Official Transcript Case Number 40-0918273 CA
Mr. Smith: Your Honor this foreclosure suit was filed over 5 years ago. It is time for judgment to be entered. We have never loaned the Defendant any money, so we can’t be held to have violated any lending laws as the Defendant asserts. We never purchased the loan so we can’t be held for having defrauded anyone as the defendant asserts. We are here on the plaintiff’s motion for summary judgment. Attached to the motion is a nondescript business record showing the payment history of the Defendant, and the date he stopped making payments. The Defendant does not deny he stopped making payments. We left out the trial payments the Defendant made to us for 14 months because we decided not to offer a permanent modification. So we know the Defendant defaulted on the loan. Also attached to the complaint as alleged in the motion is a promissory note that was fabricated in my office, so we know it is the genuine article, contrary to the assertions made by the Defendant. Also attached to the complaint is a mortgage signed by the Defendant. The Defendant does not deny that he signed a note and mortgage at closing. The note and mortgage named the originator of the loan, who also did not loan any money to the Defendant. We have a facially valid allonge, endorsement and assignment that were fabricated in the offices of our vendor in Jacksonville. Each instrument is facially valid, showing a forged signature without authority, two false witnesses and a notary in proper form by virtue of a notary stamp we borrowed from someone in Texas. The signature of the Notary was properly affixed with permission of the Notary in Minnesota by a signatory whose title is that of an official signatory and assistant secretary. Attached to the motion for summary judgment we have an affidavit signed by another assistant secretary of the servicer of the Plaintiff who attests to having familiarity with the records of this loan and affirming that all statements made in the affidavit are true. If Judgment is not entered in favor of the Plaintiff, the entire financial system of this country will collapse because of the many people who bought the loan papers from the originator and still more parties who bought the same loan from the broker dealer who fabricated the deal. It’s a real mess your Honor, and we need to sort it out, starting with the entry of Judgment in this foreclosure. And, oh yes, Your Honor, the servicer presents these facts as agent for the broker dealer who sold bonds to investors who were paid, but they were paid out of their own money that they advanced into the pool. So the amount from the borrower is still due, even thought the proceeds will first go to the servicer, who never made any payments under the servicer advances.
The Court: Mr. Jones?
Mr. Jones: Your Honor, they just admitted to the whole thing being faked, forged, and perjured. You must enter judgment for the Defendant.
Mr. Smith: We never said we faked it. We said we fabricated it. Just because the document was created for the purpose of foreclosing the mortgage doesn’t mean it isn’t valid. It is entitled to a presumption of validity, especially where it has been recorded, which makes it self authenticated even if it is wrong and contains terms, facts and conditions that were plainly untrue.
The Court: I’m afraid he has you there, Mr. Jones, and so I am going to enter Judgment for the Plaintiff, who has been living rent free for 6 years. The creditor, whoever they might be, is entitled to have this house forfeited to recover their damages. No debt should go unpaid simply because of complex transactions on Wall Street. But I am cutting out $29 in inspection fees because they are too high. Judgment is entered for the Plaintiff with a sale date in 90 days, because we have so many of these damn things.
EDITOR’S NOTE: OK I admit it. I made the whole thing up. There is no such case.
Jim Macklin and Dan Edstrom did a great job of packing a great deal of information into 28 minutes of talk time on the Neil Garfield Show last night. I am taking a couple of weeks off the show to do some common follow-up procedures to my heart surgery two years ago. Jim Macklin stepped in and did a great job of getting information into the hands of lawyers and other listeners in what turned out to be a mini-seminar on how to apply Federal tax law to the issue of ownership of the the loan. It should be heard more than once to get all the nuances they presented.
Their point was that all the binding commitments were in place before the mortgage bonds were sold and before any loans were even considered for approval. The bottom line is that the customary practice in the finance industry was to sell forward — i.e., sell the bonds based upon loans that either did not exist or had not yet been acquired by the REMIC trusts. THEN they went out originating loans and acquiring loans.
As we have previously discussed here and elsewhere, the trusts and the trustee never even had a bank account through which the “pass through” assets and income would be funneled to investors. But that only adds fuel to the fire that Edstrom and Macklin were talking about. From a federal tax law perspective, which should pre-empt any state interpretation, the loans belonged to the investors from the start — not the trusts.
The trusts could only be used as a representative entity in litigation if they were funded with the investors’ money. Our research strongly supports the conclusion that no such funding took place. In fact, our research indicates the funding of the trust with the investors money was impossible because no trust accounts were ever created.
Thus you have the “straight line” that goes from the investors to the borrower. This goes directly to the issue of standing. Because once it is established that the consideration for the only real single transaction flowed from the investors to the borrower, no transaction between intermediaries were true.
They were false transactions supported by fabricated documents with no payment of consideration. Article 9 of the UCC completely supports this interpretation along with decisions interpreting federal tax law as to the real parties in interest. As a result the issue of standing is resolved — only the investors have standing to collect on the loans for which borrowers concede they received the money or the benefit.
The assignments shown in court are between intermediary parties who had no actual transaction with no actual payment or consideration because the payment or consideration had already passed through binding commitments set up by the so-called securitization scheme. By not funding the trusts, the broker dealers were free to use the money as they wished and they did.
They broke every rule in the underwriting book because they were traveling under a different set of rules than the investors or the borrowers thought. Because they had promised to make the payments due under the trust document — the pooling and servicing agreement — and because their binding commitments to make the payments for principal, interest, taxes and insurance already existed prior to the sale the mortgage bonds and prior to the loan to the borrower (see servicer advances, trust advances etc.).
As a result, the investors who should have been on the notes and mortgages were deprived of the documentation they were promised in the PSA. In plain language the mortgage documents and the bond documentation were pure fabrications without any underlying transaction between the parties to those transactions. No transaction between the investor and the trust. And no transaction between the “lender” on the note and mortgage and the borrower.
Hence the allegation of investors in their claims against the broker dealers that the note and mortgage is unenforceable to the detriment of the investors, who are left with common law claims for recovery of damages without any security instrument to protect them. hence the claim that borrowers are being sued by intermediaries who were strangers to the ACTUAL transaction with REAL consideration and terms to which both lender and borrower were bound. The terms agreed by the lenders were vastly different than the terms disclosed to borrowers. There was no meeting of the minds.
Filed under: AMGAR, CDO, CORRUPTION, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Neil Garfield Show, Pleading, securities fraud, Servicer, STATUTES, taxes, Title, TRUST BENEFICIARIES, trustee | 101 Comments »
Click in tonite— tune in at The Neil Garfield Show
Or call in at (347) 850-1260, 6pm Thursdays
Guest Host Tonight is Jim Macklin, Managing Director, Secure Document Research located in Nevada. He has been a guest on the show before. A dynamic speaker and presenter, he has assisted me in presenting seminars for CLE credit for lawyers. His guest is Dan Edstrom, senior forensic analyst for the Livinglies Team.
His Topic today will be how tax law determines ownership interests in REMIC assets. For you newcomers, REMIC means Real Estate Mortgage Investment Conduit — it is the trust (usually under New York Law) that supposedly was funded by investors through the broker-dealer that sold the alleged mortgage bonds to pension funds and other stable managed funds.
For those of you who have pondered how a stable managed fund got involved despite restrictions as to what risks are acceptable in investment strategies the answer is simple — they had a guarantee from the servicer and/or the trust and/or the trustee that they would receive the money each month including principal, interest, taxes and insurance REGARDLESS OF WHETHER THE BORROWER PAID. Dan Edstrom and Jim Macklin were the first ones to bring this to my attention. It affects the alleged existence of a default when the creditor is getting paid, the terms of the alleged loan contract, and the alleged balance claimed as owed under the mortgage loan.
Filed under: CORRUPTION, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Neil Garfield Show, Pleading, securities fraud, Servicer, TRUST BENEFICIARIES, trustee | 6 Comments »
I appear to have sparked some controversy over my comments that were directed at modifications and servicer advances — subjects that are not necessarily related. But they could be related — as where the homeowner seeks a modification on which there have been servicer advances.
So to answer some questions about Modifications, I will first state that no article on any subject on this blog is intended to be a complete exposition of an issue — if it was, each post would equivalent to a treatise several hundred pages long. That is why we say don’t use any one article as the authority for your situation and to get advice from competent licensed professionals who can service your needs based upon your information.
That said, there have been numerous comments about modifications, some of which have correct information in them. Like anything else found here, you should check with knowledgeable licensed professionals before you act on anything — especially the comments posted by people who have their own axe to grind. One thing is true — modification has a lot of moving parts and it isn’t as simple as anyone would like it to be. There are also tax issues that effect the calculations which I have not yet explored on these pages.
Modification is a sub-specialty of law in which I do not claim any rights. But that is the point. Most of the people who are giving opinions on modification are not lawyers, nor accountants, nor trained, licensed individuals in any area of any discipline. They have some experience, and that experience has molded their perceptions but they don’t know enough to conceive of solutions outside the box in which they operate. And some of them are on the payroll of banks who are waging a PR campaign in which they are spending billions, in one form or another, to make it look like the loans are real and the modification of them is the right way to go.
Modification IS a real option as long as you get something real. Qualifying for a modification takes time, expertise and the ability to present a credible threat in litigation, which is why I favor lawyers over anyone else doing modifications. The cost-benefit analysis should be done by someone who does this all day long and who is constantly researching options.
I write about bits and pieces. Attorneys who have well defined departments that handle modifications, short-sales, hardest hit programs, and other programs that offer assistance are miles ahead of me and any of the comments I have seen on my writing about modification.
As to servicer advances there is a small debate going on but I stick with my analysis. If the creditor has indeed received payment on the account of the loan that is being collected or foreclosed then there is either no default or the notice of default, notice of acceleration and/or the lawsuit itself and the evidence submitted are wrong as to amount.
The fact that there COULD be a claim against the borrower for unjust enrichment is irrelevant. First, even if the claim exists, it is not secured by the mortgage nor described by the note. Second, it is not likely that those claims will ever be brought.
And lastly — and I do mean lastly — thank you for your various invitations for a debate. My answer is no, I will save that for court or a seminar in which we cover the four corners of the issues. I will not “debate” issues of law with non-lawyers, or anyone else that lacks credentials to challenge anything I have said. And if you have reading this blog for years you can see how I have evolved in my own thinking and analysis causing me to reverse some prior strategies that I had suggested.
But the basic information about securitization presented here is, to the best of my knowledge and belief (see about Neil Garfield), still completely correct and facts and decisions on the ground have proven me right in each case. At first everyone scoffs, then they end up arguing for it. They scoff because some of these things are counter-intuitive — i.e., they seem impossible. That doesn’t make them any less true. I was right about everything, factually in 2007, legally in 2008 and I believe I remain so. It is taking the judicial system a long time to catch up because of the intense complexity and opacity of the “securitization” game.
Filed under: AMGAR, CORRUPTION, evidence, expert witness, foreclosure, foreclosure defenses, GARFIELD KELLEY AND WHITE, GTC | Honor, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Pleading, securities fraud, Servicer, TRUST BENEFICIARIES | 63 Comments »
Nonetheless you are generally correct. And THAT is because the average time anyone lives in a house is 5-7 years, during which an interest reduction would not equate to much of a principal reduction even with inflation factored in. Unsophisticated borrowers get caught in exactly that trap when they do a modification where the monthly payments decline. But when they want to refinance or sell the home they find themselves in a new bind — having to come to the table with cash to sell their home because the mortgage is upside down.
So the question that must be answered is what are the intentions of the homeowner. The only heuristic guide (rule of thumb) that seems to hold true is that if the house has been in the family for generations, it is indeed likely that they will continue to own the property. In that event calculations of interest and inflation, present value etc. make a big difference. But for most people, the only thing that cures their position of being upside down (ignoring the fact that they probably don’t owe the full amount demanded anyway) is by a direct principal reduction.
Filed under: AMGAR, CORRUPTION, discovery, evidence, expert witness, foreclosure, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, inflation, interest rates, MODIFICATION, Mortgage, Motions, Servicer | Tagged: credit default swaps, guarantees, inflation, insurance, interest reduction, loss sharing, lowering your payments, PRINCIPAL REDUCTIONS, term of loan | 24 Comments »
I have frequently commented that one of the first things I learned on Wall Street was the maxim that the more complicated the “product” the more the buyer is forced to rely on the seller for information. Michael Lewis, in his new book, focuses on high frequency trading — a term that is not understood by most people, even if they work on Wall Street. The way it works is that the computers are able to sort out buy or sell orders, aggregate them and very accurately predict an uptick or down-tick in a stock or bond.
Then the same investment bank that is taking your order to buy or sell submits its own order ahead of yours. They are virtually guaranteed a profit, at your expense, although the impact on individual investors is small. Aggregating those profits amounts to a private tax on large and small investors amounting to billions of dollars, according to Lewis and I agree.
As Lewis points out, the trader knows nothing about what happens after they place an order. And it is the complexity of technology and practices that makes Wall Street behavior so opaque — clouded in a veil of secrecy that is virtually impenetrable to even the regulators. That opacity first showed up decades ago as Wall Street started promoting increasing complex investments. Eventually they evolved to collateralized debt obligations (CDO’s) and those evolved into what became known as the mortgage crisis.
in the case of mortgage CDO’s, once again the investors knew nothing about what happened after they placed their order and paid for it. Once again, the Wall Street firms were one step ahead of them, claiming ownership of (1) the money that investors paid, (2) the mortgage bonds the investors thought they were buying and (3) the loans the investors thought were being financed through REMIC trusts that issued the mortgage bonds.
Like high frequency trading, the investor receives a report that is devoid of any of the details of what the investment bank actually did with their money, when they bought or originated a mortgage, through what entity, for how much and what terms. The blending of millions of mortgages enabled the investment banks to create reports that looked good but completely hid the vulnerability of the investors, who were continuing to buy mortgage bonds based upon those reports.
The truth is that in most cases the investment banks took the investors money and didn’t follow any of the rules set forth in the CDO documents — but used those documents when it suited them to make even more money, creating the illusion that loans had been securitized when in fact the securitization vehicle (REMIC Trust) had been completely ignored.
There were several scenarios under which property and homeowners were made vulnerable to foreclosure even if they had no mortgage on their property. A recent story about an elderly couple coming “home” to find their door padlocked, possessions removed and then the devastating news that their home had been sold at foreclosure auction is an example of the extreme risk of this system to ALL homeowners, whether they have or had a mortgage or not. This particular couple had paid off their mortgage 15 years ago. The bank who foreclosed on the nonexistent mortgage and the recovery company that invaded their home said it was a mistake. Their will be a confidential settlement where once again the veil of secrecy will be raised.
That type of “mistake” was a once in a million possibility before Wall Street directly entered the mortgage loan business. So why have we read so many stories about foreclosures where there was no mortgage, or was no default, or where the mortgage loan was with someone other than the party who foreclosed?
The answer lies in how these properties enter the system. When a bank sells its portfolio of loans into the system of aggregation of loans, they might accidentally or intentionally include loans for which they had already received full payment. Maybe they issued a satisfaction maybe they didn’t. It might also include loans where life insurance or PMI paid off the loan.
Or, as is frequently the case, the “loan” was sold after the homeowner was merely investigating the possibility of a mortgage or reverse mortgage. As soon as they made application, since approval was certain, the “originator” entered the data into a platform maintained by the aggregator, like Countrywide, where it was included in some “securitization package.
If the loan closed then it was frequently sold again with the new dates and data, so it would like like a different loan. Then the investment banks, posing as the lenders, obtained insurance, TARP, guarantee proceeds and other payments from “co-obligors” on each version of the loan that was sold, thus essentially creating the equivalent of new sales on loans that were guaranteed to be foreclosed either because there was no mortgage or because the terms were impossible for the borrower to satisfy.
The LPS roulette wheel in Jacksonville is the hub where it is decided WHO will be the foreclosing party and for HOW MUCH they will claim is owed, without any allowance for the multiple sales, proceeds of insurance, FDIC loss sharing, actual ownership of the loans or anything else. Despite numerous studies by those in charge of property records and academic studies, the beat goes on, foreclosing by entities who are “strangers to the transaction” (San Francisco study), on documents that were intentionally destroyed (Catherine Ann Porter study at University of Iowa), against homeowners who had no idea what was going on, using the money of investors who had no idea what was going on, and all based upon a triple tiered documentary system where the contractual meeting of the minds could never occur.
The first tier was the Prospectus and Pooling and Servicing Agreement that was used to obtain money from investors under false pretenses.
The second tier consisted of a whole subset of agreements, contracts, insurance, guarantees all payable to the investment banks instead of the investors.
And the third tier was the “closing documents” in which the borrower, contrary to Federal (TILA), state and common law was as clueless as the investors as to what was really happening, the compensation to intermediaries and the claims of ownership that would later be revealed despite the borrower’s receipt of “disclosure” of the identity of his lender and the terms of compensation by all people associated with the origination of the loan.
The beauty of this plan for Wall Street is that nobody from any of the tiers could make direct claims to the benefits of any of the contracts. It has also enabled then to foreclose more than once on the same home in the name of different creditors, making double claims for guarantee from Fannie Mae, Freddie Mac, FDIC loss sharing, insurance and credit default swaps.
The ugly side of the plan is still veiled, for the most part in secrecy. even when the homeowner gets close in court, there is a confidential settlement, sometimes for millions of dollars to keep the lawyer and the homeowner from disclosing the terms or the reasons why millions of dollars was paid to a homeowner to keep his mouth shut on a loan that was only $200,000 at origination.
This is exactly why I tell people that most of the time their case will be settled either in discovery where a Judge agrees you are entitled to peak behind the curtain, or at trial where it becomes apparent that the witness who is “familiar” with the corporate records really knows nothing and ahs nothing about the the real history of the loan transaction.
Filed under: AMGAR, CDO, CORRUPTION, discovery, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, originator, Pleading, securities fraud, Servicer, STATUTES, TRUST BENEFICIARIES, trustee | Tagged: appraisal fraud, bailout, countrywide, disclosure, Fannie, foreclosure, foreclosure defense, foreclosure offense, FORECLOSURE SETTLEMENT, fraud, RESPA, securitization, TILA audit | 62 Comments »
Several people are issuing statements about servicer advances, now that they are known. They fall into the category of payments made to the creditor-investors, which means that the creditor on the original loan, or its successor is getting paid regardless of whether the borrower has paid or not. The Steinberger decision in Arizona and other decisions around the country clearly state that if the creditor has been paid, the amount of the payment must be deducted from the amount allegedly owed by the “borrower” (even if the the borrower doesn’t know the identity of the creditor).
The significance of servicer advances has not escaped Judges and lawyers. If the payment has been made and continues to be made, how can anyone declare a default on the part of the creditor? They can’t. And if the payment has been made, then the notice of default, the end of month statements, the notice of acceleration and the amount demanded in foreclosure are all wrong by definition. The tricky part is that the banks are once again lying to everyone about this.
One writer opined either innocently or at the behest of the banks that the servicers were incentivized to modify the loans to get out of the requirement of making servicer advances. He ignores the fact that the provision in the pooling and servicing agreement is voluntary. And he ignores the fact that even if there is a claim for having made the payment instead of the borrower, it is the servicer’s claim not the lender’s claim. That means the servicer must bring a claim for contribution or unjust enrichment or some other legal theory in its own name. But they can’t because they didn’t really advance the money. Anyone who has experience with modification knows that the servicers make it very difficult even to apply for a modification.
Filed under: AMGAR, CORRUPTION, escrow agent, evidence, expert witness, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Servicer, TRUST BENEFICIARIES, trustee | Tagged: broker-dealer, creditor, investment bank, Investor, mortgage loans, pooling and servcing agreement, Prospectus, Servicer advances | 82 Comments »
Carol Molloy is our guest tonite. She is a foreclosure defense litigator who is a member of the Bar in Tennessee and she used to practice in Massachusetts. We are going to be talking about non-judicial foreclosures, due process and the facts on the ground.
Tune in The Neil Garfield Show, which airs on Thursday nights at 6 PM for 30 minutes or call in at (347) 850-1260, 6pm Thursdays
Danielle Kelley, esq., my law partner frequently says she likes to start with the jury instructions because that is where everything is boiled down to their simplest components. I think it is wise to make references to the standard jury instructions (plus the fact that they were introduced as an amendment to the Florida rules of Civil Procedure — thus overriding anything the Judge thought he knew).
For example, on evidence for use in motions and at trial —
301.5 EVIDENCE ADMITTED FOR A LIMITED PURPOSE
The (describe item of evidence) has now been received into evidence. It has been admitted only [for the purpose of (describe purpose)] [as to (name party)]. You may consider it only [for that purpose] [as it might affect (name party)]. You may not consider that evidence [for any other purpose] [as to [any other party] [(name other party(s)].
That admonishment is not just for jurors — its also for jurists. There is not one set of laws that apply to juries and an entirely different set of substantive law if the case is heard by the Judge. Of course the recent case decided by Judge William Zloch in Fort Lauderdale Federal Court might make these jury instructions directly relevant.
Another example, this time on third party beneficiaries — careful that this double edged sword does not swing back at you and the need for consideration for there to be an enforceable contract—
416.2 THIRD-PARTY BENEFICIARY
(Claimant) is not a party to the contract. However, (claimant) may be entitled to damages for breach of the contract if [he] [she] [it] proves that (insert names of the contracting parties) intended that (claimant) benefit from their contract.
It is not necessary for (claimant) to have been named in the contract. In deciding what (insert names of the contracting parties) intended, you should consider the contract as a whole, the circumstances under which it was made, and the apparent purpose the parties were trying to accomplish.
SOURCES AND AUTHORITIES FOR 416.2
See RESTATEMENT (SECOND) OF CONTRACTS § 302 (1981):
[A] beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and … the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
While the Supreme Court has not commented directly on the applicability of the Restatement (Second) of Contracts § 302 (1981) (but note Justice Shaw’s partial concurrence in Metropolitan Life Ins. Co. v. McCarson, 467 So.2d 277, 280-81 (Fla. 1985)), all five district courts of appeal have cited the Restatement (Second) of Contracts § 302 (1981). Civix Sunrise, GC, LLC v. Sunrise Road Maintenance Assn., Inc., 997 So.2d 433 (Fla. 2d DCA 2008); Technicable Video Systems, Inc. v. Americable of Greater Miami, Ltd., 479 So.2d 810 (Fla. 3d DCA 1985); Cigna Fire Underwriters Ins. Co. v. Leonard, 645 So.2d 28 (Fla. 4th DCA 1994); Warren v. Monahan Beaches Jewelry Center, Inc., 548 So.2d 870 (Fla. 1st DCA 1989); Publix Super Markets, Inc. v. Cheesbro Roofing, Inc., 502 So.2d 484 (Fla. 5th DCA 1987). See also A.R. Moyer, Inc. v. Graham, 285 So.2d 397, 402 (Fla. 1973), and Carvel v. Godley, 939 So.2d 204, 207-208 (Fla. 4th DCA 2006) (“The question of whether a contract was intended for the benefit of a third person is generally regarded as one of construction of the contract. The intention of the parties in this respect is determined by the terms of the contract as a whole, construed in the light of the circumstances under which it was made and the apparent purpose that the parties are trying to accomplish.”).
Thus servicer advances, FDIC loss mitigation payments, and insurance payments actually received by the creditor (presumed usually to be the trust beneficiaries in a REMIC New York Trust) decrease the amount due TO the creditor — which therefore means that the amount due FROM the borrower must be reduced by the same amount. The fact that out of all the parties to the contract requiring or providing for those payments to the creditor, directly or indirectly, none of them was thinking about a benefit to the homeowner borrowers does not mean it doesn’t count. The bank might not have thought about or even known you had an Aunt Tilly. But when she pays off your mortgage, it doesn’t matter where the money came from.
And as for the contract for loan that is sometimes referred to as a quasi contract, assuming the homeowner has defended by denying the existence of an enforceable contract, here we are —
416.3 CONTRACT FORMATION — ESSENTIAL FACTUAL ELEMENTS (Claimant) claims that the parties entered into a contract. To prove that a contract was
created, (claimant) must prove all of the following:
1. The essential contract terms were clear enough that the parties could understand
what each was required to do;
2. The parties agreed to give each other something of value. [A promise to do something or not to do something may have value]; and
3. The parties agreed to the essential terms of the contract. When you examine whether the parties agreed to the essential terms of the contract, ask yourself if, under the circumstances, a reasonable person would conclude, from the words and conduct of each party, that there was an agreement. The making of a contract depends only on what the parties said or did. You may not consider the parties’ thoughts or unspoken intentions.
Note: If neither offer nor acceptance is contested, then element #3 should not be given. If (Claimant) did not prove all of the above, then a contract was not created.
NOTE ON USE FOR 416.3
This instruction should be given only when the existence of a contract is contested. If both parties agree that they had a contract, then the instructions relating to whether a contract was actually formed would not need to be given. At other times, the parties may be contesting only a limited number of contract formation issues. Also, some of these issues may be decided by the judge as a matter of law. Users should omit elements in this instruction that are not contested so that the jury can focus on the contested issues. Read the bracketed language only if it is an issue in the case.
SOURCES AND AUTHORITIES FOR 416.3
1. The general rule of contract formation was enunciated by the Florida Supreme Court in St. Joe Corp. v. McIver, 875 So.2d 375, 381 (Fla. 2004) (“An oral contract … is subject to the basic requirements of contract law such as offer, acceptance, consideration and sufficient specification of essential terms.”).
2. The first element of the instruction refers to the definiteness of essential terms of the contract. “The definition of ‘essential term’ varies widely according to the nature and complexity of each transaction and is evaluated on a case-by-case basis.” Lanza v. Damian Carpentry, Inc., 6 So.3d 674, 676 (Fla. 1st DCA 2009). See also Leesburg Community Cancer Center v. Leesburg Regional Medical Center, 972 So.2d 203, 206 (Fla. 5th DCA 2007) (“We start with the basic premise that no person or entity is bound by a contract absent the essential elements of offer and acceptance (its agreement to be bound to the contract terms), supported by consideration.”).
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3. The second element of the instruction requires giving something of value. In Florida, to constitute valid consideration there must be either a benefit to the promisor or a detriment to the promisee. Mangus v. Present, 135 So.2d 417, 418 (Fla. 1961). The detriment necessary for consideration need not be an actual loss to the promisee, but it is sufficient if the promisee does something that he or she is not legally bound to do. Id.
4. The final element of this instruction requires an objective test. “[A]n objective test is used to determine whether a contract is enforceable.” Robbie v. City of Miami, 469 So.2d 1384, 1385 (Fla. 1985). The intention as expressed controls rather than the intention in the minds of the parties. “The making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs-not on the parties having meant the same thing but on their having said the same thing.” Gendzier v. Bielecki, 97 So.2d 604, 608 (Fla. 1957).
And as to whether the Plaintiff must prove they have been damaged by the defendant’s breach of contract —
416.4 BREACH OF CONTRACT – ESSENTIAL FACTUAL ELEMENTS
To recover damages from (defendant) for breach of contract, (claimant) must prove all of the following:
- (Claimant) and (defendant) entered into a contract;
- (Claimant) did all, or substantially all, of the essential things which the contract
required [him] [her] [it] to do [or that [he] [she] [it] was excused from doing those things];
3. [All conditions required by the contract for (defendant’s) performance had occurred;]
4. [(Defendant) failed to do something essential which the contract required [him] [her] [it] to do] [(Defendant) did something which the contract prohibited [him] [her] [it] from doing and that prohibition was essential to the contract]; and
Note: If the allegation is that the defendant breached the contract by doing something that the contract prohibited, use the second option.
5. (Claimant) was harmed by that failure.
NOTE ON USE FOR 416.4
In many cases, some of the above elements may not be contested. In those cases, users should delete the elements that are not contested so that the jury can focus on the contested issues.
SOURCES AND AUTHORITIES FOR 416.4
1. An adequately pled breach of contract action requires three elements: (1) a valid contract; (2) a material breach; and (3) damages. Friedman v. New York Life Ins. Co., 985 So.2d 56, 58 (Fla. 4th DCA 2008). This general rule was enunciated by various Florida district courts of appeal. See Murciano v. Garcia, 958 So.2d 423, 423-24 (Fla. 3d DCA 2007); Abbott Laboratories, Inc. v. General Elec. Capital, 765 So.2d 737, 740 (Fla. 5th DCA 2000); Mettler, Inc. v. Ellen Tracy, Inc., 648 So.2d 253, 255 (Fla. 2d DCA 1994); Knowles v. C.I.T. Corp., 346 So.2d 1042, 1043 (Fla. 1st DCA 1977).
2. To maintain an action for breach of contract, a claimant must first establish performance on the claimant’s part of the contractual obligations imposed by the contract. Marshall Construction, Ltd. v. Coastal Sheet Metal & Roofing, Inc., 569 So.2d 845, 848 (Fla. 1st DCA 1990). A claimant is excused from establishing performance if the defendant anticipatorily repudiated the contract. Hosp. Mortg. Grp. v. First Prudential Dev. Corp., 411 So.2d 181, 182- 83 (Fla. 1982). Repudiation constituting a prospective breach of contract may be evidenced by words or voluntary acts but refusal must be distinct, unequivocal and absolute. Mori v. Matsushita Elec. Corp. of Am., 380 So.2d 461, 463 (Fla. 3d DCA 1980).
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3. “Substantial performance is performance ‘nearly equivalent to what was bargained for.’” Strategic Resources Grp., Inc. v. Knight-Ridder, Inc., 870 So.2d 846, 848 (Fla. 3d DCA 2003). “Substantial performance is that performance of a contract which, while not full performance, is so nearly equivalent to what was bargained for that it would be unreasonable to deny the promisee the full contract price subject to the promisor’s right to recover whatever damages may have been occasioned him by the promisee’s failure to render full performance.” Ocean Ridge Dev. Corp. v. Quality Plastering, Inc., 247 So.2d 72, 75 (Fla. 4th DCA 1971).
4. The doctrine of substantial performance applies when the variance from the contract specifications is inadvertent or unintentional and unimportant so that the work actually performed is substantially what was called for in the contract. Lockhart v. Worsham, 508 So.2d 411, 412 (Fla. 1st DCA 1987). “In the context of contracts for construction, the doctrine of substantial performance is applicable only where the contractor has not willfully or materially breached the terms of his contract or has not intentionally failed to comply with the specifications.” National Constructors, Inc. v. Ellenberg, 681 So.2d 791, 793 (Fla. 3d DCA 1996).
5. “There is almost always no such thing as ‘substantial performance’ of payment between commercial parties when the duty is simply the general one to pay.” Hufcor/Gulfstream, Inc. v. Homestead Concrete & Drainage, Inc., 831 So.2d 767, 769 (Fla. 4th DCA 2002).
So if you look at both the pleading and the proof from the pretender lenders, they never actually say they paid for anything and they never actually say they were harmed and therefore, the Judge surmises incorrectly, that they don’t have to prove financial injury because it is somehow presumed. That is wrong. And since these jury instructions are published by the Florida Supreme Court, I don’t think the Judge has very much discretion to go outside these instructions when he or she is making the decision himself or herself — without (as the instructions from the Supreme Court say) unequivocally stating the grounds upon which the Judge deviated from the standard jury instruction.
And as for the origination of the loan, which definitely starts as an oral contract —
416.5 ORAL OR WRITTEN CONTRACT TERMS [Contracts may be written or oral.]
[Contracts may be partly written and partly oral.] Oral contracts are just as valid as written contracts.
NOTE ON USE FOR 416.5
Give the bracketed alternative that is most applicable to the facts of the case. If the complete agreement is in writing, this instruction should not be given.
SOURCES AND AUTHORITIES FOR 416.5
1. An “agreement, partly written and partly oral, must be regarded as an oral contract, the liability arising under which is not founded upon an instrument of writing.” Johnson v. Harrison Hardware Furniture Co., 160 So. 878, 879 (Fla. 1935).
2. An oral contract is subject to the basic requirements of contract law such as offer, acceptance, consideration, and sufficient specification of essential terms. St. Joe Corp. v. McIver, 875 So.2d 375, 381 (Fla. 2004).
3. “The complaint alleged the execution of an oral contract, the obligation thereby assumed, and a breach. It therefore set forth sufficient facts which taken as true, would state a cause of action for breach of contract.” Perry v. Cosgrove, 464 So.2d 664, 667 (Fla. 2d DCA 1985).
4. As long as an essential ingredient is not missing from an agreement, courts have been reluctant to hold contracts unenforceable on grounds of uncertainty, especially where one party has benefited from the other’s reliance. Gulf Solar, Inc. v. Westfall, 447 So.2d 363 (Fla. 2d DCA 1984); Community Design Corp. v. Antonell, 459 So.2d 343 (Fla. 3d DCA 1984). When the existence of a contract is clear, the jury may properly determine the exact terms of an oral contract. Perry v. Cosgrove, 464 So.2d 664, 667 (Fla. 2d DCA 1985).
5. “To state a cause of action for breach of an oral contract, a plaintiff is required to allege facts that, if taken as true, demonstrate that the parties mutually assented to ‘a certain and definite proposition’ and left no essential terms open.” W.R. Townsend Contracting, Inc. v. Jensen Civil Construction, Inc., 728 So.2d 297 (Fla. 1st DCA 1999). See also Carole Korn Interiors, Inc. v. Goudie, 573 So.2d 923 (Fla. 3d DCA 1990) (company which provided interior design services sufficiently alleged cause of action for breach of oral contract, when company alleged that: it had entered into oral contract with defendants for interior design services; company had provided agreed services; defendants breached contract by refusing to remit payment; and company suffered damages); Rubenstein v. Primedica Healthcare, Inc., 755 So.2d 746, 748 (Fla. 4th DCA 2000) (“In this case, appellant sufficiently pled that Primedica, upon acquiring Shapiros’ assets, which included their oral agreement with appellant, mutually
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assented to appellant’s continued employment under the same terms and conditions as with Shapiro. Further, he alleged that he suffered damages as a result of his termination.”).
So if the offer to loan money came from a party who did not loan the money then there is no contract, oral or written, and no documents that could be used as evidence of an enforceable contract because the basic elements of contract are absent. The same would hold true for assignments. Thus the pile of “transfer documents” are all meaningless and worthless unless there was an original enforceable contract.
416.6 CONTRACT IMPLIED IN FACT
Contracts can be created by the conduct of the parties, without spoken or written words. Contracts created by conduct are just as valid as contracts formed with words.
Conduct will create a contract if the conduct of both parties is intentional and each knows, or under the circumstances should know, that the other party will understand the conduct as creating a contract.
In deciding whether a contract was created, you should consider the conduct and relationship of the parties as well as all of the circumstances.
NOTE ON USE FOR 416.6
Use this instruction where there is no express contract, oral or written, between the parties, and the jury is being asked to infer the existence of a contract from the facts and circumstances of the case.
SOURCES AND AUTHORITIES FOR 416.6
1. “[A]n implied contract is one in which some or all of the terms are inferred from the conduct of the parties and the circumstances of the case, though not expressed in words.” 17A AM. JUR. 2d Contracts § 12 (2009).
2. “In a contract implied in fact the assent of the parties is derived from other circumstances, including their course of dealing or usage of trade or course of performance.” Rabon v. Inn of Lake City, Inc., 693 So.2d 1126, 1131 (Fla. 1st DCA 1997); McMillan v. Shively, 23 So.3d 830, 831 (Fla. 1st DCA 2009).
3. In Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co., 695 So.2d 383, 387 (Fla. 4th DCA 1997), the Fourth District held:
A contract implied in fact is one form of an enforceable contract; it is based on a tacit promise, one that is inferred in whole or in part from the parties’ conduct, not solely from their words.” 17 AM. JUR. 2d Contracts § 3 (1964); Corbin, CORBIN ON CONTRACTS §§ 1.18-1.20 (Joseph M. Perillo ed. 1993). When an agreement is arrived at by words, oral or written, the contract is said to be “express.” 17 AM. JUR. 2d Contracts § 3. A contract implied in fact is not put into promissory words with sufficient clarity, so a fact finder must examine and interpret the parties’ conduct to give definition to their unspoken agreement. Id.; CORBIN ON CONTRACTS § 562 (1960). It is to this process of defining an enforceable agreement that Florida courts have referred when they have indicated that contracts implied in fact “rest upon the assent of the parties.” Policastro v. Myers, 420 So.2d 324, 326 (Fla. 4th DCA 1982); Tipper v. Great Lakes Chemical Co., 281 So.2d 10, 13 (Fla. 1973). The supreme court described the mechanics of this process in Bromer v. Florida Power & Light Co., 45 So.2d 658, 660 (Fla. 1950):
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[A] [c]ourt should determine and give to the alleged implied contract “the effect which the parties, as fair and reasonable men, presumably would have agreed upon if, having in mind the possibility of the situation which has arisen, they had contracted expressly thereto.” 12 AM. JUR. 2d 766.
See Mecier v. Broadfoot, 584 So.2d 159, 161 (Fla. 1st DCA 1991).
Common examples of contracts implied in fact are when a person performs services at another’s request, or “where services are rendered by one person for another without his expressed request, but with his knowledge, and under circumstances” fairly raising the presumption that the parties understood and intended that compensation was to be paid. Lewis v. Meginniss, 12 So. 19, 21 (Fla. 1892); Tipper, 281 So.2d at 13. In these circumstances, the law implies the promise to pay a reasonable amount for the services. Lewis, 12 So. at 21; Lamoureux v. Lamoureux, 59 So.2d 9, 12 (Fla. 1951); A.J. v. State, 677 So.2d 935, 937 (Fla. 4th DCA 1996); Dean v. Blank, 267 So.2d 670 (Fla. 4th DCA 1972); Solutec Corp. v. Young & Lawrence Associates, Inc., 243 So.2d 605, 606 (Fla. 4th DCA 1971).
For example, a common form of contract implied in fact is where one party has performed services at the request of another without discussion of compensation. These circumstances justify the inference of a promise to pay a reasonable amount for the service. The enforceability of this obligation turns on the implied promise, not on whether the defendant has received something of value. A contract implied in fact can be enforced even where a defendant has received nothing of value.
I think I made my point. Lawyers, follow Ms. Kelley’s suggestion. You might find your job in court a lot easier.
Filed under: foreclosure, Investor, CORRUPTION, Mortgage, GTC | Honor, MODIFICATION, Servicer, STATUTES, Fannie MAe, expert witness, foreclosure mill, CASES, trustee, investment banking, Motions, Pleading, forms, evidence, GARFIELD KELLEY AND WHITE, TRUST BENEFICIARIES, MBS TRUSTEE, foreclosure defenses, Neil Garfield Show | Tagged: BREACH, admissible evidence, financial injury, florida standard jury instructions, contracts, commercial litigation, implied contracts, loss, elements of contract | 27 Comments »
Modifications are like a dirty word in the marketplace. Frustration, chicanery, luring borrowers into default, and crating modifications that are bound to fail so that the banks can get that ever precious foreclosure sale. But there is another side to it, as our guest writer David Abellard points out below.
And while I think the entire mortgage foreclosure thing is a complete sham, it is nonetheless true that homeowners want a a modification far more often than just getting a “free home.” Most of us understand that litigation is about preventing the banks from getting a “free home” — which is to say not just any home, but the home that a family resides in.
Litigation also provides the homeowner with presenting a credible threat, especially if they are after discovery on the money trail. So it is impossible to say how much litigation is necessary to get the best terms, or even if the homeowner SHOULD litigate, because much of that has more to do with personal decisions than the likelihood of success in litigation.
There is also a point I want to make to people who are not sophisticated in finance. An interest rate that is far under market rates IS the equivalent of a principal reduction. If you want to learn more about this, Google “present value” and “future value.” If you stay in the home for the duration of the loan, the impact gets larger and larger. But if you are staying in the home for only a short while then reducing the interest rate won’t do much without an actual principal reduction. As pointed out in prior broadcasts and articles here on livinglies, make sure whoever you are talking to about modification, short-sale or any other settlement is aware of two things:
- There are hidden programs throughout the country that provide direct financial assistance to those who want to bring their loan current or who need a reduction in principal. The “expert” you are hiring had better know about them or you might turn down a deal that would otherwise be acceptable.
- Get a court order approving the modification as a settlement. Submit an agreed order that expressly refers tot he legal description of the property, the fact that the homeowner is the owner in fee simple absolute — by name — and that the holder of the mortgage and note is identified by name. The order should approve the settlement even if the the settlement agreement is confidential and even if the settlement agreement is not attached to the order.
- Snatch and Grab: Many of the banks are still secretly scripting their customer service people to lure you into a default with the promise of a modification, even accepting trial payments, and then foreclosing anyway. The courts are not amused and they are getting banged by this practice — but only where the homeowner brings it up loudly.
- People ask me “should I stop paying?” The answer is universally that you don’t want to put yourself in a worse position than the one in which you are already stuck. Voluntary nonpayment is only for those who are pursuing strategies based upon strategic default. If the bank tells you to fall behind by 90 days, don’t believe it — it’s a trap. At best they are trying to steer you into an in house modification where the interest rates and payments are higher than in HAMP, HARP or other programs that do NOT require you to be i default for modification, no matter what anyone tells you.
But modifying the mortgage is a legitimate way of ending your problem as long as you take the necessary steps to protect your title. Thus I am inviting people to write in about modification. David Abellard sketches the modification process below:
Loan Modification Information
Most homeowners have lost faith in loan modifications. Lenders have been alleged to routinely used the process to trick unsuspected homeowners into agreeing to consent judgment in pending foreclosure cases. The skepticism of some is understandable. However, the foreclosure landscape has shifted a bit in favor of the homeowners. The new Consumer Financial Protection Bureau recently promulgated rules that make loan modification more effective.
Lenders and their servicers could face serious penalty for not complying with the federal regulations that went into effect January 10, 2014. If a loan is modified, the new payment will be based on the household income; which is generally 31% of the household monthly gross income. Loans on a primary residence as well as non-owner residence can be modified. There are several loan modification programs. The Home Affordable Modification Program (“HAMP”) is a government program that has been extended until 12/31/15. If a homeowner does not qualify for HAMP, or the investor doesn’t participate in the HAMP program, banks and servicers also offer internal private modification programs as an alternative. Loan modifications are primarily designed to create an affordable payment plan for the homeowner based on their current income; it does not create equity by reducing the principle balance of a loan based on current property value.
There are mainly three ways a loan can be modified to create an affordable payment:
1) reduction of interest rate;
2) extension of loan term;
3) waiver or deferment of principle balance.
Regardless of what someone may tell you, applying for a loan modification does not guarantee that you will receive one, nor can anyone guarantee specific results.
Normally, the homeowner will have to complete a trial period which usually last 3 months before the modification becomes final. Applying for a loan modification under certain circumstances may stop the court from entering a final judgment or selling the property while the modification application is being reviewed. The application process can be daunting and intimidating. There are some law firms which concentrate on loan modification. They can become a very effective interface between the lender and the borrower and facilitate the process.
David Abellard at The Law Office of Paul A. Krasker, P.A.
Office: 561.328.2268, or 877-332-1965 ext 194
Filed under: foreclosure, Investor, CORRUPTION, Mortgage, GTC | Honor, MODIFICATION, Servicer, Fannie MAe, expert witness, foreclosure mill, trustee, Pleading, GARFIELD KELLEY AND WHITE, TRUST BENEFICIARIES, foreclosure defenses | Tagged: modification, mortgage modification, interest rate reduction, home loans, Krasker, princnipal reduction, Abellard | 101 Comments »
Looks like I will be in South Florida starting the beginning of April and will not be leaving until around the 17th or 18th of the month. I know several of you have been asking for time with me while I am on the road and staying in South Florida. I will be meeting people at our Broward office and in West Palm Beach at the offices of an affiliate.
Call 520-405-1688 and 954-495-9867 to schedule appointments or consultations for expert witness testimony, litigation support or direct representation.
Some of you might remember that I had a representative of the law firm of Paul Krasker on The Neil Garfield Show, which airs on Thursday nights at 6 PM for 30 minutes. Krasker has taken a disciplined niche approach to the foreclosure problem and I think his firm has done a very good job of it.
While lots of lawyers might know a few things about litigating, few understand what is actually required to repair credit, modify a mortgage, or settle with a short-sale. Krasker, using the business plan I always recommend to everyone, went where very few other people have gone and now operates assisting people in all 50 states. He also is ramping up to provide support to attorneys in all phases of representation of clients in foreclosure or mortgage trouble. I have been to his offices several times and it is a smooth running operation where the people actually care about what happens to the homeowner.
Because I am one of the lawyers who does not know the logistics for some of the issues presented to homeowners, I asked him to have one of his lay administrators prepare a blog article on credit restoration, to start the conversation with my readers. Da’Vid Abellard is a bright, energetic, creative individual who has aspirations of becoming a lawyer. He wrote the following blog at my request, with some of my editing and comments:
Credit Brain: Smart Solutions for Credit Restoration
Most people believe that as long as they pay their bills on time, every month, they will easily qualify for home loans, car loans, credit cards, and other personal loans. Many are unaware that at some point it is very likely that their credit report will contain incorrect information. Most individuals do not discover this until they are denied funding for a loan.
Editor’s Note: And most people don’t even think about credit restoration when the servicer proposes a settlement or modification because they are so emotionally torn up, the only thing they can think about is keeping their house. Credit restoration should be part of any modification or settlement deal.
And there should be a court order approving the settlement and setting forth the status of the parties on record, so that the order can be recorded in the public records and the homeowner won’t need to quiet title later if they want to sell or refinance their home.
Navigating the credit process and reading a credit report can be complicated. There are many details regarding credit of which the average individual is not aware. Additionally, the incorrect reporting that occurs on many credit reports can cause individuals to be denied loans that they actually should be qualified for.
Credit Brain, LLC is a company founded and dedicated to the repair and restoration of credit in a smart and efficient way. Often, a credit report can be a puzzle and restoring one’s credit can feel like attempting to solve some sort of a riddle. Credit Brain professionals provide solutions for those who need credit restoration. Through extensive research and industry knowledge, the brainiacs at Credit Brain provide tangible solutions and improvements to one’s credit rating if inaccuracies exist on the report. The professionals can also provide guidance on how to restore credit that has been damaged by foreclosures, bankruptcies, and late payments. Credit Brain’s unique approach and seasoned professionals create success for those with damaged credit.
David Abellard at The Law Office of Paul A. Krasker, P.A.
Filed under: CORRUPTION, foreclosure, foreclosure mill, GTC | Honor, MODIFICATION, Mortgage, Servicer, Title, trustee | Tagged: credit brain, CREDIT REPAIR, credit restoration, Da'Vid Abellard, Paul Krasker | 48 Comments »
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LET’S PROCEED STEP BY STEP. – Based upon actual documentation filed with the SEC
1. let’s assume that the mortgage is defective because it was not perfected. The note described a party who was not the creditor and gave no notice as to the actual identity of the creditor.
2. Let’s assume also that the note was paid in full from a variety of sources, which you know about ad nauseum.
3. Let’s further assume that the transfer documents are either non-existent or defective in that there was no actual transaction (they are false), there was no authority of the signatories etc.
4. Now let’s see what evidence I come up with to show that one or all of these things are true.
SUPPLEMENT TO PROSPECTUS:
We will issue and guarantee the certificates. Each certificate represents an undivided ownership interest in a pool of adjustable-rate residential mortgage loans. We offer each certificate by this prospectus supplement and the prospectus referenced in the pool statistics included herein.
Notice the reference to “pool statistics” and not the loans. There was a spreadsheet attached as though those were the loans, but it says later in the prospectus that those are not the real loans. So we have an offer, acceptance and consideration given by the investor to the broker dealer. If they had put the money in the trust, as they were required to do, then the Trust would have funded the transactions and received the necessary assignment through the Depositor. Discovery from hundreds of cases strongly suggests they never did that, because they were more interested in lining their own pockets (i.e., the broker dealers) than in giving the protection promised to the investors — which was an undivided ownership interest in the loans through a derivative security (mortgage bond). They got the mortgage bond but it was issued by a trust that in all probability never received the money and never engaged in any transaction.
What that means is that they (a) intend to do something in the future as of the date of this instrument, which appears to be some time in 2005 and (b) each certificate represents an undivided interest in the loans as a pool and do not represent direct ownership of the loans themselves (c) and it appears to indicate that that FNMA issues and guarantees the certificates, not the loans. Note that FNMA is not a lender but rather a guarantor although it is frequently referred to as a lender because it serves in the nominal position of “Master Trustee” for REMIC Trusts whose Trust Beneficiaries funded the loan, even if it wasn’t through the trust.
The certificates are issued under the terms of the ARM trust indenture dated as of July 1, 1984, as amended.
What that means is that the agreement and intentions of the parties were set long before the first contact or application was made by the borrower. This impacts the mortgage origination. TILA and RESPA require full disclosure of the identity of the lender because the very purpose of TILA was to make sure the borrower had enough information to make a choice between one lender or another. By depriving the borrower of this knowledge, the borrower was unaware that the purpose of his/her “loan” product was to sell securities and that the “securitization” parties had a greater incentive to sell the loan than make sure that the loan was viable — even if they had no intention of actually securitizing the loan in the manner set forth in the Prospectus and Pooling and Servicing Agreement.
The borrower is also not advised that his/her name and credit score would be used to sell those securities. Now this doesn’t mean the loan wasn’t real, but it does point to the fact that the actual identity of the funders of the loan was being kept secret and that the note was defective in failing to show that this was the intent of the parties sitting across the table from the borrower. By keeping this information from both the lender and the borrower, the “securitization” parties were obviously intending to use the identities of the lenders and use the identities of the borrowers to create actual or fictitious transactions to cover any excessive compensation or payoffs they were anticipating.
We have responsibility for the servicing of the mortgage loans in the pool. Every month we will pay to certificate holders scheduled installments of principal on the mortgage loans in the pool, together with one month’s accrued interest at the pool accrual rate. We guarantee to pay these amounts, whether or not the borrowers under the mortgage loans pay us. If we foreclose on a mortgage loan, we also must pay certificate holders the full principal balance of that loan even if we recover a lesser amount.
There are several possible interpretations here. And that is because “we” is not actually an identification of any party or parties. One is that FNMA was the creditor in fact the whole time. The fact that FNMA is not the creditor because it never loaned any money and never bought the loans (except possibly as Master Trustee for a REMIC Trust, which could only mean that the REMIC trust bought it acting through FNMA acting as a “manager”). Another is that the investors were the creditors, and still another is that the trust was the creditor. It’s really not that clear.
What IS clear is that the investors were paid no matter what, which means that from the investor point of view there could be no default — ever, unless FNMA defaulted. This is the quasi equivalent of servicer advances. In truth both servicer advances and the guarantee payments probably came from a reserve fund taken out of the investors’ pool of money sitting in the broker dealer’s account. The reason why the payments were made regardless of what the borrower did was that the broker dealers wanted to sell more bonds.
By creating the illusion that all is well with the loan pool, the investors continued to buy the mortgage bonds. The authority for paying the investors out of their own money is directly stated in language buried in the prospectus, at a point where most fund managers have stopped reading and are relying upon their trust of investment banks who have a reputation dating back as much as 150 years. This was a reputation they cashed. The only true securitization was that the reputation of the major banks was sold off multiple times in bogus instruments that do NOT qualify for security exemption and SHOULD be subject to SEC enforcement.
Hence the source of funding was paid and is being paid and is guaranteed to be paid in all events. So here is the problem: if the guarantee was of the certificate and not of the mortgage how exactly does FNMA claim direct ownership of the loan? You have a right to see those transactions and ascertain the true value of the mortgage and the true creditor. It is unlikely that there were two guarantees — one for the certificates and one for the loans. And the interesting part of that is my understanding of the process is that FNMA was to created to guarantee loans not certificates.
The point of this exercise is to emphasize the importance of actually reading the “securitization” documents and to compare the events set forth in the documents with the actual events. If the document says the loan was to be acquired through an assignment that is in recordable form and which is recorded, then there are several questions. Was the document of assignment prepared? Was it recorded? And most of all was there any transaction in which the Trust paid for the assignment?
And of course as almost everyone knows in foreclosure defense, when did this alleged transaction take place. The name of the trust usually has a year and sometimes a month in it and that gives the answer about when the transaction must have taken place in order to qualify for a valid acquisition of loan — i.e., the 90 day cutoff.
So we know by definition and from the facts of closing that if the closing took place on December 1, 2006 and the cutoff date for trust business was January 1, 2007, that the assignment was required during that period. But we also know from experience that these assignments appear out of thin air only for mortgages that are in litigation — leading to what some in foreclosure defense refer to as “ta da!” assignments — obviously fabricated minutes before they were used in court.
The last item is the most deadly for the banks. It is perfectly appropriate to ask for the transaction in which the transfer took place. The assignment, fabricated or not, says it took place on a certain date. The banking system is set up so that there are multiple sets of footprints for the movement of money. So your question is, show me the transaction where the Trust issued a check or wire transfer for this mortgage. Their answer is no. They will cite all sorts of reasons for this, but the real one is that the transaction does not exist.
It doesn’t exist now, it didn’t exist then and it never will exist because in most cases the money advanced by investors to the broker dealers was never used in the manner set forth in the prospectus. That is a subject for litigation between investors and broker dealers and there have been hundreds of such claims now that the truth is coming out. The only significance to you is that you now have actual knowledge that the investors directly and involuntarily funded the origination or acquisition of your loan, but failed to get the what they should have received — a note and mortgage payable to the investors.
Naming the mortgage broker or originator on the note and mortgage is pure fiction and in my opinion renders those instruments void. The alleged transaction at the closing with the borrower was a sham. He or she was induced to sign closing documents upon the mistaken belief that the originator or mortgage broker was actually lending the money to him or her. The moment the borrower signed the note and mortgage, and the moment the mortgage was recorded, there was a cloud on title because the mortgage was defective — a mortgage which the investors themselves allege was unenforceable for exactly the reason set forth in this article.
Analysis taken from
ADJUSTABLE RATE TRUST INDENTURE FOR ADJ RATE PRIOR TO 6-1-07.pdf;
SET 2 TEXT RECOGNIZABLE FM 000471 – MERS history of lender, investor, servicing.pdf;
FNMA LISTING OF ARM MBS SUBTYPES.pdf;
FORM 10-K ANNUAL REPORT FOR DECEMBER 2005.pdf;
LOAN LEVEL INFO.pdf;
NOTES WHILE REVIEWING SECURITIZATION DOCUMENT.wpd;
Prospectus July 1, 2004.pdf;
SECURITY SPECIFIC DETAILS FROM FNMA WEBSITE BASED ON POOL NUMBER PROVIDED IN DISCLOSURE.pdf;
Supplement to Prospectus.pdf
Filed under: CORRUPTION, discovery, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, Mortgage, Motions, Pleading, Servicer, TRUST BENEFICIARIES | Tagged: 10-K annual report, assignments, date of assignment, date of transaction, Fannie Mae guarantee, Fannie Mae Master trustee, mortgage bonds, payments on behalf of investors, payments to investors, Pooling and Servicing Agreement, Prospectus, Servicer advances | 96 Comments »
In a short written opinion Judge William J Zloch, formerly of Notre Dame football fame (quarterback and wide receiver) dealt a huge blow to bankers pretending to be lenders and servicers pretending to be bankers. For him the issue was simple. And he is right. His opinion contains irrefutable logic. Ocwen wanted to escape trial by jury because the mortgage documents contained a waiver. Wells Fargo also wanted to escape trial by jury, but they were being sued vicariously through the actions of Ocwen.
Zloch said no to Ocwen and seems to be saying the same thing to Wells Fargo. His reasoning is simple and bulletproof — the borrower sued Ocwen stating that it had committed various wrongdoing. Ocwen by all accounts is only a servicer and never has been a lender notwithstanding its prior assertions in court, which many judges have rubber stamped and now wish they didn’t.
This decision appears to be important for at least three reasons:
1. The Judge accepts the notion that Ocwen is a controlled entity of Wells Fargo.
2. The Judge rejects the idea that a party other than the owner of the mortgage can rely on the mortgage terms for any reason (except to show that they were servicing and processing in compliance with the terms of the note and potentially the mortgage). Thus the Judge underscores a central point on this blog — that the servicers, aggregators and broker dealers and trusts and trust beneficiaries are all independent entities and the servicers, among others, have inescapable conflicts of interests that results in action contrary to the expectations of both real parties in interest — i.e., the investors as lenders and the homeowners as borrowers.
3. Trial by jury is available as to all damage claims against any party who is not party to the mortgage contract; and for those banks that are using the servicers as a shield, they may be subject to claims that will be heard by a jury as well.
So in the end he says that the jury will render a verdict as to the claims against Ocwen and render an advisory verdict as to the claims against Wells Fargo. This is a potential nightmare for the banks. It is about time. And now it is time to get your claims heard by a jury.
Filed under: CASES, CORRUPTION, evidence, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, Investor, MBS TRUSTEE, Pleading, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: Florida Southern District, Ocwen, trial by jury, waiver of trial by jury, Wells Fargo, Zloch | 22 Comments »
I would agree that an overpayment at closing from the source of funds is rare. What is not rare and in fact common is that the wire transfer instructions that accompany the wire transfer receipt often instructs the closing agent to refund any overpayment to the party who wired the money — not the originator. This leads to questions. If it is a true warehouse lender, such instructions could be explained without affecting the validity of the note or mortgage.
Filed under: CORRUPTION, evidence, expert witness, foreclosure, foreclosure defenses, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Pleading, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: acceptance, borrowers, closing table, consideration, contract law, debt, documentation, homeowners, investors, lenders, Mortgage, note, offer | 63 Comments »
Hearsay on Hearsay: Bank Professional Witnesses Using Business Records Exception as Shield from Truth
Hat tip to my law partner, Danielle Kelley, Esq., for sending me the manual and the reports on it. Anyone desirous of a consultation on the application of what is on this blog, must either be a lawyer or have a lawyer who is licensed in the jurisdiction in which the property is located. For scheduling call 954-495-9867 (South Florida Office), 850-765-1236 (North Florida Office), and 520-405-1688 (Western United States). International callers: The same rules apply.
Well that didn’t take long. Like the revelations concerning Urban Lending Solutions and Bank of America, it is becoming increasingly apparent that the the intermediary banks were hell bent for foreclosure regardless of what was best for the investors or the borrowers. This included, fraud, fabrication, unauthorized documents and signatures, perjury and outright theft of money and identities. I understand the agreement between the Bush administration and the large banks. And I understand the reason why the Obama administration continued to honor the agreements reached between the Bush administration and the large banks. They didn’t have a clue. And they were relying on Wall Street to report on its own behavior. But I’m sure the agreement did not even contemplate the actual crimes committed. I think it is time for US attorneys and the Atty. Gen. of each state to revisit the issue of prosecution of the major Wall Street banks.
With the passage of time we have all had an opportunity to examine the theory of “too big to fail.” As applied, this theory has prevented prosecutions for criminal acts. But more importantly it is allowing and promoting those crimes to be covered up and new crimes to be committed in and out of the court system. A quick review of the current strategy utilized in foreclosure reveals that nearly all foreclosures are based on false assumptions, no facts, and a blind desire for expediency that sacrifices access to the courts and due process. The losers are the pension funds that mistakenly invested into this scheme and the borrowers who were used as pawns in a gargantuan Ponzi scheme that literally exceeded all the money in the world.
Let’s look at one of the fundamental strategies of the banks. Remember that the investment banks were merely intermediaries who were supposedly functioning as broker-dealers. As in any securities transaction, the investor places in order and is responsible for payment to the broker-dealer. The broker-dealer tenders payment to the seller. The seller either issues the securities (if it is an issuer) or delivers the securities. The bank takes the money from the investors and doesn’t deliver it to an issuer or seller, but instead uses the money for its own purposes, this is not merely breach of contract — it is fraud.
And that is exactly what the investors, insurers, government guarantors and other parties have alleged in dozens of lawsuits and hundreds of claims. Large banks have avoided judgment based on these allegations by settling the cases and claims for hundreds of billions of dollars because that is only a fraction of the money they diverted from investors and continue to divert. This continued diversion is accomplished, among other ways, through the process of foreclosure. I would argue that the lawsuits filed by government-sponsored entities are evidence of an administrative finding of fact that causes the burden of proof to be shifted to the cloud of participants who assert that they are part of a scheme of securitization when in fact they were part of a Ponzi scheme.
This cloud of participants is managed in part by LPS in Jacksonville. If you are really looking for the source of documentation and the choice of plaintiff or forecloser, this would be a good place to start. You will notice that in both judicial and non-judicial settings, there is a single party designated as the apparent creditor. But where the homeowner is proactive and brings suit against multiple entities each of whom have made a claim relating to the alleged loan, the banks stick with presenting a single witness who is “familiar with the business records.” That phrase has been specifically rejected in most jurisdictions as proving the personal knowledge necessary for a finding that the witness is competent to testify or to authenticate documents that will be introduced in evidence. Those records are hearsay and they lack the legal foundation for introduction and acceptance into evidence in the record.
So even where the lawsuit is initiated by “the cloud” and even where they allege that the plaintiff is the servicer and even where they allege that the plaintiff is a trust, the witness presented at trial is a professional witness hired by the servicer. Except for very recent cases, lawyers for the homeowner have ignored the issue of whether the professional witness is truly competent, and especially why the court should even be listening to a professional witness from the servicer when it is hearing nothing from the creditor. The business records which are proffered to the court as being complete are nothing of the sort. They are documents prepared for trial which is specifically excluded from evidence under the hearsay rule and an exception to the business records exception. And the easy proof is that they are missing payments to the investor. That is why discovery should be aggressive.
Lately Chase has been dancing around these issues by first asserting that it is the owner of a loan by virtue of the merger with Washington Mutual. As the case progresses Chase admits that it is a servicer. Later they often state that the investor is Fannie Mae. This is an interesting assertion which depends upon complete ignorance by opposing counsel for the homeowner and the same ignorance on the part of the judge. Fannie Mae is not and never has been a lender. It is a guarantor, whose liability arises after the loss has been completely established following the foreclosure sale and liquidation to a third-party. It is also a master trustee for securitized trusts. To say that Fannie Mae is the owner of the alleged loan is most likely an admission that the originator never loaned any money and that therefore the note and mortgage are invalid. It is also intentional obfuscation of the rights of the investors and trusts.
The multiple positions of Chase is representative of most other cases regardless of the name used for the identification of the alleged plaintiff, who probably doesn’t even know the action exists. That is why I suggested some years ago that a challenge to the right to represent the alleged plaintiff would be both appropriate and desirable. The usual answer is that the attorney represents all interested parties. This cannot be true because there is an obvious conflict of interest between the servicer, the trust, the guarantor, the trustee, and the broker-dealer that so far has never been named. Lawsuits filed by trust beneficiaries, guarantors, FDIC and insurers demonstrate this conflict of interest with great clarity.
I wonder if you should point out that if Chase was the Servicer, how could they not know who they were paying? As Servicer their role was to collect payments and send them to the creditor. If the witness or nonexistent verifier was truly familiar with the records, the account would show a debit to the account for payment to Fannie Mae or the securitized trust that was the actual source of funds for either the origination or acquisition of loans. And why would they not have shown that? The reason is that no such payment was made. If any payment was made it was to the investors in the trust that lies behind the Fannie Mae curtain.
And if the “investor” had in fact received loss sharing payment from the FDIC, insurance or other sources how would the witness have known about that? Of course they don’t know because they have nothing to do with observing the accounts of the actual creditor. And while I agree that only actual payments as opposed to hypothetical payments should be taken into account when computing the principal balance and applicable interest on the loan, the existence of terms and conditions that might allow or require those hypothetical payments are sufficient to guarantee the right to discovery as to whether or not they were paid or if the right to payment has already accrued.
If the Defendant/Appellee’s argument were to be accepted, any one of several defendants could deny allegations made against all the defendants individually just by producing a professional witness who would submit self-serving sworn affidavits from only one of the defendants. The result would thus benefit some of the “represented parties” at the expense of others.
Their position is absurd and the court should not be used and abused in furtherance of what is at best a shady history of the loan. The homeowner challenges them to give her the accurate information concerning ownership and balance, failing which there was no basis for a claim of encumbrance against her property. The court, using improper reasoning and assumptions, essentially concludes that since someone was the “lender” the Plaintiff had no cause of action and could not prove her case even if she had a cause of action. If the trial court is affirmed, Pandora’s box will be opened using this pattern of court conduct and Judge rulings as precedent not only in foreclosure actions, disputes over all types of loans, but virtually all tort actions and most contract actions.
Specifically it will open up a new area of moral hazard that is already filled with debris, to wit: debt collectors will attempt to insert themselves in the collection of money that is actually due to an existing creditor who has not sold the debt to the collector. As long as the debt collector moves quickly, and the debtor is unsophisticated, the case with the debt collector will be settled at the expense of the actual creditor. This will lead to protracted litigation as to the authority of the debt collector and the liability of the debtor as well as the validity of any settlement.
Filed under: CASES, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, originator, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: Bank of America, business records exception, Chase-Wamu merger, competency of witness, conflict of interest, hearsay, hearsay upon hearsay, JPM CHASE, Master Servicer, REMIC trusts, sub servicer, Urban Lending Solutions, WAMU Loans | 45 Comments »
Wells Fargo is under investigation for a lot of things these days, just as we find in Bank of America and other major “institutions.” The bottom line is that they haven’t been acting very institutional and their culture is one that has led to fraud, identity theft and outright fabrication of accounts and documents.
There can be little doubt about it. Documents that a real bank acting like a bank would have in its possession appear to be completely absent in most if not all loans that are “performing” (i.e., the homeowner is paying, even if the party they are paying isn’t the right and even if the loan has already been paid off). But as soon as the file becomes subject to foreclosure proceedings, documents miraculously appear showing endorsements, allonges, powers of attorney and assignments. According to a report from The Real Deal (New York Real Estate News), these are frequently referred to as “ta-da endorsements” a reference from magic acts where rabbits are pulled from the hat.
Such endorsements and other fabricated documents have been taken at face value by many judges across the country, despite vigorous protests from homeowners who were complaining about everything from “they didn’t have the documents before, so where did they get them?” to luring homeowners into false modifications that were designed to trap homeowners into foreclosure.
After 7 years of my reporting on the fact that the documents do not exist, including a report from Katherine Anne Porter at what was then the University of Iowa that the documents were intentionally destroyed and “lost” it has finally dawned on regulators and law enforcement that something is wrong. They could have done the same thing that I did. I had inquiries from hundreds (back then, now thousands) of homeowners looking for help.
So the first thing I did was I sent qualified written requests to the parties who were claiming to be the “lenders.” After sending out hundreds of these the conclusion was inescapable. Any loan where the homeowner was continuing to make their payments have no documentation. Any loan where the homeowner was in the process of foreclosure had documentation of appear piece by piece as it seemed to be needed in court. This pattern of fabrication of documents was pandemic by 2007 and 2008. They were making this stuff up as they went along.
It has taken seven years for mainstream media and regulators to ask the next obvious question, to wit: why would the participants in an industry based on trust and highly complex legal instruments created by them fall into patterns of conduct in which nobody trusted them and where the legal instruments were lost, destroyed and then fabricated? In my seminars I phrased the question differently. The question I posed is that if you had a $10 bill in your hand, why would you stick it in a shredder? The promissory note and the other documents from the alleged loan closings were the equivalent of cash, according to all legal and common sense standards. Why would you destroy it?
As I said in 2008 and continue saying in 2014, the only reason you would destroy the $10 bill is that you had told somebody you were holding something other than a $10 bill. Perhaps you told them it was a $100 bill. Now they want to see it. Better to “lose” the original bill then admit that you were lying in the first place. One is simple negligence (losing it) and the other is criminal fraud (lying about it). The banking industry practically invented all of the procedures and legal papers associated with virtually every type of loan. The processing of loans has been the backbone of the banking industry for hundreds of years. Did they forget how to do it?
The answers to these questions are both inconvenient and grotesque. I know from my past experience on Wall Street that bankers did not deserve the trust that everyone seemed to repose in them. But this conduct went far beyond anything I ever saw on Wall Street. The answer is simply that the bankers traded trust for money. They defrauded the investors, most of whom were stable managed funds guarding the pensions of millions of people. Then they defrauded homeowners creating a pressure cooker of sales culture in which banking evolved simply into marketing and sales. Risk analysis and risk control were lost in the chaos.
The very purpose for which banks came into existence was to have a place of safety in which you could deposit your money with the knowledge that it would still be there when you came back. Investors were lured into a scheme in which they thought their money was being used to fund trusts; those trusts issued mortgage bonds that in most cases were never certificated. In most cases the trust received no money, no assets and no income. The fund managers who were the investors never had a chance.
The money from the investors was instead kept by the broker-dealers who then traded with it like drunken sailors. They pumped up real estate PRICES far above real estate VALUES, based on any reasonable appraisal standards. The crash would come, and they knew it. So after lying to the investor lenders and lying to the homeowner borrowers they lied to the insurers, guarantors, co-obligors and counterparties to credit default swaps that had evolved from intelligent hedge products to high flying overly complicated contracts that spelled out “heads I win, tails you lose.”
In order to do all of that they needed to claim the loans and the bonds as though they were owned by the broker-dealers when in fact the broker-dealers were merely the investment banks that had taken the money from investors and instead of using it in the way that the investors were told, they created the illusion (by lying) of the scheme that was called securitization when in fact it was basically common fraud, identity theft of both the lenders and borrowers, in a Ponzi scheme. When Marc Dreier was convicted of similar behavior the amount was only $400 million but it was the larger scheme of its kind ever recorded.
When Bernard Madoff was convicted of similar behavior the amount was only $60 billion, but the general consensus was that this was the largest fraud in history and would maintain that status for generations. But when the Madoff scandal was revealed it was obvious that members of the banking industry had to be involved; what was not so obvious is that the banking industry itself had already committed a combination of identity theft, fraud and corruption that was probably 300 times the size of the Madoff scandal.
The assumption that these are just loans that were to be enforced just like any other loans is naïve. The lending process described in the paperwork at the closings of these loans was a complete lie. The actual lender did not know the closing had occurred, never received the note and mortgage, nor any other instrument that protected the investor lenders. The borrower did not know the actual lender existed. Closing agent was at best negligent and at worst part of the scheme. Closing agent applied money from the investors to the closing of the “loan” and gave the paperwork that should’ve gone to the investors to third parties who didn’t have a dime invested in the deal. Later the investment banks would claim that they were suffering losses, but it was a lie, this time to the taxpayers and the government.
The reason the investment banks need to fabricate documentation is simply because their scheme required multiple sales of the same loan to multiple parties. They had to wait until they couldn’t wait any longer in order to pick a plaintiff to file a foreclosure lawsuit or pick a beneficiary who would appear out of nowhere to start the nonjudicial sale of property in which they were a complete stranger to the transaction.
The reason that homeowners should win in any reasonable challenge to a foreclosure action is that neither the forecloser nor the balance has been correctly stated. In many cases the balance “owed” by the borrower is negative! Yes that means that money is owed back to the borrower even know they stopped making payments. This is so counter intuitive that it is virtually impossible for most people to wrap their brains around this concept and that is exactly what Wall Street banks have been counting on and using against us for years.
Filed under: bubble, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Neil Garfield Show, originator, Pleading, securities fraud, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: Bank of America, fabrication manual, fabrication of foreclosure documents, fraud, identity theft, Investigation, trust, Wells Fargo | 40 Comments »
I was asked a question a few days ago that runs to the heart of the problem for the banks in enforcing false claims for foreclosure and false claims of losses that should really allocated to the investors so that the investor would get the benefits of those loss mitigation payments. This is the guts of the complaints by insurers, investors, guarantors et al against the investment banks — that there was fraud, not breach of contract, because the investment bank never intended to follow the plan of securitization set forth in the prospectus and pooling and servicing agreement. The question asked of me only reached the issue of whether borrowers could claim credit for third party payments to the creditor. But the answer, as you will see, branches much further out than the scope of the question.
If you look at Steinberger in Arizona and recent case decisions in other jurisdictions you will see that if third party payments are received by the creditor, they must be taken into account — meaning the account receivable on their books is reduced by the amount of the payment received. If the account receivable is reduced then it is axiomatic that the account payable from the borrower is correspondingly reduced. Each debt must be taken on its own terms. So if the reduction was caused by a payment from a third party, it is possible that the third party might have a claim against the borrower for having made the payment — but that doesn’t change the fact that the payment was made and received and that the debt to the trust or trust beneficiaries has been reduced or even eliminated.
The Court rejected the argument that the borrower was not an intended third party beneficiary in favor of finding that the creditor could only be paid once on the debt. I am finding that most trial judges agree that if loss-sharing payments were made, including servicer advances (which actually come from the broker dealer to cover up the poor condition of the portfolio), the account is reduced as to that creditor. The court further went on to agree that the “servicer” or whoever made the payment might have an action for unjust enrichment against the borrower — but that is a not a cause of action that is part of the foreclosure or the mortgage. The payment, whether considered volunteer or otherwise, is credited to the account receivable of the creditor and the borrower’s liability is corresponding reduced. In the case of servicer payments, if the creditor’s account is showing the account current because it received the payment that was due, then the creditor cannot claim a default.
You have to think about the whole default thing the way the actual events played out. The creditor is the trust or the group of trust beneficiaries. They are owed payments as per the prospectus and pooling and servicing agreements. If those payments are current there is no default on the books of creditor. If the balance has been reduced by loss- sharing or insurance payment, the balance due and the accrued interest are correspondingly reduced. And THAT means the notice of default and notice of sale and acceleration are all wrong in terms of the figures they are using. The insurmountable problem that is slowly being recognized by the courts is that the default, from the perspective of the creditor trust or trust beneficiaries is a default under a contract between the trust beneficiaries and the trust.
This is the essential legal problem that the broker dealers (investment banks) caused when they interposed themselves as owners instead of what they were supposed to be — intermediaries, depositories, and agents of the investors (trust beneficiaries). The default of the borrower is irrelevant to whether the trust beneficiaries have suffered a loss due to default in payment from the trust. The borrower never promised that he or she or they would make payment to the trust or the trust beneficiaries — and that is the fundamental flaw in the actual mortgage process that prevailed for more than a dozen years. There would be no flaw if the investment banks had not committed fraud and instead of protecting investors, they diverted the money, ownership of the note and ownership of the mortgage or deed of trust to their own controlled vehicles. If the plan had been followed, the trusts and trust beneficiaries would have direct rights to collect from borrowers and foreclose on their property.
If the investment banks had not intended to divert the money, income, notes and mortgages or deeds of trust from the creditor trust or trust beneficiaries, then there would have no allegations of fraud from the investors, insurers and government guarantee agencies.
If the investment banks had done what was represented in the prospectus and pooling and servicing agreements, then the borrower would have known that the loan was being originated for or on behalf of the trust or beneficiaries and so would the rest of the world have known that. The note and mortgage would have shown, at origination, that the loan was payable to the trust and the mortgage or deed of trust was for the benefit of the trust or trust beneficiaries, as required by TILA and all the compensation earned by people associated with the origination of the loan would have had to have been disclosed (or returned to the borrower for failure to disclose). That would have connected the source of the loan — the trust or trust beneficiaries — to the receipt of the funds (the homeowner borrowers).
Instead, the investment banks hit on a nominee strawman plan where the disclosures were not made and where they could claim that (1) the investment bank was the owner of the debt and (2) the note and mortgage or deed of trust were executed for the benefit of a nominee strawman for the investment bank, who then claimed an insurable interest as owner of the debt. As owner of the debt, the investment banks received loss sharing payments from the FDIC. As agents for the investors those payments should have been applied to the balance owed the investors with a corresponding reduction in the balance due from the borrower —- if the payments were actually made and received and were not hypothetical or speculative. The investment banks did the same thing with the bonds, collecting payments from insurers, counterparties to credit default swaps, and guarantees from government sponsored entities.
When I say nominee or strawman I do not merely mean MERS which would have been entirely unnecessary unless the investment banks had intended to defraud the investors. What I am saying is that even the “lender” for whom MERS was the “nominee” falls into the same trapdoor. That lender was also merely a nominee which means that, as I said 7 years ago, they might just as well have made out the note and mortgage to Donald Duck, a fictitious character.
Since no actual lender was named in the note and mortgage and the terms of repayment were actually far different than what was stated on the borrower’s promissory note (i.e., the terms of the mortgage bond were the ONLY terms applicable to the plan of repayment to the creditor investors), the loan contract (or quasi loan contract, depending upon which jurisdiction you are in) was never completed. Hence the mortgage and note should never have been accepted into the file by the closing agent, much less recorded.
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Filed under: AMGAR, CASES, CORRUPTION, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Neil Garfield Show, Pleading, securities fraud, Servicer, TRUST BENEFICIARIES, trustee | Tagged: and deed of trust, Donald Duck, investment banks, investors, loss mitigation, loss sharing, Mortgage, Pooling and Servicing Agreement, promissory note, Prospectus, third party payments | 54 Comments »
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GUEST TONIGHT: KENNETH HANKS, ESQ. TITLE EXPERT
One might ask why a lender would delay the prosecution of their claim. The answer is that they wouldn’t delay if they thought they had a solid claim. I know. I have represented banks on loans, foreclosures, associations in foreclosures etc. And I have proposed that if the Courts were to order the alleged ‘holders” to show the actual money trail so we would all know what transactions actually took place, their dockets would be clear, because most of the transactions described on assignments and indorsements never took place.
We have seen cases dating back to the 1990′s that have not been prosecuted and judges in all states are dismissing for failure to prosecute, which in turn brings up the statute of limitations, which I warn you is applied very differently from state to state. But in many cases they cannot refile because the statute of limitations has run and they are out of luck. So why would a bank (who is representing to the court that it the loser in a transaction with the borrower ) allow so many cases to be dismissed? Is there reason for this madness?
I believe there is. But the reason probably varies from case to case. Suffice it to say that we will see what plays out in New Jersey. My guess is that many of the documents used by foreclosers represent transactions that were fictitious or duplications of other transactions and now they are picking which story to go with in court but he courts are getting annoyed with the actual complexity of what seems to be a “simple” claim. The borrower didn’t pay, isn’t that enough? Actually no.
The essential problem that is now bubbling to the surface after years of suppression is this: the lender is receiving payments based upon a different deal and computation than the deal and computation the borrower is required to pay. The lender’s right to repayment comes from the bond indenture on the mortgage bond issued by a REMIC trust that never had any money, assets, income or expenses.
That indenture doesn’t say the investor will be paid according to the homeowner notes on loans originated or acquired by the trust or with the money from the trust beneficiaries. It provides for a specific yield of interest and principal regardless of what the notes say and even regardless (many times) of whether the borrower pays or not. Those terms are different than the terms signed by the homeowner. And the note and mortgage, were mostly executed in favor of parties who did not make any loan, never received the delivery of the note and never had any interest in the transaction. So what good are assignments from parties with zero ownership interest to convey?
We have reached a turning point where courts and others are saying to the banks, “if your claims are real, why didn’t you prosecute them for years?”
Filed under: CASES, evidence, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, Investor, MBS TRUSTEE, Neil Garfield Show, originator, Pleading, Title, TRUST BENEFICIARIES, trustee | Tagged: dismissal for lack of prosecution, mortgage bond, New Jersey, promissory note, statutes of limitation, validity of mortgage, validity of note, wrongful foreclosure | 42 Comments »