest as the agent for the holder violates the current iteration of MLBR 4001-1(b)(2)(F), a requirement not contained in the local rules then in effect. There is nothing in MLRB 4001-1, as it existed when the motion was filed, that permits the misrepresentation of the movant’s role, however.

7At the time of the trial, Ameriquest was no longer the servicer. 5



signed proofs of claim on behalf of Ameriquest; the law firm of Ablitt & Caruolo, PC;
8 Attorney

Jennifer G. Haskell; Attorney William Amann, Attorney Robert F. Charlton; the law firm of

Buchalter Nemer Fields & Younger (“Buchalter”); Attorney Jeffrey K. Garfinkle; Kirkpatrick &

Lockhart Preston Gates Ellis (“K&L Gates”); and Norwest to show cause why they should not

be sanctioned for their apparent misrepresentations.  In addition. Attorney R. Bruce Allensworth

was ordered to provide evidence for his representation during the November 28, 2007 hearing on

the Motion to Amend the Complaint in Adversary Proceeding 07-4109 that “following whatever

initial pleadings may have been followed [sic] in this case, it is the case that in the course of


discovery there was testimony at deposition that these loans had been sold.”
9  He was also


ordered to provide support for his contention that Norwest’s identity was disclosed by virtue of

the 2000 recordation of the assignment of the note and mortgage when Ameriquest’s own

counsel improperly referred to Ameriquest as the holder of the note and mortgage throughout the

bankruptcy and adversary proceedings until January 9, 2008. .

Shortly after the Order to Show Cause entered on the docket, Citi Residential Lending,

Inc., in its capacity as loan servicer for the note, through attorneys David Liu and Jason E.

Goldstein of the Buchalter Nemer firm, filed a “Transfer of Claim Other than for Security” and

listed Ameriquest as the transferor of the claim evidenced by claim number 16.10  The Debtor has

8At some point prior to the trial in Adversary Proceeding 04-4517, the law firm of Ablitt & Caruolo, P.C. became Ablitt & Charlton, P.C.  A response was filed on behalf of Ablitt & Charlton, P.C. (The “Ablitt Firm”).

9The Debtor’s attorney had advised the Court that he was also unaware of the assignment until learning of it in the most recent adversary proceeding.

10The Transfer of claim form indicates that claim # “16 (Amended #1)” was transferred. There is no amended proof of claim regarding claim #16.

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requested that the Court take judicial notice of the fact that Ameriquest is listed as the transferor;

Ameriquest responded that it was entitled to file the proof of claim in its own name pursuant to a

“Pooling and Servicing Agreement” dated June 1, 1998, a copy of which was filed at the hearing

on the Order to Show Cause on February 21, 2008 [docket #214].

All of the individuals and entities named in the Order to Show Cause, with the exception

of John Teston, filed written responses as required by the Order.11  The responses focused on

several common themes: first, nobody intended to mislead the Court; second, the Debtor and her

attorney knew that Ameriquest was not the noteholder and thus she was not harmed; third, notes

and mortgages are bought and sold so frequently, that it is difficult to know at any given moment

who holds the note and mortgage; and fourth, that the Pooling and Service Agreement permitted

Ameriquest to undertake some actions in its own name.  In addition, Ablitt & Caruolo and its

attorneys urged the Court to find that their reliance on representations of individuals at the

Buchalter firm was reasonable.  The Court held a hearing on the Order to Show Cause at which

these same points were reiterated and took the matter under advisement.

DISCUSSION

Throughout most of these proceedings, Ameriquest and its attorneys represented that

Ameriquest was the “holder” of the note of the note and mortgage.  The word “holder” has a

very specific definition when used in connection with a negotiable instrument such as a note.

11Ameriquest advised the Court that Mr. Teston was no longer employed by Ameriquest and that his current whereabouts are unknown.  Although Ameriquest mailed a copy of the Order to Show Cause to Mr. Teston’s last known address, Ameriquest is unsure whether he received the Order.  The Court will not proceed against Mr. Teston given this uncertainty and in light of Buchalter’s acceptance of responsibility for the preparation of the proofs of claim.

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“Holder” with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession….

M.G.L.A. 106 § 1-201(20).    The term “holder” is similarly defined when used in connection

with a mortgage.  See B LACKS LAW DICTIONARY, 1034 (8th ed. 2004)(mortgage-holder or

mortgagee is “one to whom property is mortgaged; the mortgage creditor or lender”). 

Unfortunately the parties’ confusion and lack of knowledge, or perhaps sloppiness, as to

their roles is not unique in the residential mortgage industry.  In re Maisel, 378 B.R. 19 (Bankr.

D. Mass. 2007);  In re Schwartz, 366 B.R. 265 (Bankr. D. Mass. 2007).   See also In re

Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio 2007).  Nor are “mistakes” and

misrepresentations limited to the identification of roles played by various entities in this

industry.  In re Schuessler, 2008 WL 1747935, *3 (Bankr. S.D.N.Y. 2008) (movant’s motion

misrepresented debtor’s equity); Porter, Katherine M., “Misbehavior and Mistake in Bankruptcy

Mortgage Claims” (November 6, 2007).  University of Iowa Legal Studies Research Paper No.

07-29. Available at SSRN: http://ssrn.com/abstract=1027961.   As this Court has noted on

more than one occasion, those parties who do not hold the note or mortgage and who do not

service the mortgage do not have standing to pursue motions for relief or other actions arising

from the mortgage obligation.  Schwartz, 366 B.R. at 270.  The Court has had to expend time and

resources, as have debtors already burdened in their attempts to pay their mortgages, because of

the carelessness of those in the residential mortgage industry and the bombast this Court and

others have encountered when calling them on their shortcomings.  In re Foreclosure Cases,

2007 WL 3232430 at *3, n.1.

 “The purpose of Rule 9011 is to deter baseless filings in bankruptcy and thus avoid the

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expenditure of unnecessary resources by imposing sanctions on those found to have violated it.”

In re MAS Realty Corp., 326 B.R. 31, 37 (Bankr. D. Mass. 2005).  Pursuant to Fed. R. Bankr.

9011(b), an attorney or unrepresented party who signs “a pleading, written motion, or other

paper” is, among other things, certifying to the Court that “the allegations and other factual

contentions have evidentiary support, or if specifically so identified, are likely to have

evidentiary support after a reasonable opportunity for further investigation or discovery….”  The

certification is not an absolute guaranty of accuracy, however; the rule expressly permits the

representations to be based upon the signer’s best knowledge, information, and belief “formed

after an inquiry reasonable under the circumstances.”  The standard to be applied is “an objective

standard of reasonableness under the circumstances.”    Cruz v. Savage, 896 F.2d 626, 631 (1st

Cir. 1990).  “Courts, therefore, must inquire as to whether ‘a reasonable attorney in like

circumstances could believe his actions to be factually and legally justified.’” Cabell v. Petty,

810 F.2d 463, 466 (4th Cir.1987).  Cullen v. Darvin, 132 B.R. 211, 215 (D. Mass. 1991).   A

finding of unreasonableness must be shown by a preponderance of the evidence.  Miller-

Holzwarth, Inc. v. U.S., 2000 WL 291728, 3  (Fed. Cir. 2000).12

When Fed. R. Civ. P. 11 was amended in 1983,13 the Advisory Committee noted that

what constitutes a reasonable inquiry may depend on such factors as how much time for investigation was available to the signer; whether he had to rely on a client for information as to the facts underlying the pleading, motion, or other paper; whether the

12All parties, except Mr. Teston, who did not respond, submitted affidavits.  None of the parties requested an evidentiary hearing.

13In determining whether the imposition of sanctions is appropriate in [a] case, the Court may look to authorities interpreting Fed. R. Civ. P. 11 as a guidepost.  In re M.A.S. Realty Corp. 326 at 38, n.7.

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pleading, motion, or other paper was based on a plausible view of the law; or whether he depended on forwarding counsel or another member of the bar.

In commenting upon the revisions made to subdivisions (b) and (c) of the Rule in 1993, the

Advisory Committee explained

The revision in part expands the responsibilities of litigants to the court, while providing greater constraints and flexibility in dealing with infractions of the rule. The rule continues to require litigants to “stop-and-think” before initially making legal or factual contentions. It also, however, emphasizes the duty of candor by subjecting litigants to potential sanctions for insisting upon a position after it is no longer tenable and by generally providing protection against sanctions if they withdraw or correct contentions after a potential violation is called to their attention.

If Rule 9011 is violated, the Court may impose sanctions.  “The imposition of sanctions

under Rule 9011 is a very serious matter. The decision regarding whether they should be

imposed requires a great deal of thought and care. Only those actions deemed to fall squarely

within the purview of Rule 9011 will result in a finding that it has been violated and the

concomitant imposition of sanctions by this Court.”   In re M.A.S. Realty Corp., 326 B.R. at 37.

If sanctions are imposed, “the Court must limit the amount imposed to ‘what is sufficient to deter

repetition of such conduct or comparable conduct by others similarly situated.’ Fed. R. Bankr. P.

9011(c)(2); Arcari v. Marder, 225 B.R. 253, 257 (D. Mass. 1998).”  Id. at 38.

With these tenets as a guide, the Court must examine the conduct of each party required

to show cause but before doing will dispense with some common arguments.  Virtually all of

parties argue that there was no intent to mislead the Court. Because the standard to be applied is

an objective one,  the Court may quickly dispatch this argument.  Intent is irrelevant.  The

argument that the assignment of the note and mortgage was a matter of public record and

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therefore the Debtor knew or should have known of Norwest’s identity is relevant but

disingenuous, indeed even arrogant, since many of these same parties asserting this position

allege they had no way of knowing about the assignment.  They seek to bind the Debtor to one

standard and themselves to a much lower one.  Moreover the attorneys and law firms’ argument

that notes and mortgages frequently change hands multiple times, often with written

documentation executed later, which they offer as explanation as to why its reasonable for them

to rely on the representations of their clients should provide little shelter when they insist that the

Debtor should have known better than to take their pleadings literally.  This Court will not

countenance creditors and creditors’s attorneys holding themselves to a different and clearly

lower standard than what they expect of the Debtor.  It will not tolerate a lender’s or servicer’s

disregard for the rules that govern litigation, including contested matters, in the federal courts.  It

is the creditor’s responsibility to keep a borrower and the Court informed as to who owns the

note and mortgage and is servicing the loan, not the borrower’s or the Court’s responsibility to

ferret out the truth. 

AMERIQUEST

Ameriquest attempts to portray itself as the victim; in its view, the Debtor knew the true

identity of the mortgage holder and that Ameriquest was the servicer.  As proof it cites to the

Debtor’s schedules and amended matrix.  Of course this argument has two major flaws.  First,

the Order to Show Cause was not issued to deal with misrepresentations to the Debtor and her

counsel but rather to determine whether the misrepresentations to the Court were indicative of

very sloppy practice at best or an intentionally deceptive practice at worst.  Second, as noted

above, that these obligations are frequently bought and sold imposes a responsibility to know

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and correctly represent the status of the loan.  That Ameriquest had no role after March 2005 –

well before the trial in Adversary Proceeding 04-4517, was unknown to the Court. 

Similarly Ameriquest’s argument that the noteholder’s identity was disclosed during a

deposition of one of its employees misses the mark and, as noted above, so does the argument

that the assignment of the note and mortgage ultimately became a matter of public record.

Ameriquest argues that assignments of notes and mortgages frequently occur with

documentation of the transfers recorded, and even executed, at a later time.  Moreover

Ameriquest represents that it is not uncommon for the original noteholder or mortgagee to take

back the note and/or mortgage when a borrower defaults.  Using these excuses, the parties’

attitude appears to be that  confusion as to a party’s role is understandable against the current

commercial climate.  If the transfer of such negotiable instruments occurs at such a fast pace and

without timely recorded evidence of the transfers, why should the Court and Debtor’s counsel be

expected to know the roles of the parties?  The burden is clearly on the sophisticated, albeit

careless, lenders and servicers.

Ameriquest also seeks to hide behind the Pooling and Servicing Agreement by arguing

that the document gave Ameriquest the power to act in its own name, including for the purpose

of filing proofs of claim.  That may be true but proofs of claim filed under a written power of

attorney MUST have the power of attorney attached.  Fed. R. Bankr. P. 3001 and Official Form

10.  No part of the agreement was attached to the proof of claim.  It is worth repeating as a

warning to lenders and servicers that the rules of this Court apply to them.  Their private

agreements and the frenzied trading market for mortgages do not excuse compliance with the

Bankruptcy Rules any more than they would justify ignoring the Bankruptcy Code.

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This Court finds that Ameriquest made repeated misrepresentations and its behavior in

failing to properly disclose its role was unreasonable under the circumstances.  Although

Ameriquest has informed the Court that it is no longer engaged in originating and servicing loans

and therefore presents no danger to misrepresent its status in the future, it ignores the fact that it

could reenter the residential mortgage arena in the future.  Moreover, sanctions are designed to

deter future actions not only those of the offending party but also “comparable conduct by others

similarly situated.”  Fed. R. Bankr. P. 9011(c)(2).  Therefore Ameriquest is sanctioned $250,000.

THE ABLITT FIRM AND ITS ATTORNEYS

By its express terms Rule 9011 applies to law firms as well as attorneys.  Fed. R. Bankr.

P. 9011(c).  The Ablitt Firm and its attorneys, Jennifer Haskell and William Amann, filed a joint

response in which they assert that they had no knowledge of any mistaken or incomplete

information, that their filings and statements were based upon and consistent with Ameriquest’s

proof of claim and the information they received from Ameriquest and its national counsel, the

Buchalter Firm.  They also state that notes and mortgages are frequently sold back to the

originator when the notes are in default.  The Ablitt Firm also submitted the affidavit of Attorney

Steven Ablitt, who testified that the firm “relied upon the direction of its institutional clients

regarding what name relief should be sought in or a foreclosure action prosecuted in part because

of the uncertainty of unrecorded transfers.”  He cites to Title Standard No. 58 of the Real Estate

Bar Association of Massachusetts, which opines that a title is not defective solely because a

foreclosure is done in the name of an assignee even though the assignment of mortgage is not

executed until after the foreclosure, as evidence that memorialization of an assignment of the

mortgage is not the operative document by which mortgages are sold.  Thus he argues that

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reliance upon an institutional client’s representations in a foreclosure referral is an accepted

practice. Neither Attorney Ablitt nor the response addresses the fact that, prior to the Debtor’s

current bankruptcy, the Ablitt firm had been retained to commence foreclosure proceedings and

seek relief from stay in the Debtor’s prior bankruptcy cases.  If they had, they would have seen

all those actions were undertaken in the name of Norwest.  So the question becomes whether a

firm should be permitted to rely on representations of its client without reviewing its own files.

At a time when mortgages and notes are bought and sold at a pace so swiftly that the assignor

and assignee cannot keep up with the paperwork, had the attorneys at the Ablitt firm checked the

firm’s file, they would have seen that Norwest was perhaps the real party in interest, at least

when prior actions were taken, and thus sought additional information.  The firm cannot shield

itself from its institutional knowledge.  Therefore the Court will impose sanctions of $25,000 on

the firm.

Attorneys Haskell and Amann aver that they were both associates at the firm at the time

of their involvement in these matters.  They assert essentially that they were carrying out the

bidding of their client, Ameriquest, and its national counsel, the Buchalter firm.  Nevertheless

they had an independent obligation to the Court pursuant to Rule 9011.  Yet the Court is mindful

that young associates are often not in a position to question the assignments given to them.

Because the affidavits are unclear as to what each associate was told when given the assignment,

the Court will not impose monetary sanctions on Attorneys Haskell and Amann but will let this

decision serve as a warning that in the future the Court expects associates will be cognizant of

and fulfill their responsibilities under Rule 9011.

 ATTORNEY ROBERT CHARLTON

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Attorney Charlton was a partner at the Ablitt firm at the time he conducted the trial in

this matter but in his response he avers that he had not been involved in this matter since October

2006 and that he never heard of Norwest.  The response begs the question; should he have

known about Norwest.  For the same reasons that the Ablitt firm knew of Norwest, so should

Attorney Charlton.  Therefore Attorney Charlton is sanctioned $25,000.

“K&L GATES” AND ATTORNEY R. BRUCE ALLENSWORTH

K&L Gates did not enter this matter until February 2008.  The Court finds that the

conduct of the K&L Gates attorneys did not violate Rule 9011.

THE BUCHALTER FIRM AND ATTORNEY JEFFREY GARFINKLE

The Buchalter firm is one of the prime sources of the problem in this case.  One of its

unnamed paralegals prepared the proof of claim forms and by its own admission, the firm cannot

determine whether it had information as to the identity of the owner at the time the forms were

prepared, although it was aware of the Pooling and Servicing Agreement.  But as the Court has

noted, that agreement cannot change the requirements for filings proofs of claim in accordance

with the Bankruptcy Rules or Official Form 10.  The Buchalter firm’s response blithely ignores

the role it played in setting the series of misrepresentations in motion.  As national counsel to a

mortgage lender, it has a responsibility to know its client’s role in a case.14  It cannot rely on the

representations of its client; it has a responsibility to question and probe to the extent necessary

to ensure that it has elicited correct information.  The firm fell far short of what was required. 

14The Court notes that the Buchalter firm and Attorney Garfinkle filed pleadings on behalf of Norwest/Wells Fargo in Adversary Proceeding 07-4109.  None of the pleadings filed in response to the Order to show cause address the firm’s current and historical relationship with Norwest or Wells Fargo.  It would be curious indeed if the firm was national counsel to both yet incapable of distinguishing between the roles each played in a given case.

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Consequently the firm is sanctioned $100,000.

Attorney Garfinkle became involved after the trial in Adversary Proceeding 04-4517 was

concluded.  His and the firm’s response argues that there was no reason for him to question

Ameriquest’s role.  Given that the court had awarded damages against Ameriquest, there was

nothing inherently improper about Attorney Garfinkle’s representations in this case.  His

involvement centered on pursuing an appeal of the judgment and opposing the imposition of

costs and attorney’s fees.  Thus attorney Garfinkle was dealing with the facts as they had

historically been presented to the Court, and made no representations of Ameriquest’s then-

current status.  Therefore the Court does not impose sanctions on Attorney Garfinkle.

NORWEST N/K/A WELLS FARGO

Norwest/Wells Fargo seeks to hide behind the Pooling and Servicing Agreement.  Its

position is that it turned all responsibilities over to Ameriquest and it knew nothing about what

Ameriquest was doing.  The Court notes, however, that it knew nothing about what Ameriquest

was doing because it chose not to know.  It has attempted to bifurcate the benefits of the note,

namely its right to receive repayment of the loan, from all responsibilities associated with

servicing and collecting payments.  If Norwest/Wells Fargo wishes to engage servicers, as it is

certainly free to do, it cannot turn a blind eye to the actions of the servicers.  Had Norwest/Wells

Fargo shown even a modicum of oversight or review of Ameriquest’s behavior, it should have

been able to correct the misrepresentations.  The Court does not accept that one can simply by

contract sever the benefits and burdens associated with residential mortgage lending.  The Court

joins in the frustration expressed by the courts in In re Schuessler and In re Parsley, 2008 WL

622859 at * 19 (Bankr. S.D.Tex. 2008) (“Tracing the steps leading up to the filing of the Motion

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shows that this is an assembly line process.”).  The link between lender and borrower in the

current residential mortgage industry is a multilayered, tightly-if not hopelessly-entangled

“assembly line,” the purpose of which seems to be the avoidance of responsibility.  In re

Schuessler, 2008 WL 1747935at *25 (“Notwithstanding Chase Home Finance’s [the apparent

servicer] disingenuous claim that its system is designed to protect debtors, it primarily exists to

protect Chase Home Finance and JPMorgan Chase Bank [the apparent noteholder and

mortgagee].”).  Under the guise of creating a complex structure to suit their needs, Wells Fargo

and Ameriquest have attempted to jettison the obligation to be forthright and diligent with the

Court and the Debtor.  This Court will not allow Wells Fargo or any other mortgagee to shirk

responsibility by pointing fingers at their servicers.  Moreover because Wells Fargo continues as

a participant in the mortgage industry, the Court is cognizant that the sanction must be sufficient

to deter its cavalier behavior in the future.  Therefore the Court will impose a sanction of

$250,000 on Wells Fargo.  In imposing the sanction on Wells Fargo, the Court is not limiting the

sanction against Wells Fargo solely and to the extent that there are assets in the AMERESCO

Residential Securities Corporation Mortgage Loan Trust 1998-2, which was established under

the Pooling and Servicing Agreement.  That the note and mortgage were subsequently assigned

to a trust holding a pool of notes and mortgages by Wells Fargo’s predecessor, Norwest, is

simply another example of the layers interposed between borrower and lender in today’s

marketplace.  It cannot serve as a vehicle to deflect ultimate responsibility from Wells Fargo.

CONCLUSION

For the reasons set forth herein, sanctions will be imposed as set forth above on

• Ameriquest in the amount of $250,000;

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• Ablitt & Charlton, P.C., formerly known as Ablitt & Caruolo, P.C., in the amount

of $25,000;

• Attorney Robert Charlton in the amount of $25,000;

• Buchalter Nemer Fields & Younger in the amount of $100,000; and

• Wells Fargo in the amount of $250,000.

Sanctions will not be imposed on

Attorney Jennifer Haskell;

Attorney William Amann;

Attorney R. Bruce Allensworth; and Kirkpatrick & Lockhart Preston Gates Ellis.

A separate order will issue.

Dated: April 25 , 2008 ___________________________ Joel B. Rosenthal United States Bankruptcy Judge. 

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Mortgage Defense and Offense: Bankruptcy Judge Whacks “Assembly Line” Attorneys For $150K In Sanctions For Misrepresenting Ownership Of Promissory Note In Mortgage Foreclosure

January 19, 2009

The Wall Street Journal Law Blog reports:

  • On Friday, two law firms — Buchalter Nemer and Ablitt & Charlton, along with name partner Robert Charlton — got whacked with a combined $150,000 in sanctions. In a decision regarding an order to show cause in the case, called Nosek v. Ameriquest, bankruptcy judge Joel Rosenthal found that, throughout earlier proceedings, lawyers at both firms, in representing Ameriquest, had continually represented that Ameriquest was the holder of Nosek’s mortgage, when in fact it had been assigned, at least twice, to other lenders.
  • Judge Rosenthal held: “At a time when mortgages and notes are bought and sold at a pace so swiftly that the assignor and assignee cannot keep up with the paperwork, had the attorneys at the Ablitt firm checked the firm’s file, they would have seen that Norwest was perhaps the real party interest. . . . The firm cannot shield itself from institutional knowledge.” Rosenthal fined the firm $25,000, and attorney Robert Charlton another $25,000. (The Buchalter firm was fined the remainder, or $100,000.)

According to the court order, the lender/servicer and trustee involved, Ameriquest and Wells Fargo, were also clipped for $250,000 each in sanctions. Judge Rosenthal, however, declined to sanction the two associates who assisted Charlton in the case.

For more, see Judge Has Stern Words (But No Fine) for Associates at Sanctioned Firm.

See also, The Wall Street Journal: Wells Fargo Is Sanctioned For Role in Mortgage Woes:

  • Joel B. Rosenthal, a Massachusetts federal bankruptcy judge, wrote in a decision that Wells Fargo “turned all responsibilities over” to the servicer but “turn[ed] a blind eye” to the servicer’s mistakes. Had the company “shown even a modicum of oversight or review” of the servicer’s behavior, “it should have been able to correct the misrepresentations” made to the court. He added: “This court will not allow Wells Fargo or any other [mortgage holder] to shirk responsibility by pointing fingers at their servicers.” A Wells Fargo spokeswoman said in a statement: “We believe the judge failed to appreciate Wells Fargo’s limited role as trustee in the servicing of the home loan. As a result, Wells Fargo plans to appeal the order.”

For the relevant court documents in this case, see:

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, Go Here and Go Here.

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Foreclosure Defense: Countrywide Faces Civil RICO, RESPA Charges In Washington Class Action Suit; Accused Of Using Do-Nothing Subsidiary To Inflate, Pocket Appraisal Fees

January 19, 2009

In Seattle, Washington, the law firm Hagens Berman Sobol Shapiro LLP announced last week:

  • A group of Washington homeowners this week filed a lawsuit against Countrywide, a wholly owned subsidiary of Bank of America (NYSE: BAC) and the nation’s largest mortgage company, claiming the mortgage giant illegally rigged the appraisal process in a scheme to boost profits at the expense of homeowners and independent appraisers.
  • Filed under the Racketeering Influenced and Corrupt Practices Act (RICO), the suit claims that Countrywide forces homeowners to use its wholly owned subsidiary LandSafe, for appraisals. The company then turns around and subcontracts the work to independent appraisers while charging homeowners as much as 200 percent of the actual cost of the appraisal.

***

  • The lawsuit, filed in U.S. District Court in Seattle, seeks to represent all homeowners who purchased or refinanced their home through Countrywide and LandSafe, and asks the court to award plaintiffs damages. [...] The lawsuit cites violations of federal law under RICO and RESPA. Other counts include unjust enrichment, breach of fiduciary duty and violation of California unfair competition law. You can learn more about this case by visiting www.hbsslaw.com/CFChomeowners.

For the press release, see Hagens Berman Files Class Action Against Lending Giant Countrywide.

For the lawsuit, see Clark v. Countrywide Home Loans, Inc., et al.

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Foreclosure Offense: HUD Launches Program In Six Cities To Help Homeowners Not Yet In Foreclosure

January 19, 2009

In Miami, Florida, The Miami Herald reports:

  • [A]nother effort to keep borrowers from losing their homes to foreclosure was launched Wednesday by the Department of Housing and Urban Development. Called ”Keep Your Home, Know Your Loan,” the campaign includes public service announcements and print materials that will be distributed in six major metropolitan areas where home foreclosures rates are soaring, including Chicago, Los Angeles, Detroit, New York, Phoenix, and, naturally, Miami.(1)
  • This is an opportunity for us to reach out to people who may not be in foreclosure yet, but could be facing one this year, due to a rate change, the economic downturn, job loss or having their hours cut,” said Armando Fana, director of HUD’s field office in South Florida.

For more, see Miami homes get HUD lifeline (Federal housing officials chose Miami and five other cities to launch a foreclosure prevention campaign, complete with a hot line, and warned home owners to watch out for ‘rescue’ scams).

Go here for more information on the HUD program - Keep Your Home. Know your Loan.

 

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Mortgage Meltdown: Freddie Continues Bringing Foreclosure Actions; Says Its Announced Moratorium Applies Only To Actual Sales & Evictions, Not To Court Filings

January 15, 2009

Bloomberg News reports:

Freddie Mac continues to foreclose on homeowners and make plans to evict them, drawing fire from legal aid groups who say the moves violate the spirit of a moratorium the company agreed to in November. While Freddie has suspended sales of foreclosed properties and isn’t locking people out of their homes, the mortgage- finance company continues to initiate court cases against homeowners and pursue existing cases, company spokesman Brad German said.

 

  •  The actual sale, the actual eviction has stopped, but the process continues,” German, the Freddie spokesman, said yesterday. “The moratorium does not affect the normal process of legal filings. But no one is being evicted, the homes are not being sold,” he said.
  • By contrast, Fannie [Mae] has worked to halt court proceedings and notify borrowers and tenants that they may be eligible to stay in their homes if they agree to sign a new monthly lease at market rates, according to [legal aid attorneys]. When cases have fallen through the cracks and court action continued, Fannie is “literally sending people out to knock on doors to make them aware of the policy and, when they’re not home, we leave flyers with information about their options,” said Fannie spokesman Brian Faith.

For more, see Freddie Foreclosures, Eviction Plans Continue During Moratorium.

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Foreclosure Fraud: Attorneys For Major Lender In New Hampshire Lawsuit Admit Company’s Loan Modification Assurances Are “Mere Commercial BS”

January 15, 2009

 

In Merrimack County, New Hampshire, MSNBC.com reports:

In marketing, advertising and testimony before Congress, Countrywide Home Loans has said repeatedly that it is working hard to modify the mortgages of financially strapped borrowers caught up in the subprime meltdown.

  • But in a New Hampshire court, attorneys for the lending giant are singing a different tune, describing such assurances as “mere commercial puffery.”
  • Saying the modification offers are “only Countrywide’s vague advertisements,” attorneys for the lender are asking the court to throw out a lawsuit alleging breach of good faith, fraud, negligence and misrepresentation, which was filed on behalf of a family that was refused a loan modification by the California-based company.
  • It’s breathtaking,” attorney Mary Frances Stewart of Concord, N.H., said of Countrywide’s response to the lawsuit she and co-counsel Krista Atwater filed in Merrimack County Superior Court. In its response, “Countrywide is saying, ‘We don’t have any obligation or even necessarily the intention of actually modifying these loans,’ and yet they’re representing that they do.”

For more, see In court, Countrywide calls its ads ‘puffery’ (Defending lawsuit, mortgage company mocks loan modification assurances) (go here for entire story on one web page).

 

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Mortgage Meltdown: FDIC Unloads $558M In Bad Loans For Less Than 50 Cents On Dollar To Firm Led By Ex-Countrywide Head; Price To Be Paid Out Over Time

January 9, 2009

Bloomberg News reports:

  • Stanford Kurland, the former Countrywide Financial Corp. president, says his new company’s purchase of $558 million in home loans issued by a failed Nevada bank will be a springboard for further growth. Private National Mortgage Acceptance Company LLC ["PennyMac"], based in Calabasas, California, is paying less than 50 cents on the dollar for loans that the Federal Deposit Insurance Corp. acquired last July after First National Bank of Nevada collapsed.

***

  • Kurland declined to discuss financial details of the transaction, which FDIC spokesman David Barr said doesn’t involve any sharing of possible losses. The FDIC will be paid 80 percent of loan cash flow until an undisclosed level of payments are received, then 60 percent thereafter, Barr said.

For more, see PennyMac, Led by Ex-Countrywide Head, Sees Promise in Bad Loans.

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Foreclosure Offense: Major Lender, Top Senate Democrats Reach Understanding On Mortgage Cramdown Provisions Allowing Bankruptcy Judges To Modify Troubled Home Loans

January 9, 2009

The Wall Street Journal reports:

  • A Senate bill aimed at giving strapped homeowners more leverage in renegotiating their mortgages cleared a hurdle Thursday when Citigroup Inc. dropped its opposition. The legislation, which is being advanced by top Senate Democrats, would let judges set new repayment terms for mortgage holders in bankruptcy court.

***

  • The proposal from Sen. Dick Durbin, an Illinois Democrat, to allow so-called mortgage “cramdowns,” would apply only to homeowners who have filed for Chapter 13 bankruptcy protection.

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  • The Democrats’ proposal allows judges to approve plans that make major reductions in home-loan debts, after homeowners certify that they have attempted to contact their lenders about a mortgage reduction before bankruptcy proceedings begin. [...] The cramdown bill would apply to all mortgage loans, including subprime loans, written any time prior to the bill’s date of enactment.
  • In a concession to lenders, a mortgage debt could be forgiven entirely only if the lender was found committed a major violation of the Truth in Lending Act. Under the bill’s original language, the entire mortgage debt could be wiped away based on a violation of any number of state and federal consumer lending laws.

For more, see Plan to Cut Foreclosure Rate Clears Key Hurdle.

See also:

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Mortgage Meltdown: Fannie Begins Testing “Pre-Approved Short Sale Program” For Underwater Homes In Phoenix, Orlando

January 9, 2009

The Wall Street Journal reports:

  • Fannie Mae is testing a new program to stave off foreclosures by preapproving “short sales” of homes, in which mortgage companies allow homeowners to sell houses for less than the value of existing loans, forgiving the difference.

***

  • Two pilot projects, in Phoenix and Orlando, Fla., began at the end of December and will last for three months. The test run is limited to properties secured by a Fannie Mae mortgage and serviced by Countrywide Financial Corp., a subsidiary of Bank of America Corp. Only homes already listed at less than the unpaid balance on the mortgage are eligible for the pilot. So far, about 400 homes have qualified for preapproval between the two markets.

For more, see Fannie Mae Tests ‘Short Sales’ as Alternative to Foreclosures (subscription may be required; for those without a subscription, try here, then click link for the story).

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Foreclosure Offense: FTC, 3 Loan Orignators Settle Charges Of TILA & Reg Z Violations; Deceptively Advertising “Teaser” Rates

January 9, 2009

The Federal Trade Commission announced:

  • Three mortgage loan advertisers that allegedly deceptively touted low monthly payments and low rates without fully disclosing loan terms have agreed to settle Federal Trade Commission charges that their ads violated federal law.(1)
  • According to the FTC, the ads represented that people could receive mortgage loans at the terms prominently stated in the ads. However, in violation of the FTC Act, the ads allegedly failed to disclose, or failed to disclose adequately, that the advertised low monthly payment amounts and low rates apply only for a limited time, after which they will increase, and that the advertised payment amounts and rates did not include the interest owed each month, with the interest added to the total loan balance.

For more, see Three Home Loan Advertisers Settle FTC Charges; Failed to Disclose Key Loan Terms in Ads.

(1) For links to the relevant court documents in the three cases (ie. consent orders, original FTC complaints, etc.), see:

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