Foreclosure Stories: Ferreting out fraud

May 24, 2012



This is a weekly column by Sandusky attorney Dan McGookey, devoted to telling true stories of homeowners who have been victimized by a lending system which makes it profitable to foreclose. The names used have been changed for privacy purposes. This is Elliot's Tale.

After handling hundreds of foreclosure cases involving securitized loans, I can safely say that every single securitized loan transaction involves fraud of some sort. Sometimes I shudder to think how many millions of families have lost their homes through foreclosure, when they could have saved them by pointing out their bank’s fraud, if only they had been able to find and expose it. Of course, the challenge in being able to do so varies with each case.

One of the most glaring examples of bank fraud came to my attention recently when I got a visit from Elliot. Elliot had just been sued for foreclosure by Bank of New Yorkshire, as Trustee of a securitized trust established in 2002. What that means is that in that year Elliot’s loan passed through a number of different hands and ended up bundled with thousands of other loans in a loan pool or trust. The purpose of this process is to allow banks such a Bank of New Yorkshire to make enormous profits by selling stock in the loan pool at many times the true value of the loans.

Having been established in 2002, the trust supposedly owning Elliot’s loan was required to have acquired it that year. On the other hand, a cursory examination of Elliot’s foreclosure Complaint, with an alleged copy of his promissory note attached, showed an endorsement from the loan originator, BNK Mortgage Company to Bank of New Yorkshire, on April 19, 2012, only days prior to the filing of the Complaint, and almost ten years after it was required to be placed in the Trust. Obviously, the endorsement, which appears on a separate instrument called an “allonge”, is bogus for that reason alone.

But there’s more; much more. The endorsement on the allonge is that of a loan servicer, OCEAN Loan Servicing. Thus, to believe the paperwork submitted with the foreclosure Complaint, the foreclosing party, Bank of New Yorkshire in effect transferred Elliot’s loan to itself. To condone this practice would essentially open the floodgates to the possibility of anyone stepping forward and, through fraudulent paperwork, claiming they owned your loan, allowing them to foreclose on your home. Scary stuff.

On top of all this, a Google search reveals that BNK Mortgage, the party on whose behalf OCEAN endorsed the note in 2012, closed its doors and shut down in 2007. Thus, the entity supposedly transferring the loan to the foreclosing party had been out of existence 4 years before it executed the transfer documents.

However it gets even worse. Only a year earlier in Elliot’s bankruptcy case, Bank of New Yorkshire produced, under oath, a totally different promissory note, with a different endorsement, in support of its claims of ownership of Elliot’s loan. In other words, Bank of New Yorkshire has lied in at least one court proceeding, if not two. Beyond all this, both versions of the note are irreconcilable with the express wording of the Trusts’s Prospectus, its governing document, in that the Prospectus represents that Elliot’s note was passed into the Trust by a “Depositor,” which was not BNK.

Because Elliot’s loan is so rife with fraud, we have extremely powerful weapons at our disposal to fight his foreclosure. We may even file a counterclaim against Bank of New Yorkshire and OCEAN seeking damages and recovery of attorney fees. No matter what, the end result for Elliot will be highly favorable, which is only right, given the bank’s egregious conduct.

The lesson in Elliot’s story is this: Don’t assume the documents produced by your bank demonstrate that it is entitled to relief. The chances are extremely high that when tested, the bank’s case will wilt, in turn leading to its willingness to work with the homeowner to allow him or her to stay in the home.

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Next week: The Story of Bill, whose case is a good example that the courts are finally waking up to the pervasive fraud committed by banks in foreclosure cases.

Copyright 2012 Daniel L. McGookey