Thursday, July 5, 2018

Case No. 1 – Florida Home Loan Originated by Countrywide, A – On Self-Authenticating Signatures

This article contains the personal opinion of the examiner based on his findings from actual securitization audits and chain of title examinations since 2010. The opinion arose from repeated observations on the actual practice of lending institutions. In this case, the examination was conducted on November 28, 2017 on a loan that was granted on August 29, 2007 by Countrywide Bank, FSB and is purported to have been securitized into CHL Mortgage Pass-Through Trust 2007-18. This article was written on July 4, 2018.

The opinion rendered herein only served as a supplement but was not part of the report on the examination.  It is here provided for informational purposes only and is not to be construed as legal advice. The reader is advised to consult a competent legal professional if s/he thinks that the opinion might apply in his/her case.

On Self-Authenticating Signatures


This opinion arose from repeated observations of cases wherein the signature on an endorsement on a promissory note bear evidence that it had been forged or robo-signed or signed or stamped by a surrogate.

A question raised by the borrower on this matter may be dismissed by the court on the ground that a signature on an endorsement is presumed genuine and the endorsement is valid and enforceable unless the question is raised by any of the parties in the transaction. Thus, the borrower, who is not a party in the transfer transaction, has no right to question it. 

In cases where the loan has been securitized or purported to have been securitized such as the instant case, endorsements are only being passed as genuine in order to achieve a certain purpose. In actuality some of the parties involved in the transfers including the signors themselves appear to have no knowledge of the transactions. 

In most instances, a certain chain of endorsements would not even include the depositor which holds a pivotal role in the securitization process. The depositor is the only party in the securitization transaction which is authorized to transfer the loan to the trustee. Thus, even granting that the examined signatures are genuine, a note may be in the possession of a certain entity, but this entity only owns the loan as itself and not as trustee for a securitization trust. 

The Facts of the Case

On an unknown date, the Fixed Rate Note was endorsed by Countrywide Bank, FSB in favor of Countrywide Home Loans, Inc. This endorsement was purportedly signed by Laurie Meder, purporting to be Senior Vice-President.

On an unknown date, the Fixed Rate Note was endorsed in blank by Countrywide Home Loans, Inc. This endorsement was purportedly signed by Michele Sjolander, purporting to be Executive Vice-President.

There is sufficient information that states that the signors are robo-signing suspects. Evidence was found that the signatures on these endorsements have been forged or robo-signed or signed or stamped by surrogates. The purported signors may have no personal knowledge of the transfers.

Analysis & Opinion

A forged signature on an endorsement even if it is not dated may be legally presumed to be self-authenticating when neither the endorsee nor the endorser raises a question over its genuineness or validity.

This presumption allows a robo-signed endorsement to pass as genuine or real but what should be done in actual practice requires a documented proper authorization sufficient to constitute an auditable paper trail and a system of accounting and financial reporting that is within generally-accepted standards.

In the case of a financial institution such as Countrywide Bank, FSB, in fact, for each transfer of a negotiable instrument, a certain amount is paid for the balance of the loan as of the date of the endorsement plus the unpaid interest which accrued daily from the date of the last interest payment up to the date of the endorsement.

In other words, a loan transfer is being accounted for as a financial transaction, as it happens, and both the endorser and the endorsee have accounting departments that are assigned to do the job who will not pass accounting entries covering the loan transfer if the transaction is not duly authorized. For its part, the endorsee will also have to verify if the endorsed note has been actually delivered.

Along this line, it is difficult to imagine that a robo-signed endorsement is a duly authorized transaction. It has been reported that Countrywide Home Loans, Inc. and its affiliates are said to account for 20% of all securitized U. S. home mortgage loans including the years 2006 and 2007.

It may be argued that both the endorsee and the endorsee have their own unique systems to monitor the endorsements and so were able to record the transaction in a timely manner. This would require that an endorsement must bear a reference or a unique means to identify the endorsed note from others in such a way as would allow the endorser to correctly dispatch the endorsed note, for the endorsee to be able to claim possession of the note as of the date of the endorsement (be this possession actual or constructive) and for both parties to properly record the transaction in their respective books of accounts.

As has been noted, the endorsement in question does not bear a date or some form of reference. There is no way that this transaction can be monitored. This indicates that this loan transfer, together with others similarly endorsed, has not been accurately recorded in the books of accounts of the both the endorser and the endorsee. The necessary result would be their failure to report on the true financial conditions as of a certain date, which constitutes violations of the Sarbanes-Oxley Act.

On March 25, 2008, the trust filed the Certification under the Sarbanes-Oxley Act in which the maker states (paragraph 2):

     Based on my knowledge, the Exchange Act periodic reports, taken as a whole, do not contain
     any untrue statement of a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements were made, not
     misleading with respect to the period covered by this report. 

The subject loan alone may not be of the amount that would be considered material but it is also difficult to consider it an isolated case. This practice has been observed multiple times by this examiner.  

As has been stated in the report, the trust would initially own $382.4 million in loans which must be in its possession before it makes monthly distributions to its certificate holders and that the total certificates that were issued by the trust as of its first distribution cut-off date on October 15, 2007 amounted to $413.4 million.

A robo-signed endorsement may be legally presumed self-authenticating. This robo-signed endorsement together with hundreds of others of similar features, however, lacking authority and proper identification, cast doubt as to the truth of the trust’s declaration that it initially owned or was in possession of loans totaling $382.4 million when it declared that it owed its investors $413.4 million on the certificates. 

The gist of this argument is that a self-authenticating signature on an endorsement only applies between parties who can forget their transactions at the end of the day. It cannot apply to financial institutions in actual day-to-day practice, especially securitization trusts that borrow funds from the public, which are under penalty by law for failure to report their true financial conditions.

End of article.

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Robo-Signing Suspects, A to Z

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