Is it a REPORT or a Business Record? Listen to the Neil Garfield Show Tonight

Is the assignment a report the bank prepared for trial or an actual business record?

Is the payment history a report prepared for trial or an actual business record?

Click in or phone in at The Neil Garfield Show

Or call in at (347) 850-1260, 6pm EDT Thursdays

The difference is huge. A report generated for use at trial is NOT a business record that qualifies as an exception to the hearsay rule. Any such report must be  denied admission as evidence in the court record. It is hearsay. And it is not credible because it was prepared by a party with a stake in the outcome.  And a witness testifying that he saw the business records and verified that the report is accurate has not established the foundation for introduction of the report because it is in itself hearsay on hearsay. The best evidence of the records are the actual business records, and if they are in electronic form there are several steps required to get those records into evidence.

Where the forecloser abandons documents because they cannot substantiate them, they should no longer be entitled to any presumption on any document as to authenticity or validity because they have already established that they are not credible. In the case of an assignment it is essentially a report of what has happened — which is that there was a transaction. The transaction for an assignment of a loan consists of consideration paid, endorsement of the loan documents and delivery.

How does the Bank try to get around this? By attempting to introduce other documents that refer to the fictitious transaction.

In the foreclosure wars, the Banks are succeeding because they are getting judges to agree that presumptions prevail over the actual facts. If the actual facts show that no transaction exists supporting the execution of an assignment, the burden of the borrower to prove affirmative defenses is satisfied.

But more than that, the failure to establish the existence of an actual loan transaction pursuant to a valid loan contract and the failure to establish the existence of an actual transaction in which the loan was purchased means that the prima facie case has NOT been established contrary to many rulings from the bench — caused by pro se litigants or inexperienced lawyers failing to raise questions about the admissibility of documents and attacking the credibility of the the documents and the attempts to create the illusion of a proper foundation.

Remember that the records custodian of an entity with no stake in the outcome is usually not found in any foreclosure proceeding. Testimony or certification of the records by a real records custodian from an entity that has no stake in the outcome of litigation is the real deal. Anything other than that loses credibility as they slide down from credibility to just plain lying.

Listen tonight and ask questions.



News abounds as we hear of purchases of loans and bonds. Some of these are repurchases. Some are in litigation, like $1.1 Billion worth in suit brought by Trustees against the broker dealer Merrill Lynch, which was purchased by Bank of America. What do these purchases mean for people in litigation. If the loan was repurchased or all the loan claims were settled, does the trust still exist? Did it ever exist? Was it ever funded? Did it ever own the loans? Why are lawyers unwilling to make representations that the Trust is a holder in due course? Wouldn’t that settle everything? And what is the significance of the $3 trillion in bonds purchased by the Federal Reserve, mostly mortgage backed bonds? This and more tonight with questions and answers:

Adding the list of questions I posted last week (see below), I put these questions ahead of all others:

  1. If the party on the note and mortgage is NOT REALLY the lender, why should they be allowed to have their name on the note or mortgage, why are those documents distributed instead of returned to the borrower because he signed in anticipation of receiving a loan from the party disclosed, as per Federal and state law. Hint: think of your loan as a used car. Where is the contract (offer, acceptance and consideration).
  2. If the party receiving an assignment from the false payee on the note does NOT pay for it, why are we treating the assignment as a cure for documents that were worthless in the first place. Hint: Paper Chase — the more paper you throw at a worthless transaction the more real it appears in the eyes of others.
  3. If the party receiving the assignment from the false payee has no relationship with the real lender, and neither does the false payee on the note, why are we allowing their successors to force people out of their homes on a debt the “bank” never owned? Hint: POLITICS: What is the position of the Federal reserve that has now purchased trillions of dollars of the “mortgage bonds” from banks who never owned the bonds that were issued by REMIC trusts that never received the proceeds of sale of the bonds.
  4. If the lenders (investors) are receiving payments from settlements with the institutions that created this mess, why is the balance owed by the borrower the same after the settlement, when the lender’s balance has been reduced? Hint: Arithmetic. John owes Sally 5 bananas. Hank gives Sally 3 bananas and says this is for John. How many bananas does John owe Sally now?
  5. And for extra credit: are the broker dealers who said they were brokering and underwriting the issuance of mortgage bonds from REMIC trusts guilty of anything when they don’t give the proceeds from the sale of the bonds to the Trusts that issued those bonds? What is the effect on the contractual relationship between the lenders and the borrowers? Hint: VANISHING MONEY replaced by volumes of paper — the same at both ends of the transaction, to wit: the borrower and the investor/lender.

1. What is a holder in due course? When can an HDC enforce a note even when there are problems with the original loan? What does it mean to be a purchaser for value, in good faith, without notice of borrower’s defenses?

2. What is a holder and how is that different from a holder with rights to enforce? What does it mean to be a holder subject to all the maker’s defenses including lack of consideration (i.e. no loan from the Payee).

3. What is a possessor of a note?

4. What is a bailee of a note?

5. If the note cannot be enforced, can the mortgage still be foreclosed? It seems that many people don’t know the answer to this question.

6. The question confronting us is FORECLOSURE (ENFORCEMENT) OF A MORTGAGE. If the status of a holder of a note is in Article III of the UCC, why are we even discussing “holder” when enforcement of mortgages is governed by Article IV of the UCC?

7. Does the question of “holder” or holder in due course or any of that even apply in the original loan transaction? Hint: NO.

8. Homework assignment: Google “Infinite rehypothecation”

What’s the difference? See Matt Weidner’s Blog:

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


Yuba CA Jury Awards $15 Million in Punitive Damages

So let’s say you are thinking that those deadbeat borrowers are just trying to get out of debts they owe. And to spice things up the borrowers say it is the bank who screwed everything up, not me. And you laugh at their pathetic attempt to save face when all they do is spend money doing nothing at all to consider whether they will have enough money to pay their mortgage payment to whoever is demanding it — because why would they demand the payment when nobody else is unless they were the creditor and how badly can a bank really screw things up?

Oops, that borrower just got $15 Million in punitive damages for their $500,000 claim against PHH. So what are they now? deadbeats that are rich and don’t need to worry about mortgage payments? Or maybe they are not deadbeats and maybe this entire fraudclosure farce will attract lawyers looking for a big payoff on a contingency fee — like the lawyers in the Yuba case. I don’t know what they got but the usual contingency fee is around 40% and for this award with compensatory damages, the lawyers would receive around $6.4 Million. Not bad for a few days work in front of a jury, if you know how to do it.

If you don’t know how, I am sure these lawyers in the Yuba case will help you. If that doesn’t work, we provide litigation support here. 954-495-9867 or 520-405-1688

How “Standing” Is Causing the Longest Economic Recovery Since the Great Depression



HOW? It is simple: since the perpetrators ignored the REMIC trust, didn’t fund them and never intended to actually have the REMIC trusts own the loans, the investors can go directly to homeowners or through their own servicers to settle and modify mortgages. This would leave the investors with claims against the investment banks for the balance of the losses, plus punitive damages, interest and court costs. It is the same logic as piercing the corporate veil — if you pay your grocery bills using the account of your limited liability corporation, the corporate entity is ignored.

Vasquez v Saxon (Arizona supreme Court) revisited

Assume the following facts for purposes of analogy and analysis:

  1. John Jones is a Scammer, previously found to have operated outside the law several times. He conceives of yet another PONZI scheme, but with the help of lawyers he has obscured the true nature of his next scheme. He creates a convoluted scheme that ultimately was never understood by regulators.
  2. The first part of his scheme is to offer shares in a company where the money will be held in trust. The money will be disbursed based upon standards that are promised to incoming investors.
  3. The new company will issue the shares based upon the receipt of money from investors who are buying those shares.
  4. Jones approaches Jason Smartguy, who manages a pension fund for 3,000 employees of ABC Company, a Fortune 500 company.
  5. Jason Smartguy manages the pension funds under strict restrictions. A pension fund is a “stable managed fund” whose investments must be at the lowest risk possible and whose purpose is capital preservation.
  6. John Jones promises Jason Smartguy that the new company will invest in assets that are valuable and stable, and that these investments will pay a return on investment higher than what Jason Smartguy is getting for the pension fund under his management. Jason likes the idea because it gives him employment security and probably bonuses for increasing the rate of return on the funds managed for the pension fund.
  7. The lawyers for John Jones have concealed the PONZI nature of the scheme (paying back investors with their own money and with money from new investors) by disclosing the existing of a reserve fund — consisting entirely of money from Jason Smartguy.
  8. Jason advances $100 Million to John Jones who says he is acting as a broker between the new Company (the one issuing the shares) and the Pension fund managed by Jason Smartguy.
  9. The new Company never receives the money. Instead the money is placed in accounts controlled by people who have no relationship with the new Company.
  10. The new Company never receives title or any documentation showing they own shares of the money pool now controlled by John Jones when it should be controlled by the new Company.
  11. John Jones uses the money to bet against the new Company, insurance on the value of the shares of the new Company, and the proceeds of other convoluted transactions — mostly based on the assumption that John Jones owns the money in the pool and based entirely on the assumption that any assets of the pool therefore belong to John Jones — not the new Company as promised.
  12. John Jones also uses the money to buy assets, so everything looks right as long as you don’t get too close.
  13. The assets Jones buys are designed to look good on paper but are pure trash — which is why John Jones bet against the pool and shares in the pool.
  14. Everyone is fooled. The investors get monthly statements from John Jones along with a check showing that the investment is working just as was planned. They don’t know that the money they are receiving comes entirely from the reserve pool and the meager actual returns from the assets. The insurance company believes that Jones is the owner of the money and the assets purchased with money from the pool created by Jason Smartguy’s advance from the pension fund.
  15. John Jones goes further. He pretends to own the shares of the new Company that actually belong to the pension fund managed by Jason Smartguy. He insures those shares naming himself as the insurance beneficiary and naming himself as the receiver of proceeds from his bets that the shares in the new Company would crash, just as he planned.
  16. While the assets are proving as worthless as John Jones had planned, Jason Smartguy receives payments to the pension fund exactly as outlined in the Prospectus and the Operating Agreement for the New Company. Unknown to Jason, the assets are increasingly proving worthless, as a whole and the income is declining. So Jason buys more shares in the new Company, thus providing Jason with a larger “reserve” fund and more “assets” to bet against and more “shares’ to bet against.
  17. John Jones sets out to “acquire” assets that will fail, so his bets will pay off. He buys assets whose value is low (and getting worse) and he creates fictitious transactions in which it appears as though the new Company has bought the assets at a much higher price than their value. The “sales” to the Company are a sham. The Company has no money because Jason Smartguy’s pension money never was made to the new Company in exchange for the new Company issuing shares of the company to Jason’s pension fund.
  18. The difference between the real value of the assets and the price “sold” to the pool is huge. In some cases it is 2-3 times the actual value of the asset. John Jones treats these sales as “proprietary trading profits” for John Jones,when in fact it is an immediate loss to Jason’s pension fund. The shares of the new Company are worthless because it never received any money nor title to any assets. John Jones as “broker” took all the money and assets.
  19. Meanwhile John Jones continues to pay Jason’s pension fund along with distribution reports showing the assets are in great shape and the income is just fine. In reality the assets are virtually worthless and the income is declining just as John Jones planned. John Jones is taking money hand over fist and calling it his own. His bets on the whole thing crashing are paying off handsomely and he is not reporting to Jason how much he is making by taking Jason’s managed money and calling part of it proprietary profits.
  20. The beauty of John Jones PONZI scheme is in the BIG LIE told not only to Jason Smartguy but also to Henry Homebody, who owns a home in Tucson Arizona. Henry is easier to sell on a stupid scheme than Jason Smartguy because Jason requires proof of independent appraisals (ratings), proof of insurance and various other aspects of the investment. Henry Homebody trusts the “lenders” and considers them to be banks, some with reputations and brands that go back 150 years.
  21. Henry Homebody’s house has been in the family for 6 generations and is fully paid off. He pays only insurance and taxes. Unknown to him, he is a special target for scammers like Merendon Mining, whose operators are now in jail. Merendon got homeowners with unencumbered houses to “invest” in a mirage (gold shares) thus putting the fantastic equity in their homes to work. Henry is flown to Canada, wined and dined, and has a very good time, just before he agrees to take out a loan using his family home as collateral, which will provide an income to him of $16,000 over month (which is about ten times his current income).
  22. Henry is approved for a loan equal to twice the value of the property and in which the mortgage broker (now on the run from the law) used projected income from the speculative investment in Merendon mining. This act by the mortgage broker was illegal but worth the risk because the broker was part of the Merendon Mining scam. (look up Merendon Mining and First Magnus Funding).
  23. Henry makes Payments on the mortgage principal, interest, taxes and insurance (all higher because of the false appraisal that was used for the property). He is able to do this because some of the money from the “loan” was given to him and he was able to make payments until the magnificent returns started to come in from his Merendon Mining shares. But those shares were worded in such a way that they were not exactly the ownership of gold that Henry thought he was getting. In fact, it was another pool with options on gold. And of course the money never materialized and neither did the gold. (Note 1996-2014: more than 50% of all loans were “refi’s” in which the home was fully paid or nearly so).
  24. Henry’s lender turned out to be a party pretending to lend him money, using MERS as a nominee for trading purposes, and naming the originator as lender when in fact they were also just a nominee.
  25. Henry’s mortgage and note recite terms that are impossible to meet unless Merendon Mining pays off.
  26. Henry believes at closing that First Magnus was the lender and that some entity called MERS is hanging in the background. Nobody explains anything to him about the lender or MERS. And of course he was told not to get an attorney because nothing can be changed anyway.
  27. Henry did not know that John Jones had spread out Jason’s money into several entities and then used Jason’s money to fund the origination of Henry’s loan.
  28. Jason does not know that the note and mortgage were never executed in the name of the pension fund or the new Company that was supposed to own the loan as an asset.
  29. Eventually the truth starts coming out, the market crashes and prices of homes return to actual value. Merendon Mining is of course a bankrupt entity as is First Magnus, whose operator appears to be on the run.
  30. Henry can’t make the payments after the extra money they gave him runs out. He has $2 million in loans and the “guaranteed” investment in Merendon Mining has left him penniless.
  31. John Jones fabricates and forges dozens of documents to piece together a narrative wherein an “independent” company would claim ownership of Henry’s loan despite the complete absence of any real transactions between any of the companies because the loan was fully funded using Jason Smartguy’s pension money.
  32. Henry knows nothing about the scam John Jones pulled on Jason Smartguy and certainly doesn’t know that the new Company was involved in his loan (because it wasn’t). Henry doesn’t understand that First Magnus and MERS never loaned him any money and that he never owed them money. And Henry knows nothing about John Jones, whose name appears on nothing.
  33. John Jones, the PONZI operator goes about the business of finishing the deal and making sure that the multiple people who bought into Henry’s loan (without knowing of the other sales and bets placed by John Jones) don’t start asking for refunds.
  34. John Jones MUST get a foreclosure or there will be auditing and reporting requirements that most everyone will overlook as long as this looks like just another loan gone bad. His PONZI scheme will be revealed if the true facts become known so he makes sure that nobody sees the actual money trail except him. He might go to jail if the truth is discovered.
  35. The lawyers for John Jones have told him that even fabricated, forged, non-authentic, falsely signed, and falsely notarized documents carry a presumption of validity. Thus the lawyers and Jones concocted a PONZI scheme that would most likely succeed because even the borrower, Henry, still thinks he owes money to First Magnus or its “successors”, whose identity he doesn’t really care about because he knows he took the loan. He doesn’t know that First Magnus and several other entities were involved in collecting fees and making profits the moment he signed the papers, and possibly before.
  36. Meanwhile Jason Smartguy, manager of the pension fund is starting to get disturbing reports about the assets that were purchased. Jason still doesn’t know that the money he gave John Jones never went into the New Company, that the Company never engaged in any transactions, and that John Jones was claiming “losses” that were really Jason’s losses (the pension fund).
  37. John Jones was collecting money from multiple sources without any of them knowing about each other and that he had no losses, he had only profits, and even got the government to lend him more money so he wouldn’t go out of business which might ruin the economy.
  38. Most of all John Jones never made a loan to Henry Homeowner; but that didn’t stop him from saying he did make the loan, and that the paperwork between John Jones and Jason Smartguy’s pension fund was irrelevant — the borrower got a loan and stopped paying. Thus judicial or non judicial process was available to sell the home that had been in Henry’s family for 6 generations.
  39. But the weakness in John Smith’s PONZI scheme is that his entire strategy is based upon presumptions of validity of his false documentation. If courts start applying normal rules and require Jones to disclose the money trail, he is cooked. There can be no foreclosure if a non-creditor initiates it by simply declaring that they are the creditor and that they have rights to enforce the debt — when the only proof of that is that Jason Smartguy, manager of the pension fund, has not yet put the pieces together and demanded ownership of the loan, settled the cases with modifications and went after John Jones for the balance of the money that was skimmed off the deal.
  40. And since Henry’s house is in Tucson, Az, he is subject to non-judicial foreclosure and he is in big trouble. He has no reason to believe the “servicer” is unauthorized, that the debt that is subject to correspondence and monthly statements does not exist, nor that the mortgage or deed of trust was void for lack of consideration — none of the “lenders” at closing ever loaned him a dime. The money came from Jason but Henry didn’t, and possibly still doesn’t know it.
  41. John Jones files a document called “Substitution of Trustee.” In this false document Jones declares that one of his many entities is the “new beneficiary” (mortgagee). Jones holds his breath. If Henry objects to the substitution of trustee he might have to reveal that the new trustee is not independent, it is a company controlled by John Jones.
  42. John Jones has made himself the new trustee. If the substitution of trustee is nullified in a court proceeding, NOTHING can be done by John Jones or his controlled companies.
  43. If the old trustee realizes that they have received no information on the validity of the claim and might still be the trustee, they might file an “interpleader” action in which they say they have received competing claims, demand attorney fees and costs along with their true statement that as the trustee named on the deed of trust, they have no stake in the outcome.
  44. If that happens Jones is cooked, broiled and boiled. He would be required to allege and prove that the “new beneficiary” is in fact the creditor in the transaction by succession, purchase or otherwise. he can’t because it was Jason who gave the money, it was Jason who was supposed to get evidence of ownership of the loan, and it is Jason who should be deciding between foreclosure (which John Jones MUST have to escape enormous civil and criminal liability).
  45. Jones doesn’t file documents for recording unless and until the case goes into foreclosure. That is because he continuing to trade and make claims of losses on “bad loans.”
  46. In fact, just to be on the safe side, he doesn’t file the fabricated, forged perjurious assignment of the loan at all if nobody makes him. He only files the assignment when he absolutely must do so, because he knows each filing is false and potentially proof of identity theft from the pension fund and from the homeowner.
  47. So it often happens that despite laws in each state requiring the filing of any transfer of an interest in real property for recording, Jones files the assignment when there is the least probability and least likelihood that the PONZI scheme will be revealed. Jones knows the mortgage is void and should never have been recorded, as a matter of law.
  48. Henry brings suit against Jones seeking justice and relief. But he really doesn’t know enough to get traction in court. Jones filed the assignment after the notice of default, after the notice of sale, and after the notice of substitution of trustee.
  49. The Judge who knows nothing about the presence of Jason, who still does not know this is going on, rules for Jones saying that it is irrelevant when the assignment was recorded because it is still a valid assignment between the parties to the assignment.
  50. Jason knows nothing about how the money from his pension fund was handled.
  51. Jason knows nothing about how each foreclosure seals the doom and affirms the illegal windfall to intermediaries who were always playing with OPM (other people’s money).
  52. The Court doesn’t know that that the assignment was just on paper, that there was no business reason for it to be executed, that there was no purchase of the loan from Jason’s pension fund, to whom the actual loan was payable. Thus the Judge sees this as much ado about nothing.
  53. Starting from the premise that Henry owed the money anyway, that there were no real defenses, and that since nobody else was making a claim it was obvious that Jones was the creditor, the Arizona Supreme Court says that anyone can can foreclose on an undated, backdated fabricated assignment forged and robo-signed with no real transaction; and they can execute a substitution of trustee even if they are complete strangers to the loan transaction and once they file that, they can foreclose on property that was never used as collateral for the real loan.

Because there are hundreds of John Jones characters in this tragedy, the entire marketplace has been decimated. The middle class is permanently stalled because their only net worth has been stolen from them The borrowers would gladly execute a real mortgage for real value with real terms that make sense 95% of the time, but they need to do it with the owner of the debt — the pension fund. The pension fund the borrower need to be closely aligned on the premise that the loans can be modified for better terms that forced sales, the housing market could recover, and money would start flowing back to the middle class who drives 70% of our consumer based economy.

They are all wrong and are opening the door for more PONZI schemes and even better ways to steal money and get away with it. The Arizona Supreme Court in Vasquez as well as all other decisions from the trial bench, appellate courts, regulators and law enforcement are all wrong. The burden of proof in due process is on the party seeking affirmative relief. Anyone who wants the death penalty equivalent in civil litigation (forfeiture of homestead), should be required to prove beyond all reasonable doubt or by clear and convincing evidence that the mortgage was valid and should have been recorded.

If they didn’t make the loan they had no right to record the mortgage or do anything with the note or mortgage except give it back to the borrower for destruction. If they didn’t make disclosure of the real nature of the loan and all the profits that would arise from the borrower signing an application and the loan documents, those profits are due back to the borrower.

Each time the assumption is made that there are no valid defenses for the borrower, we are cheating investors and screwing the homeowners. And as for the windfall proposition we know who gets it — the John Jones PONZI operating banks that started all of this. Exactly how can this lead anyway other than a continued drag on our economy?

Vasquez v saxon Az S Ct CV110091CQ

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

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

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

Investors Have Had Enough!!

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

See Links Below

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

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

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

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

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

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

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

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

Chase Slammed By CA Appellate Panel: Bank committed fraud in order to show ownership

Housing Wire, Ben Lane (see link to article below): “Bank committed fraud in order to show ownership.”

We are entering the 6th inning of the game started by Wall Street when it created the smoke and mirrors game based upon false claims of successors and securitization. As lawyers actually do the work investigating and researching, they are getting results that come closer and closer to the reality that the whole thing was a sham.

For each Appellate decision, like this one, there are hundreds of rulings from Trial courts in which Orders were entered finding for the borrower and against the “lender” — simply because the pretender lender was identified as trying to foreclose on property to enforce a debt that was owed to somebody else. Either Judgment was entered for the borrower or, in thousands of cases, discovery orders were entered in which the pretender had to open its books, along with its co-venturers, to show the money trail, which almost never matches up with the paper trial submitted to the court.

But the problem remains that most Judges are still stuck on moving the burden of proof onto the borrower instead of the party seeking foreclosure. The lawyers say it doesn’t matter what the borrower is saying about the paper trail or the money trail or the so-called securitization of the loan.

It doesn’t matter, according to them, if the act of foreclosure itself is an act in furtherance of a fraudulent scheme that started when mortgage bonds were sold to investors and that the money was used in ways the investors could not have imagined. It doesn’t matter that the pretender lenders are taking money from the the real creditors, along with assets that should have collateralized the investment of the real lenders, and taking the homes of borrowers from them despite their entitlement to credits and opportunities to modify under law.

It doesn’t matter that the “lender” broke the law when they made the loan, broke the law when they transferred the the paperwork, and broke the law when they created paperwork that was NOT the outcome of any real transaction.

Attorneys for the banks are actually arguing that it doesn’t matter where the money came from. All that matters, according to them is that money was received by the borrower. The fact that it didn’t come from the lender identified in the closing documents is irrelevant. The consideration is present because the lender promised the loan, and even though they never made the loan or funded it, the lender managed to get somebody’s money on the closing table. That is consideration, according to them.

The danger of this argument, often readily accepted by trial judges, is that it opens the door to the moral hazard we see playing out in virtually all foreclosures. One attorney actually said that if our “theory” was right, then the whole foreclosure docket would be cleared, as though that would be a bad thing. Here’s our theory: “Follow the Law.” In other words stop the servicers and other intermediaries from pushing cases into foreclosure to the detriment of BOTH the creditor and the lender.

This is not one case involving moral turpitude by one Bank. Chase Bank has been involved in a pattern of behavior of falsifying facts and documents from the beginning in a coordinated effort with all the foreclosure players, to force as many foreclosures as possible, dual tracking innocent homeowners, luring them into default with false statements about how they needed to be 90 days behind to be considered for modification, and falsely claiming that the money on the loan was owed to the forecloser — or some unnamed creditor which gave them the right to enforce.

It is still counter-intuitive for most people in the system to confront the truth and believe it. These loans were mostly created pursuant to prior Assignment and Assumption Agreements that called for violations of Federal and State laws. Those agreements were void, as being against public law and public policy, and so were the acts emanating from those agreements. And the perjury, fabrication, robo-signing and unauthorized execution of false documents are the rule, not the exception. Why? Because it is a cover-up.

If banks (as the middlemen they are supposed to be) really did what the securitization documents said they should do, they wouldn’t need false documents, false facts, and false testimony. If the foreclosures were genuine they would not need to rely on false presumptions about holders, holders with rights to enforce and ignore differences and conflicts with holders in due course.

Falsification of facts and documents for closing of loans, collection of payments, and enforcement of false notes and mortgages, is now the rule. What are we going to do about it. Chase Bank didn’t do this by “accident.” It as intentional. Why would they ever need to do that if the loans were genuine, enforceable and being enforced by the real creditors?

For further information call 954-494-6000 or 520-405-1688.

Freddie and Fannie: Plaintiffs? Standing? Modification?

I recently had a case in which the issue of standing, ownership and modification of the loan were all at issue. The case is an example of what happens when the parties purportedly representing the GSE’s bring a foreclosure action in the name of Fannie or Freddie, and then offer through a servicer (authorized or unauthroized). This is why Fannie and Freddie have said publicly that no servicer should use its name in a foreclosure action — and tangentially this could be extended to cases where in the testimony of the corporate representative, Fannie was the “investor” from the start.

First let’s get something straight. Neither Fannie nor Freddie is an loan originator. Their primary purpose is to guarantee loans and then act as Master Trustee of REMIC Trusts that allegedly purchase them at the time of the sale. It doesn’t really work that way but that is how the documents say it should work. Secondarily the GSE are allowed to buy loans. And the principal currency used for such purchases are the mortgage bonds issued by REMIC Trusts for whom it is the Master Trustee.

Either way each of the underlying REMIC Trusts hidden from view have their own Trustee, whose duties are spelled out in an ordinary Pooling and Servicing Agreement, which is the Trust instrument.

If the GSE was acting in its principal capacity, it is impossible for it to be the Plaintiff in a foreclosure action. The guarantee payment to the actual creditors who say they lost money does not occur until after the loss realized which means after the home has been through final liquidation to a third party. If the modification was offered by a servicer with apparent authority, they can hardly disclaim that authority when the standing to file foreclosure depends upon the evidence from that apparent servicer.

Here is the way I put it the currently pending case:

“It should be noted that the Law Offices of David Stern, Esq. were summarily discharged by virtually of its clients including the Plaintiff in the action below. That discharge was based upon allegations that the law office had engaged in a pattern of conduct of producing robo-signed, unauthorized forged documents that were fabricated for the purposes of litigation. The Court is encouraged to take note of the removal of said law firm in this case, and the hundreds of articles and formal announcements of Freddie in the public domain.

As stated below the alleged movement of fabricated documents belies the allegation that Freddie Mac ever had any interest in the subject loan. No allegation nor any proof offered that Freddie was or even could be a lender. The court is requested to take judicial notice of the public announcements from Freddie in which its enabling legislation and documents show that there is only two ways that this quasi-public entity can become involved in a specific loan, and neither of them allow Freddie to be named as the lender nor as plaintiff in a foreclosure action.

It seems plausible that the primary purpose and actions of Freddie were at work here — guarantee of the loan in which case it could not possibly have brought the action because the payment of the guarantee is based upon the loss to the claimant which is computed after final liquidation of the property. Hence Freddie had no loss or any economic interest in the debt, loan, note or mortgage, thus depriving it of any claim of standing. In fact, the bringing of this action would Cause the loss which might otherwise have been mitigated by settlement and/or modification — which was somehow achieved and which now the Plaintiff insists should not have been enforced.
On the other hand, the same sources suggest that Freddie could purchase the loans using bonds of REMIC trusts. No such transaction is suggested by the pleading or the proof offered on behalf of Freddie.
In fact, no allegation nor offer of proof was ever offered in the court below as to how Freddie came to be named as Plaintiff — or for that matter whether they know of the existence of this action or have been given the opportunity to approve or disapprove. No witness or document from Freddie was ever alleged or produced or proffered as evidence. Defendant in the court below challenged Freddie to answer claims that it had not established standing, which is a jurisdictional issue. Freddie is principally a guarantor whose name should not be used in mortgage foreclosures according to its own pronouncements.

At the time of filing of the complaint there was no recorded assignment of the note or mortgage. The evidence produced by Freddie or on behalf of Freddie showed that delivery of the debt, note and mortgage could not possibly have occurred,  to wit: no party whose authority to “represent” Freddie as agent or otherwise received said documents and no allegation nor any proof was offered that Freddie even acquired the loan, debt, note or mortgage through payment of value in good faith without knowledge of the borrower’s defenses (i.e., as a holder in due course).

The allegation is made that Freddie is a holder, which means that the plaintiff in the court below admits that it had NOT purchased the loan for value in good faith with no knowledge of borrower’s defenses. If Freddie was not the holder in due course, the actual owner of the debt, note and mortgage, then who fits that description? The answer is neither apparent from the record nor evidence from the pleadings nor the proof in the record below.

Pure logic required that if someone claims to be a holder and the “holder” is claiming rights to enforce, that those rights to enforce must be conferred from some set of documents, fact or both. There is nothing in the record in the allegations or proof as to why Freddie is named as “holder”, whether it had rights to enforce, or how it came to possess the rights to enforce — which of necessity would require the production of a witness or document or both showing that Freddie was named as agent to collect by the actual creditor.

This of course would require the identification of the actual creditor a basic right under all lending laws governing fair practices and  preventing predatory lending. To hold otherwise would allow any stranger to the transaction to self proclaim itself as a party with rights to enforce contrary to the rights of the actual creditor.

But worse, naming Freddie as a mere holder belies its central purposes as a quasi governmental entity. If Freddie is a mere holder who won’t even claim that it has rights to enforce or show how it has rights to enforce, how is the consumer, the government or anyone else to determine the identity of the true creditor? In foreclosures this is especially important since ONLY an actual creditor on the actual secured debt can submit a credit bid in lieu of cash at the auction of the property — and only that party can be paid if the borrower seeks to redeem the property.

In this case, the Court was clearly confused by the conflicting evidence and pleadings but saw a way out — the Defendant in the Court below sought to enforce a modification agreement in which the modification had been subject to underwriting, the trial payments were made, but he “Plaintiff” wanted to foreclose anyway. The court concluded that the modification should be enforced, but in order to do so arrived at the dubious conclusion that Freddie was the proper party in the action.

Hoisted on its own petards, Freddie now seeks to overturn the ruling that it must abide by a modification agreement it proposed, was accepted by the Defendant and for which it received consideration.

MERS: Banks Legislating by Fiat — How Long DO We Permit Banks to Run the Country?

When will borrowers be allowed to use nominees at loan closings? Will they be able to say later that off-record transactions prevent the lender from enforcing loans?

Even the premise that MERS “enables” the REMIC Trust to claim innocence in LENDER mortgage fraud, is flawed: none of them claim the status of holder in due course because they cannot produce proof of an actual transaction in which they paid for the origination or acquisition of a mortgage in good faith and without knowledge of the borrower’s defenses.

So lenders can create a legal fiction to avoid liability under the deceptive lending laws but borrowers cannot. It follows that if nominees are to be allowed, that borrowers should be allowed the same privilege.

Besides being plain wrong and violative of Federal and State statutes on lending and recording, this seems like a clear case of violation of equal protection under Federal and State constitutions. — Neil F Garfield,

Hat tip to very reliable contributor whose identity is kept anonymous:

Without beating a dead horse, I think the concurring opinion shown below displays the inherent defects in the chain of title of anyone who thinks they own property or own a mortgage encumbrance on any property in which MERS is in the title chain. The principal point is that public records are intended to provide certainty in the marketplace. MERS does the opposite. If you see MERS in the title chain, it means automatically that the loan is subject to claims of securitization. And we now know that most such claims are false. Hence satisfactions of mortgage, the filings of lis pendens, notices of sale, notices of default, substitutions of trustees, and all those robo-signed, forged, fabricated assignments, allonges etc. are all clouds on title.

As to equitable assignment of mortgages, this ratifies any practice that violates law if it is done on a large enough scale. There is no such thing as equitable title, equitable mortgage or equitable mortgages. either it is properly executed and recorded pursuant to an actual contract consisting of offer, acceptance and consideration or it is not. If it is not, the documents should not be used or delivered to anyone, much less the county recorder or any civil court for recording.

I have emphasized by BOLD letters those portions of the concurring opinion that are especially important.

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


Case: Dow V. PHH Mortgage Case 2013AP221 7/10/14 WI SP CT

¶49  SHIRLEY S. ABRAHAMSON, C.J.   (concurring).  This is a mortgage foreclosure case, one of many in Wisconsin and across the country.1    PHH Mortgage Corporation, which claims to be assignee of the note and the mortgage in the instant case, has been a party in over 2,300 cases filed in the Wisconsin circuit courts, with many cases still open.  PHH, and by extension the Mortgage  Electronic Recording System (MERS), upon which it relies, represent the modern mortgage system, which has become the subject of frequent litigation in the Great Recession,during   which    many     homeowners     have      lost         the         American             dream——private home ownership.¶50  Some  fear  the  economic  damage  from  foreclosures; others fear the economic damage from encumbering the mortgage financing industry.  MERS benefits its members, but the question remains whether the MERS system provides benefits to home buyers and borrowers and whether MERS has a deleterious effect on real property and mortgage law.¶51  I do not join the majority opinion or support its blanket application of the nineteenth-century doctrine of equitable assignment to the modern mortgage system. ¶52 The doctrine of  equitable assignment and the longstanding state policy favoring recording of  documents affecting real estate are being applied to twenty-first-century transactions  that  were  not  imagined  when  the  equitable assignment doctrine and the Wisconsin recording statutes developed.  The majority opinion does not attempt to address the practical concerns of the current mortgage foreclosure crisis, the realities of the modern mortgage market, the values of the recording system, or the current and future problems associated with the modern mortgage system presented in the instant case.

¶53 My concurrence describes the characteristics of traditional and modern real estate mortgages, the doctrine of equitable assignment, the purpose and value of the recording statutes, and unresolved issues raised by the majority opinion’s blanket acceptance of the doctrine of equitable assignment and MERS.

¶54  PHH  is  just one of  along  list of MERS’s members.

((2 Developed in 1993, MERS is a major player in the modern real estate mortgage system and the secondary mortgage market.  MERS is a private, “member-based organization” whose members include “lenders, servicers, sub-servicers, investors, and government institutions.”3   Members pay fees to subscribe to MERS’s system2  See MERS Member   Search, search (last visited June 30, 2014).3 Shelby D. Green & JoAnn T. Sandifer, MERS Remains Afloat in a Sea of Foreclosures, Prob. & Prop., July/Aug. 2013, at 18, 19.of  “electronic processing  and tracking  of ownership and transfers of mortgages.”))

¶55  MERS is the mortgagee of record and, as the majority opinion points out, is strangely also the agent for the entity that ultimately holds the note and mortgage.5   MERS is presumably both principal and agent, and the entity on whose behalf MERS holds legal title to the mortgage changes every time the promissory note is assigned.

¶56  MERS does not have an interest in the promissory notes; it has never had such an interest. Yet sometimes the debtor is advised that MERS does have an interest in the note. Further, MERS does not lend money or collect on the notes secured by mortgages for which it is named as mortgagee.

¶57  MERS facilitates transfers of mortgage notes without the necessity of recording an assignment of the mortgage.10 Members of MERS avoid recording fees because “MERS remains the mortgagee of record” in county recording offices regardless of how many times the note is transferred.

¶58  The doctrine of equitable assignment is a common-law principle  that  “a transfer of an obligation secured by a mortgage on property also constitutes a transfer of the mortgage.”12   The idea of equitable assignment is that a mortgage has no significance without reference to the note it secures.

¶59 Although the majority opinion concludes “that the doctrine  of  equitable  assignment  is  alive  and  well  in Wisconsin”13   “as  evidenced  by  established  case  law,”14   its proffered case law does not support its conclusion.

¶60 The majority opinion cites no Wisconsin precedent explaining or applying the doctrine of equitable assignment in a case involving real estate in which the note and mortgage were held by two different persons.

¶61 The Wisconsin cases cited by the majority opinion do not all involve real estate and do not involve instances in which the note and the mortgage are held by different persons. For example, Tidioute Savings Bank v. Libbey addresses the validity of a guaranty to repay a sum of money after the corresponding notes were sold,15 and Muldowney v. McCoy Hotel Co. concerns the equitable assignment of a chattel mortgage.16   The majority opinion glosses over the policy concerns unique to real estate transactions, particularly notice, in its use of these cases.

¶62 More importantly, the Wisconsin cases the majority opinion highlights that do address real estate mortgages concern situations in a traditional setting in which the note and the mortgage are held by the same party, as in Tobin v. Tobin,17 Croft v. Bunster,18  and Carpenter v. Longan.19  In the instant case, however, the foreclosure proceedings were initiated when the note and the mortgage were separated.

¶63  The majority opinion relies on “dicta” in nineteenth- and early-twentieth-century cases (when “dicta” really meant dicta) and applies the dicta to a new set of twenty-first- century facts.

¶64 Modern mortgage transactions differ from traditional mortgage transactions.  In the traditional, non-MERS mortgage, the  homeowner  borrows money from a lender-mortgagee.   The lender-mortgagee keeps the note and records the mortgage.  The lender-mortgagee may transfer both the note and mortgage but generally  keeps  them  together,  and  the  assignment  of  the mortgage is ordinarily recorded.20

¶65  In a MERS transaction, MERS is neither the lender nor is it the payee on the promissory note.  The borrower executes a note  to  the  lender.   The borrower executes the mortgage, however, to MERS.  MERS is the holder of the mortgage but not of the promissory note.  The mortgage is recorded, with MERS as the mortgagee.21   Under the traditional view of equitable assignment, naming MERS as the mortgagee separates the mortgage from the promissory note and may cause the note to become unsecured.22

¶66  The MERS system assists the secondary mortgage market in which mortgages are bought and sold.  Many entities may hold a partial interest in the note.   Indeed, it is sometimes difficult to track all the assignments of the note.23    Lenders have been sloppy about keeping track of the promissory notes. In the present case, PHH asserts that it has the note, yet the case is remanded to the circuit court to determine whether PHH actually  has  the note (and thus the mortgage interest by equitable assignment) entitling it to foreclosure.

¶67  The majority opinion ignores the characteristics of the modern real estate mortgage to find a simple solution to the instant case——a solution that creates its own set of problems.

¶68  I turn to the Wisconsin statutes regarding recording of real estate transactions.  Wisconsin statutes governing recording of real estate transactions date back to 1849.24   The recording statutes serve the important purpose of compiling a reliable and public history of title for real estate25 in order to provide protection, in the form of notice, to all parties

¶69  In the nineteenth century, transfers of real estate rights were expected to be documented at the county recording office,26 and mortgages were rarely separated from the promissory note.

¶70  Today  under  MERS,  MERS  remains  the  mortgagee  of record.  When MERS members transfer the notes, non-MERS members cannot access the identity of the true owner of a note and mortgage through the public recording system.28   As Chief Judge Judith Kaye of the New York Court of Appeals has written:

[T]he MERS system, developed as a tool for banks and title companies, does not entirely fit within the purpose of the Recording Act, which was enacted to “protect       the      rights      of      innocent purchasers . . . without    knowledge    of    prior encumbrances”    and   to   “establish   a   public record . . . .”   It is the incongruity between the needs  of  the  modern electronic secondary mortgage market and our venerable real property laws regulating the market that frames the issue before us.

¶71  The modern mortgage system represented in the instant case by MERS and PHH has increasingly challenged Wisconsin’s recording statutes and the state’s strong policy in favor of recording all real estate transactions.  The recording system fosters disclosure of real estate transactions; MERS fosters secrecy.  Under the MERS system, a borrower may access only his or her loan servicer, not the underlying lender.30 As        Chief Judge Kaye has written, this secrecy and avoidance of public recording have undesirable consequences:

The  lack  of  disclosure  may  create  substantial difficulty when a homeowner wishes to negotiate the terms of his or her mortgage or enforce a legal right against the mortgagee and is unable to learn the mortgagee’s identity.  Public records will no longer contain this information as . . . the MERS system will render the public record useless by masking beneficial ownership of mortgages and eliminating records of assignments   altogether.     Not  only  will  this information deficit detract from the amount of public data  accessible  for  research  and  monitoring  of industry trends, but it may also function, perhaps unintentionally, to insulate a noteholder from liability,  mask  lender  error  and  hide  predatory lending practices.31

¶72  Mortgage foreclosure actions are frequently before the Wisconsin circuit courts.  Numerous issues may arise from the application of the equitable assignment doctrine to the MERS system. Indeed, we do not know the extent of the concerns that will be realized.They are left for another day.            Here are a few raised in the case law and the literature:

• Does MERS have standing to bring a foreclosure action?

• Must MERS assign the mortgage to the note owner before a foreclosure action can be initiated?

• What difference does it make that an assignment of the promissory note operates as an equitable rather than legal assignment of the security instrument?

• Can legal and equitable title be separated?

• Must  the  entity  seeking  to  foreclose  have  both equitable and legal title?

• What information must be disclosed to the borrower when the mortgage transaction is negotiated.

• What  protocols  are  warranted  for  dealing  with  a borrower in financial distress?

• Does the lack of disclosure create difficulty when the homeowner  wants  to  renegotiate  the  terms  of  the mortgage or  enforce  a  legal  right  against  the mortgagee  and  is unable to learn the mortgagee’s identity?

• Does the majority opinion preclude federal remedies that are otherwise available to homeowners?

• Are existing rules on negotiable instruments suitable for transfers of mortgages?

• What is the distinction between note ownership and entitlement to enforce a note?

• What is the impact of the comment to Restatement (Third) of Property (Mortgages) § 5.4 cmt a. (1997), which states, “When the right of enforcement of the note and the mortgage are split, the note becomes, as a practical matter, unsecured”?32

¶73        It seems wise, at a minimum, to call the legislature’s attention to the disparity that exists              between the recording statute and the modern-day electronic mortgage industry.

¶74  Although  the  outcome  in  the  instant  case  seems reasonable enough, I cannot join the majority opinion, whose ramifications stretch far beyond this case.

¶75        For the foregoing reasons, I write separately.

Lawyers in Nonjudicial States Should File Constitutional Challenge

I have been receiving increasingly urgent and frustrated messages from lawyers in nonjudicial cases. They are dismayed that the most basic components of proof are not required from “new” trustees on deeds of trust and “new” beneficiaries on the deed of trust, all self proclaimed and presumed valid even if the borrower denies it. Here is my answer:

I think what is missing is a plan for presentation. AND a decision about whether to go to Federal or State Court, or the California Supreme Court or even directly to the 9th Circuit if that is possible. Your case is really against the whole state of California (or whichever state the property is located) for violation of equal protection — debtors whose loans were mortgaged are treated differently from other debtors potentially including the debtors whose cars were mortgaged. Debtors who are subject to non judicial process are not given the same rights and procedures for debtors who are sued in judicial foreclosures. The normal process is if you want to allege a debt that requires a judicial judgment to enforce it, you are required to sue. That is why the decisions in and out of nonjudicial states say that due process requirements must be strictly construed. But in contested nonjudicial foreclosures, it is so loosely construed that complete strangers to the loan transaction can win the house. (See San Francisco study, Baltimore study etc.).
The argument that it is an agreement is cute but not right. Yes it is an agreement and anyone can contract with terms they agree to. But the exception is whether the contract violates law or public policy. Any agreement that violates public policy or to violate state or federal law is void. All Deeds of trust are arguably unconstitutional. But what will fly is a challenge to the nonjudicial scheme as to those cases where the borrower has made the proceeding a contested proceeding by denial of the essential elements of the nonjudicial procedure.

The “agreement” exists ONLY because of a statutory scheme that allows it and the only reason that statutory scheme exists is because of the original presumption behind such a scheme. If the foreclosure is truly uncontested, then it is hard to argue that the due process rights of the homeowner have been diminished. Thus repossession or forced sale at “auction” (another issue to be considered) might be the most expeditious way of handling it without clogging the courts.

But if the homeowner contests all aspects (including that he is a debtor and that the beneficiary is in fact the creditor) — the substitution of trustee, the naming of the beneficiary, the notice of default, the notice of sale etc. THEN the question becomes whether the “contract” (deed of trust) is valid and in particular whether the statutes allowing non judicial foreclosure are being APPLIED in an unconstitutional manner.

A non-creditor stranger who wins this procedure is allowed to place a “credit bid” at “auction” (which are really not conducted as public auctions) gets title to the property spending only the money required to pay for costs of filing.

Specifically, under normal circumstances, if the Trustee on the deed of trust was to receive a notice from the borrower that everything he has received from the wrong beneficiary has incorrect information and that the loan is not in default — the Trustee would ordinarily be required to file an interpleader action. The interpleader would say that he has a duty to both parties and there is a contested matter. The trustee asks for fees and costs because they have no vested interest in the outcome. Then the parties file pleadings about why they should get their way. But this doesn’t happen in practice. And the truth is, if the borrower is right, the substitution of trustee is invalid and the old trustee is still the trustee on the deed of trust. With that on record, how can anyone actually get clear title?

The problem in non-judicial states is that in practice (and in particular in the context of a contested loan which is subject to claims of successors or securitization) the self-declared beneficiary is not required to file substantive pleadings asking for specific relief. This would require the “beneficiary” to state that they are a beneficiary and to plead facts in support of that, attaching various exhibits, and that the loan is in default, and then they would be required to prove it. This would give them a prima facie case to prove. And the borrower would be required to answer the complaint of the beneficiary, file affirmative defenses and counterclaims. That is the very essence of due process in civil action and it should be strictly construed in foreclosures which consists of a forfeiture of the homestead — the virtual equivalent of the death penalty in civil litigation.

But in practice, the State of California doesn’t do any of that. In fact, they do the reverse. If a homeowner wishes to contest the substitution of trustee et al, the homeowner must file a complaint for TRO. And because they are the complainant, they are treated as having the burden of pleading and proof. This statutory scheme was conceived before multiple claims of successors and securitization were known. In practice it needs to be corrected by the courts until the legislature closes the loopholes that make the nonjudicial procedure unconstitutional in practice in certain types of cases.

This flips the rules of civil procedure and evidence on its head. In practice borrowers are not only required to plead that they deny the substitution of trustee et al was valid but to prove it — thus reversing the procedure that would be required in a judicial foreclosure, which is a second equal protection argument. Why are borrowers with other secured collateral (autos, e.g.) treated differently from borrowers with homes as collateral? Why are mortgagors treated differently in proceedings arising from non judicial process than in judicial process?

So the current practice requires the borrower to deny allegations that have not been filed and then prove that their denial is valid. That makes no sense and is an obvious denial of due process. The way the process works in practice is a stranger to any transaction with the borrower says “You owe me money” and then the borrower has the burden of saying “No I don’t” and then the defendant has the burden of pleading and proving that he doesn’t owe the money when he doesn’t know what the stranger is talking about. The only way the borrower can prevail on meritorious claims and defenses is by proving a negative. This is the opposite of due process.

This is why I have said since early 2008, that an action needs to be brought directly to the California Supreme Court or in Federal court or perhaps a special action to the 9th Circuit in which the application of the non judicial statutory scheme is challenged for those cases where the borrower denies the rights of substitution of trustee, denies the status of the self appointed new beneficiary and denies the default, denies the loan, etc. If the question is put to the court I feel confident that the decision will be in favor of borrowers. But any attempt to declare the non judicial scheme unconstitutional as a whole will fail.

Love South Florida: Car Stolen, Show Canceled

I woke up this morning to find an empty parking place where my car had been. In the back of the car I had just put about two dozen case files, most of which, fortunately, I have in electronic form. But the result was that I spent the day with the police, the insurance company and the car rental agency. I will say that State Farm seems to be doing what they should be doing, but I am stuck with the prospect of buying another car over the next week or so, and of course re-constituting the files that were stolen along with the car. No, I don’t think the banks did it. I think car thieves did it and that the car is either chopped into pieces now or on its way to South America. The files were most probably shredded or burned.

If by some weird chance you see a tan Lexus 400h SUV with a Florida plate 983 NGU, kindly call the police.

Since I have had zero time to prepare for the show after an exhausting day I am giving myself another night off. For those of you trying to reach me I have all day meetings scheduled for Friday and Saturday. Monday I am going to a deposition and then a hearing. So the first day I will have to breathe is Tuesday, when I will start redoing the paper files that were lost and preparing responses and notices in cases in which I am the principal attorney.

Thank you for your continuing support.

Tampa Trial Judge Rules for Borrower Where Correct Objections Were Made

Patrick Giunta, Esq. brought this case to my attention.

Here is a case between the famed Florida Default Law Group, who reached distinction amidst accusations of fabricated documents, and an ordinary borrower represented by a St. Peterburg trial lawyer, John R. Cappa, who apparently knows the timing and content of the right objections. The result was involuntary dismissal against the foreclosing party.

The basis of the ruling was that the default had never been proven, the Plaintiff never offered proof of “rights to enforce” and tangentially the business records were not qualified as an exception to the hearsay rule. The witness admitted he knew nothing about the payment history of the borrower and was relying on the reports in front of him — something that is hearsay on hearsay. If anything corroborates my insistence on denying everything that is deniable, this case does exactly that. If the borrower admitted the default, admitted the note, admitted the mortgage, all that would be off bounds at trial because they would be facts NOT in issue.

In this case, like so many others the Plaintiff offered the letter giving notice of default BEFORE the FOUNDATION was established that there was in fact a default. I might add that non-payment is not a default if the actual creditor received payments anyway (servicer advances etc.), which is why I make a big deal about identifying the party who is the creditor — the person or entity that is actually owed the money. So the objections are relevance, foundation and hearsay.

Note that the Plaintiff failed to introduce proof of the right to enforce, even if they had THE note or any note. This has been the subject of numerous articles on this website. Being a holder means you can file suit, but without proving you are a holder with rights to enforce, you lose. And the way to prove that you have the rights to enforce is to provide some sort of written instrument that specifically says you have the right to enforce. It is the only logical ruling. Otherwise anyone could steal a note and enforce it without ever committing perjury.

While there are other objections that I think could have been raised, Cappa was confident enough in his position that he narrowed his attack onto issues that the Judge was required to follow. The Judge was confident that an appellate court would affirm his decision.

Take a look at the transcript and see if you don’t agree that there is something to be learned here. Forcing the Plaintiff to actually prove their case frequently results in judgment for the borrower. The reason is simple where you have originators who admit they actually did the loan on behalf of others and there are questions as to who was the servicer and when. Most importantly, there is a quote here in which Cappa says “just because they sent a default letter doesn’t mean that a default occurred” He’s right. It only means they sent the letter. The truth of the matter asserted (default) is hearsay. And being “familiar with a report allegedly gleaned from business records doesn’t mean you can testify that the payments were processed properly nor that you have any personal knowledge of the record keeping procedures that were used — even with 20+ years experience in the business.

Trial PHH Mortgage v. Parish


It Was the Banks That Falsified Loan Documents

I know it doesn’t make sense. Why would a lender falsify documents in order to make a loan? I had a case in which a major regional bank had their loan representatives falsify loan documents by having the borrower certify that there were houses on his two vacant lots. The bank swore up and down that they were never involved in securitization.

When the client refused to make such a false statement — the bank did the loan anyway AS THOUGH THE NONEXISTENT HOMES WERE ON THE VACANT LOTS. Thus they loaned money out on a loan that was guaranteed to lose money unless the borrower simply paid up despite the obvious loss. The borrower’s error was in doing business with what were obviously unsavory characters. True enough. But he was dealing with the regional bank in his area that had the finest reputation in banking.

He figured they knew what they were doing. And he was right, they did know what they were doing. What he didn’t know is that they were doing it to him! And they were doing it to him in furtherance of a larger fraudulent scheme in which investors were systematically defrauded.

When I took the client’s history all I had to hear was this little vignette and I knew (a) the bank was involved in securitization and (b) this loan was securitized BEFORE the closing and even before any application for loan was solicited or accepted by the bank. The client balked at first, not believing that a bank would openly declare its non-involvement with Wall Street when the truth would so easily be known.

But the truth is not easily known — especially when the bank is involved in “private label” trusts in which there are no filing with the SEC or other agencies.

The real question is why would the bank ask the borrower to certify the existence of two homes that were never built? Why would they want to increase their risk by giving a loan on vacant land that supposedly had improvements? Or to put it bluntly, Why would a bank try to cheat itself?

The answer is that no bank, no lender, no investor would ever try to cheat themselves. The whole purpose of our marketplace is to allow market conditions to correct inefficiencies and moral hazards. So if the bank was cheating or lying, the only rational conclusion is not that they were lying to themselves, but rather lying to someone else. They were increasing the risk of non repayment and decreasing the probability that the loan would ever succeed, while maximizing the potential for economic loss to the lender. Why would anyone do that?

The answer is simple. These were not “overly exuberant” loans, misjudgments or “risky” behavior situations. The ONLY reason or bank or any lender or investor would engage in such behavior is that it was in their self interest to do it. And the only way it could be in their self interest to do it is that they were (a) not lending the money and (b) had no risk of of loss on any of these loans. There is no other conclusion that makes any sense. The bank was being paid to crank out loans that looked valid and viable on their face, but in fact the loans were neither valid nor viable.

Why would anyone pay a bank or other “originator” to pump out bad loans? The answer is simple again. They would pay the originator because they were being paid to solicit originators who would do this and then aggregate over-priced, non-viable loans into bundles where the top layer contained apparently good loans on credit-worthy individuals. And who would pay these aggregators? The CDO manager for the broker dealers that sold toxic waste mortgage bonds to unwitting investors. As for the risk of loss they created an empty unfunded trust entity upon whom they would dump defaulted loans after the 90 day cutoff period and contrary to the terms of the trust.

So it would LOOK LIKE there was a real lending entity that had approved, directly or indirectly, of the the “underwriting” of a loan. But there was no underwriting because there was no need for underwriting because the originators and aggregators never had a risk of loss and neither was the CDO manager of the broker dealer exposed to any risk, nor the broker dealer itself that did the underwriting and selling of the mortgage bonds.

Reynaldo Reyes states that “it is all very counter-intuitive.” That is code for “it was all a lie.” But we keep treating the securitization infrastructure as real. In the 2011 article (see below) in Huffpost, the Federal Reserve cited Wells Fargo for such behavior — and then the Federal Reserve started buying the toxic waste mortgage bonds at the rate of some $60 billion PER MONTH, which is to say that approximately $3 Trillion of toxic waste mortgage bonds have been purchased by the Federal Reserve from the Banks. The Banks settled with investors, insurers, guarantors, loss sharing agencies, and hedge counterparties for pennies on the dollar, but so far those settlements total nearly $1 Trillion, which is a lot of pennies.

Meanwhile in court, lawyers are neither receiving nor delivering the correct message in court. They seek a magic bullet that will end the litigation in their favor which immediately puts them in a classification of lawyers who lose foreclosure defense cases. The bottom line: the lawyers who win understand at least most of what is written in this article, have drawn their own conclusions, and are merciless during discovery and/or at trial. Then the opposition files a notice of voluntary dismissal or judgment is entered for the homeowner “borrower.” Right now, these losses are acceptable to banks who are still playing with other people’s money. If lawyers did their homeowner and litigated these cases aggressively, the bank’s illusion of securitization would end. And THAT means most foreclosures would end or never be started.

Wells Fargo Illegally Pushed Borrowers into SubPrime Mortgages

7 Years of Begging and Finally They See the Light

Back in 2007-2008 I told the State of Arizona and other states that inquired, that they were owed a lot of money because of the failure to abide by state law regarding the recording of instruments. Taxes, fees, costs and expenses were never collected because of MERS and lesser known similar systems (See Chase Bank), resulting in billions of dollars in lost revenue while the same offices got inundated with low cost (Lis Pendens) filings when the mortgage loans turned up in foreclosure courts. And that was just in the State of Arizona. Think about 50 States. The counties and states were hit with an avalanche, 6 million so far, of foreclosures and had to hire more staff, more  judges and adopt questionable “rocket dockets” and incorrect interpretations of non-judicial statutory schemes.

The result, according to some studies was that the states lost money, the banks made money through dubious foreclosures, and the investors who were the source of nearly all the money loaned on residential homes ended up suing or begging for settlements. Government was crushed under debts and expenses that could not be paid. Arizona Finance admitted that the total was about $3 Billion which was almost exactly the same as the State deficit. After months of wrangling my plan was adopted by the leaders of the State Senate and House of Representatives, and the governor’s office. Then suddenly it went dark and various orchestrations of “Neil Garfield doesn’t know what he is talking about” were played around the country, with the Banks footing the bill.

Now a Judge in Pennsylvania has stated the obvious (see below) and Pennsylvania will be the first state to recoup billions of dollars in lost revenue and expenses, fines, interest and other charges — without spending a dime on lawyers, who are all proceeding on a contingency fee basis. Those lawyers are going to make a king’s ransom in fees.

Now a Federal Judge has seen the light and expressed himself quite clearly. The whole point of the public records system is to provide confidence in the system of title and giving buyers or lenders the comfort of knowing that they had what they thought they were getting. The whole purpose of MERS and similar schemes was to avoid the public records system — until it comes time to use them to foreclose on previously unrecorded transactions involving the mortgage. Judges around the country have expressed fear that our entire title system has been compromised — both publicly in Bar seminars and privately to me in interviews.

All this happened because the decision was made to force borrowers to shoulder the entire burden of the mortgage meltdown. This country has a habit of relying on a “free marketplace” where it is OK to promote debt and borrowing, including a hard sell and then blame people when they believe the commercials and sales script. We blame them for being in debt! In so doing we got people to rely on easy credit in lieu of a living wage. We did the same thing with tobacco products where nobody cool would be caught dead (every pun intended) without a cigarette hanging from their mouth. But when they get cancer or COPD we blame the smoker. And not to get too political, we did the same thing with immigration. The “free marketplace” did everything they could with local, state and federal government to bring in 11 million people who would provide cheap labor, pay taxes and buy goods and services. Nobody cared whether they had papers and Reagan even granted them amnesty. Now we blame them all for being here.

The systemic problem is that we fail to match accountability with capability. Just because you can get a pension fund manager to part with $100 million doesn’t mean you are entitled to keep it. Just because you get a borrower to sign some papers that make no sense whatsoever, doesn’t mean the papers ought to be enforced — especially when it is at the expense of the pension fund. We have the intermediaries driving the train instead of the real parties in interest. The Banks are seen as too big to fail while the horrendous loss of confidence and net worth in most households (some of which are now under a bridge) is something we just need to suck up and get over. Our system was created to allow for plenty of room for chaos and even a bit of insanity. But when you have the inmates (Banks) running the asylum, then the benefits flow out of the system instead of flowing to those who are part of the society that is governed by our system of government.

Moving to Strike The “Witness” and Their “Business Records”

The general practice of the servicers and trustees is to disclose a list of as many as 35 possible witnesses so that the Defendant homeowner cannot possibly perform due diligence investigation, deposition etc. The Judges got wise to this and agreed that disclosing 35 witnesses, 34 of whom you do not intend to call, is the same as no disclosure at all. So now the banks are filing a disclosure of one witness a couple of days before trial. In my opinion the attorney should move to strike the disclosure both as late (ordinarily the trial order requires such disclosure at least 45 days before trial), and as admission that they were playing games when they previously disclosed 35 witnesses. Attorneys vary on how to attack this through motions to strike, motions in limine, motions for continuance and even filing a motion for summary judgment on the eave of trial.
The filing of a disclosure that they only intend to use one witness (who may or may not have been listed on the original list of 35)  is also an admission that their previous witness list disclosing 30+ witnesses was the equivalent of no disclosure at all. It also gives no information on who, where, what she is or does. or how to contact her. It does not even name her employer or capacity. Is she a corporate representative? It doesn’t say so. If she is just a fact witness and not put forward as corporate representative then they have no foundation for introduction of business records as exception to the hearsay rule.
Tracking one case in which the usual shell game of Plaintiffs and servicers has taken place, the witness that was suddenly disclosed 2 days before trial appears to be an employee of SPS, which ordinarily replaces Chase as servicer.

In one case, she is not a records custodian for US Bank, SPS, Chase or the investors. So she must explain in detail how she knows that the records they seek to introduce are “normal business records, kept in the ordinary course of business made at or near the time of each event.” How does she know that and more importantly how COULD she know that as to US Bank, the Trust, the trust beneficiaries who are the creditors (according to them), SPS and Chase who was previously the servicer.

The bullet point here is that the “records” she will seek to introduce are not a printout of the records at all. They are a REPORT in which data populates the report. She doesn’t know where the raw data is. The report was produced by the witness by simply pushing buttons on her computer. She didn’t have access tot he raw data, and she certainly did not have access to ALL of the records because she won’t have the the cancelled checks, wire transfers, or ANY information on distributions to creditors, without which she cannot testify as to the status of the account with the creditors (investors or trust) because the servicer only deals with the borrower.

ATTORNEYS NEED THE LATEST STATE AND FEDERAL LAW ON BUSINESS RECORDS EXCEPTION TO HEARSAY. THE RECORDS ARE HEARSAY AND THE REPORT PREPARED FOR TRIAL IS EXCLUDED BECAUSE IT IS INHERENTLY SELF SERVING AND NOT CREDIBLE. THE REPORT IS HEARSAY (REPORTING) ON HEARSAY (THE BUSINESS RECORDS). The Court is allowed to admit the documents as an exception to the hearsay rule ONLY if the business records exception is proffered and proven, with the burden entirely on the proponent of such evidence.

She can testify — maybe — as to the dealings between SPS and the borrower but not the receipts by the creditor from remittances or distributions by the servicer to the creditors (she has no access to that information), and certainly not the amounts received by the creditors in settlements, insurance, servicer advances, credit default swaps, and government assistance that was received by or on behalf of the creditor and that cured any “default” as described by the Trust instrument (PSA) . Therefore her testimony is incomplete even if accepted. She might testify as to the dealings with the borrower, but she cannot testify as to the receipt of servicer advances and other payments which is the REAL reason for the foreclosure.

It is becoming increasingly clear that these foreclosures are strictly for the benefit of the intermediaries and not the creditor investors. They are attempting to ride the coattails of the creditors so that their claim for refunds and cutoff of liability for refunds to third parties, can be cutoff. None of those things have anything to do with the investors who have been paid by servicer payments advanced regardless of whether the borrower was paying or not.

They want to say the trust or trust beneficiaries are the creditors and that therefore the foreclosure should proceed, but the truth is the creditors are not showing any default, have been paid, sometimes in full. The intermediaries are cloaking their independent claims against the borrower (independent from the mortgage debt) as though they are claims of the creditors, which they are not.

If the creditors are not here to say they are suffering a default as a result of non payment by the borrower there is no reason for the court to assume that such a default exists. That is part of the prima facie case of the party claiming the right to foreclose, despite the absence of a default recorded by the creditor. Having some new servicer come in with a professional witness who really knows nothing about how and where records are kept and can offer no personal knowledge of how and where those records are kept and who does that fails to offer personal perceptions and memory of those perceptions required for a competent witness in any case.

Thus the hearsay REPORTS prepared for trial fail for two reasons, — they are hearsay and they were prepared especially for trial. And they are excluded under the hearsay rule for another reason — the reports on hearsay reports on the raw data which is also hearsay unless that the raw data is shown and described as records that qualify under the business records exception.

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

How the Banks Literally “Made” Money Out of Nothing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


 Courts and lawyers are continually ignoring the obvious. By zeroing in on the NOTE, they are ignoring the documents that allow the person in possession of the note to be in court. That results in elimination of critical elements of a prima facie case in which the Defendant borrower lacks the superior knowledge and resources of the Plaintiff and its co-venturers that would show the truth about his loan ownership and balance.


Chronologically the document trail starts with the securitization documents. Without the securitization documents there is no privity or nexus between the borrowers and the lenders. Neither one of them signed the deal that the other signed. Without the Assignment and Assumption Agreement, the Prospectus and the Pooling And Servicing Agreement, the trust does not exist, the servicer has no powers, the trustee has no powers, and there is no right of representation or agency between any of those parties as it relates to either the lender investors or the homeowner borrowers.


The Assignment and Assumption Agreement between the originator and the aggregator sets forth all the rules and actions preceding, during and after the loan”closing”, including the underwriting by parties other than the originator and the ownership of the loan by parties other than the originator. It is a contract to violate public policy, the Federal Truth in Lending Law prohibiting table funded loans designed to withhold disclosure, and usually state deceptive and predatory lending statutes.


The Assignment and Assumption Agreement was an agreement to commit illegal acts that were in fact committed and which strictly governed the conduct of the originator, the closing agent, the document processing, the delivery of documents, the due diligence, the underwriting, the approval by parties other than the originator and the risk of loss on parties other than the originator. The Assignment and Assumption Agreement is essential to the Court’s knowledge of the intent and reality of the closing, intentionally withheld from the borrower at closing. It cannot be anything other than relevant in any action sought to enforce the documents produced at a loan closing that was conducted in strict adherence to the illegal Assignment and Assumption Agreement.


The other closing is with the investors who were accepting a proposed transaction to lend money for the origination or acquisition of loans through a trust. Those documents and records (Prospectus, Pooling and Servicing Agreement, Distribution reports, etc) provide for the creation and governance of the trust, the appointment of a trustee and the powers of the trustee, and the appointment and the powers of the Master Servicer and subservicers. Those documents also provide for there requirements of reporting and record keeping, including the physical location and custody of actual loan documents. Without those documents, there is no power or authority for the trustee, the trust, the Master Servicer, the subservicer, the Depository, the Securities Administrator the purchase of insurance, credit default swap trading, funding the origination or acquisition of loans, or collection and enforcement of loan documents. without those documents the Court cannot know what records should be kept and thus what records need to be produced to show the status of the obligation in the books and records of the creditor — regardless of whether the loan was actually securitized or just claimed to be securitized.


Procedure and UCC
In Judicial States, the Plaintiff is bringing suit alleging a default by the Defendant on a promissory note and for enforcement of a mortgage. The name of the payee on the note is different from the name of the Plaintiff in the lawsuit. The name of the mortgagee is different from the the name of the Plaintiff. The suit is bought by (a) a trustee on behalf of the holders of securities that make the holders of those securities (Mortgage Bonds) in a NY Trust (b) the “servicer” on behalf of the trust or the holders or (c) a company that alleges it is a holder or a holder with rights to enforce. None of them assert they are holders in due course which means they concede that the Plaintiff did not buy the loan in good faith without knowledge of the borrowers defenses. They assert they are holder in which case they are subject to all of the borrowers defense — which procedurally means the issues concerning the initial loan and any subsequent transfers can be in issue if the preemptive facts are denied and appropriate affirmative defenses and counterclaims are filed. These defenses are waived at trial if an objection is not timely raised.


In Non-Judicial States, the name of the “new” beneficiary is different from the name of the payee on the promissory note and the name of the beneficiary on the Deed of Trust. The “new beneficiary” files a “Substitution of Trustee”, the Trustee sends a notice of default, notice of sale and notice of acceleration based upon “representations” from the “new beneficiary.” This process allows a stranger to the transaction to assert its position outside of a court of law that it is the new beneficiary and even allows the new beneficiary to name a company as the “new trustee” in the Notice of Substitution of Trustee. The foreclosure is initiated by the new trustee on the deed of trust on behalf of (a) a trustee on behalf of the holders of securities that make the holders of those securities (Mortgage Bonds) in a NY Trust (b) the “servicer” on behalf of the trust or the holders or (c) a company that alleges it is a holder or a holder with rights to enforce. None of them assert they are holders in due course which means they concede that the Plaintiff did not buy the loan in good faith without knowledge of the borrowers defenses. They assert they are holder in which case they are subject to all of the borrowers defense — which procedurally means the issues concerning the initial loan and any subsequent transfers can be in issue if the preemptive facts are denied and appropriate affirmative defenses and counterclaims are filed. These defenses are waived at trial if an objection is not timely raised. In these cases it is the burden of the borrower to timely file a motion for Temporary Injunction to stop the trustee’s sale of the property.


By failing to assert with clarity the identity of the creditor on whose behalf they are “holding” the note and mortgage (or deed of trust) and failing to assert the presence of the actual creditor (holder in due course) the parties initiating foreclosure have (a) failed to assert the essential elements to enforce a note and mortgage and (b) have failed to establish a prima facie case in which the burden should shift to the borrowers to defend. The present practice of challenging the defenses first is improper and contrary to the requirements of due process and the rules of civil procedure. If the Plaintiff in Judicial states or beneficiary in non-judicial states is unable to sustain their burden of proof for a prima facie case, then Judgment should be entered for the alleged borrower.


Virtually all loans initiated or originated or acquired between 1996 and the present are subject to claims of securitization, which is the first reason why the securitization documents are relevant and must be introduced as evidence along with proof of compliance with those documents because they are almost all governed by New York State law governing common law trusts. Any act not permitted by the trust instrument (Pooling and Servicing Agreement) is void, which means for purposes of the case narrative, the act or event never occurred.

If the Plaintiff or beneficiary is alleging that it is a holder and not alleging it is a holder in due course then there is a 96% probability that the creditor is either a trust or a group of investors who paid money to a broker dealer in an IPO where securities were issued by the trust and the investors money should have been paid to the trust. In all events, the assertion of “holder” status instead of “Holder in Due Course” means by definition that one of two things is true: (1) there is no holder in due course or (2) there is a Holder in Due Course and the party initiating the foreclosure and collection proceedings is asserting authority to represent the holder in due course. In all events, the representation of holder rather than holder in due course is an admission that the party initiating the foreclosure proceeding is there in a representative capacity.




If the proceeding is brought by a named trust, then the existence of the trust, the authority of the trust, the manner in which the trust may acquire assets, and the authority of the servicer, Master servicer, trustee of the trust, depository, securities administrator and others all derive from the trust instrument. If there is a claim of securitization and the provisions of the securitization documents were not followed then in virtually all foreclosure cases the wrong parties are initiating the foreclosures — because the money of the investors went direct to the origination and purchase of loans rather than through the SPV Trust which for tax purposes was designed to be a REMIC pass through trust.


If the foreclosing party identifies itself as a servicer and as a holder it is admitting that it is there in a representative capacity. Their prima facie case therefore includes the documents and events in which acquired the right to represent the actual creditor. Those are only the securitization documents.


If the foreclosing party identifies itself as a holder but does not mention that it is a servicer, the same rules apply — the right to be there is a representative capacity must derive from some written instrument, which in virtually cases is the Pooling and Servicing Agreement.


Representations that the loan is a portfolio loan not subject to securitization are generally untrue. In a true portfolio loan the UCC would not apply but the rules governing a holder in due course can be used as guidance for the alleged transaction. The “lender” must show that it actually funded the loan, in good faith (in accordance with the requirements of Federal and State law governing lending) and without knowledge of the borrower’s defenses. They would be able to show their underwriting committee notes, reports and correspondence, the verification of the loan, the property value, the ability of the borrower to repay and all other national standards for underwriting and appraisals. These are only absent when there is no risk of loss on the alleged loan, because if the borrower doesn’t pay, the money was never destined to be received by the originator anyway.


In addition, the Prospectus offering to the investors combined with the Pooling and Servicing Agreement constitute the “indenture” describing the manner in which the investment will be returned to the investors, including interest, insurance proceeds, proceeds of credit default swaps, government and non government guarantees, etc. This specifies the duties and records that must be kept, where they must be kept and how the investors will receive distributions from the servicer. Proof of the balance shown by investors is the only relevant proof of a dealt and the principal balance due, applicable interest due, etc. The provisions of the contract between the creditors and the trust govern the amount and manner of distributions to the creditor. Thus it is only be reference to the creditors’ records that a prima facie case for default and the right to accelerate can be made. The servicer records do not include third party payments but do include servicer advances. If records of servicer advances are not shown in court, and the provision for servicer advances is in the prospectus and/or pooling and servicing agreement, then the Court is unable to know the balance and whether any default occurred as a result of the borrower ceasing to make payments to the servicer.


In short, it is the prospectus and pooling and servicing agreement that provide the framework for determining whether the creditors got paid as per their expectations pursuant to their contract with the Trust. It is only by reference to these documents that the distribution reports to the investors can be used as partial evidence of the existence of a default or “credit event.” Representations that the borrower did not pay the servicer are not conclusive as to the existence of a default. Only the records of the creditor, who by virtue of its relationships with multiple co-obligors, can establish that payments due were paid to the creditor. Servicer records are relevant as to whether the servicer received payments, but not relevant as to whether the creditor received those payments directly or indirectly. The servicer and creditors’ records establish servicer advance payments, which if made, nullify the creditor default. The creditors’ records establish the amount of principal or interest due after deductions from receipt of third party payments (insurance, credit default swaps, guarantees, loss sharing etc.).

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



Do you need an expert witness in foreclosures?

Possibly not. There are many procedural hurdles that Judges are now beginning to enforce that were being avoided before. But generally, the lawyers, fact witnesses and the judge don’t know anything about what was going on with this loan or that transaction.

Why does there need to be an expert? In the context of securitized loans or loans subject to claims of securitization the terms, methods and flow of money and documents is extremely complex, beyond the scope of knowledge of an ordinary person, and beyond the scope of knowledge of an ordinary Judge. The simple answer is that the note and mortgage are unenforceable and therefore the foreclosure is a sham. The secondary answer is that under the actual facts, the homeowner owes a debt and some investors are due payment, but they are due payment from not only the borrower, but also the servicer, the insurer, and the counterparties on credit default swaps.
Both the ownership and the balance are what is at stake here — resulting in either a money judgment for the creditor (the real one, if they step forward or even have notice of the proceedings) or a foreclosure for a sham party if the facts are ignored.
The terms alone, as per the glossary and table of contents of the main securitization documents,require translation into lay language with an explanation of how they are used. In the context of the world of Wall Street, the actual workings of this scheme were andremain “counter-intuitive” andrequire explanation from a person who has a deep understanding of the securities markets, and how theobjectives of the intermediaries conflict with theobjectives of the real persons in interest.In an ordinary stock transfer, the real parties are the buyer and the seller. In the case of mortgage loans generated by an intentionally obscure system, the real parties are the investor creditors as lenders and the homeowner as buyer. But the way the system was used the banks were able to pose themselves as the real parties in interest on both ends.

Most Judges demonstrate their lack of knowledge by asking the question “What difference does it make whether the loan was securitized or not?” or “What difference does it make whether the loan was subject to claims of securitization?” or worse ruling that the securitization documents are irrelevant when the only only way anyone could state a claim is by virtue of documents in the securitization chain like the PSA, the Prospectus, the Pooling and Servicing agreement and the Assignment and Assumption Agreement that governs the borrower’s “transaction.”

The job of the expert is to answer the question about what difference it makes to the burden of proof, the evidence, and of course the outcome. The difference is that in the way  most cases are framed is that the securitization never really happened. So the investors got nothing for their money except an empty promise from an empty trust and the borrowers were lured into a deal where they knew nothing about the identity of the lender nor the terms and compensation of people who received that compensation by virtue of the claimed origination of the loan or claimed acquisition of the loan. In most cases foreclosure is contrary to the interests of both the lender and the borrower.

But it is very much in the interests of the intermediaries who shouldn’t have that choice. The borrower certainly didn’t agree to that because the information regarding securitization and table funded loans, aggregators and Trusts was intentionally withheld at closing and frequently withheld even at the time of the acquisition of an existing loan.

The most basic answer to the questions posed is that the contract for loan, which must exist as a premise for getting a note and mortgage signed, is completely absent in many cases and most probably in this case. It is disguised sometimes because the originator is a lending institution. But my discovery in other cases of dual tracking underwriting shows that they treated loans intended for securitization entirely different than the loans they were making for their own portfolio. As you can see the thrust of all underwriting and due diligence is on the underwriter (who is usually also the Master Servicer, controlling everything), neither of whom was disclosed at closing and both of whom received huge amounts of fees and profits that were not disclosed. Under TILA these undisclosed profits are at the very least a set-off against the amounts  alleged to be due.

The most basic problem is that people forget about the loan contract, which never exists as a single document in which the “lender” makes representations and warranties regarding its ability as a lender and the borrower does the same. They agree that the lender will loan money and that the homeowner will borrow it. They become debtor and creditor. And the terms of the contract are spelled out in this imaginary contract which arises by operation of law instead of the usual way of writing it out. But the contract must nevertheless exist or the note and mortgage are unenforceable. As previously noted in these articles all contracts require offer, acceptance and consideration.

While the attack on consideration is the easiest target, it is also true that the lender and the borrower agreed to different terms that were never disclosed to either one. In the absence of an executed contract, the note and mortgage should have been returned to the homeowner and there would have been no funding of the loan. The fact that the closing agent chose to take money from an undisclosed fourth party investor or a known undisclosed party acting as a conduit aggregator, does not mean that the “lender” named on the note and mortgage made the loan and therefore does not mean there was consideration.

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

DUAL Tracking: The Game of “Chicken”

In their quest for a windfall they have given the homeowners a path to justice — one where the notice of default, notice of sale, notice of acceleration notice of right to reinstate and redemption rights are all screwed up (i.e., wrong and invalid). With 80%+ of the losses already paid, the loans could have been modified down to nothing or nearly nothing compared with the original balance showed on the note, whether the note was fabricated or not. The problem is not whether the remedy exists. The problem is whether the lawyers and litigants have the guts to pursue it.” Neil Garfield,

OneWest was formed over a weekend by several wealthy investors who paid virtually nothing for billions of dollars in what were claimed as “portfolio” loans owned by IndyMac which went bankrupt and into FDIC receivership in September, 2008. The agreement specified that the FDIC would pay 80% of the losses incurred on the loans. The first problem is that it said it would pay OneWest the 80%.

The second problem is that One West maintained their claim for the full amount against homeowners even though they had already submitted the claims and collected — many times more than once, from our analysis. That payment was not subject to repayment, subrogation or anything else that we can find, so the “creditor” or “agent” of the creditor has been paid on that account, but the balance has not been reduced.

In their quest for a windfall they have given the homeowners a path to justice — one where the notice of default, notice of sale, notice of acceleration notice of right to reinstate and redemption rights are all screwed up (i.e., wrong and invalid). With 80%+ of the losses already paid, the loans could have been modified down to nothing or nearly nothing compared with the original balance showed on the note, whether the note was fabricated or not.

The real problem is that most lawyers are not presenting their cases with the confidence of knowing that whatever the position of their opposition, it is probably a misstatement of the truth — the opposing lawyers in most cases don’t even know that they are making false statements and representations. Practically every foreclosure trial or hearing begins with the words “This is a simple foreclosure, your honor.” Nothing could be further from the truth.

Patrick Giunta, Esq. is co-counsel on several cases we are litigating in South Florida. One of them is a qui tam action against OneWest for false claims to the government. He has again brought to my attention the case decided in California (where almost everyone says it is hopeless) in which the homeowner stuck to their guns instead of accepting various offers of settlement. The reason we bring it to your attention again is that it demonstrates the fact that if you know you are right and you have the Judge on your side just for the raw elements of pleading or discovery, the confidence of the opposition is shattered even if they put on a good show of appearing otherwise.

My article from September 13, 2013 explains the scenario from the California case. Our current case goes even further alleging that OneWest intentionally misrepresented losses to the FDIC and the Federal Home Loan Housing Agency (and probably other private and public institutions) in order to collect multiple times on nonexistent losses. But it also dove-tails with the California case because they were steering homeowners into “modification” programs by the old trick “You have to be 90 days behind before you can be considered for modification.”

And by the way that trick phrase is not only untrue (designed to keep the modification “in house”) but also potentially criminal and illegal, because for one thing HAMP does not require delinquency in loans for modification. It gets worse. Most of the loans submitted for modification were in fact subject to claims of securitization and the authority of OneWest is questionable at best. The 90 day delinquency trick is wrong. It also constitutes the unauthorized practice of law. If a lawyer says it or anyone from his or her office under instructions from the lawyer, it might be grounds for a bar grievance. Practicing law without a license is an actual felony in many states subject to imprisonment, fine or both.

Virtually all servicers have trained their employees on how to say that without it appearing to be advice — but the homeowner hears it just the way the servicer wants them to hear it — I must go into default if I want the modification. THUS THE DEFAULT IS PROCURED INTENTIONALLY BY THE SERVICER WHICH IS INTENTIONAL INTERFERENCE WITH THE CONTRACT, IF IT EXISTS, BETWEEN THE BORROWER AND THE TRUST.That is an intentional tort enabling the Plaintiff Homeowner to allege damages far beyond economic damages and to even ask for punitive damages, exemplary damages or treble damages under statutory authority, sometimes including the cost of attorneys fees and costs.

The problem is that no modification is offered even if the homeowner makes trial payments on an “approved” modification. Worse yet, those payments are also frequently missed when the servicer or “creditor” issues a statement, report or notice. Or the modification actually raises the payments and makes it more impossible for the loan to work — which brings the servicer to the point they want: foreclosure to collect or keep the money they received on that loan, directly or indirectly, and which they never reported to the court, the borrower or anyone else.

The OneWest situation is only symptomatic of the rest of the “industry.” Virtually all servicers play the same games. These intermediaries and their co-venturers are collecting over and over again from loss sharing agreements, insurance, credit default swaps, and guarantees and other hedges, over and over again. They report it to nobody. And neither the Justice department or even our new CFPB seem to have any interest in the one factor that would bring down the number of foreclosures to nearly zero — giving credit where credit is due.

Practice Hint: For the bold and creative I would argue that that the entire profit earned from using the name of the homeowner to sell bonds,and profit from loss sharing and loss mitigation techniques should be disgorged to the borrower, whose note specifies how the payments are to be applied. One lawyer in Phoenix refers to this as my most obnoxious theory. I bet. It would disgorge all the money the banks made by declaring non existent losses.

If the “creditor” has received money directly or through payment to their agent, then the balance of the receivable is reduced — and in the simplest bookkeeping class we know that the corresponding payable from the borrower is also lost. The intermediaries could get to keep their ill-gotten claims on multiple reports of the same nonexistent loss, with a correction of the principal balance due from the borrower.

Instead they would rather get hit for a seven figure verdict or a six figure settlement when one out of a thousand gets up the nerve to really challenge them. The numbers all balance out in favor of Wall Street — as long as Wall Street keeps winning the game of “chicken.”

For further information please call 520-405-1688 or 954-494-6000. Consults available to homeowners’ attorneys, to wit: homeowners can attend only if they have a licensed attorney on the conference call. Workbooks on General Foreclosure Litigation, Evidence and Expert Witnesses are also available.

The difference between assumptions, presumptions and reality

Reynaldo Reyes, VP asset Management for Deutsch Bank said it best. “It is all very counter-intuitive.”
The borrower naturally assumes that the loan contract is complete when the money hits the closing table. Offer, acceptance and consideration — all the basics of an enforceable contract appear to be present. The borrower assumes the money was loaned by the party whose name is on the note as lender and named on mortgage as mortgagee.
What the Borrower does NOT know is that there is a previous agreement between the “originator” (whether licensed as a lender or not) that control the entire transaction with the borrower. It is frequently called an assignment and assumption agreement or purchase and assignment agreement. You can see what I have to say on this on YouTube or use the search engine on this blog for previous articles on the subject.
The previous assignment and assumption agreement calls for a  table funded loan. A table funded loan is improper simply under Florida property law, contract law, and deceptive lending laws. It is also PER SE a void contract because it commits the parties to perform acts contrary to law. Then the originator, closing agent and third party aggregator (the other side of the assignment and assumption agreement) go ahead and act in accordance with the illegal assignment and assumption agreement. In my opinion all actions at closing should be considered void, subject to equitable doctrines.
Putting the name of the originator on the note instead of the source of funding and subject to repayment terms that are different than what the true lenders or true creditors required, is a void act against public policy and illegal per se. It is also PREDATORY PER SE  which is more than just “wrong.” it entitles the borrower to justice and requires the perpetrators be punished by treble damages, disgorgement of undisclosed fees etc.
The note and mortgage are therefore in my opinion VOID not voidable. AND the absence of offer and acceptance on the same terms also means the loan documents are unenforceable. And further and most importantly, the absence of consideration at the alleged loan closing means that no contract was formed, the creation and signing of the note were a sham, and the creation, signing and recording of the mortgage were also a sham.
The closing agent assumes the same thing. He gets the money usually in the exact amount required by the settlement statements which were “approved” by the originator. He either doesn’t notice or doesn’t care who gave him the money to close the transaction. He also has the motivation to close because he gets paid out if the closing proceeds. At this moment it is difficult to say with certainty if the closing agents were negligent or participated intentionally in an illegal scheme.
Lawyers and the courts presume that the closing was real because the documents are facially valid.
But the facts are different. There is no doubt that a debt exists — the receipt of the benefits of the loan creates a debt where the borrower is the debtor. The debt is the amount of money that hit the closing table modified by the settlement statements. The net debt matches the amount set forth on the note. But this debt, as we learned in law school arises by operation of law, where it is presumed under these circumstances that a loan was made. But the statute of frauds requires that the loan contract be supported by written instruments. Notice the words “loan contract.” The only thing governing the validity of actions performed at a loan closing is contract law — not the UCC.
This is the point where the facts don’t match the documents. The banks are resisting at all costs, allowing the borrower to see the transaction trail. If an order is entered requiring compliance with the homeowner’s discovery demands, the case is settled under confidentiality. But the facts remain. The party with whom the borrower has settled actually has at best a questionable right to enter into a settlement. So the issue of title is not actually addressed in hedge settlement or modification, leaving the homeowner or any subsequent buyer or bank financing a loan using the property as collateral, in a grey area at best.
Since the assignment and assumption agreement effectively transfers “ownership” at the moment the documents are signed, the originator is not able to execute a satisfaction of mortgage — or an assignment or endorsement. It is prevented from doing so by the terms of the assignment and assumption agreement. And neither the borrower nor the closing agent knows who does possess the right to execute a satisfaction, assignment or endorsement.
The party who has apparently funded the loan is actually in the same position of the originator. The reason is that the broker dealers were careful to avoid any appearance that they were involved in loans that violated the promises they made to the lenders (investors) and which violated laws against predatory lending and rules requiring industry standard underwriting.
Thus there is no legal nexus between the broker dealer and the closing, no nexus between the trust and the closing, no nexus between the investors and the closing. This happened solely because the investment banks acted like pirates. Using the money from investors, who are the real lenders, they interposed a cloud of entities whose relationship appears murky but in reality is actually quite clear if you view it from the perspective of intentional fraud, as alleged by investors, regulators, guarantors, and other parties who were drawn into this cloud.
Thus far, those cases have been settled, but like the lawsuits with the borrowers, they are all settled under confidentiality. At this point the amount paid out in settlements appears to be over $300 billion and will eventually total over $1 trillion. This doesn’t prove anything of course. But it does corroborate that the banks saw their vulnerability and instead of litigating they settled. This should lend some comfort to borrowers who are wading into that cloud, that what they are looking for they will find — or receive a settlement offer that cannot be refused.
For further information call 520-405-1688 or 954-494-6000.

Why Is the PSA Relevant?

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

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

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

The securitization scheme can be summarized as follows:

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

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

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

Why Are Trusts Alleging Holder Status and Not Holder in Due Course?




In situations where the alleged REMIC Trust is the party initiating foreclosure, you will find in most instances that they are alleging that they are the holder. The fact that they are not alleging that they are the holder in due course raises some interesting questions. First, it is an admission that they did not pay for the loan for value in good faith and without notice of borrower’s defenses.

This in turn leads us to the PSA where you can see for yourself that only good loans properly underwritten can be included in the trust based upon the procedures for transfer and payment that are set forth or implied in the trust instrument (the PSA). Remember that the ONLY reason the party is appearing in court as the foreclosing entity is by virtue of the Pooling and Servicing Agreement (PSA). Their ONLY authority, as a “holder with rights to enforce” derives from the trust instrument (PSA). So any argument that the PSA is irrelevant is nonsense — it should be an exhibit in court or else the foreclosure should be dismissed. If they want to argue to the contrary, they must reveal the creditor and reveal the alternative authority to enforce apart from the trust instrument. If it has anything to do with the trust or trust beneficiaries however, the document (Power of Attorney) derives its power from the trust instrument as well (PSA).

The way the Banks tell it, an assignment dated not only after the cutoff date, but after the alleged declared default of the loan forces investors to accept that which they specifically excluded in the  trust instrument (PSA) — a bad loan that violates the REMIC provisions of the Internal Revenue Code subject them to adverse tax consequences and economic losses that were NOT built into the deal. How can a state judge in Florida or any other state order or enter judgment that forces a bad loan on investors who specifically called fro a cutoff of any new loans in the pool years before the foreclosure? If the loan was already declared in default. how can the trust beneficiaries be forced to accept a bad loan?

At the very least these John Does must be given notice and since the servicer knows who they are (because they have been paying them) they should give notice to the investors that their rights may be significantly impacted by a court decision in which the servicer or trustee of the REMIC trust is taking a position adverse to the interests of the trust beneficiaries and in violation of the trust indenture.

Since the requirements of the PSA always provide for circumstances that are identical to the definition of a holder in due course, why is the allegation that they are just a holder? The answer is plain: in order to establish that they are a holder in due course their proof would be limited to the fact that they paid for the loan, in good faith and without knowledge of borrower’s defenses. That proof would insulate the trust and trust beneficiaries from borrower’s defenses by definition (see Article 3, UCC). The allegation of only being a holder, exposes the trust and trust beneficiaries to defenses that were intended to be barred by virtue of being holders in due course of each and every loan. Thus this too is an allegation contrary or adverse to the interests of the trust and the trust beneficiaries. Again without notice to the trust beneficiaries that the trustee or at least lawyers for the trustee are taking positions adverse to the interests of the investors and the trust.

What difference does it make? It makes a difference because of money which is after all what this case is supposed to be about. The investors’ money either went into the REMIC trust or it didn’t. If it did, then the trust is the right vehicle for the transaction although most PSA’s say the trust cannot bring the foreclosure action. But if it didn’t go into the REMIC trust account, and the trust was ignored in the origination and/or acquisition of the, loan then the borrower is even more entitled to know what payments the investors (f/k/a/ trust beneficiaries) have received. If there have been settlements, then how much of the original debt is left? If there were servicer payments, was there ever a default and how much of the original debt is left? If there were third party payments to the creditors then how much of the original debt is left?

What seems to be an elusive concept for judges, lawyers and even borrowers is that their debt was paid by someone else. That is what happens when you have fraudulent transactions and the perpetrators get caught. In this case, there was plenty of money available to private settle more than $1 Trillion in claims of fraud from investors and fines that are steadily increasing into the tens of billions of dollars. Because the intermediary banks had essentially stolen the identity of the lenders and the borrowers, they made claims and got paid as though they were the lenders. Now they are using the proceeds of what were disguised sales of the same loan multiple times to settle with investors and settle only with those borrowers who present a credible threat. In the end the banks are wiling to pay trillions because they got illegally trillions more.

The big question is when it will occur to enough enough judges, lawyers and borrowers that they are entitled to offset for those payments that were actually received or on behalf of the actual creditors. It isn’t a difficult computation. Thus the notice of default, the notice of the right to reinstatement, the end of month statements, and the acceleration letter all state the wrong amounts and are fatally defective. They are misrepresentations that are part of a string of misrepresentations starting with the lies told to the managers of stable managed funds who purchased, and kept on purchasing mortgage bonds issued by an apparent REMIC trust whose terms were being routinely ignored.

Thus it is not RELIEF that the borrower is asking, it is JUSTICE. The creditor is only entitled to get paid once on each debt. The creditors are the investors or trust beneficiaries. The demands made on borrowers for the last 7 years have actually been demands from the intermediaries for payment of fees, commissions and advances made or earned by them, according to their story. They are not claims on the mortgage loan, which was either paid down or paid off without disclosure to the borrower. Had the pay down or payoff been recorded and applied, virtually all of the loans that were improperly foreclosed by strangers to the original transaction (no privity) would have been avoided because the amount of the payment could have been dropped easily under HAMP. As stated repeatedly on these pages, this is not a gift of principal REDUCTION. It is justice applying a principal CORRECTION due to payment received — the ultimate defense under any lawsuit for financial damages.

For more information please call 954-495-9867.


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