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EDITOR’S COMMENT: Dylan Ratigan has come out with a new book that I think grasps the essence of our economic tragedy — a culture of cheating. I recommend the book and this article reviewing the book, because it will give insight into the core of the moral dilemma facing homeowners who are thinking of walking away or fighting with the bank.
It turns out that the people who follow standards of morality are the homeowners and that the people who don’t and ever did are the Bankers. The only reason why millions of homeowners have not simply stopped paying is because they value their reputation as a credit worthy individuals. But their actions (paying the payments on a loan that has long since been extinguished) are taken as proof that there is some real foundation to the 8.9 million foreclosures completed thus far and a like number that will occur in the near future.
People who still pay on these defunct defective loans are doing so because they feel a moral responsibility to do so and because they believe the balance must be due from them because they are unaware or unsure of the revelations of the money trail between them and the inventors who funded their loan. They figure they must owe the money to someone, so they might as well pay the servicer what is demanded.
What they don’t realize is that they are giving a gift to the servicer and the other securitization players, because their particular loan has already been the subject of multiple payments and receipts based upon the borrower’s signature and the use of exotic instruments that masked the simple fact that the loan was sold multiple times.
What Ratigan has understood since he first gained national prominence is that the actions of the banks were fraudulent and that the pressure on homeowners is neither fair, legal or justified by any real accounting — if a full accounting was ever given. That accounting is a carefully guarded secret protected by stonewalling and settlements under confidentiality. So Ratigan exposes the system that gave rise the culture of cheating and how it worked.
This is basic knowledge required for you to believe that you are actually right and that the bank is actually wrong. It is a basic paradigm shift that brings to the fore the realization that free houses are going to banks by the millions under the guise of preventing free houses going to the homeowners who purchased those homes.
Dylan Ratigan’s New Book on the Financial Crisis reviewed by William K Black
Dylan Ratigan, MSNBC’s financial expert, has written a book about how markets have become perverse. It is an interesting example of how strange “competition” has become. One oddity presented itself on the cover of the package in which the book arrived. The cover proclaimed “Simon & Schuster: A CBS Company.” The author works for NBC. Only in America!
I was concerned by the title (“Greedy Bastards”). I think that greed is unlikely to have changed greatly over the last quarter century in which the U.S. has suffered three recurrent, intensifying financial crises. I don’t call people bastards, even the self-made ones, because my mother reacted poorly to Speaker Wright referring to me as the “red-headed SOB.”
Ratigan’s view on these points turns out to be similar to mine. He argues that the issue is not greed, but perverse incentives. When CEOs have incentives adverse to the public and their customers they tend to act on those incentives and harm the public and their customers. This observation is one of those obvious but essential points so often overlooked. A CEOs’ principal function is creating, monitoring, and adjusting the corporation’s incentive structures. There is a massive business literature on this function and CEOs uniformly believe that incentive structures for officers and employees are critical in shaping their behavior.
There is only one (disingenuous) exception to this rule – when officers and employees act criminally because the CEO has created perverse incentive structures. Suddenly, the CEO is shocked that his officers and employees acted criminally in response to the CEO’s incentive structures that encourage criminal conduct. Ratigan focuses on precisely this exception. Anyone that has had the misfortune to listen to compulsory business ethics training by his or her employer will have learned that the key is the “tone at the top” set by the CEO. True, but that always ends the discussion. No employee is going to be trained by his employer as to what to do when the tone at the top set by the CEO is pro-fraud.
As Ratigan demonstrates, our most elite financial CEOs typically created and maintained grotesquely perverse incentive structures that encouraged their officers and employees as well as “independent” professionals to act criminally in a manner that harmed customers, the public, and shareholders – but made the controlling officers wealthy. Is there any CEO of a lender incapable of understanding that the loan officers and brokers’ compensation depends on volume and yield – not quality – the result will be catastrophic? Is there any CEO of a lender incapable of understanding that if the loan brokers’ fees depend as well on the reported debt-to-income and loan-to-value ratios and the broker is permitted to make liar’s loans the result will be that the brokers will engage in endemic, severe inflation of the borrowers’ incomes and their homes’ appraised values? Is there any reader that doubts that the CEOs intended to produce precisely what their perverse incentives were certain to produce? A CEO cannot send a memo to 50,000 loan brokers instructing them to inflate appraisals and use liar’s loans to inflate the borrowers incomes’ but he can, and does, send the same message through his compensation system. None of these perverse incentives produces an unexpected result.
Ratigan gets right two of the three essentials to understand why we suffer recurrent, intensifying financial crises. First, cheating has become the dominant strategy in finance. Second, cheating is dominant because finance CEOs create such intensely perverse incentives that fraud becomes endemic. The Business Roundtable (the largest100 U.S. corporations), had to react to the Enron era frauds. It chose as its spokesperson a CEO who embodied the best of American big business. This was the response he gave to Business Week when their reporter asked why so many top corporations engaged in accounting control fraud:
“Don’t just say: “If you hit this revenue number, your bonus is going to be this.” It sets up an incentive that’s overwhelming. You wave enough money in front of people, and good people will do bad things.”
How did the CEO know about the “overwhelming” effect of creating incentives so perverse that they would routinely cause “good people [to] do bad things”? He knew because he directed and administered such a perverse compensation system. An SEC complaint would soon identify that compensation system as driving accounting control fraud at his firm. His name was Franklin Raines, CEO of Fannie Mae.
Ratigan can add to the effectiveness of his explanation by adding a description of the third essential driving our perverse incentives. Accounting control fraud, as criminologists, economists, and (competent) financial regulators recognize is a “sure thing”. See George Akerlof and Paul Romer, “Looting: the Economic Underworld of Bankruptcy for Profit” (1993). It produces guaranteed, record (albeit fictional) short-term reported profits if one follows the fraud “recipe” for a lender, which produces guaranteed, extreme compensation for the controlling officers, and causes catastrophic losses. It is trifecta of guaranteed results that causes CEOs to adopt the perverse incentives they know will cause their officers and employees to follow the fraud recipe. It is the three “de’s” – deregulation, desupervision, and de facto decriminalization that allow the CEOs to put these perverse incentives in place with impunity and produce the criminogenic environments that drive our recurrent, intensifying financial crises.
~~~
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Follow him on Twitter: @WilliamKBlack
Filed under: foreclosure, Investor, CDO, Eviction, CORRUPTION, securities fraud, currency, Mortgage, GTC | Honor, bubble Tagged: | fraud, foreclosures, foreclosure, modification, bankruptcy, foreclosure defense, borrower, disclosure, countrywide, trustee, RESPA, securitization, rescission, quiet title, foreclosure offense, TILA audit, LOAN MODIFICATION, WEISBAND, Dylan ratigan, Greedy bastards
I guess it depends on how committed you are to the belief that fraud on the bank’s part can or can’t destroy you!
Does it matter what liars and thieves put in your file? I haven’t been able to rely on bank records, since they claim that those are proprietary, but I’ve gathered plenty of evidence through other sources, like the Fannie Mae database where at least one of my “loans” resides, and publications authored by the federal reserve that clearly state that they create money when they make a loan. Also I found my property listed on the foreclosure mill attorney’s website for half of what the “loan” balance was, despite the fact I offered double in the modification proposal I sent Chase!
I am not arguing, sir. I soak up everything I can and appreciate all I’ve learned in exchanges with knowledgeable folks who post here. Please continue to state your opinions as you always have. I’m not after an argument, I’m after truth and justice and hope to help others sort out a way to get it, like I assume you do, since I’m sure you have better things to do than hang out here. I simply want to make my own luck.
Nora C
Destroyed for life — as records are not available. “Proprietary.” You do not know what the records state about you — if your loan was ever a GSE loan and refinanced.
Not going to argue with Nora.
So far all the major lenders have stonewalled against providing any documents we don’t already have, and no doubt will continue to do so. I’ve only read one case in which a judge ordered WaMu to comply with a demand for discovery; when they did, the borrower won and the bank tried to seal the case.
A similar thing occurred with a case in N.Y. as I recall, involving Chase, who was successful in getting the transcript sealed.
It will take a bulldog to get the evidence of insurance fraud out of them, and probably an end run around their defense of it being “proprietary”.
Short of bribing someone to steal the evidence–processed checks or wire transfers when the actual proceeds went out and who they went to–it is still up to the courts. We have to prevail in a brawl with the bank and convince the judge we have a right to this information, and that is a tough nut to crack. The whole housing crisis will right itself when one judge says, “cough it up, Mr. banker.” The rub is that the incidence of insurance fraud is irrelevant to a foreclosure, so the banks are successful in blocking. Personally I feel that their collective illegal acts are relevant because they show a pattern of criminality, but unfortunately, I’m not the judge. The fact is, brokers, real estate closing attorneys, Title companies and bank entities all acted in collusion to defraud the lot of us, and it appears to be cracking at the seams, now. Here is an article from 2010 that ran in the Los Angelas Times, about the “mortgage time bomb” WaMu created.
http://articles.latimes.com/2010/apr/13/business/la-fi-wamu-inquiry13-2010apr13
The facts are eventually going to come out, I think if we’re patient and determined. Clearly, WaMu’s criminal activity is indicative of the rest of the corrupt banks at the center of the problem. If the Times will run a piece like this, there will come a day of reckoning and the banks will have to provide the information or blow up the place where it’s stored, like they did with building 7 in the world trade center. All the evidence on the Enron scandal and others was filed there: No evidence, no conviction. The DOJ is who should be doing after the insurance fraud here, and they actually might be, for all we know. We are not always informed when they undertake and investigation, so who knows.
@ Nora
Everything you say is spot on…My question: is the insurance on the default. If that policy has paid out, where is the money? As I have said in earlier posts, you cannot have insurance without “an insurable interest” . Now, how can a originator or servicer get an insurable interest, with out lying: commiting fraud? The monies went somewhere and evidently not to the party to whom it was owed. Another breach…but if insurance proceeds have been paid, then the money needs to go to satisfy the obligation to the investor/pool or trust. This would make the debt satisfied and the mortgages would be paid-in-full. I was thinking a subpeona might get it done or at the very least raise a very big red flag for the judge. Thoughts?
Civil War Erupts On Wall Street – Financial Elite Start Turning On Each Other
BY OZHOUSE ON JANUARY 12, 2012
http://ozhouse.org/2012/01/12/civil-war-erupts-on-wall-street-%E2%80%93-financial-elite-start-turning-on-each-other/
I don’t agree that you are destroyed for life, or that any debt arises out of operation of law in regard to an Ultra Vires contract.
If you read Modern Money Mechanics, you are aware that the bank received the equity in your home without having invested a single cent. You signed a promissory Note, but the bank didn’t sign it because they knew they were not going to make good on the contract or fulfill it.
Back up and review the accounting ledger: The Promissory Note becomes an asset on the banks books when they deposit it. They are supposed to create a demand account or liability account in the same amount. Promissory Notes are not legal tender. If they were, you could take another one in and deposit it, and use the deposit it created to pay off the “loan” on the property with a check drawn on that account. (The banks don’t allow you to use Promissory Notes as legal tender, BUT THEY DO.) They sell your Promissory Note to the Federal Reserve for Federal Reserve Notes and deposit those notes into a demand account on which the check is drawn to pay off your Note, but they claim it as their own money. Thus they convert a Note into legal tender and change the nature of the currency. The Revolutionary War was waged over these bank schemes, where king George’s banker buddies managed to get ownership of all farms, homes, land their respective equity.
Fraudulent conversion of the Note to legal tender, creating accounts in your name without your signature or permission, are all highly illegal and prosecutable acts that the banks commit on a daily basis throughout the world.
Without proving that they have a vested financial investment in your note, with an accounting ledger showing the movement of capital from their books they cannot prove that they have a binding contract. All the “loans” are simply a fraud, and they do not own the mortgages, and cannot foreclose on them.
Numerous times I have asked what happened to the Notes. Some answered that the Notes were destroyed because they were proof of fraud on the bank’s part, but the exact fraud was never stated. Here is what I think: When the Note is sold to the federal reserve or another bank, the Note is burned to hide the fact that the bank never loaned any of their own money. This information that the banks get the equity in your home without having invested any money, or having lent you any money, if you want to put it that way, is what they want to keep hidden at all costs, because of the obvious repercussions and the ensuing revolt by “borrowers” who were tossed into the street by these criminal banks despite the fact no real money validated the contract.
The Federal Reserve Bank of Chicago authored Modern Money Mechanics. The Moneychangers is another good read.
We need to set these facts out in court when a judge says things like “You, Mr. Borrower received hundreds of thousands of dollars, so you don’t get ‘a free house’ ” so that we can prevail on the grounds that the contracts are null and void because the bank brought nothing of value to the closing table, and therefore offered nothing of value in exchange for the Promissory Note, and doesn’t OWN ANYTHING.
usedkarguy
Exactly. And more, by false claims, you still owe the “debt.” And that is whether or not you dispute the validity that the debt even exists or not.
Because, Nora, until the court says no debt exists, you owe a “debt.” If wrong creditor is named in BK, you still owe a outstanding debt, as it now stands, to an unidentified creditor — who you are unable to bring any objection against — for the false claim. You are destroyed for life. . .
When the judge said the “borrower” received $216,000 that’s when I would have replied, “there was no real money of exchange involved, your honor.” The banks got the equity for nothing when my client signed a security instrument giving them the power to foreclose if he defaulted because he was duped into believing that he received real money. The bank lent their credit, while the borrower labored to pay back the alleged ‘money’ in real money of exchange, plus interest on a non-existent principle”
When the judges finally get this, it will seem much more equitable for people who’ve defaulted to “get a free house”, especially since the houses have been paid for many times over through the bank’s bad faith recoup of supposed “losses” through a half dozen means.
@ Omni
That is not entirely the case. Having been in a lot of courts these days, I can tell you in my jurisdiction, there is standing room only in the Federal BK Courthouse. No one, I repeat no one, is there with a 400K mortgage they could not afford and that is in my little section of the world, Wilmington, NC.
Most of the people I am seeing are over 40, laid-off or underemployed, with health problems or out of business (particularly, small car dealerships after the cash for clunkers bailouts) from this crippling economy.
As for me, I did everything right. Had multiple properties for long-term retirement purposes. Put 25-30% down and upgrades of 50-75k in each property. Mortgages of under $700.00 per month, 2000+ sq.ft. completely upgraded.
The faultering economy is not my fault. BOA has taken my payments and put them in various accounts, paid my insurance, which was not lapsed and charged me according to their costs, unrelated to payments. Suing them for breach of contract. New Century/Ocwen
changed my 30 year fixed mortgage to an ARM raising the payments and escrowing insurnace and taxes that were not due.
This is the reality of the situation and I have every person I’ve spoken to and documents to prove it. The costs and emotional drain of this and trying to find lawyers is deadly for most of us. This is not due to easy credit. That is a grave misconception. If people were working or self-employed, there would be no dentists, convenience stores, restaurants, thrift stores, pizza places, hairdressers, hardware stores, etc…the large entities have bought out many of the smaller entities, so they could capitalize on market share.
My $.02
ANON: this is what constitutes the “false claims” in the BK Courts.
Thanks, Ann! I forwarded this decision to my attorney. As Wisconsin is a lien state (property owner is owner at equity and in law) this is applicable. The bankruptcy court will indeed get an earful from me on the 23rd. The US Attorney is also monitoring the case. Hoping for some fireworks.
The real estate should never have happened. Easy credit and predatory lending caused this problem. Now the entire economy is in problems.
Nora C
Do agree that there is no secured creditor and there is no valid mortgage. And, no Promissory Note as an asset on their books. But, we are dealing with debt collectors for charged-off debt. Debt collection is valid, according to courts. It is just not valid according to the way presented to courts, which changes the whole game. .
This is a business model, some call it “isomorphism”. It is rampant in all large companies. If you look at companies like Nestle, GM, Dell, Johnson & Johnson, etc…the list is long and distinguished. The goal is to find the point at which production is the cheapest, including materials (most of the time quality is lost), mass produce everything, limiting choices to those that can be made with similar parts/ingredients and sell them for less; however, of recent that has not been the case. Companies are raising thier profit margins by reducing quality control (outsourcing), size of goods (25% reductions) and looking at data sheets, which generate probabilities of losses (autos imparticular) and gaging the cost of recalls, poor products (returns) and litigation, which in most cases is less than the fallout from consumers and potential legal problems. It is a win-win for them, as most of the time the money paid in damages, after attorney fees is miniscule, pennies on the dollar, which means multi-millions or multi-billions in profits for CEO’s, that use fuzzy accountiing to justify their ill-gotten gains. This entire enterprise of business modeling is destroying the country. The banksters are no different. The system in its entirety needs to be purged and changes in regulation must be made, by our legislature….or we will continue on this path of 1% holding control and minimal assets will be traded under free market conditions. Competition is all but gone and we now have monopolies and or oligopolies. If this continues we will be more like a Fascist country than a free one. Just my $.02
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@ANONYMOUS
Ah, but there is no real creditor, sir. The banks get your equity for nothing, by depositing your Note as a form of money. Ever wonder why they never sign the contract? Because then they would have to fulfill their end of it. The whole nature of banking is a fraud, a theft and and a ruse. The secret that they have hidden for hundreds of years is that they change the nature of the money involved, making you pay in Legal Tender, for the vapor that they brought to the closing table. They lent nothing. You can not show me a single “loan” in which real money of exchange changed hands.
The Promissory Note is an asset on their books, for which they create a demand account, on which they write a check which you never authorized, and which they never told you about. They do not have even a penny invested–no risk for them, and you forfeit the equity in your home under the agreement you alone signed giving them a security interest in it. It’s a brilliant scheme, but I have a feeling it’s about to come to an end.
In the creation of a principle, they enable interest they can extract from you on that principle, which causes you to pay three times what the agreed upon price of the home is, while they sit behind their desks laughing at how stupid you are as they count their billions in profit from this scheme.
This is where the best challenge is: Fraudulent Inducement, and Ultra vires. They don’t own these homes by any stretch of the imagination, and all of the foreclosures are invalid. Actually, all of the mortgages are invalid. Until we are all educated in their fraudulent “lending” scheme, we will continue to believe we defaulted on a legitimate debt, despite the fact that an accounting of the transaction proves fraud.
Nation’s Largest Privately Held Mortgage Lender Sued for Fraud
Tuesday, November 01 2011 14:12
Nation’s Largest Privately Held Mortgage Lender Sued for Fraud
Allied Home Mortgage Capital Corporation and its CEO, Jim Hodge, have been sued by whistleblower Peter Belli, a former Allied branch manager. Belli’s case, filed by Milwaukee law firm Mahany & Ertl, was adopted by the U.S. government. The government joins Belli and others in claiming that Allied lied about its compliance with HUD regulations.
Allied has long been the target of many enforcement and compliance actions. Starting in 2003, the company has been sanctioned and sued repeatedly, although it has settled in almost every case without the admission of any wrongdoing. Allied has also been the subject of multiple labor actions by former branch managers, loan officers and clerks. In 2007, the company agreed to pay $1.9 million to settle claims arising out of a U.S. Department of Labor investigation.
In the current action, former manager Peter Belli, represented by Mahany & Ertl and Attorney Joe Bird, claims the mortgage giant cut corners in order to write more loans, a practice that lead to HUD and U.S. Attorney Preet Bahara join Belli in the actions.
The government claims that for loans written by Allied in 2006 and 2007, and later guaranteed by HUD, the default rate is a shocking 55% – one of the highest in the industry.
“Bad loans and sloppy underwriting are what got the U.S. housing market in such a mess,” said lead counsel Joe Bird. Partner Brian Mahany added, “This case should send a strong message to Wall Street and other financial centers that if they choose to ignore the rules designed to protect people from the unscrupulous that justice will search them out and find them. As the saying goes, you can run, but you can’t hide your misdeeds forever, especially with this Attorney General watching.”
Lead counsel on the case announced will be the U.S. Attorney’s Office for the Southern District of New York. Milwaukee law firm Mahany & Ertl and Peter Belli’s counsel Brian Mahany and Joe Bird will remain active in the case.
Mahany & Ertl is a boutique law firm headquartered in Milwaukee, Wisconsin. The firm concentrates in fraud, asset recovery and tax matters. Attorney Brian Mahany is on the board of the International Association for Asset Recovery.
http://mortgagefraudblog.com/perp-walk/item/15499-nation%E2%80%99s-largest-privately-held-mortgage-lender-sued-for-fraud
Ann,
Agree with Nora C — great post. But, you forgot that the “real” creditor is rarely identified in BK — making the BK false from the onset. That should be the first focus.
Dear Neil, I have a question. I am in a wrongful predatory foreclosure from world savings in 2006. at the time of the loan i was required by the lender to abandon my homestead. since all my discovery of fraud can I put another homestead on my home while I am fighting this foreclosure? Also should I file a bankruptcy to protect my home? Also, somewhere in all your info. I read that when a homeowner receives the NOD (notice of default) and one month later the Substitution of Trustee is that the right order of recording and notifying the homeowner? I still am looking for a foreclosure atty. for California that will take my case on contingency, do you know of a good atty. that realizes the banks fraud game? mk
The regulations for financial companies have double standards. If you are an automaker and you find a defect on the products, you will recall them. This will be the same for electronic companies and drug companies. Whereas the financial companies as banks and insurance companies have total different standard when it comes to defected products that they sell.
They not only screen you as a customer and give you bad underwriting, but also if there are some defect claims, they will deny your claims and treat you like you are the one that have issues not them. I am just really fed up with the system that is created by this country. It seems to be this makes me sick in my stomach every time I think about it.
I hope the new head of CFPB, Richard Cordray will do a better job for the people.
After the first six months of studing just how this could have happened to me and finding it was happening to others I was reaching out to everyone whom had a drawn down chin and asked them if they were experiencing a mortgage situtation and the answer was always yes! Never a no! I immediately gave them proof of this crime and let them know there is no reason to hide this, we have been screwed and we need to fight to get America back from these unconscionable parasites. I assure everyone there is no reason to feel ashamed and only when I see they are, Only when it is obvious, they are struggling with shame they dont deserve to be feeling, then I show them proof of why the banks should be shamed and that millions and I mean millions are all in the same boat. Any shame is doing nothing to protect ourselves and our future, [not] defending our homes, or take our homes back for the ones that left unknowing what was going on, or how to fight these monsters, to fight for Americas future and allowing these criminals to get away with this. to allow these criminal enterprises to steal your house for free. The local courts are crime scenes, the deeds of registers are crime scenes, the mortgages are all crime scenes from the room we signed them in to the court rooms we fight for our rights. All American neighborhoods are crime scenes and the worst crime scene are the homeless families in their cars and truck taking spit baths and brushing their teeth in public bathrooms to have some normality about their lives. “without complaints teens that accept this is life”! And try to smile as they say it on 60 minutes, the lines of people, the victims being forced to talk to their predator felons, pleading to give them modifications to save their homes and being turned down by the very felons that have caused the crime and the loss of their incomes and homes, and family life, and piece of mind, that is a shame! Shame on the banks! Nothing the homeowners and “I mean homeowners” should be ashamed of. THe predator banksters and their partners in crime in this huge organized criminal enterprize should be the ones hanging their heads in shame not one of us! Not one! With their hands tied behind their backs with zip ties.
Ya gotta love dylan ratigan’s rants. I can’t wait to get this book.
Great post, Ann. I am emailing a friend a link to this.
A “Free House” – That’s Not the Issue, Judge
Posted on January 12th, 2012 by Mark Stopa
http://www.stayinmyhome.com/blog/wp-content/uploads/2012/01/Transcript-of-Foreclosure-Trial-Ticktin.pdf
Currently making the rounds among foreclosure defense attorneys is a transcript of a trial in a foreclosure case that recently took place in Miami. I did not participate, as this wasn’t one of my firm’s cases, but I encourage everyone to read the transcript, as there are significant lessons to be learned here for all involved.
Before I share my thoughts, just read. Here are some pertinent portions:
The Court: My feeling about this equitable lawsuit, foreclosure issues, and I want to get this as a jump off.
Defense Counsel: Okay.
The Court: My concern is, did you sign the Note? Did you sign the Mortgage? Did you get the loan? Did you default? Did you owe the money? Is it your signature or is it somebody else’s signature?
In response, defense counsel attempted to explain that the homeowner had an expert who would testify that the securitized trust, the plaintiff in the foreclosure case, did not actually own and hold the Mortgage because it was conveyed into the Trust after the deadline in the Pooling and Servicing Agreement. Unfortunately, the court seemed less concerned about the legitimacy of this legal argument and more concerned about whether that argument, if granted, would give the homeowner a free house:
The Court: Okay. Okay, so why do I care? Shouldn’t I just be concerned about whether or not they’re the holder of the note at the time that I try the case?
Defense Counsel: There are requirements, like any trust, basic trust law. … The trust has certain requirements that say, all the loans have to be transferred into this trust by X date. If they’re not transferred into the trust by X date the trust doesn’t own or hold anything.
The Court: So if I follow your thinking, your client should be able to live in this house forever, free and clear. Is that what you’re suggesting?
Defense counsel: That may be the ultimate outcome.
The Court: Good luck to you, sir.
Defense counsel: Thank you, Judge.
The Court: Good luck to you, sir.
Defense counsel: Thank you.
The Court: Do you think that I am going to sit here after somebody has been lent hundreds of thousands of dollars and you have the standing to complain that the trust documents were not properly obtained, so your client who got — how much was this loan?
Plaintiff’s counsel: $216,000.
The Court: $216,000, I get to live there forever. You think a court of equity which is what I am sitting as is going to allow that to occur?
Defense counsel: If there is a family trust that says, “all of Bob’s property for his family trust needs to be assigned into the trust by January 1, 2010.” If those — if that res is transferred prior to that January 1st, that’s fine. We as Bob’s family trust own that property.
The Court: Right.
Defense Counsel: But, now there’s a subsequent transfer of 2012 and the document comporting a transfer into Bob’s family trust in 2012 when the trust says, it must be transferred by 2010, and the trust is very particular about this. How can the 2012 transfer into the 2010 trust, you don’t have standing.
The Court: Right, but may — by here’s my problem. My problem is it would seem to me under your circumstances that somebody whose trust assets have been affected might have the ability to come in and say, this has effect on me. What standing does your client have to come along and say, somebody down the line got screwed over because they didn’t do what they were supposed to do? Your client received hundreds of thousands of dollars, has been in this house I assume for three or four years not paying a dime. Have you found one judge in this state that has said, ‘You know what? I buy your argument and you client can live there forever, rent free, mortgage free; because they violated the Pooling Agreement.” Have you found one judge that has –
The Court: So and so, they’ll never be able to foreclose on your client?
Defense counsel: Depending on how the case comes of issue, yes. If it’s an issue that would pertain a res judicata and/or collateral estoppel, yes.
The Court: So what you’re suggesting is that your client should be able to stay in this house forever?
Defense counse: That has been the result. And Judge, yes …
The Court: No, no, no, [defense counsel]
The Court: I think this is a very interesting issue. I think the Third District is doing to have to tell us to tell us that under these circumstances we should listen to this testimony and if the testimony proves what you’ve purported to prove that a person who borrowed hundreds of thousands of dollars should never have to repay it and should be able to live in the house for free, forever.
The Court: Because I’m not doing it.
The Court: You getting that down? All my friends in the Third District, you want to reverse this, you go right ahead and do it.
Defense Counsel: Right, but that’s also presuming that they’re able to prove their prima facie case. Judge, I just want to make the record clear.
The Court: Of course. I mean if they put on evidence of something other than this loan and they don’t convince me that they know what the documents are; they know what the loan figures are; they know that there’s been a default; they’ve complied with all conditions precedent, I can’t give them a judgment. But, I would be shocked. I’m putting that on the record. Shocked if the people of the Courts of this State, District Court of Appeal, would say that in situations like this somebody who has borrowed hundreds of thousands of dollars and has lived mortgage free for years should be able to jump in there and say ‘you guys screwed up and you can never throw me out of that house.’ If that’s what they want to write, that’s their job. They’re my judicial superiors. They can do it, but I’m not doing it. Okay.
My thoughts upon reading this exchange:
1. First off, I am very disappointed to see how the judge framed the issue before him. The issue at this foreclosure trial was not whether the homeowner was entitled to a free house. The issue was whether this plaintiff that filed this lawsuit was entitled to a final judgment of foreclosure against this homeowner. That bears repeating:
The issue was whether this plaintiff that filed this lawsuit was entitled to a final judgment of foreclosure against this homeowner.
I’m pleased to say that many of the judges before whom I appear recognize that this is the issue before them. For those who do not, I think it’s imperative that everyone (be it my my friends, colleagues, and pro se litigants), do whatever you can to force the judges before you appear to frame the issue appropriately. Here, for instance, when the judge kept asking this attorney if his client should get a free house, I think the response should have been something like:
“Respectfully, judge, whether my client winds up with a free house is not the issue before you. The issue before you is whether this plaintiff is entitled to a final judgment of foreclosure against this defendant based on the evidence the plaintiff is about to present. And candidly, judge, I’m troubled that you are not framing the issue in that manner, as it seems you have prejudged this case in a manner adverse to my client, which is causing me fear that you cannot adjudicate this case fairly and cannot be neutral and detached.
If that doesn’t make sense, put yourself in a different context – a murder trial. Suppose the state is relying exclusively on evidence that was procured through an illegal search and seizure and that the law requires the evidence be excluded. Allowing a murderer to go free would be inequitable as hell – I can hardly think of anything less equitable. However, if the law says that the evidence must be excluded, then no judge can allow that evidence to be admitted simply because he/she wouldn’t like the result.
Foreclosure cases are no different. The final outcome, no matter how unseemly it may appear to any judge, cannot justify a court to overlook the rules of evidence and rule of law. Candidly, I think most judges before whom I appear would agree with this, and for those who don’t, let’s all remind them of the issue.
Judge, the issue before you is not a “free house,” but whether this plaintiff is entitled to a foreclosure judgment against this defendant based on the evidence before you.
2. It was very apparent, certainly to me, anyway, that the judge prejudged this case. Most troubling in this regard were the judge’s repeated statements that he was not going to give the homeowner a free house, inviting the Third District to reverse if it so chose. What was so bothersome, of course, is that the judge made these comments before the trial had begun.
Respectfully, how could the judge possibly know whether evidence which he had yet to see would be sufficient to justify a foreclosure? How could he possibly know that the Third District would be in a position of reversing his ruling (adverse to the homeowner) when he hadn’t yet seen any evidence? Pretty clearly, at least in my eyes, the judge knew he was ruling against the homeowner before the trial even started.
As I read the transcript, the judge’s dislike of foreclosure defense only seemed to grow the more the concept of a “free house” was discussed. Unfortunately, this entire premise was misplaced. Hopefully, with input from all of us, everyone will realize the issue in foreclosure cases is not whether the homeowner gets a free house, but whether this plaintiff is entitled to a foreclosure judgment against that defendant based on the evidence in that case.
3. On the issue of whether the defendant has standing to complain about the plaintiff’s lack of standing, I follow the judge’s argument, but I disagree. If the plaintiff is a securitized trust, and the mortgage was not conveyed into the trust in a manner required by the Pooling and Servicing Agreement, then the trust doesn’t own the mortgage. And if the trust doesn’t own the mortgage, then it lacks standing to foreclose.
To say a defendant lacks standing to complain about a plaintiff’s lack of standing is, respectfully, silly. If the plaintiff has no legal right to bring suit, then the defendant always has standing to assert as much. To argue otherwise is to say ”the plaintiff might not be the right plaintiff, but shut up, defendant – you’re a bad actor, and it doesn’t matter if this plaintiff has standing – you’re going to pay.”
“But, judge, I don’t owe this Plaintiff any money.”
“Shut up, Defendant – you owe the money and you’re going to pay.”
I realize this seems a bit crass, and obviously the judge didn’t say “shut up,” but can you imagine that argument in other contexts? For instance, imagine a lawsuit against an insurance company where the issue is coverage for a homeowner. Can you imagine any judge saying “Shut up, insurance company. It doesn’t matter if this is a covered item, and it doesn’t matter if you issued an insurance policy to this homeowner. The house burned down, so you’re going to pay.”
Again, I realize that’s not how this judge worded it, but as I read the transcript, that’s how I interpret the position. It doesn’t matter if the plaintiff is the correct plaintiff, it doesn’t matter if the plaintiff has standing, the defendant can’t complain about it. Respectfully, does that even begin to make sense?
It’s ironic, actually. This judge was so concerned about the homeowner getting a windfall – a “free house” – that he was completely overlooking the fact that he was willing to give the plaintiff a windfall. After all, taking the judge’s position to its logical conclusion, it didn’t matter if that plaintiff actually owned the note – the homeowner was going to pay (and, hence, the plaintiff was going to collect). Maybe the judge didn’t intend to come across that way, but you read the transcript, and you tell me – isn’t that how it seems?
My point here, is this. There are laws that all of us dislike. There are outcomes that all of us find inequitable or inappropriate for one reason or another. However, the end does not justify the means. It’s not up to any of us, especially a judge, to say “this is the outcome that I think should happen, and I’m going to rule accordingly.” There are rules of evidence, procedure, and laws that must be followed. If we act otherwise, then the court system is not enforcing a system of laws, but each judge’s version of morality. And if we start going down that path, there can never be uniformity, as what one person finds inequitable, another will find perfectly appropriate.
Our judicial system functions by a uniform system of laws, which our courts must uphold and enforce. That’s why it’s so important to frame the issue appropriately. The issue isn’t whether a ruling would be fair or consistent with some nebulous standard of morality, but whether such a ruling would be fair and appropriate based on the evidence presented in that case.
Mark Stopa Esq.
http://www.stayinmyhome.com
Dylan Ratigan is talking about “GREED”. The egregious incentives were to drive up profits and make mooooney ! at all cost. It all equals “GREED” The incentives were to fill up their greedy pockets, It is GREED, GREED and more GREED with no conscions at all. Incentives HUM BUG! The core of this problem is GREED by a vehicle called incentives, that drove the employees down a path with no brakes, running over the homeowners and investors, man, woman and their children and the American Dream, and our neighbors from main street to Washington DC owned by the banks, the heart of it, is GREED, the core of the problem. Greed conjured up the incentives! The green light was on and they were not stopping for red lights.
i think people hate being played/taken for a sucker much more than valuing thier reputation of credit worthiness……i think finally in 2012 we finally have reached that tipping point and pandoras box has been opened and any shame has gone out the window……the homeowners are awake and will win this war !
Combining Bankruptcy and Foreclosure Defense
Posted on January 13th, 2012 by Mark Stopa
Many Florida homeowners who get sued for mortgage foreclosure are under the impression they can file bankruptcy or defend their foreclosure lawsuit, but not both. The thought process of such homeowners generally goes like this … “if I’m filing bankruptcy, then I’m walking away from my home (or, to use the bankruptcy term, “surrendering” my home), so I must move out and live elsewhere.”
This perception is very much mistaken. Even if a Florida homeowner files Chapter 7 bankruptcy and “surrenders” his/her home, it is up to the bankruptcy trustee to decide if the home has value and whether he/she wants to take title and/or sell it to a third party. “Surrender,” quite simply, doesn’t mean give title to the mortgage company (as there is no such transfer of title in the bankruptcy itself). Rather, to explain it in layman’s terms, “surrender” basically means “let the trustee decide whether to take title to the property and/or to sell the property to a third party.”
When a property has value, the trustee is almost always going to sell the property and use the proceeds to pay the debtor’s creditors. That’s the trustee’s job. For instance, if a house is worth $200,000 and has a mortgage for $150,000, then the trustee is going to sell it, pay the mortgage company with the proceeds, and use the remainder to pay any creditors.
That scenario, however, rarely transpires nowadays. Most of the time, when a bankruptcy debtor “surrenders” a property in a Chapter 7 bankruptcy, it’s because the amount owed on the mortgage is greater than the current value of the property. In that situation, it’s very common for bankruptcy trustees to see no value in the property and to allow the debtor/homeowner to remain on title. After all, who would want to buy a property worth $200,000 if a mortgage company has a mortgage on it for $250,000? As a result, even though the homeowner has filed bankruptcy and “surrendered” the home, the homeowner may remain on title, can remain in possession, and can defend a foreclosure lawsuit by a mortgage company, if and when it comes.
In recent years, as foreclosure lawsuits started to take longer to prosecute, this dynamic began to change a bit. Trustees realized that even if a house was upside down that third parties may want to purchase it so as to rent it out while the mortgage foreclosure lawsuit was pending. In other words, that $200,000 house with $250,000 owed can’t be sold free and clear, but it could be sold “subject to” the existing mortgage. Hence, if it takes three years to prosecute the foreclosure case to conclusion, and the house can be rented for $1,000/month, then that’s $36,000 in gross rental income for a prospective third-party purchaser. As a result, every so often, bankrtupcy trustees started selling properties that debtors were surrendering in bankruptcy.
Frankly, this didn’t happen terribly often, but homeowners filing Chapter 7 bankruptcy had a reason to be concerned that if they surrendered their homestead in Chapter 7 that they couldn’t remain on title, and remain in possession – they’d have to leave and find elsewhere to live.
A recent decision from a Tampa bankruptcy judge seems to eliminate that concern. In the opinion, which I’ve cut and pasted, below, the judge rules that even though the homeowner filed Chapter 7 bankruptcy, and surrendered his/her homestead as part of that bankruptcy, the trustee could not sell the home during the bankruptcy process – the homeowner could still live in the home indefinitely (unless/until the mortgage foreclosure case was concluded).
This is a significant ruling, one that very much favors Florida homeowners. It seems clear, at least in this judge’s eyes, that homeowners can file Chapter 7 bankruptcy, surrender their homestead, eliminate their debt, and still remain in possession of their home unless/until the bank forecloses in state court. In other words, Florida homeowners can file bankruptcy and still defend their foreclosure lawsuit.
Each person’s situation is different, of course, but Florida homeowner should give serious consideration to the pros and cons of both bankruptcy and foreclosure defense. At worst, everyone should realize that, at least in Florida, bankruptcy and foreclosure defense is not an either/or proposition.
Here is the opinion, fresh out of the United States Bankruptcy Court, Middle District of Florida, Tampa Division.
23 Fla. L. Weekly Fed. B179a
Bankruptcy — Exempt property — Homestead — Chapter 7 debtor properly claimed his residence as exempt homestead property under Florida law, given debtor’s proffer that he intended to reside in home permanently, or until such time as mortgagee foreclosed on property, and Florida’s liberal interpretation of homestead exemption — Statement of Intention, which indicated debtor’s intent to surrender property to mortgagee, is insufficient, alone, to establish a lack of intent to continue residing at property and preclude debtor from contending that he intended to continue to reside at property indefinitely — Once property acquires homestead status, debtor must affirmatively act to abandon the homestead, and debtor has neither abandoned nor alienated the property — Trustee may not infer intent to abandon homestead from Statement of Intention alone
In re: RANDALL E. GENTRY, Debtor. U.S. Bankruptcy Court, Middle District of Florida, Tampa Division. Case No. 8:11-bk-03796-CED, Chapter 7. November 15, 2011. Caryl E. Delano, Judge.
MEMORANDUM OPINION ON TRUSTEE’S OBJECTION TO
EXEMPTION AND DEBTOR’S OBJECTION TO TRUSTEE’S
NOTICE OF INTENT TO SELL
In order to qualify for the Florida homestead exemption, a debtor must reside in Florida and intend to make his home his permanent residence. In this case, the Chapter 7 trustee (“Trustee”) objected to the Debtor’s claim of homestead exemption because the Debtor’s Statement of Intention filed on the petition date stated that the Debtor intended to surrender his residence to the mortgagee. The Statement of Intention is, by itself, insufficient to establish a lack of intent to continue residing at the property. Therefore, the Court overrules the Trustee’s objection to the Debtor’s claim of exemption and sustains the Debtor’s objection to the Trustee’s attempt to sell the homestead property.
Background
On March 1, 2011, the Debtor filed a Chapter 7 bankruptcy petition, and on March 16, 2011, filed his bankruptcy schedules and statement of financial affairs (Doc. No. 11). On Schedule C, the Debtor did not claim his residence (the “Property”) as exempt.1 In his Statement of Intention (Doc. No. 12), the Debtor indicated his intent to surrender the Property to the mortgagee. Thereafter, the Trustee filed a Report and Notice of Intention to Sell the Property (Doc. No. 33) (the “Notice of Intent to Sell”). The Debtor filed an objection (Doc. No. 38) to the Notice of Intent to Sell, together with an amended Schedule C (Doc. No. 36), claiming the Property exempt pursuant to Article X, § 4(a)(1) of the Florida Constitution, and an amended Statement of Intention (Doc. No. 48), indicating his intent to retain — not surrender — the Property.
The Trustee objected to the Debtor’s amended claim of exemption (Doc. No. 50) on the grounds that the Debtor, having indicated his intent to surrender the Property on the petition date, was not eligible for the Florida homestead exemption as of that date. The Court scheduled a hearing on the Trustee’s objection and on the Debtor’s objection to the Notice of Intent to Sell for July 27, 2011. At that hearing, the Debtor’s attorney proffered the Debtor’s testimony that he intended to reside in the home permanently, or until such time as the mortgagee foreclosed on the Property. The Debtor argued that he intended to continue residing at the Property on a permanent basis, and that his Statement of Intention to surrender the Property to the mortgagee did not render hi m incapable, as a matter of law, from intending to reside permanently at the Property. The Debtor argued that the official form Statement of Intention requires debtors to choose one of three options relating to debts that are secured by property of the estate: redemption, reaffirmation, or surrender. Given the Debtor’s financial inability either to redeem the Property (i.e., pay the present fair market value of the Property in one single payment), or reaffirm the mortgage debt on the Property, he chose the only remaining option, to surrender the Property.
After considering the arguments of counsel, the Court continued the hearing to August 24, 2011, and provided the parties with the opportunity to submit legal authorities in support of their positions. The parties filed Notices of Legal Authorities (Doc. Nos. 64, 65, 66, and 67). The Court announced its ruling at the August 24, 2011 hearing (Transcript, Doc. No. 89, p. 17, lines 18-21) and reserved the right to supplement its order with a written opinion (Transcript, Doc. No. 89, p. 18, lines 7-12).
On September 2, 2011, the Court entered an order sustaining the Debtor’s objection to the Notice of Intent to Sell (Doc. No. 69), but has yet to enter an order explicitly overruling the Trustee’s objection to the Debtor’s claim of exemption. The Trustee timely filed a notice of appeal of the Court’s order sustaining the Debtor’s objection to the Notice of Intent to Sell (Doc. No. 73). The fact that an appeal has been taken on this matter does not divest the Court of the ability to enter an opinion memorializing its ruling and amplifying its views. See Silverthorne v. Laird, 460 F.2d 1175, 1178-79 (5th Cir. 1972).
Jurisdiction & Burden of Proof
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a “core” proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Because this matter involves an objection to a claim of exemption, the Trustee bears the burden of proving that the exemption was not properly claimed. See Rule 4003(c) of the Federal Rules of Bankruptcy Procedure.
Discussion
To claim property as an exempt homestead under Florida l aw, the debtor must maintain a residence at the property and possess an actual intent to reside at that property on a permanent basis. In re Fodor, 339 B.R. 519, 521 (Bankr. M.D. Fla. 2006) [19 Fla. L. Weekly Fed. B183a]; In re Brown, 165 B.R. 512, 514 (Bankr. M.D. Fla. 1994) (noting that under Florida law, a homestead is established when there is actual intent to live permanently in a place coupled with actual use and occupancy). In bankruptcy cases, the relevant date for determining a proper claim of exemption is the petition date. Fodor, 339 B.R. at 521. In the case of amended claims of exemption, the amendment relates back to, and is effective as of, the petition date. In re Bennett, 395 B.R. 781, 786 (Bankr. M.D. Fla. 2008) [21 Fla. L. Weekly Fed. B538b]. Rule 1009(a) of the Federal Rules of Bankruptcy Procedure permits a debtor to amend a schedule or statement as a matter of course at any time before the bankruptcy case is closed, and bankruptcy courts may not deny a debtor’s right to amend absent a showing of bad faith by the debtor or prejudice to creditors. See In re Doan, 672 F.2d 831, 833 (11th Cir. 1982).
Although the Trustee does not disagree with the foregoing points of law and has implicitly conceded that the Debtor’s amended Schedule C and its corresponding homestead exemption claim relate back to the petition date, the Trustee contends that the Debtor was legally incapable of possessing the requisite intent to remain permanently at the Property based on his stated intention to surrender the Property. As a result, the Trustee argues that the Debtor is not eligible for the homestead exemption and that his amended claim of exemption is ineffective.
Individual Chapter 7 debtors must file a statement of intention concerning debts that are secured by property of the estate. 11 U.S.C. § 521(a)(2)(A). Here, the Debtor scheduled a mortgage debt that was secured by the Property. Accordingly, the Debtor had the option of redeeming the Property, reaffirming the debt on the Property, or surrendering the Property to the mortgagee. Based on his financial inability to elect either of the first two options, the Debtor elected to “surrender” the Property. However, neither the Debtor’s stated intention to surrender the Property, nor the form Statement of Intention as a whole, impacts the Debtor’s ability to exempt certain property. The purpose of the Statement of Intention is to provide notice to the secured creditor of the debtor’s intent regarding the creditor’s collateral. See In re Rodale, Case No. 3:10-bk-6845-PMG (Doc. No. 42, p. 11). The statement is directed to the creditors and “has no effect on whether the homestead is property of the estate. Neither the Statement of Intention nor any subsequent actions by the debtor to perform the intention bind the trustee in the administration of the estate.” Id. at p. 12. A Chapter 7 trustee cannot infer a debtor’s purported lack of intent — for homestead purposes — from the Statement of Intention. Indeed, in this economy, it is, unfortunately, all too common for individuals, particularly debtors in bankruptcy, to face prospects of foreclosure on their homes. However, the fact that such individuals may ultimately lose their homes to foreclosure does not alter the current status of their homes as homestead property, or otherwise disqualify them from having an intent to reside permanently at their homes.
The Debtor’s proffered testimony that he intended to reside at the Property indefinitely is, under the circumstances of this case, the equivalent of permanently. See In re Wilbur, 206 B.R. 1002, 1007 (Bankr. M.D. Fla. 1997) (rejecting trustee’s contention that debtor had no intention to reside permanently at house based on debtor’s eventual plan to sell the house, as debtor had testified that his intent when he moved into house was to reside there indefinitely); Engel v. Engel, 97 So. 2d 140, 142 (Fla. 2d DCA 1957) (stating that “permanency” in the context of homestead protection does not mean “to forever remain in a given place of abode, eternally” but rather “to reside at that particular place for an indefinite period of time”).
The Florida Supreme Court has repeatedly instructed that Florida’s constitutional homestead exemption be liberally interpreted. See Butterworth v. Caggiano, 605 So. 2d 56, 58 (Fla. 1992) (“Florida courts have consistently held that the homestead exemption in article X, section 4 must be liberally construed”); Quigley v. Kennedy & Ely Ins., Inc., 207 So. 2d 431, 432 (Fla. 1968). Moreover, any exceptions to a claim of homestead are strictly construed in favor of the debtor and against the challenger. In re Prestwood, 322 B.R. 463, 469 (Bankr. S.D. Fla. 2005) [18 Fla. L. Weekly Fed. B162a]; In re Ehnle, 124 B.R. 361, 363 (Bankr. M.D. Fla. 1991) (“all exceptions to the exemptions should be strictly construed in favor of the claim and against the challenger of the claim of exemptions”).
Once property acquires homestead status, the debtor must affirmatively act to abandon the homestead. See Barlow v. Barlow, 23 So. 2d 723 (Fla. 1945). In Barlow, the court stated that a homestead can be waived by abandonment or alienation in the manner provided by law. Id. at 724. The court found that abandonment would occur where the owner removes himself from the home without intending to return, takes up a permanent abode at another place, and pursues his livelihood there. Id. In this case, the Debtor has neither abandoned nor alienated the Property, and, as discussed above, the Trustee may not infer an intention to abandon the homestead from the Statement of Intention alone.
Conclusion
The Trustee has not met her burden of proof. The Debtor’s initial Statement of Intention, which indicated the Debtor’s intent to surrender the Property to the mortgagee, does not preclude the Debtor from contending that he intended to continue to reside at the Property indefinitely. Given the Debtor’s proffer of his intent, and Florida’s liberal interpretation of the homestead exemption, the Court concludes that the Debtor has properly claimed the homestead exemption on the Property. As the Property is exempt, the Trustee may not sell it. Accordingly, the Court shall enter an order overruling the Trustee’s objection to the Debtor’s claim of exemption and has previously entered its Order Sustaining Objection to Chapter 7 Trustee’s Report and Notice of Intention to Sell (Doc. No. 69).
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1Schedule C of the Official Forms lists the real and personal property which a debtor claims as exempt.
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