November 2, 2010

In an October 25, 2010 letter from Deutsche Bank to “All Holders of Residential Mortgage Backed Securities For Which Deutsche Bank National Trust Company or Deutsche Bank Trust Company Americas Acts As Securitization Trustee”, DB reports on “alleged deficiencies” in certain foreclosure proceedings and advises of the prior issuance, by the DB Trustee, of an “Urgent and Time-Sensitive Memorandum” dated October 8, 2010 to its Securitization Loan Servicers regarding servicing foreclosure procedures, demanding that the servicers “comply with all applicable laws relating to foreclosures”. The thrust of this letter, as we see it, is to shift the blame for any wrongful foreclosure practices to the servicers, saying “we told them to comply with the law”, the inference being that DB was not aware of the fraudulent foreclosure practices being engaged in by their servicers and “agents” (that being the attorneys and trustee sale companies who prosecute judicial and non-judicial foreclosures for DB as “trustee”).

Please. Foreclosures are delivered in file boxes to the servicers and attorneys and DB did not engage in any oversight to make sure their own agents (servicers and attorneys) complied with the law? Do they think the investors just fell off the back of the turnip truck?

The October 8, 2010 “Urgent and Time Sensitive” Memorandum attached to the October 25, 2010 Memo makes things even more interesting. Here are some select quotes:

    “The Governing Documents typically require the Trustee to furnish the Servicer with powers of attorney that allow the Servicer to sign documents and institute legal actions, including foreclosure proceedings, in the name of the Trustee on behalf of the Trusts in connection with these servicing activities…. Recent media reports suggest that the Alleged Foreclosure Deficiencies may include the execution and filing by certain servicers and their agents of potentially defective documents, possibly containing alleged untrue assertions of fact, in connection with certain foreclosure proceedings. The reported scope of such alleged practices raises the possibility that such documents may have been filed in connection with foreclosure proceedings relating to mortgage loans owned by the Trusts and may have been executed under color of one or more powers of attorney granted to Servicers pursuant to the Governing Documents. Any such actions by a servicer or its agents would constitute a breach of that Servicer’s obligations under the Governing Documents and applicable law.”

Read that carefully: “raises the possibility” that deficient documents “may” have been filed under “color of” powers of attorney, and if so, this would constitute a breach of contract and violations of law. Disputed issues of material fact precluding summary judgment, anyone? Telling the servicers that any counterclaim for wrongful or illegal foreclosure is the problem of the servicer and their attorneys? We don’t think so. Agent liability generally flows upstream to the principal, sometimes even in instances where the agent committed illegal acts, and contractual disclaimers are not always a defense.

So what we have here is DB tacitly admitting that its servicers and attorneys “possibly” filed fraudulent foreclosure documents (which we all know did in fact happen, with “robo-signer” assignments, backdated notaries, etc.), which if done “under color of” required powers of attorney, is illegal on more than one front.

As those of us who defend foreclosures in the judicial states know, there is NEVER, EVER, any such power of attorney attached to a foreclosure Complaint showing that the servicer or agent had authority to file the foreclosure, and when we request documentary evidence of such authority in discovery, we get “objections” as “irrelevant”. We have also not seen any such POAs or documented compliance with these or the Governing Documents recorded in non-judicial foreclosures we defend, either.

So here’s what needs to be done: In all “Deutsche Bank as Trustee” instituted foreclosures, discovery needs to be demanded as to these alleged “powers of attorney”, all evidence of compliance therewith, all evidence of oversight/monitering to insure compliance, etc., and without such evidence, motions for summary judgment (and/or, to dismiss in judicial foreclosures) should be filed by the borrower’s attorney. If these documents start magically appearing (like post-filing “assignments” with backdated effective dates and backdated notaries started appearing), well, the attorneys know what to do.

The final thought: if DB issued such a warning to its servicers and agents, we have to believe that Wells Fargo, Bank of America, US Bank, and the other “securitized trustee banks” either have, are, or should be issuing similar warnings. If not, that is just more evidence of lack of authority and compliance with the law, leading to further defenses to foreclosure.

Jeff Barnes, Esq.,