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?

http://www.housingwire.com/articles/30540-chases-fraudulent-foreclosure-court-says-executive-falsified-documents

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, http://www.livinglies.me

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,www.mersinc.org/about-us/member- 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

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