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Foreclosure-Gate: Mortgage Document Fabrication Getting Attention

As readers may know, the idea that notes had not been conveyed properly on a large scale basis was treated as wild-eyed speculation last year (we had our intelligence directly from the head of one of the major subprime originators, who was stunned at the notion that the failure to convey the notes was a problem: “If what you say is true, we’re fucked. We didn’t move the paper. No one moved the paper”). Our impression is the breakdown started earlier, in the refi boom of 2002-2003. Since then, supporting evidence has continued to mount, on a large scale basis in courtrooms and with confirmation of pattern and practice in Kemp v. Countrywide. In that case, a senior Countrywide employee testified that Countrywide kept mortgage notes rather than having transferred them to the trustee (or a custodian acting on behalf of the trustee) as required in the pooling and servicing agreement. Abigail Field performed a small scale study (foreclosures in two New York counties) that provided additional support. It found that none of the Countrywide-originated notes had been transferred as stipulated, as were a very large proportion of notes serviced by Countrywide but originated by other players. So what other less than proper devices have servicers and foreclosure mills used to work around this mess? One that we’ve discussed repeatedly in the past is the use of almost-certain-to-be-fabricated allonges. An allonge is a separate sheet of paper which is attached to a note to allow for more signatures, in this case, endorsements, to be added. Allonges have had a way of magically appearing in collateral files while trails are in progress (I’ve seen it happen in cases I was tracking; it’s gotten so common that some attorneys warn judges to be on the alert for “ta dah” moments).

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