Countrywide Financial Corp., the mortgage giant that's now part of Bank of America, routinely didn't bother to transfer essential documents for loans sold to investors, an employee testified.
The testimony — which a New Jersey bankruptcy judge cited in dismissing a B of A claim against a debtor — could complicate attempts by the company to foreclose on soured loans that Countrywide originated and sold in better times.
The B of A employee's admission that the lender customarily held on to promissory notes could also undermine the industry's position that document transfers to securitization trusts are fundamentally sound.
O. Max Gardner, a North Carolina consumer bankruptcy lawyer who was not involved in the case, called the testimony "a major problem" for B of A, which acquired Countrywide, the country's largest servicer of residential mortgages, in 2008.
"These original notes were supposed to be transferred and delivered all the way up the line and for this witness to admit they were never transferred is pretty amazing," Gardner said. "I've never see this admitted anywhere."
Bank of America did not immediately respond to requests for comment.
Attorneys representing the borrower and Bank of America in the New Jersey case did not return calls seeking comment.
In a November 17 ruling, Chief Judge Judith Wizmur of the U.S. Bankruptcy Court in New Jersey rejected Countrywide's claim that it had standing to foreclose on a borrower who owed $211,202.41 on a Haddon Heights, N.J., home.
Countrywide originated and serviced the loan.
It securitized the mortgage in 2006 but failed to endorse or deliver the note and other related mortgage documents to the bond trustee, Bank of New York Mellon, the court found. (BNY Mellon had no comment.)
Linda DeMartini, a supervisor and operational team leader in B of A's litigation management department, testified that "the original note never left the possession of Countrywide," and was instead transferred to the lender's foreclosure unit, as shown by internal FedEx tracking numbers, according to the ruling.
DeMartini "testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents," Judge Wizmur wrote.
Attempts to reach DeMartini for comment were unsuccessful.
