CIVIL PROCEDURE: REAL PARTY IN INTEREST EXPLAINED

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

EDITOR’S NOTE: Finding that lawyers and judges are confused about the meaning and use of terms like “real party in interest” and “standing,” it hardly comes as a surprise that pro se litigants and other homeowners are confused as well. These concepts, which have been used and abused for years now, lie at the crux of the foreclosures and the reason why they should not be allowed to proceed.

In plain language only someone who has suffered a loss resulting from something that someone else did. The caveat is that just because you suffer some injury doesn’t mean you can sue. You can only sue if the other party who “DONE YOU WRONG” had some LEGAL DUTY to you. If somebody is being murdered and the method used is throwing them off a roof, their estate cannot be sued by the person upon whom they landed down below.

In the case of mortgages and notes it is very simple. ONLY the person who is losing money is entitled to relief. And they are ONLY entitled to relief from those people who promised them money. With a conventional old-style mortgage we wouldn’t be having this discussion. Common sense would tell you that if you borrow money from 1st National bank and don’t pay it, they are going to lose money unless you pay them. If you don’t pay them they will lose money unless they get to sell the collateral you offered to guarantee the loan. In the case of a mortgage, the collateral is the house. 

The real parties in interest are present in the above example — the actual borrower who received the benefit of borrowing the money and the actual lender who dug into their pockets and lent you their money or their credit. In such a transaction the real parties in interest are the debtor and creditor. If there is a dispute and the creditor must seek relief in court then they must allege the above facts which gives them “legal standing” — i.e., they are the creditor who is losing money because they have not been repaid as per the agreement between debtor and creditor (borrower and lender).  ONLY THE REAL CREDITOR MAY SUBMIT A CREDIT BID AT AUCTION BECAUSE ONLY THE CREDITOR IS OWED MONEY FROM THE DEBTOR. ALL OTHERS MUST PAY CASH. 

The problems start when the original loan closing did not involve the real parties in interest. A table funded loan is one in which the lender hides behind a curtain while another party pretends to be the lender. In so-called securitized loans there is a genuine issue of fact and law as tow ether the original loan documents represent a transaction that was table funded or whether such documents represent a separate fictitious transaction altogether. Either way the real party in interest on the lender side is not present at the table nor named in the closing documents.

In the event of a dispute, the pretender lender, not a real party in interest, lacks legal standing to allege anything to enforce the borrower’s obligation UNLESS the pretender can state that it is the agent of the real lender (real party in interest) and show that such agency existed at the time of the loan closing and/or at the present time. Whatever the pretender does must be done in the name of the real party in interest or there is no party with legal standing on the creditor side.

Similarly, the real lender, although a real party in interest, lacks standing unless it can show that the closing documents were done in the name of the real lender with proper agency relationships documented and recorded between the pretender lender and the real lender. If such documents existed, the loan would no longer be table-funded, nor would it be susceptible to a claim that the documents described a fictitious transaction. If such documents are not in existence, then the real party in interest (real lender) has a problem. They really loaned the money but they are not named in any document.

And in the case of the mortgage meltdown, they really loaned the money, but they were never disclosed — so the borrower is in the position of having a party in his documents stated as “lender” without standing and without rightful claim to being the real party in interest, on the one hand, and a party who says they really loaned the money, but has nothing to prove it from the closing documents.

In fact, the real lender received a wholly different set of documents in which many promises to pay or guarantee were made by parties who were involved in a direct transaction with the investor (real lender) — but the borrower never saw nor signed those documents.  Thus the real lender may have some claim,  but it is against multiple parties that MIGHT include the homeowner, but which do not include enforcement of the original loan documents — because the investor-lender was not party to those documents and therefore was not and is not a real party in interest in relation to the original documents.

——————————————————————————–

submitted by Hanna LAW:

From In re Sheridan, Idaho 2009

“Hasso v. Mozsgai (In re La Sierra Fin. Servs.),
290 B.R. 718 (9th Cir. BAP 2002), explained that the doctrine of standing encompasses both constitutional limitations on federal court jurisdiction (i.e., the case or controversy requirements of Article III), and prudential limitations on the court’s exercise of that
jurisdiction. Constitutional standing requires an
injury in fact, viz. an invasion of a judicially
cognizable interest. 290 B.R. at 726-27. Prudential
standing requires that the party’s assertions fall
within the zone of interests protected by the statute
and, further, requires that the litigant assert only
its own rights and not those of another party. Id.
at 727 (citing Bennett v. Spear, 520 U.S. 154, 162, 167-68 (1997). The party asserting standing exists has the BURDEN OF PROVING IT. Id. at 726. ……

These same standing requirements were
recently highlighted in a stay relief context by the court in In re Jacobson, ___ B.R. ___, 2009 WL 567188 at Page 8 *5-6 (Bankr. W.D. Wash. Mar. 6, 2009).

2. Real party in interest

Under Rule 9014, which by virtue of Rule 4001(a)(1) governs stay relief requests, certain “Part VII” rules are applicable. See Rule 9014(c). Among those incorporated rules is Rule 7017,
which in turn incorporates Fed.R.Civ.P. 17, and Rule 17(a)(1) provides that “An action must be prosecuted in the name of the real party in interest.”

Jacobson notes that its moving party, who claimed to be a servicer for the holder of the note, “neither asserts beneficial interest in the note, nor that it could enforce the note in its own right.” 2009 WL 567188 at *4. It concluded that Fed.R.Civ.P. 17 applied, requiring the stay relief motion to be brought in the name of the real party in interest. Id. (citing In re Hwang, 396 B.R. 757, 767 (Bankr. C.D. Cal. 2008)); see also In re Vargas, 396 B.R. 511, 521 (Bankr. C.D. Cal. 2008). As Jacobson
summarized:

The real party in interest in relief from stay is
whoever is entitled to enforce the obligation sought to be enforced. Even if a servicer or agent has authority to bring the motion on behalf of the holder, it is the holder, rather than the servicer, which must be the moving party, and so identified in the papers and in the electronic docketing done by the moving party’s counsel.

The upshot of these several provisions of the Code, Rules, local rules and case law is this: to obtain stay relief, a motion must be brought by a party in interest, with standing. This means the motion must be brought by one who has a pecuniary interest in the case and, in connection with secured debts, by the entity that is entitled to payment from the debtor and to enforce security for such payment. That entity is the real party in interest.
It must bring the motion or, if the motion is filed by a servicer or nominee or other agent with claimed
authority to bring the motion, the motion must IDENTIFY and be prosecuted in the name of the real party in interest……………”

The court said in regard to a newly submitted note with an endorsement not on the note originally proferred:
“Sixth, even were it considered, the “new” Note’s asserted indorsement states: “Pay To The Order Of [blank] Without Recourse” and then purports to be signed by Fieldstone Mortgage Company through a named assistant vice president. There is no
date nor indication of who was or is the transferee. Fieldstone Mortgage Company may have indorsed the Note in blank, but this document does not alone establish that either HSBC Bank USA or
Fieldstone Mortgage Investment Trust is the Note’s holder.

Thus, even if a “nominee” such as MERS could properly bring a motion for stay relief in the name of and on behalf of the real party in interest — the entity that has rights in and pecuniary
interest under the Note secured by the Deed of Trust — nothing of record adequately establishes who that entity actually is.
Under the evidence submitted at the § 362(e) final hearing, which consists solely of Exhibit 1, the only entity that MERS could conceivably represent as an agent/nominee would be Fieldstone Mortgage Company. But MERS does not represent that party
according to the Motion and, in fact, its contentions are to the effect that Fieldstone Mortgage Company is no longer a party in interest.[fn18]

At the time of that final hearing, counsel for Movant conceded that he had no documentation provided to him by his “client” which indicated the interests under the Note or Deed of Trust were held by either HSBC Bank USA or the Fieldstone Mortgage
Investment Trust. Counsel filed the Motion and characterized the Movant’s identity therein based solely on undocumented representations made to him. This would appear to be a problematic approach generally.[fn19] And, in this particular case, Trustee’s objection to the Motion put the matter at issue and Movant to its PROOF……………

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48 Responses

  1. How can I access the MERS minsummary for my property. I have tried the links on your site but cannot get any access. The Home Owners section only shows my servicer and under investor it is stated the investor does not wish to be listed

  2. @Joyce – that’s the most unscrupulous thing I ever heard. That servicer may well have underwritten the loan before reselling it and retaining the servicing. There’s no way the 1008, the loan summary used for underwriting, matched the closing docs (numbers). This means someone in post-closing either never looked at the file as mandated or looked and didn’t give a darn.

  3. @HANNAH–thanks so much for your insights. This establishes a baseline. Appropriate handling—yes that is what I experienced as a retail customer.

    From my singular perspective, I stumbled into a mobile home loan in early 90s in connection with a sort of commercial transaction. I had never seen a 3rd party servicer before that. The servicers transferred the loan every few months–it was not predatory—at least it never came out–I paid it off pretty quickly with a REAL LOAN from a REAL BANK.

    Then the whole mobile home loan system went to pieces—max price on junk homes set on mud—with 10 K on furniture in the 25K home included in the balance financed over 30 years–when the home wouldnt last that long itself much less the junk furniture.

    They repoed huge numbers—–they would sell a home for $2000 that 5 yrs before was $40K—in bunches to clear their books. I never understood –I knew people that were tossed out for $2000 when they would have been happy to have had a writedown to $20K –it didnt matter-that was not an option. Variable rates all. 5% down that was payable out of the seller cash promo–so home-owners could close with $$ in their pockets.

    They were called “trailer trash” for waking up after the giddy showroom experience–cash back anything to get them to sign. These were clearly predatory–vis not really benefitting the consumer. Speculators bought em in place in mobile home parks increased price at least twice and flipped em.

    As far as I can see this natl epidemic today is basically same deal——–

    The need is to determine where the wheel is falling off the wagon that used to roll ok–as you describe–and I experienced.

    In the mobile home case-the sellers were tied into the fly-by-nite lenders–who securitized then ran with the $$—then within 3 yrs do bankruptcy.

    In the mobile home case, the sellers and broker-originators were clearly predators. Nobody ever prosecuted for anything.

    The servicers seemed to me to be the indicator of the problem-and all the same issues–lost files etc—-basically all they do is collect $$. Anything else outside scope.

    I never dreamed they would bring a similar business model to regular housing.

    By 2004–it appears to me that they have attempted to separate the broker from from the closing so much that they can assert the reviewr—which seems to be the purported underwriter was creating closing docs same day as closing and printing off at title company as I signed–literally hot papers—everything in 30 minutes–barely time to scratch initials on the huge piles of DISCLOSURES———

    The front end processors got their cut–they knew it was bad–brokers–title cos agents. All knew. I have heard it said many times that the brokers received much more compensation for setting up the worst 3-5 yr reset [pmt--not interest accrual] , although the tranches included 35 fixed rates etc with workable pmts-they were not offered—not available–and I was a prime credit–I refied. Stupid–but a 1.25% one yr teaser–and I was ill at the time. The teaser reset with 1st pmt-so even though I walked out of closing with good old coupons for 12 mos—-it was a false teaser-I went into negative amortization immediately! I went into subprime status immediately w/o knowing it–I did not know what subprime was. My insurance agent called within a few weeks to explain why casualty insurance had gone up 50% –because “of the type of loan”

    It took years before I grasped the full implications for casualty insurance.

    AND THIS IS KEY FOR THOSE WHO SETTLE TO GET OUT AFTER WHATEVER DEAL COMES OUT OF AG STUFF.

    The settlement agreement may address casualty insurance—such that the borrower must maintain it [albeit by pmts from servicer under escrow etc]

    Typical insurance contracts did not allow cancellation of policies by the insurer until the house was vacant for 60-90 days. So the servicer could continue the policy in force ON THE HOMEOWNER’s insurance history well after the vacate date. If the home freezes, if it burns, etc. it allows the servicer to collect the insurance which most likely far exceeds the value of the home.

    The servicer collects the casualty insurance. The servicer basically still owns the lot even if the house must be torn down. The homeowner cant get new insurance for squat-premiums go up for everything that they can get-subprime of insurance world.

    this is something that the homeowner walks away with from a purported final solution “settlement” to hi/her travails. May also have a lot of other continuing duties ——-lots of tricks like the mod doc that sarts out line one—“the borrower acknowledges that the modifier etc is holder of the note” -other express waivers too.

    if I were on other side id argue simply entering into a mod is an implicit acknowledgement of the modifiers standing—–absent language expressly refuting any implicit waivers of rights.

    Im afraid that for every defended foreclosure there are 20 that they will be going back to aiming to take maximum advantage of the borrowers trying to escape——when AGs remove false hopes for free houses or reasonable mods that do not simply defer the date of reckoning [see GREECE for national example]

    The homeowners will rush on mods–waive evrything–get stuck with unexpected contingent liabilities etc

    If the homes are vacated in the North in Fall-Winter—the servicer may have a HUGE INCENTIVE to simply turn down thermostats and walk away till spring when they collect on casualty insurance and sell a lot with a destroyed home. This is where this is headed.

    Sorry I wandered–but Im trying to point to potential people that benefit by harming homeowners and try to get a little ahead of the curve on issues that are incidental to foreclosure per se.

  4. Hanna: – Thanks for bringing back the good ole days before 2000.

    David C. – Unethical or criminal – Example:

    Mortgage Bankers approves a loan via desktop by submitting certain information – for example MI is supposed to be about $180.00 per month, taxes $350 and insurance $80.00 for a total monthly escrow. However, after loan approved, the broker could not get mi insurance for $180 and ended up paying $610 per month and the borrower was nto aware because no new Good faith was issued to alert her and she did not catch it at closing – we all know how that goes.

    Her first payment was set at $650.00 per month so that was still in line with what she was originally quoted. How did they do this? The broker simply cut the taxes from $350 to $29 per month and the insurance stayed at $80 while the MI cost $ 610.00 so $719 was her escrow payment – Escrow anaysis was not run for 18 months so she accumulated a tax deficit of about $6000 which had to be repaid through an escrow increase to get back over 12 months. She had actually paid almost $11,000 to an MI company over 18 months and ended up with a tax deficit of $6,000. Her newly calculated payment after escrow analysis was over $1100 when all was said and done and she should have had an escrow payment of about $650 if the loan had been set up properly.

    What it came down to was the mortgage broker could not secure the MI for the $180 so they adjusted her escrow so she could pay on the less amount for at least 18 months before the borrower would begin to suffer and possibly go to foreclosure because she could not make the payments.

    When we took this case to THE SERVICER AND FNMA – THEY LOOKED THE OTHER WAY AND WE FOUGHT OFF F/C FOR THE 2 YEARS – WHAT WAS SAD IS THAT FNMA BACKED THE ARROGANT SERVICER ALL THE WAY – I KNEW THE BORROWERS WERE IN TROUBLE WHEN FNMA WOULD NOT CONSIDER OUR EVIDENCE AND THEY TRIED TO TAKE HER HOME –

    NOW OF COURSE FNMA HAS HAD MOST OF THOSE LOANS REPURCHASED BY THE ORIGINATORS WHO HAVE NOT ALREADY GONE OUT OF BUSINESS. I THINK THE TAX PAYER HAD TO PICK UP THE TAB – ANONYMOUS MAY KNOW.

    Just so the broker could close the loan and get his commission – this borrower was subject to this victimization – the difference between unethical and criminal.

  5. D- okay I see what you mean. The only accounting done per se on a loan was on the funding worksheet and reconciliation form which was not part of a general ledger.
    The only thing that made it into the general ledger was our profit or loss on a loan. (We rarely had a loss, but it could happen) That figure had to tie back to the worksheet but that was it.

  6. D – back in the 80’s as ‘loan brokers’ evolved, broker was a bad word. Then brokers became what it was. The companies they sold loans to still underwrote strictly – followed the rules. The wholesale lender found it to be cost effective to work with brokers who originated the loans on the street and the broker’s overhead was inline- the overhead was relative for each. In lean times the wholesale lender would not be burdened with employees not needed. Sometimes the company originating loans had a slightly different relationship and those were called correspondents.

    The wholesale lender would do one of two things – table fund the loans for its brokers or provide the broker with a warehouse line, sort of. No one found any of this to be untoward. Screening for brokers was rigorous, including credit reports on key personnel and officers. A minimum net worth was required. FHA and VA required annual audits to ascertain that the net worth had been maintained if the smaller company had gotten approval to originate FHA and VA loans and wanted to keep it.

    But it evolved to where anyone could originate conventional loans and some large companies would rubberstamp anything they got fed I guess. I don’t know which came first – this sad affair or the securitization and all the money it represented since I was gone by then. But certainly the combination of the two has done us in.
    Also, ‘desktop’ underwriting done with a computer program replaced many living underwriters. I missed that too but I’ve heard if you messed with it enough you could get an “accept.” on loans the breathing underwriter would not have touched

    So to answer your question if I haven’t it all started innocently enough. The business once the domain of banks and S & L’s had to make way for mortgage companies and then they made room for brokers. Competition became stiff and the implementation of worse and worse loan programs was off and running. Now add securitization and all that jazz. Now add MERS.

  7. D – I don’t understand your question. We endorsed the note and assigned the deed of trust at the same time, which was rght after the closing. When the the dot was recorded (by the title company), so was the assignment. None of this nonsense going on today – no MERS. We had no involvement with the loan after that, with the exception of routine but minor post-closing items,and those did not generally involve the borrower. Loans were closed, for example, on a title commitment, not a policy. We would have to ‘tickle’ the file for receipt of the actual policy and go run it down if not received within a certain time. But, except for that sort of thing, we were done with the loan.

  8. @anonomous

    “A mortgage loan is eligible if it is delinquent OR if default is reasonably foreseeable. Loans in foreclosure are eligible.”

    Sorry I cut this out of a string above -yes for mods–but yes i agree with your conclusions–

    actually I think the real motive was a setup by the vulture investors who knew which tranches would pull through after crash with value—-with frills everywhere -ie CDS, insurances—–CDO stuff on top of that ——–i wonder how deep the piles are on the new stuff-the 5 yr resets advertise all the time

  9. David C Breidenbach

    Eligible for what – David?? Subprime Loan was a default loan — before even in default. Eligible for another modification of a default debt — for which the subprime refinance already was???

    Subprime refinances??? — just mods of already classified default debt — but no one knew. Of course, the goal was always the home equity. And, as long as home prices kept escalating — a foreclosure was inevitable (given high adjustable rates– and knew easy slam dunk in courts). Big profit to distressed debt buyers/hedge funds — who were the only funders of the “shell” trusts” — by the subordinate tranche (small investment principal) holdings.

    Profit remains in foreclosures. It is all about business profit. Mods do not allow business profit. And, of course, a principal correction mod would have to identify the current creditor.

    Profit — always the controlling force.

  10. The reason I posed the question was to try to define where unethical ends and illegal—dererving of punitive action begins. The broader conduct, if it has to be so bad as the Indian conspiracy –with 50 co-conspirators on wires–or whatever.

    They appear to have established an industry standard or practice so low that borders illegal—-law and ethics the same on global stage then.

    Ok so there are loads of OBVIOUSLY predatory loans—the originators down to the agents that brokered them should not be licensed at a minimum. Dont feed the beast.

  11. Depends on how you define predatory. A lot of peple think every phase of the housing finance activity was preadtory –

    Predatory is one part of the whole – I am speaking of the whole process for any entity involved in the mortgage loan industry – they have all gone to hell in a hand basket and all worked in tandem with each other when they knew they what they were doing was wrong. and should have stepped up to do something to prevent the housing crisis –

    Need I say more. I am sure everyone here knows the extent of what has been done and it took unethical behavior on the part of a great many participants to have pulled it off.

    This whole matter is very sad for me because I was able to work with some very companies, law firms, etc that I now find went down a path I never thought was possible for them.

  12. Non ethical behaviour became the name of the game in 1996 – unfounately the banking auditors and their inhouse attorneys did not stop them at the gate. Deregulation could have been great for the country; however, intentional unethical behavior was the unintentional consequence of it. Does that make sense. That is just my opinion

    ARE YOU REFERRING TO PREDATORY LENDING AS UNETHICAL? WHAT EXACTLY IS UNETHICAL–OR ARE YOU JUST BEING RESTRAINED?

  13. Non ethical behaviour became the name of the game in 1996 – unfounately the banking auditors and their inhouse attorneys did not stop them at the gate. Deregulation could have been great for the country; however, intentional unethical behavior was the unintentional consequence of it. Does that make sense. That is just my opinion.

  14. TO HANNAH;
    RE TABLE FUNDING–IS IT NOT BASICALLY A FINANCIAL ENTITY EQUIVALENT OF INVENTORY FINANCE—-OR IS IT ADVANCE PURCHASING?

    IV ALWAYS WONDERED HOW THEY DOCUMENTED THESE ONGOING ARRANGEMENTS. DO YOU KNOW IF YOUR ACCTS KEPT A NR INVENTORY AND AP UNDERWRITER?

  15. A mortgage loan is eligible if it is delinquent OR if default is reasonably foreseeable. Loans in foreclosure are eligible.

    THE SERVICER MAY NOT REQUIRE THE BORROWER TO WAIVE LEGAL RIGHTS AS A CONDITION OF THE HAMP.

    The entire announcement with the HAMP directives to servicers is available here:

    I qoute above-its meaningless to say they ate not required but have no rule about ATTEMPTING to require it as a predatory action-or is that up to state law? This is important.

  16. [...] 12 May SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM EDITOR'S NOTE: Finding that lawyers and judges are confused about the meaning and use of terms like "real party in interest" and "standing," it hardly comes as a surprise that pro se litigants and other homeowners are confused as well. These concepts, which have been used and abused for years now, lie at the crux of the foreclosures and the reason why they should not be allowed to proceed. In plain … Read More [...]

  17. Ian,

    Thank you. Oh yes — absolutely. And, there are documents that support a “modification” only — just have to get them by discovery.

    Of course, need judge to GRANT discovery. “Letter of Transmittal” — Custodians have them. And, why are AGs not asking for these documents???

    Senators want to shut down CPA as is???— Of course — maybe someone will actually stand up for victims.

    usedkarguy

    Continued exploitation by political power.

  18. If and when the attorneys general get the money, what is being done with it? Are they getting new work vehicles or are we the people who have been damaged being directly compensated?

  19. ANONYMOUS – Do you have a link to the proposed
    consumer agency isms? Playing devil’s advocate,I have to say that the government is entirely capable of knee-jerk pieces of fluff with no teeth, makes no sense, unenforceable. subject to interpretation and litigation ad nauseum. Don’t know where they get their scribes. Washington Academy of Idiot Sticks and Nepotism? Look at HAMP for pete’s sake – the gov apparently didn’t even know that servicers have to buy the notes to modify them. Money was given to servicers with no lender licenses to modify loans. We need more info, do we not?

    And while I’m at it…..it seems clear to me that a lot of people can’t be bothered to go look up FNMA HAMP mandates. No, I dont’ want to join the ranks of some others here, but if people actually looked up the alleged rules for modification, there would be a lot more discussion here that isn’t happening.

    There are very few attorneys who get this stuff and or are willing to represent us in the matter. That leaves us. FNMA’s website provides great insight at least for GSE loans. Who wants a modification but didn’t and won’t bother doing the research? There are clues here, but the real meat is at FNMA.

    Many attorneys have argued successfully for the banksters that HAMP didn’t create a private right of action for the homeowner, that is, the homeowner has no standing to sqwauk about not getting a modification. . But, a couple have broken through and courts have found the homeowner IS in fact an intended beneficiary and therefore has a cause of action – has sustained an injury – against the non-performance of the bankster. In other words, some cows hit that wall but now other cows are in the pasture. Numbers? You want numbers? Do your research homework on HAMP to start with and get some more cows against and over that wall. Eough cows will knock that wal down.
    I haven’t drawn attention here to one case in particular which is a break-through on HAMP enforcement for the homeowner because I don’t want to add to the homeowners and their attorneys load – in the form of more attorneys being hired by the banksters to squish it like a bug. That ruling that the homeowner has a cause of action is big.
    Most HAMP litigation has gone nowhere – this is a game changer.
    But I’m not giving it to people who can’t or wont look at available info to help themselves.When you’re done being p.o.’d at me, go look at the FNMA ‘rules’
    regarding modifications. And remember, its’ always better to be pi–ed OFF than pi–ed ON, which is what you’re getting right now.

    Go find out, for instance, if I’m doing drugs when I say the servicer has to buy the loan to modify it. (If I am, I’ll eat the appropriate crow)
    It’s a good place to start and it’s a good place for real discussion.

  20. Is anybody calling their congressional reps? My fellow Americans, we have the Republicans blocking every move made to try to help borrowers.

    From MARKETWATCH by Ronald D. Orol

    WASHINGTON (MarketWatch) — Faced with mortgage documentation problems and other criticism, a group of the biggest U.S. banks are proposing paying $5 billion to settle an investigation of foreclosure practices conducted by federal and state authorities, according to reports.

    Bank of America Corp. /, J.P. Morgan Chase & Co. and three additional U.S. mortgage companies with servicing units made the proposal during settlement talks in Washington this week, according to The Wall Street Journal.

    Bloomberg News, citing people familiar with the situation, reported that a rift is forming between Democratic and Republican state attorney generals in settlement talks with big banks.

    Eight Republican attorneys general have objected to cutting mortgage loan principals for some troubled borrowers, Bloomberg reported. That approach is opposed by a number of state attorneys, lead by Iowa Attorney-General Tom Miller, who are seeking to have mortgage servicers cut the amounts owed by some borrowers facing foreclosure in some circumstances.

    According to Bloomberg, the participating banks insist that loan principal cuts would encourage homeowners to default, something some states participating in the talks dispute.

    Some states are also seeking to have second liens modified at least in the same ratio as the first, but banks are opposed to any changes.

    The five banks are responding to a 27-page “term sheet” state attorneys general and federal regulators sent to lenders, according to a spokesman for Miller. The settlement offer is far less than the $20 billion in fees sought by some states.

    Attorneys general and the banks are also battling over other measures sought by the states, including a provision seeking to give borrowers the right to appeal a denial of loan modifications.

    In addition to J.P. Morgan Chase & Co. and Bank of America, Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc. are also participating in settlement talks with the attorneys general.

    Already, 14 banks have been sanctioned for their mortgage practices by federal regulators, but they haven’t as yet had to pay any penalties.

  21. ANONYMOUS-thanks for your more easily-followed explanation yesterday. In your sphere of knowledge, would it therefore be a violation of RESPA or TILA to charge a borrower ‘origination fees’ and YSP on a transaction which was described as refinancing a mortgage with a new mortgage, but instead just modifying the existing mortgage unbeknownst to the borrower? How can there be an ‘origination fee’ (points) if there was no origination? I would infer that this is why, regardless of who refinanced with which party, the alleged debt and the Trust which purportedly held the note never changed.

  22. To ANON:
    SAD–

    Apropos to your point please see the excerpt in today’s Financial Times “Comment” section:

    http://www.ft.com/cms/s/0/9f8572b6-7b04-11e0-991a-00144feabdc0,s01=1.html#axzz1M37BftUd

    Please respect FT.com’s ts&cs and copyright policy which allow you to: share links; copy content for personal use; & redistribute limited extracts. Email ftsales.support@ft.com to buy additional rights or use this link to reference the article – http://www.ft.com/cms/s/0/9f8572b6-7b04-11e0-991a-00144feabdc0.html#ixzz1M386K01S

    “Market economies are always vulnerable to chancers and spivs who sell overpriced goods to ill-informed customers and seem to promise things they do not intend to deliver. If such behaviour becomes a dominant business style, you end up with the economies of Nigeria and Haiti, where rampant opportunism makes it almost prohibitively difficult for honest people to do business. Our prosperity depends on a self-enforcing culture of ethical business values, in which traders value their reputation and seek to develop long-term commercial relationships. That is the culture in which banks used to operate: it is time they did so again.

    johnkay@johnkay.com

    TRUE and TRUE

  23. Well — power continues — see below.

    “GOP senators vow to block consumer bureau nominee
    By Charles S. Clark

    “The slow creation of the Consumer Financial Protection Bureau encountered a new hurdle on Thursday when 44 Republican senators delivered a letter to President Obama declaring they “will not confirm any nominee, regardless of party affiliation” to run it.

    Sen. Minority Leader Mitch McConnell, R-Ky., said in an accompanying statement that “The CFPB as created by the deeply flawed Dodd-Frank Act is set to be one of the least accountable and most powerful agencies in Washington. Today’s letter delivers a commitment by 44 Republican senators to fix the poorly thought structure of this agency that will have unprecedented reach and control over individual consumer decisions — but an unprecedented lack of oversight and accountability.”

    Everyone should be writing these senators. They are 44 out of the 47 Republican Senators. Part of reason that it has been so hard for us is that we have nowhere to go. All agencies just shift jurisdiction elsewhere — no current agency wants to address consumer complaints.

    Now these Republican Senators want to take away the only thing that has been given to the people since the crisis started — the Consumer Protection Agency. Why??? These Senators want business to continue as is — fraud and all!!!

  24. Then a moment of silence for all the Taylor-Bean former employees who had five seconds to collect their personals when the feds walked in one day and locked the doors. I had a friend who worked there and did nothing wrong. A single parent, she lost her home to unemployment and is now dancing, or is it limping, in the welfare lines.
    Those good people should also file impact statements.

  25. Neil, kudos on your well-written and discernible
    explanation. First time I actually got that part. But a question still. Is this to say, then, that the someones sold the non-existant loan forward? I mean, did someone sell the paper before it was created?
    Whose money exactly was being used to fund the loan? The certificate buyers? The depositors? I think this and the mechanics that go along with that funding are majorly important and warrant further discussion, at least for this guy.

    Can someone explain this as well as Neil did – words of one syllable or less for dummies?

  26. From FNMA Servicing Guide Announcement
    09-05R re HAMP:

    A mortgage loan is eligible if it is delinquent OR if default is reasonably foreseeable. Loans in foreclosure are eligible.

    THE SERVICER MAY NOT REQUIRE THE BORROWER TO WAIVE LEGAL RIGHTS AS A CONDITION OF THE HAMP.

    The entire announcement with the HAMP directives to servicers is available here:

    https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0905.pdf

    There is other informative HAMP material at
    efanniemae.com also. Easy to find.

  27. ELEMENTS OF ABUSE OF PROCESS (must prove):

    1) an ulterior purpose for the use of the judicial
    process
    STEAL your property?

    2) willful action in the use of that process which is not proper in the regular course of the proceedings

    File bogus affidavits or declarations?
    Submit false documents, like an assignment of the deed of trust by MERS (member to itself) alleging to ‘assign’ the note as well as the collateral instrument?
    Invoke the jurisdction of the court when no dog in hunt? Only those who have sufferd injury may invoke the jurisdiction of the court.
    Engaged in a plan meant to improperly influence the court?

    3) resulting damage

    litigation expense and hassle?
    depression?
    emotional distress?
    financial loss?

    ELEMENTS OF EMOTIONAL DISTRESS:

    Must allege “(1) the defendant / plaintiff engaged in extreme and outrageous conduct;

    (2) the defendant engaged in the conduct recklessly or with the intent of causing the plaintiff severe emotional distress; and

    (3 the plaintiff / defendant incurred severe emotional distress which was caused by the defendant‟s / plaintiff’s conduct.”

    In order for the conduct to be sufficiently “outrageous,” it must be “so outrageous in character, and so extreme in degree, as to go
    beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.” Destefano v. Grabrian, 763 P.2d 275, 286
    There may be cases which cite a lesser degree of ‘outrageous’.

  28. Anyone who had a loan touched by Colonial Bank or Taylor, Bean, and Whitaker, during origination, may want to follow this link to the U.S. Department of Justice. As mentioned by Neil, this may be a cause of action waiting for you. There is a “Victim Impact Statement” on the DOJ website as well. The DOJ has a list of the Colonial Bank executives, and T,B,W, executives being charged and others awaiting sentencing as well. These complaints are time sensitive so it is advised to move quickly.
    __________________________________________

    FROM THE DOJ WEBSITE

    ** The Criminal Division is committed to protecting the rights of crime victims. If you believe you are a victim in U.S. v. Lee Bentley Farkas, you have a right to submit a Victim Impact Statement in the form of a letter before sentencing to explain how the crimes affected you and/or your family. Victim Impact includes physical, emotional and/or financial loss. If you elect to make a submission, you should complete and return the Victim Impact Statement Form located at the bottom of this page to: Pamela Washington, Attn: Lee Bentley Farkas case, U.S. Department of Justice, Criminal Division, Fraud Section, 10th and Constitution Avenue N.W., Bond Building, Room 4216, Washington, DC 20530, no later than May 21, 2011. Submissions can also be faxed to Ms. Washington’s attention at 202-514-7021.
    __________________________________________

    Information Regarding United States v. Lee Bentley Farkas

    PAMELA WASHINGTON DIRECT PHONE NUMBER
    1-888-549-3945

  29. Just remember , the servicer keeps the note instead of it making it’s way to the investment pool according to the PSA. Mo one questions the PSA. Next the servicer by way of MERS assigns the mortgae back the to servicer ( itself). Again no one questions as it looks like the servicer holds the note and mortgage.
    You have to be really savy to understand the transaction. I have learned alot from Neil and the others posting on this site. Sometimes the education is worth the loss.

  30. YIELD Maintenance Insurance I meant of course.

  31. from ongoing litigation:

    ” There is evidence in the Trust Agreement that the owner of the Note was not damaged by a shortfall in payment or default because RALI Trust had “YIED MAINTENANCE INSURANCE” that provided insurance payments for any shortfall in payments or decline in value related to its collateral, including allegedly plaintiff’s Property and that the collateral has already been “written-off” and insurance payments made covering any loss allegedly suffered by ALS or RALI Trust. See Trust Agreement.

    On information and belief the collateral of the RALI Trust was the subject of an auction and all or a part including the Property may no longer be, if it ever was, owned by RALI Trust. See http://www.reuters.com/article/idUS69883+12-Jul-2010+RNS20100712..

    If RALI Trust were indeed the owning entity, there is evidence in the public records of the SEC that it is inactive and has not filed reports.”

  32. @David – what is meant by this:

    you said

    ‘But this time, the AGs will decree

    that the MERS registration if it reflects “evidence of most substantial terms of the note” will be DEEMED to be the evidence of note that is needed to support the affidavts/complaints what have you.’

  33. Well hopefully since Anonymous said it –

    We will not solve the situation by individual success in random courts – which, at best, will help a few. We will only solve as whole — group — against the power that has controlled since the onset of the “financial crisis” – and before

    I HAVE BEEN SAYING THIS FOR OVER A YEAR YET NO ONE SEEM TO GET IT. NOW WITH HIS HELP ON THE SUBJECT – MAYBE THE PEOPLE WILL COME TO REALIZE WHAT HAS TO BE DONE.

    I could not help but weigh in because from reading these comments – it looks like some of the people are getting the idea once and for all. It is exactly what the banks do not want us to do, but we should.

  34. When I was in the business, loans made at my company were table funded by another company, home of the underwriter, thru the title company, by wire transfer. We were charged with compiling the
    “warehouse” package including the original note (on which we were the payee) endorsed in blank without recourse by us. It was rote in the industry. This was before all this securitization became rampant and this was all done without a thought. It was before the days of no-doc loans, also. Appraisals had some basis in fact. In fact, appraisals were often the topic of ‘desk reviews’ by the underwriter and whoa to thee if she didn’t like it. My company only originated “A” paper firsts. This was about the time hard-money seconds were coming into play and the company chose not to participate.
    I dont think I know anything else useful – just to explain that table funding has been going on for a long time.

  35. Amen Anonymous—–if warren goes too then you know things are nearly untenable. Ok so people focus on straightforward settlements. Watch the casuaty insurance—-

    watch the manipulated sales

  36. Yes, ANONYMOUS—but HOW can we do it as a “whole”? I would love to be on a “panel” before Congress and just start shoving all this illegal, disgusting stuff in their face—slamming my fist on the table like Al Pacino in the movie “And Justice For All” —you know, the part where he screams “NO! YOUR’E OUT OF ORDER—YOU’RE OUT OF ORDER!!!” —when he’s got all this dirt on the judge…….a little different scenario, but it would be fun to really let them have it—SOMEhow!!!!

  37. The DC “tea leaves” have been in effect for a long time now. The only thing they did not count on was that victims would stand up to the fraud. Problem is — they have still not stood up as WHOLE — to DC.

    We will not solve the situation by individual success in random courts – which, at best, will help a few. We will only solve as whole — group — against the power that has controlled since the onset of the “financial crisis” – and before.

    True–and true-they get what they always wanted and forced the issues to get. But it is my speculation –only that—such that the MERS recordation is their fallback and they get future treatment that way.

    My guess is that the biggest issue in dispute is that the originators-servicers [please note--im not saying banks] want the ability to pursue deficiencies based on the MERS copy of note.

    They will assert –or probably are asserting as we speak—-that the inability to pursue deficiencies is THE REASON that FLA and CAl etc have had the worst bubbles. People will sign any promise thats not fully enforceable—-the threat of bad credit rating is not enough to restrain the temptation to excess.

    It is a legislative issue. I do not see how the AGs can in this country make a natl accord–and MERS is predictable. Too many people preying on homeowners-but this will not work if there is an end to fixed rates govt agencies. Lets not forget the underlying problems—-hyped markets, false appraisals, predatory loans too good to be true–relying on waivers etc–need the Consumer Protection Agency or this will be a green lite to rush the fence again.

  38. Amen Anonymous.

  39. Bair has tried. Believe that she has now seen more than she would like. Did she do everything that she could?? No. But, there was some trying – with actual effort.

    The DC “tea leaves” have been in effect for a long time now. The only thing they did not count on was that victims would stand up to the fraud. Problem is — they have still not stood up as WHOLE — to DC.

    We will not solve the situation by individual success in random courts – which, at best, will help a few. We will only solve as whole — group — against the power that has controlled since the onset of the “financial crisis” – and before.

  40. @ uprootedone
    EXCERPT: “Pfotenhauer is no stranger to the mortgage industry having cultivated a long career lobbying for the Mortgage Bankers Association prior to his ascension to CEO for ALTA”

    I suggest that this move, simultaneously with Bair going and AGs meeting is very meaningful if you read the DC tea-leaves.

    The AGs have got to enable note-holders [assume they are real for argument sake please] to foreclose despite the MERS assignment fiasco. The cows are out of the barn and they are not just going to allow the occupants to live in limbo indefinitely. So there are 2 issues: damages for torturing everybody by shoddy paperwork that has caused homeowners to lose confidence in the justice system. ie those that have resisted –should be attorney fees and key fees or reduction in principal.

    AND how to cure all that isin the pipeline—-Its got to be an assignment out of MERS with a real notary this time and other real sworn documents as needed. But there are many homeowners who will still be no better off as far as recognizing the real noteholder –if for no other reason than to be sure the real note and holder will not pop up shortly to collect after the house went to a pretender–somebody who had Linda Green signature 1st time around.

    But this time, the AGs will decree that the MERS registration if it reflects “evidence of most substantial terms of the note” will be DEEMED to be the evidence of note that is needed to support the affidavts/complaints what have you.

    Probably the AGs will send letters to their courts supporting this view and offer to introduce legislation to make MERS the final word on both mortgage AND NOTE–and reverse the Ohio rule etc that mortgage follows the note—now the note will follow the MERS mortgage.

    This will provide uniform treatment—except for deficiencies which they must override UCC to deal with. So judicial states get relief from deficiencies and everybody is happy.

    End of combo security analysis I think???

  41. Oh and another thing they may call us dead beats
    But they THE BANKSTERS are

    parasites
    leaches
    Stage 4 Malignant Cancer Cells

    Money Pushers

    NEVER AGAIN

  42. Lets make it clear the Government is screwing with us. They are playing and making us look like fools. Everybody in his/her right mind knows what is going on From 60 Minutes to Jon Stewart show to Dan Edstrom being on every talk or News show in America. To Why are they still foreclosing while the 50 State Attorney General Inquiry? This is pathetic and sad.

    NEVER AGAIN.

  43. MERS ON THE MOVE?

    ALTA CEO Kurt Pfotenhauer was recently named Chairman of Board for the controversial MERS registry system, according to ALTA’s Justin Ailes. Click above to learn what this means.

    May 6, 2011 –

    NAILTA has confirmed through the American Land Title Association (ALTA) that ALTA’s CEO, Kurt Pfotenhauer, recently became the Chairman of the Board for MERSCorp, Inc. and its controversal subsidiary, MERS, Inc. (MERS). MERS is the mortgage recording registry that ALTA and the banking industry helped create back in the 1990’s. Since it’s creation, MERS has helped turn the foreclosure crisis upside down. MERS has been in the news for months after revelations over its structure and its questionable legal efficacy arose in courtrooms across the United States. Several state supreme courts have recently held that the registry improperly foreclosed on homeowners and lacks legal standing to prosecute foreclosure actions. The registry has also been the subject of scorn from county recorders who believe that MERS acted as a conduit to syphon county recorder fees from local governments and, in turn, allowed banks and mortgage entities involved in MERS to profit from the troubled registry. The registry has also come under fire from the land title industry, including NAILTA, NALTEA and others, who believe that the MERS registry destroyed the time-honored tradition of unity between the note and mortgage (i.e. once they are separated — as they are in the MERS registry — the mortgage is no longer enforceable).

    Pfotenhauer is no stranger to the mortgage industry having cultivated a long career lobbying for the Mortgage Bankers Association prior to his ascension to CEO for ALTA.

    What does this mean to the title insurance industry? Plenty. The titular head of the title insurance industry is now the Chairman of the Board of one of the most controversial and troublesome failures of the housing and mortgage collapse. The conflict of interest issue is inescapable.

  44. A complete description of legal UCC note holding as affected by securitization would fill a couple thick books if it were a course in law school. Before getting into civil procedure.

    At the bottom of the pile is the underlying economic reality. Why things happen? The bases for repetition upon which many of us -already through the ringer–must focus.

    Policy-makers should look to Ireland. ARMS prevail.
    The predatory loans with pre-planned default mechanisms like illusory teasers and negative amortization thereon–into subprime captive status in a refi——-these lean heavily upon ARM status. Why are ARMs inherently unfair here but maybe not in EU? I do not know who exactly fixes the rates in EU—but I do know that the major banks are well-represented at the federal reserve here. And that works as long as they are not able to bet against your home-loan–then jack the rates. It is the conflict of interest that inheres to the system. The GOVT bank-agencies by whatever name–allow for citizens to have homes because they allow fixed rates. This weighs towards less volatile rates–if for no other reason that it does not allow an incentive by banks, investment houses, offshore hedge funds, foreign govts, maybe your own pension trust—to lay bets that your mortgage rate is going to balloon. Then go lobby/vote for a rapid raise in interest rate ostensibly to curb their own speculation. The govt fixed rate mortgage creates stability–or else people merely rent homes. An ARM house is one which is certain to fall into disrepair–to create a burden on taxpayers, courts everybody. There is absolutely no justifiable reason why any sane person would knowingly chose the risk if they knew all the facts. An ARM today–with current rates—in effect is an authorized swindle. there has to be something wrong with it–fake appraisals, timed default in the security structure–something. Why are the originators promoting these—more to the point why is BoA NOTABLY NOT ORIGINATING ARMS?
    Whats with the others??

  45. Interesting; RESPA Qualified Written Request letters from the loan servicer state the orginal lender has had the orginal lona since inception and has maintained custody of the note since inception. Interesting they state in the same letter the loan was sold to ABC-2002 Securtized Trust.

    Didn’t they just admit they failed to operate per the Pooling and Service agreement and have no clouded all standing for anyone?

  46. Neil, I fully agree with you. Also if people would just read their mortgage on the first two pages their are definitions of the documents and of the parties involved in the aledged transaction. Under the definition of Lender it clearly states the name of the lender and under the definition of Note is states Note means the promissory note signed by Borrower and Dated. The Notes states the borrower owes Lender.

    An assignment of Mortgage does not change the Lender pretend lender or not. The Note would also have to be assigned and recorded and not just endorsed in blank. I am in Wisconsin and most of the time the Note presented to the courts to foreclose is not even endorsed yet the mortgage has been assigned. In my reasoning if the mortgage is assigned to party A and the note has not has not been assigned the mortgage is void. Now if the party foreclosing is the party with the assigned mortgage the courts should only have to look at the assignment of the mortgage and see that the note has not been assigned or assigned to the same party as on the mortgage and dismiss the case with prejudice.

  47. One Lone Wolf.

    What really pains me is the apathy of the American people. Grand theft is
    being committed and most are just walking away from their homes after
    foreclosure with their tail between their legs. Where is the anger? Where is
    the pulling together of 5.5 million people and saying enough already? Why
    aren’t there million person marches on Washington? Not bad enough you say.
    The h….l it isn’t. Unemployment and hunger aren’t enough? Stealing our
    homes isn’t enough? Fraud on Wall St. isn’t enough? Enough of us are
    writing about this now so there is no excuse for ignorance and apathy.

    When
    I see our elected officials being coerced by the banks with modifications,
    campaign funds, gifts, I am infuriated beyond reason. My eyeballs vibrate!
    Go read the truth that Mandelman wrote about Nancy McClain. I will
    personally go to AZ during the next election to combat her campaign speeches
    and demonstrate with public outrage. I’m sure I could get a few AZ victims
    to partake. We, the people, can do it. Every stinkin’ time a politician is
    bought off, they need to be exposed. What’s wrong with the American people
    that we look the other way? I know they’re tired of the fight – tired of
    their bank stringing them along for years with false hope and then
    foreclosing anyway. I know battle fatigue first hand. I was put on the
    street while I was making my payments.So tell Nancy McClain she is a liar
    when she says people live free in their house for 3 or 4 yrs. LIAR. And I
    have not shut up since and I will continue to speak out about this fraud and
    continue to educate homeowners what to do to stop this madness.

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