Bankruptcy Lawyers: it starts in the schedules — admission of secured debt is deadly

I was traveling and re listening to an older lecture given by 2 Bankruptcy judges generally held in high esteem. The largest point was that naming a party as the creditor and checking the right boxes showing they are secured basically ends the discussion on the motion to lift stay and restricts your options to either filing an adversary lawsuit attached to the administrative bankruptcy petition or filing an action in state court which is where you will be if you don’t follow this same simple direction. If you file schedules attached to your petition for bankruptcy relief, as you are required to do, these are basically the same as sworn affidavits. They will be used against you in any contested hearing.

So the judge lifts the stay and then often mistakenly enters additional language in the order ending the issue of whom is the real lender. After all, that is who you were making the payments to, right, so they must be a creditor. And this is all about a mortgage foreclosure so they must, in addition to being a creditor, they must be a secured creditor. And if the collateral is worth less than the claim, there is not much else to talk about it is simple to these Judges because nobody has shown them differently and one of the Judges is retired now. By definition when the Bankruptcy Judge says in the order who is the creditor, he or she has gone beyond their jurisdiction and due process because there was no evidentiary hearing.

This all results from a combination of technology (garbage in, garbage out), inexperience with securitized mortgages, laziness and failure to do the research to determine what is the truth and what is not. If you are a bankruptcy practitioner who uses one of the desktop bankruptcy programs, then the questions, boxes, and fill-ins are intuitively placed in the schedule that your client swears to. No problem unless the schedules are wrong. And they are wrong where the debt runs from the Petitioner to the REMIC trust beneficiaries and is unsecured by any mortgage that the homeowner borrower petitioner ever signed or meant to sign.

The first point is that the amount if the debt is unknown and we now this for a fact because there are multiple offsets for Third party payment (like Servicer advances) that must be examined one by one. It could be zero, it could be there is money due to the borrower, it could be more or less what is being demanded by the Servicer or trustee. Another thing we know is that neither the Servicer or trustee is likely to know the amount of their claim. So send out a QWR to all addresses for the Servicer and the REMIC trustee.

If you get several different payment histories it is a fair bet they came off of different records, different systems and require the records custodian to authenticate each Servicer’ rendition, of beginning balance, ending balance and every transaction in between. The creditor who filed a proof of claim has the burden of showing a color able right to enforce the mortgage. That can only come from the pooling and servicing agreement. The parties to the PSA are the REMIC Trust, the REMIC Trust beneficiaries and the broker dealer who sold the bonds issued by the REMIC trust.

But if there is no trust or the REMIC trust never actually acquired the subject loan, then the appointed Servicer in the PSA draws no power from a PSA for a nonexistent or empty trust (at least empty of the subject loan.) it is not the Servicer by right, it has become the Servicer by its intervention into the contractual right between the borrower homeowner and the lender (the REMIC trust beneficiaries). The “apparent authority” of the Servicer will only take it so far.

And every transactions means that as a Servicer they were paying or passing on the borrower’s payments . Where are those records — missing. Does the corporate representative know about those payments? Who was the creditor paid. When did the payments from Servicer start and when did they stop — or are they still on-going right up to and including trial, foreclosure sale auction and final disposition of proceeds from an REO sale.

So from the perspective of the Petitioner he might have made payments to an entity that claimed to be the Servicer and those payments are due back not the bankruptcy estate. OOPS but that is what happens when a company arrogated unto itself the powers of a Servicer for loans that are claimed to be in a trust — where the trust doesn’t own the loan, note or mortgage (deed of trust). Thus the Servicer would be owed zero but you would show them in the unsecured column, unliquidated and disputed. This could have a substantial income on the amount of the claim, whether part or all of it is secured.

But no matter, if you fail to take a history from the client, get the closing documents, title and securitization report together with loan level analysis, you are going to do a disservice to your client. We provide litigation support and analysis to give you the data to make an informed decision, fight the POC, MLS, turnover of rents, etc. Then you might avoid the dreaded call of calling your insurance carrier who will probably tell you neither paid for nor received a tail on your claims made policy.

LAWYERS: Go to http://www.livingliesstore.com and start journey toward the light.

What to Do When the “Original” Note is Proferred

If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.
The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.
There are two issues when the other side presents original documents. First is that they say these are originals and they do not accompany it with an affidavit from someone with actual personal knowledge of the transactions or the high bar for business records exceptions to hearsay. My experience is that 50-50, the documents are original or fabricated by use of Photoshop and a laser printer or dot matrix printer. So what you need to do is to go down to the clerk’s office and see what they filed. It would not be unusual for them to file a copy saying it was the original. Second, on that same point, the original can be examined. When the signatures are heavy there should be indentations on the back. Also a notary stamp tends to bleed through the paper to the back.

The second major point is the issue of holder v owner. The owner of the debt is entitled to the ultimate relief, not the note-holder unless the other side fails to object. So along with the proffering of the “originals” they must tell the story, using competent foundation testimony, how they came into possession of the note. In discovery this is done by asking to see proof of payment and proof of loss. Which is to say that you want to see the canceled check or wire transfer receipt that paid for the “transaction” in which the possessor of the note became a holder under UCC and is entitled to a rebuttable presumption that they are the owner. If there is no transaction for value, then the note was not negotiated under the terms of the UCC.

Since they possess the note there is a hairline allowance that they may sue for the collection on a note in which they have no financial sake but there is no ability to win if the borrower denies they received the money or that the possessor of the note obtained the note for purposes of litigation and is not the creditor — i.e., the party who could properly submit a credit bid at auction by a creditor as defined by Florida statutes, nor are they able to execute a satisfaction of mortgage because even upon the receipt of the money they have no loss, and under the terms of the note itself the overpayment is due back to the borrower.

And just as importantly, they cannot modify the mortgage so any submission to them for modification is futile without them showing proof of payment, proof of loss and/or authority to speak for and represent the interests of an identified creditor.

An identified creditor is not merely a name but is a report of the name of the owner of the debt, the contact person and their contact information. Then you can contact the owner and ask for the balance and how it was computed. So the failure to identify the actual owner is interference with the borrower’s right to seek HAMP or HARP modifications — potentially a cause of action for intentional interference in the contractual relations of another (asserting that the note and mortgage incorporated existing law) or violation of statutory duties since the Dodd-Frank act includes all participants in the securitization scheme as servicers.

The key is the money trail because that is the actual transaction where money exchanged hands and it must be shown that the money trail leads from A to B to C etc. The documents would then be examined to see if they are in fact relating to the transaction or a particular leg of the chain.

If the documents don’t conform to the actual monetary transaction, then the documents are refuted as evidence of the debt or any right to enforce the debt. What we know is that in nearly all cases the documents at origination do NOT reflect the actual monetary transaction which means they (a) do not show the actual owner of the debt but rather a straw-man nominee for an undisclosed lender contrary to several provisions of the Truth in Lending Act. The same holds true for the false securitization” chain in which documents are fabricated to refer to transactions that never occurred — where there was a transfer of the debt on paper that was worthless because no transaction took place.

One last thing on this is the issue of blank endorsements. There is widespread confusion between the requirements of the UCC and the requirements of the Pooling and Servicing Agreement. It is absolutely true that a blank endorsement on a negotiable instrument is valid and that the holder possesses all rights of a holder including the presumption (rebuttable) of ownership.

But hundreds of Judges have erred in stopping their inquiry there. Because the UCC says that the agreement of the parties is paramount to any provision of the act. So if the PSA says the endorsement and assignment must be in a particular form (recordable) made out to the trust and that no blank endorsements will be accepted, then the indorsement is an offer which cannot be accepted by the asset pool or the trustee for the asset pool because it would violate an express prohibition in the PSA.

And that leads to the last point which is that a document calling itself an assignment is not irrefutable evidence of an actual transfer of the loan. If the assignee does not agree to take it, then the transaction is void.  None of the assignments I have seen have any joinder and acceptance by the trustee or anyone on behalf of the pool because nobody on the trustee level is willing to risk jail, even though Eric Holder now says he won’t prosecute those crimes. If you take the deposition of the trustee and ask for information concerning the trust account, they will get all squirrelly because there is no trust account on which the trustee is a signatory.

If you ask them whether they accepted the assignment of a defaulted loan and if so, what was the basis for them doing so they will get even more nervous. And if you ask them specifically if they accepted the assignment which you attach to the interrogatory or which you show them at deposition, they will have to say that they did not execute any document accepting that assignment, and then they will be required to agree, when you point out the PSA provisions that no such assignment or endorsement would be valid.

Prommis Holdings LLC Files for Bankruptcy Protection

I have not followed Prommis Holdings closely but I can recall that some people have sent in reports that Prommis was the named creditor in some foreclosure proceedings. The reason I am posting this is because the bankruptcy filings including the statement of affairs will probably give some important clues to the real money story on those mortgages where Prommis was involved. I’m sure you will not find the loan receivables account that are mysteriously absent from virtually all such filings and FDIC resolutions.

And remember that when the petition for bankruptcy is filed it must include a look-back period during which any assignments or transfers must be disclosed. So there is a very narrow window in which the petitioner could even claim ownership of the loan with or without any fabricated evidence.

US Trustees in bankruptcy are making a mistake when they do not pay attention to alleged assignments executed AFTER the petition was filed and sometimes AFTER the plan is confirmed or the company is liquidated. Such an assignment would indicate that either the petitioner lied about its assets or was committing fraud in executing the assignment — particularly without the US Trustee’s consent and joinder.

The Courts are making the same mistake if they accept such an assignment that does not have US Trustees consent and joinder, besides the usual mistake of not recognizing that the petitioner never had a stake in the loan to begin with. The same logic applies to receivership created by court order, the FDIC or any other “estate” created.

That would indicate, as I have been saying all along, that the origination and transfer paperwork is nothing more than paper and tells the story of fictitious transactions, to wit: that someone “bought” the loan. Upon examination of the money trail and demanding wire transfer receipts or canceled checks it is doubtful that you find any consideration paid for any transfer and in most cases you won’t find any consideration for even the origination of the loan.

Think of it this way: if you were the investor who advanced money to the underwriter (investment bank) who then sent the investor’s funds down to a closing agent to pay for the loan, whose name would you want to be on the note and mortgage? Who is the creditor? YOU! But that isn’t what happened and there is nothing the banks can do and no amount of paperwork can cover up the fact that there was consideration transferred exactly once in the origination and transfer of the loans — when the investors put up the money which the investment bank acting as intermediary sent to the closing agent.

The fact that the closing documents and transfer documents do not show the investors as the creditors is incompatible with the realities of the money trail. Thus the documents were fabricated and any signature procured by the parties from the alleged borrower was procured by fraud and deceit — causing an immediate cloud on title.

At the end of the day, the intermediaries must answer one simple question: why didn’t you put the investors’ name or the trust name on the note and mortgage or a “valid” assignment when the loan was made and within the 90 day window prescribed by the REMIC statutes of the Internal Revenue Code and the Pooling and Servicing Agreement? Nobody would want or allow someone else’s name on the note or mortgage that they funded. So why did it happen? The answer must be that the intermediaries were all breaching every conceivable duty to the investors and the borrowers in their quest for higher profits by claiming the loans to be owned by the intermediaries, most of whom were not even handling the money as a conduit.

By creating the illusion of ownership, these intermediaries diverted insurance mitigation payments from investors and diverted credit default swap mitigation payments from the investors. These intermediaries owe the investors AND the borrowers the money they took as undisclosed compensation that was unjustly diverted, with the risk of loss being left solely on the investors and the borrowers.

That is an account payable to the investor which means that the accounts receivables they have are off-set and should be off-set by actual payment of those fees. If they fail to get that money it is not any fault of the borrower. The off-set to the receivables from the borrowers caused by the receivables from the intermediaries for loss mitigation payments reduces the balance due from the borrower by simple arithmetic. No “forgiveness” is necessary. And THAT is why it is so important to focus almost exclusively on the actual trail of money — who paid what to whom and when and how much.

And all of that means that the notice of default, notice of sale, foreclosure lawsuit, and demand for payments are all wrong. This is not just a technical issue — it runs to the heart of the false securitization scheme that covered over the PONZI scheme cooked up on Wall Street. The consensus on this has been skewed by the failure of the Justice department to act; but Holder explained that saying that it was a conscious decision not to prosecute because of the damaging effects on the economy if the country’s main banks were all found guilty of criminal fraud.

You can’t do anything about the Holder’s decision to prosecute but that doesn’t mean that the facts, strategy and logic presented here cannot be used to gain traction. Just keep your eye on the ball and start with the money trail and show what documents SHOULD have been produced and what they SHOULD have said and then compare it with what WAS produced and you’ll have defeated the foreclosure. This is done through discovery and the presumptions that arise when a party refuses to comply. They are not going to admit anytime soon that what I have said in this article is true. But the Judges are not stupid. If you show a clear path to the Judge that supports your discovery demands, coupled with your denial of all essential elements of the foreclosure, and you persist relentlessly, you are going to get traction.

Chase Reliance on Bogus Affidavit and “operation of law”

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What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Chase clearly has a problem, as set forth in the recent Michigan Supreme Court decision. There is no “operation of law” by which the loan could have been transferred. The purchase and assumption agreement do not transfer the loans —- especially and obviously the loans that WAMU had already sold. The FDIC receiver has stated that no document exists assigning the loans. And no document exists that gives Chase the right to service the loans, but that would probably not be a strong point. If they assert agency for servicing and everyone accepted the assertion by conduct, it would be hard to achieve anything attacking their status as a servicer. But that doesn’t mean they are a creditor.

Without an assignment, the loan, even if the loan documents are valid (highly questionable), would still be in the estate of WAMU, which technically doesn’t exist unless something is reopened — the receivership, the bankruptcy etc. What is required here is clarity on who the principal is since Chase cannot claim subrogation without showing proof of payment, which they don’t have.

Perhaps there should be some discussion as to a declaratory action seeking injunctive and supplemental relief.  The homeowner is in doubt as to who is on first: Chase asserts ownership but has produced neither an assignment nor proof of payment. WAMU doesn’t exist any more but we don’t have any evidence that the loan was transferred. The FDIC receiver has stated that  more than 2/3 of all loans originated by WAMU were sold into the secondary market where they were subject to claims of securitization.

The documents for securitization, if they exist, may well follow the standard operating procedure of the securitization participants of attempting to assign a loan in default in violation of the prospectus and PSA. And the attempted transfer is generally far outside the 90 day window allowed by the PSA and the REMIC statute, both of which prohibit acquisition of new mortgages.

Hence the probabilities, as per the FDIC receiver is that the loan was packaged for sale and “Securitization” but neither the sale nor the securitization occurred, thus leaving the loan within the WAMU estate, which has been closed.

Nonetheless the REMIC trust that could be asserted to own the loan has not been disclosed, leaving three potential claimants — Chase, which has neither assignment nor proof of payment, the WAMU estate which has been closed, and the REMIC trust that was in all probability used to assert claims of sale, transfer and securitization of the loan.

A fourth category of claimant, the investors who advanced money to purchase fractional shares in the REMIC trust would emerge if the securitization claims were unsupported.

Arguments of standing apply for jurisdictional purposes because there is no proof or evidence (or even an allegation) on record that the owner of the loan receivable (one of the possibilities mentioned above) was not paid by a party waiving subrogation (a standard provision in all insurance contracts and credit default swaps) protecting the value of the bond.

Standing aside, the identity of the principal owning the loan receivable as evidenced by origination, assignment and proof of payment must be established before any party can  submit a “credit bid.” in lieu of cash at auction. Further, a complete accounting from WAMU, Chase and any parties involved in securitization or sale into the secondary market especially including the Master Servicer who would know the actual balance of the receivable after deduction for insurance and credit default swaps receipts.

This would have an effect on the redemption rights of the borrower, the ability of the borrower to modify, and whether a default actually existed at the time of the notice of default and notice of sale which in all likelihood contained a demand for an amount far in excess of the loan receivable after proper allocation of deductions are made.

The review process, as farcical as it is turning out to be is thus corrupted from the start. Although Chase is communicating with the borrower on the review process, there is no evidence that they have any right to do so. A letter should be sent back to Chase saying that based upon the information available thus far, there is a question as to whether they are the authorized servicer, and if so, how that happened. Secondly, there is a question as to the party for whom they are performing the review process as the creditor. They should be asked in the letter, for the identity of the creditor — i.e., the party who can show assignment and proof of payment.

Are You Already There?

Jim Macklin, one of our senior securitization analysts, wrote a piece that I thought was worth publishing. He is located in Sacremento, CA.

We consider our Constitution of the Untied States the law of the land under which all other laws must conform. This law of the land specifically and expressly provides for bankruptcy because it was obvious that without a way out, without a way of starting over, slavery and oppression would return to our shores. Here is what Jim wrote —

Here in America, we abuse our poor and call it the lottery, we neglect to discipline our children and call it building self-esteem, we allow the theft of our homes and refer to it as “allowing the market to self-adjust”, we elect people to public office who cannot balance their own checkbooks because the banking cartel tells us in the media that this is our only choice, and we reward laziness and call it welfare… I for one, am not contributing to the spectacle that we call the “Democratic process” any longer…instead, I will do my part in relieving the 1% of my share of the American dream by systematically encouraging every eligible person to file for bankruptcy protection, thus re-starting the debt basis from a given point and estopping the “creditors” from their orgy of taking everything from us…the ones who drive the bus! The wealthiest people in the world use the bankruptcy laws to their advantage every single day of the year and secretly hide the processes from the masses of eligible, hard working people who are the only ones who truly deserve the protections of this economic tool given to us centuries ago.
     Don’t let the social stigma of “the B word” discourage you from exploring the untold benefits of a well strategized bankruptcy filing…talk about it at parties, question your local counselors and attorneys, smile and relish the thought of burying your un-wanted, un-payable debt service…the banks are not counting on a massive move to by the general public to the protections of the bankruptcy court because it is they who have espoused the “dangers” of personal bankruptcy filings…yet is also they who use and abuse these exact laws to their benefit. If everyone files for bankruptcy…everyone will also be available to garner new credit ratings and offers of credit in the future…or the banks will simply cease to exist…not a bad scenario for anyone…eh?
     Why do you think that the banks are the only ones who publicly denounce the use of bankruptcy as a financial tool? Yet, only months after the confirmation of a plan in bankruptcy, the average debtor receives many new offers of credit. The banks cannot survive without you, America…start acting like you’re driving the bus…not being thrown under it. Do your part to kick-start the economy for the future generations of Americans…file Bankruptcy and force the politico to come to heel… or drag your financial chains down the road another few years until  you cannot afford to eat or pay for health care…or are you already there?
jim

LivingLies Announces Columbus Ohio Law Office

If you are looking for legal representation in Ohio, please call our customer service line at 520-405-1688. You will either be interviewed or directed to a form on line to fill out as to the status of your case and various other matters. Or you can call the Columbus office direct. Client intake has already begun under this arrangement.

Editor’s Comment: I am thrilled announce this association with lawyers in Columbus, Ohio who not only understand the intricacies of securitization and not only represent homeowners fighting the banks, but whose mission is to WIN not just buy time. NO guarantees of course, but these guys are the real deal.

They are scholars, writers, creative and innovative as well as knowledgeable in trial practice, bankruptcy and property law. I have associated with them directly as being of counsel, which is not something I ordinarily do, as most of you know.

MEET WITTENBERG LAW GROUP
Please allow us to introduce Wittenberg Law Group, a Columbus, Ohio-based law firm that helps to defend homeowners against foreclosures. The professionals of Wittenberg Law Group stand ready to help you.
Eric J. Wittenberg is the founder and manager of the firm. Mr. Wittenberg is in his 26th year in the practice of law. He is involved in a great deal of litigation with lenders trying to wrongfully foreclose upon homeowners. Mr. Wittenberg shares something important with Neil Garfield–like Mr. Garfield, Mr. Wittenberg is an alumnus of Dickinson College. He has a master’s degree in public and international affairs from the University of Pittsburgh Graduate School of Public and International Affairs, and his law degree from the University of Pittsburgh School of Law, where he was the Head Notes and Comments Editor for the Journal of Law and Commerce. For 25 years, he has worked to protect the rights of individuals and small businesses.
He is also an award-winning Civil War historian and author, with 17 books on the subject in print. Mr. Wittenberg regularly lectures and leads tours of Civil War battlefields and is in great demand. He is also an ardent baseball fan and the co-author of You Stink! Major League Baseball’s Terrible Teams and Pathetic Players.
Jennifer L. Routte is a Columbus native who comes from a background of a successful family business. She worked in the family business for going to law school and understands the challenges faced by small businesses. She is an graduate of The Ohio State University and the Capital University School of Law.
Treisa L. Fox is an associate attorney who works almost exclusively on defending foreclosures. Ms. Fox, a native of West Virginia, is a graduate of Marshall University and of the Capital University School of Law. She has a great deal of experience with challenging the validity of loan documents and of the claims of lenders, and she stands prepared to assist you.
The professionals of Wittenberg Law Group stand prepared to assist you with your efforts to defend your homes.
Eric J. Wittenberg
Attorney and Counselor at Law
WITTENBERG LAW GROUP
6895 East Main Street
Reynoldsburg, Ohio 43068
614.834.9650
Fax: 614.328.0576
eric@wittenberglawgroup.com
http://www.wittenberglawgroup.com

Is bankruptcy the Only Way Out of the Foreclosure Steamroller?

If you are looking for legal representation in South Florida, Neil has established an office there again after 30 years of practice in Broward County. Please call 520-405-1688 for more information.

Editor’s Comment and Analysis: In theory, the writer is correct in the article below. Chip Parker located in Jacksonville, sounds like someone I would associate with because he understands both bankruptcy and the finer litigation points of foreclosure defense (I think).

For the most part though I would strongly suggest that all lawyers whoa re very familiar with bankruptcy associate with a bankruptcy attorney AND that all lawyers who do bankruptcy but are not familiar with foreclosure defense, associate with those attorneys who do understand it. Let the litigation for the MLS and POC be done by the foreclosure defense attorney.

AND don’t put the property on the schedule as secured unless you are 100% certain that it really is secured. The presence of a mortgage on record does not mean the loan exists as presented nor that it is secured — if the instrument was materially defective and even misrepresents the true facts of the transaction.

But Chip is right. It is only in  BKR that you have Judges clerks, trustees etc. who deal with prioritization of creditors, proofs of claims all day long and it certainly has produced many good decisions for borrowers.

Bankruptcy is the Ultimate Protection from Florida’s Corrupt Foreclosure System

by Chip Parker, Jacksonville Bankruptcy Attorney

For Floridians, Federal Bankruptcy Court is proving to be a far superior avenue for actually saving homes than our state court judicial system.

The homeowner, with the help of a qualified bankruptcy attorney, can encapsulate and protect as much of his assets as possible while eliminating the uncertainty created by a failed foreclosure system.  Homeowners are often emerging from Bankruptcy Court with the meaningful mortgage modifications that elude them in Florida’s state courts.  Floridians shouldn’t have to seek refuge from our state courts, but be grateful there is an alternative, especially if you live in the Middle District of Florida.

Who runs Florida’s Foreclosure Courts?  Why the banks do, of course.  Just ask judges, prosecutors and the Florida Bar.

Retired senior judges regularly bend the rules for banks and their often inept lawyers prosecuting foreclosures, and they have been turning a blind eye to the bankster fraud in their courtrooms for years.  For years, these retired judges have been paid for results – reducing the number of open foreclosure cases specifically – and they have been too willing to ignore the rule of law to make sure they “hit their numbers.”

Most retired judges create their own special set of rules they apply in foreclosure cases to tilt the playing field in favor of mortgage companies.  They justify this unequal treatment because “homeowners aren’t making mortgage payments,” but they refuse to hear the hundreds and thousands of stories from homeowners describing their failed attempts to work directly with the mortgage industry to make their mortgage payments and avoid foreclosure.

Florida’s Attorney General Pam Bondi inherited from her predecessor an ongoing investigation of corrupt lawyers running foreclosure mills in South Florida.  Stories of lawyers forging signatures and faking affidavits abound nationwide, and Florida is no exception.  However, one of Bondi’s first official acts was the prompt termination of the lead investigators, and eventually she let all the investigations wither and die on the vine.  Bondi never met a bank she didn’t like.

And now, the Palm Beach Post is reporting that the Florida Bar is doing nothing to discipline any of these corrupt bank lawyers despite nearly two hundred complaints filed by citizens, judges and fellow lawyers.  Is there any wonder why lawyers are held in such low regard in our society?

Keep in mind that a national Attorney General investigation into foreclosure fraud by the country’s five largest mortgage servicers that resulted in a $25B settlement for consumers.  This is the activity our foreclosure judges, Attorney General and the Florida Bar can’t seem to find here in the Sunshine State.

It makes the average Floridian facing foreclosure wonder whether there is a chance to save their home in a rigged system.  Well, there is an alternative – bankruptcy

When a homeowner files a bankruptcy, the Bankruptcy Court enters an order, known as the automatic stay, which removes jurisdiction from the Foreclosure Court.  The effect is a “freezing” the foreclosure case.

Once in bankruptcy, the homeowner can buy time, fight the mortgage company on a couple of the substantive foreclosure issues like “standing,” or even compel the mortgage company to engage in good-faith mediation.  Here, in the Middle District of Florida, the mortgage modification mediation program has been widely successful, permanently modifying mortgages, including significant principal reduction for underwater homes.

So, if you are a homeowner at your wit’s end over your home in foreclosure, call a bankruptcy lawyer to discuss the bankruptcy alternative to what is all-too-often an unfair state court foreclosure process.

see bankruptcylawnetwork.com

 

New Mexico Gears Up for Widening Foreclosure War

The State of New Mexico is seeing a sudden increase in foreclosures, indicating the widening war on homeowners and the middle class by banks who don’t know the meaning of enough. It is not merely hope we offer the homeowners in New Mexico, it is the likelihood that it will get increasingly difficult for foreclosers to win their cases if they are properly contested, utilizing the Deny and Discover

New Mexico is a “judicial state” which means that in order for a foreclosure to get started the “lender” must bring suit, serve you with a summons and give you time to respond with either a motion to dismiss or an answer, affirmative, defenses and counterclaim. Failure to respond results in a clerk’s default after which the “lender” will ask the court for a Final Default judgment setting the sale date.

The lender must still prove up their case. It is a note and mortgage and an accounting for the amounts paid and amounts received. This is done by the usual affidavit which we see failing now all over the country because the company on whose behalf the affidavit is filed has nothing to do with the loan. They are neither a creditor nor a servicer. Then they have the problem that the person signing the affidavit works for the company that has nothing to do with the loan, and cannot and does not allege personal knowledge, which makes the affidavit void.

I found one attorney (By N. Ana Garner, Esq.) on the interest who appears to have some knowledge of the process and is devoting herself to the protection of homeowners’ rights. I will be contacting her myself. Her article and contact information are on the link below.

But I wanted to repost her article on foreclosure in New Mexico because I thought it gave a good overview of the process:

 By N. Ana Garner, Esq.

Typically, you will receive telephone calls from the servicer (the company to whom you make payments) very soon after missing your first payment. These calls will continue, sometimes daily, with aggressive bill-collectors badgering you to make your full payment now. The only way to stop the phone calls is to request in writing that they not contact you by telephone, but only in writing. If the loan is FHA-insured, many lenders are required to accept partial payments. Before making any partial payment, confirm whether this applies to your loan, otherwise, your partial payment isn’t applied to the loan, nor is it returned to you.

You will probably start getting letters from the servicer stating that you can apply for one of the programs designed to keep people in their homes. I encourage my clients to participate in this process, even though the results are less than satisfying for most. Who knows, you may get lucky and get the modification you need to afford to stay in your home. If your loan was a no-doc, with no income verification, it seems odd that the bank is now asking for documentation of your current income and expenses to modify an oppressive loan that required no such documentation originally. At the very least, this process can buy you another couple of months before the inevitable foreclosure suit.

There are certain regulations a lender must follow before filing suit, and by participating in the loss mitigation process, you may have defenses available to you for the servicer’s failure to follow applicable laws.

The servicer who files a foreclosure suit while you are being considered for a HAMP modification is in violation of the servicer’s contract with the U.S. Treasury and program guidelines. Keep copies of all paperwork generated in this process for later review by your attorney.

After several months of correspondence and documentation has been submitted, you will receive a letter from an attorney for the servicer or bank. When you receive the first letter from an attorney, you’ll know you are getting close to the foreclosure suit being filed. The attorney will give you a notice of default and intent to accelerate, which means that if payments are not caught up within 30 days, the full amount will become due and owing.

This is a good time to hire an attorney if you want to live in your home for a while. You may get a second letter in 30 days stating that the note has been accelerated, or you may just get a stranger at your door who asks you if you are “Mr. X”, at which point, they hand you a fat envelope. That envelope will contain a Summons, Complaint in foreclosure, and attachments to the Complaint.

You have 30 days to file a formal answer with the court, and send a copy to the bank attorneys. DON’T IGNORE THESE PAPERS! You must file an answer to avoid a default judgment and imminent sale of your home. Banks count on most of these foreclosures being granted as a default judgment because most homeowners don’t even bother to file an answer, mistakenly believing there is nothing they can do about the situation. Why be one of these statistics when you can fight for your home?

In cases where the bank knows it lacks the proof of standing (the legal right to file suit because they are the owner of the Note), just having an attorney file an answer for you may cause some of these cases to wither away. If the plaintiff (the party who started the lawsuit) fails to take action that moves the case towards finality, the judge may dismiss the action after 6 months of inactivity, for lack of prosecution. However, the bank can have the case reinstated within 30 days, or it can refile a new lawsuit at a later date.

Aggressively defending the case may put you in a better bargaining position when the case is scheduled for settlement conference. Many foreclosure defense attorneys are getting good results at mediation, typically far better than the loan modifications that were offered before suit was filed.

Ana Garner, Attorney at Law, represents only homeowners in the Santa Fe and Albuquerque areas. She has 30 years of litigation experience in N.M. courts. Her mission is to protect the integrity of the judicial process in foreclosure actions and expose the fraud being perpetrated on the courts and citizens. Her contact information is garnerlaw@yahoo.com; telephone 505 474-5300. She will review foreclosure lawsuit documents at no charge if they are scanned and e-mailed to her with the subject line, Free Review of Foreclosure docs.

1009 http://www.foreclosurelaw.org/New_Mexico_Foreclosure_Law.htm

Living Lies Opens Clearinghouse For Investors and Homeowners to Get Together

GTC|HONORS

A division of General Transfer Corporation

“Workouts With Honor”

Call 520 405-1688 or write to neil@livingliesblog.com. GTC|Honors provides analytical reports, negotiation with the title insurer to eliminate exclusions for off-record transactions, and potential homeowners looking for deals in which they can either enter into a short-sale, or sale lease back with option to buy. Except in rare instances. GTC|Honors works with local licensed attorney and local licensed real estate brokers only. We do not accept applications from brokers but have no objection and even advise the investor and the homeowner to engage the services of a real estate broker and licensed attorney. GTC|Honors does not guarantee title or a successful result but does provide screening of both investors and homeowners.

Investors must have some knowledge of U.S real estate transactions, their own counsel, and proof of funds. Bank and customer references are required.

Homeowners: Must have an actual provable income from which they could pay rent or a modified mortgage. Personal , bank and financial references are required. DO NOT provide a history of your case unless you believe there is a single salient point that distinguishes your case from others.

Standard business model includes purchase at auction, purchase out of bankruptcy state, short-sale, lease back, option to repurchase at discount and an equity “kicker” for the investor in the event of sale or refinancing.

BUSINESS PLAN AND FIRST OFFERING:

GTC|Honors Business Plan for Residential Housing Investments

GTC operates www. livinglies.wordpress.com the largest website on the internet providing resources, articles, forms and active analytical assistance to those seeking to challenge those banks and servicing relying upon false, fabricated, forged documentation. Counties around the country have verified what Katherine Ann Porter discovered in 2007 in her ground breaking study — that the promissory notes executed by homeowners were a hoax, and that no less than 40% of them had been destroyed or “lost.” More recent studies show that the number is even higher, probably at 60%. The reason for the destruction and loss was that in between the delivery of a loan to an investor-lender purchasing a “mortgage bond” and the time of funding tot he borrower, the banks inserted themselves as the owner of the loan in order to justify the purchase of insurance, credit default swaps and other hedge products. They used investor money to make these purchases.

The author of the blog, Neil F Garfield is 65, started his career on Wall Street as a security analyst, then manager of securities and bond research, and then director of mergers and acquisitions at boutique brokerage houses in the early 1960’s and 1970’s. He then went on to become a successful attorney in the trial room and in the boardroom where deals were made. In South Florida he traded in residential and commercial properties.

After 6 years of interviews, analysis and surveys, as well as direct involvement with thousands of foreclosure cases, he has arrived at the conclusion that  the original obligation at the time of funding was composed of two parties — the investor-lender and the homeowner. Wire transfer instructions corroborated his conclusion and since then he has tested his conclusion by demanding the evidence of the money trail in loans that were subject to the claims of securitization. GTC now provides paid services to investors and homeowners alike as well as some community banks who have been approached with applications for refinancing but are worried about clear title. www.livinglies-store.com

96% of homeowners leave without a fight, some of those declaring bankruptcy. The others fight actively in state and federal courts including bankruptcy. The typical business model being followed by investors in the area is to buy the property for fair market value. The forecloser usually resists at first, because the banks have credit default swaps and insurance payable if the property is sold in foreclosure. The investors make an offer in short-sale or to buy the property out of the bankruptcy estate. They rent the property with an option to buy the property back over a term of 5-10 years. The rent depends upon market conditions and the LTV ratio. Investors typically seek a total ROI of 25%-50%.

Example, pending case now: XX was the owner of two unencumbered properties. She was induced to finance them to invest in a Ponzi scheme, for which US Bank was the conduit for funds transfer. The application recited her income including the projected income that would begin in 12 months. The income of course never arrived and the properties were set for foreclosure.

One property located in Payson Arizona was thought to include 4 parcels, including parcel #4 which contains a 2500 square foot log cabin with two floors plus a partially finished basement, appliances etc. The cabin has electricity but not access to water. Lot #5, also owned by XX has the water, pump and plumbing, and septic fields.

Chevy Chase Bank applied for a lift stay order in bankruptcy reciting their ownership of the loan. Judge entered an order confirming the ownership of Chevy Chase and lifting the stay. U.S> Bank then foreclosed without relief from Stay, eventually saying that the actual source of funds was a “trust” for which they were the “trustee” “relating to” the certificates. The foreclosure was set for auction and the auctioneer accepted a credit bid from U.S. Bank. XX is still in litigation with US Bank over their ownership of the loan. It was discovered that the only property foreclosed was Lot #4, after which discovery XX filed a motion to add the other three lots to her bankruptcy estate in the interest of full disclosure.

The U.S. Trustee has suggested a settlement purchase price of $80,000, half of which would go to US Bank if they can prove they own the loan receivable. We already know they do not. So the eventual sale price might be as low as $40,000.

The property was originally appraised at nearly $500,000 without Lot #5. XX has the ability to challenge US Bank’s right to intervene in the sale proposed by the Bankruptcy trustee, if she can show that she has the actual deal ready by which the trustee could be paid. The property is worth, according to local realtors (lots 4 and 5 only) approximately $250,000-$300,000 in a distressed market, containing over 2 acres of prime land overlooking valleys and mountain views.

She has an income now of approximately $500 per week without working, because of money due to her, is enrolling in nursing school, is 56 years of age, in excellent health and comes with glowing recommendations. She has prior experience as a massage therapist and a personal trainer. Her expected income should be in excess of $1000 per week.

She is looking for an “angel” to buy the house, allow her to perform maintenance and repair ( a brand new water pump was somehow destroyed by the realtor), pay rent starting 60 days after closing at the rate of $700 per month, plus an option to buy the property at $115,000 plus an equity kicker on refinancing or sale of the home at 25% of net proceeds. She is open to any reasonable offer.

I am her friend as well as her adviser, which is why I moved her case to the front of the list. Your offer to buy should be submitted to the Trustee with the usual demand for clear title which cannot be given without further order of the court since the Judge already recited another bank owned the loan other than U.S. Bank. The court and the trustee just want to get rid of this case. The auction “Credit bid” submitted by US Bank without a loan receivable or the note was $91,000.

She currently lives on a second structure on Lot #5 consisting one room, electricity for limited access to water. Lot #5 contains all ingress and egress to Lot #4 as well.

I have dozens of such properties in which homeowners are looking to walk away with some dignity or who would like to stay and rent. Most would like to stay and rent.

I am am an attorney and the author of the above mentioned blog with approximately 7.3 million visitors. My fee includes $7,500 from the investor for judicial and non-judicial methods of clearing title, providing title and securitization analysis and negotiating with the title company to include a guarantee of title including any off-record transactions. This feature is absent from most title policies and many investors are already finding out they are stuck in properties with clouded titles. I have attorneys that will provide services locally in Arizona, California, Nevada, Florida, Alabama, Tennessee Oregon, and other states.

If you have any further questions please call as indicated above

Sincerely
Neil F Garfield

P.S.  Our experience, while limited, confirms what we have already discovered in court, that when the Judge commands the forecloser to open up its books and records to prove the loan receivable they either fail to appear at any further court hearings or make offers of 70%-90% discounts off the original loan. It is still necessary to obtain a court order declaring the identities of the stakeholders and the status of their holding in the property in a final order that can be certified and recorded in the county records.

The reason why the foreclosers are moving in the direction of allowing short-sales it is that it no longer a bank with no interest in the property signing the deed, it is the actual homeowner. But that still leaves the problem of prior loans that were subject to claims of securitization. By following the procedures that we provide, the investor can be reasonably assured of getting clear title and a very thankful tenant.

Cities, Counties Realize They Have Common Interests With Homeowners

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One More Windfall for the Banks

Editor’s Comment:  

If it is any comfort, the chief financial officers and treasury management officers of cities and counties are starting to realize that they are victims of the banks and that most of these bankruptcies (Stockton CA for example) or near bankruptcy were completely avoidable. Their complaints are sounding more and more like the complaints of homeowners. And they are both right. Those debts should not be paid at all until the amount of the debt can be ascertained in real dollars and the identity of the actual losing party — whether they are defined as creditor or not —- can be ascertained. I don’t think any of the cities, counties or the homeowners and businesses whose debts were subject to false claims of securitization should pay anything to anyone until the governments and law enforcement figures it out. 

The federal government is the only one with the resources to go through all the data  and come up with at least an approximation of the truth of the path of the money. The Courts, Judges and Lawyers are woefully under-resourced to take this mess apart. The only reason that Too Big to Fail is believed by anyone is that nobody fully understands the consequences and actual money impact of the false cloud of derivatives created by the banks exceeding all the money in the word by a wide margin. We have let the Banks minimize the actual currency in favor of looking at a cloud of illusions created by the banks which they and only they want treated as real. We will find the same things operating on student loans where the intermediated banks actually never funded the loans but claim a guarantee from the Federal government. 

These debts should fall squarely on the banks, whether they fail or not, until we get a real accounting of the real transactions in which real money exchanged hands. And that is the mantra of my seminars for lawyers, paralegals, homeowners, city and county officials coming up at the end of this month as I travel through Phoenix, Stockton,  Anaheim etc. 

There is no possibility that  actual debt is $800 Trillion because all the money we have in the world amounts to only $70 trillion. So the loans were part of a chaotic, complex series of dots on a scatter diagram wherein all the data was an illusion except perhaps one of the hundreds of dots on each loan, bond or mortgage. And they certainly were not secured because the terms of repayment and the amount of the loan were off from the beginning as was the index from which they took data to change the so-called payments dude on loans that perhaps never existed but certainly do not exist now. 

The door that opened just a crack has been the Libor rate scandal in which the banks, led by Barclay’s, set interest rates based upon actual and perceived movement of interest rates in the markets. As in other things, these rates were as bogus, since 2008 as the Triple AAA ratings offered to investors in Mortgage-Backed Bonds and the appraisals offered to homeowners. 

City and County officials, once completely blind to the realities of the situation and skeptical of homeowner claims that the mortgages, foreclosures and auctions were rigged, are now realizing that their loans, interest rates, and terms were rigged just like homeowners’ were and that the trap they supposedly are in is an illusion just like the premises upon which Wall Street convinced them (city and County officials) that these loan products were viable and correct implementation of sound fiscal policy.

It wasn’t sound fiscal policy, they weren’t good loans and had the officials actually understood what Wall Street was doing —- creating false demands for services and infrastructure as well as complex financial products that were doomed from the start, they would never have gone ahead with these bonds or loans. Now the whole municipal market is as screwed up as the mortgage and housing markets and we know the banks are to blame because they have already admitted everything necessary to blame them. 

Besides prosecuting claims against the banks for civil and criminal penalties, everyone needs to contemplate the consequences of the status quo and whether they want to change it. One such game changer is eminent domain takeovers of  those toxic mortgages that “seemed right at the time.” But more than that, the cities and counties must look to experts who understand the derivative market (as well as anyone can) and realize that their debt, like everyone else’s debt is an illusion created in the cloud of credit derivatives now estimated at $800 trillion while the total amount of real credit and currency is only $70 trillion. 

Like Homeowners, they must realize that while they borrowed the money, the loan or liability created by the loan or bond was an illusion already paid in full at the time they incurred the obligation. That seems impossible but so does the news on these subjects as one digs deeper and deeper. The banks collected up all the money made under these circumstances and gave their people bonuses amounting to 50% of the profit of each financial institution. Inside that “profit”were trading profits claims by trading fake paper claimed to be owned by the banks while the paper was in the cloud of derivatives that is 10-12 times all the money in the world. 

That debt has long since been paid in full. The only question remaining is whether we can identify the actual people who have lost actual money and what we are going to do for them. But paying the banks on the loan or bonds is certainly not one of the alternatives that should be considered because, like the bailout, it just gives them one more windfall.

Rate Scandal Stirs Scramble for Damages

As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.

Baltimore has been leading a battle in Manhattan federal court against the banks that determine the interest rate, the London interbank offered rate, or Libor, which serves as a benchmark for global borrowing and stands at the center of the latest banking scandal. Now cities, states and municipal agencies nationwide, including Massachusetts, Nassau County on Long Island, and California’s public pension system, are looking at whether they suffered similar losses and are weighing legal action.

Dozens of lawsuits filed by municipalities, pension funds and hedge funds have been consolidated into a few related cases against more than a dozen banks that are involved in setting Libor each day, including Bank of America, JPMorgan Chase, Deutsche Bank and Barclays. Last month, Barclays admitted to regulators that it tried to manipulate Libor before and during the financial crisis in 2008, and paid $450 million to settle the charges. It said other banks were doing the same, but none of them have been accused of wrongdoing.

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It’s Down to Banks vs Society

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We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process. — Economist Steve Keen

Bankers Are Willing to Let Society Crash In Order to Make More Money

Editor’s Comment: 

I was reminded last night of a comment from a former bond trader and mortgage bundler that the conference calls are gleeful about the collapse of economies and societies around the world. Wall Street will profit greatly on both the down side and then later when asset prices go so low that housing falls under distressed housing programs and 125% loans become available in bulk. They think this is all just swell. I don’t.

The obvious intent on the part of the mega banks and servicers is to bring everything down with a crash using every means possible. When you look at the offers state and federal government programs have offered for the banks to modify, when you see the amount of money poured into these banks by our federal government in order to prop them up, you cannot conclude otherwise: they want our society to end up closed down not only by foreclosure but in any other way possible. They withhold credit from everyone except the insider’s club.

So now it is up to us. Either we take the banks apart or they will take us apart. I had a recent look at many modification proposals. In the batch I saw, the average offer from the homeowner was to accept a loan 20%-30% higher than fair market value and 50%-75% higher than foreclosure is producing. It seems we are addicted to the belief that this can’t be true because no reasonable person would act like that. But the answer is that the system is rigged so that the intermediaries (the megabanks) control what the investors and homeowners see and hear, they make far more money on foreclosures than they do on modifications, and they make far money on all the “bets” about the failure of the loan by foreclosing and not modifying.

The reason for the unreasonable behavior, as it appears, is that it is perfectly reasonable in a lending environment turned on its head — where the object was to either fund a loan that was sure to fail, or keep a string attached that would declare it as part of a failed “pool” that would trigger insurance and swaps payments.Steve Keen: Why 2012 Is Shaping Up To Be A Particularly Ugly Year

At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen.

Banks began lending money at a faster rate than the global economy grew, and we’re now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to.

Once borrowers start eschewing rather than seeking debt, asset prices begin to fall — which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices:

The reason that we have this trauma for the asset markets is because of this whole relationship that rising debt has to the level of asset market. If you think about the best example is the demand for housing, where does it come from? It comes from new mortgages. Therefore, if you want to sustain he current price level of houses, you have to have a constant flow of new mortgages. If you want the prices to rise, you need the flow of mortgages to also be rising.

Therefore, there is a correlation between accelerating and rising asset markets. That correlation applies very directly to housing. You look at the 20-year period of the market relationship from 1990 to now; the correlation of accelerating mortgage debt with changing house prices is 0.8. It is a very high correlation.

Now, that means that when there is a period where private debt is accelerating you are generally going to see rising asset markets, which of course is what we had up to 2000 for the stock market and of course 2006 for the housing market. Now that we have decelerating debt — so debt is slowing down more rapidly at this time rather than accelerating — that is going to mean falling asset markets.

Because we have such a huge overhang of debt, that process of debt decelerating downwards is more likely to rule most of the time. We will therefore find the asset markets traumatizing on the way down — which of course encourages people to get out of debt. Therefore, it is a positive feedback process on the way up and it is a positive feedback process on the way down.

He sees all of the major countries of the world grappling with deflation now, and in many cases, focusing their efforts in exactly the wrong direction to address the root cause:

Europe is imploding under its own volition and I think the Euro is probably going to collapse at some stage or contract to being a Northern Euro rather than the whole of Euro. We will probably see every government of Europe be overthrown and quite possibly have a return to fascist governments. It came very close to that in Greece with fascists getting five percent of the vote up from zero. So political turmoil in Europe and that seems to be Europe’s fate.

I can see England going into a credit crunch year, because if you think America’s debt is scary, you have not seen England’s level of debt. America has a maximum ratio of private debt to GDP adjusted over 300%; England’s is 450%. America’s financial sector debt was 120% of GDP, England’s is 250%. It is the hot money capital of the western world.

And now that we are finally seeing decelerating debt over there plus the government running on an austerity program at the same time, which means there are two factors pulling on demand out of that economy at once. I think there will be a credit crunch in England, so that is going to take place as well.

America is still caught in the deleveraging process. It tried to get out, it seemed to be working for a short while, and the government stimulus seemed to certainly help. Now, that they are going back to reducing that stimulus, they are pulling up the one thing that was keeping the demand up in the American economy and it is heading back down again. We are now seeing the assets market crashing once more. That should cause a return to decelerating debt — for a while you were accelerating very rapidly and that’s what gave you a boost in employment —  so you are falling back down again.

Australia is running out of steam because it got through the financial crisis by literally kicking the can down the road by restarting the housing bubble with a policy I call the first-time vendors boost. Where they gave first time buyers a larger amount of money from the government and they handed over times five or ten to the people they bought the house off from the leverage they got from the banking sector. Therefore, that finally ran out for them.

China got through the crisis with an enormous stimulus package. I think in that case it is increasing the money supply by 28% in one year. That is setting off a huge property bubble, which from what I have heard from colleagues of mine is also ending.

Therefore, it is a particularly ugly year for the global economy and as you say, we are still trying to get business back to usual. We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process.

In order to successfully emerge on the other side of this this painful period with a more sustainable system, he believes the moral hazard of bailing out the banks is going to have end:

[The banks] have to suffer and suffer badly. They will have to suffer in such a way that in a decade they will be scared in order to never behave in this way again. You have to reduce the financial sector to about one third of its current size and we have to also ultimately set up financial institutions and financial instruments in such a way that it is no longer desirable from a public point of view to borrow and gamble in rising assets processes.

The real mistake we made was to let this gambling happen as it has so many times in the past, however, we let it go on for far longer than we have ever let it go on for before. Therefore, we have a far greater financial parasite and a far greater crisis.

And he offers an unconventional proposal for how this can be achieved:

I think the mistake [central banks] are going to make is to continue honoring debts that should never have been created in the first place. We really know that that the subprime lending was totally irresponsible lending. When it comes to saying “who is responsible for bad debt?” you have to really blame the lender rather than the borrower, because lenders have far greater resources to work out whether or not the borrower can actually afford the debt they are putting out there.

They were creating debt just because it was a way of getting fees, short-term profit, and they then sold the debt onto unsuspecting members of the public as well and securitized their way out of trouble. They ended up giving the hot potato to the public. So, you should not be honoring that debt, you should be abolishing it. But of course they have actually packaged a lot of that debt and sold it to the public as well, you cannot just abolish it, because you then would penalize people who actually thought they were being responsible in saving and buying assets.

Therefore, I am talking in favor of what I call a modern debt jubilee or quantitative easing for the public, where the central banks would create ‘central bank money’ (we cannot destroy or abolish the debt, which would also destroy the incomes of the people who own the bonds the banks have sold). We have to create the state money and give it to the public, but on condition that if you have any debt you have to pay your debt down — no choice. Therefore, if you have debt, you can reduce the debt level, but if you do not have debt, you get a cash injection.

Of course, this would then feed into the financial sector would have to reduce the value of the debts that it currently owns, which means income from debt instruments would also fall. So, people who had bought bonds for their retirement and so on would find that their income would go down, but on the other hand, they would be compensated by a cash injection.

The one part of the system that would be reduced in size is the financial sector itself. That is the part we have to reduce and we have to make smaller.  That is the one that I am putting forward and I think there is a very little chance of implementing it in America for the next few years not all my home country [Australia] because we still think we are doing brilliantly and all that. But, I think at some stage in Europe, and possibly in a very short time frame, that idea might be considered.

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Fine Print: The Real Story on the “$25 Billion” Multistate Settlement

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One of the things I heard from a high ranking official in state government is that only a tiny fraction of the “settlement” is translating into actual dollars from the banks to anyone. In Arizona the $1.3 billion is subject to an “earn-down” as it was described to me and the net amount turned out to be $97 million and then on the website for the attorney general of the state, the $97 million became $47 million.

So I brought up my calculator and discovered that out of the “settlement” the banks were paying themselves around $1.2 billion out of the $1.3 billion (some say it is $1.6 billion, but the net left for the state remains unchanged at $97 million) and that some of the balance of the money is “unaccounted for.” By the way this has NOTHING to do with the Arizona Department of Housing, which is as close to non-political as you can get in any government.

So in plain language, the banks are taking money from their left pocket and putting int heir right pocket and saying it was a deal. This sounds a lot like the fake claims of securitization and assignment of debt on housing, student loans, credit cards, auto loans etc. In the end, no money will move except a tiny percentage because since the banks are simply paying themselves out of their own money how bad can the accounting be for them?

In Arizona, the legislature decided, as per the terms of the “settlement” to take the money and use it as part of general operating funds leaving distressed homeowners with nothing. So now there is something of an uproar in Arizona. Here is a $1.3 billion settlement that could have reversed a downward economic spiral for the state that will be felt for decades, and we end up with only 7% of that figure and then at least half, if not all of that is being taken for uses other than homeowner relief that is essential for economic recovery.

My guess is that they will say they are stopping the move to use the homeowner relief funds for perks to corporate donors and then quietly go out and do it anyway. What is your guess?

——————————————–

By Howard Fischer, Capitol Media Services

State officials agreed Tuesday to delay the transfer of $50 million of disputed mortgage settlement funds, at least for the time being.

Assistant Attorney General David Weinzweig made the offer during a hearing where challengers were hoping to get a court order blocking the move while its legality is being decided by Maricopa County Superior Court Judge Mark Brain. Attorney Tim Hogan of the Arizona Center for Law in the Public Interest, who represents those opposed to the transfer, readily agreed.

“You don’t want to rush the judge,” said Hogan, whose clients are people he believes would be helped by the funds.

“You want him to take his time on important questions like this,” Hogan said. “And so it’s reasonable to agree not to transfer the funds for a certain period of time to give the judge the opportunity to do that.”

The move sets the stage for a hearing in August on the merits of the issue.

Weinzweig told Brain he believes the transfer, ordered by state lawmakers earlier this year, is legal. Anyway, he said, Hogan’s clients have no legal standing to challenge what the Legislature did.

The fight surrounds a $26 billion nationwide settlement with five major lenders who were accused of mortgage fraud.

Arizona’s share is about $1.6 billion, with virtually all of that earmarked for direct aid to those who are “under water” on their mortgages — owing more than their property is worth — or have already been forced out of their homes.

But the deal also provided $97 million directly to the state Attorney General’s Office. The terms of that pact said the cash was supposed to help others with mortgage problems as well as investigate and prosecute fraud.

Lawmakers, however, seized on language which also said the money can be used to compensate the state for the effects of the lenders’ actions. They said the result of the mortgage crisis was lower state revenues, giving them permission to take $50 million from the settlement to balance the budget for the fiscal year that begins July 1.

Hogan’s suit is based on his contention that the settlement terms put the entire $97 million in trust and makes Attorney General Tom Horne, who was authorized by state law to sign the deal, responsible for ensuring the cash is properly spent.

Horne urged lawmakers not to take the funds. But once the budget deal was done, he went along and took the position that, regardless of whether the cash could have been better spent elsewhere, the transfer demand is legal.

Whatever Brain rules is likely to be appealed.

The challenge was brought on behalf of two people who would benefit by the state having more money to help homeowners avoid foreclosure. The lawsuit said both are currently “at risk” of losing their homes.

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State Programs with Real Money Going Unused

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Millions for Principal Reduction and Moving Expenses and No Applicants

Editor’s Comment: 

I had the pleasure of listening last night to Michael Trailor, the Director of the Arizona Department of Housing. It was like a breath of fresh air. He was a home builder for decades and when the market crashed he went into this obscure post of this obscure state agency that turns out to have its counterparts in many if not all states. Each of these agencies has received money and authority to help homeowners and they are willing to pay down principal reductions, buy the loans and then modify and pay for moving expenses in short sales and other events.

Trailor is a plain-speaking non-politician who tells it like it is. His agency has programs based upon the premise that principal reduction is the only thing that works and he has working relationships with some small banks where his agency literally pays the principal down while the Bank shares in that loss. The small banks see the sense in it. He can’t get cooperation from the big banks and servicers.

In the meeting at Darrell Blomberg’s Tuesday Strategist presentation (every week at Macayo’s restaurant in downtown Phoenix), we heard straight talk and we heard about a number of programs that I had advocated before Trailor became director. My suggestions fell on deaf ears. Trailor’s programs are of the same variety and creativity with the objective of saving the Arizona economy from destruction.

He reported that three states got together under the same program to make the offer of sharing the reduction of principal because the banks said that Arizona was not big enough on its own to motivate the banks to participate in the program. So he got three states — Arizona, California and Nevada. The banks did the old familiar two-step with him and his counterparts in the other states and essentially refused to pparticipate. Every borrower knows that two-step by heart.

I made some suggestions for programs that could be introduced in bankruptcy court, where the power of the Banks is much less. Right now if they don’t want to modify the loan, they can’t be forced. If they don’t want to SELL the loan and then modify it as the beneficiary or mortgagee, the mega bank can and does say no (while the small bank can and does say yes).

That’s right. His agency said they would buy the loan from the bank for 100 cents on the dollar, and then modify the loan the principal and payments to something the borrower could afford and that would not lead to future foreclosures (the fate of practically all modifications). The mega banks killed the idea. Don’t you wonder why banks would contrary to the interest of a ‘lender” who can minimize their losses with government money that has already been allocated but is not yet spent?

This is exactly what I predicted back in 2008. The small banks agree because it is the smart thing to do and THEY are actually owed the money. The mega banks refuse to go along with the deal because hanging on the now invisible and non-existent trunk of an existing debt-tree are hundreds of branches of swaps, insurance and credit enhancements upon which Wall Street has made and is continuing to make billions of dollars in “trading profits” at the expense of the investors and to the detriment of the homeowners.

In other words, they sold the loan multiple times — up to 40 times as I read the data. So hanging on your $200,000 loan could be as much as $8 MILLION in derivatives, swaps etc. That could mean $8 million in claims on the proceeds of sale of the obligation or note or satisfaction of the note or obligation.

Here is my suggestion for those homeowners’ attorneys that have started a bankruptcy proceeding. Where the so-called creditor has sent out a notice of sale and has filed a motion to lift the automatic stay, apply for assistance from the Arizona Department of Housing or whatever the equivalent is in your state. If the agency agrees to assist in refinancing or buying the loan so the homeowner can stay and pay, then the bank would need to explain the basis on which they are responding negatively. After all they are being offered 100 cents on the dollar — why isn’t that enough?

Make sure you notify the Trustee and Court of the pending application made to the agency and don’t use it in a silly fashion promising things that the agency will not corroborate.

I believe that Trailor’s agency and his counterparts would respond with some program that would essentially be an offer to the supposed creditor — provided that the true creditor steps forward and can prove that they are the actual party to whom the money from the homeowner’s obligation is owed. Darrell and I are starting talks with Trailor’s agency to get specific programs that will work in bankruptcy court and maybe other situations.

Once the Notice of Sale is sent,  the “creditor” has committed itself to selling. How can they turn around and say no when they are being offered the full amount? In that court, once the “lender” has committed to selling the property they can hardly say they don’t want to sell the loan — especially if they are receiving 100 cents on the dollar. The offer would be accepted by the Trustee, I am fairly certain, and the Judge since there really is no choice.

Now here is where the fun begins. The Judge would agree as would the U.S. Trustee that only the party to whom the money is owed can get the money. Some of you might recall my frequent diatribes about who can submit a credit bid — only the actual creditor to whom the original loan is now owed or an authorized representative who submits the bid on behalf of THAT creditor.

So assuming the Trustee and Judge agree that the “creditor” who filed the Motion to Lift Stay MUST sell the loan or release it upon receiving full payment, then they are stuck with coming up with the real creditor, which is going to be impossible in many cases, difficult in virtually all other cases. Trailor is sitting on hundreds of millions of dollars to help homeowners and he can’t use it because nobody will play ball under circumstances that he “naively” thought would be a no-brainer.

For those versed in bankruptcy you know the rest. The “lender” must admit that it is not the lender, that is has no authority to represent the creditor, that it doesn’t know who the creditor is or even if one still exists. The mortgage can be attacked as not being a perfected lien on the property and the obligation is wiped out or reduced by the  final order entered in the bankruptcy court.

Now the banks and servicers are going to fight this one tooth and nail because while the loan might be $200,000, there is an average of around $4 million in derivatives and exotic credit enhancements hanging on this loan. If it is paid off, then all accounts must settle. There are going to be gains and losses, but the net effect might well be that the bank “Sold” the loan 20 times. And the best part of it is that you don’t need t prove the theft. If will simply emerge from the failure of the “lender” to conform with the order of the court approving the deal. 

This is a classic case of the scam used in the “The Producers” which has been done on Broadway and movies. You sell 10,000% of a show you know MUST fail. They select “Springtime for Hitler” right after World War II and expect it to crash. After all it is musical comedy. But the show is a spectacular success. So whereas the news of the show’s closing would have sent investors to their accountants to write it off for tax purposes, now they were all clamoring for an accounting for their share of the profits. Since the producers had sold the show 100 times over it was impossible to pay the investors and they went to jail.

THAT is the problem here. It is only if the show closes with a foreclosure that the investors will not ask for the accounting. If the show succeeds (the loan is paid off) then all the investors will want their share of the payments that are due — unless they had the misfortune of taking the wrong side of a “bet” that the loan would fail. Not many investors did that. But the investment banks that sold the show (the loan) many times over used those bets as a way of selling the show over and over again.

If I’m lying I’m dying. That is what is happening and when people realize that as homeowners they are sitting on leverage worth 20 times their loan and they use it against the banks and servicers, they will get some very nice results. Agencies like Arizona’s Department of Housing can save the day like the cavalry just by making the offer and getting a judge to enforce it and watch in merriment how the “lenders” insist that they don’t want the payment and they can’t be forced to take it. That is what happens  when you turn the conventional and reasonable lending model on its head.

So now the banks and servicers must come up with a whole new set of fabricated, forged and fraudulent documents in which the investors assigned their interest in the obligation or note or mortgage to some other entity that is now the “creditor” — but the question that will be asked by every Trustee and Judge in bankruptcy court “who paid for this, how much did they pay, and how do we know a transaction actually happened.” That is the problem with a VIRTUAL TRANSACTION. At some point, like every PONZI scheme, the house of cards falls down.

Check with Arizona Department of Housing

Of course if you are not in Arizona check with the equivalent agency in your state. Chances are they have hundreds of millions of dollars and no place to spend it for homeowners because the banks won’t agree to no-brainer solutions that any bank can and does accept if they were playing the “Securitization game.” Don’t expect the agency to march into court and save the day. The agency is not going to litigate your case for you. But they probably will give you plenty of support and encouragement and offers of real money to end this nightmare of foreclosures. You must do the work, fill out applications and get the process underway before you can go to the court with a motion that says we have a settlement vehicle pending with a state agency and you can prove it is true.

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How the Servicers and Investment Banks Cheat Investors and Homeowners

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Master Servicers and Subservicers Maintain Fictitious Obligations

Editor’s Comment: 

This article really is about why discovery and access to the information held by the Master Servicer and subservicer, investment bank and Trustee for the REMIC (“Trust”) is so important. Without an actual accounting, you could be paying on a debt that does not exist or has been extinguished in bankruptcy because it was unsecured. In fact, if it was extinguished in bankruptcy, giving them the house or payment might even be improper. Pressing on the points made in this article in order to get full rights in discovery (interrogatories, admissions and production) will yield the most beneficial results.

Michael Olenick (creator of FindtheFraud) on Naked Capitalism gets a lot of things right in the article below. The most right is that servicers are lying and cheating investors in addition to cheating homeowners.

The subservicer is the one the public knows. They are the ones that collect payments from the “borrower” who is the homeowner. In reality, they have no right to collect anything from the homeowner because they were appointed as servicer by a party who is not a creditor and has no authority to act as agent for the creditor. They COULD have had that authority if the securitization chain was real, but it isn’t.

Then you have the Master Servicers who are and should be called the Master of Ceremonies. But the Master Servicer is basically a controlled entity of the investment bank, which is why everyone is so pissed — these banks are making money and getting credit while the rest of us can’t operate businesses, can’t get a job, and can’t get credit for small and medium sized businesses.

Cheating at the subservicer level, even if they were authorized to take payments, starts with the fees they charge against the account, especially if it becomes (delinquent” or in “default” or “Nonperforming.” At the same time they are telling the investors that the loan is a performing loan and they are making payments somewhere in the direction of the investors (we don’t actually know how much of that payment actually gets received by investors), they are also declaring defaults and initiating a foreclosure.

What they are not reporting is that they don’t have the paperwork on the loan, and that the value of the portfolio is either simply over-stated, which is bad enough, or that the portfolio is worthless, which of course is worse. Meanwhile the pension fund managers do not realize that they are sitting on assets that may well have a negative value and if they don’t handle the situation properly, they might be assessed for the negative value.

It gets even worse. Since the money and the loans were not handled, paid or otherwise organized in the manner provided in the pooling and servicing agreement and prospectus, the SPV (“Trust”) does not exist and has no assets in it — but it might have some teeth that could bite the hand that fed the banks. If the REMIC was not created and the trust was not created or funded, then the investors who in fact DID put up money are in a common law general partnership. And since the Credit Default Swaps were traded using the name of  entities that identified groups of investors, the investors might be hit with an assessment to cover a loss that the “pool” can’t cover because they only have a general partnership created under common law. Their intention to enter into a deal where there was (a) preferential tax status (REMIC) and (b) limited liability would both fall apart. And that is exactly what happened.

The flip side is that the credit default swaps, insurance, credit enhancements, and so forth could have and in most cases did produce a surplus, which the banks claimed as solely their own, but which in fact should have at least been allocated to the investors up to the point of the liability to them (i.e., the money taken from them by the investment bank).

AND THAT is why borrowers should be very interested in having the investors get their money back from the trading, wheeling and dealing made with the use of the investors’ money. Think about it. The investors gave up their money for funding mortgages and yours was one of the mortgages funded. But the vehicle that was used was not a simple  one. The money taken from the investors was owed by the REMIC in whose name the trading in the secret derivative market occurred.

Now think a little bit more. If the investors get their rightful share of the money made from the swaps and insurance and credit enhancements, then the liability is satisfied — i.e., the investor got their money back with interest just like they were expecting.

But, and here is the big one, if the investor did get paid (as many have been under the table or as part of more complex deals) then the obligation to them has been satisfied in full. That would mean by definition that the obligation from anyone else on repayment to the investor was extinguished or transferred to another party. Since the money was funded from investor to homeowner, the homeowner therefore does not owe the investor any money (not any more, anyway, because the investor has been paid in full). The only valid transfer would be FROM the REMIC partnership not TO it. But the fabricated, forged and fraudulent documents are all about transferring the loan TO the REMIC that was never formed and never funded.

It is possible that another party may be a successor to the homeowner’s obligation to the investor. But there are prerequisites to that happening. First of all we know that the obligation of the homeowner to the investor was not secured because there was no agreement or written instrument of any kind in which the investor and the borrower both signed and which set forth terms that were disclosed to both parties and were the subject of an agreement, much less a mortgage naming the investor. That is why the MERS trick was played with stating the servicer as the investor. That implies agency (which doesn’t really exist).

Second we know that the SWAPS and the insurance were specifically written with expressly worded such that AIG, MBIA etc. each waived their right to get payment from the borrower homeowner even though they were paying the bill.

Third we know that most payments were made by SWAPS, insurance and the Federal Reserve deals, in which the Fed also did not want to get involved in enforcing debts against homeowners and that is why the Federal Reserve has never been named as the creditor even though they in fact, would be the creditor because they have paid 100 cents on the dollar to the investment bank who did NOT allocate that money to the investors.

Since they did not allocate that money to the investors, as servicers (subservicer and Master Servicer), they also did not allocate the payment against the homeowner borrower’s debt. If they did that, they would be admitting what we already know — that the debt from homeowner to investor has been extinguished, which means that all those other credit swaps, insurance and enhancements that are STILL IN PLAY, would collapse. That is what is happening in our own cities, towns, counties and states and what is happening in Europe. It is only by keeping what is now only a virtual debt alive in appearance that the banks continue to make money on the Swaps and other exotic instruments. But it is like a tree without the main trunk. We have only branches left. Eventually in must fall, like any other Ponzi scheme or House of Cards.

So by cheating the investors, and thus cheating the borrowers, they also cheated the Federal Reserve, the taxpayers and European banks based upon a debt that once existed but has long since been extinguished. If you waded through the above (you might need to read it more than once), then you can see that your  feeling, deep down inside that you owe this money, is wrong. You can see that the perception that the obligation was tied to a perfected mortgage lien on the property was equally wrong. And that we now have $700 trillion in nominal value of derivatives that has at least one-third in need of mark-down to zero. The admission of this inescapable point would immediately produce the result that Simon Johnson and others so desperately want for economic reasons and that the rest of us want for political reasons — the break-up of banks that are broken. Only then will the market begin to function as a more or less free trading market.

How Servicers Lie to Mortgage Investors About Losses

By Michael Olenick

A post last week reviewed a botched foreclosure for a mortgage loan in Ace Securities Home Equity Loan Trust 2007-HE4 dismissed with prejudice, meaning that the foreclosure cannot be refilled; a total loss for investors. Next, we reviewed why the trust has not yet recorded the loss despite the six month old verdict.

As an experiment, I gave my six year-old daughter four quarters. She just learned how to add coins so this pleased her. Then I told her I would take some number of quarters back, and asked her how many I should take. Her first response was one – smart kid – then she changed her mind to two, because we’d each have two and that’s the most “fair.” Having mastered the notion of loss mitigation and fairness, and because it’s not nice to torture six year-old children with experiments in economics, I allowed her to keep all four.

When presented with a similar question – whether to take a partial loss via a short-sale or principal reduction, or whether to take a larger loss through foreclosure – the servicers of ACE2007-HE4 repeatedly opt for the larger losses. While the dismissal with prejudice for the Guerrero house is an unusual, the enormous write-off it comes with through failure to mitigate a breach – to keep overall damages as low as possible – is common. When we look more closely at the trust, we see the servicer again and again, either through self-dealing or laziness, taking actions that increase losses to investors. And this occurs even though the contract that created the securitization, a pooling and servicing agreement, requires the servicer to service the loans in the best interest of the investors.

Let’s examine some recent loss statistics from ACE2007-HE4. In May, 2012 there were 15 houses written-off, with an average loss severity of 77%. Exactly one was below 50% and one, in Gary, IN, was 145%; the ACE investors lent $65,100 to a borrower with a FICO score of 568 then predictably managed to lose $94,096. In April, there were 23 homes lost, with an average loss severity of 82%, three below 50%, though one at 132%, money lent to a borrower with an original FICO score of 588.

Of course, those are the loans with finished foreclosures. There are 65 loans where borrowers missed at least four consecutive payments in the last year with yet there is no active foreclosure. Among those are a loan for $593,600 in Allendale, NJ, where the borrower has not made a payment in about four years, though they have been in and out of foreclosure a few times during that period. It’s not just the judicial foreclosure states; a $350,001 loan in Compton, CA also hasn’t made a payment in over a year and there is no pending foreclosure.

There is every reason to think the losses will be higher for these zombie borrowers than on the recent foreclosures. First, every month a borrower does not pay the servicer pays the trust anyway, though the servicer is then reimbursed the next month, mainly from payments of other borrowers still paying. This depletes the good loans in the trust, so that the trust will eventually run out of money leaving investors holding an empty bag. And on top of that, when the foreclosure eventually occurs, the servicer also reimburses himself for all sorts of fees, late fees, the regular servicing fee, broker price opinions, etc. Longer times in foreclosure mean more fees to servicers. Second, the odds are decent that the servicers are holding off on foreclosing on these homes because the losses are expected to be particularly high. Why would servicers delay in these cases? Perhaps because they own a portfolio of second mortgages. More sales of real estate that wipe out second liens would make it harder for them to justify the marks on those loans that they are reporting to investors and regulators. Revealing how depressed certain real estate markets were if shadow inventory were released would have the same effect.

These loans will eventually end up either modified or foreclosed upon, but either way there will be substantial losses to the trust that have not been accounted for. Of course, this assumes that the codes and status fields are accurate; in the case of the Guerreros’ loan the write-off – with legal fees for the fancy lawyers who can’t figure out why assignments are needed to the trust – is likely to be enormous. How much? Nobody except Ocwen knows, and they’re not saying.

Knowing that an estimated loss of 77%, is if anything an optimistic figure, even before we get to the unreported losses on the Guerrero loan, it seems difficult to understand why Ocwen wouldn’t first try loss mitigation that results in a lower loss severity. If they wrote-off half the principal of the loan, and decreased interest payments to nothing, they’d come out ahead.

Servicers give lip service to the notion that foreclosure is an option of last resort but, only when recognizing losses, do their words seem to sync with their behavior. But it’s all about the incentives: servicers get paid to foreclose and they heap fees on zombie borrowers, but even with all sorts of HAMP incentives, they don’t feel they get paid enough to do the work to do modifications. Servicers are reimbursed for the principal and interest they advance, the over-priced “forced placed insurance” that costs much more and pays out much less than regular insurance, “inspections” that sometimes involve goons kicking in doors before a person can answer, high-priced lawyers who can’t figure out why an assignment is needed to bind a property to a trust, and a plethora of other garbage fees. They’re like a frat-boy with dad’s credit-card, and a determination to make the best of it while dad is still solvent.

Despite the Obama campaign promise to bring transparency to government and financial markets, the investors in trusts remain largely unknown, so we’re not sure who bears the brunt of the cost of Ocwen’s incompetence in loss mitigation (to be fair Ocwen is not atypical; most servicers are atrocious). But, ACE2007-HE4 has a few unique attributes allowing us to guess who is affected.

ACE2007-HE4 is named in a lawsuit filed by the Federal Housing Finance Agency (FHFA), which has sued ACE, trustee Deutsche Bank, and a few others citing material misrepresentations in the prospectus of this trust. As pointed out in the prior article, both the Guerreros’ first and second loans were bundled into the same trust – so there were definitely problems – though the FHFA does not seem to address that in their lawsuit.

With respect to ACE2007-HE4, the FHFA highlights an investigation by the Financial Industry Regulatory Authority (FINRA), which found that Deutsche Bank “‘continued to refer customers to its prospectus materials to the erroneous [delinquency] data’”even after it ‘became aware that the static pool information underreported historical delinquency rates.”

The verbiage within the July 16, 2010 FINRA action is more succinct: “… investors in these 16 subsequent RMBS securitizations were, and continue to be, unaware that some of the static pool information .. contains inaccurate historical data which underreported delinquencies.” FINRA allowed Deutsche Bank to pay a $7.5 million fine without either admitting or denying the findings, and agreed never to bring another action “based on the same factual findings described herein.”

Despite the finding and the fine, FINRA apparently forgot to order Deutsche Bank to knock off the conduct, and since FINRA did not reserve the right to circle back for a compliance check maybe Deutsche Bank has the right to produce loss reports showing whatever they wish to.

It is unlikely that Deutsche Bank had trouble paying their $7.5 million fine since the trust included an interest swap agreement that worked out pretty well for them. Note that these swap agreements were a common feature of post 2004 RMBS. Originators used to retain the equity tranche, which was unrated. When a deal worked out, that was nicely profitable because the equity tranche would get the benefit of loss cushions (overcollateralization and excess spread). Deal packagers got clever and devised so-called “net interest margin” bonds which allowed investors to get the benefit of the entire excess spread for a loan pool. The swaps were structured to provide a minimum amount of excess spread under the most likely scenarios. But no one anticipated 0% interest rates.

From May, 2007, when the trust was issued, to Oct., 2007, neither party paid one another. In Nov., 2007, Deutsche Bank paid the trust $175,759.04. Over the next 53 months that the swap agreement remained in effect the trust paid Deutsche Bank $65,122,194.92, a net profit of $64,946,435.88. Given that Deutsche traders were handing out t-shirts reading “I’m Short Your House” when this trust was created, I can see why they’d bet against steep interest rates over the next five years, as the Federal Reserve moved to mitigate the economic fallout of their mischievousness with low interest rates.

In any event, getting back to Fannie Mae and Freddie Mac (the FHFA does not disclose which), one of the GSEs purchased $224,129,000 of tranche A1 at par; they paid full freight for this fiasco. Since this trust is structured so that losses are born equally by all A-level tranches once the mezzanine level tranches are destroyed by losses, which they have been, to find the party taking the inflated losses you just need to look in the nearest mirror. Fannie and Freddie are, of course, wards of the state so it is the American taxpayer that gets to pay out the windfall to the Germans. In this we’re like Greece, albeit with lousier beaches and the ability to print more money.

If the mess with the FHFA and FINRA were not enough, ACE2007-HE4 is also an element in the second 2007 Markit index, ABX.HE.AAA.07-2, a basket of tranches of subprime trusts that – taken as a whole – show the overall health of all similar securities. This is akin to being one of the Dow-Jones companies, where a company has its own stock price but that price also affects an overall index that people place bets on. Tranche A-2D, the lowest A-tranche, is one of the twenty trusts in the index. Since ACE2007-HE4 is structured so that all A-tranches wither and die together once the mezzanine level tranches are destroyed it has the potential to weigh in on the rest of the index. Therefore, the reporting mess – already known to both the FHFA and FINRA – stands to be greatly magnified.

The problems with this trust are numerous, and at every turn, the parties that could have intervened to ameliorate the situation failed to take adequate measures.

First there is the botched securitization, where a first and second lien ended up in the same trust. Then, there is failure to engage in loss mitigation, with the result that refusing to accept the Guerrero’s short-sale offers or pleas for a modification, resulting in a more than 100% loss. Next, there is defective record-keeping related to that deficiency and others like it. And the bad practices ensnarled Fannie /Freddie when they purchased almost a quarter billion dollars of exposure to these loans. Then there’s the mismanaged prosecution by FINRA, where they did not require ongoing compliance, monitoring, or increasing fines for non-compliance. There’s the muffed FHFA lawsuit, where the FHFA did not notice either the depth of the fraud, namely two loans for the same property in the same trust, and that the reporting fraud they cited continues. I’m not sure if the swap agreement was botched, but you’d think FINRA and the FHFA would and should do almost anything to dissolve it while it was paying out massive checks every month. Finally, returning full circle, there’s the fouled up foreclosure that the borrowers fought only because negotiations failed that resulted in a the trust taking a total loss on the mortgage plus paying serious legal fees.

It is an understatement to say this does not inspire confidence in any public official, except Judge Williams, the only government official with the common sense to lose patience with scoundrels. We’d almost be better off without regulators than with the batch we’ve seen at work.

US taxpayers would have received more benefit by burning dollar bills in the Capitol’s furnace to heat the building than we received from bailing out Fannie, Freddie, Deutsche Bank, Ocwen, and the various other smaller leaches attached to the udder of public funds. We could and should have allowed the “free market” they worship to work its magic, sending them to their doom years ago. That would have left investors in a world-o-hurt but, in hindsight, that’s where they’re ending up anyway with no money left to fix the fallout. It is long past time public policy makers did something substantive to rein in these charlatans.

My six year-old daughter understands the concept of limiting losses to the minimum, and apportionment of those losses in the name of fairness. Maybe Tim Geithner should take a lesson from her about this “unfortunate” series of events, quoting Judge Williams, before wasting any more money that my daughter will eventually have to repay.

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Foreclosure Strategists: Phx. Meet tonight: Make the record in your case

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Editor’s Comment:

Contact: Darrell Blomberg  Darrell@ForeclosureStrategists.com  602-686-7355

Meeting: Tuesday, May 15th, 2012, 7pm to 9pm

Make the Record

It appears the most rulings against homeowners are predicated on some arcane and minute failure of the homeowner to make the record.  We’ll be discussing how to make sure you cover all of those points by Making the Record as your case moves along.  We’ll also look at how the process of Making the Record starts long before you even think of going to court

We meet every week!

Every Tuesday: 7:00pm to 9:00pm. Come early for dinner and socialization. (Food service is also available during meeting.)
Macayo’s Restaurant, 602-264-6141, 4001 N Central Ave, Phoenix, AZ 85012. (east side of Central Ave just south of Indian School Rd.)
COST: $10… and whatever you want to spend on yourself for dinner, helpings are generous so bring an appetite.
Please Bring a Guest!
(NOTE: There is a $2.49 charge for the Happy Hour Buffet unless you at least order a soft drink.)

FACEBOOK PAGE FOR “FORECLOSURE STRATEGIST”

I have set up a Facebook page. (I can’t believe it but it is necessary.) The page can be viewed at www.Facebook.com, look for and “friend” “Foreclosure Strategist.”

I’ll do my best to keep it updated with all of our events.

Please get the word out and send your friends and other homeowners the link.

MEETUP PAGE FOR FORECLOSURE STRATEGISTS:

I have set up a MeetUp page. The page can be viewed at www.MeetUp.com/ForeclosureStrategists. Please get the word out and send your friends and other homeowners the link.

May your opportunities be bountiful and your possibilities unlimited.

“Emissary of Observation”

Darrell Blomberg

602-686-7355

Darrell@ForeclosureStrategists.com

Foreclosure Strategists: Phx. Meet tomorrow with AZ AG Tom Horne

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Editor’s Comment:

Contact: Darrell Blomberg  Darrell@ForeclosureStrategists.com  602-686-7355

Meeting: Tuesday, May 8th, 2012, 7pm to 9pm

Special guest speaker:  Arizona Attorney General Tom Horne

We will be discussing among other things:

Brief bio / history

Arizona v Countrywide / Bank of America lawsuit settlement

National Attorneys’ General Mortgage Settlement

Appropriation of National Mortgage Settlement Funds

Attorney General’s Legislative Efforts pertaining to foreclosures

Submitted and submitting complaints to the Attorney General’s office

Joint efforts between the Attorney General’s office and other agencies

Adding effectiveness to homeowner’s OCC Complaints

Please send me your thoughts and questions you’d like to ask Tom Horne.

We meet every week!

Every Tuesday: 7:00pm to 9:00pm. Come early for dinner and socialization. (Food service is also available during meeting.)
Macayo’s Restaurant, 602-264-6141, 4001 N Central Ave, Phoenix, AZ 85012. (east side of Central Ave just south of Indian School Rd.)
COST: $10… and whatever you want to spend on yourself for dinner, helpings are generous so bring an appetite.
Please Bring a Guest!
(NOTE: There is a $2.49 charge for the Happy Hour Buffet unless you at least order a soft drink.)

FACEBOOK PAGE FOR “FORECLOSURE STRATEGIST”

I have set up a Facebook page. (I can’t believe it but it is necessary.) The page can be viewed at www.Facebook.com, look for and “friend” “Foreclosure Strategist.”

I’ll do my best to keep it updated with all of our events.

Please get the word out and send your friends and other homeowners the link.

MEETUP PAGE FOR FORECLOSURE STRATEGISTS:

I have set up a MeetUp page. The page can be viewed at www.MeetUp.com/ForeclosureStrategists. Please get the word out and send your friends and other homeowners the link.

May your opportunities be bountiful and your possibilities unlimited.

“Emissary of Observation”

Darrell Blomberg

602-686-7355

Darrell@ForeclosureStrategists.com

Breakthrough Whistleblowers for Sale?

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Editor’s Comment:

Executive departures at Fannie, Freddie and Investment Banks

The Wall Street Journal and the New York Times are all buzzing about the departures and layoffs of high placed investment bankers at Fannie and Freddie and the huge layoffs at BOA, Citi, Chase, and Wells of formerly high-priced (stupidly high salaries and bonuses) of major players in their investment banking divisions. These people have intimate knowledge of the actual flow of money, securities and the alleged  securitization of millions of loans.

If you are looking for fact and expert witnesses, this group of people contains at least a few hundred whistle blowers despite contracts they signed for their benefits package on leaving the GSEs and the Banks. Many of them are waiting to be contacted and believe they can make far more money busting the banks or agencies that hired them than the bloated severance package they received.

If you ask the right questions and follow up with them, you will learn that from the very start the documents used at closing with borrowers were even more misleading than the documents used at closing with the lender investors. They will also tell you names of investors and investor “pools” and the fund manager of each. And of course they will tell you that the pools are either empty, non-existent or hydrogenated so that their existence and contents are a complete mystery even ton those who sold repackaged mini bonds or mortgage bonds using the dissolution of the old “trust” that purportedly claimed ownership over the entire loan.

Most important is that these people can tell you why “bankruptcy remote” thinly capitalised entities were used to originate the loans rather than the lending pools. And they can tell you where to find the money that was received, but not allocated to reduce the loan balances or the balances due on the mortgage bonds.


People Have Answers, Will Anyone Listen?

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Editor’s Comment: 

Thanks to Home Preservation Network for alerting us to John Griffith’s Statement before the Congressional Progressive Caucus U.S. House of Representatives.  See his statement below.  

People who know the systemic flaws caused by Wall Street are getting closer to the microphone. The Banks are hoping it is too late — but I don’t think we are even close to the point where the blame shifts solidly to their illegal activities. The testimony is clear, well-balanced, and based on facts. 

On the high costs of foreclosure John Griffith proves the point that there is an “invisible hand” pushing homes into foreclosure when they should be settled modified under HAMP. There can be no doubt nor any need for interpretation — even the smiliest analysis shows that investors would be better off accepting modification proposals to a huge degree. Yet most people, especially those that fail to add tacit procuration language in their proposal and who fail to include an economic analysis, submit proposals that provide proceeds to investors that are at least 50% higher than the projected return from foreclosure. And that is the most liberal estimate. Think about all those tens of thousands of homes being bull-dozed. What return did the investor get on those?

That is why we now include a HAMP analysis in support of proposals as part of our forensic analysis. We were given the idea by Martin Andelman (Mandelman Matters). When we performed the analysis the results were startling and clearly showed, as some judges around the country have pointed out, that the HAMP loan modification proposals were NOT considered. In those cases where the burden if proof was placed on the pretender lender, it was clear that they never had any intention other than foreclosure. Upon findings like that, the cases settled just like every case where the pretender loses the battle on discovery.

Despite clear predictions of increased strategic defaults based upon data that shows that strategic defaults are increasing at an exponential level, the Bank narrative is that if they let homeowners modify mortgages, it will hurt the Market and encourage more deadbeats to do the same. The risk of strategic defaults comes not from people delinquent in their payments but from businesspeople who look at the principal due, see no hope that the value of the home will rise substantially for decades, and see that the home is worth less than half the mortgage claimed. No reasonable business person would maintain the status quo. 

The case for principal reductions (corrections) is made clear by the one simple fact that the homes are not worth and never were worth the value of the used in true loans. The failure of the financial industry to perform simple, long-standing underwriting duties — like verifying the value of the collateral created a risk for the “lenders” (whoever they are) that did not exist and was present without any input from the borrower who was relying on the same appraisals that the Banks intentionally cooked up so they could move the money and earn their fees.

Many people are suggesting paths forward. Those that are serious and not just positioning in an election year, recognize that the station becomes more muddled each day, the false foreclosures on fatally defective documents must stop, but that the buying and selling and refinancing of properties presents still more problems and risks. In the end the solution must hold the perpetrators to account and deliver relief to homeowners who have an opportunity to maintain possession and ownership of their homes and who may have the right to recapture fraudulently foreclosed homes with illegal evictions. The homes have been stolen. It is time to catch the thief, return the purse and seize the property of the thief to recapture ill-gotten gains.

Statement of John Griffith Policy Analyst Center for American Progress Action Fund

Before

The Congressional Progressive Caucus U.S. House of Representatives

Hearing On

Turning the Tide: Preventing More Foreclosures and Holding Wrong-Doers Accountable

Good afternoon Co-Chairman Grijalva, Co-Chairman Ellison, and members of the caucus. I am John Griffith, an Economic Policy Analyst at the Center for American Progress Action Fund, where my work focuses on housing policy.

It is an honor to be here today to discuss ways to soften the blow of the ongoing foreclosure crisis. It’s clear that lenders, investors, and policymakers—particularly the government-controlled mortgage giants Fannie Mae and Freddie Mac—must do all they can to avoid another wave of costly and economy-crushing foreclosures. Today I will discuss why principal reduction—lowering the amount the borrower actually owes on a loan in exchange for a higher likelihood of repayment—is a critical tool in that effort.

Specifically, I will discuss the following:

1      First, the high cost of foreclosure. Foreclosure is typically the worst outcome for every party involved, since it results in extraordinarily high costs to borrowers, lenders, and investors, not to mention the carry-on effects for the surrounding community.

2      Second, the economic case for principal reduction. Research shows that equity is an important predictor of default. Since principal reduction is the only way to permanently improve a struggling borrower’s equity position, it is often the most effective way to help a deeply underwater borrower avoid foreclosure.

3      Third, the business case for Fannie and Freddie to embrace principal reduction. By refusing to offer write-downs on the loans they own or guarantee, Fannie, Freddie, and their regulator, the Federal Housing Finance Agency, or FHFA, are significantly lagging behind the private sector. And FHFA’s own analysis shows that it can be a money-saver: Principal reductions would save the enterprises about $10 billion compared to doing nothing, and $1.7 billion compared to alternative foreclosure mitigation tools, according to data released earlier this month.

4      Fourth, a possible path forward. In a recent report my former colleague Jordan Eizenga and I propose a principal-reduction pilot at Fannie and Freddie that focuses on deeply underwater borrowers facing long-term economic hardships. The pilot would include special rules to maximize returns to Fannie, Freddie, and the taxpayers supporting them without creating skewed incentives for borrowers.

Fifth, a bit of perspective. To adequately meet the challenge before us, any principal-reduction initiative must be part of a multipronged

To read John Griffith’s entire testimony go to: http://www.americanprogressaction.org/issues/2012/04/pdf/griffith_testimony.pdf


Guest Writer Shares Info on Fraud in CA Foreclosure Cases

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Editor’s Comment: The following information was submitted to the blog by a law firm.  We do not know this law firm.  We are simply passing along information that may be of interest to Californians.  As always, please do your research.

From counsel for Consumer Rights Defenders for our loyal followers, you may be interested in this California information which is not meant to be legal advise, just some information that is public knowledge. Call if you need foreclosure help at 818.453.3585 ask for Steve or Sara.   Ms. Stephens Esq7777@aol.com

___________

Elements of fraud cause of action: A plaintiff seeking a remedy based upon fraud must allege and prove all of the following basic elements:

· Defendant’s false representation or concealment of a ‘material’ fact (see Rest.2d Torts | 538(2)(a); Engalla v. Permanente Med. Group, Inc. (1997) 15 Cal.4th 951, 977, 64 Cal.Rptr.2d 843, 859–misrepresentation deemed ‘material’ if ‘a reasonable (person) would attach importance to its existence or nonexistence in determining his choice of action in the transaction’);

· Defendant made the representation with knowledge of its falsity or without sufficient knowledge of the subject to warrant a representation;

· The representation was made with the intent to induce plaintiff (or a class to which plaintiff belonged) to act upon it (see Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 869, 76 Cal.Rptr.3d 325, 333–fraud by false representations means intent to induce ‘reliance’; fraud by concealment involves intent to induce ‘conduct’);

· Plaintiff entered into the contract in ‘justifiable reliance’ upon the representation (see Ostayan v. Serrano Reconveyance Co. (2000) 77 Cal.App.4th 1411, 1419, 92 Cal.Rptr.2d 577, 583–P’s admission of no reliance on a representation made by D precludes cause of action for intentional or negligent misrepresentation); and

· As a result of reliance upon the false representation, plaintiff has suffered damages. [Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239, 44 Cal.Rptr.2d 352, 359; see Manderville v. PCG & S Group, Inc. (2007) 146 Cal.App.4th 1486, 1498, 55 Cal.Rptr.3d 59, 68; and Auerbach v. Great Western Bank (1999) 74 Cal.App.4th 1172, 1184, 88 Cal.Rptr.2d 718, 727--'Deception without resulting loss is not actionable fraud' (¶ 11:357.1)]

(1) [11:354.1] Particularized pleading required: A fraud cause of action must be pleaded with particularity; i.e., every element of the cause of action must be alleged factually and specifically in full. [Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216, 197 Cal.Rptr. 783, 795; see Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73, 269 Cal.Rptr. 337, 345--complaint must plead facts showing 'how, when, where, to whom, and by what means the representations were tendered'; Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1268-1269, 258 Cal.Rptr. 787, 790--fraud complaint deficient if it neither shows cause and effect relationship between alleged fraud and damages sought nor alleges definite amount of damages suffered]

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