"Schack" Rulings Merit Note In Ohio Appeals Court Ruling Reinforcing Importance To Borrower That Promissory Note's Chain Of Title Be Established

In recent, apparently high stakes litigation(1) in which a lower court's ruling dismissing a lender's foreclosure action was affirmed, an Ohio Court of Appeals issued a reminder of how essential it is to the borrower (ie. the "maker" or "obligor" of the note) that the lender prove it is the proper holder of the promissory note being enforced.

In addition, it cited several rulings from Kings County (Brooklyn), New York Supreme Court Justice Arthur M. Schack to "indict" the lender in this case (HSBC Bank) and its "confederates" (Ocwen, Delta Funding Corporation, and Mortgage Electronic Registration Systems, Inc. - "MERS" ) for their history of apparent sloppiness when bringing foreclosure actions.(2)

Beginning at paragraph 71 of the Ohio appellate court ruling:

• Thompson contends that because the last-named endorsement is made to Delta, Delta was the proper holder of the note when this action was filed, since the prior, first-named endorsement was from an entity other than the current holder of the note. In Adams v. Madison Realty & Development, Inc. (C.A.3, 1988), 853 F.2d 163, the Third Circuit Court of Appeals stressed that from the maker's (obligor's) standpoint:
  
  "it becomes essential to establish that the person who demands payment of a negotiable note, or to whom payment is made, is the duly qualified holder. Otherwise, the obligor is exposed to the risk of double payment, or at least to the expense of litigation incurred to prevent duplicative satisfaction of the instrument. These risks provide makers with a recognizable interest in demanding proof of the chain of title." Id. At 168.

• The Third Circuit Court of Appeals further observed that:
  
  "Financial institutions, noted for insisting on their customers' compliance with numerous ritualistic formalities, are not sympathetic petitioners in urging relaxation of an elementary business practice. It is a tenet of commercial law that `[h]oldership and the potential for becoming holders in due course should only be accorded to transferees that observe the historic protocol.'" 853 F.2d at 169 (citation omitted).

• Consistent with this observation, recent decisions in the State of New York have noted numerous irregularities in HSBC's mortgage documentation and corporate relationships with Ocwen, MERS, and Delta. See, e.g., HSBC Bank USA, N.A. v. Cherry (2007), 18 Misc.3d 1102(A), 856 N.Y.S.2d 24 (Table), 2007 WL 4374284, and HSBC Bank USA, N.A. v. Yeasmin (2010), 27 Misc.3d 1227(A), 2010 N.Y. Slip Op. 50927(U)(Table), 2010 WL 2080273 (dismissing HSBC's requests for orders of reference in mortgage foreclosure actions, due to HSBC's failure to provide proper affidavits). See, also, e.g., HSBC Bank USA, N.A. v. Charlevagne (2008), 20 Misc.3d 1128(A), 872 N.Y.S.2d 691 (Table), 2008 WL 2954767, and HSBC Bank USA, Nat. Assn. v. Antrobus (2008), 20 Misc.3d 1127(A), 872 N.Y.S.2d 691,(Table), 2008 WL 2928553 (describing "possible incestuous relationship" between HSBC Bank, Ocwen Loan Servicing, Delta Funding Corporation, and Mortgage Electronic Registration Systems, Inc., due to the fact that the entities all share the same office space at 1661 Worthington Road, Suite 100, West Palm Beach, Florida. HSBC also supplied affidavits in support of foreclosure from individuals who claimed simultaneously to be officers of more than one of these corporations.).

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The Ohio appeals court adds this observation at paragraph 81 of its ruling (Note that Ocwen Loan Servicing's notorious, seemingly omnipresent, multiple corporate hat-wearing vice president Scott Anderson receives an "honorable" mention for his role in this case):

• Even if HSBC had provided support for the proposition that ownership of the note is not required, the evidence about the assignment is not properly before us. The alleged mortgage assignment is attached to the rejected affidavits of Neil. Furthermore, even if we were to consider this "evidence," the mortgage assignment from MERS to HSBC indicates that the assignment was prepared by Ocwen for MERS, and that Ocwen is located at the same Palm Beach, Florida address mentioned in Charlevagne and Antrobus. See Exhibit 3 attached to the affidavit of Chomie Neil.

• In addition, Scott Anderson, who signed the assignment, as Vice-President of MERS, appears to be the same individual who claimed to be both Vice-President of MERS and Vice-President of Ocwen. See Antrobus, 2008 WL 2928553, * 4, and Charlevagne, 2008 WL 2954767, * 1.(3)

For the entire ruling, see HSBC Bank USA v. Thompson, 2010 Ohio 4158 (2nd App. Dist., Montgomery County, September 3, 2010).

(1) The stakes in this case, which by all appearances involved nothing more than your standard, run-of-the-mill "lack of standing" and "real party in interest" claims, were apparently somehow ratcheted up significantly along the way as it attracted enough interest from the Ohio Attorney General's office to cause it to jump into the fray and file a "friend of the court" brief supporting the homeowner's position.

Further, a second amicus brief, also supporting the homeowner's position, was filed on behalf of six non-profit legal and consumer advocates, who also wanted to get in on the action.

Not to be outdone, in addition to being represented by local counsel, the foreclosing lender also called in the Washington, D.C. office of some big-shot, white shoe law firm for additional artillery (apparently to no avail).

(2) For links to some of Justice Schack's rulings booting sloppy foreclosing lenders from his courtroom, see:

• Brooklyn Trial Judge Nixes "Rubber Stamp Method" Of Adjudicating Foreclosures; Lenders, Lawyers Lacking Legal Standing To Bring Actions Get Bounced,
• Brooklyn Judge Journeys Through "The Twilight Zone" In Recent Ruling Slamming Standing Lacking Lender, Notorious Foreclosure Mill Law Firm.

Go here for other posts referencing Justice Schack.

(3) For some of the cases in which Scott Anderson receives mention for his multiple corporate hat-wearing role, see:

• HSBC Bank USA, N.A. v Betts, 04/23/2008, 2008 NYSlipOp 31170(U), Schack, J.;
• HSBC Bank USA, N.A. v Cherry, 12/17/2007, 18 Misc 3d 1102(A), 2007 NYSlipOp 52378(U), Schack, J.;
• Deutsche Bank Natl. Trust Co. v Castellanos, 01/14/2008, 18 Misc 3d 1115(A), 2008 NYSlipOp 50033(U), Schack, J.;
• HSBC Bank USA, N.A. v Valentin ("Valentin I"), 01/30/2008, 18 Misc 3d 1123(A), 2008 NYSlipOp 50164(U), Schack, J.;
• HSBC Bank USA v Antrobus, 07/31/2008, 20 Misc 3d 1127(A), 2008 NYSlipOp 51639(U), Schack, J.;
• HSBC Bank USA, N.A. v Charlevagne, 08/04/2008, 20 Misc 3d 1128(A), 2008 NYSlipOp 51652(U), Schack, J.;
• HSBC Bank USA, N.A. v Valentin ("Valentin II"), 11/03/2008, 21 Misc 3d 1124(A), 2008 NYSlipOp 52167(U), Schack, J.