Loan Without Money

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.


If you went to the loan closing, signed the papers and then gave them to the closing agent and then the “lender” didn’t fund the loan, what would you do? If you ask an attorney he or she would probably demand the return of the closing papers. If the mortgage got recorded the attorney would threaten a variety of consequences unless the filing with the county recorder was nullified (because it can never be physically removed).

If you were then contacted by a mysterious stranger who said forget the loan papers, I’ll loan you the money, you might have accepted. This mysterious person sends the money to the closing agent who disperses it to the Seller of the property or pay off the prior mortgage etc.

Now imagine that the first “lender” ( the one who DIDN’T make the loan) has “assigned” the documents you executed to another party who also didn’t loan any money to you and who didn’t pay for the assignment because they knew full well that the loan papers were worthless. And the “lender” designated on the note and mortgage doesn’t ask for money because they know they didn’t loan a dime to you. But they gladly accept fees for “acting” as though they were the lender and renting their name out to be used as “lender.”

And finally imagine that the assignee of the worthless documentation you executed again assigns and endorses the note and mortgage to still another party, like a REMIC Trust. What did the REMIC Trust get? Nothing, right? Not so fast.

If this last transfer of the “loan” PAPERS (described as “documents” to make them sound more important) was purchased for value in good faith without knowledge of your defense that you never received the loan, you might still be liable on that note you executed even though you never received the loan. Yes you owe the holder in due course in addition to owing the money to the mystery stranger who wired the money to the closing agent. The Trust COULD enforce the loan or at least try to do so and it would be legal because they would be a HOLDER IN DUE COURSE (HDC). An HDC can enforce free from borrower’s defenses. That is the risk of signing documents and letting them get out of your hands before you receive what you expected as part of the deal.

Why then is there no evidence or allegation by any forecloser in the securitization schemes that they have HDC status? I represented hundreds of banks, lenders, and associations in foreclosures. If anyone was holding the paper as an HDC that is what I would have said in the pleading and then I would have proven it. end of story. The borrower might have a lawsuit against the third parties who tricked him but the HDC still has a good chance of prevailing despite grievous violations of lending laws and procedures at closing — including lack of consideration (they didn’t fund the loan for which you executed the closing documents).

The ILLUSION of a loan closing has been created because both “loan” scenarios in fact occurred AT THE SAME TIME at most “loan” closings. Two different deals — one where you didn’t get the money and the other where you did. One where you signed the closing documents but didn’t get the loan and the other where you signed nothing and got the money from the loan.  In other words, you signed documents, you delivered them to the closing agent and they were delivered and recorded. But the “lender” didn’t give you any money. Ground zero for the confusion and illusion is the receipt of money by the closing agent fro the mysterious stranger instead of the party in whose favor you executed the note and mortgage.

And here is the good news. The banks know full well they can’t win if they allege they have HDC status or even that the Trust has HDC status. So they allege that they are “holders” or they allege they are “holders with rights to enforce.” More often than not they simply allege either that they are simply a “holder” or that they have the “rights to enforce.” They let the court make the rest of the assumptions and essentially treated as though the party foreclosing on you had HDC status. That is ground zero for judicial error.

The Trust never issued payment to the assignor of the loan because the assignor didn’t ask for any money except for fees in “acting” its part in the scheme. The assignments and endorsements, the more powers of attorney, the higher the stack of paper. And the higher the stack of paper the more it looks like the the loan MUST be valid and enforceable, that you did stop paying on it, and that therefore you MUST be in default.

Meanwhile the mysterious stranger is getting paid by the people who entered into an agreement — a pooling and servicing agreement — under which the investors get paid from the Trust, Trustee or Master Servicer that issued bonds to the mysterious stranger. The terms of payment are very different than the terms of your note but that doesn’t matter because they never loaned you money anyway. The real basis of the ability of the servicer and trustee to see to it that you receive your expected payment is the ability of these brokers, conduits and sham corporate entities and trusts to get their hands on your money, and the money of investors in the Trust.

Why did the mysterious stranger send money for you? Was it a gift? Of course not. But without documentation the mysterious has exactly one legal right — to demand payment at any time for the entire balance of the loan plus reasonable interest. No foreclosure, because there is no mortgage. No acceleration necessary because you already owe the entire amount. Your homestead property is NOT at risk in Florida and many other states, because the mysterious stranger has no mortgage recorded. And the full balance of the loan to the mysterious stranger is completely dischargeable in a chapter 7 bankruptcy or can be reduced substantially in a Chapter 13 or chapter 11 Bankruptcy.

Why did the mysterious stranger make the loan? Because the stranger was tricked by the same people who tricked you — under several layers of complicated relationships such that it is difficult to pin the blame on anyone. But this isn’t about blame. It is about money. Either they made a loan or they didn’t. And the answer is that nobody in their chain of “title” to the loan PAPERS ever paid one dime to loan you money or buy your loan. They are hiding that from both investors and you.

The mysterious stranger gave a broker money because he thought the broker was the intermediary between the mysterious stranger and a REMIC Trust that was issuing a semi-public offering of Mortgage Banked Securities (MBS). The stranger thinks he is an investor buying securities when in fact he has just opened the door for the broker to use his money in anyway the broker wanted, including lining the broker’s own pocket with the principal that should have loaned on good solid viable loans. The illusion is enhanced by the broker when the broker makes certain that the mysterious stranger is addressed as an “investor” or “trust beneficiary” of the REMIC trust.

The mysterious stranger who made the actual lender is tricked into believing that he has purchased a fractional ownership of thousands of mortgages including yours. That what the Prospectus and PSA seem to be saying. In reality the money that the mysterious stranger gave to the broker, stayed with the broker and that satisfied the feeding frenzy of sharks circulating around each dump of money from mysterious strangers.

“Bonuses” that were incomprehensible to the rest of the world were lavished upon the people who actually made this trick work. The  bonuses came from “profits” that were declared by the brokers from some incredibly lucky “trades” that never existed in which the Trust “bought” the loans at a price far higher than the principal balance of the loans, including yours.

AND THAT IS THE REASON FOR THE LOST, DESTROYED, FABRICATED LOAN AND TRANSFER DOCUMENTS. THE BANKS ARE CREATING THE APPEARANCE OF NEGLIGENCE THAT OVERRIDES THE TRUTH — IT WAS FRAUD. The only reason you would destroy a cash equivalent document is because you told someone it promised payment of $100, when in fact it promised only $60. The Banks can’t reveal the real money trail without revealing their vulnerability to criminal prosecution.

Of course the problem was that the broker didn’t loan you any money and either did the trust, the trustee, the servicer or any of the conduits or other intermediaries. And so none of them were entitled to have or do anything with the PAPER that had your signature on them — which contained one key term that they didn’t want anyone to see — the principal balance stated on the note.

If the mysterious stranger found out that for every dollar he paid the broker for a mortgage bond, only 60% was being used for loans, then the mysterious stranger would stop giving the broker money and would have demanded the return of all funds. But the mysterious strangers who in reality had given naked undocumented demand loans to homeowners had no idea that anything was wrong because the payments they were receiving were exactly what they expected.

So when the “borrower” is asked “did you get the loan.” His answer is “which one are you asking about?” Because no loan was ever made, directly or indirectly by the “lender” on the note and mortgage. Did you stop paying? Of course, why should I pay someone who I thought was my lender but isn’t.

All of that is the exact reason why the investor “mysterious stranger” lawsuits have all been settled for hundreds of billions of dollars. But in the end this is about the mysterious stranger and the lender designated on the note and mortgage. The fact that either way the mysterious stranger’s money was to be used for loans is not the point under our system of law. If anyone wants to enforce commercial paper based upon a loan that was never made, they lose if they are merely a “holder,” and “holder” status is all that the foreclosers have ever alleged. Their “right to enforce”comes from cyberspace rather than the owner of the loan. The owner of the loan, is in the final analysis a mysterious stranger to any of their PAPER.

The solution to our economic crisis that simply won;t end until this wrong is addressed is to stop rewarding bad behavior and let the mysterious strangers and the borrowers meet each other in the market place. Under threat of a demand loan due in full right now, nearly all homeowners would execute enforceable, clean notes and mortgages in favor of the mysterious strangers and then they could BOTH sue the intermediaries that corrupted the title and investments of the “mysterious strangers.”

Presented correctly by counsel for the homeowner, the men and women sitting on the bench will accept the truth as long as you exercise your rights to object to the use of presumptions instead of facts and demand your right to receive discovery that would disprove all the presumptions upon which the brokers and their nominees rely. Stop admitting things you know nothing about. Presume that there is a shady reason why the foreclosing party never asserts itself as an HDC. That is your clue to the truth.


Nuclear Questions and Logic in Foreclosure Litigation

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

I had the honor of receiving a response from Gary Dubin who is pursuing a writ of certiorari to the Hawaii Supreme Court. I had expressed my view that equal protection more aptly describes the situation than mere denial of due process. He responded that due process is hard enough to push through and that equal protection is even harder. I agree and so his strategy might be correct, but I still wonder if the bullet might be loaded into a lawsuit in Federal court suing the state for systematic deprivation of due process to a class of Defendants in civil litigation, based upon the faulty premise that the loans subject to litigation are real. Here is what I wrote to Gary Dubin:

I know the difficulty of arguing equal protection but I believe that the due process argument based upon the note alone leaves room for the court to decide against you. Either way, you have a tough road ahead of you. At this point, the Courts are faced with the fact that they approved millions of foreclosures based upon the thought in the mind of every jurist that the loan is real and the borrower stopped paying. 15 million people were dislocated. Deciding the other way now would be acknowledging an error of monumental proportions.
That said, it would be very interesting to see a brief asking the question about why the “creditor” never alleges it is a holder in due course. That would solve everything for the banks — so why don’t they do it? It would bar the signatory on the note and probably the mortgage from raising most defenses.The corollary question is if they are a holder, from whom did they get the right to enforce? And the last question is that if the securitization IN PRACTICE was real and valid, then the Trust was the end of the line and could not possibly have been merely a holder unless they are willing to concede they did not act in good faith or purchased the loan WITH knowledge of the borrower’s defenses; that leaves “for value” as the only issue in play raising the question “how could the trust be merely holder” and if it is a holder how could a holder give rights to enforce to a third party without notice to the actual owner (HDC)?

Logically (and confirmed by me through “anonymous”interviews with actual traders involved in this scheme) it MUST be true that the Trust never purchased the loan. And the ONLY reason that could be true is if the Trust didn’t have the money. After all, the Trust was created for the sole purpose of buying loans. If the Trust didn’t buy the loan then it follows that the assignor or endorser received no payment; that would mean they had no interest in the loan because otherwise they would have insisted on payment. If they didn’t insist on payment, they did not pay for it either. And if they didn’t pay the originator for the loan, it must be because of a prior agreement (assignment and assumption) that governed the closing with the borrower. Hence the table funded loan resulted in no claim for payment in order to “transfer” the loan. If the originator didn’t get paid for the loan, then it obviously wasn’t entitled to it. It isn’t reasonable to assume otherwise.
So if the originator (“lender”) did not receive payment it must result from the fact that they never made the loan. If they did make the loan then they would have insisted on receiving payment. That leaves us with money on the table from an unknown undisclosed source, clearly in violation of Federal and state lending laws. AND THAT is what leads us back to the top of the food chain where the Trust received no investor money and therefore could not purchase the loans and therefore was not the owner of the loans but is claiming “holder” status. The investors were clearly unaware and may still be unaware that their “trust” and their trust shares are worthless. The bonds were thus issued by an unfunded trust that received neither money nor loans.
So if the Trust was unfunded but it was still investor money that was used to fund the loan, that would explain the absence of any monetary transactions (except fees and profits) relating to the loan origination and transfers. And THAT leads back to the question of law and equity that every court is dodging — if the borrower received an undocumented loan from investors, what rights are created for those who intervene in the transaction and make claims of default and rights to foreclose? Which leads to the final nuclear question: Are the courts inadvertently creating equitable mortgages in favor of investors or their designee when the original transaction was fatally flawed and in violation of all known lending and closing standards?

The Logic of Wall Street “Securitization:” The transaction that never existed

For more information on foreclosure offense and defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

The logic of Wall Street schemes is simple: Create the trusts but don’t use them. Lie to everyone and assure everyone that Trusts were used to “securitize” loans. The strategy is so successful and the lie is so big and has been going on for so long, that most people believe it.

You see it in the decisions of the appellate courts who render opinions like the recent 3rd district in California which expresses the premise that the borrower was loaned money by the originator. Once you start with THAT premise, the outcome is no surprise. But start with reverse premise — that the borrower was NOT loaned money BY THE ORIGINATOR and you end up with a very different result.

We could assume that Wall Street is reckless in lending money. They can afford to be reckless because they are using investor money. And, so the story goes, the boys on Wall Street got a little wild with loans that they would never have approved for themselves.

Without risk of any loss, Wall Street investment banks make money regardless of whether the loan succeeds or goes into default.

But Wall Street is not content with earning fees. The basic credo is a question: “How can we make YOUR money OUR money.” And they have successfully devised and followed that goal for many years. As one insider told me in an interview that must remain anonymous, “It is like a magic trick. You create a trust and everyone is looking at the trust and everyone is looking at transactions affecting the trust, when in fact all the action is occurring off record, off the books and away from scrutiny by investors, trustees, rating agencies, insurers, borrowers, and of course, the courts.” 

So the question becomes “what happens to investor money after it is received by the investment bank?” If the money passes from the bank account of the managed fund (pension) fund to the bank account of the investment bank that sold bonds issued by a Trust then the Trust would receive the money. It didn’t.

The Trust would then issue funds for the origination or acquisition of loans. In return it would get the loan documents and they would be placed with the Depositor or Depository — pretty much the way ordinary loans are done. It didn’t. Instead we had millions of loan documents lost or destroyed and then re-created for litigation purposes. Why would an entire industry have engaged in that behavior? Was it really a “volume” problem where there was too much paper or was it something more sinister?

The problem is that the investment bank that acts as broker in selling the bonds is in control of the loans and investments of the Trusts. Since the fees of the investment bank are based on the existence of transactions in which the Trust issues money in exchange for investment certificates, the Wall Street bank is incentivized to make that Trust money move regardless of the quality of the investment. And since the Trust has no say in the actual underwriting decision to originate or acquire the loan, the investment bank is the only one in charge. That leaves the fox guarding the hen house.

But that doesn’t satisfy Wall Street either. They realized that they can create “proprietary profits” for the investment banks by creating a yield spread premium. A yield spread premium is the difference in value between two different loans to the same party for the same transaction — one is the honest one and the other is fictitious.

At closing the borrower is steered into the fictitious one which is far more risky and expensive than the one the borrower is actually qualified to receive.

At the investor level the “trust” is ordered to take loans that are far less valuable than they appear. This means that the Trust buys the investment bonds or shares that the investment bank has created with nobody checking the quality or ownership of the investment. The Pooling and Servicing Agreement contains provisions that effectively bars the Trustee or the investors from knowing or even inquiring about these transactions. Look at any PSA and you will see it.

The bottom line is that the worse the loan terms for the borrower and the more likely it is that the loan will fail, the lower the value of the loan. But if it is sold as though it was an ordinary conventional loan at 5%, then the price, charged for a crappy loan is much higher than its true value. Same scenario as the inflated appraisals of real property and homes. 

So the investment bank inserts itself as the Seller of the loan to the trust. At their proprietary trading desk the investment bank sells its ownership interest in the loan to the trust for the higher “value” because the investment bank is making the decisions on what loans the trust will buy. Meanwhile they have created loans that are worth far less and even have principal due on the “notes” that is far less than what the trust is forced to “pay.”

Checking with informed sources, it is evident that those proprietary transactions were fictitious and allowed the investment banks to report huge “profits” while everyone else was losing their shirts trading bonds, equities and anything else. The transaction at the proprietary trading desk of the investment bank was fictitious because the trust did not issue any payment to the investment bank, who never formally owned the loan in the first place.

You don’t see investment banks anywhere in the chain of title whether you review public records or even MERS. So you have the investment bank selling a loan they don’t own to a trust that never paid for it. The entire transaction is recorded but does not exist.

In the case of a 15% $300,000 loan to a “borrower”, it is “SOLD” as a 5% conventional loan giving the investment bank a reason to declare that it made a profit on a “proprietary trade.” How much profit? Figure it out — on the back of a napkin you can see how the investment banks “sold” the $300,000 loan but “received” $900,000 from the Trust leaving the investors with an instant $600,000 loss and the probability of losing the rest of the $300,000 as well. This is exactly opposite to the provisions of the Prospectus and PSA.

Upon examination, my sources tell me, the money to cover that declared “trading” profit does exist at the investment bank. That is because the investment bank took the money from investors, never funded the trust, and pocketed the $600,000 in advance of the “proprietary trade, which they could cause to be recorded and reported at any time, since the investment bank was in total control.

Enter moral hazard.

The only incentive that the investment bank to stay honest is to report good results so the managed funds buy more bonds. But that does not protect investors. The investment bank creates a classic PONZI scheme in which it uses investor money to make the monthly payments on the bonds or shares and reports that “all is well.” The report disclaims reliability, credibility and authenticity. Wells Fargo has an especially strong disclaimer on the distribution report to investors. The disclaimers were ignored as “boiler plate” by fund managers who made the investment on behalf of the their pensioners or mutual fund shareholders.

All the fund managers needed to know was that they were getting paid — but they did not realize that a significant part of the payment came from their own investment dollars advanced to the investment bank, as broker for the purchase of trust bonds or shares.

So the investment bank makes much less money on good investments for the trust than on really bad investments. In fact they have the  incentive to make certain the loan fails. Not only do they get the yield spread premium described above, the investment bank, is trading on inside information in which only the investment bank knows the truth. It places bets against the viability of the loan and bets further against the value of the mortgage bonds, and buys contracts for insurance, betting that the value of the bond will fall in a “credit event” without the necessity of an actual default.


That is the trillion dollar question. And THIS is where the Courts have it completely wrong. Either we are a nation of laws or a nation governed by the financial industry. The banks bet on themselves, and so far, they were right to do so.

The money given to the investment banks was spread out over a long list of intermediaries owned or controlled by the investment bank. AND then SOME of it was spread out funding loans to borrowers. But the investment bank obviously could not name itself on the note and mortgage. That would have revealed that the tax advantages of a REMIC trust were nonexistent because the trust was not involved in the transaction.

So an elaborate, complicated, circuitous route was chosen for the “approval” of loans for origination or acquisition. First you have a nominee, which is often MERS plus a “lender” who was also a nominee even though they were called lender. The “lender” was subject to an assignment and assumption agreement that prohibited the “lender” from exercising any control over the closing on the loan that was being “originated.” In short, they were being paid to pretend to be a lender — hence the term pretender lender. 

The closing agent, whose fee depends upon actually closing, and the mortgage broker, whose fee depends upon actually closing, and the title company, whose fee depends upon the actual closing, have no interest in protecting the borrower from what is about to transpire.

The closing agent gets money from any one of a variety of sources OTHER THAN THE “LENDER.” The closing agent applies those funds to the closing as though the “Lender” made the loan. As stated by one mortgage document specialist for a large “originator”, “We knew that table funded loans were predatory and illegal, but we didn’t take that seriously. And the borrowers didn’t know who the lender was — that was the point. We used table funded loans to conceal the actual lender.”

Those funds came from the investors, although the money did not come through the trust. It came from the investment bank which was acting in the capacity, as they tell it, as a depository bank — which is why the Federal government allowed them to become commercial banks able to act as depositories. And every effort was made to prevent any evidence as to whose money was actually involved in the loan. Since it was the investor money that was used to originate or acquire the loan, it should have been the investors who were named as owner of the loan and recorded as such in the public records.

If you look at the PSA, it requires funding of the trust, of course. But it also requires that its acquisition of loans contain all the elements of a holder in due course, thus barring any claims from borrowers about irregularities at the closing, violations of state and federal law, etc. In summary the only defenses a borrower could raise against a holder in due course is that they paid or that they never signed the note. So a person who pays money in good faith without knowledge of the borrower’s defenses is pretty well protected. In litigation with borrowers, borrowers would be told they must sue the intermediaries that caused the problems with their loans.

The fact that no foreclosure of a loan subject to “claims of securitization” alleges HDC (holder in due course) status is very substantial corroboration that the Trust did not pay for the loan in good faith without knowledge of the borrower’s defenses.

The banks have been betting on a lot of things and winning every bet. In court they are betting that they will be treated as holders in due course and not as simply holders either with or without any right to enforce where they might be required to prove the actual loan of money from the originator, or the payment of money for an assignment and endorsement. And THAT is why the appellate court is assuming that the loan actually occurred — you, know, the loan that is underlying the execution of the note and mortgage, because the borrower didn’t know the truth.

The factual problem is that the presumptions and assumptions relied upon by the courts are in direct conflict with the real facts. The legal problem is that starting with the original loan, many cases, and always with the assignment of loan, is that somewhere in the chain (and probably at more than one point in the “chain”) there is no underlying transaction for the paper upon which the bankers rely in foreclosure.

Some OTHER transaction occurred, which is why the note is evidence of a loan that does not exist between the “lender” and the “borrower” and why the assignment is evidence of a transaction that does not exist between the assignor and assignee. The mistake being made is basic law: the courts are confusing “evidence” of a transaction with the transaction itself. In so doing they are escalating the status of the forecloser from a mere holder to a holder in due course without any actual claim or allegation of HDC status. Once that is done, the borrower is doomed.

The doom should fall on the investment bank and all the intermediaries that participated in this scheme. They left the investors with no coverage — the investors money was used in ways that were expressly prohibited by the offering, the PSA, and even the rules governing investments by stable managed funds whose risk is required to be extremely low in any investment. The investors are the involuntary lenders with no note and no mortgage.

The good news is that nearly all borrowers would be happy to execute a note and mortgage to investors who actually funded their loan or even a trust that was identified by the investors to represent them. The terms would be based upon current economic reality and would thus mitigate the damages to both the investor lenders and the borrowers. The balance, as we have already seen, lies in lawsuits for damages against the investment banks and their intermediaries demanding refunds, damages and even punitive damages. Those lawsuits are being brought by investors, borrowers, insurers, and guarantors and in some cases by counterparties to credit default swaps.

Without the execution of a real note and real mortgage, the foreclosures are fatally defective. So the bad news is that as long as the courts assume and then presume and then enter judgment for the foreclosing party, the Judge is inadvertently sealing a greater loss applied against the investor lender, removing the tax advantages of a REMIC trust, and creating another bar to liability and accountability of the investment bank who effectively has been lying and cheating its way through the system — using legal “presumptions” that are directly contrary to the facts.

Petition to Hawaii Supreme Court On Due Process

For more information on foreclosure offense and defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured.

I am wondering if this is  too narrow. The basic assumption that turns into a presumption that turns into a judgment is that the loan was made by the originator. In most cases that isn’t so. Hence the note is defective and so is the mortgage. I also think that this is less an issue of simple due process than an issue of equal protection — debtors in the class of foreclosure victims are treated differently than debtors of similar situations.

There is at least some due process in all these cases and the argument could be made that the state isn’t doing enough to provide more — but the whole strength of that argument depends upon an allegation and proof that homeowners  as a class get less due process than any other class of debtors. As a result, presumptions that are rebuttable are treated as virtually unrebuttable leading to a final judgment based upon presumptions that are contrary to the facts. Note that the forecloser is taking the position that it is a holder for purposes of suing on the NOTE, and trying to piggy back that onto the foreclosing the mortgage.

My take on this is that the courts are treating the foreclosers as they would if they alleged and proved that they are holders in due course. But that would require proof of payment, acting in good faith without knowledge of the borrower’s defenses. The PSA requires the elements of a HDC.

It is only in foreclosure cases where the court tacitly converts the allegation of “holder” on the note to a foreclosure of the mortgage as if the creditor was present, when in fact the creditor in most cases doesn’t even have notice that they are about to have the tax status of their REMIC destroyed and they are about to have a losing loan pushed into their pool by an unsuspecting judge who does not realize that his Final Judgment is forcing a loss on the investor and the borrower that neither one consented to.

THAT is why I think this is more about equal protection than a simple case of due process. Embedded in the question to the Hawaii Supreme Court is the assumption that the note is even relevant. If the note, as we were all taught in law school, is EVIDENCE OF THE DEBT AND NOT THE DEBT ITSELF, then the refusal of the courts to provide homeowners with ample opportunity in motions, discovery and at trial is all wrong. All facts point to the conclusion that no money exchanged hands in connection with any of the existing documentation starting with the note and mortgage.

The homeowner was in fact given money directly from investor funds. The Trust was not used as a conduit, which is why there is a complete absence of allegations by the banks that they are holding these loans as holders in due course which would bar almost all of the borrower’s defenses. Instead, they allege they are “holders” knowing that Judges are probably going to use that allegation as a wall against the borrower’s defenses. So the banks get treated as HDC status even though they never alleged it. The banks can claim they did nothing wrong and blame the courts when the truth comes out. I wonder how that will play in the court of public opinion?

In all other cases that would not be true. But in foreclosure cases they give 3 minutes per case and rule on things without thought.

Aggressive Discovery: Interrogatories, Production of Documents, Admissions

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

My observation is that the cases that are aggressively litigated before trial are most likely the ones that achieve success. “Success” is not necessarily a judgment for the homeowner, although that is happening with increasing frequency. Lawyers for banks are experimenting  with the concept of “self-authenticating” documents to get by the legitimate defenses raised by foreclosure defense lawyers.

But the principal concept underlying aggressive litigation before trial is to take control of the narrative. From the start, this is the Plaintiff’s case and they automatically have the advantage. It is necessary to shift control of the story to the narrative proposed by the homeowner’s case. The narrative needs to be simple and direct, which involves an element of risk. If you don’t state your theory of the case, the court is left with motions that are raising hair splitting objections to the Plaintiff’s case.

The fact is that you don’t know the identity of the creditor because you don’t know the details of “private” transactions that depend upon facts that are only in the possession or access of the foreclosing party. They routinely file blanket objections, like anything relating to the the pooling and servicing agreement raises the objection that the homeowner is not a third party beneficiary of the agreement. If you let it end there, you are barred from getting vital information for your defense.

The “third party beneficiary” objection is a red herring. You are not seeking to receive the benefits of the trust. That is reserved exclusively for the trust beneficiaries. But the trust provisions in the PSA or other trust document specifically provide for the method by which loans enter and exit the trust. You don’t know if the loan ever made it into the trust and you you don’t know if the loan was repurchased or transferred out of the trust. And you don’t know the status of the books of account on your particular loan as it is shown by the creditor. If those books and records of the creditor show that the subject loan is paid in full through servicer advances, then by what right did the servicer declare a default?

So your narrative is that the entire chain is a smokescreen for irregularity or fraud which resulted in bad paper on bad loans. That is exactly what investors alleged when they sued the investment banks. That is what was alleged by Fannie and Freddie when they sued for repurchase of the loans. That is what was alleged when the insurers and other third parties sued the investment banks for refunds on payments made and received by the investment bank.

Why the investment bank? Because (1) the investment bank was the broker dealer who created and sold the mortgage backed securities issued by the trust and (2) they took the money and ran, doing whatever they wanted with it including pocketing huge profits from the sale of bad loans under the guise of a safe “bundle.” The credit rating and reputation of your client was used many times to give the bundle or pool some aura of legitimacy. Either the investment bank was the agent for the investors or the trust or it wasn’t. If it was the agent, then all the profits it made that were undisclosed coming from the “loan closing” should have been disclosed and credited to both the investor and the borrower (TILA, Reg Z).

But the investment banks take the position that their profits and fees arose from proprietary transactions. So according to them, they were not acting as agents for the trust when they made all that money but they were agents for the trust when they directly took control of the closing instructions with “lenders” they selected and the disclosures to borrowers. The problem with that story is that the PSA says that is not the way it should be done as it would damage the the REMIC’s tax status and increase the likelihood of economic loss. Your narrative should probably include the fact that the only reasonable interpretation of events is that the money from investors was used to fund closings and acquisitions of loans OUTSIDE OF THE TRUST, which was never followed as to payment, delivery of loan documents or assignments and endorsements within the cutoff period. Remember that acceptance of loans after the cutoff period is barred. The trustee must formally accept loans, in order to place the loan in the pool allegedly owned by teh trust. The trustee may not accept such loan packages after the cutoff without receiving an opinion letter from counsel

The PSA includes all the procedures and parties that are supposed to be involved in the transfer and Trustee’s acceptance of loans into the trust. Under New York State Law, which governs most common law REMIC trusts, any attempt to engage in a transaction or act of any kind that is in violation of the trust provisions is VOID, not voidable. And repurchase provisions of the PSA certainly raise the reasonable question in discovery as to whether the loan was purchased  by third parties or repurchased by the “seller.” It raises the question of whether the investors actually received their money and are showing an account status that is not in default.

The “third party beneficiary” objection belies the fact that without a connection between the closing with the borrower and the closing with the lenders (investors) the debt does not exist in the manner portrayed by the foreclosing parties. All of this is corroborated by the fact that the forecloser is never claiming the status of a holder in due course. If they were holders in due course they would allege it because that would end most borrower defenses. So why do they insist that they are “holders” and that is enough? There is an inherent admission that the trust did not pay for the loan, did not act in good faith and knew about the borrower’s defenses. And a fair reading of the PSA clearly shows that the Trust was intended (as promised to investors) to receive the benefits of being a holder in due course.

So here is one version of attacking the forecloser (US Bank as trustee) in discovery who has raised blanket objections. It is by no means complete. And even if your facts appear to be the same make sure you do your homework, get a title and securitization report that raises the questions discussed above, and gives you reason to inquire about information that might lead to the discovery of admissible evidence.

Pro se litigants are cautioned here that this goes far beyond the normal knowledge of a layman in court. You should seek the services of a lawyer licensed in the jurisdiction in which your property is located AND who knows and understands all the facts of your case AND who has received a title and securitization report.

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


COMES NOW the Defendants by and through their undersigned attorney and moves this court to enter an order denying the Plaintiffs’ objections to discovery and compelling complete responses with respect to Defendants’ Interrogatories, Request for Production and Request for Admission and as grounds therefor say as follows:

  1. This is a foreclosure case in which the Plaintiffs have alleged that a Trust is the creditor with respect to debt for which a promissory note is alleged to be evidence of the Defendant’s indebtedness.
  2. The Trustee is alleged to be US Bank as successor to Bank of America as successor to LaSalle Bank.
  3. The note is alleged to be secured by a mortgage executed by the Defendants.
  4. The Plaintiffs have not alleged a loan to the Defendant by the Plaintiff or anyone else in their alleged chain of “title” to the loan or loan documents. Instead they are relying upon rebuttable presumptions arising from execution of alleged documents bearing the alleged signature of the Defendants.
  5. Defendants have denied the Plaintiffs’ allegations and are pursuing inquiries, investigations and discovery as to the actual facts to determine if they are congruent with the presumed facts as alleged by the Plaintiff.
  6. Defendants challenge the alleged default, ownership of the debt and loan documents and the balance alleged in the complaint, and affirmatively defend with payment by way of servicer advances received by the trust beneficiaries from the servicer.
  7. Defendants also are inquiring as to the authority of US Bank, who is not named in the Trust instrument (Pooling and Servicing Agreement) as the Trustee. If US Bank is not the Trustee then the trust is not in court as a party. It is indisputable that the Trustee named is LaSalle Bank which was subject to two mergers on record: one in 2007 in which ABN AMRO acquired LaSalle in a reverse merger by which the stock of LaSalle was issued in such quantity as to give ABN AMRO total control over LaSalle, and the other in 2008 in an alleged merger that Defendants know little about except that announcements were made about the alleged merger with Bank of America.
  8.  Defendants theory is that the Trust is not the creditor and that US Bank is not the Trustee.
  9. Defendants are entitled to pursue discovery for anything that might lead to the discovery of admissible evidence.
    Counsel for the Plaintiffs has informed undersigned counsel that the basis for the objection in every case is that the Defendants are not third party beneficiaries of the Trust.
  10. Defendants position is that such an objection is irrelevant to the inquiry of whether the trust is in fact the creditor and whether US Bank has a legal basis for claiming succession to the position of Trustee.
  11. Defendants point out to the court that the suit is brought as a holder and not a holder in due course. Hence all defenses of the borrower may be raised as though the trust was the originator of the loan.
  12. Even as “holder” Plaintiffs fail to allege and object to any information as to the basis of their claim rights to enforce a claim on the alleged note and alleged mortgage.
  13. If the Plaintiff is merely a holder and not a holder in due course then the question becomes whether there was ANY transaction in which the Trust paid for the loan or if the trust is acting in a representative capacity for an undisclosed creditor.
  14. Or, if the reason that the Plaintiff is not alleging status as holder in due course, the other two reasons are potentially that the trust was not acting in good faith or that the trust had knowledge of the borrower’s defenses.
  15. Defendants investigation has led it to believe that at no time through the present have the loan documents ever been delivered to the appointed agent (Depository) as expressly set forth in the trust instrument. Defendants have a right to know when such delivery occurred, if ever and to inquire as to the circumstances of such delivery or non delivery.
    These are all issues that Defendants are entitled to pursue.
  16. If the Trust owns the loan, as alleged, then it must have done so according to the terms of the trust instrument which is governed by New York State and potentially Delaware State law — both of which declare transactions outside the scope of authority of the Trustee to be void, not voidable.
  17. In order for the trust to have ever acquired an interest in the loan, the transaction must have occurred with the Trustee’s acknowledgement and consent. The Trustee at the time of the required cutoff period was not US Bank. This is indisputable. Defendants seek documents showing the actual money trail and the actual document trail — not  just documents the Plaintiffs wishes to use at trial.
  18. As for the balance, Plaintiffs object to the Defendants getting confirmation that “servicer advance payments” were made to the trust beneficiaries and that all distributions required to be made to the “creditor” have been made. If such payments were made and the creditor is or was, at the time of the declaration of default, not showing a default because the creditor had been paid in full, it is a matter of argument as to whether such payments negate the default and whether the payments gave rise to a different cause of action by the servicer against the Defendants for unjust enrichment that would not be secured by the mortgage unless this court is going to cut pieces off the security instrument and declare equitable part ownership of the mortgage in favor of the servicer or other third party payor.
  19. Defendants have a right to know the balance actually due to the creditor on account of the alleged property loan apart from any claims of the servicer or other third party who may have made payments that were in fact received by or on behalf of the creditor(s). In other words, if the creditor is showing a different balance due, why is that? If the creditor is not or was not showing a default, why is that?
  20. Defendants theory of the case is that neither the trust nor any predecessor in interest ever participated in loaning money to the Defendants. If that is the case, it is something that could lead to the discovery of admissible evidence.
    WHEREFORE, Defendants pray that this court enter an order denying each and every objection raised by the Plaintiff with respect to discovery and that the Court award attorney fees and costs as sanctions for obstructive behavior on the part of the Plaintiff.

The Assignments Are Lies With a Presumption of Truth

At some point the Courts will need to accept some of the responsibility for the damage caused by this scheme.

For more information and consultation please call 520 -405-1688 or 954-495-9867. Or write to us at

INVESTOR ALERT! — USING THE COURTS, the foreclosing entity successfully transferred a bad loan to your portfolio, forced you to take the loss, prevented you from mitigating damages and imposing a tax burden that is directly contrary to the terms of the REMIC trust.

I know this goes headlong against established “theory” that the debt, the note and the mortgage are inseparable, but that is the point. When the Wall Street banks got involved, the debt, the note and the mortgage were all separated causing chaos and confusion from which the Wall Street profited beyond imagination. — Neil F Garfield,

So what exactly is that “assignment” that everyone is talking about and litigating?

BOTTOM LINE: The “contract” contained an offer but is missing acceptance and consideration. The loan is not in any trust. I think the “assignment” is an “offer” that was not accepted and not paid by the Trustee of the Trust — and that is the reason why you see a Trustee named as plaintiff when they are willing to sign anything including a rogue “power of attorney” or if they are not willing, then the action is brought by a newly minted servicer who allegedly knows nothing about past behavior that has resulted in hundreds of billions of dollars in settlements, fines and sanctions against the predecessors of the “new” servicer.— Neil F Garfield,


As I wade through the hundreds of court dockets, getting information on process and due process, I am struck by the absence of common sense and equal protection under existing laws. For 7 years, I have said that no new law will cure the mortgage crisis and foreclosure tragedy. The existing laws, rules of civil procedure and rules of evidence are sufficient to dispose of most claims for foreclosure — even if the claim on the note is “assumed” or “presumed” valid. But these precepts are being applying in a twisted in a disjointed way to achieve an unjust result — the courts are causing homeowners to forfeit their homes because of errors originating on Wall Street. The courts are starting off with the premise that the debt at issue is valid when it is not. And they are allowing and promoting presumptions of fact that are in direct conflict with the facts that are presumed to be true.

Legal presumptions are used when it is obvious that the assertion is most likely true. Judges are assuming that the claim that the borrower owes money to the party pursuing foreclosure. That assumption stems from prior experience when it WAS true that nobody was going into court claiming the right to collect on a debt or to foreclose on collateral unless the debt, note and security agreement (mortgage) were all true and valid. What is NOW obvious is that the facts in most cases show that there is no debt and thus there is no valid note and hence there can be no enforcement of either the note or mortgage even if they were signed by the homeowner — nor should they be enforced by the parties seeking to enforce them. It would possibly be different if the Trusts were holders in due course or if anyone had that status. But that is clearly and indisputably neither alleged nor true.

In processing foreclosure cases the courts are forcing higher and higher losses onto investors who thought they were buying safe mortgage bonds. And the chicanery of the intermediaries in churning out absurd lending products is being paid for by the victims of their chicanery!  Investors are seeing their investments eroded by foreclosures that should have been worked out in settlements and modifications. And to add insult to injury, the investors are seeing their money used to pay fines and damages that the investment banks caused intentionally and without knowledge, consent or authority from the investors. Homeowners cry out that none of this makes sense and they are right. And it is plain to see to any experienced member of the judiciary, if they approach the cases with an open mind.

From my reading of the law, only a holder in due course is entitled to the presumption that they can enforce free and clear of the borrower’s defenses. The Holder in Due Course doctrine, existing in some form for centuries, is that the innocent buyer of bad commercial paper does NOT assume the risk of defects in the creation of the paper. Even if there is fraud, the suit will generally be decided in favor of the HDC as long as they paid value in good faith without knowledge of the borrower’s defenses. The person who signed a note and mortgage (and who never received a loan from the “lender” on the note and mortgage) may go after the originator of the deal but they are probably going to find that the originator is bankrupt or otherwise out of business. This is what happens in many PONZI schemes — and make no mistake about it, securitization was a PONZI scheme layered over at many levels such that it is difficult to understand unless considerable time is expended analyzing and exploring what really occurred.

The HDC is in a special position when it comes to presumptions. It basically says to the world, that if anyone puts their signature on a note or mortgage they do so at their own peril — with only the right to sue the party who violated law and procedure when the loan was originated or acquired. The correct presumption for an HDC is that the debt, note, mortgage are all valid and enforceable and basically leaves the borrower in the position of a single defense — payment.

And on that score, even if the borrower alleges payment from a third party source, the burden is squarely on the borrower to prove that the payment was not a loan or advance subject to subrogation. If it was not subject to subrogation then the credit should be applied. It is possible that the third party (servicer advances for example) might have a right of action against the borrower for unjust enrichment, but we know that such actions would run into trouble because (a) the advances didn’t come from the servicer and (b) there were other business reasons (value received) for making the advances.

I doubt if many people would attempt to contradict my analysis of a holder in due course. So if alleging you are a holder in due course would prevent all this litigation, why are parties pursuing foreclosure under the premise that they are simply the holder and even representing that they are not claiming the status of holder in due course? Why would the banks fail to allege something that would put down any realistic defense of the borrower? What issues are they raising, and why isn’t the hair on the back of the Judge’s neck raising when they see “holder” and not “holder in due course?”

There are three elements to being a holder in due course:

  1. Bona fide payment of value
  2. Acting in good faith
  3. No knowledge of borrower’s defenses

Unless the Trustee in fact DID know what was going out in the marketplace, the distance of the REMIC trust from the origination or acquisition of the loan documents leads to a fairly assumption that the Trustee, in accepting the loans into the pool owned by the trust, probably had no direct knowledge of the borrower’s defenses. BUT, as we shall see, their acceptance was not based upon a transaction in which value was paid; this in turn can only mean that the Trustee and therefore the Trust was not acting in good faith when it accepted the loans, all as stated in the pooling and servicing agreement. And if the Trustee knew that the loan documents were not being delivered to the designated depository shown in the PSA — that would also indicate they were (a) not dealing in good faith and (b) had unclean hands.

In short, if the Trustee was covering up and participating in a fraudulent scheme, it was not acting in good faith, and therefore cannot achieve the exalted and powerful status of being a holder in due course. And if the Trustee did not issue payment for the loan, then the transaction which is presumed in virtually all courts across the country, never occurred. And that makes the loan documents less and less sounding like commercial paper and more like conditional promises and cross promises that were never intended to be covered by the UCC.

But even if the UCC is used as a reference point you arrive at the same conclusion. Article 3, as adopted by all states (possible with the exception of Louisiana) governs the creation and enforcement of certain promises in the form of “notes.” If it is an unconditional promise to pay a definite sum on a definite day to a definite person with no conditions, then it probably is commercial paper that can be transferred pursuant to the UCC and can be enforced, using the laws adopted by each state with respect to Uniform Commercial Code. If conditions for payment are attached to the promise in any way it is not commercial paper, it is not a negotiable instrument under the UCC.

If it meets the criteria of being commercial paper then the loan contract is presumed to exist, but that is a rebuttable presumption. The borrower may assert defenses, such as lack of consideration, which the borrower must prove. In this case the lack of consideration is especially counter-intuitive.

A mortgage is not commercial paper. It has lots of terms and conditions that are not obvious and cannot computed from the face of the instrument. But in any event Article 9 of the UCC requires the same HDC status in order to enforce the mortgage — i.e., that value was paid for the mortgage. It may be that a holder without payment can enforce a note but a holder without payment cannot enforce a mortgage. This might lead eventually to bifurcation of the case in which judgment is entered for Plaintiff on the note and for Defendant on the mortgage.

In order to prove that the loan contract was never completed and therefore cannot be enforced, the borrower must show that the party on the note did not lend the borrower any money. In order to prove that, the borrower must allege it, and then obtain the necessary information to produce in court evidence that the “lender” was a naked nominee representing another naked nominee and that the the source of the loan is nowhere in the chain of monetary transactions leading up to the origination or acquisition of the loan.

And in order to get that, the borrower’s requests for discovery must be aggressively pursued, because only the foreclosing party and other third parties have the information that proves that the loan closing or loan transfer was a sham. Absent that proof from the borrower on a note that is facially valid according to state law, the judgment on the note will almost always occur. But on the mortgage, the foreclosure is an action in equity and given the “unclean hands” doctrine and UCC law, enforcement of the mortgage through foreclosure is problematic in these “securitized” loans, which brings me to the point of this article.

But first a word on procedure. I think there is an genuine issue of law and procedure as to whether a Final Judgment might be available on the debt (if the borrower fails to successfully defend the obligation claiming lack of consideration or violations of statute) BUT that the mortgage cannot be used to force the homeowner to forfeit the homestead. I know this goes headlong against established “theory” that the debt, the note and the mortgage are inseparable, but that is the point. When the Wall Street banks got involved, the debt, the note and the mortgage were all separated causing chaos and confusion from which the Wall Street profited beyond imagination.

So what exactly is that “assignment” that everyone is talking about and litigating?

BOTTOM LINE: The “contract” contained an offer but is missing acceptance and consideration. I think the “assignment” is an “offer” that was not accepted and not paid by the Trustee of the Trust. The loan does not exist in the pool. That is the reason why you see a Trustee named as plaintiff when they are willing to sign anything including a rogue “power of attorney” or if they are not willing, then the action is brought by a newly minted servicer who allegedly knows nothing about past behavior that has resulted in hundreds of billions of dollars in settlements, fines and sanctions against the predecessors of the “new” servicer.

As an aside, this discussion is preempted in situations where the the “originator” of the alleged loan did not exist. Names like “American Brokers Conduit” appears on the note and mortgage in many cases. No such entity exists that ever acted as a lender, originator or even broker of a loan; it is impossible for a nonexistent entity, unregistered as an entity, unregistered as a lender, unregistered as a broker, and unregistered as the business name (d/b/a) of a real entity. Such an entity can get nothing, do nothing and convey nothing because it is a not a “person” under the law, and as such could not and did not have a bank account or any other business operation.

The “assignment” from such an entity is simply void — a sham that results in the delivery of a void and otherwise defective note and the delivery and recording of a void or otherwise defective mortgage. Anyone who takes such an “assignment” (with or without value) gets nothing. The assignment is often treated as creating rights that did not exist in the name of the assignor. This is incorrect by operation of law. There is no successor that can claim any rights to the loan.


To make the situation as stark as I see it, consider this example and analogy: Over the years Greenacre was owned by a tannery in which toxic chemicals created what is known as a Superfund site — all people in the line of title are liable for the cleanup. John Jones owns Greenacre. He has a hatred for Sam Smith, a competitor of his. So he executes and records a Quitclaim deed that conveys all right, title and interest in the property to Sam Smith, in order to make his adversary liable for the Superfund cleanup of toxic waste.

Does anyone think that Sam Smith won’t defend the action from the Federal government? Of course he will and he will be successful when he shows that there was no transaction between himself and John Jones, his arch nemesis. Sam Smith will rebut the presumption arising from a recorded instrument by showing that there was no deal between himself and John Jones. He will reject the deed as a wild deed. He will deny that he is the owner and he will state that nobody can force ownership upon him by executing a deed he neither wanted nor even knew about.

BACK TO BASICS: When the REMIC Trust is created by a Trust instrument, it is usually by way of the Pooling and Servicing Agreement that is signed by the Trustee, accepting the loans in the pool. In order to do so, the loans must actually be in the pool, and the Trustee, on behalf of the Trust is required to pay value for the loans in the pool, in good faith and without knowledge of the defenses of any of the borrowers in the pool.

In other words, at the time of creation, the Trust gets to own loans in the pool if (a) the loans are accepted by the Trustee and (b) the trust is a holder in due course. Or, if you don’t want to take it that far, there are specific restrictions on the Trustee’s acceptance of loans and procedures by which loans can be accepted or rejected. Under New York law any violation of those restrictions voids the transaction. It is interesting therefore that the intermediary banks are avoiding the evidence of or allegation regarding payment for the loan and fail to identify the Trust as a holder in due course.

An extremely important restriction is the period of time in which the REMIC business may be conducted — receiving investment capital and using the proceeds to originate or acquire loans. This is a 90 period terminating on the “cutoff date.”

If the loan is attempted to be included in the pool AFTER THE CUTOFF DATE, it is essential that the Trustee accept it. The Trustee may accept it IF the Trustee gets an opinion of counsel stating that the acceptance is legal, and that it will not negatively impact the favorable tax treatment for REMIC trusts, nor will it negatively impact the rights of the “trust beneficiaries” (a/k/a “the investors”). As you will see below, the investment banks have used state foreclosure procedures to force loans that are in default into the Trust causing direct economic loss to the investors and indirect loss from losing the tax benefits from a REMIC trust. That is the basis for the investor lawsuits.

In nearly all cases, the paperwork for transfer into the pool is fabricated AFTER the cutoff date and after the loan is delinquent and frequently AFTER the loan is declared in default. Signatures were forged, robo-signed or created under nonexistent authority.

Think about it. You are an investor who thought you bought a fine portfolio of loans that were mostly conventional, and on the whole presented low risk, with a Triple AAA rating from a rating agency and insured by AIG, AMBAC et al. You are going to get favorable tax treatment for your investment. So you give an investment bank $100 Million to buy mortgage backed securities (MBS) ISSUED BY THE TRUST.   As with any IPO, the broker dealer (investment bank) is required to turn over the net funds from the offering to the issuer (in this case, the Trust). And you think you have the protection of New York law that makes any act that is not authorized by the common law trust VOID (not voidable, in which the investor must take action to get rid of the consequences of the “act”).

You made your investment in March 2007. So the cutoff date is 90 days later and you can now breathe easy — your investment is set in stone and you start collecting your great returns on investment that were promised. What you don’t know is that the Trust never received the money from the broker dealer who sold the MBS to you. You have purchased worthless paper issued by an unfunded trust. Normally the broker dealer would be required to disclose that the trust was never successfully created and funded during the cutoff period and that no loans were purchased or acquired. You would demand and receive every penny you advanced for the purchase of the securities issued by the Trust. But that isn’t what happened.

Flash forward to 2014. You have been receiving payments from the loans distributed by the servicer, so you have no idea that the trust was never funded, that the loans were never originated by the Trust and that the loans were never purchased by the Trust. You don’t know that the loans were never delivered to the Depository designated to receive the loan documents. The distribution reports you are receiving are the same as the monthly statements sent out by Madoff — all lies.

The distributions have been consistently coming from the servicer, the Master Servicer and the broker dealer derived from a variety of sources including your own money, part of which was “reserved” to make payments to trust beneficiaries and some of which was supported by borrower payments. Since you are getting regular payments just as set forth in the Trust document, you have no reason to believe or know that the “borrowers” never received a loan from the Trust nor anyone in the “chain of title” starting with the originator of the loan. You don’t know that Harry Hapless stopped making payments. You don’t know that the Hapless loan was not among those accepted by the REMIC Trust. To the contrary, you have been receiving payments on the Hapless loan as though it was in the pool and fully performing. And THAT is the reason you continued to buy MORE MBS issued from other trusts.

And unknown to you, someone has filed suit against Hapless seeking to foreclose on his property. They have named the trust and the trust beneficiaries as the “creditor.” You are one of those trust beneficiaries, but you are neither named nor given notice that the foreclosure exists.

The party who is foreclosing has made a lot of money pretending to own the loan, and even pretending the own the bonds that you own. Now they create an “assignment” which they say makes the loan part of the Trust pool in 2014. The cutoff was 7 years ago. And the loan was never included in the pool accepted by the Trustee in the Pooling and Servicing Agreement. Nor has the loan been accepted by the Trustee in 2014. No document has been executed by the Trustee accepting the loan.

The PSA provides that the Trustee cannot accept such a loan unless it won’t affect the tax preferred status of a REMIC trust and will not result in impairment or dilution of the investment you made. And the only way the Trustee can decide that, according to the PSA, is if the Trustee receives an opinion letter from qualified counsel that acceptance of the loan into the pool won’t affect the tax preferred status of a REMIC trust and will not result in impairment or dilution of the investment you made.

Final Judgment of foreclosure is entered with a sale date 60 days following the date of the judgment. The sale occurs and the property is liquidated as an REO sale, all without your knowledge, consent or notice. You have no opportunity to object. Challenges from the borrower are met with an “assignment” that appears to transfer the Hapless loan to the trust.

The effect of the Final Judgment and sale is that a state court judge in a far away state has declared that the REMIC trust did in fact get ownership of the loan, even though such a transaction would be void under New York State law, and even though the favorable tax treatment you were getting is now gone. And of course you get the dubious honor of absorbing a loan that you never owned until the foreclosure judge said so without notice to you.

USING THE COURTS, the foreclosing entity successfully transferred a bad loan to your portfolio, forced you to take the loss, prevented you from mitigating damages and imposing a tax burden that is directly contrary to the terms of the REMIC trust.

The courts have been bored by these arguments — unless they are brought by investors. For a Judge sitting on the bench with crowded foreclosure docket, it is indisputable that the investors did advance money and that the borrower did get loans. The complex paperwork in between is sliced through with the usual questions about whether the borrower received a loan and stopped making payments. The borrower’s arguments seem like hairsplitting and merely an excuse to get out from under a bad deal. After all, if NONE of the parties in the chain of title ever had any interest in the loan, then the first question is where did the money come from? Even proof that the trust beneficiaries were paid in full by the servicer up through and including the date of the foreclosure judgment have been met with stiff resistance by the courts.

This anomaly results in unequal protection under the law. The question of where the money came from is never answered. In all other cases, that question is key to the case. In foreclosures, it is not only ignored — it is routinely dismissed as even a basis for discovery.

Since we know the investors advanced money to the broker dealers, the second question is where did the money go?

The answer to both questions is obvious if you are familiar with finance and in particular, investment banking. The money came from investors whose money was used in ways they never approved and actually in many cases were legally prohibited from approving (see stable managed funds). The broker dealers (investment banks) interposed themselves as the apparent investors, traded on both the loans and the bonds for their own benefit and excluded both the investors and borrowers from the benefits of “proprietary profits” declared by the proprietary trading desk of the broker dealer.

At the apparent “closing” with the borrower, the money came in by wire transfer with insufficient wire transfer information. The money came from investors but that was not apparent to the closing agent. While there were clues to the existence of something that went much further than predatory table funding loans (see Reg Z), the closing agent obeyed instructions to apply the money to the loan closing and then give the promissory note and the mortgage to a party who never originated the funding of the loan.

The investors were stuck with a loan that existed only by operation of law, that was undocumented, and not favored by the execution of a note or mortgage as stated in the PSA. And the reason for all this is that the Trust was never involved in either the origination nor acquisition of the loan. If the Trust had been involved, the investors might have received the protection of a note and mortgage. Without, it, they were left out in the cold. And so they sued alleging exactly what the borrowers are alleging in their denials and defenses. But Judges won’t listen because they don’t have time to listen on a rocket docket.

Since servicers and nominees and substitute parties and “successors” by way of alleged mergers and powers of attorney are inserted, it looks like a large infrastructure that while perhaps defective, is firmly in place and reflecting reality rather than fraud. The issues of agency and authority are routinely ignored in the courts who have little time to actually allow inquiry.  Courts routinely ignore the fact that the servicer cannot be acting as authorized servicer for the Trust because the Trust is not a party to to the loan. The only document giving them the power to act as servicer is the Trust document (PSA). Perception is everything.

The pattern of conduct by the investors in accepting payment from the “servicer” and the pattern of conduct of the borrowers in making payments to the “servicer” are taken as admissions that the Courts transform into actual authority despite the fact that all such power could only come from the Pooling and servicing Agreement for an empty trust that has no interest in the loan. Apparent authority is thus morphed into a legal finding of actual authority based upon assumptions and presumptions that are unsupported and contradicted by actual facts.

The only way for the intermediaries to complete their complex fraudulent scheme is to get an unsuspecting judge to give it his or her stamp of approval. When that foreclosure judgment is entered, it constitutes a finding by the court that the trust is the owner, even if that means adjudicating the rights of investors to protections under the internal revenue code, protections under New York State law, and protections under Securities Laws.

By including Trusts as Plaintiffs, the intermediaries take the risk that some judges might allow discovery into the existence and operations of the trust, the trustee and the alleged Master Servicer, et al.. But the risk is worth it. Most Judges will enter orders and either declare directly or otherwise assume that the scheme was not fraudulent. They have no idea that they are rewarding the fraudster with additional unearned bounty and blocking the opportunity for direct settlement between the investors and the borrowers — the only two real parties in interest.

Worst of all, the state Judges and some Federal judges do not understand that they adjudicating rights of investors who have no notice of the proceeding because their money was never given to the Trust, they lost their REMIC protection and are saddled with accepting defaulted loans. In so doing they are barring the opportunity and preventing the borrowers and investors from complying with HAMP and other Federal requirements to settle and modify loans.

Once the Foreclosure Judgment is entered, the exposure of the broker dealers is vastly reduced. Where they had effectively sold the loan perhaps as many as 42 times (Bear Stearns) they could afford a few settlements and still keep a multiple of the original loan amount. Meanwhile, the worst burden falls on unsophisticated borrowers and their lawyers who know very little about finance and investment banking, structured finance or anything else that would give them insight into the details of the loan they are litigating.

In the end, if it is a foreclosure case, Sam Smith is required to pay with money, his home and his life for a scheme that was fraudulent from beginning to end. John Jones who did it out of spite and greed, gets away with it. The storybook ending where Sam didn’t get hit with Superfund liability, is reversed if the case is dubbed a foreclosure case on a “rocket docket.”

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MISSION STATEMENT: I believe that the mortgage crisis has produced manifest evil and injustice in our society. I believe our recovery will never reach the majority of struggling Americans until we restore equal protection for all citizens and especially borrowers in our debt-ridden society. LivingLies is the vehicle for a collaborative movement to provide homeowners with sufficient resources to combat bloated banks who are flooding the political market with money. We provide thousands of pages of free forms, articles and discussion of statutes, case precedent and policy on this site. And we provide paid services, books and products that enable us to maintain an infrastructure to provide a voice to the victims of Wall Street corruption.

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