Foreclosure stories range from absurd to serious

Many of the problems uncovered in cases involving loan servicing and foreclosures feature mortgage loans that were bundled into securitized trusts.

And the hatchlings spawned from servicing of securitized trusts have come home to roost in North Carolina.

Shelby bankruptcy attorney O. Max Gardner III has seen his share of servicing absurdity, mostly in the form of violations of automatic stays in bankruptcy cases (See “Lender sanctioned for repeated violations of automatic stay” in April 18 issue of Lawyers Weekly).

But other matters are more serious.

One Bostic, N.C. couple found their attempts to rise from the ash-heap of a recently discharged bankruptcy frustrated by their lender’s failure to cancel a deed of trust — despite being ordered to do so by a U.S. Bankruptcy Court. The couple brought suit against the lender to force it to cancel the deed of trust.

In a case from Cleveland County, a securitized trust consisting of a pool of residential mortgage notes alleged it was the owner and holder of two mortgage notes executed by William Franklin Mabry, Sr. and Sara Roberts Mabry to Countrywide Home Loans, Inc. in 2005.

The deeds of trust were recorded in Cleveland County and purported to secure as collateral the Mabrys’ Shelby residence, but the legal descriptions “erroneously describe[d] property located in the ‘Morwood Subdivision’ in the Town of Blowing Rock, Caldwell County, North Carolina, known as the ‘White Pine Cottage Property,’” according to a complaint filed in the Mabrys’ bankruptcy case.

Blowing Rock is about 75 miles north of Shelby.

In a subsequently filed foreclosure petition in Cleveland County, “the law firm of Brock and Scott, PLLC, referenced the real estate instruments that included the faulty, incorrect, erroneous property description and deed references for the real property located in Blowing Rock,” according to the Mabrys’ complaint.

The Mabrys sought punitive damages from a range of defendants including the securitized trust “for willful misrepresentation of their legal status as the owner and holder of the notes at issue… and for seeking to collect money… as a secured creditor when [the defendants] knew or should have known that their security instruments were fatally defective.”

Brock & Scott and an attorney representing the trust had not responded to a request to comment by press time.

Yet another problem faced by foreclosing lenders and servicers uncovered by recent cases is their inability in some instances to prove they are the holders of notes.

A case involving one-time Charlotte real estate attorney Victoria Sprouse featured a note she signed on Halloween 2005 promising to pay $536,000 plus interest to Cornerstone Home Lending.

Cornerstone loaned money to Sprouse to purchase a parcel of property on Holden Beach.

A deed of trust executed the same day and later recorded in the Brunswick County Register of Deeds named Mortgage Electronic Registration Systems as “a nominee for Lender and Lender’s successors and assigns.”

Four years later, MERS purported to assign the deed of trust to U.S. Bank National Association, as trustee for a securitized trust

But the MERS vice president who signed the assignment “was not in face and in law an actual employee or officer of MERS,” and she never appeared before the notary public who acknowledged her signature, according to the Sprouse complaint.

Both the vice president and the notary public were in fact employees of Fidelity National Information Services, currently known as LPS Default Solutions, LLC, according to the Sprouse complaint (See “Class action challenges LPS’ grip on foreclosures” in Nov. 8, 2010 issue of Lawyers Weekly).

MERS had not responded to Lawyers Weekly’s request for comment by press time.

Sprouse made similar allegations regarding the ownership of an equity line of credit note securing the same beach property.

Based on faulty assignments, she seeks to have Cornerstone Home Lending and Cornerstone Mortgage Company declared to have no claim, secured or unsecured, in her bankruptcy case.

She further seeks to have the liens claimed by the securitized trust declared void because the notes “were never lawfully negotiated and physically delivered in an unbroken chain of endorsements” as required by the trust’s own Pooling and Service Agreements.

At stake for the securitized trust? $900,000.