Fannie and Freddie Ignore Homeowners in Detroit

LAW FIRM OFFERS CONTINGENCY ON SOME CASES

If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-765-1236. 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.

SEE ALSO: http://WWW.LIVINGLIES-STORE.COM

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 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.

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In the upside down world of the foreclosure of mortgages that are neither in default nor owned by the parties initiating foreclosure, and where applications for modification are submitted that clearly exceed federal standards for approval (and are denied)  and should come as no surprise that the government sponsored entities, Fannie and Freddie, canceled their appearance at a Metro Detroit foreclosure hearing which they had scheduled.

These are essentially federal agencies. Their first duty is to serve the country and its citizens. But they canceled their appearance because of pending litigation against them. Here was an opportunity for them to understand the impact of foreclosure on families, businesses, investors and the government. Here was an opportunity for them to utilize information provided to them by people on the ground to fashion remedies that are appropriate and legal.

This is all part of state and federal government policy to sweep the mortgage tragedies under the rug. Despite the fact that we know that most of the foreclosures that have already been deemed completed were in fact illegal, we have had millions of “auction sales” in which strangers to the transaction were awarded title to the house without ever having made a single payment of any amount of money to originate or acquire the loan that was allegedly in default but which was fatally defective and certainly not in default  despite the illusions created by Wall Street banks.

I am leading the charge on this one. It is my intention to file suit against the Wall Street banks who have accepted monthly payments, short sale payments, and full payments on loans that were subject to claims of securitization. In fact, my law firm is offering to represent homeowners who lost or sold their homes on a contingency fee, as long as only economic damages are sought. It is my goal to show payments to the sub servicer or anyone else in the false securitization chain should never have been made and were never due. It is my opinion that these payments are owed back to the homeowner in all events, together with interest, costs of the court action, and attorney fees where those are provided by statute or contract.  Each case will be evaluated as to viability utilizing this strategy.

If Bank of America or any other bank responds to an estoppel letter for payoff or short sale without knowing or showing that they have paid for the origination or acquisition of the loan, then they have no business providing the estoppel information or approving or denying a request for a short sale. Their acceptance of the money at closing and their execution of a satisfaction of mortgage or release and reconveyance is a sham. In the absence of any other creditor demanding payment and showing that they are in fact a true creditor (having paid actual money for the origination or acquisition of the loan), proceeds of all such closings should, in my opinion, go to the homeowner. If the bank got the money, it is my opinion that the bank should be sued for recovery of the entire proceeds of the closing.

Each of those closings described above represents a gift to the banks and a horror show for the homeowner and many attorneys for homeowners. The spin machine for the banks has created the illusion that homeowners are seeking a free home when in fact it is the banks that are seeking and getting free money and free homes. In auction sales where the banks are submitting a credit bid, they do not qualify as a creditor who can submit a credit bid. But the credit bid is accepted anyway and the bank gets the house for free despite the fact that the bank has no status as a creditor or even the authorized representative of a creditor.

Fannie and Freddie are colluding with the banks and the federal reserve  to maintain the illusion that the notes and mortgages are in proper form, were properly executed, and contain true representations concerning the real parties in interest. Many theories have been advanced as to why the Federal Reserve and other agencies are colluding with the banks. I think the reason is because many layers of policies are based upon the false assumption that the origination of the loans complied with existing laws, rules and regulations. The federal reserve and other federal agencies would look pretty stupid if they had paid or advanced trillions of dollars for worthless notes and mortgages and worthless mortgage bonds.

It is highly probable that the reason why the real lenders (investors) have not pursued loss mitigation with homeowners directly is that they know the note and mortgage is unenforceable and they have said so in their lawsuits against the investment banks that sold them the bogus mortgage bonds. What they don’t fully appreciate is the fact that most homeowners would willingly give them a valid mortgage and note based upon the reality of the current market. But the intermediaries (servicers) are doing everything possible to prevent modification or successful mediation of claims; which of course results from those intermediaries falsely claiming to be owners of loans that were funded by investors and falsely claiming losses on those loans that were paid by insurance and credit defaults swaps. Those intermediaries are the leading Wall Street banks in this mortgage mess. As long as we include them in the process of resolving the mortgage meltdown, the problems will be compounded rather than cured.

http://www.huffingtonpost.com/2013/05/18/detroit-foreclosure-hearing-fannie-mae-freddie-mac_n_3293854.html

Fed Pours Huge Sums Into Foreign Bank Coffers
http://www.ritholtz.com/blog/2013/05/fed-pours-huge-sums-into-foreign-bank-coffers/

Nearly half of all US homeowners with a mortgage still ‘underwater’ in Q1
http://www.inman.com/2013/05/22/nearly-half-of-all-us-homeowners-with-a-mortgage-still-underwater-in-q1/

Foreclosure Victims Protesting Wall Street Impunity Outside DOJ Arrested, Tasered
http://www.truth-out.org/news/item/16527-victims-of-foreclosure-arrested-tasered-protesting-wall-street-impunity-outside-doj

Foreclosure Fraud Failures Come To A Head In Justice Dept. Protest
http://jdeanicite.typepad.com/i_cite/2013/05/foreclosure-fraud-failures-come-to-a-head-in-justice-dept-protest.html

Bank of America Zombie Foreclosure Protest (VIDEO)
http://4closurefraud.org/2013/05/22/bank-of-america-zombie-foreclosure-protest-video/

This is what it looks like when foreclosure fighters demand Wall Street criminals be prosecuted
http://www.youtube.com/watch?v=zvwaFJdr13Q

Chasing The Shadow Of Money
http://zerohedge.blogspot.ca/2009/05/chasing-shadow-of-money.html

OCC: 13 Questions to Answer Before Foreclosure and Eviction

13 Questions Before You Can Foreclose

foreclosure_standards_42013 — this one works for sure

If you are seeking legal representation or other services call our South Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. In Northern Florida and the Panhandle call 850-765-1236. 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.

SEE ALSO: http://WWW.LIVINGLIES-STORE.COM

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.

Editor’s Note: Some banks are slowing foreclosures and evictions. The reason is that the OCC issued a directive or letter of guidance that lays out in brief simplistic language what a party must do before they can foreclose. There can be little doubt that none of the banks are in compliance with this directive although Bank of America is clearly taking the position that they are in compliance or that it doesn’t matter whether they are in compliance or not.

In April the OCC, responding to pressure from virtually everyone, issued a guidance letter to financial institutions who are part of the foreclosure process. While not a rule a regulation, it is an interpretation of the Agency’s own rules and regulation and therefore, in my opinion, is both persuasive and authoritative.

These 13 questions published by OCC should be used defensively if you suspect violation and they are rightfully the subject of discovery. Use the wording from the letter rather than your own — since the attorneys for the banks will pounce on any nuance that appears to be different than this guidance issued to the banks.

The first question relates to whether there is a real default and what steps the foreclosing party has taken to assure itself and the court that the default is real. Remember that the fact that the borrower stopped paying is not a default if no payment was due. And there is no default if it is cured by payment from ANYONE after the declaration of default. Thus when the subservicer continues making payments to the “Creditor” the borrower’s default is cured although a new liability could arise (unsecured) as a result of the sub servicer making those payments without receiving payment from the borrower.

The point here is the money. Either there is a balance or there is not. Either the balance is as stated by the forecloser or it is not. Either there is money due from the borrower to the servicer and the real creditor or there is not. This takes an accounting that goes much further than merely a printout of the borrower’s payment history.

It takes an in depth accounting to determine where the money came from continue the payments when the borrower was not making payments. It takes an in depth accounting to determine if the creditor still exists or whether there is an successor. And it takes an in depth accounting to determine how much money was received from insurance and credit default swaps that should have been applied properly thus reducing both the loan receivable and loan payable.

This means getting all the information from the “trustee” of the REMIC, copies of the trust account and distribution reports, copies of canceled checks and wire transfer receipts to determine payment, risk of loss and the reality of whether there was a loss.

It also means getting the same information from the investment banker who did the underwriting of the bogus mortgage bonds, the Master Servicer, and anyone else in the securitization chain that might have disbursed or received funds in connection with the subject loan or the asset pool claiming an interest in the subject loan, or the owners of mortgage bonds issued by that asset pool.

If the OCC wants it then you should want it for your clients. Get the answers and don’t assume that because the borrower stopped making payments that any default occurred or that it wasn’t cured. Then go on to the other questions with the same careful analysis.

http://www.businessweek.com/news/2013-05-17/wells-fargo-postpones-some-foreclosure-sales-after-occ-guidance

/http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/correcting-foreclosure-practices.html

Hawaii Federal District Court Applies Rules of Evidence: BONY/Mellon, US Bank, JP Morgan Chase Failed to Prove Sale of Note

This quiet title claim against U.S. Bank and BONY (collectively, “Defendants”) is based on the assertion that Defendants have no interest in the Plaintiffs’ mortgage loan, yet have nonetheless sought to foreclose on the subject property.

Currently before the court is Defendants’ Motion for Summary Judgment, arguing that Plaintiffs’ quiet title claim fails because there is no genuine issue of material fact that Plaintiffs’ loan was sold into a public security managed by BONY, and Plaintiffs cannot tender the loan proceeds. Based on the following, the court finds that because Defendants have not established that the mortgage loans were sold into a public security involving Defendants, the court DENIES Defendants’ Motion for Summary Judgment.

Editor’s Note: We will be commenting on this case for the rest of the week in addition to bringing you other news. Suffice it to say that the Court corroborates the essential premises of this blog, to wit:

1. Quiet title claims should not be dismissed. They should be heard and decided based upon the facts admitted into evidence.
2. Presumptions are not to be used in lieu of evidence where the opposing party has denied the underlying facts and the conclusion expressed in the presumption. In other words, a presumption cannot be used to lead to a result that is contrary to the facts.
3. Being a “holder” is a a conclusion of law created by certain presumptions. It is not a plain statement of ultimate facts. If a party wishes to assert holder or holder in due course status they must plead and prove the facts supporting that legal conclusion.
4. A sale of the note does not occur without proof under simple contract doctrine. There must be an offer, acceptance and consideration. Without the consideration there is no sale and any presumption arising out of the allegation that a party is a holder or that the loan was sold fails on its face.
5. Self serving letters announcing authority to represent investors are insufficient in establishing a foundation for testimony or other proof that the actor was indeed authorized. A competent witness must provide the factual testimony to provide a foundation for introduction of a binding legal document showing authority and even then the opposing party may challenge the execution or creation of such instruments.
6. [Tactical conclusion: opposing motion for summary judgment should be filed with an affidavit alleging the necessary facts when the pretender lender files its motion for summary judgment. If the pretender's affidavit is struck down and/or their motion for summary judgment is denied, they have probably created a procedural void where the Judge has no choice but to grant summary judgment to homeowner.]
7. “When considering the evidence on a motion for summary judgment, the court must draw all reasonable inferences on behalf of the nonmoving party. Matsushita Elec. Indus. Co., 475 U.S. at 587.” See case below
8. “a plaintiff asserting a quiet title claim must establish his superior title by showing the strength of his title as opposed to merely attacking the title of the defendant.” {Tactical: by admitting the note, mortgage. debt and default, and then attacking the title chain of the foreclosing party you have NOT established the elements for quiet title. THAT is why we have been pounding on the strategy that makes sense: DENY and DISCOVER: Lawyers take note. Just because you think you know what is going on doesn’t mean you do. Advice given under the presumption that the debt is genuine when that is in fact a mistake of the homeowner which you are compounding with your advice. Why assume the debt, note , mortgage and default are genuine when you really don’t know? Why would you admit that?}
9. It is both wise and necessary to deny the debt, note, mortgage, and default as to the party attempting to foreclose. Don’t try to prove your case in your pleading. Each additional “explanatory” allegation paints you into a corner. Pleading requires a short plain statement of ultimate facts upon which relief could be legally granted.
10. A denial of signature on a document that is indisputably signed will be considered frivolous. [However an allegation that the document is not an original and/or that the signature was procured by fraud or mistake is not frivolous. Coupled with allegation that the named lender did not loan the money at all and that in fact the homeowner never received any money from the lender named on the note, you establish that the deal was sign the note and we'll give you money. You signed the note, but they didn't give you the money. Therefore those documents may not be used against you. ]

MELVIN KEAKAKU AMINA and DONNA MAE AMINA, Husband and Wife, Plaintiffs,
v.
THE BANK OF NEW YORK MELLON, FKA THE BANK OF NEW YORK; U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR J.P. MORGAN MORTGAGE ACQUISITION TRUST 2006-WMC2, ASSET BACKED PASS-THROUGH CERTIFICATES, SERIES 2006-WMC2 Defendants.
Civil No. 11-00714 JMS/BMK.

United States District Court, D. Hawaii.
ORDER DENYING DEFENDANTS THE BANK OF NEW YORK MELLON, FKA THE BANK OF NEW YORK AND U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR J.P. MORGAN MORTGAGE ACQUISITION TRUST 2006-WMC2, ASSET BACKED PASS-THROUGH CERTIFICATES, SERIES 2006-WMC2′S MOTION FOR SUMMARY JUDGMENT
J. MICHAEL SEABRIGHT, District Judge.
I. INTRODUCTION

This is Plaintiffs Melvin Keakaku Amina and Donna Mae Amina’s (“Plaintiffs”) second action filed in this court concerning a mortgage transaction and alleged subsequent threatened foreclosure of real property located at 2304 Metcalf Street #2, Honolulu, Hawaii 96822 (the “subject property”). Late in Plaintiffs’ first action, Amina et al. v. WMC Mortgage Corp. et al., Civ. No. 10-00165 JMS-KSC (“Plaintiffs’ First Action”), Plaintiffs sought to substitute The Bank of New York Mellon, FKA the Bank of New York (“BONY”) on the basis that one of the defendants’ counsel asserted that BONY owned the mortgage loans. After the court denied Plaintiffs’ motion to substitute, Plaintiffs brought this action alleging a single claim to quiet title against BONY. Plaintiffs have since filed a Verified Second Amended Complaint (“SAC”), adding as a Defendant U.S. Bank National Association, as Trustee for J.P. Morgan Mortgage Acquisition Trust 2006-WMC2, Asset Backed Pass-through Certificates, Series 2006-WMC2 (“U.S. Bank”). This quiet title claim against U.S. Bank and BONY (collectively, “Defendants”) is based on the assertion that Defendants have no interest in the Plaintiffs’ mortgage loan, yet have nonetheless sought to foreclose on the subject property.

Currently before the court is Defendants’ Motion for Summary Judgment, arguing that Plaintiffs’ quiet title claim fails because there is no genuine issue of material fact that Plaintiffs’ loan was sold into a public security managed by BONY, and Plaintiffs cannot tender the loan proceeds. Based on the following, the court finds that because Defendants have not established that the mortgage loans were sold into a public security involving Defendants, the court DENIES Defendants’ Motion for Summary Judgment.

II. BACKGROUND

A. Factual Background
Plaintiffs own the subject property. See Doc. No. 60, SAC ¶ 17. On February 24, 2006, Plaintiffs obtained two mortgage loans from WMC Mortgage Corp. (“WMC”) — one for $880,000, and another for $220,000, both secured by the subject property.See Doc. Nos. 68-6-68-8, Defs.’ Exs. E-G.^[1]

In Plaintiffs’ First Action, it was undisputed that WMC no longer held the mortgage loans. Defendants assert that the mortgage loans were sold into a public security managed by BONY, and that Chase is the servicer of the loan and is authorized by the security to handle any concerns on BONY’s behalf. See Doc. No. 68, Defs.’ Concise Statement of Facts (“CSF”) ¶ 7. Defendants further assert that the Pooling and Service Agreement (“PSA”) dated June 1, 2006 (of which Plaintiffs’ mortgage loan is allegedly a part) grants Chase the authority to institute foreclosure proceedings. Id. ¶ 8.

In a February 3, 2010 letter, Chase informed Plaintiffs that they are in default on their mortgage and that failure to cure default will result in Chase commencing foreclosure proceedings. Doc. No. 68-13, Defs.’ Ex. L. Plaintiffs also received a March 2, 2011 letter from Chase stating that the mortgage loan “was sold to a public security managed by [BONY] and may include a number of investors. As the servicer of your loan, Chase is authorized by the security to handle any related concerns on their behalf.” Doc. No. 68-11, Defs.’ Ex. J.

On October 19, 2012, Derek Wong of RCO Hawaii, L.L.L.C., attorney for U.S. Bank, submitted a proof of claim in case number 12-00079 in the U.S. Bankruptcy Court, District of Hawaii, involving Melvin Amina. Doc. No. 68-14, Defs.’ Ex. M.

Plaintiffs stopped making payments on the mortgage loans in late 2008 or 2009, have not paid off the loans, and cannot tender all of the amounts due under the mortgage loans. See Doc. No. 68-5, Defs.’ Ex. D at 48, 49, 55-60; Doc. No. 68-6, Defs.’ Ex. E at 29-32.

>B. Procedural Background
>Plaintiffs filed this action against BONY on November 28, 2011, filed their First Amended Complaint on June 5, 2012, and filed their SAC adding U.S. Bank as a Defendant on October 19, 2012.

On December 13, 2012, Defendants filed their Motion for Summary Judgment. Plaintiffs filed an Opposition on February 28, 2013, and Defendants filed a Reply on March 4, 2013. A hearing was held on March 4, 2013.
At the March 4, 2013 hearing, the court raised the fact that Defendants failed to present any evidence establishing ownership of the mortgage loan. Upon Defendants’ request, the court granted Defendants additional time to file a supplemental brief.^[2] On April 1, 2013, Defendants filed their supplemental brief, stating that they were unable to gather evidence establishing ownership of the mortgage loan within the time allotted. Doc. No. 93.

III. STANDARD OF REVIEW

Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The burden initially lies with the moving party to show that there is no genuine issue of material fact. See Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007) (citing Celotex, 477 U.S. at 323). If the moving party carries its burden, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material facts [and] come forwards with specific facts showing that there is a genuine issue for trial.“ Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586-87 (1986) (citation and internal quotation signals omitted).

An issue is `genuine’ only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is `material’ only if it could affect the outcome of the suit under the governing law.” In re Barboza,545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). When considering the evidence on a motion for summary judgment, the court must draw all reasonable inferences on behalf of the nonmoving party. Matsushita Elec. Indus. Co., 475 U.S. at 587.

IV. DISCUSSION

As the court previously explained in its August 9, 2012 Order Denying BONY’s Motion to Dismiss Verified Amended Complaint, see Amina v. Bank of New York Mellon,2012 WL 3283513 (D. Haw. Aug. 9, 2012), a plaintiff asserting a quiet title claim must establish his superior title by showing the strength of his title as opposed to merely attacking the title of the defendant. This axiom applies in the numerous cases in which this court has dismissed quiet title claims that are based on allegations that a mortgagee cannot foreclose where it has not established that it holds the note, or because securitization of the mortgage loan was defective. In such cases, this court has held that to maintain a quiet title claim against a mortgagee, a borrower must establish his superior title by alleging an ability to tender the loan proceeds.^[3]

This action differs from these other quiet title actions brought by mortgagors seeking to stave off foreclosure by the mortgagee. As alleged in Plaintiffs’ pleadings, this is not a case where Plaintiffs assert that Defendants’ mortgagee status is invalid (for example, because the mortgage loan was securitized, Defendants do not hold the note, or MERS lacked authority to assign the mortgage loans). See id. at *5. Rather, Plaintiffs assert that Defendants are not mortgagees whatsoever and that there is no record evidence of any assignment of the mortgage loan to Defendants.^[4] See Doc. No. 58, SAC ¶¶ 1-4, 6, 13-1 — 13-3.

In support of their Motion for Summary Judgment, Defendants assert that Plaintiffs’ mortgage loan was sold into a public security which is managed by BONY and which U.S. Bank is the trustee. To establish this fact, Defendants cite to the March 2, 2011 letter from Chase to Plaintiffs asserting that “[y]our loan was sold to a public security managed by The Bank of New York and may include a number of investors. As the servicer of your loan, Chase is authorized to handle any related concerns on their behalf.” See Doc. No. 68-11, Defs.’ Ex. J. Defendants also present the PSA naming U.S. Bank as trustee. See Doc. No. 68-12, Defs.’ Ex. J. Contrary to Defendants’ argument, the letter does not establish that Plaintiffs’ mortgage loan was sold into a public security, much less a public security managed by BONY and for which U.S. Bank is the trustee. Nor does the PSA establish that it governs Plaintiffs’ mortgage loans. As a result, Defendants have failed to carry their initial burden on summary judgment of showing that there is no genuine issue of material fact that Defendants may foreclose on the subject property. Indeed, Defendants admit as much in their Supplemental Brief — they concede that they were unable to present evidence that Defendants have an interest in the mortgage loans by the supplemental briefing deadline. See Doc. No. 93.

Defendants also argue that Plaintiffs’ claim fails as to BONY because BONY never claimed an interest in the subject property on its own behalf. Rather, the March 2, 2011 letter provides that BONY is only managing the security. See Doc. No. 67-1, Defs.’ Mot. at 21. At this time, the court rejects this argument — the March 2, 2011 letter does not identify who owns the public security into which the mortgage loan was allegedly sold, and BONY is the only entity identified as responsible for the public security. As a result, Plaintiffs’ quiet title claim against BONY is not unsubstantiated.

V. CONCLUSION

Based on the above, the court DENIES Defendants’ Motion for Summary Judgment.

IT IS SO ORDERED.

[1] In their Opposition, Plaintiffs object to Defendants’ exhibits on the basis that the sponsoring declarant lacks and/or fails to establish the basis of personal knowledge of the exhibits. See Doc. No. 80, Pls.’ Opp’n at 3-4. Because Defendants have failed to carry their burden on summary judgment regardless of the admissibility of their exhibits, the court need not resolve these objections.

Plaintiffs also apparently dispute whether they signed the mortgage loans. See Doc. No. 80, Pls.’ Opp’n at 7-8. This objection appears to be wholly frivolous — Plaintiffs have previously admitted that they took out the mortgage loans. The court need not, however, engage Plaintiffs’ new assertions to determine the Motion for Summary Judgment.

[2] On March 22, 2013, Plaintiffs filed an “Objection to [87] Order Allowing Defendants to File Supplemental Brief for their Motion for Summary Judgment.” Doc. No. 90. In light of Defendants’ Supplemental Brief stating that they were unable to provide evidence at this time and this Order, the court DEEMS MOOT this Objection.

[3] See, e.g., Fed Nat’l Mortg. Ass’n v. Kamakau, 2012 WL 622169, at *9 (D. Haw. Feb. 23, 2012);Lindsey v. Meridias Cap., Inc., 2012 WL 488282, at *9 (D. Haw. Feb. 14, 2012); Menashe v. Bank of N.Y., ___ F. Supp. 2d ___, 2012 WL 397437, at *19 (D. Haw. Feb. 6, 2012); Teaupa v. U.S. Nat’l Bank N.A., 836 F. Supp. 2d 1083, 1103 (D. Haw. 2011); Abubo v. Bank of N.Y. Mellon, 2011 WL 6011787, at *5 (D. Haw. Nov. 30, 2011); Long v. Deutsche Bank Nat’l Tr. Co., 2011 WL 5079586, at *11 (D. Haw. Oct. 24, 2011).

[4] Although the SAC also includes some allegations asserting that the mortgage loan could not be part of the PSA given its closing date, Doc. No. 60, SAC ¶ 13-4, and that MERS could not legally assign the mortgage loans, id. ¶ 13-9, the overall thrust of Plaintiffs’ claims appears to be that Defendants are not the mortgagees (as opposed to that Defendants’ mortgagee status is defective). Indeed, Plaintiffs agreed with the court’s characterization of their claim that they are asserting that Defendants “have no more interest in this mortgage than some guy off the street does.” See Doc. No. 88, Tr. at 9-10. Because Defendants fail to establish a basis for their right to foreclose, the court does not address the viability of Plaintiffs’ claims if and when Defendants establish mortgagee status.

Winning Cases Against the Mega Banks

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.

Editor’s  Comment: It is hard to interpret what people mean when they say they are winning cases. In the example below the case is oversimplified. Wells Fargo, as usual, wanted to foreclose on the home of an 80-year-old woman regardless of whether she was in default or not. Her main defense was simply that she was never in default. Wells Fargo took the position that the payments they accepted could be allocated towards expenses of the foreclosure, which never should’ve happened in the first place.

It was quite clear that the homeowner had made all of her payments. It was quite clear that Wells Fargo had not applied the payments properly. And after three years of litigation, during which most people would have folded, judgment was entered in favor of the borrower and against Wells Fargo.

No big surprise except for the persistence of the homeowner in fighting off a big bad bank despite dwindling resources and a gaggle of people who were treating her as a leper because she was a deadbeat who didn’t pay her bills and was trying to get out of a legitimate debt.

Of course as it turns out, she was neither a deadbeat nor was she trying to get out of the debt even though it probably is not a legitimate debt and Wells Fargo is most probably not a legitimate creditor in relation to this homeowner.

I am happy that this woman got what she wanted. But some questions that linger on include why Wells Fargo failed to do the proper accounting to bring her loan account up-to-date? Why did Wells Fargo want that foreclosure regardless of whether she was in default or not? And what other payments received from third parties in the form of insurance or credit default swaps were not applied to the appropriate receivable account on the books of the real creditor?

My opinion is that in all probability there is still plenty of meat left on the bone. This homeowner  probably has several causes of action for slander of title, breach of contract, probably fraud, and abuse of process,  just to name a few.

And another thought comes to mind: would the result  or the timing have been different if the roles were  reversed? This particular case is so obvious as to whether or not money was actually paid and received that it is difficult to comprehend how it could possibly have stretched out to three years.

The only way I can think of is that the judge had a preconception of the relationship of the parties and assumed that the debt was real and was in default instead of forcing Wells Fargo to immediately prove lack of payment and their status as the real creditor. For those who complain that the courts are jammed up with foreclosure lawsuits, this case is instructive as to why that is happening.

If judges would simply take each case on its own merits and require each party to actually prove their position rather than rely on dubious and rebuttable presumptions, most of the foreclosures wouldn’t be filed and those that ended up in litigation would be over in just a few months.

 The bottleneck in the court systems across the country is not caused by volume. It is caused by bias. Judges assume that a big-name bank with 150 year old reputation on the line would never make a claim they couldn’t back up. If judges would stop making that assumption and require the backup at the beginning of the litigation the bottleneck would vanish.

Oregon Woman Wins 3-Year Fight Against Wells Fargo Foreclosure
http://abcnews.go.com/blogs/business/2013/04/oregon-woman-wins-3-year-fight-against-wells-fargo-foreclosure/

 

Bill Butler, Esq. In Minnesota Nails It!

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.

Editor’s Comment: Like a breath of fresh air, I received Bill’s email and I encourage anyone in Minnesota to seek him out. He totally gets it , explains it, and understands it. Here is the beginning of the attached article:

BEWARE: USING THE FOUR-LETTER WORD “NOTE” IN MINNESOTA FEDERAL DISTRICT COURT MAY COST YOU $337,603.08

The Butler Liberty Law firm has commenced 27 lawsuits involving 197 plaintiffs challenging the mortgage foreclosure rights of the October 2008 Bailout Banks holding “securitized” mortgages. The plaintiffs’ claims in all of these cases is based on a “quiet title” cause of action.

Quiet title law allows a person in possession of real property (or a person asserting a title interest in vacant property) to bring suit against someone claiming a lien or other interest in real property. A successful quiet title action results in a court “quieting” title to the real property; that is, resolving the claims and interests of the parties and removing and/or voiding any invalid liens or claims.

In 1995 I tried and won the only case I am aware of that resulted in the voiding of two securitized mortgages. In that case, First National Bank of Elk River v. Independent Mortgage Services, 1996 WL 229236 (Minn. Ct. App. No. DX-95- 1919) (FNBER v. IMS), I represented a bank against a mortgage loan securitizer who was claiming rights in a mortgage without having possession of the homeowner’s promissory note and without having ever advanced any funds to the homeowner. As indicated in the decision above, my bank client won the battle of the putative mortgagees because my client was able to produce the original promissory notes with endorsements that clearly indicated that the defendant securitizer and pretender mortgagee had no right, title or interest in the notes.

A note is a promise to pay. A mortgage is security for that promise to pay. No note = no mortgage. The rubber meets the road reality of FNBER v. IMS clearly illustrates this ancient legal principle.

BEWARE Article by Bill Butler

W VA Court Says Directions to Stop Making Payments and Refusing to Apply Payments is Breach of Contract

BANK OF AMERICA TAKES ANOTHER HIT:

BANKS MISLEAD BORROWERS WHEN THEY INSTRUCT THEM TO STOP MAKING PAYMENTS AND REFUSE PAYMENTS

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.

Editor’s Note: We’ve all heard it a million times. “The bank told me to stop making payments in order to get modification or other relief.” It was a blatant lie and it was intended to get the borrower in so deep they couldn’t get out, leading inevitably to foreclosure.

Why would the “bank” want foreclosure? Because they took far more money from investors than they used to fund loans. If the deal fails and dissolves into foreclosure the investors are less likely to probe deeply into the transaction to find out what really happened. The fact is that the banks were all skimming off the top taking as much as 50% f the money from investors and sticking it in their own pockets, using it to gamble and keeping the proceeds of gambling.

If the banks really went the usual route of workouts, deed in lieu, modifications and other relief to borrowers, there would be an accounting night mare for them as eventually the auditing the firms would pick up on the fact that the investment banks were taking far more money than was actually intended to be used for investing in mortgages.

They covered it up by creating the illusion of a mortgage closing in which the named payee on the note and security instrument were neither lenders nor creditors and eventually they assigned the loan to a REMIC trust that had neither received the loan nor paid for it.

In this case the Court takes the bank to task for both lying to the borrower about how much better off they would be if they stopped making payments, thus creating a default or exacerbating it, and the refusal of the bank to accept payments from the borrower. It is a simple breach of contract action and the Court finds that there is merit to the claim, allowing the borrower to prove their case in court.

Another way of looking at this is that if everyone had paid off their mortgages in full, there would still be around $3 trillion owed to the investors representing the tier 2 yield spread premium that the banks skimmed off the top plus the unconscionable fees and costs charged to the accounts.  Where did that money go? See the previous post

This well-reasoned well written opinion discusses the case in depth and represents a treasure trove of potential causes of action and credibility to borrowers’ defenses to foreclosure claims.

 

2013 U.S. Dist. LEXIS 35320, * MOTION TO DISMISS DENIED

JASON RANSON, Plaintiff, v. BANK OF AMERICA, N.A., Defendant.
CIVIL ACTION NO. 3:12-5616
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA, HUNTINGTON DIVISION
2013 U.S. Dist. LEXIS 35320

March 14, 2013, Decided
March 14, 2013, Filed 

CORE TERMS:modification, foreclosure, borrower, citations omitted, mitigation, misrepresentation, servicer, consumer, lender, cause of action, contractual, guaranteed, mortgage, estoppel, contract claim, default, special relationship, reinstatement, collection, quotation, breached, notice, factual allegations, breach of contract, force and effect, indebtedness, thereunder, foreclose, veteran’s, manual

COUNSEL: [*1] For Jason Ranson, Plaintiff: Daniel F. Hedges 1, Jennifer S. Wagner, LEAD ATTORNEYS, MOUNTAIN STATE JUSTICE, INC., Charleston, WV.

For Bank of America, N.A., Defendant: Carrie Goodwin Fenwick, Victoria L. Wilson, LEAD ATTORNEYS, GOODWIN & GOODWIN, Charleston, WV.

JUDGES: ROBERT C. CHAMBERS, CHIEF UNITED STATES DISTRICT JUDGE.

OPINION BY: ROBERT C. CHAMBERS

OPINION

MEMORANDUM OPINION AND ORDER

Pending before the Court is a Motion to Dismiss by Defendant Bank of America, N.A. (BANA). ECF No. 4. Plaintiff Jason Ranson opposes the motion. For the following reasons, the Court DENIES, in part, and GRANTS, in part, Defendant’s motion.

I.

FACTUAL AND PROCEDURAL HISTORY

On September 19, 2012, Defendant removed this action from the Circuit Court of Putnam County based upon diversity of jurisdiction. See 28 U.S.C. §§ 1332 and 1441. In his Complaint, Plaintiff asserts that he took out a mortgagewith Countrywide Home Loans, Inc. to purchase a house in 2007. The loan was originated pursuant to the Department of Veterans Affairs (VA) Home Loan Guaranty Program. Plaintiff alleges the loan “contained a contractual guarantee by the . . . (VA), which requires—as incorporated into the contract—that Defendant comply with regulations and [*2] laws governing VA guaranteed loans, including those regulations governing Defendant’s actions in the event of the borrower’s default” as he was, and continues to be, on active duty with the United States Army. Compl. at ¶5, in part. Defendant is the current servicer and holder of the loan.

In 2009, Plaintiff became two months behind on the loan. Plaintiff asserts that Defendant informed him he was eligible for a loan modification and requested he submit certain documentation to have the modification finalized. Plaintiff claims that Defendant also told him to stop making any payments as they would interfere with the finalization process. Plaintiff states he had the means to make the two delinquent payments at that time or he could have sought refinancing or taken other actions to save his house and credit. However, he relied upon Defendant’s statements and stopped making payments, pending its assurance that he was eligible for a modification. In fact, Plaintiff states that Defendant returned his last payment without applying it to his account.

Over the next several months, Plaintiff asserts he repeatedly submitted the documentation requested by Defendant for the modification process. [*3] Plaintiff also contacted Defendant on a weekly basis for updates. Plaintiff claims he was assured by Defendant it would not foreclose, and Defendant discouraged him from calling by stating it would delay finalization of the modification. Approximately eight months after the process began, Plaintiff contends that Defendant informed him the loan would not be modified because VA loans do not qualify for assistance. According to Plaintiff, Defendant nevertheless requested that he submit documentation for another modification. Plaintiff states he complied with the request but, approximately six months later, Defendant again told him the modification was denied because he had a VA loan. Defendant further told him he should vacate the property because it was going to foreclose. Plaintiff asserts he asked Defendant if he could short sell the house, but Defendant said no and stated the only way he could save his house would be by full reinstatement. As fourteen months had passed since he was told to stop making payments, Plaintiff states that he could not afford to pay the full amount owed.

As a result of these alleged activities, Plaintiff filed this action, alleging five counts of action. [*4] Count I is for breach of contract, Count II is for negligence, Count III is for fraud, Count IV is for estoppel, and Count V is for illegal debt collection. Defendant now moves to dismiss each of the counts.

II.

STANDARD OF REVIEW

In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the United States Supreme Court disavowed the “no set of facts” language found in Conley v. Gibson, 355 U.S. 41 (1957), which was long used to evaluate complaints subject to 12(b)(6) motions. 550 U.S. at 563. In its place, courts must now look for “plausibility” in the complaint. This standard requires a plaintiff to set forth the “grounds” for an “entitle[ment] to relief” that is more than mere “labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. at 555(internal quotation marks and citations omitted). Accepting the factual allegations in the complaint as true (even when doubtful), the allegations “must be enough to raise a right to relief above the speculative level . . . .” Id. (citations omitted). If the allegations in the complaint, assuming their truth, do “not raise a claim of entitlement to relief, this basic deficiency should . . .be exposed [*5] at the point of minimum expenditure of time and money by the parties and the court.” Id. at 558 (internal quotation marks and citations omitted).

In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court explained the requirements of Rule 8 and the “plausibility standard” in more detail. In Iqbal, the Supreme Court reiterated that Rule 8 does not demand “detailed factual allegations[.]” 556 U.S. at 678(internal quotation marks and citations omitted). However, a mere “unadorned, the-defendant-unlawfully-

harmed-me accusation” is insufficient. Id. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting Twombly, 550 U.S. at 570). Facial plausibility exists when a claim contains “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted). The Supreme Court continued by explaining that, although factual allegations in a complaint must be accepted as true for purposes of a motion to dismiss, this tenet does not apply to legal conclusions. Id. “Threadbare recitals of the elements [*6] of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citation omitted). Whether a plausible claim is stated in a complaint requires a court to conduct a context-specific analysis, drawing upon the court’s own judicial experience and common sense. Id. at 679. If the court finds from its analysis that “the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]‘-’that the pleader is entitled to relief.’” Id. (quoting, in part, Fed. R. Civ. P. 8(a)(2)). The Supreme Court further articulated that “a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Id.

III.

DISCUSSION

A.

Breach of Contract

In Count I, Plaintiff alleges that the Deed of Trust and the VA Guaranteed Loan and Assumption Policy Rider provide that “Defendant’s rights upon the borrower’s default are limited by Title 38 of the United States Code and any regulations issued thereunder.” [*7] Compl., at ¶22. According to Plaintiff, the contract also provides that Defendant must apply all payments to his account. Plaintiff asserts Defendant breached the contract by (1) discouraging him from making payments, (2) returning his payments, (3) allowing the accumulation of arrears until it was impossible for him to reinstate the loan, (4) initiating foreclosure and failing to grant a modification after assuring him it would be granted, and (5) “failing to comply with VA regulations and guidance requiring, inter alia, that the Defendants [sic] consider Plaintiff for a variety [of] loss mitigation options, and provide notice of such rejection(s) in writing, prior to foreclosure.” Id. at ¶24(d).

To avoid dismissal of a breach of contract claim under Rule 12(b)(6), West Virginia law requires: “the existence of a valid, enforceable contract; that the plaintiff has performed under the contract; that the defendant has breached or violated its duties or obligations under the contract; and that the plaintiff has been injured as a result.” Executive Risk Indem., Inc. v. Charleston Area Med. Ctr., Inc., 681 F. Supp.2d 694, 714 (S.D. W. Va. 2009) (citations omitted). For a claim of breach [*8] of contract to be sufficient, “a plaintiff must allege in his complaint ‘the breach on which the plaintiffs found their action . . . [and] the facts and circumstances which entitle them to damages.’” Id. In this case, Defendant argues Plaintiff has failed to sufficiently allege a breach of contract because he has not specified what specific VA regulations purportedly were violated and, in any event, the regulations only require the foreclosure be conducted in accordance to West Virginia law. As Defendant maintains it complied with the West Virginia law, Defendant asserts it has not breached the contract.

Plaintiff does not dispute that neither the contracts nor West Virginia law require a loan modification. However, Plaintiff argues that the VA has promulgated regulations to limit foreclosures of loans it has guaranteed and Defendant did not comply with those requirements. Plaintiff quotes from the VA Guaranteed Loan and Assumption Policy Rider, which provides, in part:

If the indebtedness secured hereby be guaranteed or insured under Title 38, United States Code, such Title and Regulations issued thereunder and in effect on the date hereof shall govern the rights, duties and liabilities [*9] of Borrower and Lender. Any provisions of the Security Instrument or other instruments executed in connection with said indebtedness which are inconsistent with said Title or Regulations, including, but not limited to, the provision for payment of any sum in connection with prepayment of the secured indebtedness and the provision that the Lender may accelerate payment of the secured indebtedness pursuant to Covenant 18 of the Security Instrument, are hereby amended or negated to the extent necessary to confirm such instruments to said Title or Regulations.

VA Guar. Loan and Assumption Policy Rider, at 2, ECF No. 4-1, at 15. Specifically, Plaintiff cites 38 U.S.C. § 36.4350(f), (g), and (h), which requires, inter alia, Defendant to send Plaintiff a letter outlining his loss mitigation options after he fell behind on his payments and, under certain circumstances, have a face-to-face meeting with Plaintiff. Likewise, 38 C.F.R. § 36.4319 provides incentives to servicers to engage in loss mitigation options in lieu of foreclosure, and 38 C.F.R. § 36.4315expressly allows a loan modification under certain circumstances if it is in veteran’s and the Government’s best interest. Plaintiff also [*10] cites a Servicer Guide for VA guaranteed loans, which contains similar loss mitigation considerations. ¹ Plaintiff states that all these requirements are incorporated into the contract, and Defendant violated the contract by stating he could not receive a loan modification because he had a VA loan; by telling him to stop making payments rather than placing him on a repayment plan; by not timely evaluating the loan and considering him for loss mitigation and, instead, placing him in foreclosure; and by refusing to allow Plaintiff to apply for a compromise sale because Defendant had started foreclosure. Moreover, Plaintiff asserts Defendant violated his right to reinstate and failed to exercise its discretion in good faith by refusing his payment; telling him to stop making payments; informing he was qualified for loan modification, and then denying the modification; providing him conflicting, inconsistent, and inaccurate information about his account; refusing to consider a short sale; and never providing him a written explanation of why loss mitigation was denied.

FOOTNOTES

1 U.S. Dept. of Veterans Affairs, VA Servicer Guide 6 (July 2009), available at http:www.benefits.va.gov/homeloans/docs/va_servicer_guide.pdf.

Defendant [*11] responds by asserting that the VA regulations and the handbook are permissive in nature, not mandatory, and the VA Servicer Guide is not binding. See VA Servicer Guide, at 4 (“This manual does not change or supersede any regulation or law affecting the VA Home Loan Program. If there appears to be a discrepancy, please refer to the related regulation or law.”); see also 38 C.F.R. § 36.4315(c)(stating “[t]his section does not create a right of a borrower to have a loan modified, but simply authorizes the loan holder to modify a loan in certain situations without the prior approval of the Secretary” 38 U.S.C. § 36.4315(c)). Thus, Defendant argues they establish no affirmative duty for it to act. In support of its position, Defendant cites several older cases which held certain regulations issued by the VA and other governmental agencies do not have the force and effect of law. ²

FOOTNOTES

2 See First Family Mortg. Corp. of Fl. v. Earnest, 851 F.2d 843, 844-45 (6th Cir. 1988)(finding that mortgagors could not state a cause of action based on VA publications against the VA for allegedly failing to monitor lender servicing of VA-backed loans); Bright v. Nimmo, 756 F.2d 1513, 1516 (11th Cir. 1985) [*12] (rejecting the plaintiff’s argument that he has an implied cause of action against the VA or lender based upon the VA’s manual and guidelines); United States v. Harvey, 659 F.2d 62, 65 (5th Cir. 1981)(finding that the VA manual did not have the force and effect of law by itself and it was not incorporated into the promissory notes or deeds to support a contract claim); Gatter v. Cleland, 512 F. Supp. 207, 212 (E.D. Pa. 1981)(holding “that the decision to implement a formal refunding program is one that squarely falls within the committed to agency discretion exception [of the VA] and is not subject to judicial review” (footnote omitted)); and Pueblo Neighborhood Health Ctrs., Inc. v. U.S. Dep’t of Health and Human Serv., 720 F.2d 622, 625 (10th Cir. 1983)(finding a pamphlet issued by the Department of Health and Human Services, referred to as a Grant Application Manual, was not the product of formal rule-making and did not have the force and effect of law).

However, upon review of those cases, the Court finds that they generally involve situations in which the plaintiffs were attempting to assert a cause of action based upon the regulation itself, rather than as a breach of contract [*13] claim. An action based on a contract involves a much different legal theory than one based solely on enforcement of a regulation apart from a contractual duty. Indeed, Plaintiff cites a number of comparable mortgagecases in which courts permitted homeowners to pursue claims against lenders based upon regulations issued by the Federal Housing Authority (FHA) where it was alleged that the parties contractually agreed to comply with those regulations. As explained by the Court in Mullins v. GMAC Mortg., LLC, No. 1:09-cv-00704, 2011 WL 1298777, **2-3 (S.D. W. Va. Mar. 31, 2011), plaintiffs, who allege a straightforward breach of contact claim, “are not, as defendants would have the court believe, suing to enforce HUD regulations under some vague and likely non-existent cause of action allowing a member of the public to take upon himself the role of regulatory enforcer. These two theories of recovery are distinct and unrelated,” and the Court held the plaintiffs could proceed on their express breach of contract claim. 2011 WL 1298777, *3. ³Upon review, this Court is persuaded that the same reasoning controls here. Therefore, the Court will not dismiss Plaintiff’s contract claim based [*14] upon Defendant’s argument that the regulations and handbook do not have full force and effect of law because Plaintiff has alleged the contract incorporates the limitations set by the regulations. See Compl., at ¶22 (“The contract provides that Defendant’s rights upon the borrower’s default are limited by Title 38 of the United States Code and any regulations issued thereunder.”).

FOOTNOTES

3 See also Kersey v. PHH Mortg. Corp., 682 F. Supp.2d 588, 596-97 (E.D. Va. 2010), vacated on other grounds, 2010 WL 3222262 (E.D. Va. Aug. 13, 2010) (finding, in part, that the plaintiff sufficiently alleged a claim that the defendant breached an FHA regulation which was incorporated in a Deed of Trust); Sinclair v. Donovan, Nos. 1:11-CV-00010, 1:11-CV-00079, 2011 WL 5326093, *8 (S.D. Ohio Nov. 4, 2011) (“find[ing] that the HUD-FHA regulations concerning loss mitigation are enforceable terms of the mortgagecontract between the parties and that Plaintiffs cannot be denied the benefit of these provisions by virtue of the fact of simple default”); and Baker v. Countrywide Home Loans, Inc., 3:08-CV-0916-B, 2009 WL 1810336, **5-6 (N.D. Tex. June 24, 2009) (stating that a “failure to comply with the [HUD] regulations [*15] made part of the parties’ agreement may give rise to liability on a contact theory because the parties incorporated the terms into their contact”).

Defendant further argues, however, that some of the regulations cited by Plaintiff are irrelevant to this case because, for instance, a face-to-face meeting with a borrower is required only under certain circumstances which do not exist in this case. See 38 C.F.R. § 36.4350(g)(iii). In addition, Defendant asserts that, in any event, it did not breach the contract because it had no duty to engage in loss mitigation and it otherwise complied with the contract’s terms. The Court finds, however, that whether or not Defendant violated any of the terms of the contract is a matter best resolved after discovery. Therefore, at this point, the Court finds that Plaintiff has sufficiently alleged a breach of contract claim and, accordingly, DENIES Defendant’s motion to dismiss the claim. ⁴

FOOTNOTES

4Plaintiff obviously disagrees with Defendant’s argument and filed a “Notice of Additional Authority” disputing Defendant’s position that the VA regulations require holders to evaluate borrowers for loss mitigation. Plaintiff cites the Veterans Benefits Administration, [*16] Revised VA Making Home Affordable Program, Circular 26-10-6 (May 24, 2010), which states, in part: “Before considering HAMP-style modifications, servicers must first evaluate defaulted mortgages for traditional loss mitigation actions cited in Title 38, Code of Federal Regulations, section 36.4819 (38 CFR § 36.4819); i.e., repayment plans, special forbearances, and traditional loan modifications. . . . If none of the traditional home retention loss mitigation options provide an affordable payment, the servicer must evaluate the loan for a HAMP-style modification prior to deciding that the default is insoluble and exploring alternatives to foreclosure.” (Available at http://www.benefits.va.gov/HOMELOANS/circulars/26_10_6.pdf).

B.

Negligence and Fraud

Defendant next argues that Plaintiff’s claim for negligence and fraud in Counts II and III, respectively, are duplicative of his illegal debt collection claim in Count V under the West Virginia Consumer Credit Protection Act (WVCCPA) and cannot survive because Plaintiff fails to allege Defendant owed him a special duty beyond the normal borrower-servicer relationship. Therefore, Defendant asserts Counts II and III should be dismissed.

In Bailey [*17] v. Branch Banking & Trust Co., Civ. Act. No. 3:10-0969, 2011 WL 2517253 (S.D. W. Va. June 23, 2011), this Court held that the West Virginia Supreme Court in Casillas v. Tuscarora Land Co., 412 S.E.2d 792 (W. Va. 1991), made it clear a plaintiff can pursue claims under the WVCCPA and common law at the same time. 2011 WL 2517253, *3. The Court reasoned that “[i]t would be contrary to both the legislative intent of the WVCCPA and the whole crux of Casillas if the Court were to preclude consumers from bringing actions for violations of the WVCCPA and common law merely because the claims are based upon similar facts.” Id. The Court found that “[n]either the WVCCPA nor Casillasmakes a consumer choose between the two options. A consumer clearly can choose to pursue both avenues provided “separate” claims are set forth in a complaint.” Id.

However, under West Virginia law, a plaintiff “cannot maintain an action in tort for an alleged breach of a contractual duty.” Lockhart v. Airco Heating & Cooling, 567 S.E.2d 619, 624 (W. Va. 2002)(footnote omitted). Rather, “[t]ort liability of the parties to a contract arises from the breach of some positive legal duty imposed by law because of the relationship [*18] of the parties, rather than a mere omission to perform a contract obligation.” Id. (emphasis added). Whether a “special relationship” exists between the parties beyond their contractual obligations is “determined largely by the extent to which the particular plaintiff is affected differently from society in general.” Aikens v. Debow, 541 S.E.2d 576, 589 (W. Va. 2000). “In the lender-borrower context, courts consider whether the lender has created such a ‘special relationship’ by performing services not normally provided by lender to a borrower.” Warden v. PHH Mortgage Corp., No. 3:10-cv-00075, 2010 WL 3720128, at *9 (N.D. W. Va. Sept. 16. 2010 (citing Glascock v. City Nat’l Bank of W. Va., 576 S.E.2d 540, 545-56 (W. Va. 2002) (other citation omitted)).

Here, Plaintiff’s negligence claim is quite simple. He alleges that, where “Defendant engaged in significant communications and activities with Plaintiff[] and the loan, Defendant owed a duty to Plaintiff to provide him with accurate information about his loan account and its obligations and rights thereunder.” Compl., at ¶27. Next, Plaintiff asserts “Defendant[] breached that duty by instructing Plaintiff not to make payments, advising [*19] Plaintiff that he would receive a loan modification, and then instead allowing arrears to accrue for months and ultimately denying Plaintiff[] assistance and pursuing foreclosure.” Id. at ¶28. Upon review of these allegations, the Court finds Plaintiff has failed to allege any positive legal duty beyond Defendant’s purported contractual obligations. There is nothing about these allegations that creates a “special relationship” between the parties. Indeed, a duty to provide accurate loan information is a normal service in a lender-borrower relationship.

In support of their claim Plaintiff relies, inter alia, on Glasock v. City National Bank of West Virginia, 576 S.E.540 (W. Va. 2002), where the West Virginia Supreme Court found that a special relationship existed between a lender and the borrowers. In Glascock, the bank maintained oversight and was significantly involved in the construction of the borrowers’ house. The bank possessed information that there were substantial problems with the house, but it failed to reveal those problems to the borrowers. 576 S.E.2d at 545. The West Virginia Supreme Court found that the bank’s significant involvement in the construction created a special [*20] relationship between the parties which carried “with it a duty to disclose any information that would be critical to the integrity of the construction project.” Id. at 546 (footnote omitted).

To the contrary, Plaintiff’s negligence claim in this case rests merely on the fact Defendant had a duty to provide him accurate information about the loan and failed to do so. Plaintiff has failed to sufficiently allege any facts which support a special relationship between the parties as existed in Glascock. Therefore, the Court GRANTS Defendant’s motion to dismiss Plaintiff’s negligence claim in Count II.

Turning next to Plaintiff’s fraud claim, Defendant argues the claim must be dismissed because it fails to meet the heightened pleading standard found in Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b)provides that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). Under this heightened pleading standard, a plaintiff is required to “at a minimum, describe the time, place, and contents of the false [*21] representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.” U.S. ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (quoting Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999))(internal quotation marks omitted). In other words, the plaintiffs must describe the “‘who, what, when, where, and how’ of the alleged fraud.” Id. (quoting U.S. ex rel. Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 384 (5th Cir. 2003) (other citation omitted)).

In his Complaint, Plaintiff alleges that he had trouble making his mortgage payments around 2009. Compl, at ¶6. When he was approximately two months behind on his payments, Defendant informed him that he qualified for a loan modification, but he needed to complete the necessary paperwork to have it finalized. Id. at ¶7(a). “At this time,” Defendant also informed Plaintiff not to make any more payments until the modification was finalized. Id. at ¶7(b). About eight months later, Defendant told Plaintiff that he did not qualify for a modification, but Defendant instructed him to submit documentation for another modification. Id. at [*22] ¶13. After approximately six more months passed, Plaintiff was notified again that he was being denied assistance. Id. at ¶14. Plaintiff further alleges that, before May of 2012, Defendant never gave him “a written decision on his loan modification applications or any explanation for why he had denied him for assistance, other than its statements by telephone that he did not qualify for assistance because he had a VA loan.” Id. at ¶18.

In addition to these alleged facts, Plaintiff specifically states in his cause of action for fraud that “[i]n or around 2009,” Defendant told him to stop making payments and it would modify his loan rather than pursue foreclosure. Id. at ¶31. Plaintiff asserts these “representations were false and material,” and they were made knowingly, recklessly, and/or intentionally. Id. at ¶¶32-33. Plaintiff further claims he detrimentally relied upon these misrepresentations by stopping his payments and not attempting reinstatement, after which Defendant sought foreclosure. Id. at ¶¶34-35.

In considering these allegations, the Court is mindful of the fact it should be hesitant “to dismiss a complaint under Rule 9(b) if the court is satisfied (1) that the defendant [*23] has been made aware of the particular circumstances for which she will have to prepare a defense at trial, and (2) that plaintiff has substantial prediscovery evidence of those facts.” Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir. 1999). Here, the Court finds that Plaintiff adequately alerts Defendant as to “the time, place, and contents of the false representation[.]” U.S. ex rel. Wilson, 525 F.3d at 379(internal quotation marks and citation omitted). Plaintiff clearly alleges the fraudulent activity consisted of Defendant instructing him to stop making payments and assuring him he would receive a loan modification instead of foreclosure. He also asserts the representations were made over the telephone and occurred in 2009, when his payments were two months in arrears, and before Defendant returned his payment. In addition, Plaintiff states that he continued to call Defendant approximately once a week and was assured that it would not proceed with foreclosure. Compl., at ¶12(a), (b), and (c). Given this information, Defendant should be able to prepare its defense based upon the allegations made. In addition, the allegations provide enough information that [*24] Defendant also should be able to identify and review its customer service notes, call logs, account records, and any phone recordings it may have during the specified time period. Thus, the Court DENIES Defendant’s motion to dismiss Plaintiff’s claim for fraud.

C.

Estoppel

Defendant further argues that Plaintiff’s claim in Count IV for estoppel must be dismissed. To maintain a claim for estoppel in West Virginia, a plaintiff must show:

[(1)] a false representation or a concealment of material facts; [(2)] it must have been made with knowledge, actual or constructive of the facts; [(3)] the party to whom it was made must have been without knowledge or the means of knowledge of the real facts; [(4)] it must have been made with the intention that it should be acted on; and [(5)] the party to whom it was made must have relied on or acted on it to his prejudice.

Syl. Pt. 3, Folio v. City of Clarksburg, 655 S.E.2d 143 (W. Va. 2007) (quoting Syl. Pt. 6, Stuart v. Lake Washington Realty Corp., 92 S.E.2d 891 (W. Va. 1956)). Defendant asserts Plaintiff had actual knowledge via correspondence it sent to Plaintiff that he was not guaranteed loan assistance and loan assistance would not impact Defendant’s [*25] right to foreclose. Defendant attached the correspondence to its Motion to Dismiss as Exhibit D. In addition, Defendant argues that Plaintiff admits to missing two payments before the alleged misrepresentations occurred so he cannot state he relied upon those alleged misrepresentations in failing to make his payments.

“[W]hen a defendant attaches a document to its motion to dismiss, ‘a court may consider it in determining whether to dismiss the complaint [if] it was integral to and explicitly relied on in the complaint and [if] the plaintiffs do not challenge its authenticity.’ ” Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004) (quoting Phillips v. LCI Int’l, Inc., 190 F.3d 609, 618 (4th Cir. 1999)). In this case, Plaintiff asserts that, “at this point there is no evidence that the letter was actually sent to or received by Plaintiff, nor has Plaintiff had the opportunity to present mailings, call logs, or testimony supporting his claim.” Pl.’s Res. in Opp. to Def.’s Mot. to Dis., ECF No. 7, at 16. ⁵Therefore, the Court will not consider the letter. Likewise, the Court finds no merit to the argument that Plaintiff’s admission that he was two months [*26] behind on his loan extinguishes his estoppel claim. It is clear from the Complaint that Plaintiff’s claim is that he relied upon the alleged misrepresentations after he was two months delinquent. Accordingly, the Court DENIES Defendant’s motion to dismiss the estoppel claim.

FOOTNOTES

5In addition, the Court notes that the letter appears undated and Defendant sometimes refers to it as a 2009 letter and sometimes as a 2010 letter. At the top right-hand side of the letter, there is a statement providing: “Please complete, sign and return all the enclosed documents by December 5, 2009.” Exhibit D, ECF No. 4-4, at 1.

D.

WVCCPA

Finally, Defendant asserts Plaintiff’s claim under the WVCCPA in Count V must be dismissed because it fails to meet the requirements of Rules 8(a)(2) of the Federal Rules of Civil Procedure. Rule 8(a)(2)provides that “[a] pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief[.]” Fed. R. Civ. P. 8(a)(2). Defendant argues that Plaintiff fails to meet this requirement because he merely pled a legal conclusion that Defendant engaged in illegal debt collection and he does not plead sufficient [*27] factual content to support that conclusion. In addition, Defendant states it had a contractual right to return Plaintiff’s partial payment so returning the payment cannot support a WVCCPA claim.

Plaintiff, however, argues that his claims under the WVCCPA are based on three grounds. First, Plaintiff asserts Defendant used fraudulent, deceptive, or misleading representations to collect the debt or get information about him, in violation of West Virginia Code § 46A-2-127. ⁶ Second, he claims that Defendant used unfair or unconscionable means to collect the debt, in violation of West Virginia Code § 46A-2-128. ⁷ Third, Plaintiff contends that Defendant’s refusal to apply payments to his account violated West Virginia Code § 46A-2-115. Plaintiff then argues that the first two claims are sufficiently supported in opposition to a motion to dismiss based upon his allegations that (1) Defendant told him he qualified for loan modification and would receive one if he completed the requested financial information; (2) Defendant told him to stop making payments because it would interfere with the modification process, but in reality it increased the likelihood of foreclosure; (3) Defendant assured [*28] Plaintiff it would not foreclose on his home during the time the loan modification application was being processed; (4) Defendant ultimately represented it could not modify the loan because it was a VA loan; and (5) Defendant would not consider a short sale of the house and, instead, proceeded with foreclosure. Plaintiff argues that each of these misrepresentations made by Defendant were intended to collect financial information about him through the modification process or collect the debt via foreclosure. He also states the delay and improper refusal of payments greatly increased the amount he was in arrears, which allowed Defendant to attempt to collect the debt through foreclosure.

FOOTNOTES

6Section 127 provides, in part: “No debt collector shall use any fraudulent, deceptive or misleading representation or means to collect or attempt to collect claims or to obtain information concerning consumers.” W. Va. Code § 46A-2-127, in part.

7Section 128 states, in part: “No debt collector shall use unfair or unconscionable means to collect or attempt to collect any claim.” W. Va. Code §46A-2-128, in part.

Upon consideration of these allegations, the Court finds they are sufficient to state a claim [*29] under the WVCCPA. As stated by the Honorable Thomas E. Johnston stated in Koontz v. Wells Fargo, N.A., Civ. Act. No. 2:10-cv-00864, 2011 WL 1297519 (S.D. W. Va. Mar. 31, 2011), West Virginia “§ 46A-2-127applies to both ‘misrepresentations made in collecting a debt’ and ‘misrepresentations . . . [made] when obtaining information on a customer.’” 2011 WL 1297519, at *6. Therefore, allegations that a financial institution misrepresented to the borrower that it would reconsider a loan modification and, thereby, obtained additional financial information from the borrower, are sufficient to state a claim. Id. Likewise, the Court finds the allegations are sufficient to state a claim that Defendant used “unfair or unconscionable means to collect or attempt to collect any claim” pursuant to West Virginia Code §46A-2-128, in part. Cf. Wilson v. Draper v. Goldberg, P.L.L.C., 443 F.3d 373, 376 (4th Cir. 2006)(stating “Defendants’ actions surrounding the foreclosure proceeding were attempts to collect that debt” under the Fair Debt Collection Practices Act (citations omitted)). ⁸

FOOTNOTES

8 Defendant asserts that a debt collection does not give rise to a claim under the WVCCPA. Citing Spoor v. PHH Mortgage [*30] Corp., Civ. Act. No. 5:10CV42, 2011 WL 883666 (N.D. W. Va. Mar. 11, 2011). The Court has reviewed Spoorand finds that it primarily focused only on the plaintiff’s request for a loan modification with respect to her WVCCPA claims. The district court in Spoor stated that the defendant’s consideration of the request is not an attempt to collect a debt. 2011 WL 883666, at *7. In the present case, however, the allegations Plaintiff argues supports his claim extend beyond a mere “request” for a modification. Moreover, the Court finds that, to the extent Spoor is contrary to the reasoning in Wilson and Koontz, the Court declines to apply it to this case.

With respect to Plaintiff’s third claim that Defendant illegally returned his payment pursuant to West Virginia Code § 46A-2-115(c), this provision states:

All amounts paid to a creditor arising out of any consumer credit sale or consumer loan shall be credited upon receipt against payments due: Provided, That amounts received and applied during a cure period will not result in a duty to provide a new notice of right to cure; and provided further that partial amounts received during the reinstatement period set forth in subsection (b) of this [*31] section do not create an automatic duty to reinstate and may be returned by the creditor. Defaultcharges shall be accounted for separately; those set forth in subsection (b) arising during such a reinstatement period may be added to principal.

W. Va. Code § 46A-2-115(c). Plaintiff argues that § 46A-2-115(b)defines the reinstatement period as the time “beginning with the trustee notice of foreclosure and ending prior to foreclosure sale,” and he made clear it clear in his Complaint that Defendant returned his payment prior to the requesting a trustee notice of the foreclosure sale. See Compl., at ¶¶7 & 10. Defendant responds by stating that it was within its contractual right to refuse the payment. However, West Virginia Code § 46A-1-107makes it clear that, “[e]xcept as otherwise provided in this chapter, a consumer may not waive or agree to forego rights or benefits under this chapter or under article two-a, chapter forty-six of this code.” W. Va. Code 46A-1-107. Therefore, upon review, the Court finds that Plaintiff’s claim is sufficient to survive a motion to dismiss. Thus, for the foregoing reasons, the Court DENIES Defendant’s motion to dismiss Count V for alleged violations [*32] of the WVCCPA.

V.

CONCLUSION

Accordingly, for the foregoing reasons, the Court DENIES Defendant’s Motion to Dismiss Plaintiff’s claims for breach of contract, fraud, estoppel, and violations of the WVCCPA. However, the Court GRANTS Defendant’s Motion to Dismiss Plaintiff’s negligence claim.

The Court DIRECTS the Clerk to send a copy of this Memorandum Opinion and Order to all counsel of record and any unrepresented parties.

ENTER: March 14, 2013

/s/ Robert C. Chambers

ROBERT C. CHAMBERS, CHIEF JUDGE

6th Circuit Court of Appeals Rules FDCPA Applies to Foreclosures

OPINION APPLIES TO BOTH JUDICIAL AND NON-JUDICIAL STATES

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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, Tennessee, Georgia, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

EDITOR’S ANALYSIS: The Fair Debt Collection Practices Act (FDCPA) 15 USC Sec 1692, has been treated as “off-limits” in mortgage foreclosure actions. The principal thrust of the action is to protect consumers from unfair practices and to prevent debtors from paying a “collector” and finding out they still owe the money because the “collector” was a sham operation. The opinion of many trial judges based upon some appellate decisions was that the FDCPA expressly excluded foreclosure actions.

In this Opinion, the 6th Circuit Court of Appeals, using common sense and basic rules of statutory construction, came to the opposite opinion and it would appear that the opinion will be followed in most states. As it is, anecdotal evidence from Connecticut and other states suggests that trial judges were questioning the legal theory that foreclosures were not about the collection of money.

“Chase and RACJ fraudulently concealed the fact that Fannie Mae owned the loan, and that the original note was not lost or destroyed and was being held by a custodian for Fannie Mae’s benefit. The complaint named plaintiff Lawrence Glazer as someone possibly having an interest in the Klie property, and RACJ served Glazer with process. Glazer answered and asserted defenses. He also notified RACJ that he disputed the debt and requested verification. RACJ refused to verify the amount of the debt or its true owner.”

DENY AND DISCOVER: It is the failure to verify the very thing that lies at the heart of foreclosure defense, nullification of instrument aimed at the mortgage and note, that makes this opinion so powerful. BY re fusing to verify the true owner or the amount of the debt, RACJ was attempting to get around normal due process — that the charges against the debtor be clearly stated and verified. Allowing violations of the FDCPA under the mistaken notion that foreclosure is not about the collection of money allows the collector to finesse the issue of who owns the loan and how much is due. This opens up discovery against the Master Servicer, Subservicer, investment banker, Trustee of the Trust and the trust itself to determine if the trust even exists.

“we hold that mortgage foreclosure is debt collection under the Act. Lawyers who meet the general definition of a “debt collector” must comply with the FDCPA when engaged in mortgage foreclosure. And a lawyer can satisfy that definition if his principal business purpose is mortgage foreclosure or if he “regularly” performs this function. In this case, the district court held that RACJ was not engaged in debt collection when it sought to foreclose on the Klie property. That decision was erroneous, and the judgment must be reversed.7″

FDCPA Ruling 13a0016p-06

Commercial Property Securitized? Problems Look Like Same Games as Residential

In the last 3 months I have been assisting in the defense of some commercial property cases — strip malls, small hotels, warehouses, etc. And while the consensus has been that securitization of commercial mortgage backed securities has been relatively straightforward, it appears that at the very least there are exceptions to that rule and perhaps we are only seeing the tip of the iceberg.

The one thing that all the cases I have been working have in common is the presence of substantial equity in the property far above the principal balance claimed by the “lender” who, like the residential “lender” was not the lender at all. But the odd thing about these is that if you go to any lecture, book, or article on commercial foreclosures, the main thrust of the material is a workout presumably based on missed payments — even without the equity or any argument over whether payments were indeed missed.

But the cases coming to me have another thing in common — the unwillingness and runaround they get from the “lender” in working out the loan. This usually forces the case into Chapter 11 Bankruptcy and thereafter the “fun” starts — differing accounting reports, documents appearing out of nowhere, and in general the same false, tired arguments from opposing counsel as we have heard in the residential cases. The fact that there is substantial equity has caused some bankruptcy judges to question the absence of a workout and why the case had to be brought to bankruptcy court.

Doing our securitization and title research we find that the players are frequently Deutsch Bank, Goldman Sachs and Bear Stearns lurking somewhere in the background. And it doesn’t take long before the “lender” admits that the loan was funded by a securitization “trust.”

In one case that I might take, the “issue”is the payment of default interest when there does not appear to be any default even in conventional terms. So why would a lender, WANT a loan to be declared in default when there is plenty of equity, plenty of profit to pay the payments due and there is a long record of payments that were made on time?

In residential loans we know the reason is that the players in the securitization chain all claimed stakes in the loans and then traded the loans or bought insurance, credit default swaps or received federal bailouts because the loan was put in a pool where there genuine defaults in promised payments. They received a chunk of money from investors who thought they knew what they were buying, how the money would be used and that the loan would be subject to normal underwriting standards. None of that happened.

Instead, the players went “to the track” with the money placing bets on the loan pools and often collected multiples of principal that was in default, meaning that the “default” loans were completely paid off and that left money to cover loans that were not in default — at least not yet. By offering the investors one interest rate under terms of repayment that differed from the the terms agreed by the borrower and signed on the note, a yield spread premium was created. The higher the interest rate charged to the borrower compared with the interest rate promised to the investor, the less the players had to fund to complete the loan transaction.

So my suspicion, enhanced by the unwillingness of the players and their attorneys to provide real data on real money transactions involving the loan or the pool claiming ownership of the pool suggests to me that the loan was not assigned into the pool within the 90 day cutoff provided in the PSA, which is merely a recital of the rules under the REMIC statute in the Internal Revenue Code.

It also suggests to me that partially because there were loans like this in the pool, the declaration of a write-down of the pool, triggering payments of insurance and proceeds from credit default swaps was a false declaration. AND the money received from insurance and credit default swaps — all purchased with money originated from the investors, was neither credited against the balance due on the mortgage bond, nor to the borrower’s account, whose loan balance would be correspondingly reduced by a reduction in the account payable to the investor-lender.

So my suspicion is that the lawyers for these commercial properties are missing a possibility. The “lender” may need to kick the can down the road so that they can avoid being caught in the lie that the value of the loan pool was severely compromised, or worse, that they might owe the money back to the insurers and counterparties in the credit default swaps.

If that is correct then the REAL problem is not the missed payments that are alleged, or even the applicable default interest, but rather the money it will cost to give back to AIG, AMBAC, Deutsch etc. for receipt of funds that either were never deserved or are in any event owed back to those parties were duped into buying the loan pool multiple times under the guise of insurance contracts and credit default swaps.

The stonewalling of these players can only be attributed to some business (money) reason. And the only money reason I can think of is that they have received money for which they have not accounted on properties that were (a) not in default in any sense of the word and (b) fully collateralized by substantial equity.

If that is the case, it might be easier to get to the truth of the matter than in residential loan cases because commercial property owners tend to be able to pay for an adequate defense and they can’t be intimidated as easily as a homeowner. If I’m right, going after the money in discovery and showing the trail it followed and all the side deals that were made might be very productive in these commercial cases, and in fact, might lead to valuable information in residential loan “defaults.”

Then there is the intimidation factor which is the standard play in residential foreclosures. In the case of commercial properties there is frequently a personal guarantee which is separate and apart from the default of the business operated on the commercial property. But this might just backfire on the “lender” because just as they are bringing in co-obligors into the picture, the door is then opened for inquiry into other mitigating payments from insurance and CDS co-obligors.

Pure logic tells me that something is wrong here, since I have been on both side of commercial property foreclosures — representing the bank and representing the owner. Something has changed here from just a few years ago when none of these cases would ever have seen a courtroom nor would it have been in the minds of either the owner or the lender. In short, I smell a rat.

NO Reason to Modify: Banks Foreclosed to Collect 100 cents on the Dollar from the Government

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Editor’s Comment:

The math is simple which is why we are now offering as part of a forensic loan specific analysis, a HAMP analysis and proposal along with the worksheets that back it up. If they foreclose, then they get all the money due on the mortgage even if they would only get 30% of that (see previous article) in foreclosure. This is really simple folks. If you had two “buyers” who would you sell to — the one offering $300,000 or the one offering $100,000?

The servicers and master servicers have only one major incentive in play because our elected officials have let it stay in play — the paper representing mortgage bonds and loans which undoubtedly are riddled with misrepresentations and bad data, is worth 100% if the government gets it but only 30% if anyone else gets it. This is welfare for the largest banks that stole from the citizens and are being allowed to keep the money and gamble more with our future. This isn’t about deficits or budgets. This is about fraud and restitution.

The victims of fraud — all of them including financial institutions (if they are innocent, which is another story) should receive full restitution and if the net balance due on any one loan is proportionately reduced by receipts of payments from the servicer, the proceeds of insurance, credit default swaps and credit enhancements (and of course restructuring into even more exotic pools that are never reported, thus rendering even the “trust” to be non-existent), a fair deal can be reached because the principal will have been reduced.

Foreclosure Fraud 101 – How (not) to Fraudclose on a Default When There is No Default in Order to Steal $$$ from the Govt (FDIC)

By ZeroHedge.com

This little gem comes over from Mark Stopa…

Take a look at this Final Judgment, where a borrower prevailed over BB&T at trial. Yes, the bank was sleazier than the skuz on the bottom of my shoes, declaring this borrower in default when there was no default. But take a close look at WHY the bank did so. As the Final Judgment reflects, the bank was financially motivated to declare a default because it knew the government was going to pay the mortgage in the event of default.

As if that’s not disgusting enough, what makes it even worse was that BB&T did not even loan the money – a prior bank did. Yet as a result of a deal with the FDIC, BB&T was in the position of pocketing millions of dollars from our government merely by declaring this borrower in default. This should piss off everybody in America – a bank that didn’t loan money wrongly declares a default so it can collect millions from our government. Where is the outrage?

Don’t believe me? Don’t take my word for it – read the findings of Judge Levens in this Final Judgment.

From the judgment…

The evidence adduced at trial and considered by the court demonstrated that Plaintiff breached it duties of good faith and fair dealing in its contractual relationship with Defendants. The evidence also demonstrated that Plaintiff was motivated to behave in such as manner as a direct result of the PSA; that is, Plaintiff stood to profit by declaring a fraudulent default under the subject loan, collecting from the FDIC under the PSA for such default, and then enforcing the subject loan against Defendants, and retaining the property until such time as a real estate turnaround occurred in hopes to dispose of the property at the peak of the market. In fact, Mr. Bruni testified that Plaintiff may have already applied to the FDIC for a loss share payment on this loan. And Defendants’ expert, Jim Howard, explained that it was possible Plaintiff could have already applied for and received a payment from the FDIC on this loan, perhaps in an amount as high as $1,800,000.00. Notably, Plaintiff nowhere credited such potential payment from the FDIC against the amounts sought in the instant litigation; thereby giving the impression that Plaintiff might be “double dipping”, and possibly “triple dipping” if market conditions favorably change and the property likewise increases in value.

DISCUSSION

The evidence was clear that there was a long and unblemished record of good faith timely monthly payments by Defendants. The evidence is also clear that, both on legal and equitable grounds, a bona fide default never occurred, and the resulting loan acceleration and lawsuit were improvidently initiated by Plaintiff for purposes of trying to maximize collection simultaneously from the future sale of the property after favorable stabilization occurred. The evidence is clear that Plaintiff committed significant wrongdoing and breached the implied duty of good faith and fair dealing of a financial institution, such that the instant cause of action should be denied in its entirety.

Sounds like the plaintiff committed much more than “significant wrongdoing” but I guess when you’re the bank it isn’t a crime.

Now do you understand why there are so many “DEADBEATS” that do not pay their bills?

DON’T Leave Your Money on the Table

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Editor’s Comment:

The number of people passing up the administrative review process is appallingly low, considering the fact that many if not most homeowners are leaving money on the table — money that should rightfully be paid to them from wrongful foreclosure activity (from robo-signing to outright fraud by having non-creditors take title and possession).

The reason is simple: nobody understands the process including lawyers who have been notoriously deficient in their knowledge of administrative procedures, preferring to stick with the more common judicial context of the courtroom in which many lawyers have demonstrated an appalling lack of skill and preparation, resulting in huge losses to their clients.

The fact is, administrative procedures are easier than court procedures especially where you have mandates like this one. The forms of complaints and evidence are much more informal. It is much harder for the offending party to escape on a procedural technicality without the cause having been heard on the merits. 

The banks were betting on two thngs when they agreed to this review process — that people wouldn’t use it and that even if they used it they would fail to state the obvious: that the money wasn’t due or in default, that it was paid and that only a complete accounting from all parties in the securitization chain could determine whether the original debt was (a) ever secured and (b) still existence. They knew and understood that most people would assume the claim was valid because they knew that the loan was funded and that they had executed papers that called for payments that were not made by the borrower.

But what if the claim isn’t valid? What if the loan was funded entirely outside the papers they signed at closing? What if the payments were not due? What if the payments were not due to this creditor? And what if the payments actually were made on the account and the supposed creditor doesn’t exist any more? Why are you assuming that the paperwork at closing was any more real than the fraudulent paperwork they submitted during foreclosure?

People tend to think that if money exchanged hands that the new creditor would simply slip on the shoes of a secured creditor. Not so. If the secured debt is paid and not purchased then the new debt is unsecured even if the old was secured. But I repeat here that in my opinion the original debt was probably not secured which is to say there was no valid mortgage, note and could be no valid foreclosure without a valid mortgage and default.

Wrongful foreclosure activity includes by definition wrongful auctions and results. Here are some probable pointers about that part of the foreclosure process that were wrongful:

1. Use the fraudulent, forged robosigned documents as corroboration to your case, not the point of the case itself.

2. Deny that the debt was due, that there was any default, that the party iniating the foreclosure was the creditor, that the party iniating the foreclosure had no right to represent the creditor and didn’t represnet the creditor, etc.

3. State that the subsitution of trustee was an unauthorized document if you are in a nonjudicial state.

4. State that the substituted trustee, even if the substitution of trustee was deemed properly executed, named trustees that were not qualified to serve in that they were controlled or owned entities of the new stranger showing up on the scene as a purported “creditor.”

5. State that even if the state deemed that the right to intiate a foreclosure existed with obscure rights to enforce, the pretender lender failed to establish that it was either the lender or the creditor when it submitted the credit bid.

6. State that the credit bid was unsupported by consideration.

7. State that you still own the property legally.

8. State that if the only bid was a credit bid and the credit bid was invalid, accepted perhaps because the auctioneer was a controlled or paid or owned party of the pretender lender, then there was no bid and the house is still yours with full rights of possession.

9. The deed issued from the sale is a nullity known by both the auctioneer and the party submitting the “credit bid.”

10. Demand to see all proof submitted by the other side and all demands for proof by the agency, and whether the agency independently investigated the allegations you made. 

 If you lose, appeal to the lowest possible court with jurisdiction.

Many Eligible Borrowers Passing up Foreclosure Reviews

By Julie Schmit

Months after the first invitations were mailed, only a small percentage of eligible borrowers have accepted a chance to have their foreclosure cases checked for errors and maybe win restitution.

By April 30, fewer than 165,000 people had applied to have their foreclosures checked for mistakes — about 4% of the 4.1 million who received letters about the free reviews late last year, according to the Office of the Comptroller of the Currency. The reviews were agreed to by 14 major mortgage servicers and federal banking regulators in a settlement last year over alleged foreclosure abuses.

So few people have responded that another mailing to almost 4 million households will go out in early June, reminding them of the July 31 deadline to request a review, OCC spokesman Bryan Hubbard says.

If errors occurred, restitution could run from several hundred dollars to more than $100,000.

The reviews are separate from the $25 billion mortgage-servicing settlement that state and federal officials reached this year.

Anyone who requests a review will get one if they meet certain criteria. Mortgages had to be in the foreclosure process in 2009 or 2010, on a primary residence, and serviced by one of the 14 servicers or their affiliates, including Bank of America, JPMorgan Chase, Citibank and Wells Fargo.

More information is at independentforeclosurereview.com.

Even though letters went to more than 4 million households, consumer advocates say follow-up advertising has been ineffective, leading to the low response rate.

Many consumers have also grown wary of foreclosure scams and government foreclosure programs, says Deborah Goldberg of the National Fair Housing Alliance.

“The effort is being made” to reach people, says Paul Leonard, the mortgage servicers’ representative at the Financial Services Roundtable, a trade group. “It’s hard to say why people aren’t responding.”

With this settlement, foreclosure cases will be reviewed one by one by consultants hired by the servicers but monitored by regulators.

With the $25 billion mortgage settlement, borrowers who lost homes to foreclosure will be eligible for payouts from a $1.5 billion fund.

That could mean 750,000 borrowers getting about $2,000 each, federal officials have said.

For more information on that, go to nationalmortgagesettlement.com.

Az Statute on Mortgage Fraud Not Enforced (except against homeowners)

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Editor’s Comment:

With a statute like this on the books in Arizona and elsewhere, it is difficult to see why the Chief Law Enforcement of each state, the Attorney General, has not brought claims and prosecutions against all those entities and people up and down the fraudulent securitization chain that brought us the mortgage meltdown, foreclosures of more than 5 million people, suicides, evictions and claims of profits based upon the fact that the free house went to the pretender lender.

Practically every act described in this statute was committed by the investment banks and all their affiliates and partners from the seller of the bogus mortgage bond (sold forward, which means that the loans did not yet exist) all the way down to the people at the closing table with the homeowner borrower.

I’d like to see a script from attorneys who confront the free house concept head on. The San Francisco study and other studies clearly show that many if not most foreclosures resulted in a “sale” of property without any cash offered by the buyer who submitted a credit bid when they had not established themselves as creditors nor had they established the amount due. And we now know that they failed to establish themselves as creditors because they neither loaned the money nor purchased the loan in any transaction in which they parted with money. So the consideration for the sale was not present or if you want to put it in legalese that would effect those states that allow review of the adequacy of consideration at the auction.

I’d like to see a lawyer go to court and say “Judge, you already know it would be wrong for my client to get a free house. I am here to agree with you and state further that whether you rule for the borrower or this pretender lender here, you are going to give a free house to somebody.

“Because this party initiated a foreclosure proceeding without being the creditor, without spending a dime on the loan or purchase of the loan, and without any right to represent the multitude of people and entities that should be paid on this loan. This pretender, this stranger to this transaction stands in the way of a mediated settlement or HAMP modification in which the borrower is more than happy to do a traditional workout based upon the economic realities.

“And they they maintain themselves as obstacles to mediation or modification because they have too much to hide about the origination of this loan.

“All I seek is that you recognize that we deny the loan on which this party is pursuing its claims, we deny the default and we deny the balance. That puts the matter at issue in which there are relevant and material facts that are in dispute.

“I say to you that as a Judge you are here to call balls and strikes and that your ruling can only be that with issues in dispute, the case must proceed.”

“The pretender should be required to state its claim with a complaint, attach the relevant documents and the homeowner should be able to respond to the complaint and confront the witnesses and documents being used. And that means the pretender here must be subject to the requirements of the rules of civil procedure that include discovery.

“Experience shows that there have been no trials on the evidence in all the foreclosures ever brought during this period and that the moment a judge rules on discovery in favor of the borrower, the pretender offers settlement. Why do you think that is?”

“If they had a good reason to foreclose and they had the authority to allege the required the elements of foreclosure and they had the proof to back it up they would and should be more than willing to put a stop to all these motions and petitions from borrowers. But they don’t allow any case to go to trial. They are winning on procedure because of the assumption that the legitimate debt is unpaid and that the borrower owes it to the party making the claim even if there never was transaction with the pretender in which the borrower was a party, directly or indirectly.”

“Neither the non-judicial powers of sale statutes nor the rules of civil procedure based upon constitutional requirements of due process can be used to thwart a claim that has merit or raises issues that have merit. You should not allow the statute and rules to be applied in a manner in which a stranger to the transaction who could not even plead a case in good faith would win a foreclosed house at auction without court review and a hearing on the merits.”

Residential mortgage fraud; classification; definitions in Arizona

Section 1. Title 13, chapter 23, Arizona Revised Statutes, is amended by adding section 13-2320, to read:
13-2320.

A. A PERSON COMMITS RESIDENTIAL MORTGAGE FRAUD IF, WITH THE INTENT TO DEFRAUD, THE PERSON DOES ANY OF THE FOLLOWING:

1. KNOWINGLY MAKES ANY DELIBERATE MISSTATEMENT, MISREPRESENTATION OR MATERIAL OMISSION DURING THE MORTGAGE LENDING PROCESS THAT IS RELIED ON BY A MORTGAGE LENDER, BORROWER OR OTHER PARTY TO THE MORTGAGE LENDING PROCESS.
2. KNOWINGLY USES OR FACILITATES THE USE OF ANY DELIBERATE MISSTATEMENT, MISREPRESENTATION OR MATERIAL OMISSION DURING THE MORTGAGE LENDING PROCESS THAT IS RELIED ON BY A MORTGAGE LENDER, BORROWER OR OTHER PARTY TO THE MORTGAGE LENDING PROCESS.
3. RECEIVES ANY PROCEEDS OR OTHER MONIES IN CONNECTION WITH A RESIDENTIAL MORTGAGE LOAN THAT THE PERSON KNOWS RESULTED FROM A VIOLATION OF PARAGRAPH 1 OR 2 OF THIS SUBSECTION.
4. FILES OR CAUSES TO BE FILED WITH THE OFFICE OF THE COUNTY RECORDER OF ANY COUNTY OF THIS STATE ANY RESIDENTIAL MORTGAGE LOAN DOCUMENT THAT THE PERSON KNOWS TO CONTAIN A DELIBERATE MISSTATEMENT, MISREPRESENTATION OR MATERIAL OMISSION.

Those convicted of one count of mortgage fraud face punishment in accordance with a Class 4 felony.  Anyone convicted of engaging in a pattern of mortgage fraud could be convicted of a Class 2 felony

You Know You are Losing When

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Taking a line from Jeff Foxworthy, I have compiled the following guidelines of how to know when you are going to lose against the thieving bank seeking to steal your property. You might call it, “You know your screwed when…”

Note: The premise of this article is taken from various points made on this blog and others. The main point is that the obligation to repay the loan arose when the money transaction took place. When money exchanged hands it is presumed that the expectation was that it would be repaid. So the only defenses that exist and the only two defenses that will get the judge’s attention are PAYMENT and WAIVER. Failing to address these issues head on right at the beginning of the first pleading and the first hearing, will most likely lead to failure in the case. Read the appellate decisions that are in favor of the banks and servicers; they all start with a recitation of “facts” that are not true but which nonetheless are taken as true because the borrower failed to put them in issue as contested facts.

Start with the origination documents. If you don’t know whether they have merely reproduced the note and mortgage, then deny it and make them prove it. They could be fabricated from whole cloth.

And the note and mortgage probably contain declarations of fact that are not true — like the fact that any of the parties shown as payee on the note or as secured parties are in fact not the lenders, creditors or have any relationship to your loan transaction other than that their names were used. The fact that you know you have signed documents doesn’t mean that the papers proffered by the banks are the same papers. The fact that you know you took a loan doesn’t mean there is any balance due or that you owe it to the party seeking to enforce the debt.

So one of the key questions to ask an attorney or other professional you seek to hire to represent you in mortgage foreclosure, collection of a debt or to provide you with services to challenge title or enforcement is an easy one: “what issues are you prepared to concede at the start of these proceedings?” If they are willing to concede the debt, the default, and other basic elements of enforcements, you have pretty much lost before you began.

Watch out for those who talk a good game and tell you what you want to hear. I have seen many attorneys fold like a house a cards once they get into court. They must be willing to be aggressive in their objections and in demanding a level playing field —  neither the proffers of counsel for the bank nor the proffers of the borrower should be taken as true without an evidentiary hearing. When hiring professionals to help you, ask for references and proof where they achieved the objectives in a hearing that was argued before a state, federal or bankruptcy judge. There is a lot of bad law and poor strategy floating around in the name of marketing for clients and getting fees either upfront, monthly or both.

Without repeating all the other points raised on this blog, let’s start cataloging those strategies and events and virtually assure the loss of the case to a bank that was and remains a stranger to the transaction, who never funded or purchased the loan.

1. You have already conceded or alleged that there is a debt outstanding. (what if the debt was paid off?). If the bank’s lawyer speaks first, the proper objection should be raised and very aggressively. It must be made clear that the borrower denies the debt, denies the debt was ever owed to the party now seeking to enforce it, denies that perfection of the lien, denies the default because the creditor has been paid and corroborates the objection with independent third party reports that raise issues of fact that (a) put the main issues in dispute requiring a hearing on the merits and (b) getting to discovery where the bank is ordered to stop stonewalling and is required to answer the properly formed questions and demands for discovery including, most especially, a full accounting from the creditor down to the borrower and NOT just from the servicer down to the borrower.
2. You have already conceded or alleged that you are in default. (what if someone, like the servicer, continued making payments to the creditor?)
3. You have already conceded or alleged that you failed to make a payment. This one is tricky. You know the borrower stopped making payments so how can you deny it. easy. If the payments was made by someone else or was prepaid, then the scheduled payment may have been “missed” but it wasn’t due either.
4. You have failed to object to the the proffer of the opposing attorney relating to (a) whom he represents, (b) the status of his client in the transaction, (c) the status of the loan, (d) a default and (e) the statement that the borrower has not made any payments in X months. These are facts not in evidence and you deny each and every one of them.
5. You have failed to obtain a true report on the chain of title relating to the specific loan.
6. You have failed to obtain a true report of the chain or obligations set forth in the securitization documents.
7. Watch the demeanor of the Judge. He or she has already decided that the borrower is not going to get a free house just because some paperwork was wrong. If the obligation exists and the borrower is not paying it, the Judge is looking for ways to avoid the legal technicalities and allow enforcement of the debt and to allow the foreclosure to proceed. But if you raise the issues of payment and waiver, then the Judge doesn’t really have that option. For the sake of credibility you must make clear that you understand that an obligation arose when the money transaction was completed and that paperwork glitches don’t allow a debtor to escape payment on an otherwise legitimate debt. But then turn that on its head — just because the paperwork refers to a monetary transaction (assignment, etc.) doesn’t mean the transaction actually took place. In the absence of a real transaction where real money exchanged hands, the paperwork can’t save it. 
8. You failed to file the right papers at the right time. A common mistake, the judges jump on this as an excuse to dismiss the claims of the borrower.
9. Claiming due process without specifically identifying how the borrower is actually injured. You are going to lose unless you have laid the proper groundwork in which to put the issues of current status of the debt, the existence of an uncured default and the the existence of a real creditor who has not already received payment in part or in full through insurance, credit default swaps, credit enhancements and federal bailouts. Adding that the securitization documents specifically provide for payment without right of subrogation raises the issue of  waiver by the creditor — the real creditor — in the borrower’s loan transaction. Thread the needle here. If the payment has been paid and the real creditor is now identified and has received a settlement satisfactory to the investor, then the failure of the creditor to seek additional enforcement from the borrower is not a license for any stranger to the transaction to make claims on behalf of a creditor that has waived further claims or on behalf of third parties who have similar waived the rights of enforcement.
10. Your lawyer is too timid to confront the Judge and interrupt the proceedings with appropriate objections and argument. The key here is understanding the difference between evidence, proffers of evidence, data and information. For laymen they are all the same. A lawyer who does not fully understand the differences and is not armed with case law and statutory law to corroborate his position is headed for failure regardless of how good the facts look on paper. 

A coordinated, well conceived strategy to defeat the lies being perpetrated by the banks and their attorneys in court will turn the tide. But expecting the Judge to find in favor of the borrower just because you found a forged document is pure fantasy. On the other hand, the huge volume of information in the public domain constituting an admission of material defects in the foreclosures and the originating documents with the borrowers and the investors leaves a wide open path to attack the title issues a regain title, possession and damages relating to the loss of a house that was subject to one of the millions of illegal foreclosures.

DEFAULT JUDGMENTS AGAINST ORIGINATORS, BANKS AND SERVICERS

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EDITOR’S NOTE: Reynaldo Reyes VP of DeutschBank Asset Management (he manages the “trusts”) said it best when he said that the truth is all very “counter-intuitive.” You would think that getting a default in a quiet title action (lawsuit) against the Banks and servicers is virtually impossible and unsupportable — especially when they come back into court and explain their “excusable neglect.”

Not so fast. You would think that once entered, the Judgment would be recorded and once recorded the Banks and servicers would AGAIN get notice, along with original summons, and notices of hearing. Once realizing their error, they would come to court, right? Not so much. There are many cases where for reasons that I have detailed elsewhere on this blog, in which the decision is to let the case go and allow the homeowner to have his house free and clear without any Bank or any servicer coming in to claim otherwise. Some do come in after default and some get the default set aside. But many defaults simply stand.

Here the homeowner got the ultimate nuclear option — free and clear title to a home that is reportedly worth over $1 million dollars even in today’s  market. Whether the obligation or note is still considered to be outstanding is another story, but the implication is that whatever was alleged in the complaint, if it included that the obligation had been paid off in its entirety by third parties to the original closing, then that is the end of the obligation and note if the party who was the creditor was served.

This is why you need the COMBO Title and Securitization report. If you were to conclude on the advice of counsel who was licensed in the jurisdiction in which your property is located that the creditor was still nominally the party with whom you closed the loan, then you wouldn’t need to sue or serve anyone else except by publication perhaps to John Does 1-1000, would you? (Check with lawyer). So the right allegations in a complaint against the party on record as the creditor might suffice……

Posted by reader:

Has anyone seen this? http://www.scribd.com/doc/74420941/Virginia-Circuit-Court-Order-nullifying-a-first-mortgage-Deed-of-Trust

I heard that the property involved was worth over a million. Can anyone confirm this? Maybe the courts will stop failing us and prevent the final stages of the huge transfer of wealth from citizens to investment banks and their cronies.

THINK ABOUT IT …CONNECTING THE DOTS

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Connecting the dots... As third round of “quantitative easing” gets under way. When will the media, the Courts and frankly the BORROWERS finally get it? The Federal Reserve Bank has been buying Mortgage bonds using trillions of dollars, soon to be around $3.5 trillion, as reluctantly reported by the the FED (only after intense efforts by Bloomberg).

Think about it. The total amount on promissory notes signed by homeowners that the Banks say have gone into default is less than $3 trillion. So the FED is now the proud owner of mortgage bonds that at best represent ownership of failed mortgage loans and at worst —- nothing because the loans were never transferred to anyone, let alone the FED. The probability is that the FED is buying nothing at all – because it is the Banks that are “selling” the bonds. How could the Banks be selling the bonds when they already sold them to investors?

Think about it. If the Banks receive $3.5 trillion — that covers ALL of the notes that went into default. Yet those notes were “secured” by mortgage “liens” on what is now around $1.5 trillion worth of real property. So the “loss” is really only $2 trillion. NOTE: I do NOT concede that the “liens” were perfected nor do I concede that these were even mortgage transactions — as opposed to part of the issuance of securities in which the homeowners may have been unwitting “Issuers.”

Think about it. If the loss was $2 trillion, who lost that money? If the loss comes from ownership of mortgage bonds, then the loss belongs to pension fund and other institutional investors who “bought” the “mortgage-backed” bonds — unless there is some secret pact wherein the investors had purchased an OPTION rather than the mortgage bond itself. Either way it is not a loss for the Bank and it is a loss for investors.

Think about it. If the Banks did not lose money from the decline in value of mortgage bonds and if the banks did not lose money from so-called defaults on mortgage loans, and if the payment from the FED pays off the loss with 150 cents on the dollar, then the FED now has the loss and the Banks have a profit, by keeping the money rather than distributing it to investors. And the homeowner is left none the wiser that some allocable portion of that money should have reduced the amount due to his real creditor — the investor. And the taxpayer is left none the wiser that they have just given a subsidy to Banks who don’t deserve or need it, leaving future generations to figure it out.

Think about it. If the FED is taking the loss with no right of subrogation then the debts are retired. That means there is no payment due. If no payment is due one can hardly be forced to make the payment anyway. In fact, there can be no default on a payment that is not due. And THAT is why the Banks fight tooth and nail against discovery requests from homeowners in the form of qualified written requests, debt validation, or civil discovery procedures in court. The FULL accounting would trace ALL the money and reveal objects behind the curtain.

And THAT is why you need the FULL accounting of all financial transactions in which money exchanged before accepting the notion the mortgage is or ever was in default.

• When it suits them, the Banks tell the investors “it’s your loss.”
• When it suits them they tell the government or Federal Reserve “it’s your loss.”
• When it suits them they tell the homeowner “it’s your loss.”
• When it comes to taking losses on wild bets they tell their own shareholders “it’s your loss.”
• But when it comes to taking proceeds of bailout, quantitative easing, insurance, credit default swaps they are perfectly willing to say anything to get that money — “it’s our loss.”

Think about it. The FED is paying the one party (intermediary Banks and brokers) that had no losses who are now getting the money on the sale of assets they don’t own based on defective mortgage loans that are probably worse than worthless because of exposure to liability for predatory and deceptive lending.

Neil Garfield, http://www.livinglies.me

Dealers See Fed Buying $545 Billion Mortgage Bonds in QE3

Nov. 28 (Bloomberg) — The biggest bond dealers in the U.S. say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries.

Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the firms that provided estimates.

While mortgage rates are already at about record lows, housing continues to constrain the economy, with the National Association of Realtors saying in Washington last week that the median price of U.S. existing homes dropped 4.7 percent in October from a year ago. Borrowers with a 30-year conventional mortgage would save $40 billion to $50 billion annually in aggregate if they could all refinance into a new loan with a 3.75 percent rate, according to JPMorgan Chase & Co.

“We need to see a bottom in home prices,” said Shyam Rajan, an interest-rate strategist in New York at Bank of America Corp., a primary dealer, in a Nov. 22 telephone interview. “These are not numbers that are going to get down your unemployment rate,” which has held at or above 9 percent every month except two since May 2009, he said.

New Urgency

The company forecasts the Fed will buy $800 billion of securities, which may include Treasuries.

Efforts to bolster the economy are taking on new urgency with $1.2 trillion in automatic government spending cuts slated to begin in 2013. The Commerce Department said last week that gross domestic product expanded at a 2 percent annual rate in the third quarter, less than the 2.5 percent it originally projected, and Europe’s worsening debt crisis threatens to further curb global growth.

The Fed is taking the view that “even if U.S. fundamentals look to be relatively OK, we’ve got to keep our eye on any contagion from the European stresses,” Dominic Konstam, head of interest-rate strategy at the primary dealer Deutsche Bank AG in New York, said in a Nov. 22 telephone interview. “It’s in that context that they’re willing to do more.”

Treasuries rose last week on those concerns, with the 10-year yield dropping five basis points, or 0.05 percentage point, to 1.97 percent, according to Bloomberg Bond Trader prices. The yield rose 10 basis points to 2.06 percent today at 9:23 a.m. in New York. The 2 percent security due in November 2021 fell 7/8, or $8.75 per $1,000 face amount, to 99 13/32.

Inflation Outlook

Policy makers have scope to print more money to buy bonds in a third round of quantitative easing, or QE, as the outlook for inflation eases.

A measure of traders’ inflation expectations that the Fed uses to help determine monetary policy ended last week at 2.25 percent, down from this year’s high 3.23 percent on Aug. 1. The so-called five-year, five-year forward break-even rate, which projects what the pace of consumer-price increases will be for the five-year period starting in 2016, is below the 2.83 percent average since August 2007, the start of the credit crisis.

“There is a significant chance that QE3 will be deployed, especially in the form of MBS purchases, if inflation expectations fall enough,” Srini Ramaswamy and other debt strategists at JPMorgan in New York wrote in a Nov. 25 report.

Relative Growth

JPMorgan is one of the five dealers that don’t forecast the Fed will begin a third round of asset purchases to stimulate the economy. The others are UBS AG, Barclays Plc, Citigroup Inc. and Deutsche Bank.

After cutting its target interest rate for overnight loans between banks to a range of zero to 0.25 percent, the Fed bought about $1.7 trillion of government and mortgage debt during QE1 between December 2008 and March 2010, and purchased $600 billion of Treasuries between November 2010 and June through QE2.

The moves have helped. At 2.2 percent, U.S. GDP will expand more next year than any other Group of Seven nation except Japan, separate surveys of economists by Bloomberg show.

“Monetary policy is in part a confidence game,” said Chris Ahrens, head interest-rate strategist at UBS Securities LLC in Stamford, Connecticut. “At this point in time we don’t see the need for it, but if the situation were to evolve in a negative fashion they’re telling us they can come out and respond in a proactive fashion.”

‘Frustratingly Slow’

Minutes from the Nov. 1-2 meeting of the Fed’s Federal Open Market Committee showed some policy makers aren’t convinced the recovery will strengthen, saying the central bank should consider easing policy further.

“A few members indicated that they believed the economic outlook might warrant additional policy accommodation,” the Fed said in the minutes released Nov. 22 in Washington.

Bernanke, at a press conference after the meeting, said the “pace of progress is likely to be frustratingly slow,” while on Nov. 17 Fed Bank of New York President William C. Dudley said if the central bank opted to buy more bonds, “it might make sense” for much of those to consist of mortgage-backed securities to boost the housing market.

Mortgages were at the epicenter of the financial crisis that began in 2007 and resulted in more than $2 trillion in writedowns and losses at the world’s largest financial institutions based on data compiled by Bloomberg.

Sales of existing homes have averaged 4.97 million a month this year, little changed since 2008 and down from 6.52 million in 2007, according to the National Association of Realtors. The median price decreased to $162,500 in October from $170,600 a year earlier and from the record $230,300 in July 2006.

Housing Glut

At the current pace of sales it would take eight months to clear the inventory of available properties, compared with the average of 4.8 before 2007.

Fed purchases of mortgage bonds would dovetail with efforts by President Barack Obama, who has been promoting an initiative by the Federal Housing Finance Agency to let qualified homeowners refinance mortgages regardless of how much their houses have lost in value. The Home Affordable Refinance Program, or HARP, will eliminate some fees, trim others and waive some risk for lenders.

The difference between yields on Fannie Mae’s current-coupon 30-year fixed-rate securities, which influence loan rates, and 10-year Treasuries climbed to 121 basis points last week, from 84 basis points on Dec. 31, Bloomberg data show. The spread widened to 129 basis points in August, the most since March 2009.

‘Powerful Wildcard’

“The prospect of the Fed buying MBS under a QE3 program is a powerful wild card, and should limit the downside in the asset class,” the JPMorgan strategists wrote in their report last week. “Given attractive spreads currently, we recommend heading into 2012 with an overweight,” they said in reference to a strategy where investors own a greater percentage of a security or asset class than is contained in benchmark indexes.

Mortgage securities guaranteed by government-supported Fannie Mae and Freddie Mac or the federal agency Ginnie Mae have financed more than 90 percent of new home lending following the collapse of the non-agency market in 2007 and a retreat by banks. The agency mortgage-bond market accounts for $5.4 trillion of the $9.9 trillion in housing debt outstanding.

The Fed, which owns about $900 billion of the securities, said in September it will reinvest maturing housing debt into mortgage-backed bonds instead of Treasuries. MBS holdings represent about 40 percent of the Fed’s balance sheet, down from a peak of about 66 percent.

“If the Fed’s position in MBS grew under QE3 to half of its balance sheet, this would imply that they would have to purchase on the order of $500 billion,” the JPMorgan strategists wrote in their report. The Fed’s “decision to reinvest paydowns back into the mortgage market suggests a comfort level with owning mortgages that seems to have grown,” they wrote.

–With assistance from Jody Shenn and Susanne Walker in New York. Editors: Philip Revzin, Robert Burgess, Dennis Fitzgerald

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

BANKS PAYING OFF HOME LOANS? TO WHAT ACCOUNT WILL THESE “SETTLEMENTS” BE CREDITED?

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“The game is on: a race to foreclose and get the properties in the name of some entity that is “bankruptcy remote.” While investors and homeowners continue to sort out what happened to them and why they are in the hole, the banks move forward grabbing as much as they can. But the banks can’t change law and can’t change the fact that no matter what they do they can’t make those mortgages good without another signature from the homeowner, past, present and future. That means that foreclosures will ease up if the current trend in the courts continue. But it also means that BOA et al will be taking an increasing number of hits on their balance sheet requiring them to raise additional capital or go out of business.”— Neil Garfield

EDITOR’S ANALYSIS: Think about it. BOA now announces it will cost $20 billion for it to clean up the mortgage mess. That is a BOA figure, which means it is the figure BOA wants everyone to use. But it is false. There will be more such announcements and then more again — for as the courts increasingly knock down any argument that the mortgages are enforceable or even unpaid, the value of the bogus mortgage-backed securities will fall. Those MBS were supposedly backed by mortgages. But we now know that the the mortgages never made it into the SPV (Trust or Pool) that was “backing” the SPV’s obligation to the investor who was the beneficial owner of the “assets” — assets that were not there!

Think about it some more. BOA says it is paying investors money for defaulted mortgages. Why are they paying? And why are they paying the money to investors? In the courts BOA has steadfastly maintained that the investors were not the creditors — and here they are paying them off as though the investors were the creditors. That being the case, from the investor’s standpoint it is therefore true that the investor is accepting this money in lieu of payment from the borrower. But the borrower is not receiving a credit against his “unpaid account” for this payment. Why not? It is also true that the investors are never going to see a nickle from the foreclosures — this settlement being a reason to give up those claims, which they know they can’t prosecute successfully.

If the “assets” on BOA’s books were stated correctly, then the investors would surely NOT take a pennies on the dollar settlement. The fact remains that the banks are still playing games through the media and with these friendly settlements that make the problem look far smaller than it is. And the fact remains that the number of hits BOA will take on bogus mortgages that supposedly were in bogus pools is going to increase from both ends — the homeowners and the investors. The more educated homeowners and investors get, the more they are looking back to the original transactions and realizing that virtually everything was an outright lie.

The game is on: a race to foreclose and get the properties in the name of some entity that is “bankruptcy remote.” While investors and homeowners continue to sort out what happened to them and why they are in the hole, the banks move forward grabbing as much as they can. But the banks can’t change law and can’t change the fact that no matter what they do they can’t make those mortgages good without another signature from the homeowner, past, present and future. That means that foreclosures will ease up if the current trend in the courts continue. But it also means that BOA et al will be taking an increasing number of hits on their balance sheet requiring them to raise additional capital or go out of business.

Which brings me to the next point of analysis that I was withholding until now. Once BOA makes that payment, what happens to the obligation, note and mortgage? BOA pays Investor and now investor as creditor releases the claim to BOA and assigns it (presumably) to BOA. But the real reason the investors are getting paid off is that the loans were not properly originated, serviced or even foreclosed. So the same question comes up — what were the investors assigning. The Banks would have us believe that the more they assign an “asset” the more real it becomes and maybe that is true from a PR perspective. But legally, BOA is receiving nothing, because the investors had nothing other than a claim for unjust enrichment against the homeowner because they had no rights under mortgages that were never properly created or transferred.

So who owns the obligation from the original borrower and is that obligation secured? Despite all the complexity and skullduggery the answer is actually quite simple. If the mortgage was never assigned then the originating lender — the one on the note and mortgage — is still the mortgagee of record. But the mortgage is now wholly separate from the obligation (and probably always was). So the mortgage secures nothing. The right of investors to seek damages for unjust enrichment is completely different than a mortgage obligation and must be enforced in a completely different manner than mortgages —certainly not in non-judicial proceedings.  And it won’t be “secured” until it becomes a judgment lien subject to state laws on homestead etc.

BOA will say that it has been subrogated to the rights of the investor to foreclose. But that could only be true if the investor actually had the right to foreclose. They didn’t have the right to foreclose because they didn’t own the mortgage — and it is only through the mortgage that the right to foreclose exists. And it is only through a valid enforceable mortgage that the right arises. There is no security instrument (mortgage) that secures the right to unliquidated damages from an unjust enrichment claim. That simple fact eliminates the mortgages, the foreclosures and the value carried on the books of BOA et al.

So homeowners, past, present and future should be asking whether the figures used in their foreclosure are right and should be doing so through discovery that reaches into the loan level accounting. Is the loan in default from the creditor’s perspective? Probably not if they were getting paid from the servicer even while the servicer was declaring it in default. Having made the payment they certainly cured the default, and if the payments from the servicer were regular then the loan was never in default. The borrower’s non-payment triggered the liability of the servicer, the guarantors, the insurers etc.

Many of these arrangements were kept from the borrower at closing, which is of course a TILA violation making the loan subject to rescission. The fact that the borrower did not pay is not a default unless the payment is due after the default date and remains uncured.

Here we see that the payment was in fact made to the creditor even though the borrower did not make the payment. So now it is the servicer that may have a claim against the borrower but not under the original obligation, note and mortgage because the servicer is not in the contract and never acquired the contract to repay the loan. The servicer only has a partial claim for the payments it made, while the rest still belongs to the creditor. So if the servicer asserts a claim against the homeowner for default, the obligation is split into at least 2 parts — the investors and the servicer. Can both be secured by the mortgage? That is the question that must be answered in the courts. I think not.

Bank of America Settles Claims Stemming From Mortgage Crisis

By NELSON D. SCHWARTZ and ERIC DASH

Just how much will it cost the big banks to atone for the mortgage mess?

Bank of America announced Wednesday that it would take a whopping $20 billion hit to put the fallout from the subprime bust behind it and satisfy claims from angry investors. But for its peers, the settlements may just be starting.

Heavyweight investors that forced Bank of America to hand over billions to cover the cost of home loans that later defaulted are now setting their sights on companies like JPMorgan Chase, Citigroup and Wells Fargo, raising the prospect of more multibillion-dollar deals.

“Bank of America has charted a path that our clients expect other banks will follow,” said Kathy D. Patrick, the lawyer who represented BlackRock, Pimco, the Federal Reserve Bank of New York and 19 other investors who hold the soured mortgage securities assembled by the Bank of America.

Ms. Patrick’s clients are seeking $8.5 billion from Bank of America — a settlement that needs a judge’s approval and could still face objections from investors seeking a better deal. A date to review the blueprint has been set for Nov. 17 with Justice Barbara R. Kapnick in New York Supreme Court.

All told, analysts say the financial services industry faces potential losses of tens of billions from future claims — real money even by the eye-popping standards of the nation’s biggest banks. Indeed, even that $20 billion announced Wednesday will not be enough to completely stanch the bleeding at Bank of America — it says litigation over troubled mortgages could cost it another $5 billion in the future.

The proposed settlement is more than just another financial blow to a company staggering from the collapse of the mortgage bubble. It also represents a major acknowledgment of just how flawed the mortgage process became in the giddy years leading up to the financial crisis of 2008, typified by the excesses at Countrywide Financial, the subprime mortgage lender Bank of America acquired in 2008.

Ms. Patrick and her clients claim that Countrywide created securities from mortgages originated with little, if any, proof of assets or income. Then, they argue, Bank of America did not properly service these mortgages, failed to heed pleas for help from homeowners teetering on the brink of foreclosure and frequently misplaced documents.

Most of the loans in the pools covered by the settlement were underwritten at the height of the mortgage mania: in 2005, 2006 and 2007. But with borrowers soon unable to meet their monthly payments, defaults soared.

For the banking industry, the reckoning could not come at a worse time. On Wall Street, trading revenue has been devastated by the economic uncertainty in Europe, the anemic recovery in the United States, and the stock market swoon of the last two months.

What’s more, new regulations have already taken a big bite out of profits. Despite a modest amount of relief on Wednesday, when the Federal Reserve completed new rules governing debit card swipe fees, the banks stand to lose billions when the regulations take effect next month.

If all this were not enough, further weakness in the housing and job markets has reduced lending by the banks to businesses and consumers alike, cutting yet one more source of profits.

Nevertheless, investors appeared to endorse the proposed settlement, with Bank of America shares rising nearly 3 percent, to $11.14, a move mirrored by shares of other big financials.

Some experts said the settlement could prove good news for consumers and the broader economy, speeding the foreclosure process for hundreds of thousands of homeowners while potentially making it easier to obtain modifications of existing mortgages.

By providing a template for cleaning up past claims and setting standards for future practices, the settlement could make it easier for banks to bundle and sell mortgages again, a business that has been all but dead since the financial crisis.

“That is important for providing funding for people to buy homes, grow their businesses and create jobs,” said Michael S. Barr, a former assistant Treasury secretary who now teaches law at the University of Michigan.

The accord does not resolve an investigation by all 50 state attorneys general into allegations of mortgage service abuses by Bank of America and other major lenders that could ultimately cost the industry billions more in fines and penalties. Nor does it cover liability from soured home equity loans or bonds the bank created with mortgages from lenders other than Countrywide.

Of the $20 billion that Bank of America announced Wednesday, $8.5 billion will go to investors who bought the most troubled securities backed by Countrywide mortgages. Another $5.5 billion will cover future claims by Fannie Mae, Freddie Mac and private investors that also bought troubled mortgage bonds from the bank.

The remaining $6.4 billion represents a noncash charge to reflect the drop in the value of Countrywide, as well as the increased cost of more rigorous servicing requirements and additional legal expenses.

Those charges will cause Bank of America to record a loss of $8.6 billion to $9.1 billion for the second quarter. The company, however, tried to portray the settlement as one more step in putting Countrywide’s poisonous legacy behind it, rather than a surrender.

“We did fight for the last several months,” said Brian T. Moynihan, chief executive of Bank of America, in a conference call with analysts. “But when you look at this over all, it’s a better decision for the company. It was much more adverse to the company if we kept fighting. We’ve been battling it out.”

The fight began last October when eight investors holding mortgage securities representing $104 billion in home loans spread across 115 deals charged that Countrywide and Bank of America had passed off troubled mortgage loans as safe investments, and failed to properly collect money for the investors from homeowners. Pimco and BlackRock, two of the original eight investors, had been longtime clients of Ms. Patrick’s firm, Gibbs & Bruns, and first approached the firm for help in the spring of 2010.

In early January, Bank of America announced that it had settled for $2.5 billion similar claims from Fannie Mae and Freddie Mac, the government-controlled mortgage giants. That provided valuable data for Ms. Patrick’s group to use in assessing just how many mortgages were improperly presented as safe investments or not serviced correctly.

By March, said Ms. Patrick, the group had grown to 22 firms with holdings in 530 deals that represented $424 billion in underlying mortgages.

Meanwhile, Bank of America’s stock was falling, sinking nearly 20 percent this year in part because of the fallout from the mortgage debacle, which encouraged the Charlotte, N.C.-based bank to resolve claims. Rather than just address mortgages held by Ms. Patrick’s investors, however, Bank of America decided to reimburse investors in all 530 deals — nearly all of the subprime loans that were assembled and sold to private investors on behalf of Countrywide.

The $8.5 billion settlement on $424 billion worth of mortgages suggests that 2 percent of Countrywide’s loans may have been underwritten or serviced improperly. A much bigger segment of those mortgages — about a quarter — are either in default or severely delinquent now. Bank of America attributes many of the foreclosures and defaults to the downturn in the economy.

In addition to the financial terms, the settlement also requires Bank of America to adhere to more rigorous servicing standards, on top of new requirements imposed by federal regulators.

Home loans from 300,000 borrowers will be removed from Bank of America’s servicing arm, and placed among 10 special sub-servicers, with the goal of fast-tracking a resolution of their cases. Borrowers will get answers on any possible modification within 60 days, have a single point of contact and avoid having to resubmit documents.

Now, the pressure will be on Bank of America’s main rivals to reach similar accords. JPMorgan Chase, Wells Fargo and Citigroup also face potentially billions of dollars in legal claims.

In a research note published on Wednesday, Keith Horowitz of Citigroup said the Bank of America deal was likely to set the high-water mark for other potential settlements. Using the 2 percent loss rate as a guide, he projected that Chase could face about a $9 billion hit on its portfolio of troubled mortgage bonds. Wells Fargo, Mr. Horowitz estimated, could face losses reaching $4 billion, though that could be lower because of tighter underwriting standards. Other analysts previously put Citigroup’s exposure at about $3 billion.

If that is the case, analysts say that all three of those banks appear to have set aside enough money in reserve or have the earnings power to eventually cover the cost of resolving the claims, without having to raise more capital or sell stock.

“This tells us the shape of the biggest dollar litigation settlements from the crash,” said Peter Swire, a former special assistant for housing policy in the Obama administration, and now a law professor at Ohio State University. “The doomsday scenarios for this private litigation would have threatened the solvency of the biggest banks. That risk has dropped a lot.”

Gretchen Morgenson contributed reporting.

Minnesota Prepares to Sue A Debt Collection Agency: Robosigning

SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

“The Minnesota attorney general, Lori Swanson, accused Encore of fraud, saying it had filed false affidavits to collect consumer debt that was not owed or had been already paid off.”

HUGE POTENTIAL EFFECT ON FORECLOSURES

EDITOR’S COMMENT:

The significance here is not just that robo-signing was used, which violates even common sense rules of evidence. It is the fact that the false affidavits were used to collect debts that were not due or had already been paid. This is the same as the current foreclosure mess, where pretenders are using false representations, fabrications, forgeries and perjured testimony to collect on non-existent debt, and debt which has already been paid by parties who have expressly waived any right to subrogation, which means they paid, but they did not purchase the receivable — to protect themselves from being called “lenders” or being subject to claims from homeowners for fraudulent or predatory lending.

As you will see from the description below, this opaque construct of conflicting “deals” and “trades” created a context in which the borrower’s obligation would be paid, regardless of whether the homeowner made the payments or not. The pretender lenders stepped in to the void created by this scheme to enforce a void note, void mortgage and an obligation in which it was neither the lender nor the purchaser of the receivable.

The pretenders are able to do this under the noses of the people who were the actual lenders because the investors don’t want to accept any responsibility for the fraudulent and predatory lending and documentation.

On a basic intuitive level it would seem that if a borrower received the benefit of funding of a loan, that the borrower was responsible for paying it back, regardless of what back-room deals were made. But in the words of Renaldo Reyes, Chief Asset Acquisition Officer (i.e., “trustee”) for Deutsch bank, the whole thing is COUNTER-INTUITIVE. That is why the courts are having so much trouble with these foreclosures — AND THAT IS THE SOLE REASON FOR THE USE OF ROBO-SIGNERS, FABRICATED DOCUMENTS AND FORGERIES TOGETHER WITH PERJURED TESTIMONY.

If the creditor was actually named, the real issues would come out and the issue would be completely reframed — because the the real creditor doesn’t want the house or the foreclosure, and in many cases is still getting paid. This leaves a “floating obligation owed to nobody” which is what the pretenders are exploiting and using on their balance sheets as “assets.”

Payment came from third parties who expressly waived rights of subrogation — it is right there in the insurance, credit default swap and buy-out agreements in the bailouts. That was intentionally done to remove the insurers or counterparts from any potential liability for fraudulent or predatory lending claims. But you can’t pick up one end of the stick without picking up the other end. The payments were received by agents of the investors — and the servicers keep on paying the payments to assure the imposition of absurd fees and costs. So at no time is the borrower’s debt to the investor-lender ever in default despite representations to the contrary in court. AND THAT IS WHY THEY USE ROBO-SIGNING, FABRICATION AND FORGERY — BECAUSE IF THEY WENT TO THE ACTUAL CREDITOR, THE DOCUMENT WOULD NOT BE SIGNED. SAME THING WITH CREDIT CARDS, STUDENT LOANS AND OTHER CONSUMER CREDIT WHICH INCIDENTALLY WAS MOSTLY SECURITIZED AS WELL.

Minnesota Prepares to Sue A Debt Collection Agency

By REUTERS

Minnesota’s attorney general accused the Encore Capital Group of cutting corners by filing “robo-signed” affidavits in debt collection lawsuits, the same practice for which banks have come under fire in home foreclosures.

Encore shares fell as much as 10.3 percent before closing with a 3 percent loss on the day.

The Minnesota attorney general, Lori Swanson, accused Encore of fraud, saying it had filed false affidavits to collect consumer debt that was not owed or had been already paid off.

Encore is one of the nation’s largest debt collection companies, and often buys debt from credit card companies.

The allegations follow an Ohio federal judge’s preliminary approval on March 11 of a $5.2 million class-action settlement of similar claims against Encore’s Midland Funding unit.

An Encore spokesman, Mike Huckman, had no immediate comment.

Robo-signing is a term coined to describe employees’ signing of litigation documents without reviewing their contents. All 50 state attorneys general are investigating robo-signing and other practices by banks in the mortgage industry.

Ms. Swanson said such practices were pervasive in debt collection. Ben Wogsland, a spokesman for Ms. Swanson, said she was investigating about a half-dozen other companies that buy debt.

Encore, which is based in San Diego, had through year-end invested $1.8 billion to buy 33 million accounts with a face value of $54.7 billion, according to its annual report.

Ms. Swanson wants the Ohio court to clarify that the proposed class-action settlement does not bar government agencies from pursuing similar litigation. She is seeking to file her lawsuit in a Minnesota state court, Mr. Wogsland said.

Deliberate Destruction Of Documents: Securitization Evolved into a Myth

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“Then guy then laughed nervously and said, “Well, if you’re right, we’re ****ed. We never transferred the paper. No one in the industry transferred the paper.”

Editor’s Note: It is very rewarding to see the work of Karl Denninger and others who are taking  my work and not only moving it along, but advancing on it. LUMINAQ is now offering not only the title and securitization searches but actual accounting records showing that the loans were reported to the creditor as performing at the same time they were being declared in default, along with payment to the creditor. Is it a default if the creditor received payment? Obviously not. And THAT is why I keep saying that the non-payment by the borrower is NOT the same thing as a default. It is the non-receipt by the creditor of an expected payment that is a default.

I guess the lesson here is whatever you think is true isn’t. Whatever you think is impossible, is the rule. In EVERY CASE that I have reviewed, seen reviewed or reported to me the basic facts are the same: Except for a few loans from the 2001-2003 era, NONE of them were actually securitized, and from what I can see and what title experts are reporting under promise of anonymity, none of these loans are actually secured by the property. The lien wasn’t just subject to the old “failure to perfect the lien” doctrines, they were never secured to begin with.

The liability of the borrower inured directly to the benefit of an unnamed principal that was in turn the undisclosed agent of another unnamed principal, which was the account representative of undisclosed lenders who received a bond, not the note signed by the borrower. The parties named on the mortgage or deed of trust had nothing to do with the finances, payments or accounting for the amount advanced by the lender nor the proceeds of payments receivable by the lender. The lenders received promises to pay from people OTHER than the homeowner.

The note was payable to a party who did not loan the money and never touched the money and who is not due any money now. The same is true for the parties named as mortgagees, beneficiaries or lenders in the mortgage or deed of trust. And they were all different parties. So the obligation was payable to the lender, the note was payable to a disinterested intermediary, and the mortgage or deed of trust was in favor of still another disinterested party. There is no law I know of that would allow a disinterested party named in an encumbrance to foreclose or enforce a debt that is not due to THAT party. The encumbrance is a myth.

As the article below corroborates many statements  made on this blog — the FACTS are that that notwithstanding the contents of the securitization documentation, nothing ever happened. Nothing was transferred legally, equitably or any other way — the obligation was left undisturbed and exists only by operation of law to the party who advanced the funds. The note is NOT evidence of the obligation because it is a misrepresentation of the party to whom the obligation is owed. The mortgage or deed of trust, which is neither an obligation nor a note that could be used as evidence of the obligation, is incident to an obligation that does not exist — the one described on the note.

If I signed a warranty deed and mortgage conveying and encumbering your home, properly witnessed, notarized and recorded, it would look right but it wouldn’t be true. If I signed a letter stating that I had the original document in my hands, as it was duly recorded in the county records, the letter would be true statement of a false fact. The documentation that shows on ABS.net, Bloomberg and other services showing loan specific data in alleged “pools” and “tranches” of loans is exactly like the letter — a self-serving statement that is documenting a fact that is untrue, to wit: that the loan was assigned into the pool and securitized into tranches and then sold off as mortgage bonds.

THE ASSIGNMENT NEVER TOOK PLACE. THERE WAS NO ENDORSEMENT, TRANSFER OR EVEN TRANSMITTAL OF THOSE DOCUMENTS AND OBVIOUSLY NO RECORDING OF THESE NONEXISTENT DOCUMENTS, WITHOUT WHICH THE POOL’S CLAIM TO THE LOAN IS SIMPLY FALSE. IT ISN’T JUST VOID OR VOIDABLE, IT IS A LIE.

The unavoidable conclusion is that the loans are unsecured, a QUIET TITLE action would remove the appearance of the false encumbrance, and the homes that have already been “sold” pursuant to “foreclosure” in both non-judicial and judicial states are subject to wrongful foreclosure actions, as are the homes that are currently in some stage of the foreclosure process.

As for the unsecured obligations, they are owed — subject to offset and counterclaims — under TILA, RESPA, Consumer Fraud laws and common law fraud. If there is anything left after deduction for compensatory damages and punitive damages or treble damages, then the borrower still owes it to whoever is really the party who lost money on the transactions, assuming they have not already mitigated their damages by receipt of insurance, federal bailout, or counter-party contract payments.

See, I Told You So (Deliberate Destruction Of Documents)
The Market Ticker ® – Commentary on The Capital Markets
Posted 2010-09-27 08:35
by Karl Denninger
in Housing
See, I Told You So (Deliberate Destruction Of Documents)

Yves over at Naked Capitalism has dug up confirmation of what I’ve been saying now for more than two years and have had on “background” and could not “out” the sources of – the practice of not complying with both MBS securitization offering circulars and black-letter state law was both pervasive and intentional.

One of my colleagues had a long conversation with the CEO of a major subprime lender that was later acquired by a larger bank that was a major residential mortgage player. This buddy went through his explanation of why he thought mortgage trusts were in trouble if more people wised up to how they had messed up with making sure they got the note. The former CEO was initially resistant, arguing that they had gotten opinions from top law firms. My contact was very familiar with those opinions, and told him how qualified they were, and did not cover the little problem of not complying with the terms of the pooling and servicing agreement. He also rebutted other objections of the CEO. Then guy then laughed nervously and said, “Well, if you’re right, we’re ****ed. We never transferred the paper. No one in the industry transferred the paper.”

WE NEVER TRANSFERRED THE PAPER. NO ONE IN THE INDUSTRY TRANSFERRED THE PAPER.

Got it folks?

This was not an accident and the dog didn’t eat anyone’s homework.

THE MAJOR BANKS AND LENDERS ALL INTENTIONALLY FAILED TO COMPLY WITH BOTH THEIR OWN OFFERING DOCUMENTS AND BLACK-LETTER STATE LAW.

Even better – in 2009 The Florida Banker’s Association ADMITTED that they have been intentionally destroying the original “wet ink” signatures and documents:

The reason “many firms file lost note counts as a standard alternative pleading in the complaint” is because the physical document was deliberately eliminated to avoid confusion immediately upon its conversion to an electronic file. See State Street Bank and Trust Company v. Lord, 851 So. 2d 790 (Fla. 4th DCA 2003). Electronic storage is almost universally acknowledged as safer, more efficient and less expensive than maintaining the originals in hard copy, which bears the concomitant costs of physical indexing, archiving and maintaining security. It is a standard in the industry and becoming the benchmark of modern efficiency across the spectrum of commerce—including the court system.

I don’t care what’s a “standard” if it does not comport with the law!

This is like saying that “dealing crack is a standard in the gang industry, therefore, we can sell it even though Federal Law says that we should go to prison for doing so.”

Incidentally, for those who will chime in that “electronic copies are just as good”, no they’re not. They’re not secured, they’re not cryptographically signed and verified by the originator, and they are trivially easy to tamper with.

I’d accept that an electronic copy is ok provided that the original is scanned, encoded, and digitally signed by the consumer at the point of origination, and that consumer then takes the original and a copy of the electronic document with him, with all of this being disclosed and approved by the consumer. If I PGP-sign a document or file it is extremely difficult to tamper with it in a way that cannot be detected. But without that sort of signature and encoding in the presence of the consumer, along with the consumer being the one that gets the paper copy, it is essentially impossible to prove that the document was not tampered with. “Wet signatures” and originals are required for exactly this reason – it makes tampering dangerous as it can usually be detected quite easily.

This is massive, pernicious and OUTRAGEOUS fraud folks.

*
It is fraud upon the county governments who were deprived of their recording and transfer fees (e.g. “doc stamps.”)

*
It is fraud upon all of the MBS buyers, who purchased these securities with a representation and warranty that these notes WERE transferred and properly endorsed.

*
And it is fraud upon the courts when the “lost note” affidavits are filed asserting that the documents were LOST, when in fact THEY WERE INTENTIONALLY DESTROYED.

If you hold private-label MBS wake the hell up and get your lawsuits going, because these big banks that put this stuff together will not survive this and the only way you get anything back is to be first in line.

Folks, this is not small potatoes or something we can overlook.

We are talking about intentional, pernicious, industry-wide fraud perpetrated upon the public, upon the government, upon homeowners and upon investors to the tune of trillions of dollars.

We MUST NOT tolerate this.

Each and every institution involved must be held to criminal account for their willful and intentional acts in this regard.

Bail these people out? Hell no. They deserve a speedy and public trial, to be immediately followed by the proper sanction imposed for intentional acts taken to destroy this nation and it’s financial stability. This is terrorism, exactly as Bin Laden intended (destruction of our economy) and should be met with an identical punishment.

GMAC Drew `False Testimony’ Sanction Years Before Eviction Halt

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The sharks are circling. Industry practices for the past ten years have been based upon intentional misrepresentation. If their lips were moving, if they submitted a document, they were lying.

The lawyers, the banks and the individual people who signed any of these documents are in serious trouble along with those who witnessed and notarized their signatures. The people who prepared these documents face the worst consequences.

For those of you seeking payment of monetary damages remember that errors and commissions policies normally exclude intentional acts of fraud. So your claim should be based upon the gross negligence of the perpetrators rather than an intentional act if you want the insurance coverage. It’s not hard to allege that since they probably knew something was wrong but accepted assurances from people they trusted. Notaries and others involved in this process a re normally insured, at least up to a point.

AND the companies that employed them to notarize thousands of documents in blank are liable under a number of long-standing solid common-law theories of tort, breach of fiduciary obligation and other causes of action, many of which are covered by insurance as well.

GMAC Drew `False Testimony’ Sanction Years Before Eviction Halt
By Dakin Campbell and Lorraine Woellert – Sep 23, 2010 8:46 AM ET

Ally Said to Tell Freddie Mac of Faulty Foreclosures

Fannie Mae , the largest government-backed mortgage firm, said it notified lawyers of flaws in GMAC documentation after it was alerted. Photographer: Bradley C. Bower/Bloomberg

Ally Financial Inc.’s GMAC Mortgage unit, which suspended evictions in 23 states last week after finding employees didn’t verify foreclosure documents, was sanctioned in 2006 for similar practices, court records show.

GMAC gave “false testimony” when it justified foreclosures by submitting sworn affidavits signed by a mortgage executive who later said in a deposition she didn’t actually review the loan documents or sign in the presence of a notary, according to a 2006 court order filed in Duval County, Florida. In response to the sanctions, GMAC Mortgage directed employees to “read and fully understand” court documents before signing.

“Do not sign unless you have that comfort level,” said a policy directive from GMAC Mortgage’s James Barden, then- associate counsel for the legal staff. “It is the integrity of our cases that is at stake and we cannot afford anything less than full accuracy.”

GMAC Mortgage is facing new allegations in court documents that it evicted homeowners without verifying that borrowers actually defaulted or whether the firm had legal standing to seize the homes. Ally, the Detroit-based auto and home lender, said this week it found a “technical” deficiency in its foreclosure process allowing employees to sign documents without a notary present or with information they didn’t personally know was true.

Loan Industry

Ally declined to say how many loans may be affected. The firm, formerly known as GMAC Inc., ranked fourth among U.S. home-loan originators in the first six months of this year with $26 billion, and fifth among loan servicers, with a $349.1 billion portfolio, according to Inside Mortgage Finance, an industry newsletter. It’s also the beneficiary of more than $17 billion in U.S. bailout funds.

Servicers conduct billing and collections on mortgages, sometimes for other firms that actually own the loans, and handle foreclosures when borrowers default.

Gina Proia, a spokeswoman for Ally, confirmed that a policy directive was issued in 2006, “but we recently became aware of a breakdown in the process. The process has since been addressed and the prior practice is no longer taking place.”

Mark Paustenbach, a spokesman for the U.S. Treasury Department, which owns 56.3 percent of Ally, declined to comment. Kim Fennebresque, a director named by the Treasury to serve as an independent board member, didn’t return calls.

In a statement earlier this week, Proia said “the entire situation is unfortunate and regrettable and GMAC Mortgage is diligently working to resolve the situation,” and that “there was never any intent on the part of GMAC Mortgage to bypass court rules or procedures.” Florida was among the 23 states where evictions have been halted.

Verification

Lawyers defending borrowers have accused mortgage firms including GMAC and JPMorgan Chase & Co. of foreclosing on homeowners without making proper efforts to verify the accuracy of the documents. In foreclosure cases, companies typically file affidavits to start court proceedings. Affidavits are statements written and sworn in the presence of someone authorized to administer an oath, such as a notary public.

The 2006 case stems from a GMAC Mortgage foreclosure that began in August 2004 on a home owned by Robert and Lillian Jackson. The filing included an affidavit signed by a GMAC officer laying out the amount owed on the loan.

Florida Circuit Court Judge Bernard Nachman sanctioned GMAC in May 2006, saying that the company “submitted false testimony to the court in the form of affidavits of indebtedness.” The company was ordered to submit an explanation and confirmation that the policies were changed, and told to pay defendants’ legal costs of $8,135.55.

Legal Directive

GMAC’s legal department issued a statement afterward that told employees “not to sign verifications on court pleading documents unless you have independently reviewed and checked the facts.” The policy, distributed in June 2006, also stated in italics and boldface that employees should sign documents only in the presence of a notary. GMAC told the court four years ago that the policies were “being corrected.”

In December 2009, a GMAC Mortgage employee said in a deposition that his team of 13 people signed about 10,000 affidavits and other foreclosure documents a month without verifying their accuracy. The employee’s supervisor is the same executive sanctioned in the 2006 case.

GMAC’s internal review discovered the new discrepancies “a few months ago” and halted the practice, according to Proia’s statement earlier this week. Barden, who wrote the 2006 directive, and the two employees still work at GMAC, Proia said. Barden didn’t return a request for comment left on his work phone.

GMAC Impact

“They’re acting like this is a new problem,” said O. Max Gardner III, a bankruptcy attorney at Gardner & Gardner PLLC in Shelby, North Carolina, who isn’t directly involved in either GMAC case. “It’s the exact same thing,” Gardner said. “This is not just a GMAC problem. This is an industry-wide problem.”

Deborah Rhode, a Stanford University law professor and director of the school’s Center on the Legal Profession, said GMAC Mortgage’s behavior may amount to misleading the court.

“It’s not ‘technical’ when people attest under oath to knowledge they don’t have, and it doesn’t matter that in fact there isn’t actual error or discrepancy,” Rhode said. “Any court would take this very seriously.”

Judges could decide to dismiss the foreclosures, sanction the attorneys and company or levy a “substantial” financial penalty that would “get their attention,” she said.

The U.S. took control of Ally as part of a larger effort to prop up auto manufacturers. On a national level, regulators and lawmakers are trying to persuade bankers to avert foreclosures as seizures of homes by banks set records. Bank repossessions climbed 25 percent in August from a year earlier to 95,364, according to RealtyTrac Inc., the Irvine, California-based data provider.

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net.

To contact the editors responsible for this story: Alec McCabe at amccabe@bloomberg.net. Lawrence Roberts at lroberts13@bloomberg.net.

Re-Orienting the Parties to Clarify Who is the Real Plaintiff

The procedural motion missed by most lawyers is re-orienting the parties. Just because you are initially the plaintiff doesn’t mean you should stay that way. Once it is determined that the party seeking affirmative relief is seeking to sell your personal residence and that all you are doing is defending, they must become the plaintiff and file a lawsuit against you which you have an opportunity to defend. A Judge who refuses to see that procedural point is in my opinion committing clear reversible error.

If the would-be forecloser could not establish standing and/or could not prove their case in a judicial foreclosure action, there is no doubt in my mind that the ELECTION to use the power of sale is UNAVAILABLE to them. They must show the court that they have a prima face case and the homeowners must present a defense. But that can only be done if the parties are allowed to conduct discovery. Otherwise the proceedings are a sham, and the Judge is committing error by giving the would-be forecloser the benefit of the doubt (which means that the Judge is creating an improper presumption at law).

If the Judge says otherwise, then he/she is putting the burden on the homeowner. But the result is the same. Any contest by the would-be forecloser should be considered under the same rules as a motion to dismiss, which means that all allegations made by the homeowner are taken as true for purposes of the preliminary motions.

Some people have experienced the victory of a default final judgment for quiet title only to have it reversed on some technical grounds. While this certainly isn’t the best case scenario, don’t let the fight go out of you and don’t let your lawyer talk you into accepting defeat. Reversal of the default doesn’t mean anyone won or lost. It just means that instead of getting the ultimate victory by default, you are going to fight for it. The cards are even more stacked in your favor with the court decisions reported over the last 6 months and especially over the last two weeks. See recent blog entries and articles.

All that has happened is that instead of a default you will fight the fight. People don’t think you can get the house for free. Their thinking is based upon the fact that there IS an obligation that WAS created.

The question now is whether the Judge will act properly and require THEM to have the burden of proof to plead and prove a case in foreclosure. THEY are the party seeking affirmative relief so they should have the burden of pleading and proving a case. Your case is a simple denial of default, denial of their right to foreclose and a counterclaim with several counts for damages and of course a count for Quiet Title. As a guideline I offer the following which your lawyer can use as he/she sees fit.

The fact that you brought the claim doesn’t mean you have to plead and prove their case. Your case is simple: they did a fraudulent and wrongful foreclosure because you told them you denied the claim and their right to pursue it. That means they should have proceeded judicially which of course they don’t want to do because they can’t make allegations they know are not true (the note is NOT payable to them, the recorded documentation prior to sale doesn’t show them as the creditor etc.).

I don’t remember if MERS was involved in your deal but if it was the law is getting pretty well settled that MERS possesses nothing, is just a straw man for an undisclosed creditor (table funded predatory loan under TILA) and therefore can neither assign nor make any claim against the obligation, note or mortgage.

Things are getting much better. Follow the blog — in the last two weeks alone there have been decisions, some from appellate courts, that run in your favor. There is even one from California. So if they want to plead a case now in foreclosure they must first show that they actually contacted you and tried to work it out. Your answer is the same as before. I assume you sent a qualified written request. Under the NC appellate decision it is pretty obvious that you do have a right of action for enforcement of RESPA. They can’t just say ANYONE contacted you they must show the creditor contacted you directly or through an authorized representative which means they must produce ALL the documentation showing the transfers of the note, the PSA the assignment and assumption agreement etc.

They can’t produce an assignment dated after the cutoff date in the PSA. They can’t produce an assignment for a non-performing loan. Both are barred by the PSA. So there may have been an OFFER of assignment  but there was no authority to accept it and no reasonable person would do so knowing the loan was already in default. And they must show that the loan either was or was not replaced by cash or a substitute loan in the pool, with your loan reverting back to the original assignor. Your loan probably is vested in the original assignor who was the loan aggregator. If it’s in the pool it is owned by the investors, collectively. There is no trust nor any assets in the trust since the ownership of the loans were actually conveyed when the investors bought the mortgage backed securities. They don’t want you going near the investors because when you compare notes, the investors are going to realize that the investment banker did not invest all the money that the investor gave the investment banker — they kept about a third of it for themselves which is ANOTHER undisclosed yield spread premium entitling you to damages, interest and probably treble damages.

The point of all this is that it is an undeniable duty for you to receive disclosure of the identity of the creditor, proof thereof, and a full accounting for all receipts and disbursements by the creditor and not just by the servicer who does not track third party payments through insurance, credit default swaps and other credit enhancements. It’s in federal and state statutes, federal regulations, state regulations and common law.

The question is not just what YOU paid but what ANYONE paid on your account. And even if those payments were fraudulently received and kept by the investment banker and even if the loan never made it through proper assignment, indorsement, and delivery, those payments still should have been allocated to your account, according to your note first to any past due payments (i.e., no default automatically, then to fees and then to the borrower). That is a simple breach of contract action under the terms of the note.

Again they don’t want to let you near those issues in discovery or otherwise because the fraud of the intermediaries would be instantly exposed. So while you have no automatic right to getting your house free and clear, that is often the result because they would rather lose the case than let you have the information required to prove or disprove their case in foreclosure. The bottom line is that you don’t want to let them or have the judge let them (Take an immediate interlocutory appeal if necessary) use the power of sale which is already frowned upon by the courts and use it as an end run around the requirements of due process, to wit: if you think you have a claim you must plead and prove it and give the opposition an opportunity to defend.

The procedural motion missed by most lawyers is re-orienting the parties. Just because you are initially the plaintiff doesn’t mean you should stay that way. Once it is determined that the party seeking affirmative relief is seeking to sell your personal residence and that all you are doing is defending, they must become the plaintiff and file a lawsuit against you which you have an opportunity to defend. A Judge who refuses to see that procedural point is in my opinion committing clear reversible error.

The worst case scenario if everything is done PROPERLY is that you get the full accounting, you are not in default (unless there really were no third party payments which is extremely unlikely) and they must negotiate new terms based upon all the money that is owed back to you, which might just exceed the current principal due on the loan — especially once you get rid of the fabricated fees and costs they attach to the account (see Countrywide settlement with FTC on the blog).

Allocation of Third Party Payments and Loans to Specific Loan Accounts

TURNING A DEFENSE INTO AN AFFIRMATIVE DEFENSE FOR SET OFF AND A CLAIM OR COUNTERCLAIM FOR DAMAGES AND ATTORNEY FEES

So the question is how would you allocate third party payments and what difference will that make to a Judge hearing the case.

ASSUMPTION: XYZ Investment Banking Holding company has received a total of $50 billion in third party payments from insurance, counterparties, credit enhancements (moving money from one tranche to another within the SPV “Trust”), and federal assistance or bailout. Each one of these is subject to separate analysis, but for simplicity we will treat them all the same.

• The money received was for “toxic assets” meaning bad mortgages or pools that were written down in value because of the presence of bad loans in the pools. Whether those loans really made it into the pool when the “assignment” was years after the cutoff date in the PSA and was for a non-performing loan which is specifically excluded in the PSA is yet another issue that requires separate analysis.
• Out of the many SPV entities created and sold to investors, 50 were in the status of default or write-down, triggering the insurance, bailouts etc.
• Arithmetically, assuming $1 billion goes to each pool under the assumption they were all the same size (not true in reality, so you would be required to make a calculation to arrive at the prorata share of each pool which involve several factors and is subject to a whole separate analysis that will be ignored for purposes of this example).
• Out of each pool, 50% of the loans were in some stage of negative credit event. Thus we have $1 billion to allocate to 50% of the loans.
• For purposes of this example, the assumption is that each loan was the same size and that there are 4000 loans each with a nominal principal balance of $350,000 claimed.
• For purposes of this loan each borrower stopped making payments under identical terms 6 months before the receipt of the third party payments.
• If we ignore the payments then each loan would be entitled to a credit of $250,000 and the investors in each pool would receive a pro rated share of the $1 billion, which amounts to $250,000 per loan.
• If we don’t ignore the payments and assume that the payments under the note would have been $2,000 per month principal and interest only, then $12,000 wood first be allocated to the past due payments and the default, in relation to the creditors (investors) would be cured. This would be in accordance with the note provisions that first allocate receipts to the payments due.
• Then fees and costs would be paid off, which we will assume are $13,000, as per the terms of the note.
• Thus the $250,000 allocation would be reduced by $25,000 before application to principal. That leaves $225,000 allocated to principal.
• Reducing the principal by $225,000 leaves a balance due on the obligation of $125,000 ($350,000-$225,000).
• Reducing the balance for the appraisal fraud at origination: (1) appraisal for this example was $370,000 (2) real fair market value was $250,000 (3) borrower made down payment of $20,000 (4) total damages for appraisal fraud = $120,000.
• After reduction for appraisal fraud the balance on the obligation in our example here is $5,000.
• Under TILA the failure to disclose the hidden fees and hidden parties and resulting effect on the APR, would mean that the borrower is entitled to either rescission or return of all payments made including the costs of closing and points on the loan, plus attorney fees and possibly treble damages which would mean that someone owes the borrower money, the obligation has been extinguished, the note is evidence of an obligation that has been paid in full, and the mortgage secured is incident to a note securing a non-existent obligation. Either way, under rescission or allocation, the borrower owes nothing.
• The net result for the creditor is that they get or should get $250,000 cash plus a claim for damages against numerous parties for ratings fraud, appraisal fraud and securities fraud.
• The net result for the intermediaries who stole all the money including the third party payments is that they get the shaft including possible criminal liability.

A very similar allocation procedure would be appropriate for the top quality performing loans under the theory of identity theft. Without using these high FICO credit-worthy people’s identity and loan score they would not have had the golden cover to the heap of dog poop stinking underneath.