This is a great article about the foreclosure-related mismanagement/abuse relfected in lawsuits being brought against lending giant Countrywide, one of several lenders recently embroiled in controversy. As the saying goes, “the bigger they are…”

NEW YORK (Reuters) – Countrywide Financial Corp, which was the largest U.S. mortgage lender before being acquired by Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), faces a Federal Trade Commission probe into whether its loan-servicing activities violated federal law.

Countrywide in its quarterly report filed on Monday with the U.S. Securities and Exchange Commission said the FTC has issued civil investigative demands requiring it to provide documents.

It said the agency is assessing whether activities related to Countrywide’s $1.49 trillion servicing portfolio, covering roughly 9 million borrowers, violated laws the agency administers.

FTC spokeswoman Claudia Bourne-Farrell confirmed that the agency had begun a probe but she did not elaborate. Servicers handle billing and payment collections.

The FTC probe adds to legal headaches for Bank of America, which last month paid about $2.5 billion to buy Countrywide.

California, Connecticut, Florida and Illinois have all sued Countrywide over its lending practices. Countrywide also faces U.S. Department of Justice lawsuits accusing it of abusing or mismanaging the bankruptcy and foreclosure processes.

Charlotte, North Carolina-based Bank of America last week said Countrywide also faces a formal SEC probe. This concerns whether former Countrywide Chief Executive Angelo Mozilo violated insider trading laws and whether Countrywide’s financial disclosures misled investors, the Los Angeles Times said.

Separately, Countrywide is under investigation by the FBI, authorities have said. That agency last month said it had 21 corporate targets in its probe of potential corporate fraud in the mortgage industry.

Calabasas, California-based Countrywide said the Justice Department cannot confirm or deny whether the FBI is investigating the company. The Justice Department could not immediately be reached for comment.

(Reporting by Jonathan Stempel; Additional reporting by Diane Bartz in Washington, D.C., editing by Mark Porter)


Thanks to Reuters (Washington) for their coverage of this important issue.

The Federal Deposit Insurance Corp has temporarily halted any foreclosures on the $15 billion of bank-owned mortgage loans found in IndyMac’s portfolio, FDIC Chairman Sheila Bair said on Monday.

Bair has scolded mortgage lenders for being too slow to help distressed borrowers restructure their home loans.

“Modified loans will be worth more than foreclosed loans,” she said in an interview on CNBC television.

IndyMac, which the FDIC took over after it failed on Friday, had a $200 billion mortgage servicing portfolio.

Bair has repeatedly urged the mortgage industry to refinance loans rather than foreclose on properties when borrowers fall behind on their payments.

She said the “overwhelming majority” of U.S. banks are “safe and sound.”

Capital levels are strong at U.S. banks, but she warned that the industry will see the number of troubled banks and failures grow in the coming months.

“The number is going to go up,” Bair said. “Banks do fail and there’s nothing unusual about that.”

She declined to comment on a RBC Capital Markets report on Sunday that said 300 U.S. banks might fail over the next three years because of credit losses and tight capital markets.

But Bair said U.S. banks were well-positioned going into the credit crisis and will continue maintaining strong capital levels. “They’re still in a very good position to weather it.”

  (Reporting by Karey Wutkowski; Editing by Tim Dobbyn)



Back in April, we were receiving many calls from borrowers who either had been sued for foreclosure (in what are known as “judicial” foreclosure states), or where a Trustee’s Sale was in the works (in what are known as “non-judicial” states). The bulk of these calls were from borrowers who intended to represent themselves based on what they had learned from one or more blogs or other sources on the Internet, and who were seeking a legal opinion to validate what they had learned on the Web. All such callers were advised of the dangers of representing themselves in legal proceedings. However, most of these callers said that they felt comfortable representing themselves.

Now, in early August, many of these same borrowers are calling us frantically seeking assistance because they have gone as far as they can go in defending their foreclosure by themselves, in certain instances telling us that they were either laughed out of court or were told by the Judge to get an attorney. In other situations, borrowers who are not attorneys and are thus not familiar with court rules or Rules of Civil Procedure have impaired their defense by simultaneously filing a Motion directed to a perceived problem with the foreclosure proceeding and a formal Answer to the proceeding as well. Doing so is inconsistent, and tells the Judge that your Motion was not well grounded and that you don’t know what you are doing. This also wastes the Judge’s and Court’s time.

Judges are extremely busy people, and work in an environment where they are used to dealing with attorneys who are skilled in court procedure and the law. This permits the court system to function as a fairly well-oiled machine. Throwing a “pro se” party into the system causes delay, confusion, and aggravation on the part of those who work in the system on a regular basis. Although most Judges do accommodate pro se parties to an extent, everyone has their limits. In one case we are involved in, the Judge finally told the self-represented party that he had gone far enough and to get an attorney, period.

An additional problem with representing yourself in a foreclosure defense proceeding is that you may wind up filing something that actually hurts your case and helps the party who is trying to take your house away, or missing a procedural matter which, if properly presented through an attorney, could help your case. Attorneys have spent years developing the right kind of eyes to examine lawsuits and court filings. Dabbling in the law is like trying to dabble in brain surgery: one wrong move and the whole system winds up being disabled, paralyzed, or dead (as your defense may wind up).

Finally, bringing your case to an attorney when you may have already damaged it is going to require more work on the part of the attorney in less time, which is going to be more expensive to fix. Trying to undo a problem is always more difficult than preventing it in the first place. Foreclosure victims should thus think at least twice, and probably more, before deciding to represent themselves in a foreclosure.

Jeff Barnes, Esq.

e-mail: [email protected]


One of the popular catch-phrases being bandied about these days in the context of mortgage foreclosure defense is “my loan has TILA violations.” The acronym TILA refers to the Federal Truth-In-Lending Act, a significant body of Federal consumer protection legislation which provides detailed disclosure requirements which must be made by lenders in certain types of transactions, including mortgage loans. TILA also contains provisions relating to remedies for violations. However, TILA is only one of the many Federal laws applicable to mortgage loans, and your loan may have violations of other Federal lending laws as well.

In order to ascertain whether a particular mortgage loan complied with all required Federal lending laws, an audit of the loan documents may be performed. The audit is a detailed review of all of the transactions which were part of the mortgage loan: disclosure of fees and costs, nature and purpose of disbursements, disclosure of all necessary terms and provisions of the mortgage transaction, and the like. To properly perform such an audit requires training and experience in the examination of loan documents, a working knowledge of the Federal lending laws, and an eye for particularized violations of these laws.

These audits, if properly performed, can and have proven to be very valuable in mortgage foreclosure defense. An attorney often does not have the time to devote to an examination of a client’s loan documents and, being an attorney and not an auditor, may not have the right eyes to pick up on all of the particular violations within a set of loan documents which a trained and experienced auditor is able to see and in less time.

A proper audit can greatly assist your attorney with your foreclosure defense, saving the attorney many hours trying to find what the auditor can find in a fraction of that time. The audit also provides the attorney with pinpointed violations as to specific provisions of the detailed Federal lending laws, which will aid the attorney in drafting court papers in the defense of a mortgage foreclosure proceeding.

The problem is that there are many people who are suddenly holding themselves out as “mortgage loan auditors” who have little or no training or experience in performing such audits, having simply located some information on the Internet and now believe that they are qualified to perform an audit. Utilizing an unqualified auditor may wind up not only costing you significant dollars, but may impair your foreclosure defense as well.

Thus, before retaining an auditor, ask for and check on his or her qualifications, training, and experience. Choosing the right auditor can be worth its weight in gold, while choosing the wrong one could cause your defense to have a faulty foundation and also result in the loss of potentially significant remedies to assist you in saving your home and the loss of claims to seek recovery of money damages from the violating lender(s).

Jeff Barnes, Esq.

e-mail: [email protected]




A recurring pattern in mortgage foreclosure cases involving securitized mortgage transactions is a statement in the lawsuit filed by the party seeking to foreclose that either the Note or the Mortgage (also called, depending your state, a Deed of Trust, Security Deed, or something else) was “lost”, but that copies are attached to the lawsuit. In such a case, it is more likely than not that nothing was “lost” at all, and that the party seeking to foreclose is simply trying to take advantage of state laws which permit the filing of a foreclosure action with a “lost” Note or Mortgage when in fact such a statute may not apply as the Note and/or Mortgage were never “lost”, but were sold, assigned, or transferred more than once to different persons or entities.

A securitized mortgage transaction, as has been previously discussed in other articles, involves a situation where, as part of the creation of a special investment vehicle or security, the original “lender” has sold off the Note and/or Mortgage either as a whole or in pieces to others such as a mortgage aggregator, who then sells these bundles of mortgages to an investment banker who uses these as collateral for a mortgage-backed security. In this sale and assignment process, there are often many links in the chain between the original lender and the ultimate alleged owner of the Note or Mortgage. During the course of sale and assignment, the original Notes and Mortgages have either been destroyed or cannot be located, as the downline sale of what wound up being bundles of hundreds or perhaps thousands of mortgages was accomplished through loan summaries, not a physical transfer of the actual mortgage and loan documents. In several cases we have seen, the original lender has admitted, in writing, that the original loan documents were sold off to an “investor”, but the original lender does not know who this “investor” is or where the original documents are.

Now here comes some bank as Indenture Trustee for the Registered Security Holders of Collateralized Mortgage Obligation Loan Trust Series XYZ-2006 (or some other equally complicated name) seeking to foreclose on your mortgage by filing a lawsuit where they claim that the original Note and/or Mortgage is or was “lost”. This is most likely an absolute falsehood in cases of this type, and for the attorney to represent to the court, in a written lawsuit, that the originals of the Note and/or Mortgage were “lost” is not only fraudulent itself but also constitutes a fraudulent attempt to manufacture a foreclosure case which could not be legally brought in the first instance.

At least one Judge in the State of New York has addressed this problem and cited case law as to the burden of the party seeking to foreclose to demonstrate that they have the legal right to do so, and absent such proof, a foreclosure action may not be brought. The legal premises of the New York cases are common in other states.

The Judge in the matter of Wells Fargo Bank, N.A. as Trustee, etc. v. Farmer cancelled and voided a series of real estate transactions as to property located in Brooklyn, New York including several Assignments of Mortgage, resulting in the termination of the foreclosure. In the decision, the Judge set forth the well-established law that one seeking to foreclose on a mortgage must demonstrate and prove title to and a legal or equitable interest in the mortgage, and must also establish the existence of the mortgage and mortgage note, ownership of the mortgage, and the borrower’s default in payment. The decision rested on case law which provides that foreclosure of a mortgage may not be brought by one who has no title to the mortgage, and absent transfer of the debt that the assignment of the mortgage is a nullity. The decision also set forth the law that a party seeking to foreclose on a mortgage in which he has no legal or equitable interest is a lawsuit without foundation in law or fact.

The cases cited include: Kluge v. Fugazy, 145 AD2d 537, 538 [2d Dept 1988]; Katz v. East-Ville Realty Co., 249 AD2d 243 [1st Dept 1998]; Campaign v. Barba, 23 AD2d 327 [2d Dept 2005]; Household Finance Realty Corp. of New York v. Wynn, 19 AD3d 545 [2d Dept. 2005]; Sears Mortgage Corp. v. Yahhobi, 19 AD3d 402 [2d Dept 2005]; and Ocwen Federal Bank FSB v. Miller, 18 AD3d 527 [2d Dept 2005].

Many states have laws which punish both parties and their lawyers for making statements to the court which they know or should know not to be true when they are made. These laws provide for sanctions such as attorneys’ fees, and some states have legal authority which provides for the dismissal of a lawsuit when it has no basis in law or fact.

As such, when you are faced with a foreclosure lawsuit where the securitized mortgage plaintiff seeking to foreclose makes a statement that either the Note or Mortgage were “lost”, you need to bring to the court’s attention that this statement may not be true based on the securitized nature of the mortgage transaction, and that it may be in fact that nothing was ever “lost”, but was instead sold, assigned, or transferred. Stay tuned to this blog for examples of what is called “formal discovery” to be submitted to the foreclosing party to explore these issues.

Jeff Barnes, Esq.

[email protected]