Miami- Bruce Jacobs, with Jacobs Keeley, PLLC (J. Albert Diaz)
In response to an accusation of forgery against Ocwen Loan Servicing LLC, Miami-Dade Circuit Judge Beatrice Butchko sided with borrowers who accused the mortgage servicing company of faking a mortgage assignment for HSBC Bank USA N.A.
Butchko dismissed HSBC’s foreclosure suit, finding the lender prosecuted the case with “unclean hands” and lacked competent evidence to support its lawsuit. She also granted the homeowners’ request to force the financial institutions to show why they shouldn’t be punished for committing a fraud on the court.
The case pitted defendants Joseph and Margaret Buset against HSBC, trustee for FR Fremont Home Loan Trust, and involved evidence from Ocwen, which collected loan payments on the lender’s behalf.
At trial, the bank presented mortgage assignment documents showing the debt transferred after a sale by the loan originator, subprime lender Fremont Investment and Loan, to Fremont Mortgage Securities Corp., and then the FR Fremont Home Loan Trust, for which HSBC was trustee.
The mortgage assignment paper trail, meanwhile, showed the sale of the debt directly from the originator to the trust. That assignment of mortgage, or AOM, showed the debt transferred from the Mortgage Electronic Registration Systems Inc., or MERS, acting as nominee for the originator, to FR Fremont Home Loan Trust, for which HSBC served as plaintiff in the foreclosure.
“The AOM is missing a key party in the chain of ownership, the depositor, Fremont Mortgage Securities Corp.,” Butchko ruled.
The bank called Ocwen employee Sherry Keeley, who testified the loan servicer prepared the mortgage assignment document in June 2012, a month before HSBC brought its foreclosure suit against the Busets. She said the trust’s pooling and servicing agreement validated Ocwen’s paperwork, but defense attorney Bruce Jacobs argued the transfer couldn’t have occurred as the lender claimed.
The Federal Deposit Insurance Corp. ordered Fremont to stop making subprime loans in 2007, and Fremont sought bankruptcy protection in 2008.
Its dissolution ended MERS’ status as Fremont’s nominee and invalidated the 2012 mortgage assignment from the outset, Jacobs argued.
“They’re creating fake evidence of transactions that didn’t really happen,” the Jacobs Keeley partner told the Daily Business Review. “Someone at some point took the original note, put an endorsement on it and basically handwrote on it, ‘Pay to the order of the plaintiff trust.’ “
“This court finds the AOM created in 2012 does not document a transaction that occurred in 2005 as plaintiff suggests,” according to the order signed April 26. “The transaction described in the AOM never legally occurred. There was never a transaction between MERS and/or Fremont Investment and Loan that sold defendant’s loan directly to the trust. Not in 2012, not in 2005, not ever.”
The judge appeared to lay the blame on Ocwen, finding the assignment and undated endorsement “reflect a transaction that never happened and could never happen for a securitized trust.” She also found HSBC operated with “unclean hands” when it failed to comply with her order to provide documents showing the loan’s chain of title, records from custodians involved in the note’s chain of custody and files showing “how and when the specific endorsement on the promissory note was created.”
“The court fails to comprehend why plaintiff would not fully comply with the court’s order compelling discovery when the evidence sought by the defendant would actually assist plaintiff in establishing the missing link in the chain of ownership in the endorsement and assignment of mortgage,” the order reads.
Butchko granted the Busets’ motion for involuntary dismissal, finding the lender failed to prove standing. She also ordered HSBC to show why it shouldn’t be sanctioned and required the lender to produce a witness for deposition to explain why it didn’t comply during discovery.
Lender’s attorney Sarah Stemer of Brock & Scott in Fort Lauderdale did not respond to requests for comment by deadline.
Most of the legal troubles for Atlanta-based Ocwen date back to the robo-signing scandal. The company reached a consent judgment in 2014 calling for $2 billion in principal reduction to underwater borrowers and $125 million in cash to foreclosed homeowners. Ocwen also reached a $140 million settlement in Miami federal court last year over a national homeowner insurance scandal and a $150 million settlement with New York state regulators over accusations it levied excessive charges on distressed borrowers.