Home stand – The quixotic campaign to topple the foreclosure industry By Derek Brouwer
From this weeks edition of the Missoula Independent. I’ll add a few additional comments below.
“Philip Slagter sits in a folding chair in his garage, holding a hand-rolled cigarette as he taps his Macbook’s trackpad. Blind in one eye, he leans to see the cursor on the screen. Up pops a news article he bookmarked back in 2009 about the predatory practices of his now-infamous mortgage company. Washington Mutual’s subprime unit, the article says, was “the worst of the worst” among lenders who stacked profits on houses of cards.
Slagter didn’t learn of these accusations until it was too late, of course, after his home was among the one-in-three loans ending in foreclosure.
“I was perfectly naïve about everything,” he says.
For now, though, Slagter and his wife still live in the hills outside Corvallis, where their wraparound deck offers panoramas of the Bitterroots. Slagter, an artist, has been fighting to stay in the home for 10 years, a battle that has led him through thickets of legal documents, spanned his daughter’s death and colored his view of the world. But Slagter feels taken. He won’t quit.
Now he finds himself among a quixotic band of Montana homeowners who are determined to expose the fraud behind their foreclosures. Some have penned their own court briefs, armed with laptops and legal dictionaries. One clashed with police when she tried to videotape a private showing of her home. This summer, with the help of a private investigator himself embroiled in foreclosure proceedings, they stumbled upon a new legal argument they think will win their cases—and could upend thousands of others.
“These guys are just cheating everybody,” Slagter says. “If one of us can beat them, maybe it will help everybody.”
The country’s mortgage boom was created, in large part, using phony documents. Lenders bundled and sold their portfolios on Wall Street as real estate mortgage investment conduit, or REMIC, trusts. The craze pushed banks to make riskier loans—and to cut corners. As the time came to foreclose on delinquent borrowers, note holders found themselves lacking the necessary paperwork. So they forged it.
The “robosigning” scandal prompted a $25 billion settlement in 2012 between the country’s five biggest banks and 49 states, including Montana. The agreement set aside funds to help troubled homeowners modify their loans, but some people, like Absarokee-based investigator Bill Paatalo, note the documents are still corrupt.
Paatalo has been combing state law as he litigates his own foreclosure and reviews mortgage documents for clients such as Slagter. He found that Montana law requires any business trust operating in the state to register with the Secretary of State and file income tax returns. The REMIC trusts that own Paatalo and Slagter’s mortgages didn’t register, the agency confirmed.
Paatalo then points to a Montana Supreme Court decision that a particular out-of-state trust couldn’t register after the fact. In other words, any debt collection or foreclosure brought on behalf of an unregistered trust should be void, he argues.
Paatalo’s attorneys have put this question to the primary foreclosure firm in the region, whose attorneys stated in depositions for Paatalo’s case that they were unaware of such a requirement. In court briefs, they also point out that U.S. Bank, the trustee for the REMIC trust and the entity bringing the lawsuit, is exempt from registration.
Paatalo figures that if his interpretation proves correct, it’s unlikely any REMIC trusts complied with the statute, and all have been functioning illegally. “It’s going to turn everything upside down. The liability is absolutely staggering,” he says.
Paatalo hasn’t found many allies in his attempt to disrupt the foreclosure business. The district court judge in his Stillwater County case has been sitting on the brief for the past four months. Other officials, including the attorney general, shrugged him off, he says. Then, there’s the issue of tax evasion.
“I’m trying to blow this whistle here on the failure to pay your income taxes,” Paatalo says, “and we’re hearing nothing but crickets.”
That hasn’t stopped Slagter from using the argument to battle his eviction. Steered into default in 2008, after he says mortgage officers misled him with promises of a refinance for his $400,000 home, Slagter has used any tactic he could muster to delay and eventually dispute foreclosure. A turning point came in 2013, after his teenage daughter died in a car accident and his options were dwindling. When the notice of trustee sale arrived, Slagter decided to sue.
“I was no longer protecting my family to keep a house over their head,” he says. “I was realizing the extent of the fraud and the corruption inside the banking industry.”
Slagter buried himself in legal research. He hired Paatalo to audit his mortgage. Slagter wrote and filed a complaint in district court. But he lost on a procedural issue—he had misinterpreted a deadline.
The eviction notices started to arrive this year. He ignored them, forcing a lawsuit and another day in court. This time, Slagter thinks he’s found a technicality of his own.”
Additional commentary from Bill Paatalo:
Here is a key argument made in my pending UD action in Stillwater County. Failure to comply with Title 31 is just as fatal to the REMIC’s foreclosure attempts as is the failure to register with the state. The reason why the servicers and proclaimed REMIC trusts have not complied with Title 31 is the fact they couldn’t comply, even if they wanted to, without committing further fraud. You see, if they complied by submitting the requisite affidavits, they would be admitting to the original fraud upon the trust investors; that the assets were never conveyed and transferred to the trusts! Here’s my argument:
B. ALL RECORDED ASSIGNMENTS TO THE PLAINTIFF/TRUST ARE “VOID” FOR FAILURE TO COMPLY WITH MCA § 35-5-201, MCA § 31-2-210 and MCA § 31-2-211.
The Reeder Court defined “carrying out business” by a trust under MCA 35-
1-115(4), (5), and (6) as follows:
(4) to purchase, receive, lease, or otherwise acquire and to own, hold, improve, use, and otherwise deal with real or personal property or any legal or equitable interest in property, wherever located;
(5) to sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property;
(6) to purchase, receive, subscribe for, or otherwise acquire any other entity; to own, hold, vote, use, sell, mortgage, lend, pledge, or otherwise dispose of any other entity; and to deal in and with shares or other interests in, or obligations of any other entity[.]
The Reeder Court ruled,
“It appears that these trusts have engaged in all of these activities in one way or another, and that being the case, they have illegally conducted business in the state.
The Court also rejects the idea that the transfers of Christine’s property to the invalid trusts can somehow be retroactively sanctioned by allowing the trust to apply for a license to do business at this time, four years after the invalid transfers took place, and a year and half after Christine’s death. The trusts are invalid under Montana law, and the transfers of property to the invalid trusts are void.”
The Reeder Court, in determining that the transfer of the property to the invalid trusts were void, stated,
“The trusts cannot retroactively validate themselves so as to legitimize the invalid transfers that occurred nearly four years ago.”
Like Reeder, the Plaintiff/Trust has engaged in these same acts, and should be barred from retroactively applying for a license to conduct business in this state. The Plaintiff/Trust has been operating illegally, and likely evading its tax liabilities to the State of Montana for more than 6-years since the first illegal transfer on February 9, 2009 (Exhibit 2.)
Shining further light upon the Plaintiff/Trust’s failures to comply with Montana laws, both assignments in 2009 and 2012 to the Plaintiff/Trust failed to comply with MCA § 31-2-210 and MCA § 31-2-211, to which these failures also render the assignments “Void.”
Under MCA § 71-1-321, deeds of trust under the “Montana Small Tract Financing Act” (MSTFA) are considered to be “mortgages” and are subject to all laws relating to mortgages on real property when a “conveyance for security purposes is made to a trustee or trustees for the benefit of one or more lenders.” This statute leads to mandatory compliance under Montana Titles 70 & 31 which read as follows:
70-21-202. Certain transfers in trust — mortgages — when to be recorded.
Transfers of property in trust for the benefit of creditors and transfers or liens on property by way of mortgage or abstract of such document are required to be recorded in the cases specified in Title 31, chapter 2, on the special relation of debtor and creditor and Title 71 on mortgages, respectively.
Section 31-2-210: The instrument of assignment –
(1) An assignment for the benefit of creditors must be in writing and subscribed by the assignor or by the assignor’s agent authorized by writing.
(2) The assignment must be acknowledged or proved and certified in the mode prescribed by the law on recording transfers of real property and recorded as required by 31-2-215 and 31-2-216, but recording in one county constitutes a compliance with 31-2-215 and 31-2-216.
(3) The assignment must be accompanied by the affidavit of the assignor and assignee that the assignment is made in good faith, for the benefit of the creditors of the assignor, and without any design or hinder, delay, or defraud the creditors.
(4) The assent of the assignee, subscribed and acknowledged by the assignee, must appear in writing contained in or at the end of or endorsed upon the assignment before the assignment is recorded and, if separate from the assignment, must be duly acknowledged.
Failure to comply with these requirements under Montana law means the assignments are “void” under MCA § 31-2-211 which also reads as follows:
Section 31-2-211: Compliance necessary to validity of assignment Unless the provisions of 31-2-210 are complied with, an assignment for the benefit of creditors is void against every creditor of the assignor not assenting thereto. Neither recorded assignment to the Plaintiff/Trust have complied with these laws. For the reasons set forth, all recorded assignments to the Plaintiff/Trust are “void” under Montana law.
B. BECAUSE ALL ASSIGNMENTS TO THE PLAINTIFF/TRUST ARE “VOID” UNDER MONTANA LAW, THE SALE OF DEFENDANT’S PROPERTY, AND SUBSEQUENT RECORDING OF THE “TRUSTEE’S DEED” BY THE PLAINTIFF/TRUST, ARE ALSO “VOID.”
For the reasons outlined above, it is only logical that if the assignments of Defendant’s Deed of Trust to the Plaintiff/Trust are void ab initio, no title ever passed to the Plaintiff/Trust entitling it to foreclose Defendant’s Deed of Trust. This renders the non-judicial foreclosure of Defendant’s Deed of Trust under the “Montana Small Tract Financing Act” unlawful and void.
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