New Jersey Appeals Court Shoots Down Foreclosure Over Bad Documents

New Jersey Appeals Court Shoots Down Foreclosure Over Bad Documents
New Jersey Appeals Court Shoots Down Foreclosure Over Bad Documents

Late last month, a New Jersey appellate court invalidated a foreclosure by insisting on a fundamental concept of due process: It said a bank must properly authenticate documents it uses to make its case. With the taint of robo-signing hanging over all foreclosure documents, the need for proper enforcement of authentication standards is more obvious than ever -- but not every court is making banks play by the rules.

It's a basic rule of evidence that documents have to be authenticated to be admissible in a court case. Standards vary: When New Jersey litigants use the procedure called summary judgment to bypass a full trial, they authenticate documents by asserting personal knowledge that they're are real and accurate. But when Wells Fargo (WFC) tried to foreclose on Sandra A. Ford's home by summary judgment, the bank used documents that weren't authenticated.

Specifically, Wells Fargo's representative didn't cite personal knowledge -- or any other source -- to support the idea that Wells was the "holder and owner of the note," that the submitted "mortgage and note are 'true copies,' " or that the "purported assignment of mortgage" was real. That is, Wells didn't authenticate any of the documents it needed to prove it had the right to foreclose. And the loan note wasn't endorsed to Wells -- it showed Ford owed the money to Argent Mortgage Company.

The court granted Ford permission to depose the person who certified the documents were real without citing the source of his knowledge, and depose the person who signed the assignment of mortgage. I'll bet those depositions will be interesting, as the person who signed the assignment apparently works for Lender Processing Services, and not Argent.

Good Faith Holder of a Bad Note

Even if Wells Fargo does properly authenticate the documents at the next stage of the process -- the case now goes back to the lower court -- and prove it legitimately holds the note and thus has standing to foreclose, that wouldn't be the end of the story. The original mortgage process broke multiple consumer protection laws, which will give Ford claims against the bank. To beat back most -- if not all -- of those claims, Wells Fargo will want to establish that it has a special status: that it's a "holder in due course" of the note.

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For Wells Fargo to be a holder in due course of the mortgage note, the note must have been endorsed to it, and the bank must have clean hands: It must have paid value for the note in good faith, and without knowing the note was overdue, dishonored, or subject to defenses like those Ford claims to have. Given all that, it's hard to see how Wells can claim to be a holder in due course. After all, the note Wells gave the court and certified as a true copy wasn't endorsed to Wells, which alone should end the conversation.

But if Wells miraculously provides a new note that is endorsed, as banks have in foreclosure cases across the country, the court has made it clear that the time the endorsement was made will be crucial. A note endorsed now would give Wells the right to foreclose, but without those greater "holder in due course" rights.

For Wells to gain those special rights, and the protections they carry, the endorsement of the loan note would have had to have happened years ago, before Wells had notice Ford had defaulted or claimed defenses to the mortgage. Now, the purported assignment of mortgage -- which was never recorded -- occurred five days after the mortgage was made in 2005. But if such an old endorsement exists, it would make Wells Fargo's submission of the unendorsed note as a true copy rather curious.

Fraud at the Very Beginning

Assuming that Wells doesn't miraculously locate such a properly endorsed and dated mortgage note, what happened when Ford took out her mortgage that she could use to save her house?

According to the brief her attorneys submitted to the appeals court, the mortgage broker forged a note and Ford's signature on a document asserting that Ford earned $9,500 a month. She did not, and alleges she never claimed to. Ford found out about the forged note during the foreclosure litigation. Because the loan was based on fictitious income invented by the mortgage broker without her knowledge, it was unaffordable from the start. Second, although the papers Ford was given during the mortgage process showed she would pay some $13,000 in closing costs, she was charged some $36,000.

These facts give Ford claims for fraud, consumer fraud, violations of the Truth in Lending Act, and violations of the New Jersey Homeownership Security Act. As the brief notes, by 2005, Argent Mortgage and its parent Ameriquest Home Loans had become infamous for illegally predatory loans, so Wells Fargo almost certainly should have had been on notice that Ford's mortgage, like so many other Argent loans, might be predatory. And that knowledge, too, would prevent it from claiming holder in due course status.

Maybe Wells should think about settling with Ford, who, by the way, heroically litigated much of this case herself, though Legal Services of New Jersey has handled this appeal.

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