How the Banks Literally “Made” Money Out of Nothing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Another Short Treatise on Securitization

Patrick Giunta brought this article to my attention. He practices in South Florida and I co-counsel cases with him. Although there are some errors in facts and I have some differences of opinion with the writer, I think the article is a MUST-READ for anyone effected by “securitization” — especially foreclosure defense attorneys. If nothing else there is corroboration of what I have said all along. The entire thing is the emperor’s new clothes — see article I wrote about 7 years ago. If you don’t understand that, then you don’t know how to cross examine the “corporate representative” at trial.

The following is an excerpt from the article, and the link to the entire article is below:

“A serious problem with modern securitization is that it destroys “privity.” Privity of contract is the traditional notion that there are two parties to a contract and that only a party to the contract can enforce or renegotiate that contract. Put simply, if A and B have a contract, C cannot enforce B’s rights against A (unless A expressly agrees or C otherwise shows a lawful agency relationship with B). The frustration for Joe is that he cannot find the other party to his transaction. When Joe talks to his “bank” (really his Servicer) and tries to renegotiate his loan, his bank tells him that a mysterious “investor” will not approve. He can’t do this because they don’t exist, have been paid or don’t have the authority to negotiate Joe’s loan.

“Joe’s ultimate “investor” is the Fed, as evidenced by the trillion of MBSs on its balance sheet. Although Fannie/Freddie purportedly now “own” 80 percent of all U.S. “mortgage loans,” Fannie/Freddie are really just the Fed’s repo agents. Joe has no privity relationship with Fannie/Freddie. Fannie, Freddie and the Fed know this. So they are using the Bailout Banks to frontrun the process – the Bailout Bank (who also have no cognizable connection to the note and therefore no privity relationship with Joe) conducts a fraudulent foreclosure by creating a “record title” right to foreclose and, when the fraudulent process is over, hands the bag of stolen loot (Joe’s home) to Fannie and Freddie.”

http://butlerlibertylaw.com/foreclosure-fraud/

Hooker Case Flirts With Reality – 9th Circuit

SEE AMICUS BRIEF AT END OF ARTICLE

It is interesting to watch the evolution of thought in the Courts. But it is also infuriating. They treat false claims of securitization as a novel issue; but in fact, there is nothing novel about Ponzi Schemes, and other types of fraud. Yet the Court continue to ponder the issue, probably wondering how they could possibly explain their prior decisions, the millions of foreclosures that have already occurred, and the 15 million people who were ejected from homes and lifestyles, jobs, and even lives (murder-suicides).

This is not rocket science despite the layers upon layers of paper that Wall Street throws at the issue. The simple facts and law governing loans, and secured loans in particular, need only be applied as they were written and interpreted for centuries.

If I loan you money, you must pay it back. If I don’t loan you money then I have no reason to demand you pay it “back” because I never loaned you money in the first instance. If I purchase a real loan for real money, then you owe the money to me. If I don’t purchase the loan, then I have no right to your money.

If some other person gives the loan you were looking for then that is a matter between you and them — not you and me. Whether I race to the courthouse or not, I cannot collect, get a judgment or foreclose unless you fail to contest it. The only way I could ever obtain a judgment against you on a false claim is if you don’t answer it. That isn’t because it is right that I should have a judgment against you and for me, it is just because the rules work that way. But even after that you still have some options to set aside the judgment or action on the alleged debt that doesn’t really exist.

Possessing an assignment from a party who never owned the loan has never been considered as conferring some right on the assignee. And Faulty, notes, mortgages, indorsements and assignments have very clear laws and precedent. The defective ones are thrown out. Why? Because the object is to identify REAL transactions in which real value exchanged hands. And because the object is to ignore documentation that REFERS to a transaction that never took place.

It is one thing to have an executed note or some other testimony of proffered evidence of a loan, and another to show the Court the actual canceled check in which you advanced the money. One document talks about the transaction while the other IS the transaction. It is the difference between talking the talk and walking the walk. Talking about Paris doesn’t get you there.

You might have received a loan from someone at closing but the odds are that you didn’t get it from the Payee on the note, the mortgagee on the mortgage, the nominee, the beneficiary on the deed of trust or any of the other parties that were disclosed.

Finally the Courts are asking about the reality that Judge Shack in New York and Judge Boyco in Ohio were talking about 6 years ago, which was picked up by a number of Judges that were suddenly rotated out of the position to hear foreclosure cases. Politics frequently trumps the law, at least for a while. And politics is all about money. And if it is about money, then the banks are the obvious place to look.

I commend to your reading, the short Hooker Case (Link below) and the Amicus Brief (link below) submitted by laymen for your review and study. While not exactly what we would like to see both provide compelling evidence of a movement on the bench toward reality and away from the smoke and mirrors of the largest economic crime in human history.

The implications for both pleading and discovery are, I believe, self evident. HINT: I have it on good authority that the IRS form mentioned in the Amicus Brief is feared by Wall Street as the lynchpin of their position: once pulled the whole thing falls apart as it becomes obvious that the “trusts” neither received funds from the investors nor did they receive loans from the aggregators. That Amicus Brief also contains the only valid diagram of the actual practice of securitization in existence (other than the ones I have drawn in seminars). Notice how different it is from the diagrams of securitization that trace the wording of the securitization documents. it is the simple difference between truth (what happened) and fiction (what they say happened and why you shouldn’t be allowed to ask what really happened).

Hooker v Northwest Trustee Services 11-35534

Wells-Fargo-v-Erobobo-Amicus-Brief_1-14

For information on lawyers, litigation assistance (to lawyers), how to research applicable laws, litigation, modification, short-sale, Hardest Hit Funds, and other Federal, State and private programs call 520-405-1688 or 954-495-9867. Ask about AMGAR our latest program for assistance to homeowners.

Use of Factual Findings of Servicer Advances

It is important that the content of the report dealing withservicer advances be argued strenuously.Servicer advances have been received by the creditor, thus reducing the amount the creditor is expecting to be paid. Hence there should be reduction in the amount that is due from the borrower — to the extent thatactual payments have been received by that creditor on this account whether the borrower was the source of those payments or not.The servicer has agreed to make the payments to the creditor regardless of whether the Borrower paid or not and has continued to make payments apparently right up through the present. The Title and Securitization report says that.

Hence there could have been no default. The acceleration was a breach of contract, the amount due for reinstatement was wrong, the amount due in the Notice of Default was wrong, and the amount due as claimed in the lawsuit is wrong. simply stated, there is no basis for a foreclosure lawsuit or even a suit on the note.

The servicer is trying to convert a hypothetical claim against the borrower fro advancing payments into a claim by the creditor. It is masking the fact that the creditor has been paid and that the servicer wants to recover the amounts advanced in lieu of payments from the borrower.

That would, at best, be an action for unjust enrichment, if they were able to prove the elements and it would not be secured by the mortgage.

The mortgage only secures indebtedness on the note — not to a claim outside of the note where a third party either as volunteer or intermeddler made the payments. The note is evidence of a debt owed by borrower (debtor) to the creditor. The creditor is the Trust according to their own pleadings.

Hence the creditor is not alleged to have a default on its books and records because it has been paid. The mortgage only secures THAT debt to THAT creditor. If it were otherwise, off record transactions would cloud the title on  virtually every mortgage loan creating uncertainty in the marketplace where no lender would make loans because they could never be sure whether some off record activity had occurred and that the payoff of the previous “lender” had included the money due to the secured party. Such a subsequent lender might inadvertently be placing itself in a  position of liability to the borrower for an overpayment to the creditor.

I provide litigation assistance and expert witnesses with real credentials who will corroborate this in expert declarations, affidavits and live testimony, if the facts match what is stated above. call 954-495-9867 or 520-405-1688.

 

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.

Bank Lawyers Beware!

I know from past experience that the prosecuting attorneys at bar associations tend to move in packs. There is actually a pretty good reason for this. Certain practices by attorneys are emulated by other attorneys and spreads from state to state. Based upon a recent decision in New York State, I believe we’re going to see some serious prosecutions against attorneys for the pretender lenders.

In this case the censured attorney, David A. Cohen,  and his Long Island firm was trying to collect debts from people who weren’t already pay their bills or were not the ones who owed money to the firm’s client – creditors. I will concede that this is not the case against a foreclosure mill. And I think there is still political resistance to going after the lawyers  who represent the pretender lenders. But if you look at the reasoning in this case, it is not hard to see where the New York State Bar Association is going with this.

There were voluminous complaints about the firm spanning a 16 year period. That suggests that in cases where the homeowner believes that the attorney representing the pretender lender is violated ethical rules, or where the attorney for the homeowner believes that to be the case, a grievance should be filed.  But I caution people about doing this because they  frequently don’t know enough about the facts to be sure if a violation occurred.  It is unfair to attribute unethical conduct to an attorney who was merely advocating on behalf of a client and taking positions with which you do not agree. False filings will also create a paper jam in which the real filings for real violations get lost. SO don’t take this article as a green light to pepper the Bar Associations with vague grievances.

Cohen and his firm received numerous admonitions about his firm’s practices.

The court concluded in Matter of Cohen & Slamowitz, 2008-10218, that Cohen and Cohen & Slamowitz “engaged in a pattern and practice of conduct prejudicial to the administration of justice” under the Code of Professional Responsibility DR 1-102(A)(5)(223 NYCRR 1200.3[a][5]. The judges said an attorney does not necessarily have to have personal knowledge of the specifics of his firm’s misconduct to be held responsible.“Even if the individual respondent lacked personal knowledge of the particular client matters … the pattern and practice of misconduct established at the hearing, which were pervasive within C&S [Cohen & Slamowitz] since 1996, were sufficient to impute such knowledge to him as senior partner of C&S,” [e.s.] the panel held in its per curiam ruling. The judges added that not only was Cohen personally advised in 2002 to “exercise caution,” “supervise [his] staff adequately,” and put in place “appropriate and reasonable procedures” that could be monitored, but he and his firm also received numerous letters of caution and admonition. The court said Cohen & Slamowitz has about 300 employees, including attorneys, paralegals and other staff.

Among the problems noted by the court was an attempt in 2005 to collect from a debtor identified as “Ghulam Mujtaba” of Flushing. The court said that Cohen & Slamowitz mistakenly pursued collection from Dr. Gholam Mujtaba of Corona.
 Given the various settlement and OCC consent decrees that have been entered against virtually all of the major banks and servicers, it is hard to imagine a scenario in which the lawyers have not been put on notice of the existence of major defects in the claims of their clients. Unlike civil litigation, lawyers are held to a higher standard of behavior in connection with their practice of law. The ethical and disciplinary rules make it clear that the lawyer should avoid even the appearance of impropriety. Here in this case, the court opened up the possibility for imputing knowledge to the attorney even though there are attempts to create compliance departments and other organizational tools that are meant to isolate the actual licensed attorneys from the illegal conduct perpetrated by their firm.
 If a bank came to me for representation in the foreclosure properties based upon loans that are subject to claims of securitization, I would make absolutely certain that there were procedures in effect within the bank to make sure that we were naming the right plaintiff, naming the right defendant, that a default was definitely present, and that we could account for the balance due. I would ask the bank “are you actually owed the money on this loan?”
 The use of professional witnesses that are hired specifically for that purpose is somewhat understandable given the volume of foreclosure litigation. What is not understandable or forgivable is hiring people specifically for the purpose of giving false testimony based upon records that were specially prepared for trial and not prepared in the ordinary course of business. It is improper and perhaps perjury to state that the entire business record is present when it clearly does not show the original loan transaction, all the transactions that occurred between the time of the loan closing and the filing of foreclosure, and all the transactions that occurred as disbursements to trust beneficiaries or other third parties. It is improper and perhaps perjury to state that the entire business record is present when the witness cannot state from personal knowledge or with the use of business records that qualify as an exception to the hearsay rule, that the record of disbursements is also present —  including all payments received by the alleged creditor.
 Some attorneys haven’t thrown under the bus, but there are dozens of other law firms that may be involved in the production or proffering of false, fraudulent, fabricated or forged documents.
 On the other hand it should be stated that withholding evidence is not necessarily a violation of the code of conduct for attorneys —  unless the withholding of that evidence results in making prior testimony or evidence subject to a charge of perjury. I don’t think that attorneys can or should be held to a standard in which their conduct is subject to variable interpretations. Any grievance filed on these grounds must be very specific as to what is being alleged is a violation. I publish this article merely as a prediction and warning that certain behavior which is now condoned in the foreclosure mills can be and probably will be imputed to the partners, regardless of how well they think they have insulated themselves.
 One of the things I wonder about is the practice of asserting in court that the attorney for the foreclosure represents “everybody.” The risk here is twofold: first that might include the trust beneficiaries that his client is screwing; second that might include the borrower because some of the parties included in “everybody” have a fiduciary duty to the borrower. I wonder if there are potential trap doors for the attorneys who are representing pretender lenders that include not only disciplinary complaints but perhaps joinder as defendants in a lawsuit filed for negligent undertaking.
 As always, nothing in this article should be interpreted as a definitive statement on the law. Pro se litigants should consult with an attorney licensed in the area in which the property is located before making a decision or taking any action. Attorneys should do their own research and make their own decisions as to what constitutes a breach of ethics or a breach of the disciplinary rules.

Here it is: Nonjudicial Foreclosure Violates Due Process in Complex Structured Finance Transactions

No, there isn’t a case yet. But here is my argument.

The main point is that we are forced to accept the burden of disproving a case that had not been filed — the very essence of nonjudicial foreclosure. In order to comply with due process, a simple denial of the facts and legal authority to foreclosure should be sufficient to force the case into a courtroom where the parties are realigned with the so-called new beneficiary is the Plaintiff and the homeowner is the Defendant — since it is the “beneficiary” who is seeking affirmative relief.

But the way it is done and required to be done, the Plaintiff must file an attack on a case that has never been alleged anywhere in or out of court. The new beneficiary anoints itself, files a fraudulent substitution of trustee because the old one would never go along with it, and then files a notice of default and notice of sale all on the premise that they have the necessary proof and documents to support what could have been an action in foreclosure brought by them in a judicial manner, for which there is adequate provision in California law.

Instead nonjudicial foreclosure is being used to sell property under circumstances where the alleged beneficiary under the deed of trust could never prevail in a court proceeding. Nonjudicial foreclosure was meant to be an expedient method of dealing with the vast majority of foreclosures when the statute was passed. In that vast majority, the usual procedure was complaint, default, judgment and then sale with at least one hearing in between. Nearly all foreclosures were resolved that way and it become more of a ministerial act for Judges than an actual trier of fact or judge of procedural rights and wrongs.

But the situation is changed. The corruption on Wall Street has been systemic resulting in whole sale fraudulent fabricated forged documents together with perjury by affidavit and even live testimony. Contrary to the consensus supported by the banks, these cases are complex because the party seeking affirmative relief — i.e., the new “beneficiary” is following a complex script established long before the homeowner ever applied for a loan or was solicited to finance her property.

The San Francisco study concluded, like dozens of other studies across the country that most of the foreclosures were resolved in favor of “strangers to the transaction.” By definition, the use of several layers of companies and multiple sets of documents defining two separate deals (one with the investor lenders and one with the borrower, with the only party in common being the broker dealer selling mortgage bonds and their controlled entities) has turned the mundane into highly complex litigation that has no venue. In non-judicial foreclosures the Trustee is the party who acts to sell the property under instructions from the beneficiary and does so without inquiry and without paying any attention to the obvious conflict between the title record, the securitization record, the homeowner’s position and the prior record owner of the loan.

The Trustee has no power to conduct a hearing, administrative or judicial, and so the dispute remains unresolved while the Trustee proceeds to sell the property knowing that the homeowner has raised objections. Under normal circumstances under existing common law and statutory authority, the Trustee would simply bring the matter to court in an action for interpleader saying there is a dispute that he doesn’t have the power to resolve. You might think this would clog the court system. That is not the case, although some effort by the banks would be made to do just that. Under existing common law and statutory law, the beneficiary would then need to file a complaint, verified, sworn with real exhibits and that are subject to real scrutiny before any burden of proof would shift to the homeowner. And as complex as these transactions are they all are subject to simple rules concerning financial transactions. If there was no money in the alleged transaction then the allegation of a transaction is false.

It was and remains a mistake to allow such loans to be foreclosed through any means other than strictly judicial where the “beneficiary” must allege and prove ownership and the balance due on the loan owed to THAT beneficiary. Requiring homeowners with zero sophistication in finance and litigation to bear the initial burden of proof in such highly complex structured finance schemes defies logic and common sense as well as being violative of due process in the application of the nonjudicial statutes to these allegedly securitized loans.

By forcing the parties and judges who sit on the bench to treat these complex issues as though they were simple cases, the enabling statutes for nonjudicial foreclosure are being applied unconstitutionally.

New Mexico Supreme Court Wipes Out Bank of New York

bony-v-romero_nm-sup.ct.-reverses-with-instruction_2-14

There are a lot of things that could be analyzed in this case that was very recently decided (February 13, 2014). The main take away is that the New Mexico Supreme Court is demonstrating that the judicial system is turning a corner in approaching the credibility of the intermediaries who are pretending to be real parties in interest. I suggest that this case be studied carefully because their reasoning is extremely good and their wording is clear. Here are some of the salient quotes that I think it be used in motions and pleadings:

We hold that the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action. We also hold that a borrower’s ability to repay a home mortgage loan is one of the “borrower’s circumstances” that lenders and courts must consider in determining compliance with the New Mexico Home Loan Protection Act, NMSA 1978, §§ 58-21A-1 to -14 (2003, as amended through 2009) (the HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower. Finally, we hold that the HLPA is not preempted by federal law. We reverse the Court of Appeals and district court and remand to the district court with instructions to vacate its foreclosure judgment and to dismiss the Bank of New York’s foreclosure action for lack of standing.

The Romeros soon became delinquent on their increased loan payments. On April 1, 2008, a third party—the Bank of New York, identifying itself as a trustee for Popular Financial Services Mortgage—filed a complaint in the First Judicial District Court seeking foreclosure on the Romeros’ home and claiming to be the holder of the Romeros’ note and mortgage with the right of enforcement.

The Romeros also raised several counterclaims, only one of which is relevant to this appeal: that the loan violated the antiflipping provisions of the New Mexico HLPA, Section 58-21A-4(B) (2003).[They were lured into refinancing into a loan with worse provisions than the one they had].

Litton Loan Servicing did not begin servicing the Romeros’ loan until November 1, 2008, seven months after the foreclosure complaint was filed in district court.

At a bench trial, Kevin Flannigan, a senior litigation processor for Litton Loan Servicing, testified on behalf of the Bank of New York. Flannigan asserted that the copies of the note and mortgage admitted as trial evidence by the Bank of New York were copies of the originals and also testified that the Bank of New York had physical possession of both the note and mortgage at the time it filed the foreclosure complaint.

{9} The Romeros objected to Flannigan’s testimony, arguing that he lacked personal knowledge to make these claims given that Litton Loan Servicing was not a servicer for the Bank of New York until after the foreclosure complaint was filed and the MERS assignment occurred. The district court allowed the testimony based on the business records exception because Flannigan was the present custodian of records.

{10} The Romeros also pointed out that the copy of the “original” note Flannigan purportedly authenticated was different from the “original” note attached to the Bank of New York’s foreclosure complaint. While the note attached to the complaint as a true copy was not indorsed, the “original” admitted at trial was indorsed twice: first, with a blank indorsement by Equity One and second, with a special indorsement made payable to JPMorgan Chase.

the Court of Appeals affirmed the district court’s rulings that the Bank of New York had standing to foreclose and that the HLPA had not been violated but determined as a result of the latter ruling that it was not necessary to address whether federal law preempted the HLPA. See Bank of N.Y. v. Romero, 2011-NMCA-110, ¶ 6, 150 N.M. 769, 266 P.3d 638 (“Because we conclude that substantial evidence exists for each of the district court’s findings and conclusions, and we affirm on those grounds, we do not addressthe Romeros’ preemption argument.”).

We have recognized that “the lack of [standing] is a potential jurisdictional defect which ‘may not be waived and may be raised at any stage of the proceedings, even sua sponte by the appellate court.’” Gunaji v. Macias, 2001-NMSC-028, ¶ 20, 130 N.M. 734, 31 P.3d 1008 (citation omitted). While we disagree that the Romeros waived their standing claim, because their challenge has been and remains largely based on the note’s indorsement to JPMorgan Chase, whether the Romeros failed to fully develop their standing argument before the Court of Appeals is immaterial. This Court may reach the issue of standing based on prudential concerns. See New Energy Economy, Inc. v. Shoobridge, 2010-NMSC-049, ¶ 16, 149 N.M. 42, 243 P.3d 746 (“Indeed, ‘prudential rules’ of judicial self-governance, like standing, ripeness, and mootness, are ‘founded in concern about the proper—and properly limited—role of courts in a democratic society’ and are always relevant concerns.” (citation omitted)). Accordingly, we address the merits of the standing challenge.[e.s.]

the Romeros argue that none of the Bank’s evidence demonstrates standing because (1) possession alone is insufficient, (2) the “original” note introduced by the Bank of New York at trial with the two undated indorsements includes a special indorsement to JPMorgan Chase, which cannot be ignored in favor of the blank indorsement, (3) the June 25, 2008, assignment letter from MERS occurred after the Bank of New York filed its complaint, and as a mere assignment

of the mortgage does not act as a lawful transfer of the note, and (4) the statements by Ann Kelley and Kevin Flannigan are inadmissible because both lack personal knowledge given that Litton Loan Servicing did not begin servicing loans for the Bank of New York until seven months after the foreclosure complaint was filed and after the purported transfer of the loan occurred. 
[NOTE BURDEN OF PROOF]

(“[S]tanding is to be determined as of the commencement of suit.”); accord 55 Am. Jur. 2d Mortgages § 584 (2009) (“A plaintiff has no foundation in law or fact to foreclose upon a mortgage in which the plaintiff has no legal or equitable interest.”). One reason for such a requirement is simple: “One who is not a party to a contract cannot maintain a suit upon it. If [the entity] was a successor in interest to a party on the [contract], it was incumbent upon it to prove this to the court.” L.R. Prop. Mgmt., Inc. v. Grebe, 1981-NMSC-035, ¶ 7, 96 N.M. 22, 627 P.2d 864 (citation omitted). The Bank of New York had the burden of establishing timely ownership of the note and the mortgage to support its entitlement to pursue a foreclosure action. See Gonzales v. Tama, 1988-NMSC- 016, ¶ 7, 106 N.M. 737, 749 P.2d 1116

[THE DIFFERENCE BETWEEN REMEDIES ON THE NOTE AND REMEDIES ON THE MORTGAGE]

(“One who holds a note secured by a mortgage has two separate and independent remedies, which he may pursue successively or concurrently; one is on the note against the person and property of the debtor, and the other is by foreclosure to enforce the mortgage lien upon his real estate.” (internal quotation marks and citation omitted)).

3. None of the Bank’s Evidence Demonstrates Standing to Foreclose

{19} The Bank of New York argues that in order to demonstrate standing, it was required to prove that before it filed suit, it either (1) had physical possession of the Romeros’ note indorsed to it or indorsed in blank or (2) received the note with the right to enforcement, as required by the UCC. See § 55-3-301 (defining “[p]erson entitled to enforce” a negotiable instrument). While we agree with the Bank that our state’s UCC governs how a party becomes legally entitled to enforce a negotiable instrument such as the note for a home loan, we disagree that the Bank put forth such evidence.

a. Possession of a Note Specially Indorsed to JPMorgan Chase Does Not Establish the Bank of New York as a Holder

{20} Section 55-3-301 of the UCC provides three ways in which a third party can enforce a negotiable instrument such as a note. Id. (“‘Person entitled to enforce’ an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the [lost, destroyed, stolen, or mistakenly transferred] instrument pursuant to [certain UCC enforcement provisions].”); see also § 55-3-104(a)(1), (b), (e) (defining “negotiable instrument” as including a “note” made “payable to bearer or to order”). Because the Bank’s arguments rest on the fact that it was in physical possession of the Romeros’ note, we need to consider only the first two categories of eligibility to enforce under Section 55-3-301.

{21} The UCC defines the first type of “person entitled to enforce” a note—the “holder” of the instrument—as “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” NMSA 1978, § 55-1-201(b)(21)(A) (2005); see also Frederick M. Hart & William F. Willier, Negotiable Instruments Under the Uniform Commercial Code, § 12.02(1) at 12-13 to 12-15 (2012) (“The first requirement of being a holder is possession of the instrument. However, possession is not necessarily sufficient to make one a holder. . . . The payee is always a holder if the payee has possession. Whether other persons qualify as a holder depends upon whether the instrument initially is payable to order or payable to bearer, and whether the instrument has been indorsed.” (footnotes omitted)). Accordingly, a third party must prove both physical possession and the right to enforcement through either a proper indorsement or a transfer by negotiation. See NMSA 1978, § 55-3-201(a) (1992) (“‘Negotiation’ means a transfer of possession . . . of an instrument by a person other than the issuer to a person who thereby becomes its holder.”). [E.S.] Because in this case the Romeros’ note was clearly made payable to the order of Equity One, we must determine whether the Bank provided sufficient evidence of how it became a “holder” by either an indorsement or transfer.

Without explanation, the note introduced at trial differed significantly from the original note attached to the foreclosure complaint, despite testimony at trial that the Bank of New York had physical possession of the Romeros’ note from the time the foreclosure complaint was filed on April 1, 2008. Neither the unindorsed note nor the twice-indorsed

7

note establishes the Bank as a holder.

{23} Possession of an unindorsed note made payable to a third party does not establish the right of enforcement, just as finding a lost check made payable to a particular party does not allow the finder to cash it. [E.S.]See NMSA 1978, § 55-3-109 cmt. 1 (1992) (“An instrument that is payable to an identified person cannot be negotiated without the indorsement of the identified person.”). The Bank’s possession of the Romeros’ unindorsed note made payable to Equity One does not establish the Bank’s entitlement to enforcement.

We are not persuaded. The Bank provides no authority and we know of none that exists to support its argument that the payment restrictions created by a special indorsement can be ignored contrary to our long-held rules on indorsements and the rights they create. See, e.g., id. (rejecting each of two entities as a holder because a note lacked the requisite indorsement following a special indorsement); accord NMSA 1978, § 55-3-204(c) (1992) (“For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.”).

[COMPETENCY OF WITNESS]

the Bank of New York relies on the testimony of Kevin Flannigan, an employee of Litton Loan Servicing who maintained that his review of loan servicing records indicated that the Bank of New York was the transferee of the note. The Romeros objected to Flannigan’s testimony at trial, an objection that the district court overruled under the business records exception. We agree with the Romeros that Flannigan’s testimony was inadmissible and does not establish a proper transfer.

Litton Loan Servicing, did not begin working for the Bank of New York as its servicing agent until November 1, 2008—seven months after the April 1, 2008, foreclosure complaint was filed. Prior to this date, Popular Mortgage Servicing, Inc. serviced the Bank of New York’s loans. Flannigan had no personal knowledge to support his testimony that transfer of the Romeros’ note to the Bank of New York prior to the filing of the foreclosure complaint was proper because Flannigan did not yet work for the Bank of New York. See Rule 11-602 NMRA (“A witness may testify to a matter only if evidence is introduced sufficient to support a finding that the

9

witness has personal knowledge of the matter. [E.S.] Evidence to prove personal knowledge may consist of the witness’s own testimony.”). We make a similar conclusion about the affidavit of Ann Kelley, who also testified about the status of the Romeros’ loan based on her work for Litton Loan Servicing. As with Flannigan’s testimony, such statements by Kelley were inadmissible because they lacked personal knowledge.

[OBJECTION TO HEARSAY BUSINESS RECORDS REVERSED AND SUSTAINED]

When pressed about Flannigan’s basis of knowledge on cross-examination, Flannigan merely stated that “our records do indicate” the Bank of New York as the holder of the note based on “a pooling and servicing agreement.” No such business record itself was offered or admitted as a business records hearsay exception. See Rule 11-803(F) NMRA (2007) (naming this category of hearsay exceptions as “records of regularly conducted activity”).

The district court erred in admitting the testimony of Flannigan as a custodian of records under the exception to the inadmissibility of hearsay for “business records” that are made in the regular course of business and are generally admissible at trial under certain conditions. See Rule 11-803(F) (2007) (citing the version of the rule in effect at the time of trial). The business records exception allows the records themselves to be admissible but not simply statements about the purported contents of the records. [E.S.] See State v. Cofer, 2011-NMCA-085, ¶ 17, 150 N.M. 483, 261 P.3d 1115 (holding that, based on the plain language of Rule 11-803(F) (2007), “it is clear that the business records exception requires some form of document that satisfies the rule’s foundational elements to be offered and admitted into evidence and that testimony alone does not qualify under this exception to the hearsay rule” and concluding that “‘testimony regarding the contents of business records, unsupported by the records themselves, by one without personal knowledge of the facts constitutes inadmissible hearsay.’” (citation omitted)). Neither Flannigan’s testimony nor Kelley’s affidavit can substantiate the existence of documents evidencing a transfer if those documents are not entered into evidence. Accordingly, Flannigan’s trial testimony cannot establish that the Romeros’ note was transferred to the Bank of New York.[E.S.]

[REJECTION OF MERS ASSIGNMENT]

We also reject the Bank’s argument that it can enforce the Romeros’ note because it was assigned the mortgage by MERS. An assignment of a mortgage vests only those rights to the mortgage that were vested in the assigning entity and nothing more. See § 55-3-203(b) (“Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course.”); accord Hart & Willier, supra, § 12.03(2) at 12-27 (“Th[is] shelter rule puts the transferee in the shoes of the transferor.”).

[MERS CAN NEVER ASSIGN THE NOTE]

As a nominee for Equity One on the mortgage contract, MERS could assign the mortgage but lacked any authority to assign the Romeros’ note. Although this Court has never explicitly ruled on the issue of whether the assignment of a mortgage could carry with it the transfer of a note, we have long recognized the separate functions that note and mortgage contracts perform in foreclosure actions. See First Nat’l Bank of Belen v. Luce, 1974-NMSC-098, ¶ 8, 87 N.M. 94, 529 P.2d 760 (holding that because the assignment of a mortgage to a bank did not convey an interest in the loan contract, the bank was not entitled to foreclose on the mortgage); Simson v. Bilderbeck, Inc., 1966-NMSC-170, ¶¶ 13-14, 76 N.M. 667, 417 P.2d 803 (explaining that “[t]he right of the assignee to enforce the mortgage is dependent upon his right to enforce the note” and noting that “[b]oth the note and mortgage were assigned to plaintiff.

[SPLITTING THE NOTE AND MORTGAGE]

(“A mortgage securing the repayment of a promissory note follows the note, and thus, only the rightful owner of the note has the right to enforce the mortgage.”); Dunaway, supra, § 24:18 (“The mortgage only secures the payment of the debt, has no life independent of the debt, and cannot be separately transferred. If the intent of the lender is to transfer only the security interest (the mortgage), this cannot legally be done and the transfer of the mortgage without the debt would be a nullity.”). These separate contractual functions—where the note is the loan and the mortgage is a pledged security for that loan—cannot be ignored simply by the advent of modern technology and the MERS electronic mortgage registry system.

[THE NOBODY ELSE IS CLAIMING ARGUMENT IS EXPLICITLY REJECTED]

Failure of Another Entity to Claim Ownership of the Romeros’ Note Does Not Make the Bank of New York a Holder

{37} Finally, the Bank of New York urges this Court to adopt the district court’s inference that if the Bank was not the proper holder of the Romeros’ note, then third-party-defendant Equity One would have claimed to be the rightful holder, and Equity One made no such claim.

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{38} The simple fact that Equity One does not claim ownership of the Romeros’ note does not establish that the note was properly transferred to the Bank of New York. In fact, the evidence in the record indicates that JPMorgan Chase may be the lawful holder of the Romeros’ note, as reflected in the note’s special indorsement.

[HOLDER MUST PROVE ENTITLEMENT TO ENFORCE -- NO PRESUMPTION ALLOWED]

Because the transferee is not a holder, there is no presumption under Section [55-]3-308 [(1992) (entitling a holder in due course to payment by production and upon signature)] that the transferee, by producing the instrument, is entitled to payment. The instrument, by its terms, is not payable to the transferee and the transferee must account for possession of the unindorsed instrument by proving the transaction through which the transferee acquired it.

[LENDER'S OBLIGATION TO ASSURE THAT THE LOAN IS VIABLE]

B. A Lender Must Consider a Borrower’s Ability to Repay a Home Mortgage Loan in Determining Whether the Loan Provides a Reasonable, Tangible Net Benefit, as Required by the New Mexico HLPA

{39} For reasons that are not clear in the record, the Romeros did not appeal the district court’s judgment in favor of the original lender, Equity One, on the Romeros’ claims that Equity One violated the HLPA. The Court of Appeals addressed the HLPA violation issue in the context of the Romeros’ contentions that the alleged violation constituted a defense to the foreclosure complaint of the Bank of New York by affirming the district court’s favorable ruling on the Bank of New York’s complaint. As a result of our holding that the Bank of New York has not established standing to bring a foreclosure action, the issue of HLPA violation is now moot in this case. But because it is an issue that is likely to be addressed again in future attempts by whichever institution may be able to establish standing to foreclose on the Romero home and because it involves a statutory interpretation issue of substantial public importance in many other cases, we address the conclusion of both the

12

Court of Appeals and the district court that a homeowner’s inability to repay is not among “all of the circumstances” that the 2003 HLPA, applicable to the Romeros’ loan, requires a lender to consider under its “flipping” provisions:

No creditor shall knowingly and intentionally engage in the unfair act or practice of flipping a home loan. As used in this subsection, “flipping a home loan” means the making of a home loan to a borrower that refinances an existing home loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan and the borrower’s circumstances.

Section 58-21A-4(B) (2003); see also Bank of N.Y., 2011-NMCA-110, ¶ 17 (holding that “while the ability to repay a loan is an important consideration when otherwise assessing a borrower’s financial situation, we will not read such meaning into the statute’s ‘reasonable, tangible net benefit’ language”).

[DOOMED LOANS --- WHO HAS THE RISK?]

We have been presented with no conceivable reason why the Legislature in 2003 would consciously exclude consideration of a borrower’s ability to repay the loan as a factor of the borrower’s circumstances, and we can think of none. Without an express legislative direction to that effect, we will not conclude that the Legislature meant to approve mortgage loans that were doomed to end in failure and foreclosure. Apart from the plain language of the statute and its express statutory purpose, it is difficult to comprehend how an unrepayable home mortgage loan that will result in a foreclosure on one’s home and a deficiency judgment to pay after the borrower is rendered homeless could provide “a reasonable, tangible net benefit to the borrower.”

[LENDER'S OBLIGATION TO MAKE SURE IT IS A VIABLE TRANSACTION] a lender cannot avoid its own obligation to consider real facts and circumstances [E.S.] that might clarify the inaccuracy of a borrower’s income claim. Id. (“Lenders cannot, however, disregard known facts and circumstances that may place in question the accuracy of information contained in the application.”) A lender’s willful blindness to its responsibility to consider the true circumstances of its borrowers is unacceptable. A full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into a materially worse situation with respect to the ability to make home loan payments and avoid foreclosure, consequences of a borrower’s circumstances that cannot be disregarded.

if the inclusion of such boilerplate language in the mass of documents a borrower must sign at closing would substitute for a lender’s conscientious compliance with the obligations imposed by the HLPA, its protections would be no more than empty words on paper that could be summarily swept aside by the addition of yet one more document for the borrower to sign at the closing.

[THE BLAME GAME]

Borrowers are certainly not blameless if they try to refinance their homes through loans they cannot afford. But they do not have a mortgage lender’s expertise, and the combination of the relative unsophistication of many borrowers and the potential motives of unscrupulous lenders seeking profits from making loans without regard for the consequences to homeowners led to the need for statutory reform. See § 58-21A-2 (discussing (A) “abusive mortgage lending” practices, including (B) “making . . . loans that are equity-based, rather than income based,” (C) “repeatedly refinanc[ing] home loans,” rewarding lenders with “immediate income” from “points and fees” and (D) victimizing homeowners with the unnecessary “costs and terms” of “overreaching creditors”).

[FEDERAL PREEMPTION CLAIM FROM OCC STATEMENT DOES NOT PROVIDE BANK OF NEW YORK ANY PROTECTION]

 

While the Bank is correct in asserting that the OCC issued a blanket rule in January 2004, see 12 C.F.R. § 34.4(a) (2004) (preempting state laws that impact “a national bank’s ability to fully exercise its Federally authorized real estate lending powers”), and that the New Mexico Administrative Code recognizes this OCC rule, neither the Bank nor our administrative code addresses several actions taken by Congress and the courts since 2004 to disavow the OCC’s broad preemption statement.

 

Applying the Dodd-Frank standard to the HLPA, we conclude that federal law does not preempt the HLPA. First, our review of the NBA reveals no express preemption of state consumer protection laws such as the HLPA. Second, the Bank provides no evidence that conforming to the dictates of the HLPA prevents or significantly interferes with a national bank’s operations. Third, the HLPA does not create a discriminatory effect; rather, the HLPA applies to any “creditor,” which the 2003 statute defines as “a person who regularly [offers or] makes a home loan.” Section 58-21A-3(G) (2003). Any entity that makes home loans in New Mexico must follow the HLPA, regardless of whether the lender is a state or nationally chartered bank. See § 58-21A-2 (providing legislative findings on abusive mortgage lending practices that the HLPA is meant to discourage).

Unconscionable and Negligent Conduct in Loan Modification Practices

JOIN US EVERY THURSDAY AT 6PM Eastern time on The Neil Garfield Show. We will discuss the Stenberger decision and other important developments affecting consumers, borrowers and banks. We had 561 listeners so far who were on the air with us or who downloaded the show. Thank you — that is a good start for our first show. And thank you Patrick Giunta, Esq. (Broward County Attorney) as our first guest. For more information call 954-495-9867.

In the case of Wane v. Loan Corp. the 11th Circuit struck down the borrower’s attempt to rescind. The reasoning in that case had to do with whether the originator was the real lender. I think, based upon my review of that and other cases, that the facts were not totally known and perhaps could have been and then included in the pleading. It is one thing to say that you don’t think the originator actually paid for the loan. It is quite another to say that a third party did actually pay for the loan and failed to get the note and mortgage or deed of trust executed properly to protect the real source of funds. In order to do that you might need the copy of the wire transfer receipt and wire transfer instructions and potentially a forensic report showing the path of “securitization” which probably never happened.

The importance of the Steinberger decision (see prior post) is that it reverts back to simple doctrines of law rather the complexity and resistance in the courts to apply the clear wording in the Truth in Lending Act. The act says that any statement indicating the desire to rescind within the time limits set forth in the statute is sufficient to nullify the mortgage or deed of trust by operation of law unless the alleged creditor/lender files an action within the prescribed time limits. It is a good law and it covers a lot of the abuses that we see in the legal battleground. But Judges are refusing to apply it. And that includes Appellate courts including the 9th Circuit that wrote into the statute the requirement that the money be tendered “back to the creditor” in order for the rescission to have any legal effect.

The 9th Circuit obviously is saying the they refuse to abide by the statute. The tender back to the creditor need only be a statement that the homeowner is prepared to execute a note and mortgage in favor of the real lender. To tender the money “back” to the originator is to assume they made the loan, which ordinarily was not the case. The courts are getting educated but they are not at the point where they “get it.”

But with the Steinberger decision we can get similar results without battling the rescission issue that so far is encountering nothing but resistance. That case manifestly agrees that a borrower can challenge the authority of those who are claiming money from him or her and that if there are problems with the mortgage, the foreclosure or the modification program in which the borrower was lured into actions that caused the borrower harm, there are damages for the “lender” to pay. The recent Wells Fargo decision posted a few days ago said the same thing. The logic behind that applies to the closing as well.

So lawyers should start thinking about more basic common law doctrines and use the statutes as corroboration for the common law cause of action rather than the other way around. Predatory practices under TILA can be alleged under doctrines of unconscionability and negligence. Title issues, “real lender” issues can be attacked using common law negligence.

Remember that the common allegation of the “lenders” is that they are “holders” — not that they are holders in due course which would require them to show that they paid value for the note and that they have the right to enforce it and collect because the money is actually owed to them. The “holders” are subject to claims detailed in the Steinberger decision without reference to TILA, RESPA or any of the other claims that the courts are resisting. As holders they are subject to all claims and defenses of the borrower. And remember as well that it is a mistake to assume that the mortgage or deed of trust is governed by Article 3 of the UCC. Security instruments are only governed by Article 9 and they must be purchased for value for a party to be able to enforce them.

All of this is predicated on real facts that you can prove. So you need forensic research and analysis. The more specific you are in your allegations, the more difficult it will be for the trial court to throw your claims and defenses out of court because they are hypothetical or too speculative.

Question: who do we sue? Answer: I think the usual suspects — originator, servicers, broker dealer, etc. but also the closing agent.

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.

 

THE NEIL GARFIELD SHOW STARTS THIS THURSDAY AND EVERY THURSDAY AT 6PM

Thanks to the folks at Blog Talk Radio, we are finally going back on the air on a weekly basis every Thursday at 6PM Eastern Time, 3PM Pacific Time, and if there is no operator error (that would be me), the shows will be saved as Podcasts and you can listen to them anytime you want. IT’S FREE! (Except for the sponsors).

Our intended audience includes, investors who were duped out of their money to buy bogus mortgage bonds, investors or buyers of resales or foreclosures who think they have clear title but don’t, and homeowners as investors who stand to lose not only their investment but their entire lifestyle. We all know what the banks did was wrong. We all know that what they are still doing is wrong.

Let’s get together and do some work on how to convince a judge or prosecutor that Wall Street corruption does make a difference and should never be allowed.

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You know the subject — the biggest economic crime in human history and the price investors and homeowners are paying for it. You know the goal — claiming your rights, defending your home and recover damages from wrongful foreclosure and predatory loan practices. The format of the 30 minute show will be news, analysis (or guest interview), and question and answer. It is just like the old teleconferences we had, only better. You can start a chat with me on the side, call in for a question, or write in comments.

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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

The Devil Is In the Details: Summary of Issues

Editor’s note: in preparing a complex motion for the court in several related cases I ended up writing the following which I would like to share with my readers. As you can see, the issues that were once thought to be simple and susceptible to rocket docket determination are in fact complex civil cases involving issues that are anything but simple.

This is a guide and general information. DO NOT USE THIS IF YOU ARE NOT A LICENSED ATTORNEY. THESE ISSUES ARE BOTH PROCEDURALLY AND SUBSTANTIVELY ABOVE THE AVERAGE KNOWLEDGE OF A LAYMAN. CONSULT WITH AN ATTORNEY LICENSED IN THE GEOGRAPHICAL AREA IN WHICH THE PROPERTY IS LOCATED.

If you are seeking litigation support or referrals to attorneys or representation please call 520-405-1688.

SUMMARY OF ISSUES TO BE CONSIDERED

 

1)   Whether a self proclaimed or actual Trustee for a REMIC Trust is empowered to bring a foreclosure action or any action to enforce the note and mortgage contrary to the terms of the Trust document — i.e., the Pooling and Servicing Agreement (PSA) — which New York and Delaware law declare to be actions that are VOID not VOIDABLE; specifically if the Trust document names a different trustee or empowers only the servicer to bring enforcement actions against borrowers.

2)   Whether a Trustee or Servicer may initiate actions or take legal positions that are contrary to the interests of the Trust Beneficiaries — in this case creating a liability for the Trust Beneficiaries for receipt of overpayments that are not credited to the account receivable from the Defendant Borrowers by their agents (the servicer and the alleged Trustee) and the creation of liability to LaSalle Bank or the Trust by virtue of questionable changes in Trustees.

3)   Whether US Bank is the Plaintiff or should be allowed to claim that it is the Trustee for the Plaintiff Trust. Without Amendment to the Complaint, US Bank seeks to be substituted as Plaintiff in lieu of Bank of America, as successor by merger with LaSalle Bank, trustee for the Plaintiff Trust according to the Trust Document (the Pooling and Servicing Agreement) Section 8.09.

a)    A sub-issue to this is whether Bank of America is actually is the successor by merger to LaSalle Bank or if CitiMortgage is the successor to LaSalle Bank, as Trustee of the Plaintiff Trust — there being conflicting submissions on the SEC.gov website on which it appears that CitiMortgage is the actual party with ownership of ABN AMRO and therefore LaSalle Bank its subsidiary.

b)   In addition, whether opposing counsel, who claims to represent U.S. Bank may be deemed attorney for the Trust if U.S. Bank is not the Trustee for the Trust.

i)     Whether opposing counsel’s interests are adverse to its purported client or the Trust or the Trust beneficiaries, particularly with respect to their recent push for turnover of rents despite full payment to creditors through non stop servicer advances.

4)   Whether any Trustee for the Trust can bring any enforcement action for the debt including foreclosure, assignment of rents or any other relief.

5)   Whether the documentation of a loan at the base of the tree of the assignments and transfers refers to any actual transaction in which the Payee on the note and the Mortgagee on the Mortgage.

a)    Or, as is alleged by Defendants, if the actual transaction occurred when a wire transfer was received by the closing agent at the loan closing with Defendant Borrowers from an entity that was a stranger to the documentation executed by Defendant Borrowers.

b)   Whether the debt arose by virtue of the receipt of money from a creditor or if it arose by execution of documentation, or both, resulting in double liability for a single loan and double payment.

6)   Whether the assignment of mortgage is void on its face as a fabrication because it refers to an event that occurred long after the date shown on the assignment.

7)   Whether the non-stop servicer advances in all of the cases involving these Defendants and U.S. Bank negates the default or the allegation of default by the Trust beneficiaries, the Trust or the Trustee, regardless of the identity of the Trustee.

a)    Whether a DEFAULT exists or ever existed where non stop servicer advances have been paid in full.

b)   Whether the creditor, under the debt obligation of the Defendant borrowers can be allowed to receive more than the amount due as principal , interest and expenses. In this case borrower payments, non stop servicer advances, insurance, credit default swap proceeds and other payments by co-obligors who paid without subrogation or expectation of receiving refunds from the Trust Beneficiaries.

c)    Whether a new debt arises by operation of law as a result of receipt of third party defendants in which a claim might be made by the party who advanced payment to the creditor, resulting in a decrease the account receivable and a corresponding decrease in the borrower’s account (loan) payable.

i)     Whether the new debt is secured by the recorded mortgage that the Plaintiff relies upon without the borrower executing a security instrument in which the real property is pledged as collateral for the advances by third parties.

8)   Whether turnover of rents can relate back to the original default, or default letter, effectively creating a final judgment for damages before evidence is in the court record.

9)   Whether the requirements of a demand letter to Defendants for turnover of rents can be waived by the trial Court, contrary to Florida Statutes.

a)    Whether equity demands that the turnover demand be denied in view of the fact that the actual creditors — the Trust Beneficiaries of the alleged Trust were paid in full up to and including the present time.

b)   Whether, as argued by opposing counsel, the notice of default letter sent to Defendant Borrowers is an acceptable substitute to a demand letter for turnover of the rents if the letter did not mention turnover of rents.

c)    Whether the notice of default letter and acceleration was valid or accurate in view of the servicer non-stop advances and receipt of other third party payments reducing the account receivable of the Trust beneficiaries (creditors).

i)     Whether there was a difference between the account status shown by the Servicer (chase and now SPS) and the account status actually shown by the creditor — the Trust Beneficiaries who were clearly paid in full.

10)         Whether the Plaintiff Trust waived the DUE ON SALE provision in the alleged Mortgage.

a)    Whether the Plaintiff can rely upon the due on sale provision in the mortgage to allege default without amendment to their pleadings.

11)         Whether sanctions should apply against opposing counsel for failure to disclose essential facts relating to the security of the alleged creditor.

Whether this (these cases) case should be treated off the “rocket docket” for foreclosures and transferred to general civil litigation for complex issues

Challenging Deeds Issued After Auction (Sale) of Property

One of the rewarding aspects of what I do is to see more and more people not only hopping on board, understanding securitization, but adding to the body of knowledge I have amassed. In the following article Bill Paatalo, who has done the loan level accounting for many of our readers, expands upon a topic that I have introduced (and of course Dan Edstrom) but not explained nearly as well as Bill does: see http://bpinvestigativeagency.com/time-to-challange-those-trustees-deeds/

EDITOR’S NOTE: I would add that where servicer advances are paid to the creditor (or who we think is the creditor), then there is often an overpayment, which might account for why the “credit bid” is lower than the total amount demanded by the servicer for redemption or reinstatement. This anomaly could void the notice of default and notice of sale and create a problem on the amount required for redemption after the so-called sale.

The legal issue presented by Bill is whether the party who submitted the bid satisfies the state’s legal definition of a creditor who is allowed to submit a credit bid at closing in lieu of cash. This issue is fairly easily analyzed before any order or judgment is entered by a court.

But afterwards, because of the rubber stamping, the judgments mostly state something along the lines that $XXXX.XX is owed by the borrower to the opposing party in litigation. The judgment is final until overturned by appeal or a motion to vacate.

That Judgment makes them a possible creditor and even raises the presumption that they are a creditor when in fact there was no evidence to support that finding in the order or judgment. And ordinarily the courts require that the motion or other attack be verified by a sworn statement from the homeowner. That gets tricky because without having an actual forensic report in your hands, how would the borrower even know about such things?

The judgment can be attacked for fraud because the opposing party had never entered into a transaction wherein it paid value (see Article 9 of UCC) to originate or acquire the loan. Procedural rules vary from state to state on  how this is done and the time limit fro such challenges. In fact, none of the people in the cloud of “securitization” paid anything for the loan, with the exception of the servicer who is credited with having paid servicer advances to the creditor when in fact it appears as though the servicer advances were paid by the investment bank who reserved money out of the pool of money advanced by investors to pay the investors out of their own money. Hence, we see the reason for calling the scheme a PONZI scheme. This is why the issue of STANDING keep bouncing back front and center.

Without an attack on the Judgment I doubt if your state law will allow you to challenge the sale or the sale price. Obviously, before you act on anything on this blog, you need to consult with an attorney who is licensed and experienced in such matters and who practices in the jurisdiction in which your property is located.

For those who are good with computer graphics, here are two drawings I recently made to describe the process of securitization as it played out. The bottom line is that the investment bank diverted the money from the trust and diverted the documentation that was due to the investors to its own strawmen, trading on that documentation and making a ton of money while the investor/lenders and homeowner/borrowers lost either everything or a substantial amount of their wealth that ended up in the pocket of the banks. Anyone who is good with graphics is invited to donate their time to this website and make my hand drawn sketches easier to read and perhaps animated. Neil Garfield Securitization Diagrams 12-20-13

Posted by BPIA on December 18, 2013 bi Bill Paatalo:

For the past couple of years, I have been providing clients with the internal loan level accounting data, which reveals in most instances of private securitization, that all payments “due” on the notes have been paid regularly by undisclosed “co-obligors.” Thus there becomes an issue of fact as to whether or not the “note” is actually in “default.” Word through the grapevine is that this particular argument is gaining some momentum in certain jurisdictions throughout the United States.

Well now it’s time to use the same internal accounting data to attack those dubious “Trustee’s Deeds.” In non-judicial foreclosure states, a ”Trustee’s Deed Upon Sale” or Trustee’s Deed” is recorded after the foreclosure sale. Often, the property is sold back to the supposed creditor into what is called “REO” status. In cases where the subject loans were alleged to have been securitized, the Trustee’s Deed will typically state that the Trustee for “XYZ Mortgage-Backed Trust” was the “highest bidder” at the sale and paid cash in the amount of $………..(whatever dollar figure.) There are many reasons to question the validity of these documents; such as the actual parties submitting the “credit bids,” and whether or not any actual cash exchanged hands as attested to under notary acknowledgment. However, there is a way to provide evidence and proof that no such payment ever exchanged hands.

The following language was extracted from a typical Trustee’s Deed:

Trustees Deed language snip

In this particular case, the alleged amount owed in the “Notice of Default” was roughly $314,000.00. A check of the internal accounting for this particular loan (6-months after the sale) shows the loan in “REO” status with no such payment having ever been applied. In fact, the certificateholders (investors) are still receiving their monthly payments of P&I with the trust showing “zero” losses.

This is good hard evidence that the sale and subsequent Trustee’s Deed filed in this case was a “sham” transaction.

If your loan was alleged to have been securitized by a private mbs trust, and your home sold in similar fashion with a recorded Trustee’s Deed, contact me today (bill.bpia@gmail.com) to see if your Trustee’s Deed matches up with the internal accounting data.

Living lies now offers Expert Affidavits showing what was stated in the Trustee’s Deed as opposed to what has actually occurred behind the curtains. See http://www.livingliesstore.com. Most people ask for consults with me and/or the expert, like Bill, so their lawyer understands what to do with this information.

US Bank Antics versus Their Own Website

Editor’s Note: In answer to the many inquiries we get, I am ONLY licensed in the State of Florida. The reason you see my name pop up in other states is that I am frequently an expert witness and trial consultant on cases, working for the lawyer who is licensed in that state. My law firm, Garfield, Kelley and White provides direct representation in most parts of Florida and litigation support to lawyers in Florida and other states.

Many lawyers are now well versed enough to proceed with only a little help from us. But some need our templates, drafting and scripts for oral argument of motions and other court appearances. I have not appeared pro hac vice in any case thus far and I doubt that I will be able to to do so. So if you want litigation support for your cases, the lawyer should contact my office at 850-765-1236. If you are unrepresented it will be much more challenging to provide such support as it might be construed as the unauthroized practice of law.

 

US Bank is popping up all over the place as the Plaintiff in judicial actions and the initiator of foreclosures in non- judicial states. It is one of the leading parties in the shell game that is mistaken for securitization of loans. But on its own website it admits against the interests that it has advanced in courts across the country, that it has NO POWER TO FORECLOSE or to pursue any other remedies.

US Bank pops up as the foreclosing party as trustee for some supposedly securitized asset pool masquerading as a REMIC trust ( which we all know now was breached in virtually every way, which is why the IRS granted a one year amnesty for the trusts to get their acts together — an action of dubious legality).

Both US Bank and the the Pooling and Servicing Agreement will usually state flat out that the servicer makes all decisions and takes all actions relating to the borrower and the borrower’s payments. There are several reasons for this one of which is the obvious conflict that could occur if the the servicer and the trustee were both bringing foreclosure actions.

But the other reason, the hidden one, is that the banks want to keep the court’s attention on the borrower’s contract and keep it away from the lender’s contract which is quite different than the borrower’s contract. And THAT will invite inquiry as to how or even if the two contracts are related or connected such that the mortgage encumbrance gives rights to the trust beneficiaries such that the collection and foreclosure efforts will inure to the benefit of the trust beneficiaries in the REMIC trust.

So why is US Bank violating both the content and intent of the PSA and its own website? In my own law firm I have two entirely different foreclosure cases — one in which US Bank is the foreclosing party and the other where the servicer started the foreclosure action. Both loans are claimed to be in the same trust although one is in California and the other is in Florida. Why would Chase bank as servicer started an action? Even worse, why did Chase bank start the action as though it was the creditor and claim that there was no securitization? [In the Florida case I am lead counsel whereas in the California case I am only an expert witness and consultant].

I am not sure about the answers to these questions but I have some conjectures.

In the Florida case, US Bank is bringing the case because the servicer can’t — it knows and its records show non-stop servicer advances to the trust beneficiaries of the REMIC trust that supposedly was funded and who purchased or originated the loans in the trust. In the California case, even though the servicer advances are still present it is non-judicial so it is easier for Chase to slip by without even pausing because unless the homeowner brings a legal action to stop the foreclosure sale it just happens. And then it is over.

But Chase is treading on thin ice here which is why it is now transferring the servicing rights —- and therefore the rights to litigate — to SPS who did not make the servicer advances. Of course the servicer advances are probably actually paid by the broker dealer who is holding the money of the trust beneficiaries without THEM knowing that the broker dealer has not used their money entirely for mortgage loans — and instead took a large chunk out as a “trading profit” when it was a tier 2 yield spread premium that should have been disclosed at closing.

One of the more interesting questions is whether the modification or refi of the loan renews the effect of TILA violations thus enabling the borrower to claim the undisclosed compensation, treble damages, interest and attorney fees. A suggestion here about that — most lawyers are ignoring the damage aspect of these cases and seeing the TILA has a defined statute of limitations that appears to have run. I would take issue as to whether it has in fact run, but even more importantly there is still an action for common law fraud unless blocked by a separate statute of limitations. The extra profits collected by those entities in the cloud of parties who served in various roles in the securitization process are all fair game for recovery or set-off against the amount claimed as due as principal of the loan. It can also be used to cause severe collateral damage — literally — because it would probably reveal that the mortgage encumbrance was never perfected by completion of the loan contract.

Both Chase and US Bank are going into bankruptcy courts in Chapter 11 proceedings and demanding adequate protection payments while the bankruptcy is proceeding, knowing and withholding the fact that the creditor is being paid every month and there is no default from the creditor’s point of view. This would be important information for the debtor in possession and the his attorney and the Judge to know. But it is withheld in the hope that the borrower/debtor will never discover the truth — and in most cases they don’t, unless they get a loan level account report based upon a solid securitization report which is based upon a good title report. see http://www.livingliesstore.com.

Both US Bank and Chase are wiling to endure awards of sanctions for misleading the court as a cost of doing business because the volume of complaints about their illegal and fraudulent activities is nearly zero when compared with the total of all state court, federal court and bankruptcy actions. But now they are treading on even thinner ice — they are seeking to get turnover of rents with people who own multiple properties. Their arrogance apparently overcame their judgment. The owners of multiple properties frequently have substantial resources to litigate against the US Bank and Chase and now SPS. The truth is coming out in those cases.

Other Banks who say they are trustees simply direct the borrower or other inquirers to the servicer. But where US Bank is involved it is seeking profit at the expense of the trust beneficiaries and the owners of the real property involved. It seems to me that US Bank has gotten too cute by half and is now exposed to multiple actions for fraud. And I question whether the current revelations about US Bank BUYING the position of trustee has any legal support. I don’t think it does — not in the PSA, not in the statutes nor under common law.

SEE US Bank Role-of-Trustee-Sept2013

Back to HOLDER and HOLDER IN DUE COURSE

When I first got into this mortgage mess I called counsel for Aurora on a foreclosure case pending in California. I asked him how the currently self-designated entity pursuing foreclosure could justify its actions. His answer was “we are the holder.” So I asked him again why a company that has no financial stake in the outcome and who clearly does not meet the definition of a creditor of this borrower could initiate a foreclosure proceeding. And he answered again “we are the holder.” So I asked him does this mean the entity that he is alleging is the holder is acting for or against the interest of the actual creditor? And he answered again “we are the holder.” So I asked him, whether he was asserting that the entity pursuing foreclosure was a holder in due course. And he answered again “we are the holder.” By the way, this was not some foreclosure mill newbie. This was the main guy in Chicago who had been the architect of the legal plan for foreclosures.

In the months after that I received a quick lesson. Everything I knew about bills and notes (commercial paper, negotiable instruments etc.) was going to be put to the test. And it became apparent that notwithstanding clear law to the contrary, the holder was going to be treated as a holder in due course regardless of the actual facts. The justification for this practice rested squarely on two assumptions that were considered to be axiomatically true:

(1) It was assumed that the borrower and received the loan and failed to pay it “back”
(2) It was inevitable that despite any technical defenses a borrower could raise, that the outcome would be foreclosure — which led to a disastrous public policy of rubber stamping millions of foreclosures without any requirement that the forecloser and its paperwork be subject to any scrutiny at all.

The millions of foreclosures had placed an impossible burden on the court system. Based upon the  above assumptions, the remedy was clear — get the cases pushed through to to the foreclosure auction as quickly as possible and thus clear the docket. The idea of retaining existing practices where a Judge would scrutinize the documents and allegations with or without the homeowner present, was set aside despite the fact that every state has declared that forfeiture is an extreme remedy.

Instead in non-judicial states, a trustee was installed and merely had to receive instructions from the beneficiary of a deed of trust. Anyone could and would do that. Some entity not on the loan and having no relationship with the originator of the loan would state that it was the beneficiary and was now executing a substitution of trustee under the powers vested in the beneficiary, and the new “trustee” was a controlled or contract entity that was created for the express purpose of foreclosing on the property — minding only the instructions of the new beneficiary — without any verification that the claimed beneficiary had any interest in the loan, the debt, the note or the deed of trust.

In judicial states Judges routinely ignored meritorious defenses treating these fictitious entities as though they were holders in due course and thus excluding nearly every potential defense. The same logic applied — since it was inevitable that the foreclosure would happen anyway, why hold it up? The idea that this was part of a vast scheme of financial fraud and that the perpetrators were being being rewarded with houses when they had already stolen the money that paid for the loans was mere poppycock, conspiracy theory. Even when the lawsuits and charges from investors, administrative agencies, law enforcement, insurers, guarantors and co-obligors stated that the basis of these transactions was rooted in financial fraud, Judges continued to rule based upon the public policy of clearing the docket of inevitable foreclosure sales.

But now, it appears as though some cases of mine are being transferred out of the foreclosure docket and into general litigation or even complex litigation where the old rules apply. Judges in the foreclosure docket are commenting about the shell game played where the servicers are suddenly changed right before trial, and where the elements of their cause of action don’t appear to be present. Judgments are being entered in favor of the borrower that are reciting that the Plaintiff failed to meet its burden of proof — still coming up short on the statement that this was part of a fraudulent scheme and that the perpetrators of such a scheme should not be allowed to profit from it.

So now that we are heading back into the territory where the rules of law, the rules of evidence and the rules of procedure apply again, it is important that you understand the essential nature of bills and notes (negotiable instruments). And we start with the proposition that there has been a legislative and judicial determination that negotiable cash equivalent instruments should be allowed to exist. This means that if you receive a negotiable instrument as a holder in due course, it is yours to use anyway you want the same as cash or to collect from the original maker, regardless of anything that happened between the original maker of the note and whoever he or she or they were dealing with at the time the negotiable instrument was created.

The first point is that a negotiable instrument can ONLY be a promise to pay that is NOT conditioned on anything. The maker is agreeing to pay regardless of any other dealings he has had with any other party at any time. A promissory note can be an unconditional promise to pay. A mortgage is not an unconditional promise to pay (there are not two notes for the same transaction). The mortgage is a collateral agreement for protection of the creditor in the event that the collection on the note does not satisfy the full debt. The mortgage is not a negotiable instrument. But in some jurisdictions it is treated as an attachment to the note such that the endorsement (“indorsement”) of the note also transfers ownership of the rights under the collateral mortgage or deed of trust. Those are called “mortgage follows the note jurisdictions.” In other jurisdictions the assignment of the mortgage gives rise to an implied assignment of the note. Those are called “note follows the mortgage” jurisdictions. Note that a mortgage cannot be endorsed — it is a legal agreement that requires assignment. And there are jurisdictions that do both.

The aim here under public policy that is centuries old, is to promote the free flow of commerce and leave disputes to the people involved in the dispute and not present a danger to an innocent third party who takes an apparently negotiable instrument as an unconditional promise to pay only to be confronted with the maker’s defenses of fraud in the original or subsequent transactions. This is an over-riding public doctrine. It is the reason why I have warned from the beginning that failure to dot an “i” or cross a “t” is going to get you nowhere in terms of winning your case. But if you can prove that the current “holder” is part of the fraud you can knock them down from their pedestal of being a holder in due course and thus just a holder or even less a possessor (bailment) holding no rights to enforce under any conditions. This is why the actual transaction documents and methods of payment at each stage of the “assignments”or “endorsements” of the instruments must be carefully examined starting with the origination. By actual transactions I mean — “SHOW ME THE MONEY.” The UCC says “for value” and so if someone claims to have received ownership of the note then in order for them to aspire to holder in due course status they must show they paid for it.

When you see a loan closing followed some hours later by an assignment followed a few minutes later by another assignment, you can assume that something was not disclosed to the borrower and that the actual lender was probably not stated on the loan papers, which means the basics of contract law apply — the borrower’s act of executing the loan papers, including the note (that would have otherwise been a negotiable instrument) was not counterbalanced by the named payee making the loan. Thus the contract is unexecuted and unenforceable unless the Payee and mortgagee can establish disclosure and an actual relationship with the true source of the loan, such that the Payee was the borrower in a transaction in which a third party actually made the loan.

But just because you have it and just because you claim to be a holder in due course doesn’t make it true. You might not have it, you might have forged or fabricated the original, and you might have actually known about problems and defenses of the maker when you took it, or the maker might not have known the true nature of the transaction and you did. In all those cases you are not a holder in due course and every action or defense that could be brought in a breach of contract action would apply to you as a holder (if you really have it) or mere possessor. AND THE KEY ELEMENT BEFORE ALL OTHER INQUIRIES IS WHETHER YOU RECEIVED THE NEGOTIABLE INSTRUMENT FOR VALUE, WHICH MEANS YOU PAID MONEY FOR THE SALE OF THAT INSTRUMENT. The banks that assert that their own self-serving allegation of holder or holder in due course ends the inquiry in terms of discovery are just plain wrong.

This is long enough. I will expand on these issues in upcoming articles. In the meanwhile read carefully the following cases, especially the KIND case, which shows how extraordinary the powers of a holder in due course can be.

See UCC 3-305

U.S. v Second National Bank of North Miami, 1974, 502 F. 2d 535, cert denied, 95 S Ct. 1567, 4221 U.S. 912, 43 L. ed. 777

Davis vs. West, App 2 d DCA 114 So. 2d, 703 (1959)

Daiwa Products, Inc. v Nationsbank, N.A. 885 So. 2d 884 (Fla 4th DCA 2004)

Kind v Gittman 889 So.2d 87 4th DCA (2004)

EDITOR’S NOTE: read the Kind case. see if you don’t agree that this case opens the door to appraisal fraud both as a counterclaim and set off. But the basis is that you must plead and prove that the property was worth something different at the time of the transaction that what the appraisal said. The action is against both the appraiser and the lender, because the appraisal is a representation of the lender. The resulting damages in interest and principal payments could produce the reduction in principal sought by so many homeowners in litigation.

New Bank Strategy: There was no securitization — IRS AMNESTY FOR REMICs

Reported figures on the financial statements of the “13 banks” that Simon Johnson talks about, make it clear that around 96% of all loans originated between 1999 and 2009 are subject to claims of securitization because that is what the investment banks told the investors who advanced money for the purchase of what turned out to bogus mortgage bonds. So the odds are that no matter what the appearance is, the loan went through the hands of an investment banker who sold “bonds” to investors in order to originate or acquire mortgages. This includes Fannie, Freddie, Ginny, and VA.

The problem the investment banks have is that they never funded the trusts and never lived up to the bargain — they gave title to the loan to someone other than the investors and then they insured their false claims of ownership with AIG, AMBAC, using credit default swaps and even guarantees from government or quasi government agencies. Besides writing extensively in prior posts, I have now heard that the IRS has granted AMNESTY on the REMIC trusts because none of them actually performed as required by law. So we can assume that the money from the lender-investors went through the investment banks acting as conduits instead of through the trusts acting as Real Estate Mortgage Investment Conduits.

This leads to some odd results. If you foreclose in the name of the servicer, then the authority of the servicer is derived from the PSA. But if the trust was not used, then the PSA is irrelevant. If you foreclose in the name of the trustee, using a fabricated, robo-signed, forged assignment backdated or non dated as is the endorsement, you get dangerously close to exposing the fact that the investment banks took a chunk out of the money the investors gave them and booked it as trading profit. One of the big problems here is basic contract law — the lenders and the borrowers were not presented with and therefore could not have agreed to the same terms. Obviously the borrower was agreeing to pay the actual amount of the loan and was not agreeing to pay the overage taken by the investment bank. The lender was not agreeing to let the investment bank short change the investment and increase the risk in order to make up the difference with loans paying higher rates of interest.

When we started this whole process 7 years ago, the narrative from the foreclosing entities and their lawyers was that there was no securitization. Their case was based upon them being the holder of the note. Toward that end they then tried lawsuits and non-judicial foreclosures using MERS, the servicer, the originator, and even foreclosure servicer entities. They encountered problem because none of those entities had an interest in the loan, and there was no consideration for the transfer of the loan. Since they were filing in their own name and not in a representative capacity there were effectively defrauding the actual creditor and having themselves designated as the creditor who could buy the property at foreclosure auction without money using a “credit bid.”

Then we saw the banks change strategy and start filing by “Trustee” for the beneficiaries of an asset backed (securitized) trust. But there they had a problem because the Pooling and Servicing Agreement only gives the servicer the right to enforce, foreclose, or collect for the “investor” which is the trust or the beneficiaries of the asset-backed trust. And now we see that the trust was in fact never used which is why the investment banks were sued by nearly everyone for fraud. They diverted the money and the ownership of the loans to their own use before “returning” it to the investors after defaults.

Now we are seeing a return to the original strategy coupled with a denial that the loan was securitized. One such case I am litigating CURRENTLY shows CitiMortgage as the Plaintiff in a judicial foreclosure action in Florida. The odd thing is that my client went to the trouble of printing out the docket periodically as the case progressed before I got involved. The first Docket printed out showed CPCA Trust 1 as the Plaintiff clearly indicating that securitization was involved. Then about a year later, the client printed out the docket again and this time it showed ABN AMRO as trustee for CPCA Trust-1. Now the docket simply shows CitiMortgage which opposing counsel says is right. We are checking the Court file now, but the idea advanced by opposing counsel that this was a clerical error does not seem likely in view of that the fact that it happened twice in the same file and we never saw anything like it before — but maybe some of you out there have seen this, and could write to us at neilfgarfield@hotmail.com.

Our title and securitization research shows that ACCESS Mortgage was the originator but that it assigned the loan to First National which then merged with CitiCorp., whom opposing counsel says owns the loan. The argument is that CitiMortgage has the status of holder and therefore is not suing in a representative capacity despite the admission that CitiMortgage doesn’t have a nickel in the deal, and that there has been no financial transaction underlying the paperwork purportedly transferring the loan.

Our research identifies Access as a securitization player, whose loan bundles were probably underwritten by CitiCorp’s investment banking subsidiary. The same holds true for First National and CPCA Trust-1 and ABN AMRO. Further we show that ABN AMRO acquired LaSalle Bank in a reverse merger, as I have previously mentioned in other posts. Citi has reported in sworn documents with the SEC that it merged with ABN AMRO. So the docket entries would be corroborated as to ABN AMRO being the trustee for CPCA Trust 1. But Citi says ABN AMRO has nothing to do with the subject loan. And the fight now is what will be allowed in discovery. CitiMortgage says that their answer of “NO” to questions about securitization should end the inquiry. I obviously take the position that in discovery, I should be able to inquire about the circumstances under which CitiMortgage makes its claim as holder besides the fact that they physically possess the note, if indeed they do.

Some of this might be revealed when the actual court file is reviewed and when the clerk’s office is asked why the docket entries were different from the current lawsuit. Was there an initial filing, summons or complaint or cover sheet identifying CPCA Trust 1? What caused the clerk to change it to ABN AMRO? How did it get changed to CitiMortgage?

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.

BAD FAITH: Shack Decision Unravels the Chase-Wamu Mystery -At least in Part

Shack Blasts Chase, Fannie Mae for Bad Faith on Wamu Merger

It is obvious that documents were produced for Shack to issue these rulings. The affidavits to which he refers should be obtained in their entirety. There is lots to take away from this decision, but most important, is that Chase never acquired the loans from WAMU. The loans originated or acquired by WAMU were already sold to investors, trusts and Fannie or Freddie. The issue with Fannie and Freddie of course is that they were merely fronting for “private label” securitizations hiding behind the veil of the GSE’s who were mere guarantors and not lenders. I’d like to see any agreement and transactional documents showing the alleged purchase by Fannie, but it is presumed in the Shack Order and Findings.

It is also obvious that the finding that Chase was not the owner of the debt at any time came from an admission from both a Fannie Mae representative in an affidavit from an alleged Fannie Mae representative. We should direct discovery in Chase cases to that person in Fannie Mae who says they acquired the subject debt and that Chase merely received the servicing rights in the Chase-WAMU merger.

Note that Fannie Mae is considered by Shack to have acted in bad faith, and that Fannie was less than forthcoming in its description of itself stating that they might be the owner or they might be the trustee (pursuant to the Master Trustee Agreement published in 2007) for a securitized trust. Note also that Fannie at no time was chartered as a lender. Thus it could not originate any loans and never did so. The vagueness with which Fannie Mae addresses the issue of ownership shows that the hiding and non-disclosure in bankruptcy courts and state courts continues across the country.

The admission from Fannie that they “might” be the Master trustee for allegedly securitized assets (debts arising out of fictitious transactions on paper that looked like mortgage loans) is both alarming and encouraging. The rush to foreclosure is partially explained by this chaotic pile of fraudulent paper trails.

When you take into account the non stop servicer advances, you can see what the parties are hiding — that the real creditor on those debts, has been paid all the interest they were expecting, that the principal is being paid in settlements with pennies on the dollar, and that the default alleged in notices from servicers and informing the borrower of the right to reinstate were defective, to wit: that the amount stated as required to cure the alleged default was and remains incorrect. The amount should have been reduced by third party payments including but not limited to the servicer advances which were not loans, and thus could only be characterized as PAYMENT, which is the ultimate defense against a lawsuit or any enforcement mechanism designed to collect a debt.

The dirty little secret is that they diverted title and money from the investors and converted what could have been a secured loan into an unsecured loan. The advances and payments by third parties satisfied the debt that arose when the borrower took the loan. They in turn MIGHT have claims for contribution or unjust enrichment but they are most certainly not protected by a pledge of collateral either as mortgage or assignment of rents or anything else.

Note that it could not have acquired loans except with money from what were represented as securitized trusts with Fannie as master Trustee. Therefore there are no circumstances under which Fannie or Freddie could be owners of the the debt with rights to enforce except upon the only event in which money is paid by Fannie for the loan — a guarantee payment AFTER FORECLOSURE) that is the only transaction permitted under its charter. This point was missed by Shack or ignored by him, because he had bigger fish to fry — the lawyers for Chase itself with a copy of the order to be served upon Jamie Dimon, the head of Chase.
The fact is that with the WAMU bankruptcy, seizure by OTS and appointment of FDIC, there were no assignments, agreements of sale or even a permission slip under which Chase could or did acquire loans from WAMU. But that didn’t stop Chase from claiming exactly that in tens of thousands of foreclosures.
In cases where Chase is allegedly at the root of title through the merger with WAMU, it would be appropriate to site to the Shack case, get the case documents, get a Title and Securitization report (see http://www.livingliesstore.com) and lawyers should look into a motion for summary judgment, or a motion for involuntary dismissal with prejudice. Even where Chase might allege that it is filing the foreclosure as a representative of Fannie or Freddie, the basis for that allegation needs to be in their pleading or it is not an ULTIMATE fact upon which relief could be granted. Discovery should be aimed at getting the documents upon which Chase allegedly relies in showing that it has the authority to represent Fannie — and don’t stop there. The truth is that nearly all the so-called Fannie and Freddie loans were veils for the private label securitization in which the money was diverted from the trust, as was the title, leaving Fannie and Freddie as well as the investors and the buyers holding nothing.

In cases where the statute of limitations has already run, the dismissal of the foreclosure action, is barred in most cases from ever being brought again by anyone. But the dismissal against Chase should be with prejudice in all events because it isn’t the creditor and therefore does not satisfy the statutory requirements in Florida, and I presume all other states, to submit a credit bid at auction in lieu of cash.
The Judges are beginning to understand that by applying basic contract law, they can clear their dockets. It is up to us to help them. The offer of a loan was met with acceptance by the borrower but the loan never occurred. The transfers also had offer and acceptance but again no money because the investors’ money was used (outside the trust) directly to fund the origination or acquisition of the loan. This was part of a larger scheme to defraud to investors whose money was to have been deposited into the trust and then used to fund origination or acquisition of the he loans within 90 days (the cutoff).

The investment bank fraudulently induced (see complaints filed by investors, insurers, government guarantee entities etc.) the investors to give them money for an investment into a controlled trust when in fact they diverted the money for their own purposes, taking outsized fees for themselves as the toxic loans materialized to “support” the alleged investment into loans. That is the “mismanagement” part of investors’ allegations — diversion of money into a PONZI scheme.

The investment bank fraudulently diverted title to the loans to strawman entities or were — sometimes even by name (see American Brokers Conduit) — mere conduits for undisclosed third party lenders. The argument that the parties managed to hide this from the borrower long enough for the statute of limitations to run out on TILA claims is an affront to the court system and to the statutory scheme enacted by Congress to protect borrowers from predatory lenders and “steal” deals where huge fees were taken, rather than earned, without disclosure to the Borrower.

So the first element of fraud alleged by investors is diversion of the the money. The second is diversion of the paperwork that would have protected the investors at least to some extent. In this scheme title to the loan papers was intentionally diverted from the owners of the the debt, thus rendering the so-called mortgage documents unenforceable — all alleged by investors, insurers and other co-obligors who have discovered to their chagrin that each of them paid the investment bank 100 cents on the the dollar on each loan multiple times.

And yet borrowers continue to seek modifications, which means they are not looking for free houses. Even knowing they are dealing with criminals the borrowers are willing to start paying these thieves if the terms can be adjusted to give them the benefit of the bargain that was intended at origination of the purchase money mortgage or refinancing or second mortgage or HELOC.

That leaves the servicers and their lawyers being the only ones who want Foreclosures because they want a free house and/or they want the foreclosure to recapture Servicer advances to the creditors — advances that vastly reduce the amount owed and which cure the alleged borrower default. That has now become a foreclosure folly in which the servicers and their lawyers are the only parties who want it. The investors don’t care because they are getting settlements for the fraud of the investment banks for creating unenforceable loan documents (that are frequently enforced anyway because of judicial ignorance) and diversion of investor money.

In the end, the “clean hands” that Shack talks about are clearly absent from both Servicer and government sponsored entities and as judge Shack states in his decision, wrongdoers should not be permitted to profitf or their wrongdoing. If that means a windfall to the borrower, so be it. It can be likened to the old usury laws and the current usury laws where the principal of the debt is wiped out and the fraudster is hit with a judgment for three times the principal, three times the interest or both.

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