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

Sent from the Seeking Alpha Portfolio app. Get the app.

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.

The US BANK-BOA-LaSalle-CitiGroup Shell Game

‘The bottom line is that the notice of substitution of Plaintiff in judicial states, or notice of substitution of Trustee in non-judicial states should be the first line of battle. Neither one of them is valid and in both cases you have a stranger to the transaction being allowed to name itself as creditor, name its own controlled entity or subsidiary as trustee, and then ignore the realities of the money paid to the real creditor. They are claiming damages from the borrower — all for a debt that in the ordinary course of things has already been paid several times over. But it is true that it wasn’t paid to THEM because THEY were never and are not now the creditor fulfilling the definition of a creditor who could bid at the foreclosure auction. It is not that the borrower doesn’t owe money when he borrows it, it is that he doesn’t owe it to any of the people who are claiming it. And that is what gives rise to liability of law firms to borrowers.” Neil F Garfield, http://www.livinglies.me

If our information can be corroborated through discovery with a corporate representative of US BANK or Chase Bank as the servicer, it is possible that a solid cause of action can be filed against the law firm that brought the action, particularly if the law firm took its instructions from the Desktop system of LPS.

In that system law firms are instructed to file foreclosures without contact with the actual client. We saw several cases where sanctions were levied against lawyers and their alleged clients, but none so stark as the one in Florida where the lawyer for US Bank as Trustee for XXX, when faced with questions he couldn’t answer admitted that he had never spoken with anyone from U.S> Bank and didn’t know who had retained his firm.

The law firm that brought the foreclosure action and especially the law firm that is demanding an assignment of rent to protect a creditor who has already been paid through non stop servicer advances was most likely not authorized to demand the assignment of rents which might be why there was no written demand as required by statute. I am considering the possibility of an actual lawsuit against one such law firm for interference with contract on both the foreclosure and the assignment of rents issue.

The Banks are being very cagey about this system — one which they would never use for their own portfolio loans, which begs the question of why they would have two entirely different system of accounting and legal process. But the long and the short of it is that LPS in Jacksonville, Florida is used much the same way as MERS. It maintains a database service that requires a user name and password and that gives unlimited access to the client folders. Anyone can go in and authorize the foreclosure based upon a default that is invested by the person entering the data. They leave out any servicer advances or other third party payments and arrive at an amount to reinstate that is just plain wrong. So virtually all notices of default are wrong which means that the required notice is defective.

You should know that many judges appear unimpressed that there was no valid assignment of the mortgage. I think that it is clearly reversible error. The assignment frequently is clearly fabricated and back-dated because of references to events that happened a year after the assignment was executed. The assignment clearly did not exist at the time of the lawsuit and the standing issue is clear under Florida law although some courts are balking at the idea that standing cannot be cured after the lawsuit. The reasoning is quite simple — if it were otherwise, you could file suit against a grocery store for a slip and fall, and the go over to the store to have your slip and fall.

In one of my cases involving multiple properties, they have an assignment that was prepared and executed by Shapiro and Fishman supposedly dated in 2007 —- but it refers to Bank of America as successor by merger to LaSalle. it is backdated, fabricated and fictional, which is to say, fraudulent.

The assignment has two problems -– FACIALLY DEFECTIVE FABRICATION OF ASSIGNMENT:  the first problem is that the alleged BOA merger with LaSalle could not have happened before 2008 — one year after the assignment was executed. So the 2007 assignment refers to a future event that was not reported by BOA until 2008, and was not approved by the Federal Reserve until 2008. On its face, then, based upon public record, the assignment is void as a total fabrication.

The second problem is that it is unclear as to how the merger could have occurred between BOA and La Salle, to wit:. you might need to read this a few times to understand the complexity of the issues involved — issues that few judges or lawyers are interested enough to master.

LASALLE ABN AMRO ACQUISITION:
Since neither entity vanished in the deal it is an acquisition and not a merger. LaSalle and ABN AMRO did a reverse merger in 2007.

That means that while LASalle was technically the acquirer, because it “bought” ABN AMRO, and ABN AMRO became a subsidiary — the reality is that LaSalle issued so many shares for the acquisition of ABN AMRO that the ABN AMRO shareholders received the overwhelming majority of LaSalle Shares compared to the former owners of LaSalle shares.

Hence in substance LaSalle Bank was a subsidiary of ABN AMRO and the consolidated financial statements show it. But in form it appears as the parent.

So if someone, like BOA, was to say they merged with or acquired LaSalle, they would also be saying that included its subsidiary ABN AMRO — and they would have to do the deal with the shareholders of ABN AMRO because those shareholders control LaSalle Bank, which brings us to CitiGroup —-

CITIGROUP MERGER WITH ABN AMRO: Also in 2007, CitiGroup announced and continues to file sworn statements with the SEC that it had merged with ABN AMRO, which means, if you followed the above, that CitiGroup actually owned LaSalle. It looks more like an acquisition than a merger to me but the wording makes it unclear. This would mean that LaSalle still technically exists as a subsidiary of  CitiGroup.

ALLEGED BOA MERGER WITH LASALLE: In 2008 the Federal Reserve issued an order approving the merger of BOA and LaSalle, in which case LaSalle vanishes — but ABN AMRO is the one with all the assets. BUT LaSalle is named as Trustee of the asset pool. And the only other allowable trustee would be another bank that merged with LaSalle as a successor without the requirement of filing more papers to be a Trustee and BOA clearly qualifies on all counts for that. Section 8.09 of PSA.

But the Federal Reserve order states that the identities of ABN AMRO and LaSalle are the same and the acquisition of one is the acquisition of the other — thus unintentionally ratifying CitiGroup’s apparent position that it owns ABN AMRO and thus LaSalle.

Findings of fact by an administrative agency are presumptively true although subject to rebuttal.

Here is the kicker: there is no further mention in any SEC filings of a merger between BOA and LaSalle, unless I missed it. There is no reference to the fact that CitiGroup controlled LaSalle and ABN AMRO at the time of the Federal Reserve order approving the BOA merger with LaSalle Bank in 2008.

CitiGroup has not, to my knowledge ever reported the sale or loss or merger of LaSalle. Since Citi made the acquisition before BOA, and since BOA apparently did not buy LaSalle from Citi, how could BOA claim to be a successor by merger with LaSalle?

Hence there are questions of fact as to whether BOA ever consummated any transaction in which it acquired or Merged with LaSalle, which while technically possible, makes no business sense. UNLESS the OBJECTIVE was to transfer the interest of LaSalle as trustee to BOA, as a precursor to a much wider deal in which BOA then sold its position as Trustee to US Bank as a  commodity and then filed in the Kalam cases a notice of substitution of Plaintiff without amending the pleadings.

US BANK Notice of Substitution of Plaintiff without Any Motion to Amend Pleadings: The reason they filed it as a notice was that they obviously did not want to allege the purchase of “being a trustee”, which would have been a contested issue in the pleadings. But the amendment is required in my opinion and there should be a motion to strike the notice of substitution of Plaintiff without amendment. The motion to strike should state that no objection to granting the order to amend, but that the circumstances should be pled and we should be able to respond with a denial and affirmative defenses if you choose.

Courts Continue to Ratify Theft of Money and Documents by Banks

An ordinary individual finds a sack of promissory notes, and you might expect him to try to locate the owners of those notes. After all they are the equivalent of cash. But the banker sells the stolen notes with false assignments, insures them, gets them guaranteed with payment proceeds to himself and then settles with the lender for pennies on the dollar. Then the banker sues to collect on the stolen notes and wins. Except in this case the banker created the sack, created the notes, falsified the payee and inflated the amount due. The Banker has successfully stolen the money from the lender and stolen the notes from the lender. Despite 7 years of active litigation the judiciary has still failed to pick up on this scenario. Neil Garfield, http://www.livinglies.me

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I was responding to an email  from a lawyer who was wondering if a grievance could be filed against judges who failed to maintain judicial stability and demeanor. I ended up on a rant, and made it into an article. My conclusion is that a grievance is probably not he right venue, but judges should be a little more curious about what really went on in the mortgage meltdown.

I have been thinking about this sort of thing for a while now. The cases are prejudged not only individually by each judge but also because the judges speak with each other, and feed off of the decisions of other trial judges. Adding to this is the bias shown in Appellate courts.
This amounts to several presumptions against the homeowner, who is a best a pawn and at worst a victim of fraud just like the torrent of lawsuits and settlements have been stated by MBS investors, insurers, CDS counterparties, GSE guarantors, law enforcements and regulatory agencies — all saying the same thing: FRAUD (not breach of contract etc.).
Frustration is rising amongst homeowners and attorneys who represent their clients in a kangaroo court will the rules of pleading and the rules of evidence are turned upside down to give the thief the products of his fraudulent scheme.
First is the assumption behind the question “did you get the loan?” This is a fundamental question but the same judge who asks the borrower that question fails to require the foreclosing party that there WAS a loan from anyone in their paper trail. And the same issue applies to acquisition of loans after some bank with a charter makes the loan and then sells it to a “successor in interest.” The reason for this gross failure of the judiciary though is simply because they have never known a scheme like the one perpetrated by the banks this time.
Starting with that premise, the judiciary considers defenses by homeowners as perhaps technically right but leading to an unjust result— the loss of money by a bank who loaned money and who will now lose money if the homeowners’ defenses are applied. The logic is inexorable — it leads to the inevitable conclusion that the judiciary must put on a show about due process, but we all know that the foreclosure is inevitable. The corollary is that the reason the court dockets are clogged are because even though the loan was received by the borrower the homeowners are perpetrators a vast abuse of there judicial system.
In turn, the courts view foreclosure defense lawyers as something less than “real lawyers” and many judges have lost patience with both pro se litigants and lawyers defending the rights of homeowners. In your case, you were genuinely engrossed in a medical problem bunt the judge went ahead anyway because the judge saw the whole thing as “harmless error.” The foreclosure would, in the end, proceed, no matter what you said or what your clients or experts would proffer as facts in testimony.
The result is inexplicable rulings by trial courts and appellate courts. Underlying their opinions, rulings and orders is the basic premise that the homeowner received a loan. And so your judge called you a liar and refused to continue the case despite your inability to appear due to disability. Is this a case where a letter should be sent to the Judicial Qualification Committee or the Florida bar stating a grievance? Yes, as long as you realize that whoever reviews this is going to be suffering from the same delusion that permeates the rest of hedge judiciary. But it is of course relevant that the judge called you a liar, which goes far beyond the subject case at hand, and amounts to slander as well as prejudgment and bias. Perhaps a letter to the judge describing your reputation in the courts and the damage of having a judge call you a liar would cause the judge to reverse the judge’s opinion of you and apologizing for taking her remarks so far.
But the essential point remains the same. The issue is the unfortunate absence of support for basic pleading practice. Just look at the form pleadings published by the Florida Supreme Court, or look at the complaints filed by banks and credit unions for foreclosure. There is a requirement when you plead to collect on a loan to plead that you made the loan. In actions on a note, the requirement that the plaintiff allege financial injury is right there in the the Florida forms.
The real reason why the court dockets are clogged is because judges insist in ignoring basic pleading practice: the allegation of the existence of a debt owed by the Defendant to the Plaintiff and/or the allegation that financial injury has been suffered by the Plaintiff as a result of the failure of the Defendant/homeowner to make the payments set forth in the note.
The second question is whether the homeowners signed the note. The answer in most cases is yes. So what defenses will ultimately have merit in defending the foreclosure?
Even most foreclosure defense attorneys are far too timid in attacking these delusions maintained by the judiciary. They fear looking foolish and the embarrassment of losing repeatedly. They miss the first attack completely — that no, the homeowner did NOT receive a loan from the foreclosing party or anyone in the he chain in most cases. The problem is that their motion to dismiss does not force this issue. the result is that the existence of a debt wherein the homeowner became a debtor TO THE FORECLOSING PARTY is successfully avoided by the banks, as is the requirement of alleging financial injury.
The effect of this is to prevent the homeowner to enter an answer that denies the loan, denies the acquisition of the loan in any sale, and denies financial injury.
Instead by failing to require the banks to make the allegations that are required by the Supreme Court in its published forms, the homeowner is unfairly is unfairly required to raise the issues in affirmative defenses. The pernicious result of that is that the homeowner is required to prove a negative.
Discovery requests are met with fierce resistance by the banks, who usually run out the clock by the time the motion for summary judgment is heard or the the time that the trial occurs. The homeowner is therefore forced to prove a negative, when the rules require the banks to prove a positive fact that is based upon information that is ONLY accessible by the plaintiff.
The reason why the complaints do not allege the existence of a debt arising from receiving a loan from the foreclosing party or any predecessor in the chain of paper is that there is no such debt. The reason why the foreclosing party does not allege financial injury is (a) that there is no such financial injury and (b) the opening of this issue for discovery would require that all accounts be settled and resolved to determine the balance, if any, owed by the homeowner to anyone. 
The reason why lawsuits and regulatory actions allege that the broker- dealer investment banks committed fraud is that they intentionally lied and used the investor money to their own benefit. And the reason as why the investors, agencies, insurers, credit default swap counter parties and government sponsored guarantors are alleging fraud — and stating that the closing papers with the borrowers and the mortgage bonds are “unenforceable obligations” and “defective instruments” is because that is an accurate description. And the reason the banks are settling those cases and facing criminal prosecution is because they know that the paperwork is legally indefensible and unenforceable against borrowers.
By some twisted logic, thousands of judges, tens of thousands of lawyers, and millions of owners who lack the information and understanding of this massive fraud, the fraud at one end of the stick (sale of fraudulent mortgage bonds) is ignored on the the other end of the same stick (foreclosure of fraudulent Foreclosures on fatally defective STOLEN notes and mortgages). There was no debt in most of the cases and closings where documents were signed. There is no loss or financial injury to a party who has never funded the origination or acquisition of a loan.
The only debt ever created in most instances was from the homeowner directly to the pension funds and other investors who were left with no enforceable claim to enforce valid notes and mortgages. The only debt due in all cases is the amount due to the investors. Allowing the banks to enforce the debts on paperwork that is evidence of theft is a failure of the judicial system.
The dockets would be cleared with the questions “why have you not alleged a debt owed to you and financial injury?” This would establish jurisdiction or the lack of it at the outset. Unable to prove the debt, and being required to prove it because they alleged it, the banks would shrink from foreclosure and attempt to resolve the issues through non-judicial means.

 

Insurance and Hedge Proceeds Applied to Loan Balances

One of the more controversial statements I have made is that certain types of payments from third party sources should be applied, pro rata, against loan balances. Some have stated that the collateral source rule bars using third party payments as offset to the debt. But that rule is used in tort cases and contract cases are different. There are certain types of payments, like guarantees from Fannie and Freddie that might not be susceptible to use as offset because they are caused by the default of the debtor and because they are not paid until the foreclosure is complete.

But the insurance, credit default swaps and other hedge products that caused the banks to receive payment are a different story. Those are not paid because of a default by any particular borrower but rather are caused by a unilateral declaration of a “credit event” declared by the Master Servicer and are paid to the holder of the mortgage bonds. The mortgage bonds are issued by a trust based upon the advance of money by investors who wish to pool their money into an asset pool and receive income with what was thought to be a minimum of risk.

Since the broker-dealers (investment banks) were acting as agents for the trust and the bond holders, any money received by them should have first been allocated to the trust, then pro rata to the bond holders. Whether or not this money was actually forwarded to the bond holders is irrelevant if the investment banks were the agents of the investment vehicle and thus owed a duty to the investors to whom they sold the mortgage bonds.

Logic dictates that if the money was paid to the banks as “holders” of the bond (because they were issued in street name as nominee securities) that the balance owed by the trust to the investors was correspondingly reduced — reflecting the devaluation of the bonds declared by the master servicer based upon such criteria as the lack of liquidity of the bonds that had been trading freely on a weekly basis, or because of the severe drop in real estate prices down to their actual values, or because of other factors.

It should be noted that the declaration of the banks is unilateral and in their sole discretion and not subject to challenge by anyone because the declaration creates an irrefutable presumption that the content of the declaration is true. Thus the insurance company must pay, the credit default swap counterparty must pay and other hedge partners must pay as a result of an act by the bank, not the investor nor the borrower.

All the loans contained in the asset pool subject to the declared credit event are affected. And since the reason for the declaration has little relationship to defaults, and plenty of other more important reasons, the amount owed to investors is reduced by the receipt of the payments by their agent, the bank. That means the account receivable of the lender is reduced, regardless of which bank account the money happens to be deposited.

If the account receivable is reduced before, during or after a delinquency of the borrower (assuming the loan is actually in existence) then the borrowers’ balances should be reduced, pro rata for each loan in the asset pool that was the subject of the declaration of a credit event. It is therefore my opinion that the homeowner could and probably should file an affirmative defense for offset for the pro rata share of insurance, credit default swaps etc.

There is one more source that should be considered for offset. Several investors have made claims against the banks claiming that their money was misused and that the terms of the loan were not followed including, bad underwriting and unenforceable documents created at closing. Many of them have already settled those claims and received payment, thus reducing their account receivable from the trust (and by pure logic reducing, dollar for dollar the account payable from the trust). Since the sole source of payment on the bond is the payment of the mortgages, it follows that by utilizing the most simple of accounting standards, the balance owed by the homeowner would be correspondingly be reduced, pro rata, dollar for dollar.

The fact that the underwriting was bad, the loans were not viable or enforceable and based upon inflated appraisals and lies about the income of the borrower, is not something caused by the borrower. The fact that the money was paid to all of the investors in that particular asset pool means that each investor should get a share equal to the amount of money they invested compared to all the money that was invested in that pool.

As to figuring out how much of the offset goes to the borrower’s account payable, it should be calculated in the same way. The amount of the borrower’s debt should be compared with the total amount of loans in the asset pool. This percentage should be applied against all third party payments that did not arise out of the default by the borrowers. In fact, it should be applied against all borrowers whose loans were claimed by that asset pool, whether they were in default or not. This would be grounds for a claim by people who are “current” in their payments for a credit or refund of the amount received from insurance, credit default swaps, or payments by the banks in settlement of investors’ claims of fraud.

This approach should be brought up very early in litigation so that there is plenty of time to pursue the discovery required to determine the amount received and the proper calculation of pro rata shares. If you do it at trial, the best you can hope for is that the judge will take notice of the fact that the foreclosing party only brought part of the documents relating to the loan instead of all of them, which should be the subject of a subpoena for the designated witness of the bank to bring with her or him all of the documents relating to the subject loan or any instrument deriving its value in whole or in part from the subject loan’s existence.

Thus at trial you can have a two pronged attack, getting them coming and going. The first is of course the fact that the originator did not fund the loan and that the break between the money trail (actual transactions) and the paper trail (fictitious transactions) occurred at the closing table. In most cases that is true, but it can be replaced or buttressed by the fact that the same argument holds true for acquired loans that were previously originated. The endorsement of the note or assignment of mortgage is a fictitious instrument if there was no sale of the loan. The important thing is to talk about the money first and then use that to show that the documents are fabricated relating to no real transaction.

Then you also have the argument of offset which hopefully by then you will have set up by discovery.

Practice Note: Many lawyers are accepting fee retainers far below the level that would support properly litigating these cases. Now that the marketplace has matured, lawyers should reconsider their pricing and their prosecution of the defenses, affirmative defenses and counterclaims. Even clients who announce a goal of just staying as long as possible without paying rent or mortgage are probably saying that because they think they owe more money than is actually the case.

Why Are We having So Much Trouble Connecting the Dots?

Matt Weidner reports that he went to court on a case where IndyMAc was the plaintiff. IndyMac was one of the first banks to collapse. It was found that they owned virtually zero mortgages and had “securitized” the rest which is to say they never loaned the money or got paid off by a successor. Now the servicing rights on IndyMac have been sold. So when the time came for trial he finds the lawyer fighting with his own witness. It seems that she would not say she worked for IndyMac because she didn’t. That meant there was no corporate representative present to testify for the plaintiff. case over? Not according to what we have seen where IndyMac foreclosures continue to be rubber stamped by Judges who do not understand the gravity of the situation.

The precedent being set is for anyone who knows about a default to race to the courthouse with a complaint to foreclose after fabricated a notice of default and asserting themselves as the successor to whoever the borrower was paying. The borrower doesn’t know the difference and generally doesn’t care because they mistakenly think they are screwed no matter what. So the pretender lender that was collecting takes it time partly because they are simply collecting fees on “non-performing” loans. Meanwhile our creative criminal goes in and alleges that he is the holder of a lost note, submits affidavits, but of course stays away from the essential allegation that there ever was a transaction between himself and the borrower. These days Judges don’t seem to require that.

Judgment is entered for our creative criminal and he becomes by court order, the creditor who can submit a credit bid at auction. He makes the non-cash bid at the auction and presto he just got himself a free house which he sells at discount on the open market. He only needs to do a few of those before he vanishes with a few million dollars. In fact, we have learned that such “foreclosures” are going on now sometimes creatively named such that it looks like the name of a bank. That is why I have been saying for 7 years that  the foreclosures, if they are allowed to proceed, will eventually create chaos in the marketplace.

You might ask why the banks don’t raise a big stink about this practice. The answer is that there are only a few such scams going on at the moment. And the banks are relying on the loopholes created in pleading practice to get their own foreclosures through the same way as our criminal because they really don’t own the loan or even the servicing rights. Yup! That is called a syllogism: if the creative criminal is a criminal for doing what he did, then the bank or anyone else who engages in the same behavior is also a criminal.

And that is why the justice department and regulators are ramping up their investigations and charges, getting ready to indict the bankers who thought they were untouchable. If you read the reports of securities analysts, you will see three types of authors — those who obviously have drunk the Kool-Aide and believe Bank of America and Chase hinting the stock is a good buy, those who are paid to plant pretty articles about the banks, and supposedly declining foreclosures and increasing housing prices, and those who have looked at the jury conviction of Countrywide, looked at the pace of settlements, and looked at the announcements that there are many more investigations and charges to be resolved, and who have seen the probability of indictments, and they conclude that BOA is soon going to be on the chopping block for sale in pieces and the same will happen with Chase, Citi and maybe even Wells.

While the media is not paying attention to the impending doom of the mega banks, the market is discounting the stock and the book value of these companies is dropping like a stone because real investment analysts under stand that much of what is being carried on the books as assets, is really worthless garbage. Charges of fraud are announced practically everyday, saying that the banks defrauded investors, defrauded Fannie and Freddie, and defrauded each other, as well as insurance companies and counterparties on credit default swaps. In other words it is pretty well settled that the sale of mortgage bonds was a sweeping fraudulent scheme and that the word PONZI scheme is accurate, not some conspiracy theory as I was treated back in 2007-2010.

So now that we know that there was complete fraud at one end of the stick (where the funding for the origination and acquisition of mortgages took place), the question is why is anyone looking at foreclosures as inevitable or proper or even possible. It is the same stick. If one end is burning then it is quite likely that the other end will be burning soon and that is exactly what I predict for the coming months.

Having been in court multiple times over the last month representing clients seeking to retain their homes it is readily apparent that the Judges are changing their minds about whether the foreclosure is inevitable or that collection by these creative criminals is wise or legal — i.e., whether the enire exercise involves an arrogant willingness to commit perjury. Since the mortgages were part of the scheme and the part where the lender appeared with the money is covered in fraud, it is certainly reasonable to assume that the the fraudulent schemes included the origination and transfer of mortgage paper. And that is exactly the case.

If it wasn’t the case there never would have been fraud at the top because the investors would be on the note and mortgage and some some nominee of the broker dealer (“BANK”) or they would have been on a recorded assignment closed out within 90 days of the start of the REMIC trust, which would have been funded by money from investors paid to the investment bank (broker dealer) who then forwarded the net proceeds tot he Trust. None of that ever happened, though, which is how the fraud was enabled.

Practice Hint: I like to demonstrate by drawing a large “V” where the bottom is the closing agent, the left side is the money trail and the right side is the paper trail — and showing that they never meet. That means the paper trail is a fictional story about transactions that never occurred. The money trail is actual facts and data showing actual transactions where money exchanged hands but there was no documentation. The “Trust” was never funded with money or assets, so the money went straight down the left side from the investors at the top of the left side to the closing agent, who applied the investors money to close a transaction that was documented as though the originator had loaned the money. The same reasoning applies to transfers and assignments.

The core of the cases filed by the banks is that the Note is prima facie evidence that a transaction occurred. It is entitled to a presumption of validity. But where the borrower denies the transaction ever occurred, and files the right discovery to get evidence of the wire transfers and canceled checks, the banks go wild because they know their entire case will not only fall apart but subject them to prosecution.

Which brings us to Marshall Watson, who seeks to be licensed again to practice law, and David Stern who is about to be disbarred forever. The good news is that they were disciplined for fabrication and forgery of documents. The bad news is that the inquiry stopped there and nobody ever asked why it was necessary to fabricate or forge documents.

FRAUD! In Foreclosure Court Indymac/Onewest Doesn’t Own Notes and Mortgages, But “They” Continue To Foreclose Anyway
http://ireport.cnn.com/docs/DOC-1051166/

-Suspended Ft. Lauderdale foreclosure mill head seeks return
http://therealdeal.com/miami/blog/2013/10/24/suspended-fort-lauderdale-foreclosure-mill-head-seeks-return/

Florida Bar referee calls for ex-foreclosure king’s disbarment
http://therealdeal.com/miami/blog/2013/10/30/florida-bar-referee-calls-for-ex-foreclosure-kings-disbarment/

Why do we need to force the banks to accept more money in modification?

Selecting a forensic analyst or a lawyer to represent you in a mortgage dispute. You need to look at their credentials rather than listen to their sales pitch. And you need people who really believe that you can and SHOULD win. For our services and products call our customers service numbers at 520-405-1688 on the West Coast, and 954-495-9867. Or visit http://www.livingliesstore.com. Don’t waste your money if the people lack the credentials and experience and commitment to make things work out the way you want it. Everyone promises the world. We promise expertise and guidance on how to use it in court.

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It seems obvious. And if you are a lawyer practicing in real estate, you have probably attending CLE seminars about mortgage lending requirements and what to do when the borrower is in default or claimed to be in default. The answer is always a “workout” wherever possible. And the reason is that you get more from a workout than the proceeds from a foreclosure and all the financial requirements of ownership like maintenance, taxes, insurance and the expenses of selling, repairs etc. It really is that simple.

But Banks don’t want workouts or modifications. They only want to use the illusory promise of modification to get the borrower in so deep he sees no way out when the application is eventually denied. Why are so many trial modifications now in court because the bank denied the permanent modification after the trial modification as approved and the borrower met all the requirements including payments? why are the banks pursuing a strategy where they are guaranteed far less money than ramping up the “workout” programs. Maybe because if they did, they would be admitting that the loan was defective in the first place, the appraisal was inflated, the viability of the loan was zero, and the borrower had been tricked.

So why do the Banks need to be forced to take more money and less responsibility for the property? It seems obvious that they would want a workout rather than a foreclosure because it will end up with more money in their pockets and the whole mortgage mess behind them with a nice clean note and mortgage.

The answer can only be that the Banks oppose such efforts because the rational strategy of a true lender won’t end up with more money in THEIR pockets. And THAT can only be true if they are working off some different business model than a lender. It means by definition in a rational world, as Greenspan likes to say, that they could not possibly be the lender or working for the lender.

It can only be true if they are protecting the fees they are earning on nonperforming loans and justifying their stubborn resistance to modification and principal reduction by showing that the foreclosure was the only way out even though it wasn’t. The destruction of tens of thousands of homes in various cities shows that the net value of the foreclosure was zero even while the homeowners were applying for modifications that, if approved, would have not only saved individual homes, but entire neighborhoods.

The other reason of course is that the banks don’t own the loans and they did receive multiple payments on the loans from multiple sources. A foreclosure hides these payments.

So the practice hint is to be persistent and insistent on following the money trail. What the San Francisco study revealed as well as other similar studies and are own study here at livinglies is that the courts are rubber stamping foreclosures that are in favor of complete strangers tot he transaction. They don’t have a dime in the deal. But they are being given judicial nod that they are the creditor even though they are clearly not the creditor. This false creditor now has authority to claim the status of creditor and to buy property worth millions of dollars with a non-monetary credit bid in the amount of their claim, thus “out bidding” any conceivable competition and guaranteeing their ownership of the property, or allowing someone else to outbid them and taking the money from the sale even though everything they had done up to that point was false.

So you have these people and companies in a cloud of false claims of securitization selling the loan multiple times through insurance and other gimmicks making a ton of money assuming the identity of the investors and assuming ownership over the borrower’s identity and trading on that all for the purpose of ill-gotten gains. It is fraud, identity theft, RICO and Ponzi Schemes all rolled into the fog that comprises the false claims of securitization.

PRACTICE HINT: Test each transaction claimed to see if money exchanged hands and if so between what parties. You will find that the money transactions — that is the reality of what was going on bears no resemblance to the paper trail. The paper trail is meant to lead you down the rabbit hole. First establish what is in the paper trail, then establish what transactions actually occurred and then compare the two and show that the paper trail is a trail of lies.

THE KEY TO THIS MESS IS TO REPLACE OR SUBSTITUTE THE CURRENT SYSTEMS OF SERVICERS WITH AN ENTIRELY DIFFERENT SYSTEM OF SERVICING AND A DIFFERENT SET OF SERVICERS TO REPLACE THOSE WHO ARE BLOCKING THE DIALOGUE BETWEEN LENDERS AND BORROWERS.

Mortgage borrowers get more foreclosure protection from Mass. bank regulators
http://www.bizjournals.com/boston/news/2013/10/17/mortgage-borrowers-get-more.html

The Very Worst Thing About Foreclosures Today Is Watching Consumers That You Know Could be Helped Standing in Court Without An Attorney
http://ireport.cnn.com/docs/DOC-1050081/

 

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