Wells Fargo Foreclosure on Bankrupt Homeowner Halted

Tandala Mims was allowed to keep her two-family brick home in Bronx, New York, after Wells Fargo Bank NA’s bid for foreclosure was rejected by a bankruptcy judge who said the bank’s paperwork was “questionable.”

U.S. Bankruptcy Judge Martin Glenn in Manhattan ruled yesterday that Wells Fargo can’t bypass the automatic shield against legal claims triggered by Mims’s filing for personal bankruptcy in July. Wells Fargo couldn’t document how it acquired the rights to Mims’s mortgage, which originated with another lender, the judge said.

Wells Fargo’s worksheet tracking defaults on the loan went back to April 1, and was “questionable given it only recently acquired interest” in the mortgage, Glenn said.

Wells Fargo, the biggest U.S. home lender, has proceeded with home seizures while rivals including Bank of America Corp. and JPMorgan Chase & Co. delay theirs amid a 50-state probe into whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures.

The San Francisco-based bank said yesterday it will file supplemental foreclosure affidavits to courts in about 55,000 proceedings after finding some lapses in its paperwork.

Teri Schrettenbrunner, a spokeswoman for Wells Fargo, had no immediate comment today on Mims’s case.

Lost Her Job

Mims, 49, said she’s still waiting to hear from her lawyer and wasn’t aware of the ruling. Mims filed for court protection on July 27, listing $420,057 in debt -- slightly less than the estimated $430,000 value of her home. She said she sought bankruptcy because she was unable to make mortgage payments when she lost her job.

“I became a truck driver, but it’s taking longer to get from point A to point B financially,” Mims said in a phone interview.

Mims’s lawyer, David Brodman, didn’t immediately return a call for comment.

Records showing that Mims’s loan was assigned by Mortgage Electronic Registration Systems Inc. a week before Wells Fargo moved in court to foreclose on her home didn’t mesh with the history of the loan’s transfers, Glenn found.

“Wells Fargo has not supplied the court with any evidence that the note was physically delivered or assigned,” Glenn wrote.

The judge said that while the timing of the MERS transfer may not mean the bank acted in “bad faith,” it raised questions about the validity of the mortgage transfer.

Lend America

Mims initially took a mortgage loan from Lend America. The loan papers contained a stamped endorsement “Paid to the Order of Washington Mutual Bank FA, Without Recourse Lend America,” according to court records.

There was no evidence that Wells Fargo bought the loan from Washington Mutual, or from JPMorgan Chase & Co., which bought Washington Mutual’s assets in 2008, Glenn said.

Christopher Peterson, a law professor at the University of Utah who wrote a law-review article about MERS this year, said Wells Fargo’s assignment of the loan may have been a response to the legal storm around foreclosures from MERS.

“Judges have become more reluctant to allow foreclosure statements in the name of MERS rather than a party of interest,” Peterson said in a phone interview. “So more people are shifting purported ownership back to the servicer.”

MERS Registry

MERS lets banks electronically register their sales of home loans so they can avoid trudging down to the county land-records office. According to its website, MERS is owned by the largest lenders in the country including Bank of America, Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo, in addition to Fannie Mae and Freddie Mac, which own or guarantee more than half of the $11 trillion U.S. mortgage market.

Glenn’s finding echoes others in federal bankruptcy court and in state courts.

In March 2009, U.S. Bankruptcy Judge Linda B. Riegle in Las Vegas decided MERS wasn’t a true beneficiary under a trust deed. Since March 2009, supreme courts in Arkansas, Kansas and Maine have found that MERS had no standing in foreclosure proceedings under their states’ laws. The company suffers no injury and lends no money, the panels said.

MERS has said it has the right to foreclose because the borrower grants it legal title, and MERS serves as an agent for the noteholder. “Courts around the country have repeatedly upheld and recognized this right,” MERS said in an Oct. 4 e-mailed statement.

Vice President’s Signature

Glenn noted in his ruling that while MERS has an office in Ocala, Florida, the signature of MERS Assistant Vice President John Kennerly was notarized in South Carolina, the address shown on the assignment for Wells Fargo.

“Did Kennerly personally appear before the notary as represented?” Glenn wrote in his ruling. “If not, is the assignment valid?”

The judge said Wells Fargo’s counsel was unable to answer any questions about the supporting documents at an Oct. 20 hearing.

Attorneys general in 50 states started an investigation of foreclosure practices after court papers showed employees processed papers in so-called “robo-signings” without ensuring their accuracy.

The case is In re Tandala Mims, 10-14030, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

(Updates with reason for bankruptcy in seventh paragraph.)
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