Investors Are Starting to Understand How They Are Being Screwed — Just Like Borrowers

Hat Tip to Dan Edstrom in Northern California, our senior securitization analyst for finding this report.

Investors Have Had Enough!!

“If Citibank wants to settle with the Justice Department and [Attorney General] Eric Holder, that’s fine. Just please don’t settle with investors’ money. Because that’s whose money it is,” Fiorillo says. “It’s not Citibank’s money. I’ve said it 100 times and I will continue to say it. I am now leading a louder and louder chorus with people who have had enough of this.”

See Links Below

I know this stuff isn’t easy, but managers of pension funds and hedge funds and other such mutual or discretionary funds should have realized that the Banks were “settling” claims against the Banks with investor money. And if they dig deeper they will find two things:

1. That the Trusts were unfunded, the loans were not secured and the appraisals and terms were manipulated to close rather than to assure payment as promised to the investors.

2. That underneath this mess, the banks actual profits offset their claimed losses 100:1 — THAT money belongs to the investors as well — or it is owed back to borrowers as undisclosed and fraudulent proceeds of fake transactions. (See TILA and RESPA). In this case it should be accompanied by treble damages, interest, return of all payments, and disgorgement of all undisclosed profits arising out of each “closing.” These things WILL happen, but only when investors and borrowers join hands directly and compare notes.

For the first time major players representing the investors in the Great Mortgage Bond Sting are speaking loudly and uncensored. They don’t like losing money and they don’t like settlements in which investor money is used to pay the fines and penalties. They DO like modifications which are preferable to costly foreclosures but that is not good for servicers and lawyers who DO want foreclosures.

And under all of this is a simple fact — nearly all the borrowers would sign a real mortgage or deed of trust that did not involve fraud or fabricated documents. Investors are just starting to realize that the borrowers have been fighting a battle that inures to the benefit of investors — pointing out that the servicing companies and trustees and lawyers are all acting under fictitious powers from fabricated documents that exclude the best interest of either the investors or the borrowers.

After sounding like a broken record for 7 years it seemed that nobody would listen to me — at times — but persistence is my strongest suit. Those loans are NOT enforceable just as has been consistently alleged in the investor lawsuits and the suits brought by insurers, government agencies, law enforcement, and counterparties to hedge contracts. The Banks never owned the loans  but they pretended to own them as long as they could make money pretending to own them. The Banks never owned the Bonds, but that hasn’t stopped them from selling $3 TRILLION in bonds to the Federal reserve.

And because arrogance that succeeds breeds escalating behavior of the worst kind, the Banks who committed atrocities in the financial world are settling — using the money that investors gave them for a return on their investments so they could continue to pay pension benefits to pensioners.

Maybe it will be sooner rather than later when the obvious solution is finally adopted. When investors and borrowers find a different way of getting together — rather than through servicers who are aiming to screw both sides in foreclosures that are wrongful fraudulent, illegal and immoral. The only winner in foreclosures are the intermediaries. The real parties in interest both come out losers.

http://archives.financialservices.house.gov/media/file/hearings/111/testimony_-_fiorillo_4.14.10.pdf

http://www.nationalmortgagenews.com/news/regulation/government-mbs-settlements-leave-private-bondholders-unsettled-1042165-1.html?utm_campaign=daily%20briefing-jul%2018%202014&utm_medium=email&utm_source=newsletter&ET=nationalmortgage%3Ae2837381%3A560364a%3A&st=email

How the Banks Literally “Made” Money Out of Nothing

For the last few weeks I have been harping on the concepts of holder in due course, holder with rights of enforcement, and holder. They are all different. The challenge in court is to get them treated as different in Court as they are in the statutes.

The Banks knew through their attorneys that the worst paper in the world could be turned into real value if they could dress up junk paper and sell it to an unsuspecting innocent third party. They did it with junk bonds, and then they did it again when they created a strategy of creating junk bonds that looked like investment grade securities, got the Triple A rating from the agencies and even got them insured as though they were the highest quality and lowest risk investment — thus enabling stable managed funds to buy them despite restrictions on what such fund managers could buy as investments for their pension fund, retirement fund etc.

The reason they were able to do it is that regardless of the defective nature of the loan closing, including the lack of any loan of money by the “lender”, the law protects and presumes the validity of the paper, subject to defenses of the borrower that might defeat that value. The one exception that the Banks saw as an opportunity to commit fraud and get away with it is if they could manage to sell the unenforceable mortgage documents to an innocent third party who was acting in good faith, paid real value for the loan, and knew nothing about the predatory nature of the loans, lack of consideration, and other defenses of the borrower, then the paper, no matter how bad, could still be enforced against the person who signed it. It doesn’t matter if there was a real contract, or if the transaction violated Federal and state laws or anything else like that.

Such an innocent third party is called a holder in due course. And the reason, like it or not, is that the legislatures around the country and the Federal statutes, favor the free flow of “negotiable instruments” if they qualify as negotiable instruments. If you sign a note in exchange for a loan you never received (and especially if you didn’t realize you didn’t received a loan from someone other than the “lender”) you are taking a risk that the loan documents will be enforced against you successfully even though you could have defeated the original lender easily.

The normal process, which the Banks knew because they invented the process, was for a “closing” to take place in which the loan documents, settlements statements, note, mortgage and other papers are signed by the borrower, and then the loan is funded usually after final review by the underwriters at the lender. But in the mortgage meltdown there was no real underwriting but there was someone called an aggregator (e.g. Countrywide, ABn AMRO et al) who was approving loans that qualified to be approved for sale into investment pools. And in the mortgage meltdown you signed papers but never received a loan of actual money from the party in whose favor you signed the papers. They were unenforceable, illegal and possibly criminal, but those signed papers existed.

All the Banks had to do was to claim temporary ownership over the loans and they were able to sell the “innocent” pension fund managers on buying bonds whose value was derived from these worthless loan papers. If they didn’t know what was going on, they had no knowledge of the borrower’s defenses. If they were not getting kickbacks for buying the bonds, they were proceeding in good faith. That is the classic definition of a Holder in Due Course who can enforce the loan documents despite any real defenses the the homeowner might possess. The homeowner is the maker of the note and should have had a lawyer at closing who would insist on seeing the wire transfer receipt and wire transfer instructions to the escrow agent.

No lawyer worth his salt would allow his client to sign papers, nor would he allow the escrow agent to retain such signed papers, much less record them, if he knew or suspected that the documents signed by his client were going to create a problem later. The delivery of the note to a party who had NOT made the loan created two debts — one to the source of the loan money which arises by operation of law, and the other to whoever ended up with the paper even though there was a complete lack of consideration at closing and no money exchanged hands in the assignment or transfer of the loan, debt, note or mortgage.

Since the paperwork went into the equivalent of a food processor, the banks were able to change various data points on each loan, and create sales and disguised sales over and over again on the same loan, the same loan pool, the same mortgage bonds, the same tranche, or the same hedges. Now they even the the technology to deliver  what appears to be an “original” note to as many people as they want. Indeed we have seen court cases where both foreclosing parties tendered the “original” note to the court as part of the foreclosure process, as is required in Florida.

Thus borrowers are stuck arguing that it is not the debt that cannot be enforced, it is the paper. The actual debt was never documented making it appear as though the allegation of 4th party funding seem ludicrous — until you ask for the wire transfer receipt and instructions, until you ask for the way the participating parties booked the transaction on their own financial statements, and until you ask for the date, amount and people involved in the transfer or assignment of the worthless paper. The reason why clerical people were allowed to sign away note and mortgages that appeared to be worth billions and trillions of dollars, is that what they were signing was toxic waste — worse than unenforceable it carried huge liabilities to both the borrower and all the people who were scammed into buying the same worthless paper over and over again.

The reason the records custodian of the Bank or servicer doesn’t come into court or at least certify the “business records” as an exception to hearsay as permitted under Florida statutes and the laws of other states, is that no records custodian is going to risk perjury. The records custodian knows the documents were faked, never delivered, and not in the possession of the foreclosing party. So they get a professional witness who testifies he or she is “familiar with the record keeping” at one servicer, but upon voir dire and cross examination they know nothing in their personal knowledge and are therefore only giving voice to what is contained on the reports he brought to trial — classic hearsay to be excluded from evidence every time.

Like the robo-signors and “assistant secretaries”, “signing officer,” (and other made up names) these people who serve as professional witnesses at trial have no actual access to any of the raw data contained in any record keeping system. They don’t know what came in, they don’t know what went out, they don’t know who paid any money into the pool because there are so many channels of money being paid on these loans (directly or indirectly), they don’t even know if the servicer paid the creditors the amount that was due under the creditors’ part of the loan contract — the prospectus and PSA.

In fact, there is no production of any information to show that the REMIC trust was ever funded with the investor’s money. If there was such evidence, we never would have seen forgery, fabrication and robo-signing. It wouldn’t have been necessary. These witnesses might suspect they are lying, but since they don’t know for sure they feel insulated from prosecutions for perjury. But those witnesses are the first people to be thrown under the bus if somehow the truth comes out.

Thus the banks literally created money out of thin air by taking worthless, fraudulently obtained paper (junk) and then treating it at some point as though it was negotiable paper that was sold to an Innocent holder in due course. Under the law if they claimed status as Holder in Due Course (or confused a court into believing that is what they were alleging), the paper suddenly was enforceable even though the borrowers’ defenses were absolute.

BUT THAT TRANSACTION NEVER OCCURRED EITHER. Numbers don’t lie. If you take $100 million from an investor and put it on the closing tables for the origination or acquisition of loans, then you can’t ALSO put the money in the REMIC trust. Thus the unfunded trust has no money to transaction ANY business. But once again, in the illusion of securitization, it looks real to judges, lawyers and even borrowers who feel guilty that fighting the bank is breaking some moral code.

Amazingly, it is the victims who feel guilty and shamed and who are willing to pay even more money to intermediary banks whose fees and profits passed unconscionable 10 years ago. I’m not sure what word would apply as we look at the point of unconscionability in our rear view mirror.

And they sold it over and over again. The reason why there was no underwriting standards applied was that it didn’t matter whether the borrower paid or not. What mattered is that the Banks were able to sell the junk paper multiple times. Getting 100 cents on the dollar for an investment you never made is very lucrative — especially when you do it over and over again on each loan. It sure beats getting 5%. The reason the servicer made advances was that they were not using their own money to make payments to the investors. It is the perfect game. A PONZI scheme where the investors continue to get paid because the reserve fund and incoming investors are contributing to that reserve fund, such that the servicer has access to transmit funds to the investors as though the trust owned the loan and the loans were all performing. Yet as “servicers” they declared a default because the borrower had stopped paying (sometimes even if the borrower was paying).

And the Banks sprung into action claiming that the failure of the borrower to make a payment is the only thing that mattered. The Courts bought it, despite the proffer of proof or the demand for discovery to show that the creditor — the investors — were actually showing a default. I didn’t make this up. This is what the investors are alleging each time they present a claim or file suit for fraud against the broker dealer who did the underwriting on the mortgage bonds issued by the REMIC trust who should have received the money from the sale of the bonds. In all cases the investors, insurers, government guarantors, and other parties have alleged the same thing — fraud and mismanagement of funds.

The settlements of fines and buy backs and damages to this growing list of claimants on Wall Street is growing close to $1,000,000,000,000 (one trillion dollars). In all the cases where I have submitted an expert witness declaration or have given testimony the argument was not whether what I was saying was right, but were there ways they could block my testimony. They never offered a competing declaration or any expert who would contradict me in over 7 years in thousands of cases. They have never offered an explanation of how I am wrong.

The Banks knew that if they could fool the fund managers into buying junk bonds because they looked like they were high rated bonds, they could convince Judges, lawyers and even borrowers that their case was hopeless because the foreclosing party would be treated as a Holder in Due Course — even if they never said it — and even if they were the holders of junk paper subject to all of the borrower’s defenses. So far they have pillaged our economy with 6 million foreclosures displacing 15 million  families on loans that were paid in full long before the origination or acquisition of the loan.

And here is their problem: if they start filing suit against homeowners for the money advanced on behalf of the homeowners (in order to keep the investments coming), then they will be admitting that most foreclosures are being filed for the sake of the intermediaries without any tangible benefit to the investors who put up the money in the first place. The result is like an old ribald joke, the Wolf of wall Street screws the investors, screws the borrowers, screws the third party obligors (including the government) takes the pot of gold and leaves. Only to add insult to injury they claimed non existent losses that were actually suffered by the investors who trusted the banks when the junk mortgage bonds were sold. And they were paid again.

Why Is the PSA Relevant?

Many judges in foreclosure actions continue to rule that the securitization documents are irrelevant. This would be a correct ruling in the event that there were no securitization documents. Otherwise, the securitization documents are nothing but relevant.

There are three scenarios in which the securitization documents are relevant:

  1.  The party claiming to be a trustee of a trust is claiming to have the rights of collection and foreclosure.
  2.  The party claiming to be the servicer  for a trust is claiming to have the rights of collection and foreclosure.
  3.  The party claiming to be the holder with rights to enforce is claiming to have rights of collection and foreclosure. If the party claims to be a holder in due course, the inquiry ends there and the borrower is stuck with bringing claims against the intermediaries, being stripped of his right to raise defenses he/she could otherwise have made against the originator, aggregator or other parties.

The securitization scheme can be summarized as follows:

  1.  Assignment and Assumption agreement:  This governs procedures for the closing. This is an agreement between the apparent originator of the loan and an undisclosed third-party aggregator. This agreement exists before the first application for loan is received by the originator, and before the alleged “closing.” It governs the behavior of the originator as well as the rights and obligations of the originator. Specifically it states that the originator has no rights to the whatsoever. The aggregator is used as a conduit for the delivery of funds to the closing table at which the borrower is deceived into thinking that he received a loan from the originator when in fact the funds were wired by the aggregator on behalf of an unknown fourth party. The unknown fourth party is a broker-dealer acting as a conduit for the actual lenders. The actual lenders are investors who believe that they were buying mortgage bonds issued by a REMIC trust, which in turn would be using the money raised from the offering of the bonds for the purpose of originating or acquiring residential loans. Hence the assignment and assumption agreement is highly relevant because it dictates the manner in which the closing takes place. And it demonstrates that the loan was a table funded loan in a pattern of conduct that is indisputably “predatory per se.” It also demonstrates the fact that there was no consideration between originator and the borrower. And it demonstrates that there was no privity between the aggregator and the borrower. As the closing agent procured the signature of the borrower on false pretenses. Interviews with document processors for both originators closing agents now show that they would not participate in such a closing where the identity of the actual lender was intentionally withheld.
  2.  The pooling and servicing agreement: This governs the procedures for collection, disbursement and enforcement. This is the document that specifies the authority of the trustee, the servicer, the sub servicers, the documents that should be held by the servicer, the servicer advance payments, and the formulas under which the lenders would be paid. Without this document, none of the parties currently bring foreclosure actions would have any right to be in court. Without this document trustee cannot show its authority to represent the trust or the trust beneficiaries. Without this document servicer cannot show that it performed in accordance with the requirements of a contract, or that it was in privity with the actual lenders,  or that it had any right of enforcement, or that it computed correctly the amount of payment required from the borrower and the amount of payment required to be made to the lenders. It also specifies the types of third party payments that are made from insurance, swaps and other guarantors or co-obligors.
  3. Of specific importance is the common provision for servicer advances, in which the creditors are receiving payments in full despite the declaration of default by the servicer.  In fact, the declaration of default by the servicer is actually an attempt to recover money that was voluntarily paid to the creditor. It is not correctly seen as a declaration of default nor any right to demand reinstatement nor any right to accelerate because the creditor is not showing any default. It is a disguised attempt to assert a claim for unjust enrichment because the servicer made payments on behalf of the borrower, voluntarily, to the creditor that are not recoverable from the creditor. Usually they make this payment by the 25th of each month. Hence any prior delinquency is cured each month and eliminates the possibility of a default with respect to the creditor on the residential loan.

It is argued by the banks and accepted by many judges that mere possession of the note sufficient to enforce it in the amount demanded by the servicer. This is wrong. The amount demanded by the servicer and does not take into account the actual payments received by the actual creditor. Accordingly the computation of interest and principal is incorrect. This can only be shown by reference to the securitization documents, including the assignment and assumption agreement, the pooling and servicing agreement, the prospectus and supplements to the PSA and Prospectus.

For more information please call 520-405-1688 or 954-495-9867.

9th Circuit (Federal) Allows Quiet Title and Damages for Wrongful Filing of False Documents

Hat Tip to Beth Findsen who is a good friend and a great lawyer in Scottsdale, Az and who provided this case to me this morning. I always recommend her in Arizona because her writing is spectacular and her courtroom experience invaluable.

This case needs to be analyzed further. Robert Hager (CONGRATULATIONS TO HAGER IN RENO, NV) et al has succeeded in getting at least a partial and significant victory over the MERS system, and voiding robosigned documents as being forged per se. I disagree that a note and mortgage, once split, can be reunified by mere execution of an instrument. They are avoiding the issue just like the “lost note” issue. The rules of evidence and pleading have always required great factual specificity on the path of transactions leading up to the point where the note was lost or transferred. This Court dodged that bullet for now. Without evidence of the trail of ownership, the money trail and the document trail all the way through the system, such a finding leaves us in the dark. The case does show what I have been saying all along — the importance of pleading and admitting to NOTHING. By not specifically stating that there was no default, the court concluded that Plaintiffs had failed to establish the elements of wrongful foreclosure and left open the entire question about whether such a cause of action even exists.

But the more basic issue us whether the homeowner can sue for quiet title and damages for slander of his title by the use and filing of patently false documentation in Court, in the County records etc. The answer is a resounding YES and will be sustained should the banks try to move this up the ladder to the U.S. Supreme Court. This opinion changes again my earlier comments. First I said you could quiet title, then I said you first needed to nullify title (the mortgage) before you could even file a quiet title action. Now I revert to my prior position based upon the holding and sound reasoning behind this court decision. One caveat: you must plead facts for nullification, cancellation of the instrument on the grounds that it is void before you can get to your cause of action on quiet title and damages for slander of the homeowner’s title. My conclusion is that they may be and perhaps should be in the same lawsuit. This decision makes clear the damage wrought by use of the MERS system. It is strong persuasive authority in other jurisdictions and now the law for all courts within the 9th Circuit’s jurisdiction.

Here are some of the significant quotes.

Writing in 2011, the MDL Court dismissed Count I on four grounds. None of these grounds provides an appropriate basis for dismissal. We recognize that at the time of its decision, the MDL Court had plausible arguments under Arizona law in support of three of these grounds. But decisions by Arizona courts after 2011 have made clear that the MDL Court was incorrect in relying on them.
First, the MDL Court concluded that § 33-420 does not apply to the specific documents that the CAC alleges to be false. However, in Stauffer v. U.S. Bank National Ass’n, 308 P.3d 1173, 1175 (Ariz. Ct. App. 2013), the Arizona Court of Appeals held that a § 33-420(A) damages claim is available in a case in which plaintiffs alleged as false documents “a Notice of Trustee Sale, a Notice of Substitution of Trustee, and an Assignment of a Deed of Trust.” These are precisely the documents that the CAC alleges to be false.
[Statute of Limitations:] at least one case has suggested that a § 33-420(B) claim asserts a continuous wrong that is not subject to any statute of limitations as long as the cloud to title remains. State v. Mabery Ranch, Co., 165 P.3d 211, 227 (Ariz. Ct. App. 2007).
Third, the MDL Court held that appellants lacked standing to sue under § 33-420 on the ground that, even if the documents were false, appellants were still obligated to repay their loans. In the view of the MDL Court, because appellants were in default they suffered no concrete and particularized injury. However, on virtually identical allegations, the Arizona Court of Appeals held to the contrary in Stauffer. The plaintiffs in Stauffer were defaulting residential homeowners who brought suit for damages under § 33-420(A) and to clear title under § 33-420(B). One of the grounds on which the documents were alleged to be false was that “the same person executed the Notice of Trustee Sale and the Notice of Breach, but because the signatures did not look the same, the signature of the Notice of Trustee Sale was possibly forged.” Stauffer, 308 P.3d at 1175 n.2.
“Appellees argue that the Stauffers do not have standing because the Recorded Documents have not caused them any injury, they have not disputed their own default, and the Property has not been sold pursuant to the Recorded Documents. The purpose of A.R.S. § 33-420 is to “protect property owners from actions clouding title to their property.” We find that the recording of false or fraudulent documents that assert an interest in a property may cloud the property’s title; in this case, the Stauffers, as owners of the Property, have alleged that they have suffered a distinct and palpable injury as a result of those clouds on their Property’s title.” [Stauffer at 1179]
The Court of Appeals not only held that the Stauffers had standing based on their “distinct and palpable injury.” It also held that they had stated claims under §§ 33-420(A) and (B). The court held that because the “Recorded Documents assert[ed] an interest in the Property,” the trial court had improperly dismissed the Stauffers’ damages claim under § 33-420(A). Id. at 1178. It then held that because the Stauffers had properly brought an action for damages under § 33-420(A), they could join an action to clear title of the allegedly false documents under § 33-420(B). The court wrote:
“The third sentence in subsection B states that an owner “may bring a separate special action to clear title to the real property or join such action with an action for damages as described in this section.” A.R.S. § 33-420.B. Therefore, we find that an action to clear title of a false or fraudulent document that asserts an interest in real property may be joined with an action for damages under § 33-420.A.”
Fourth, the MDL Court held that appellants had not pleaded their robosigning claims with sufficient particularity to satisfy Federal Rule of Civil Procedure 8(a). We disagree. Section 33-420 characterizes as false, and therefore actionable, a document that is “forged, groundless, contains a material misstatement or false claim or is otherwise invalid.” Ariz. Rev. Stat. §§ 33-420(A), (B) (emphasis added). The CAC alleges that the documents at issue are invalid because they are “robosigned (forged).” The CAC specifically identifies numerous allegedly forged documents. For example, the CAC alleges that notice of the trustee’s sale of the property of Thomas and Laurie Bilyea was “notarized in blank prior to being signed on behalf of Michael A. Bosco, and the party that is represented to have signed the document, Michael A. Bosco, did not sign the document, and the party that did sign the document had no personal knowledge of any of the facts set forth in the notice.” Further, the CAC alleges that the document substituting a trustee under the deed of trust for the property of Nicholas DeBaggis “was notarized in blank prior to being signed on behalf of U.S. Bank National Association, and the party that is represented to have signed the document, Mark S. Bosco, did not sign the document.” Still further, the CAC also alleges that Jim Montes, who purportedly signed the substitution of trustee for the property of Milan Stejic had, on the same day, “signed and recorded, with differing signatures, numerous Substitutions of Trustee in the Maricopa County Recorder’s Office . . . . Many of the signatures appear visibly different than one another.” These and similar allegations in the CAC “plausibly suggest an entitlement to relief,” Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009), and provide the defendants fair notice as to the nature of appellants’ claims against them, Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
We therefore reverse the MDL Court’s dismissal of Count I.
[Importance of Pleading NO DEFAULT:] The Nevada Supreme Court stated in Collins v. Union Federal Savings & Loan Ass’n, 662 P.2d 610 (Nev. 1983):
An action for the tort of wrongful foreclosure will lie if the trustor or mortgagor can establish that at the time the power of sale was exercised or the foreclosure occurred, no breach of condition or failure of performance existed on the mortgagor’s or trustor’s part which would have authorized the foreclosure or exercise of the power of sale. Therefore, the material issue of fact in a wrongful foreclosure claim is whether the trustor was in default when the power of sale was exercised…. Because none of the appellants has shown a lack of default, tender, or an excuse from the tender requirement, appellants’ wrongful foreclosure claims cannot succeed. We therefore affirm the MDL Court’s of Count II.
[Questionable conclusion on “reunification of note and mortgage”:] the Nevada Supreme Court decided Edelstein v. Bank of New York Mellon, 286 P.3d 249 (Nev. 2012). Edelstein makes clear that MERS does have the authority, for purposes of § 107.080, to make valid assignments of the deed of trust to a successor beneficiary in order to reunify the deed of trust and the note. The court wrote:
Designating MERS as the beneficiary does . . . effectively “split” the note and the deed of trust at inception because . . . an entity separate from the original note holder . . . is listed as the beneficiary (MERS). . . . However, this split at the inception of the loan is not irreparable or fatal. . . . [W]hile entitlement to enforce both the deed of trust and the promissory note is required to foreclose, nothing requires those documents to be unified from the point of inception of the loan. . . . MERS, as a valid beneficiary, may assign its beneficial interest in the deed of trust to the holder of the note, at which time the documents are reunified.
We therefore affirm the MDL Court’s dismissal of Count III.

Here is the full opinion:

Opinion on MDL

For further information or assistance, please call 520-405-1688 on the West Coast and 954-495-9867 on the East Coast.

Why They Sue as Holder and Not as Holder in Due Course

Parties claiming a right to foreclose allege they are the “Holder” and do not allege they are the holder in due course (HDC) because they are ducking the issue of consideration required by both Article 3 and Article 9 of the UCC. So far their strategy of confusion is working. They are directly or impliedly claiming they are the holder of the NOTE. They cannot claim they are the holder of the MORTGAGE, because no such status exists — they either own the mortgage encumbrance because they paid for it or they didn’t. If they didn’t pay for it, they cannot enforce it even if they still can enforce the note.

The framers of the Uniform Commercial Code (UCC) had a plan they executed in Article 3 and Article 9 of the UCC, as adopted by 49 states (Louisiana, excepted). They had four (4) problems to solve.

Consider two possible fact patterns, to wit: first the payee (“lender”) did in fact fund the loan putting cash in the hands of the borrower or paying debts on the borrower’s behalf; second, the payee (“originator”) gets the borrower to sign the note but fails or refuses or never intended to fund the loan of money to the borrower. In the first instance the note is evidence of a real debt whereas in the second instance the note is not evidence of a real debt.

This issue has been obscured by the fact that SOMEONE (“investors”) did fund a loan. The questions posed here is whether the investors received the protection of a note and mortgage and if they didn’t, what is the effect of advancing funds for a loan without getting the required evidence of the loan (Promissory Note) and without getting the collateral (Mortgage) that would ordinarily apply.

The Four Goals

First, the UCC framers wanted to encourage the free flow of commerce by making certain instruments the equivalent of cash. The Payee should be able to use such instruments in trading for goods, services, or credit. This is the promissory note — a written instrument containing an unconditional promise to pay a certain amount. The timing of the payments, the amount, the terms, the method of payment must all be obvious from the face of the note without reference to any outside evidence (parol evidence) that could reduce or eliminate the value of the note. If there are questions or conditions apparent from the face of the instrument, it fails the test of a negotiable instrument or cash equivalent. That means that Article 3, UCC doesn’t apply.

Second they wanted to protect the issuer of the note (the payor) from the effects of fraud, improper lending practices and other deprive lending policies and practices from any false claims for payment on the note. If the Payor (homeowner, borrower) received no benefit from the Payee but was somehow induced to sign the note in anticipation of receiving the benefit, then the Payee should not be able to collect from the Payor. This goal conflicts with the first goal only when the note is sold to an innocent third party for value who had no notice of the defective nature of the origins of the note (Holder in Due Course -HDC).

Thus third, in order to maintain the status of cash equivalent paper, they had to provide a mechanism in which an innocent third party was protected when they advanced money for the purchase of the note without having any notice of the borrower’s defenses. This would allow the buyer to sue the payor (borrower, debtor) and collect free of any potential defenses. The burden of the borrower’s claims would then fall on the borrower to collect damages against the original payee for wrongful acts. (Article 3, UCC, Holder in Due Course -HDC).

And in order to allow all such notes to be enforceable regardless of the circumstances of their origin, any party holding the note (“Holder”) can enforce the note if they have physical possession of the note, even if they paid nothing for it, as long as it is endorsed to them. But if they are a HOLDER and not a HOLDER IN DUE COURSE then they sue subject to all of the borrower’s defenses. The central issue is whether the Holder has paid for the note, in which case they would be in HDC status or if they did not pay for the note, in which case they enforce subject to all borrower’s defenses — including the allegation that the original payee never made the loan.

Fourth was the issue of forfeiture of collateral. This is considered the most extreme remedy under commercial law, analogous to the death penalty in criminal cases. (Article 9, UCC — secured transactions). It is one thing to preserve liquidity in the marketplace by protecting the investment of innocent third parties who purchase negotiable instruments from defenses — and quite another to cause forfeiture of home or property. Here again, the language of Article 3 is used for an HDC — i.e., an assignment of the mortgage is enforceable ONLY if the Assignor paid for it and had no notice of borrower’s defenses.

So they devised a structure in which a bona fide purchaser of the paper without notice of the borrower’s defenses would be called a holder in due course. They could sue the borrower despite wrongful behavior by the original payee on the unconditional promise to pay (the note). In the event of fraud in the sale of the note, the new owner of the note could sue both the seller (Assignor, endorser or indorser).

Then they considered the possibility of wrongful behavior: the issuance of such commercial paper would be a claim, but not negotiable paper — but if it was sold anyway it would be subject to the borrower’s defenses. This allows outside evidence (parol evidence) — which is to say that in this fact pattern, the promise to pay was conditional on the value and effect of the borrower’s defenses. The HOLDER of this instrument need not pay for the sale of the note and need not be ignorant of the borrower’s defenses. This holder could sue both the payor (borrower, debtor) and the party who transferred the note — depending upon the agreement that accompanied the transfer of the note by delivery and indorsement.

The party who accepts indorsement without paying for the note or even knowing of potential borrower defenses can still enforce the note, but unlike the the HOLDER IN DUE COURSE, the Payor (Borrower) could raise all defenses to the original transaction. The UCC Article 3 calls this a holder. A holder need not purchase the note and may have actual knowledge of the borrower’s defenses but can still sue the payor (borrower) for the principal amount due on the unconditional promise to pay.

I have noticed that most judicial foreclosures are either in rem (foreclosures only) or the claim on the note is that the Plaintiff is a “holder.” If they have possession and it is indorsed, they are probably a holder entitled to enforce the note. But the Defendant can raise all available defenses just as he or she would do if the fight was with the originator of the note execution. And nothing is a better defense than the distinction between being the originator of the note execution and the originator of the loan. The confusion over the term “originator” has allowed millions of foreclosures to be completed despite the fact that the “holder” neither paid for the note nor could they claim they were ignorant of the borrower’s defenses.

This confusion has led most courts to look at Article 3, UCC, instead of Article 9, UCC. Neither allow the claimant to sue on either the note or the mortgage without having paid for the assignment of the mortgage or delivery of the note, if the holder has actual notice of borrower’s defenses. In most cases the claimant either has the knowledge of the fraud and predatory practices at closing or is a made to order controlled company of a real party who has such knowledge.

In conclusion, borrowers should prevail in foreclosure litigation in situations where the claimant is unable to prove the identity of the actual lender who advanced funds, or where the claimant has failed to purchase the mortgage.

Based upon vast quantities of information in the public domain including investor lawsuits, insurer lawsuits and government agency lawsuits (all alleging FRAUD and mismanagement of funds) against broker dealers who sold mortgage bonds, it seems highly likely that in the 96% of all loans between 2001-2009 that are subject to claims of securitization three things are true:

(1) the securitization plan was never followed in most cases thus making the investors direct lenders without benefit of a note or mortgage and

(2) none of the parties “holding” paper possess any of the qualities of a party who could have standing to foreclose and

(3) claims still exist on the notes, even though they were not supported by consideration but those claims are unsecured and subject to all defenses that could have been raised against the originator.

Neil F Garfield, Esq.

For further information call 520-405-1688, or 954-495-9867. Do not use the above information without consulting an attorney licensed in the jurisdiction in which your property is located and who knows all the facts of your case. The above article is a general description and may not apply to your case.

Fatal Flaws in the Origination of Loans and Assignments

The secured party, the identified creditor, the payee on the note, the mortgagee on the mortgage, the beneficiary under the deed of trust should have been the investor(s) — not the originator, not the aggregator, not the servicer, not any REMIC Trust, not any Trustee of a REMIC Trust, and not any Trustee substituted by a false beneficiary on a deed of Trust, not the master servicer and not even the broker dealer. And certainly not whoever is pretending to be a legal party in interest who, without injury to themselves or anyone they represent, could or should force the forfeiture of property in which they have no interest — all to the detriment of the investor-lenders and the borrowers.
There are two fatal flaws in the origination of the loan and in the origination of the assignment of the loan.

As I see it …

The REAL Transaction is between the investors, as an unnamed group, and the borrower(s). This is taken from the single transaction rule and step transaction doctrine that is used extensively in Tax Law. Since the REMIC trust is a tax creature, it seems all the more appropriate to use existing federal tax law decisions to decide the substance of these transactions.

If the money from the investors was actually channeled through the REMIC trust, through a bank account over which the Trustee for the REMIC trust had control, and if the Trustee had issued payment for the loan, and if that happened within the cutoff period, then if the loan was assigned during the cutoff period, and if the delivery of the documents called for in the PSA occurred within the cutoff period, then the transaction would be real and the paperwork would be real EXCEPT THAT

Where the originator of the loan was neither legally the lender nor legally a representative of the source of funds for the transaction, then by simple rules of contract, the originator was incapable of executing any transfer documents for the note or mortgage (deed of trust in nonjudicial states).

If the originator of the loan was not the lender, not the creditor, not a party who could legally execute a satisfaction of the mortgage and a cancellation of the note then who was?

Our answer is nobody, which I know is “counter-intuitive” — a euphemism for crazy conspiracy theorist. But here is why I know that the REMIC trust was never involved in the transaction and that the originator was never the source of funds except in those cases where securitization was never involved (less than 2% of all loans made, whether still existing or “satisfied” or “foreclosed”).

The broker dealer never intended for the REMIC trust to actually own the mortgage loans and caused the REMIC trust to issue mortgage bonds containing an indenture for repayment and ownership of the underlying loans. But there were never any underlying loans (except for some trusts created in the 1990′s). The prospectus said plainly that the excel spreadsheet attached to the prospectus contained loan information that would be replaced by the real loans once they were acquired. This is a practice on Wall Street called selling forward. In all other marketplaces, it is called fraud. But like short-selling, it is permissible on Wall Street.

The broker dealer never intended the investors to actually own the bonds either. Those were issued in street name nominee, non objecting status/ The broker dealer could report to the investor that the investor was the actual or equitable owner of the bonds in an end of month statement when in fact the promises in the Pooling and Servicing Agreement as to insurance, credit default swaps, overcollateralization (a violation of the terms of the promissory note executed by residential borrowers), cross collateralization (also a violation of the borrower’s note), guarantees, servicer advances and trust or trustee advances would all be payable, at the discretion of the broker dealer, to the broker dealer and perhaps never reported or paid to the “trust beneficiaries” who were in fact merely defrauded investors. The only reason the servicer advances were paid to the investors was to lull them into a false sense of security and to encourage them to buy still more of these empty (less than junk) bonds.

By re-creating the notes signed by residential borrowers as various different instruments, and there being no limit on the number of times it could be insured or subject to receiving the proceeds of credit default swaps, (and with the broker dealer being the Master Servicer with SOLE discretion as to whether to declare a credit event that was binding on the insurer, counter-party etc), the broker dealers were able to sell the loans multiple times and sell the bonds multiple times. The leverage at Bear Stearns stacked up to 42 times the actual transaction — for which the return was infinite because the Bear used investor money to do the deal.

Hence we know from direct evidence in the public domain that this was the plan for the “claim” of securitization — which is to say that there never was any securitization of any of the loans. The REMIC Trust was ignored, thus the PSA, servicer rights, etc. were all nonbinding, making all of them volunteers earning considerable money, undisclosed to the investors who would have been furious to see how their money was being used and the borrowers who didn’t see the train wreck coming even from 24 inches from the closing documents.

Before the first loan application was received (and obviously before the first “closing” occurred) the money had been taken from investors for the expressed purpose of funding loans through the REMIC Trust. The originator in all cases was subject to an assignment and assumption agreement which made the loan the property and liability of the counter-party to the A&A BEFORE the money was given to the borrower or paid out on behalf of the borrower. Without the investor, there would have been no loan. without the borrower, there would have been no investment (but there would still be an investor left holding the bag having advanced money for mortgage bonds issued by a REMIC trust that had no assets, and no income to pay the bonds off).

The closing agent never “noticed” that the funds did not come from the actual originator. Since the amount was right, the money went into the closing agent’s escrow account and was then applied by the escrow agent to fund the loan to the borrower. But the rules were that the originator was not allowed to touch or handle or process the money or any overpayment.

Wire transfer instructions specified that any overage was to be returned to the sender who was neither the originator nor any party in privity with the originator. This was intended to prevent moral hazard (theft, of the same type the banks themselves were committing) and to create a layer of bankruptcy remote, liability remote originators whose sins could only be visited upon the aggregators, and CDO conduits constructed by CDO managers in the broker dealers IF the proponent of a claim could pierce a dozen fire walls of corporate veils.

NOW to answer your question, if the REMIC trust was ignored, and was a sham used to steal money from pension funds, but the money of the pension fund landed on the “closing table,” then who should have been named on the note and mortgage (deed of trust beneficiary in non-judicial states)? Obviously the investor(s) should have been protected with a note and mortgage made out in their name or in the name of their entity. It wasn’t.

And the originator was intentionally isolated from privity with the source of funds. That means to me, and I assume you agree, that the investor(s) should have been on the note as payee, the investor(s) should have been on the mortgage as mortgagees (or beneficiaries under the deed of trust) but INSTEAD a stranger to the transaction with no money in the deal allowed their name to be rented as though they were the actual lender.

In turn it was this third party stranger nominee straw-man who supposedly executed assignments, endorsements, and other instruments of power or transfer (sometimes long after they went out of business) on a note and mortgage over which they had no right to control and in which they had no interest and for which they could suffer no loss.

Thus the paperwork that should have been used was never created, executed or delivered. The paperwork that that was created referred to a transaction between the named parties that never occurred. No state allows equitable mortgages, nor should they. But even if that theory was somehow employed here, it would be in favor of the individual investors who actually suffered the loss rather than the foreclosing entity who bears no risk of loss on the loan given to the borrower at closing. They might have other claims against numerous parties including the borrower, but those claims are unliquidated and unsecured.

The secured party, the identified creditor, the payee on the note, the mortgagee on the mortgage, the beneficiary under the deed of trust should have been the investor(s) — not the originator, not the aggregator, not the servicer, not any REMIC Trust, not any Trustee of a REMIC Trust, and not any Trustee substituted by a false beneficiary on a deed of Trust, not the master servicer and not even the broker dealer. And certainly not whoever is pretending to be a legal party in interest who, without injury to themselves or anyone they represent, could or should force the forfeiture of property in which they have no interest — all to the detriment of the investor-lenders and the borrowers.

Why any court would allow the conduits and bookkeepers to take over the show to the obvious detriment and damage to the real parties in interest is a question that only legal historians will be able to answer.

Wells Fargo Manual Serves as Basis for Deeper Discovery

Every lawyer defending Foreclosures has heard the same thing from the bench just before a ruling in favor of the pretender lender — the homeowner did not meet its burden of proof and therefore judgment is entered in favor of the “bank.” The fact that the pretender lender is a bank makes the judge more comfortable with his assumption that the loan is real, the default is real, the financial injury to the pretender lender is presumed, and that the family should be kicked out of their home me because they stopped paying on “the loan.”

More and more Judges are now questioning the assumption of viability of the forecloser’s position and are now entertaining the issue of whether the loan exists as an enforceable contract act and whether it has been already paid off or sold to third parties leaving the currently foreclosing party with a patently false claim.

Those of us who have been analyzing these “securitized” mortgages recognize the situation for what it is — a magic trick in a smoke and mirrors environment using the holographic image of an empty paper bag. The reasons Wells Fargo fought the introduction of its manual into Federal Court is simple — it is an open door in discovery that will most likely lead to definite proof that the money trail does not support the paper trail. That means the actual transactions were different than the events shown on the fabricated assignments, endorsements, allonges and other instruments of transfer.

But it also opens the door to the initial transaction in which “the loan” was created. It turns out that in most cases there were two transactions at the “origination” of each loan. One of those “transactions” is what we are all looking at — an apparently closed loop of offer, acceptance and consideration with most of the required disclosures under TILA.

So, as we shall see, there was a fake loan and a real loan. The fake one was fully and overly documented, whereas the real one is sparsely documented consisting of wire transfer receipt, wire transfer instructions and perhaps some correspondence. Neither was ever delivered to the fake lender or the real lender which is part of the problem that the Wells Fargo manual was intended to address. Discovery should proceed with the other banks where you find similar manuals.

This is the one everybody has their eye on, while the real transaction takes place right under the eye of the borrower who doesn’t catch the magic trick. So the fake transaction is the subject of a note where the lender is identified as such. Then the “lender” and perhaps some other strawman like MERS is also identified. MERS doesn’t make any claims to ownership of the loan (in fact it disclaims any such ownership on its website). The question is whether the “originator” was also a strawman, even if it was a commercial bank whose business included making loans.

Back to basics. The loan closing is described by most courts as a quasi contract because there is no written loan contract prior to the “closing.” But it must be interpreted under Federal and State lending and contract laws because there is no other viable classification for an alleged loan transaction.

The basics of a loan contract, like any other contract, are offer, acceptance and consideration. Federal and state law are also inserted into the inferred loan contract by operation of law. So the basic contractual question is whether there was an offer, whether there was acceptance and whether there was consideration. If any of those things are absent, there is no contract— or to be more specific there is no enforceable contract.

And that applies to mortgages more than anything because it is universally accepted that there is no such thing as an “equitable mortgage.” The short reason is that title and regular commerce would be forever undermined — no buyer would buy, except at a high discount, anything where it might turn out he wasn’t getting the title she or he expected.

So the loan contract must be real, and it must be in writing because the statute of frauds and other state laws require that any interest in land must be conveyed by a written instrument — and recorded in the Public Records (but the recording requirements are frequently a rabbit hole down which homeowners go at their peril).

This is where the magic trick begins and where Wells Fargo and the other major banks are holding their collective breath. The offer is communicated through a mortgage broker or”originator” and consists of the offer of the originator to loan a certain sum of money, in exchange for the promise by the borrower to repay it under certain terms.

It is inferred that the originator is making the offer on its own behalf but this is not the case. The truth is that investors have already advanced the money that will be used in the loan. So the offer is coming not from a “lender” but rather from a nominee or agent. The transaction at best is identified under RegZ and TILA as a table funded loan which is not only illegal, it is by definition “predatory.”

What is an”offer” to loan somebody else’s money? The answer is nothing unless the other party has consented to that loan or has executed a document that gives the “originator” a written authorization that is recordable and recorded. Where do we find such authorization? Theoretically one might refer to the Pooling and Servicing Agreement — but the problem is that any violation of the PSA results in a void transaction by operation of New York law, which is the governing law of most PSA’s.

Were the investors or the Trustee of the REMIC trust advised of the terms of the loan transaction proposed by the originator. No, and there is no way the originator can even fabricate that without disclosing the names of the investors, the trustee, and specific person at the “trustee” etc. So the question becomes whether the investors or trust beneficiaries conveyed written authority to enter into a transaction in which a loan was originated or acquired. In virtually all cases the answer is no.

One of the simpler reasons is that the investors money was never used to fund the trust, so the investors lost their tax benefit from using a REMIC trust in direct violation of their contract or quasi contract with the broker dealer who “sold mortgage bonds” allegedly issued by the empty, unfunded trust.

Another more complicated reason is that the loans probably do not and could never qualify as a minimum risk investment as the law requires for management of “Stable funds.” Those are fund units managed under strict restrictions because they hold pension money and other types of liabilities where capital preservation is far more important than growth or even income.

And the third aspect is the presence in virtually all cases of an Assignment and Assumption Agreement (see Neil Garfield on YouTube) BEFORE THE FIRST BOND IS SOLD AND BEFORE THE FIRST APPLICATION FOR LOAN IS RECEIVED.

Analysis of the loan transaction will show that for the fly-by-night originators who have long since vanished, they had no right or ability to even touch the money at closing, which was coming in reform a third party source with whom they had no relationship — which is why the Wall Street lawyers consider them both bankruptcy remote and liability remote (I.e., anything wrong at closing won’t be ascribed to either the broker dealer, or the investors (or their empty unfunded trust). Countrywide is a larger example of this.

All the sub entities of Countrywide and Lehman (Aurora, BNC etc.) are also examples despite their appearance as “institutions” they were merely sham entities operating as strawmen — nominees without authority to do anything and who never touched the closing money except for receipt of fees which in part were paid as set forth in the borrower’s closing documents, and in part paid without disclosure (another TILA violation) through a labyrinth of entities.

Thus the only reasonable conclusion is that there never was a complete offer with all material terms disclosed. No offer=no contract=no enforcement=no foreclosure is possible, although it is possible for a civil judgment to be obtained against the borrower if a real party in interest could allege and prove financial injury. It also means that the documents signed by the borrower neither disclosed the real terms or real parties, which means they were procured through false representations — the very same allegation the investors are making against the broker dealers (investment banks).

In the case of actual banks, like Wells Fargo, it is more counterintuitive than the fly by night “originators.” But discovery, deep inside the operations of the bank will show that the underwriting standards for portfolio loans in which the bank had a risk of loss were different than the underwriting standards for “securitized” loans. In fact they were run and processed on entirely different platforms. The repurchase agreement being discussed in the literature on structured finance actually results from the fictitious sale of the loan rather than the underwriting at origination.

When the borrower signed the closing document he or she was executing an acceptance of a deal that was only part of the complete offer, which contained numerous restrictions that would have insured to the benefit of both the borrower and the lender, which turns out to be the group of investors who gave their money to a broker dealer (investment bank). If you want to split hairs, it is possible that the “closing documents” were an offer from the borrower that was never accepted by anyone who could perform under the terms of the quasi contract.

So we clearly have a problem with the first two components of an enforceable contract — offer and acceptance.

The final component is consideration which is to say that someone actually parted with money to fund the loan. And low and behold this is the first time our boots fall on solid ground — albeit nowhere near the loan described in the loan documentation. There was indeed money sent to the closing agent. Who sent it? Not the originator, not the nominees, not the trust because it was never funded, and not the investors because they had already funded their “purchase” of the “mortgage bonds” by delivering money to the broker dealer. We can’t say nobody sent it, because that is plainly untrue. Where did the money come from? Did the closing agent err in applying money from an unknown party to the closing of the loan?

It came from a controlled account (superfund) spread out over multiple entities that were NOT identified by a particular REMIC Trust. There was a reason for that, but that is for another article. Whether it was American Broker’s Conduit, a fictitious name sometimes registered, sometimes not, or Wells Fargo itself, the name of the entity was being “rented” for purposes of closing just as it is being rented for purposes of foreclosure.

Therefore the consideration did not come from any party at closing and the inevitable conclusion is that no enforceable contract was created at closing. This does not mean the borrower doesn’t owe the money. It just means that nobody should be able to foreclose on a void mortgage and it is doubtful that anyone could obtain judgment on a promissory note with some many defects. But there are other actions, such as unjust enrichment, which have been discussed in recent cases. It is foreclosure that is legally impossible under the true scenario as I see it and as others see it now. My position has not changed in 7 years. The only thing that has changed is the way I say it.

So the issue of the Wells Fargo and its fabrication manual is that discovery will lead to deeper and deeper secrets that will undermine not only the entire foreclosure infrastructure, but also the financial statements that support ever growing stock prices for the major banks.

The Step Transaction and Single Transaction Doctrine

Jim Macklin and Dan Edstrom did a great job of packing a great deal of information into 28 minutes of talk time on the Neil Garfield Show last night. I am taking a couple of weeks off the show to do some common follow-up procedures to my heart surgery two years ago. Jim Macklin stepped in and did a great job of getting information into the hands of lawyers and other listeners in what turned out to be a mini-seminar on how to apply Federal tax law to the issue of ownership of the the loan. It should be heard more than once to get all the nuances they presented.

Their point was that all the binding commitments were in place before the mortgage bonds were sold and before any loans were even considered for approval. The bottom line is that the customary practice in the finance industry was to sell forward — i.e., sell the bonds based upon loans that either did not exist or had not yet been acquired by the REMIC trusts. THEN they went out originating loans and acquiring loans.

As we have previously discussed here and elsewhere, the trusts and the trustee never even had a bank account through which the “pass through” assets and income would be funneled to investors. But that only adds fuel to the fire that Edstrom and Macklin were talking about. From a federal tax law perspective, which should pre-empt any state interpretation, the loans belonged to the investors from the start — not the trusts.

The trusts could only be used as a representative entity in litigation if they were funded with the investors’ money. Our research strongly supports the conclusion that no such funding took place. In fact, our research indicates the funding of the trust with the investors money was impossible because no trust accounts were ever created.

Thus you have the “straight line” that goes from the investors to the borrower. This goes directly to the issue of standing. Because once it is established that the consideration for the only real single transaction flowed from the investors to the borrower, no transaction between intermediaries were true.

They were false transactions supported by fabricated documents with no payment of consideration. Article 9 of the UCC completely supports this interpretation along with decisions interpreting federal tax law as to the real parties in interest. As a result the issue of standing is resolved — only the investors have standing to collect on the loans for which borrowers concede they received the money or the benefit.

The assignments shown in court are between intermediary parties who had no actual transaction with no actual payment or consideration because the payment or consideration had already passed through binding commitments set up by the so-called securitization scheme. By not funding the trusts, the broker dealers were free to use the money as they wished and they did.

They broke every rule in the underwriting book because they were traveling under a different set of rules than the investors or the borrowers thought. Because they had promised to make the payments due under the trust document — the pooling and servicing agreement — and because their binding commitments to make the payments for principal, interest, taxes and insurance already existed prior to the sale the mortgage bonds and prior to the loan to the borrower (see servicer advances, trust advances etc.).

As a result, the investors who should have been on the notes and mortgages were deprived of the documentation they were promised in the PSA. In plain language the mortgage documents and the bond documentation were pure fabrications without any underlying transaction between the parties to those transactions. No transaction between the investor and the trust. And no transaction between the “lender” on the note and mortgage and the borrower.

Hence the allegation of investors in their claims against the broker dealers that the note and mortgage is unenforceable to the detriment of the investors, who are left with common law claims for recovery of damages without any security instrument to protect them. hence the claim that borrowers are being sued by intermediaries who were strangers to the ACTUAL transaction with REAL consideration and terms to which both lender and borrower were bound. The terms agreed by the lenders were vastly different than the terms disclosed to borrowers. There was no meeting of the minds.

Foreclosures on Nonexistent Mortgages

I have frequently commented that one of the first things I learned on Wall Street was the maxim that the more complicated the “product” the more the buyer is forced to rely on the seller for information. Michael Lewis, in his new book, focuses on high frequency trading — a term that is not understood by most people, even if they work on Wall Street. The way it works is that the computers are able to sort out buy or sell orders, aggregate them and very accurately predict an uptick or down-tick in a stock or bond.

Then the same investment bank that is taking your order to buy or sell submits its own order ahead of yours. They are virtually guaranteed a profit, at your expense, although the impact on individual investors is small. Aggregating those profits amounts to a private tax on large and small investors amounting to billions of dollars, according to Lewis and I agree.

As Lewis points out, the trader knows nothing about what happens after they place an order. And it is the complexity of technology and practices that makes Wall Street behavior so opaque — clouded in a veil of secrecy that is virtually impenetrable to even the regulators. That opacity first showed up decades ago as Wall Street started promoting increasing complex investments. Eventually they evolved to collateralized debt obligations (CDO’s) and those evolved into what became known as the mortgage crisis.

in the case of mortgage CDO’s, once again the investors knew nothing about what happened after they placed their order and paid for it. Once again, the Wall Street firms were one step ahead of them, claiming ownership of (1) the money that investors paid, (2) the mortgage bonds the investors thought they were buying and (3) the loans the investors thought were being financed through REMIC trusts that issued the mortgage bonds.

Like high frequency trading, the investor receives a report that is devoid of any of the details of what the investment bank actually did with their money, when they bought or originated a mortgage, through what entity,  for how much and what terms. The blending of millions of mortgages enabled the investment banks to create reports that looked good but completely hid the vulnerability of the investors, who were continuing to buy mortgage bonds based upon those reports.

The truth is that in most cases the investment banks took the investors money and didn’t follow any of the rules set forth in the CDO documents — but used those documents when it suited them to make even more money, creating the illusion that loans had been securitized when in fact the securitization vehicle (REMIC Trust) had been completely ignored.

There were several scenarios under which property and homeowners were made vulnerable to foreclosure even if they had no mortgage on their property. A recent story about an elderly couple coming “home” to find their door padlocked, possessions removed and then the devastating news that their home had been sold at foreclosure auction is an example of the extreme risk of this system to ALL homeowners, whether they have or had a mortgage or not. This particular couple had paid off their mortgage 15 years ago. The bank who foreclosed on the nonexistent mortgage and the recovery company that invaded their home said it was a mistake. Their will be a confidential settlement where once again the veil of secrecy will be raised.

That type of “mistake” was a once in a million possibility before Wall Street directly entered the mortgage loan business. So why have we read so many stories about foreclosures where there was no mortgage, or was no default, or where the mortgage loan was with someone other than the party who foreclosed?

The answer lies in how these properties enter the system. When a bank sells its portfolio of loans into the system of aggregation of loans, they might accidentally or intentionally include loans for which they had already received full payment. Maybe they issued a satisfaction maybe they didn’t. It might also include loans where life insurance or PMI paid off the loan.

Or, as is frequently the case, the “loan” was sold after the homeowner was merely investigating the possibility of a mortgage or reverse mortgage. As soon as they made application, since approval was certain, the “originator” entered the data into a platform maintained by the aggregator, like Countrywide, where it was included in some “securitization package.

If the loan closed then it was frequently sold again with the new dates and data, so it would like like a different loan. Then the investment banks, posing as the lenders, obtained insurance, TARP, guarantee proceeds and other payments from “co-obligors” on each version of the loan that was sold, thus essentially creating the equivalent of new sales on loans that were guaranteed to be foreclosed either because there was no mortgage or because the terms were impossible for the borrower to satisfy.

The LPS roulette wheel in Jacksonville is the hub where it is decided WHO will be the foreclosing party and for HOW MUCH they will claim is owed, without any allowance for the multiple sales, proceeds of insurance, FDIC loss sharing, actual ownership of the loans or anything else. Despite numerous studies by those in charge of property records and academic studies, the beat goes on, foreclosing by entities who are “strangers to the transaction” (San Francisco study), on documents that were intentionally destroyed (Catherine Ann Porter study at University of Iowa), against homeowners who had no idea what was going on, using the money of investors who had no idea what was going on, and all based upon a triple tiered documentary system where the contractual meeting of the minds could never occur.

The first tier was the Prospectus and Pooling and Servicing Agreement that was used to obtain money from investors under false pretenses.

The second tier consisted of a whole subset of agreements, contracts, insurance, guarantees all payable to the investment banks instead of the investors.

And the third tier was the “closing documents” in which the borrower, contrary to Federal (TILA), state and common law was as clueless as the investors as to what was really happening, the compensation to intermediaries and the claims of ownership that would later be revealed despite the borrower’s receipt of “disclosure” of the identity of his lender and the terms of compensation by all people associated with the origination of the loan.

The beauty of this plan for Wall Street is that nobody from any of the tiers could make direct claims to the benefits of any of the contracts. It has also enabled then to foreclose more than once on the same home in the name of different creditors, making double claims for guarantee from Fannie Mae, Freddie Mac, FDIC loss sharing, insurance and credit default swaps.

The ugly side of the plan is still veiled, for the most part in secrecy. even when the homeowner gets close in court, there is a confidential settlement, sometimes for millions of dollars to keep the lawyer and the homeowner from disclosing the terms or the reasons why millions of dollars was paid to a homeowner to keep his mouth shut on a loan that was only $200,000 at origination.

This is exactly why I tell people that most of the time their case will be settled either in discovery where a Judge agrees you are entitled to peak behind the curtain, or at trial where it becomes apparent that the witness who is “familiar” with the corporate records really knows nothing and ahs nothing about the the real history of the loan transaction.

Glaski Court refuses to “depublish” decision, two judges recuse themselves.

Corroborating what I have been saying for years on this blog, the Supreme Court of the state of California is reasserting its position that if entity ABC wants to collect on a debt in California, then that particular entity must own the debt. This is basic common sense and simply follows article 9 of the Uniform Commercial Code. If a court were to adopt the position of the banks, then a new industry would be born, to wit: spying on people to determine whether or not they are behind on any payment to anyone and then beating the real creditor to court, filing a complaint and getting a judgment without the real creditor even knowing about it. The Supreme Court of the state of California obviously understands this.

This is not really complicated although the words used are complicated. If you find out that your neighbor is behind in payments on their credit cards, it is obvious that you cannot serve your neighbor and collect. You don’t own the debt because you never loaned any money and because you never purchased the debt. If you are allowed to sue and collect on the credit card debt, you and the court would be committing a fraud on the actual creditor. This is why it is absurd for lawyers or judges to say “what difference does it make who they owe the debt to?  They stopped making payments and they are clearly in default.”  Any lawyer or judge makes that statement is wrong. It lacks the foundation of the factual determinations required to establish the existence of the debt, the current balance of the debt after deductions for all payments received from all parties on this account, and the ownership of the debt.

In the first year of law school, we learned that the note is not the debt.  The note is evidence of the debt and the terms of repayment but it is not a substitute for the actual transaction documents. Those transaction documents would have to include proof of transfer of consideration, which in this case would mean wire transfer receipts and wire transfer instructions. The banks don’t want to show the court this because it will show that the originator in most cases never made any loan at all and was merely serving as a sham nominee for an undisclosed lender. The banks are attempting to use this confusion to make themselves real parties in interest when in fact they were never more than intermediaries. And as intermediaries that misused their positions of trust to misrepresent and create fraudulent “mortgage bond” transactions with investors that led to fraudulent loans being made to borrowers.

The banks diverted or stole money from investors on several different levels through multiple channels of conduit sham entities that they called “bankruptcy remote vehicles.” The argument of “too big to fail” is now being rejected by the courts. That is a policy argument for the legislative branch of government. While the bank succeeded in scaring the executive and legislative branches into believing the risk of “too big to fail” most of the people in the legislative and executive branches of government on the federal and state level no longer subscribe to this myth.

There are dozens of other courts on the trial and appellate level across the country that are also grasping this issue. The position of the banks, which is been rejected by Congress and the state legislatures for good reason, would mean  the end of negotiable paper. The banks are desperate because they know they are not the owner of the debt, they are not the creditor, they have no authority to represent the creditor, and their actions are contrary to the interests of the creditor. They are pushing millions of homeowners into foreclosure, or luring them into an apparent default and foreclosure with false promises of modification and settlement.

The reason is simple. Without a foreclosure sale at auction, the banks are exposed to an enormous liability for all the money they collected on the alleged defaulted loans. The amount of the liability is vastly in excess of the entire principal of the loans, which is why I say that the major banks are publishing financial statements that are based on fictitious assets and fictitious income. Nobody can ignore the fact that the broker-dealers (investment banks) are getting sued by investors, insurers, counterparties on credit default swaps, government agencies who have already paid for alleged “losses”, and government agencies that have paid on guarantees for mortgages that did not conform to the required industry-standard underwriting practice.

This latest decision in which the Glaski court, at the request of the banks, revisited its prior decision and then reaffirmed it as a law of the land in the state of California, is evidence that the courts are turning the corner in favor of the real creditors and the real debtors. The recusal by two judges on the California Supreme Court is interesting but at this point there are no conclusions that can be drawn from that.

This opens the door in the state of California for people to regain title to their property or damages for the loss of title. It also serves to open the door to discovery of the actual money trail in order to trace real transactions as opposed to fictitious ones based upon fabricated documentation which often contain forgery, backdating, and are signed by people without authority or people claiming authority through a fictitious power of attorney.

Glaski Court Reaffirms Law of the Land In California: If you don’t own the debt, you cannot collect on it.

MGIC Paid Off 2,400 Loans last month! Why Does the Borrower Still Need to Pay the Same Creditor?

Among the many insurance companies that paid off loans or assets based on loans, MGIC. Off 2400 loans a month of January alone, which appears to be virtually all residential mortgages. Press the reason that nobody is paying any attention to this is that normally the insurer acquires the claim through a legal process called subrogation. In the world of securitization the insurer waives subrogation. So we are left with a payment to a creditor. The creditor is identified as the lender for purposes of the insurance. There is no doubt in any venue that once a settlement is accepted by a creditor or claimant the case is over.

But in mortgage foreclosures in appears as though even the most basic and common sense knowledge is ignored. The creditor receives full payment and then allows an agent to foreclose on the property even though the account receivable not longer exists. The same failure of logic exists with respect to servicer advances where the creditor has been receiving payments regardless of whether the borrower has been making payments or not. For reasons beyond my comprehension courts have thus far mostly accepted the premise that it doesn’t make any difference how much money the creditor has received on this debt, as long as the borrower hasn’t paid the amount stated as due in the promissory note (even if the promissory note has been paid in full by third-party).

To top things off, GKW (my law firm — 850-765-1236) is handling a case where insurance paid off a loan upon the death of the owner. BOA filed the appropriate satisfaction of Mortgage. But then in the giant roulette we know as LPS they still had the loan active and a servicer convinced the decedent’s family to enter into a modification of the loan without telling them that the loan had been paid off. Eventually, after years of “modification” payments on a loan that did not exist, the servicer has filed a judicial foreclosure in Florida! And after being informed we have the recorded satisfaction they had yet another entity file a document that was signed by still another entity and they recorded it in the county records — stating that the BOA satisfaction was a mistake!

Do I still need need to convince anyone that they need a forensic report and expert declaration? Call 520-405-1688. And for the lawyers, my firm also provides litigation support and coaching for this litigation across the country.

Dan Edstrom sent me the following:

Neil,

You said in your seminar there are  on your3 ways to discharge an obligation.  Payment, Waiver of Payment or Magic.  Spend to much for the holidays?  Would you believe in magic …

Quote

There were 9,365 new notices of delinquency in January, 385 more than the number received for December, but a significant improvement over the 11,098 new notices received in January 2013. Meanwhile, 7,745 loans returned to performing status during the month, while MGIC paid the claim on another 2,393 loans.The company denied or rescinded coverage on another 204 loans. This moved the inventory to 102,351 from 103,328 at the start of the month.

In December, 7,259 loans cured and it paid 2,445 claims.

Typically, delinquencies are up in January because of holiday-related spending with those bills coming due.

MGIC wrote $1.7 billion of primary new insurance during the month, compared with $2.2 billion in both December and January 2013.

It would be interesting to know who pays for the coverage and if the homeowner was notified and claim was filed (and paid/denied/rescinded/etc.).  Also, why were the claims denied or coverage rescinded on the other loans?  Was the loan bad, was a defective claim filed, or was a bad faith claim filed?  What government entity (if any) has regulatory authority over MGIC, Radian and others?  What can a homeowner do to find out if insurance coverage exists, whether a claim has been filed and what the status of the filed claim is?

Thanks,

Office: 916.207.6706
Disclaimer: I am not an attorney and this is not legal advice. This is for educational and informational purposes only. Take no action on this information without consulting an attorney in your jurisdiction. If our information conflicts with your attorneys information, disregard our information. it’s’s and the right what

 

JP Morgan Corners Gold Market — where did they get the money?

Zerohedge.com notes that JP Morgan has cornered the market in gold derivatives. They ask how the CFTC, who supposedly regulates the commodities markets could have let this happen. I ask some deeper questions. If JPM has cornered the market on those derivatives, is this a reflection that they, perhaps in combination with others, have cornered the market on actual gold reserves? Zerohedge.com leaves this question open.

I suggest that this position in derivatives (private contracts that circumvent the actual futures market) is merely a reflection of a much larger position — the actual ownership or right to own gold reserves that could total more than a trillion dollars in gold. And the further question is that if JPM has actually purchased gold or rights to own gold, where did the money come from? And the same question could be asked about other commodities like tin, aluminum and copper where Chase and Goldman Sachs have already been fined for manipulating market prices.

This is the first news corroborating what I have previously reported — that trillions of dollars have been diverted from investors and stolen from homeowners by the major banks, parked off shore, and then laundered through investments in natural resources including precious metals. This diversion occurred as an integral part of the mortgage madness and meltdown. It was intentional and knowing behavior — not bad judgment. It was bad because of what happened to anyone who wasn’t an insider bank (see Thirteen Bankers by Simon Johnson). But to attribute stupidity to a group of bankers who now have more money, property and investments than anyone else in the world is pure folly. What Is stupid about pursuing a strategy that brings a geometric increase in wealth and power? This was no accident.

And the answer is yes, all of this is relevant to foreclosure litigation. The question is directed at the source of funds for JP Morgan, Chase, Goldman Sachs and the other main players on Wall Street. And the answer is that they stole it. In the complicated world of Wall Street finance, the people at the Department of Justice and the SEC and other regulatory agencies, there are scant resources to investigate this threat to the entire financial system, the economy in each of the world marketplaces, and thus to national security for the U.S. And other nations.

It would be naive in the context of current litigation over mortgages and Foreclosures to expect any judge to allow pleading, discovery or trial on evidence that traces these investments backward from gold derivatives to the origination or acquisition of mortgages. Perhaps one of the regulators who read this blog might make some inquiries but there is little hope that they will connect the dots. But it is helpful to know that there is plenty of corroboration for the position that the REMIC Trusts could not have originated or acquired mortgages because they were never funded with the money given to the broker dealers who sold “mortgage bonds” issued by those Trusts with no chance of repayment because the money was never used to fund the trusts.

The unfunded trusts could not originate or acquire the loans because they never had the money. In fact, they never had a trust account. Thus in a case where the Plaintiff is US Bank as trustee is not only wrong because the PSA and their own website says that trustees don’t initiate Foreclosures — that is reserved to the servicers who appear to have the actual powers of a trustee. The real argument is that the trust was never a party to the loan because the trust was never party to a transaction in which any loan was acquired or originated.

Investors and governmental agencies have sued the broker dealers accusing them of fraud (not bad judgment) and mismanagement of money — all of which lawsuits are being settled almost as quickly as they are filed. The issue is not just bad loans and underwriting of bad loans. That would be breach of contract and could not be subject to claims of fraud. The fraud is that the investment banks took the money from investors and then used it for their own purposes. The first step was skimming a large percentage of the investor funds from the top, in addition to fake underwriting fees on the fake issuance of mortgage bonds from an unfunded trust.

And here is where the first step in mortgage transactions and foreclosure litigation reveals itself — compensation that was never disclosed closed to the borrower in violation of he the Truth in lending Act. While most judges consider the 3 year statute of limitations to run absolutely, it will eventually be recognized by the courts that the statute doesn’t start to run until discovery of the undisclosed compensation by an undisclosed party who was a principal player in permeating the loan. This will be a fight but eventually success will visit someone like Barbara Forde in Scottsdale or in one of the cases my firm handles directly or where we provide litigation support.

The reason it is relevant is that by tracing the funds, it can be determined that the actual “lender” was a group of investors who thought they were buying mortgage bonds and who did not know their money had been diverted into the pockets of the broker dealers, and then used to create fictitious transactions that the banks falsely reported as trading profits. In order to do this the broker dealers had to create the illusion of mortgage loans that were industry standard loans and they had to divert the apparent ownership of those loans from the investors through fraudulent paper trails based on the appearance of transactions that in fact never happened. In truth, contrary to their duties under the prospectus and pooling and servicing agreement, the broker dealers created a false “proprietary” trade in which the investment bank was the actual trader on both sides of the transaction.

They booked some of these “trades” as profits from proprietary trading, but the truth is that this was a yield spread premium that falls squarely within the definition of a yield spread premium — for which the investment bank is liable to be named as a party to the closing of the loan with borrowers. As such, the pleading and proof would be directed at the fact that the investment bank was hiding their identity or even their existence along with the fact that their compensation consisted of a yield spread premium that sometimes was greater than the principal amount of the loan. Under federal law under these facts (if proven) and the pleading would establish that the investment bank should be a party to the claim, affirmative defenses or counterclaim of borrowers for “refund” of the undisclosed compensation, treble damages, interest and attorney fees. I might add that common law doctrines that are not vulnerable to defenses of the statute of limitations under TILA or RESPA, could be used to the same effect. See the Steinberger decision.

Lawyers take note. Instead of getting lost in the weeds of the sufficiency of documentation, you could be pursuing a claim that is likely to more than offset the entire loan. I make this suggestion to attorneys and not to pro se litigants who will probably never have the ability to litigate this issue. My firm offers litigation support to those law firms who have competent litigators who can appear in court and argue this position after our research, drafting and scripting of litigation strategies. Once taught and practiced, those firms should no longer require us to provide support except perhaps for our expert witnesses (including myself). For more information on litigation support services offered to attorneys call 850-765-1236 or write to neilfgarfield@hotmail.com.

I conclude with this: it is unlikely that any judge would seriously entertain discharging liability or stop enforcement of a mortgage merely because of a defect in the documentation. These defects should be used — but only as corroboration for a more serious argument. That the attempted enforcement of the documentation is a cover-up of a fraud against the investors and the borrower; this requires artful litigating to show the judge that your client has a legitimate claim that offsets the alleged debt to the investors who are seeking damage awards not from the borrowers but from the investment bankers. As long as the Judge believes that the right lender and the right borrower are in his court, the judge is not likely to make rulings that would create additional uncertainties in a market that is already unstable.

I have always maintained that a pincer action by investor lenders and homeowner borrowers would bring home the point. The real culprits have been left out of foreclosure litigation. Tying investment banks to the loan closing would enable the homeowner to show that the intermediaries are in fact inserting themselves as parties in interest — to the detriment of the real parties. The investors are bringing their claims against the broker dealers. Now it is time for the borrowers to do their part. This could lead to global settlements in which borrowers and investors are able to mitigate (or even eliminate) their losses.

The Rush to Foreclosure: Wells Fargo Loses the Argument on Trial Modifications

As Danielle Kelley, Esq. (Tallahassee) has repeatedly predicted, the trial modification practices of the big banks are getting them into hot water. Scenarios vary. But one typical scenario  is that the trial modification is “approved” (which under current law means that it has been through underwriting) and the borrower makes the trail payments. Then the bank says the “investor” (with whom they have most likely NOT been in contact) has denied the modification. After receiving the trial payments and assuring the borrowers that they were safe in their home, the bank then forecloses. Many homeowners, unaware that they in fact probably have a binding contract with the bank on the modification, walk away.

Kelley has won cases based upon the argument that the bank had no choice but to modify the loan according to the terms of the trial modifications — and to make any other adjustments necessary to make the numbers come out right. The important point being that the payments offered in the trial modification are the same payment they will have for the rest of the term of the loan. The Bank argued that they were under no obligation to make the trial modification permanent. The Judge was furious with the bank and its attorneys, reminding them that forfeiture of one’s home is an extreme remedy, not to be taken lightly.

Of course the game of the Banks has been, all along, that they want as many of the mortgage loans in foreclosure, because that is the only way out of potential liability for refunds and buybacks of loans that have now been “assigned” to REMIC trusts, most of which were never funded and thus lacked the capacity to originate or acquire any loans. The servicers are rushing to foreclosure sale because that is an opportunity for them to claim the proceeds of liquidation of the property to get back “servicer advances” paid while they claimed the homeowner was in default (but the creditors (investors) were being paid on time in the right amount — i.e., NO DEFAULT).

The investors are suing the broker dealers (investment banks) for fraud, mismanagement of funds, documents and title. The investors affirmatively allege that the loan documents are unenforceable but when it gets down to state court level in the foreclosure cases, those assertions by the creditors are not considered relevant by a standard that does not seem to have any support under the law but which is nonetheless applied.

In all probability no investor knows of any foreclosures nor do they get notice of how the Servicers and Trustees are forcing the cases into foreclosures where the investors do the worst, the borrowers do the worst, and the banks, trustees and servicers get to take all the spoils of the largest economic fraud in human history.  I know that sounds like hyperbole. But I will bet anything that the time will come when the real truth comes out in its entirety — and the shock and awe of the whole thing becomes apparent to everyone.

While most of the cases involving trial modifications result in confidential settlements that cannot be discussed here or I would be violating the confidentiality agreement, one case recently stands out as having been at least partially litigated now.

Borrowers Can Sue Wells Fargo Over Mortgage Modifications — Reuters

The 9th Circuit, which has been considered unfriendly to borrowers, changed course in this decision.

The 9th U.S. Circuit Court of Appeals said Wells Fargo was required under the federal Home Affordable Modification Program [HAMP] to offer loan modifications to borrowers who demonstrated their eligibility during a trial period. … the appeals court rejected the argument that Wells Fargo became bound only upon sending borrowers signed modification agreements.

 

The court said this would create “unfettered discretion” for the San Francisco-based bank to reject modifications “for any reason whatsoever – interest rates went up, the economy soured, (or) it just didn’t like the borrower.”

While a federal appeals court in Chicago reached a similar conclusion last year, the 9th Circuit decision applies in several western U.S. states – among them California, Arizona and Nevada – that have been particularly hard-hit by foreclosures.

Corvello v. Wells Fargo Bank NA et al, 9th U.S. Circuit Court of Appeals, No. 11-16234.

 

This decision, like others coming out of Federal and State courts shows a growing anger and mistrust of the banks and their attorneys that most borrowers would say is long overdue.

For people familiar with determining the present value of a flow of funds, the analysis of the modification deals is easier. The average length of time a home is held by its owner is around 7 years, but many people stay in the home for life. Just to make things easier, here is a way of looking at certain modifications that don’t seem to offer anything of value on their face.

Assuming the original mortgage was $500,000 and now with default interest, attorneys fees etc. the total demanded is $600,000 the bank might offer a low interest rate (2%-5%) with amortization for forty years at a payment you can afford. But you don’t like the deal because you were the victim of appraisal fraud so you would be accepting a mortgage and waiving your defenses and ratifying the ownership of the loan in exchange for what?

The payment over 40 years changes the equation dramatically and does address the appraisal fraud if you stay in the house for a long time. In 40 years, with even low inflation, each dollar you are spending now is going to be worth around 20 cents. And even without any organic growth in prices from demand, your house might be worth $300,000 now, will be priced in 40 years at around $1,200,000. This assumes 2% rate of inflation. The risk factors are deflation and stagnation, which at this point most economists are not predicting.

For more information on trial modifications, litigation support, or other related information contact Danielle Kelley at 850-765-1236.

 

 

 

 

 

World Savings Bank Loans Were Securitized Before Wachovia Merger

World Savings Bank  was acquired by Wachovia Bank  which in turn was acquired by Wells Fargo.  We have previously reported here that we had no information regarding the actual securitization of loans had been originated by World Savings Bank.  Now we have that information. And in a case of the right hand not aware of the left hand it turns out the source is our very own senior securitization analyst — Dan Edstrom, who operates DTC Systems (shown as watermark on documents shown below).

The original opinion that I had written about was that virtually all of the loans originated by world savings bank were eventually securitized either by World Savings Bank directly,  or by Wachovia Bank after it acquired WSB, or by Wells Fargo bank after it acquired Wachovia Bank.  I am now more sure than ever that this is correct. Despite the public assurances during the mortgage meltdown WSB was in fact acting solely as an originator and not as a lender in many transactions. Many other transactions in which they were technically the lender were actually closed in anticipation of sale into the secondary market for securitization.

If you look at the link below, you will be able to see part of the information that has been sent to me. Apparently Foreclosure Hamlet has been ahead of me on this issue since some of the screenshots show that they are from that blog site. This opens the door to a whole set of cases in which Wells Fargo is insisting that it is the current creditor when in fact the loan was securitized and sold into what appeared to be a REMIC trust. of course it still remains an issue as to whether or not the money taken from investors for the purchase of mortgage bonds ever made it into the trust; so it remains an issue as to whether or not the trust is the creditor or the investors are the creditor.

Thus it remains an issue as to whether or not any of the alleged securitization participants can claim authority to act on behalf of the “trust beneficiaries” when the actual status of the entity (the trust) was ignored by those parties. It might be that they can only claim apparent authority as opposed to legal authority since the documents that were given to the investors show a structure that is very different from what was done in  the real world.

World Savings Bank REMICs

Comment from Dan Edstrom:

These docs are mostly from DTC Systems.  We have been reporting on this since at least October 2010.  DTC Systems does Securitization Reverse Engineering and Failure Analysis for attempted World Savings securitizations and they are also included in the LivingLies combo’s where your client had a World Savings loan.  We have the names of all (or most) of the REMICs.  In a judicial foreclosure case in the mid-west a Wells Fargo expert (a former World Savings Bank employee) testified that the loan was pledged to a World Savings REMIC, but was “unpledged” when the homeowner was behind on the loan.  This is why we see several World Savings promissory notes with an endorsement to The Bank of New York on the back but they are stamped “Cancelled”.

Which is very interesting because the PSA states that the loans will be endorsed to the trustee (without recourse and showing an unbroken chain of endorsements (and/or certificates of corporate succession) from the originator thereof to the Person endorsing ti to the Trustee AND an original assignment to Trustee or a copy of such assignment.
So they seem to have the FORM of without recourse but the SUBSTANCE of the transaction is recourse?  What is the purpose of such ambiguity?  Or is it only ambiguous now in light of the mortgage meltdown and the related handling, such as that discussed (unsafe and unsound handling) in the OCC Cease and Desist Consent Order against Wells Fargo and others?
Also note this law from CA which I have yet to see brought up in a case like this (it seems that it is highly probable this same law exists in most states):
CA Civ. Code 1058
Redelivering a grant of real property to the grantor, or canceling it, does not operate to retransfer the title.
The expert testified that it was a pledge and that World Savings (and thus Wells Fargo) owned both the loan and the REMIC.

 

Mortgage Lenders Network and Wells Fargo Battled over Servicer Advances

It is this undisclosed yield spread premium that produces the pool from which I believe the servicer advances are actually being paid. Intense investigation and discovery will probably reveal the actual agreements that show exactly that. In the meanwhile I encourage attorneys to look carefully at the issue of “servicer advances” as a means to defeat the foreclosure in its entirety.

As usual, the best decisions come from cases where the parties involved in “securitization” are fighting with each other. When a borrower brings up the same issues, the court is inclined to disregard the borrower’s defense as merely an attempt to get out of  a legitimate debt. In the Case of Mortgage Lenders  versus Wells Fargo (395 B.K. 871 (2008)), it is apparent that servicer advances are a central issue. For one thing, it demonstrates the incentive of servicers to foreclose even though the foreclosure will result in a greater loss to the investor then if a workout or modification had been used to save the loan.

See MLN V Wells Fargo

It also shows that the servicers were very much aware of the issue and therefore very much aware that between the borrower and the lender (investor or creditor) there was no default, and on a continuing basis any theoretical default was being cured on a monthly basis. And as usual, the parties and the court failed to grasp the real economics. Based on information that I have received from people were active in the bundling and sale of mortgage bonds and an analysis of the prospectus and pooling and servicing agreements, I think it is obvious that the actual money came from the broker dealer even though it is called a “servicer advance.” Assuming my analysis is correct, this would further complicate the legal issues surrounding servicer advances.

This case also demonstrates that it is in bankruptcy court that a judge is most likely to understand the real issues. State court judges generally do not possess the background, experience, training or time to grasp the incredible complexity created by Wall Street. In this case Wells Fargo moves for relief from the automatic stay (in a Chapter 11 bankruptcy petition filed by MLN) so that it could terminate the rights of MLN as a servicer, replacing MLN with Wells Fargo. The dispute arose over several issues, servicer advances being one of them. MLN filed suit against Wells Fargo alleging breach of contract and then sought to amend based on the doctrine of “unjust enrichment.” This was based upon the servicer advances allegedly paid by MLN that would be prospectively recovered by Wells Fargo.

The take away from this case is that there is no specific remedy for the servicer to recover advances made under the category of “servicer advances” but that one thing is clear —  the money paid to trust beneficiaries as “servicer advances” is not recoverable from the trust beneficiaries. The other thing that is obvious to Judge Walsh in his discussion of the facts is that it is in the servicing agreements between the parties that there may be a remedy to recover the advances; OR, if there is no contractual basis for recovering advances under the category of  “servicer advances” then there might be a basis to recover under the theory of unjust enrichment. As always, there is a complete absence in the documentation and in the discussion of this case as to the logistics of exactly how a servicer could recover those payments.

One thing that is perfectly clear however is that nobody seems to expect the trust beneficiaries to repay the money out of the funds that they had received. Hence the “servicer advance” is not a loan that needs to be repaid by the trust or trust beneficiaries. Logically it follows that if it is not a loan to the trust beneficiaries who received the payment, then it must be a payment that is due to the creditor; and if the creditor has received the payment and accepted it, the corresponding liability for the payment must be reduced.

Dan Edstrom, senior securitization analyst for the livinglies website, pointed this out years ago. Bill Paatalo, another forensic analyst of high repute, has been submitting the same reports showing the distribution reports indicating that the creditor is being paid on an ongoing basis. Both of them are asking the same question, to wit:  “if the creditor is being paid, where is the default?”

One attorney for US bank lamely argues that the trustee is entitled to both the servicer advances and turnover of rents if the property is an investment property. The argument is that there is no reason why the parties should not earn extra profit. That may be true and it may be possible. But what is impossible is that the creditor who receives a payment can nonetheless claim it as a payment still due and unpaid. If the servicer has some legal or equitable claim for recovery of the “servicer advances” then it can only be against the borrower, on whose behalf the payment was made. This means that a new transaction occurs each time such a payment is made to the trust beneficiaries. In that new transaction the servicer can claim “contribution” or “unjust enrichment” against the borrower. Theoretically that might bootstrap into a claim against the proceeds of the ultimate liquidation of the property, which appears to be the basis upon which the servicer “believes” that the money paid to the trust beneficiaries will be recoverable. Obviously the loose language in the pooling and servicing agreement about the servicer’s “belief” can lead to numerous interpretations.

What is not subject to interpretation is the language of the prospectus which clearly states that the investor who is purchasing one of these bogus mortgage bonds agrees that the money advanced for the purchase of the bond can be pooled by the broker-dealer; it is expressly stated that the investor can be paid out of this pool, which is to say that the investor can be paid with his own money for payments of interest and principal. This corroborates my many prior articles on the tier 2 yield spread premium. There is no discussion in the securitization documents as to what happens to that pool of money in the care custody and control of the broker-dealer (investment bank). And this corroborates my prior articles on the excess profits that have yet to be reported. And it explains why they are doing it again.

It doesn’t take a financial analyst to question why anyone would think it was a great business model to spend hundreds of millions of dollars advertising for loan customers where the return is less than 5%. The truth in lending act passed by the federal government requires the participants who were involved in the processing of the loan to be identified and to disclose their actual compensation arising from the origination of the loan — even if the compensation results from defrauding someone. Despite the fact that most loans were subject to claims of securitization from 2001 to the present, none of them appear to have such disclosure. That means that under Reg Z the loans are “predatory per se.”

To say that these were table funded loans is an understatement. What was really occurring was fraudulent underwriting of the mortgage bonds and fraudulent underwriting of the underlying loans. The higher the nominal interest rate on the loans (which means that the risk of default is correspondingly higher) the less the broker-dealer needed to advance for origination or acquisition of the loan; and this is because the investor was led to believe that the loans would be low risk and therefore lower interest rates. The difference between the interest payment due to the investor and the interest payment allegedly due from the borrower allowed the broker-dealers to advance much less money for the origination or acquisition of loans than the amount of money they had received from the investors. That is a yield spread premium which is not been reported and probably has not been taxed.

It is this undisclosed yield spread premium that produces the pool from which I believe the servicer advances are actually being paid. Intense investigation and discovery will probably reveal the actual agreements that show exactly that. In the meanwhile I encourage attorneys to look carefully at the issue of “servicer advances” as a means to defeat the foreclosure in its entirety.

I caution that when enough cases have been lost as a result of servicer advances, the opposition will probably change tactics. While you can win the foreclosure case, it is not clear what the consequences of that might be. If it results in a final judgment for the homeowner then it might be curtains for anyone to claim any amount of money from the loan. But that is by no means assured. If it results in a dismissal, even with prejudice, it might enable the servicer to stop making advances and then declare a default if the borrower fails to make payments after the servicer has stopped making the payments. Assuming that a notice of acceleration of the debt has been declared, the borrower can argue that the foreclosing party has elected its own defective remedy and should pay the price. If past experience is any indication of future rulings, it seems unlikely that the courts will be very friendly towards that last argument.

Attorneys who wish to consult with me on this issue can book 1 hour consults by calling 520-405-1688.

Rocket Dockets Undermine Faith In Judicial System

Having now personally participated in the “expedited” processes that are now invoked in many states, it has become apparent that they are all deficient. Citizens who find themselves in the court system are fast losing faith that it is a rubber stamping system if they are accused of anything, and an obstacle to justice if they are seeking compensation for damages sustained as a result of breach of duty or obligation. My main observation is that in the civil dockets, equal protection is intentionally thrown out the window. If the opposing parties are on equal footing on a socio-economic scale, they might have a better chance of being “heard”, which is the essence of due process; but if there is a disparity in their perceived position in our society, they are more likely to see undue process — which is to say there is a presumption of guilt of the person on the lower scale and a presumption that the larger, higher party is more credible.

The credibility of banks and their attorneys ought to be greeted with a healthy dose of skepticism from the start. They have been accused of the most heinous economic crimes of their own doing and accessory to the crimes of others, found guilty in many cases by administrative agencies, and yet are treated with deference by judges in contested actions. So far they have paid collectively around $200 Billion in fines and settlements for conduct that is illegal, improper and outside the bounds of anything that could be called accepted industry standards. And that total represents what we know about. The amount of private settlements with the real parties to mortgage loans — homeowners and investors — is presumably much higher, but sealed under confidentiality.

The result of all this is that the banks are getting exactly what they want — keeping their ill-gotten gains and getting still more money called “profit” with their payments of fines, damages and penalties being pennies on the dollar. And they get an added bonus. Homeowners could avoid foreclosure if they raised the right defenses in the right way. But they are still giving up and leaving their keys on the kitchen counter. So far 15 Million people have been displaced by the foreclosure process. The very people who should be an army of revolt in the Courts are so intimidated by their opposition and what they see happening in the courts that they give up their largest investment, their lifestyle, their neighborhood because they are demoralized by a rigged legal system.

The rigging comes from the starting position that the origination and acquisition of loans actually occurred and therefore, no matter how you cut it, the homeowner is a borrower and the bank that sued them or put their home up for sale is accordingly entitled to do so, because the borrower stopped paying “the debt”. And in most cases that is true, the record of payments shows that the borrower was making payments to some Servicer and then stopped. The conclusion is that foreclosure is inevitable and that due process is due in name only and not in substance — even where the creditor named as such in the foreclosure process is receiving and accepting full payments from third parties, which is to say that homes are foreclosed and sold without any default on the books of the creditor.

My review of thousands of closings leads me to an avoidable, inescapable conclusion that the premise behind rocket dockets is untrue and can never be proven otherwise. The “debt” was the product of absolute fraud deserving of punitive damages and I intend to push that point until I get it — hopefully in a verdict instead of the thousands of sealed settlements I know about. The fraud started with theft of pension fund money by the investment banks and conversion of pension fund assets (the note and mortgage or deed of trust) by the investment banks.

The money loaned to homeowners was not originated or acquired by a REMIC trust. It came from stolen money — money that was never deposited into the trust account of the REMIC trust). The homeowner was further fraudulently induced to sign documents that converted investor money and documents to the broker dealers (investment banks). The property was never encumbered by a valid mortgage or the encumbrance became unenforceable when the loan was supposedly “acquired” in a fictitious transaction. The missing or late assignment of the “debt” was fictitious (note there was no debt because none of the parties had ever loaned any money nor paid any value to acquire it — but the real debt still existed without documentation and without any collateral). But the pile of paper, ever growing, is taken by judges to mean that the greater “weight” of the pile of meaningless documents creates a presumption in favor of the fraudulent allegations of the co-conspirators.

The answer is simple. The real debt was created by the lending of real money by a real lender to a real borrower. That is what the laws says and that is what common sense will tell you. THAT loan really happened, but because of the interference of the banks and servicers, the money of the lender investor (pension fund) and the paperwork documenting the transaction were hijacked. And that is why investors are getting settlements, agencies are getting verdicts, and the banks are continuing to pay hundreds of billions of dollars to protect TRILLIONS of dollars in ill-gotten gains.

Back in 2007 I proposed a way of settling this with amnesty for all and a share of the risk of loss by everyone. I will soon write about the doctrine of ASSUMPTION OF RISK which is a way of apportioning the real risks at the time of the defective mortgage originations and acquisitions. It is like the old doctrine of comparative negligence and it is good law aimed at a just result.

Assumption of Risk is an affirmative defense that arises by operation of law. It is based upon facts that show that the projected loss of the Plaintiff occurred, at least in part, because they impliedly agreed to assume the risk of loss upon certain events. For example, if the household income was $50,000 at the time was originated, then by most standards the maximum total payment of PITI should have been between $15,000 and $20,000 per year (or around $1250-$1600 per month). Any loan calling for payments above that level triggers the Assumption of Risk defense to the extent that the payment exceeds the level set by industry standards. The simple reality is that the “lender” (whether real or fictitious) accepted the probability that the loan would default at the moment the payment reset to an amount that was known to be impossible.

So if you look at those “pick a payment” or teaser payment loans, you can see how this would apply. The initial payment might have been $500 per month, but the payment eventually resets to $4,000 per month. Since the payment resets to an amount equal to the entire household income, it is impossible for the loan to succeed. And in fact the the new rules that went into effect this month from the Consumer Financial Protection Board are considered to be merely “back to basics” where such a loan would never be allowed. If we use Assumption of Risk as an affirmative defense, then the “blame” gets shared. A jury or judge would decide the comparative risks assumed or agreed by the parties regardless of what was in the written agreements. In this case the decision might be that the maximum payment to be assessed against the homeowner would be $1,600. The other $2,400 per month supposedly due under the note would be offset. The offset might result in the reformation or modification of the loan.

There are dozens of ways and hundreds of case scenarios in which assumption of risk could be used. Of course this would mean taking cases off the rocket docket and putting them into general civil or complex litigation dockets.

Federal Bankruptcy Judge Explains Wells Fargo Servicer Advances

In order to obtain forensic reports including servicer advances please go to http://www.livingliesstore.com or call 520-405-1688. for litigation support to attorneys call 850-765-1236.

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Mortgage Lenders Network v Wells Fargo, Chapter 11, Case 07-10146(PJW), Adv. Proc., Case 07-51683(PJW)

In an adversary proceeding in which evidence was presented, Judge Walsh dissected the confusing complex agreements involving the real set of co-obligors’ liability to the Creditor REMIC trust. Many thanks to our legal intern, Sara Mangan, currently a law student at FSU.

I had no idea the case existed. It apparently got buried because of all the ancillary issues presented. If you really want to understand the complexity of repayments to the creditor, this is one case that deserves your full attention.

As usual the best decisions are found when the adversaries are both institutions. We are looking for more such cases. This certainly applies to any Wells Fargo case and explains the nervousness of the witness during trial when I asked him about whether the records he brought were complete.

The LPS Desktop system (formerly Fidelity) INCLUDES servicer advances and computations made based upon that. The unavoidable conclusion, drawn by this Judge, is that everything we have been saying about servicer advances is true. Everything in our forensic report is true as to all properties. The servicer makes those payments based upon a payment of enlarged fees for taking the risk on itself, according to the agreements. Whether there is an actual right to recover from anyone is actually not specifically stated except that the net proceeds of liquidation of REO properties after the auction are subject to servicer claims. This might include other insurance or guarantees.

There is no default experienced by the creditor. There is a new potential for a new party (not mentioned in note or mortgage) for recovery outside the terms of the note and mortgage. The expectation is that there will be a foreclosure and there will be a sale. If there is no foreclosure and there is no sale, then the amounts are not recoverable — unless the servicer too is insured. But all of those insurance contracts seem to have been purchased and procured by the broker-dealer (investment bank) that sold the bogus mortgage bonds. The conclusion to be drawn is that the default notice to the homeowner-borrower might be valid (probably not, because servicer advances have already begun) but it is cured immediately after it is sent by payments, often from the same party who sent the default notice.

Remember the language in US Bank and Chase et al. The servicer SHALL make the advances unless it believes the advances are not recoverable. If the servicer was merely making a loan to the trust beneficiaries there would be little doubt that the advances were recoverable. They can argue that the advances are recoverable in substance from the borrower, but that is only AFTER the foreclosure Judgement and AFTER the sale and AFTER the liquidation of the property after the auction sale.

In this case, the following issues are addressed:

1. Servicer advances — in 4 categories. Why they are advanced and when and how they might be recoverable — when the properties are liquidated. There is some confusing language in there about the trusts, so you need to read it carefully. But the main point is that this is a case of prior servicer and new servicer, both of whom take on the obligation of making servicer advances whether the borrower pays or not. If there is a short fall, the servicer pays — or an insurer. In reality, and not addressed by the Court is the fact that in all probability the actual money advanced by the servicer most likely comes from a slush fund created by language buried deep inside the Prospectus or Pooling and Servicing Agreement that allows the investment banker to pay the trust beneficiaries using their own money advanced by them when they became trust beneficiaries.
2. Recovery is clearly stated as whatever money is left after the REO property has been liquidated or from the borrower. [Note there is ONE reference by the Judge to recovering from the Trust but he doesn't explain it nor does he cite to anything in the agreements]. Since this provision is not referenced in the mortgage, they cannot be traveling under the mortgage and there is no mention of the mortgage provisions in this decision. Since those proceeds frequently are far less than the amount advanced, there is ono direct right of action by the servicer against the borrower, although I postulate that they could potentially bring an unsecured claim for restitution or unjust enrichment.
3. In the end one previous servicer owes the other new servicer the advances, not the trust and not the borrower.
4. There is insurance that makes sure that if the servicer doesn’t make the payments, then the insurer will make-up the shortfall. The insurers do not appear to have any recourse against anyone.

5. There can be no doubt that there are two types of default — one where the borrower stops paying on a note and mortgage (assuming the note and mortgage are valid) and the other, where the REMIC trust beneficiaries fail to get the required distribution as set forth by the Prospectus and Pooling and Servicing Agreement.

6. The conclusion I draw is that the recovery of advances “by the servicer” takes place after the mortgage has been foreclosed, by which time the initial homeowner borrower is out of the picture. Hence, it seems that while there are “proceeds” that can be claimed by the servicer, it is under a separate transaction with the REMIC Trust and under a potential right to claim money from the borrower for contribution or unjust enrichment — with unjust enrichment being a center-point of this case.

This case also explains many other transactions that occur between the servicer and other entities. It isn’t the encyclopaedia of servicer advances, but it explains a lot of what I have been talking about. When the borrower stops making payments for any reason (and perhaps legal reasons for withholding payment, or being prevented from making payments by a servicer who proclaims the loan to be in default), the creditor keep getting paid. So even if the allegation is that the cessation of payments was a default under the note and mortgage, the fact remains that the creditor is not experiencing any default because payments are being made in full by various parties to the creditor. Hence, my question to corporate representatives, about whether they are showing the full record, and whether the books of the creditor show a default. They don’t, if servicer advances were made. I have personally seen a Wells Fargo witness get quite agitated as I approached this subject.

Servicers have kept this information away from borrowers and have withheld it from the courts when they do their accounting.  I would add that if the  argument from opposing counsel is that the servicer advances are secured by the mortgage because of language that includes the word “advances” then they are admitting at this point that the entire structure of the loan as presented to the homeowner borrower was a lie. Under the federal truth in lending act such disclosure was entirely necessary to complete the transaction.

It will also be inevitably argued that this gives the homeowner borrower a free ride. Of course we all know that there is no free ride in this. The homeowner has usually made a substantial down payment and has made monthly payments for years. The homeowner had spent a lot of money on furnishing and completing the house. There is no free ride. But the best argument against the “free ride” allegation is that this is asserted by the party with unclean hands (and often intentionally withheld information from the court or even committed perjury).

read all about it: case on servicer advances and unjust enrichment

Dan Edstrom Cites Failure to Actually Close Escrow

Getting the closing instructions and the closing documents, including the wire transfer receipts and wire transfer instructions, one is able to piece tog ether that escrow was never properly closed. This could mean that escrow is still open — leaving open the option of a three day rescission. Dan points out in response to me post that there is considerable support to attacking the escrow to prove that the originator is not the lender. The issue that I failed to explain in my post is that the note was never delivered to the originator. This, combined with the failure of the originator to fund the loan, pretty much locks the door on the note or mortgage being valid enforceable instruments no matter how many times they recorded, assigned, indorsed or anything else. My post is http://livinglies.wordpress.com/2013/12/26/beforeyou-open-your-mouth-or-write-anything-down-know-what-you-are-talking-about/

EDITOR’S NOTE: So I amend my prior comments to add the second question, which has many subparts as explained below: (1) did the originator pay for the loan that the borrower received? and (2) was escrow closed? (including amongst other things, did the originator receive delivery of the note and mortgage?). In reviewing thousands of cases (I think only Lynn Symoniak might have exceed the number of cases I have reviewed) I have come to the conclusion that the answer to both questions is NO — when the origination of the loan was part of or subject to claims of a securitization scheme.

This underscores the scheme of theft by the Wall Street Banks. First they divert the money from investors from a trust into their own pocketed. Then they divert the documents that were supposed to protect the the investor to naked nominees that are controlled by the Banks, not the REMIC trust. Now they want to add insult to injury and throw the homeowner out of his home because “THE Loan” is in default, when the the only loan is the one that arose by operation of law between the investor lenders and the homeowner borrower and NOT the loan described in the note and mortgage. The escrow closing says otherwise.

Here is Dan Edstrom’s Response (Thanks Dan)

 

Excellent source of information for lawyers.  Here is what I think is critical that you need to include and discuss.
My assumptions are that it is well established that escrow requires specific performance (at least this is true in CA, and probably all other states).
My assumptions are that the following is generally true in all states.
Without fulfillment of the conditions precedent to closing escrow, escrow cannot close (specific performance).
If escrow never closed you have failure of delivery of an instrument.  The conclusive presumption of delivery avails an alleged note holder nothing if escrow did not close.  In CA it is stated this way:
No delivery of the note, within the meaning of section 3097 of the Civil Code, took place. As the court says in Sousa v. First California Co. (1950), 101 Cal.App.2d 533, 539 [225 P.2d 955],“Only after strict compliance with the condition imposed … does the escrow holder begin to hold for the party thereby entitled. …” Bogan v. Wiley (1949), 90 Cal.App.2d 288, 292 [202 P.2d 824], holds, “No rule is better settled than the one that the payee gets no property in a negotiable instrument until its delivery.” And Todd v. Vestermark (1956), 145 Cal.App.2d 374, 377 [302 P.2d 347], states: “… a delivery or recordation by or on behalf of the escrow holder prior to full performance of the terms of the escrow is a nullity. No title passes.”
You could state what you listed in your article a different way (that the payee provided no consideration at loan closing): [EDITOR'S NOTE: POSSESSION VERSUS AUTHORITY OR RIGHT TO ENFORCE THE INSTRUMENT]
Yet these respondents recognize the rule that a security interest serves as an incident to the debt (Civ. Code, 2909), and on oral argument before this court admitted “if we didn’t have a promissory note, and if it … wasn’t an obligation … [t]here would be nothing for that security to secure; so it couldn’t exist.” Moreover, as the decisions have held, the mere recordation of a deed of trust by the escrow holder, in accordance with the trustor’s instructions, does not establish delivery. Thus in Jeannerette v. Taylor (1934), 2 Cal.App.2d 568 [38 P.2d 831] (petition for hearing in Supreme Court denied), the “title company, following plaintiff’s instructions, recorded a deed to the property which she had signed and acknowledged, the defendant being named therein as the grantee. Following this the title company … mailed the recorded deed to defendant.” The court then stated: “The evidence shows that this was done without express authority. … No one who had possession of the deed was authorized by plaintiff to deliver the same to the defendant. The delivery to the title company was for the limited purpose of recordation. No authority was thereby conferred to make delivery, and its act in mailing the instrument to the defendant did not have the effect of passing title …” (Pp. 569-570.)
Holder and Holder in due course may not apply if there was no consideration and escrow never closed:
Since Builders did not become a holder in due course, the conclusive presumption of delivery avails respondents nothing. (Civ. Code, 3097.) The cited case of Baker v. Butcher (1930), 106 Cal.App. 358, 367 [289 P. 236], does not apply; respondent Walker’s admission 231*231 that his rights depend upon the status of Builders as a holder in due course proves fatal.
The following quote seems to agree with what you are saying, that the Plaintiff can sue based on the obligation or the contract:
Respondents fourthly and finally contend that the conception of the payment of $4,022.14 as a condition precedent to delivery necessarily must void the entire transaction or work an unjust enrichment to appellants. In essence this contention suggests that appellants must rescind the contract in order that no unjust enrichment accrue to them; that, having elected to accept certain contractual benefits, they must ignore Henderson’s breach of his duties. Yet respondents seek to collect upon a note under which appellants are not obligated for want of delivery; respondents’ rights properly rest only upon the underlying contract or in quasi-contract. Thus, as is stated in Jacobitz v. Thomsen, supra (1925), 238 Ill.App. 36–”the note never became an obligation binding, as such, upon the defendants. … The reversal in this case, however, will be without prejudice … to any right Thullen may have to recover from defendants whatever sum, if any, may be due from them under the terms of the original contract … or the value of work, labor and materials furnished. …” (Pp. 38-39.) Gray v. Baron, supra (1910), 13 Ariz. 70, 74, likewise points out–”Under the terms of the escrow agreement and the facts … there was no such delivery of the note … and … the judgment entered by the court for the plaintiff requiring the payment of the note … [must be reversed as] outside of the issues set forth in the pleadings. … The theory of the trial court seems to have been that the plaintiff had established a cause of action based upon the breach of a contract to purchase the stock. The error of the trial court was … in attempting to enforce such a cause of action … in an action based simply upon the promissory note, and not one based upon the breach of the contract to purchase.”
All of the above quotes come from Borgonova vs. Henderson, 182 Cal.App.2d 220 (1960), attached.
Getting back to the conditions precedent, here are some that I have seen.  But keep in mind that all of the loan closing documents I have seen are different.  Some bring up certain conditions different from others (your mileage may vary).  The following are all from one loan closing (notice the impossibility of meeting the conditions precedent):
BORROWERS CLOSING INSTRUCTIONS
You are authorized to deliver and/or record the above and close in accordance with the estimated closing statement contained herein (subject to adjustment);
and when you can procure/issue a 06-ALTA Loan w/Form 1 – 1992 coverage from Policy of Title Insurance from Fidelity National Title Insurance Company with a liability of $500,000.00 on the property described in your Preliminary Report No. 4008203, dated August 16, 2005, a copy of which I/we have read and hereby approve.
SHOWING TITLE VESTED IN:
[borrowers names ...]
FREE FROM ENCUMBRANCES EXCEPT:
[...]
6.   A First Deed of Trust, to record, securing a note for $500,000.00 in favor of Mortgage Lenders Network USA, Inc..
LENDERS CLOSING INSTRUCTIONS
Named Lender who provided the closing instructions: Mortgage Lenders Network USA, Inc.
[...]
Residential Funding Corporation has a security interest in any amounts advanced by it to fund this mortgage loan and in the mortgage loan funded with those amounts.  You must promptly return any amounts advanced by Residential Funding Corporation and not used to fund this mortgage loan.  You also must immediately return all amounts advanced by Residential Funding Corporation if this mortgage loan does not close and fund within 1 Business Day of your receipt of those funds.
Closing Agent/Attorney acknowledges the foregoing instructions and understands that failure to properly follow set of instructions may result in legal recourse by MORTGAGE LENDERS NETWORK USA, INC.
Identified conditions precedent in this case that may not have been met:
  1. No exception on Borrowers Closing Instructions for the security interest claimed by Residential Funding Corporation (who by the way was the sponsor of thousands of attempted securitization transactions) in the Lenders Closing Instructions
  2. No exception on Borrowers Closing Instructions for the security interest claimed by MERS on the Security Instrument (Deed of Trust in this case), which states “Borrower understands and agrees that MERS holds only legal title to the interests granted by the Borrower in this Security Instrument…”
  3. Approximately $329,000 was sent to Ocwen Loan Servicing to pay off an earlier 1st lien.  Ocwen was not the payee, beneficiary, mortgagee or assignee and was not listed on any recorded document.  A few weeks after closing, Ocwen recorded a full reconveyance stating that they were the beneficiary.  However, Ocwen was a stranger to the chain of recorded documents.  In this case the Borrower contends that payment was sent to the wrong party (the alleged note holder, beneficiary and assignee was New Century Mortgage Corporation) and the reconveyance is a wild deed.  Thus Residential Funding sent approximately $329k to Ocwen and the Borrower never received the benefit of the bargain as this money was never given to the Borrower or used for the Borrowers benefit.  Thus the encumbrance remains.
  4. The payee provided no money to escrow and the escrow company had full knowledge of this (in fact every other party had knowledge of this fact except the homeowner who was the least sophisticated party present).
In my opinion if the borrower was fooled at loan closing, the escrow should not have closed.  That is unless the escrow company was fooled also.  But they were not fooled – they knew everything.
Remember also that the homeowner never sees MERS or the above loan closing instructions until they are put before the Borrower on the day of signing.  Up until about 2010 I would say that there was no homeowner who could have remotely understood what any of the above meant.

 

More Lawsuits, Still No Real Progress and No Coverage by Media

Jon Stewart committed his entire show to the mortgage crisis last Wednesday night. Go watch it. It wasn’t funny although they added some comedic aspects. The bottom line is the question “why aren’t these people in jail?” And the media was scorched with the fact that despite a constant culture of continuing corruption and absurd “transactions” in which paper goes back and forth, and calling that economic activity with”profit,” and stories of the human tragedy of Foreclosures all based on what are now obviously fraudulent schemes, the media is silent. The number of stories on the illegal Foreclosures, the charges of FRAUD by everyone involved from lenders (investors) to insurers to guarantors to borrowers, the verdicts and judgments decided against the banks, and the analysis that the assets of the banks are fictional, the total is ZERO.

My question is why the displacement of more than 15 million people in a single scheme is not the main question in American discourse, media and politics — especially since the banks have admitted by conduct or expressly their wrongdoing? We already know it was a total fraudulent scheme. The banks are settling their ill gotten gains for pennies on the dollar while the victims absorb most of the loss. We already know that the requirements of Federal law were routinely ignored in disclosing the real terms and lenders to borrowers. And if they had made the disclosure, the deals would not have occurred, because if they were disclosed neither the lenders (investors) nor the borrowers (homeowners) would have done the deal.

One particular story was singled out by Jon Stewart to provide an example of what Gretchen Morgenson called “just another day on Wall Street” was the recent transaction between Blackrock and Corere. Blackrock loaned Corere $100 million. Blackrock purchased a credit default swap worth $15 million if there was any default for any reason. Blackrock made a deal with Corere for Corere to default. So Corere defaulted. Blackrock collected the $15 million on the credit default swap PLUS the full repayment from Corere of $100 million, plus interest. Somehow this is considered legal. I call it FRAUD.

When applied to the mortgage market you can easily see how the agent banks (investment banks or broker dealers) made a fortune by creating deals that failed on paper when in fact the loan was already covered in multiple ways. Only in the mortgage situation the lenders got screwed out of repayment and the borrowers got screwed on their deal by either losing their home or getting a deal where they would be underwater for the rest of their lives. As I have been detailing over the last week, I have a currently pending case in which the “successor” trustee with a new aggressive law firm is pursuing foreclosure and collection of rents on loans that they know have been paid, they admit have been paid, but they say it doesn’t matter. Using this theory, if the payment doesn’t come from the named Payor on the note to the now unnamed payee on exhibit note, anyone can collect multiple times on a single debt. This is crazy.

The bastion of our security — judiciary — is succumbing to expediency over truth and justice. Instead of applying the requirements of law and procedure strictly against the same entities that are repeatedly cited for FRAUD AND NON COMPLIANCE by government and lawsuits from investors, insurers and guarantors, the judiciary is ignoring the requirements or applying liberal standards to allow the foreclosure to proceed. What Judges don’t understand yet is that they can clear their docket more quickly if they demand proof of payment by the party seeking foreclosure and proof of authority to represent the real creditors, who must be identified.

If the party pursuing foreclosure has no skin in the game and doesn’t represent anyone who does, the foreclosure fails jurisdictionally. If we apply any other standard, then the courts are opening the door for uninjured people to sue for a slip and fall that happened to someone else.

These Foreclosures would disappear entirely if judges applied the law with or without a proper presentation by defense counsel. In the old days, Judges carefully reviewed the basic documents. If they found a gap, they refused to apply the most extreme remedy of foreclosure until the the creditor could comply. That is all I ask. Instead most lawyers are told to stop arguing because the Judge is uncomfortable with what he is hearing and most lawyers do not have the guts to say to the judge that the purpose of having a lawyer is to “argue” cases. Is the Judge throwing out the right to be heard altogether? That violation of undue process is something that should be taken to task.

At the end of the day, it will be accepted fact that the mortgages were fraudulent unenforceable devices that never should have been recorded, much less used for foreclosure or collection of rents, the note is a fraudulent unenforceable paper designed to mislead the borrower, the lenders, the insurers, the government guarantors, credit default counterparties, and the courts as to the lender’s identity, and the debt was always between the investors who received no documentation for their investment that was real, and the homeowners who were duped into signing papers that made them unwitting participants in a fraudulent scheme.

In the end the intermediary agent banks got paid but the lenders only get their money if they sue the investment banker because the lenders were denied the right to appear on closing paperwork as the lender or on assignments. In other words, the parties who loaned the money got pennies on the dollar. The Banks got paid multiple times on the same debt by selling it multiple times, insuring it multiple times and getting it guaranteed multiple times, and then foreclosing as if they were the lender.

My final question is this: “if we know the mortgage mess was a fraudulent scheme, why are we allowing its continuation in the courts?”

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DOJ plans more MBS fraud cases in New Year

The Department of Justice intends to bring cases against several financial institutions next year for what it says is mortgage-bond fraud, Attorney General Eric Holder told Reuters yesterday.
While Holder said that the DOJ would use JPMorgan’s $13B agreement as a template, he didn’t provide details about which banks are in his crosshairs.
Firms that have acknowledged that they are under investigation include Bank of America (BAC), Citigroup (C) and Goldman Sachs (GS).

Read more at Seeking Alpha:

http://seekingalpha.com/currents/post/1447021?source=ipadportfolioapp_email

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The Mystery of Servicer Non Stop Advances

Since I entered the fray as the actual attorney for clients, we are getting down to the nitty gritty. Judges are surprised to learn that the foreclosure case in front of them was filed despite the payments actually received by the alleged creditor through third parties. In other words the case in front of them does not actually present a default from the creditor’s point of view even tough the borrower stopped paying.

The primary payment we are focusing on today is servicer advances which come in different flavors — non-stop, limited and none. Most loans (96%) are subject to claims of securitization regardless of what the current servicer or trustee is telling you. And most of those (my guess is around 75%-90%) come with third party obligors, which is why there is so much confusion. Besides servicer advances, the agents for the trust beneficiaries at the investment bank who sold them the bonds received on behalf of the bond holders, insurance payments and other funds from other contracts designed to limit the risk associated with the terms of the bond repayment of interest and principal.

When you do the math, you can easily see how the “lender” could be overpaid by a multiple that averages 3-5 times, even while the borrower is being pursued for yet another payment or else losing a home. The dirty little secret, the mystery behind these payments is that under common law and statutory law there are potential causes of action against the borrower for such payments, but the actual creditor on the loan has been fully satisfied.

Worse yet, those third parties have waived subrogation or any right of action against the borrower to prevent multiple parties from suing the same defendant on the same debt. The insurers are mad as hell. But the servicers are curiously silent — possibly because they are not really paying the servicer advances which are instead coming from the pool of funds held by the investment banker from the original investment of the trust beneficiaries and the receipt of insurance, credit default swaps, guarantors and even sales to the Federal Reserve.

The lender (Trust beneficiaries) have agreed to lend money on the basis of interest only payments at a particular rate that rarely coincides with any of the loans alleged to be in the pool. Since they were sold the bonds first before the loan was made (see “selling forward”), you can assume fairly safely that the actual lender is the trust or trust beneficiaries, regardless of what was put on the loan documents — which is why I say that none of the loan documents are valid enforceable documents and why the investors have sued the real culprits (investment banks) stating the exact same thing.

In one case I have currently pending in Dade County, Florida, US Bank is putting itself through a ringer because servicer advances have been paid in full to the creditor that they acknowledge is the creditor. The Judge instantly recognized that this defeats the allegation of default, if the creditor has received and accepted payment. The attorney for US Bank allegedly as trustee for the trust beneficiaries is pursuing a strategy of getting the assignment of rents enforced. The statutory requirement is that there be a written demand for rents, which nobody ever made. And it turns out that the Trustee was unwilling to go on record demanding assignment of rents because the beneficiaries were paid in full exactly as set forth in the prospectus and pooling and servicing agreement. A call to the servicer confirmed they were not interested in the rents, but curiously, despite PSA restrictions to the contrary, the new “Trustee” US BANK is pursuing the foreclosure.

The Judge, who wants more proof of the advances which we are only too happy to provide, instantly recognized that if the trust beneficiaries were receiving their expected payment, then there can be no default on the principal, which is prerequisite to BOTH foreclosure and the assignment of rents. In this case there were 52 payments received and accepted by the trust beneficiaries after the alleged borrower default. We were able to get this information through drilling down to loan level accounting in our title and securitization reports. If there is money owed it is not owed to the plaintiff in foreclosure and it is not secured by a mortgage. see http://www.livingliesstore.com

We have since done the reports on other properties owned by the same client and found out that the same pattern holds true. In the one case we have already argued, more than $70,000 has been received by the trust beneficiaries from servicer non stop advances. Payment is the ultimate defense for an action to recover money. The fun part comes when the Judge starts asking why these payments were not disclosed by the attorney or his client.

There are other sources of third party payments from co-obligors at the inception of the loan. The mystery comes from the fact that the homeowner who signs loan papers has no idea, because it was never disclosed to him/her/them that the lender is not the payee on the note, not the mortgagee on the mortgage, not the beneficiary on the trust deed, but rather the trust beneficiaries who own bonds issued from the REMIC trust (which as I have already reported was never actually funded and never actually received title to the loan).

In other words, the lender has agreed to one set of terms that were never disclosed to the borrower in violation of the truth in lending act, and the borrower has agreed to an entirely different deal — which means that there is no “meeting of the minds.” Both the lender and borrower wanted a completed contract that would be enforceable and where title was clear, but neither of them got it. The solution is to get rid of the servicer and get rid of the investment banker, get an accounting of all funds, repay the investors and work out a reasonable deal with borrowers, most of whom would be willing to sign a mortgage that was enforceable based upon economic reality.

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