“Conversion” of the Note to a Bond Leaves Confusion in the Courts

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.

Brent Bentrim, a regular contributor to the dialogue, posed a question.

I am having some trouble following this.  The note cannot be converted any more than when a stock is purchased by a mutual fund (trust) it becomes a mutual fund share.

You’re close and I understand where you seem to be going…ie, the loans were serviced not based on the note and closing documents, but on the PSA.  What I do not understand is the assumption that the note was converted.  From a security standpoint, it cannot.

You are right. When I say it was “converted” I mean in the lay sense rather a legal one. Of course it cannot be converted without the borrower signing. That is the point. But the treatment of the debt was as if it had been converted and that is where the problem lies for the Courts — hence the diametrically opposed appellate decisions in GA and MA. Once you have pinned down the opposing side to say they are relying on the PSA for their authority to bring the foreclosure action, and relying on the “assignment” without value, the issue shifts —- because the PSA and prospectus have vastly different terms for repayment of interest and principal than the note signed by the borrower.There are also different parties. The investor gets a bond from a special purpose vehicle under the assumption that the money deposited with the investment bank goes to the SPV and the SPV then buys the mortgage or funds the origination. In that scenario the payee on the note would either be the SPV or the originator. But it can’t be the originator if the originator did not fulfill its part of the bargain by funding the loan. And there is no disclosure as to the presence of other parties in the securitization chain much less the compensation they received contrary to Federal Law. (TILA).

Under the terms of the PSA and prospectus the expectation of the investor was that the investment was insured and hedged. That is one of the places where there is a break in the chain — the insurance is not made payable to either the SPV or the investors. Instead it is paid to the investment bank that merely created the entities and served as a depository institution or intermediary for the funds. The investment bank takes the position that such money is payable to them as profit in proprietary trading, which is ridiculous. They cannot take the position that they are agents of the creditor for purposes of foreclosure and then take the position that they were not agents of the investors when the money came in from insurance and credit default swaps.

Even under the actual money trail scenario the same holds true — they were acting as agents of the principal, albeit violating the terms of the “lender” agreement with the investors. Here is where another break occurred. Instead of funding the SPV, the investment bank held all investor money in a commingled undifferentiated mega account and the SPV never even had any account or signatory on any account in which money was placed.

Hence the SPV cannot be said to have purchased the loan because it lacked the funding to do it. The banks want to say that when they funded the origination or acquisition of the loan they were doing so under the PSA and prospectus. But that would only be true if they were following the provisions and terms of those instruments, which they were not. The banks funded the acquisition of loans directly with investor money instead of through the SPV, hence the tax exempt claims of the SPV’s are false and the tax effects on the investors could be far different — especially when you consider the fact that the mega suspense account in the investment bank had funds from many other investors who also thought they were investing in many different SPVs.

The reality of the money trail scenario is that the SPV can’t be the owner of the note or the owner of the mortgage because there simply was no transaction in which money or other consideration changed hands between the SPV and any other party. The same holds true for all the parties is the false securitization trail — no money was involved in the assignments. Thus it was not a commercial transaction creating a negotiable instrument.

In both scenarios the debt was created merely by the receipt of money that is presumed not to be gift. The question is whether the note, the bond or both should be used to re-structure the loan and determine the amount of interest, principal, if any that is left to pay.

The further question is if the originator did not loan any money, how can the recording of a mortgage have been proper to secure a debt that did not exist in favor of the secured party named on the mortgage or deed of trust?

And if the lender is determined by the actual money trail then the lenders consist of a group of investors, all of whom had money deposited in the account from which the acquisition of the loan was funded. And despite investment bank claims to the contrary, there is no evidence that there was any attempt to actually segregate funds based upon the PSA and prospectus. So the pool of investors consists of all investors in all SPVs rather just one — a factor that changes the income and tax status of each investor because now they are in a common law general partnership.

Thus the “conversion” language I have used, is merely shorthand to describe a far more complex process in which the written instruments were ignored, more written instruments were fabricated based upon nonexistent transactions, and no documentation was provided to the investors who were the real lenders. That leaves a common law debt that is undocumented by any promissory note or any secured interest in the property because the recorded mortgage or deed of trust was filed under false pretenses and hence was never perfected.

The conversion factor comes back in when you think about what a Judge might be able to do with this. Having none of the documentation naming and protecting the investors to document or secure the loan, the Judge must enter judgment either for the whole amount due, if any (after deductions for insurance and credit default swap proceeds) or in some payment plan.

If the Judge refers to the flawed documentation, he or she must consider the interests and expectation s of both the lender (investors) and the borrower, which means by definition that he must refer back to the prospectus and PSA as well as the promissory note.

The interesting thing about all this is that homeowners are of course willing to sign new mortgages that reflect the economic reality of the value of their homes, and the principal balance due, as well as money that continued to be paid to the creditor by the same same servicer that declared the default (and was therefore curing the default with each payment to the creditor).

The only question left is where did the money come from that was paid to the creditor after the homeowner stopped making payments and does that further complicate the matter by adding parties who might have an unsecured right of contribution against the borrower for money  advanced advanced by an intermediary sub servicer thereby converting the debt (or that part that was paid by the subservicer from funds other than the borrower) from any claim to being secured to a potential unsecured right of contribution from the borrower.

To that extent the servicer should admit that it is suing on its behalf for the unsecured portion of the loan on which it advanced payments, and for the secured portion they claim is due to other parties. They obviously don’t want to do that because it would focus attention on the actual accounting, posting and bookkeeping for actual transfers or payments of money. The focus on reality could be devastating to the banks and reveal liabilities and reduction of claimed assets on their balance sheets that would cause them to be broken up. They are counting on the fact that not too many people will understand enough of what is contained in this post. So far it seems to be working for them.Remember that as to the insurance and credit default swaps there are express waivers of subrogation or any right to seek collection from the borrowers in the mortgages. The issue arises because the bonds were insured and thus the underlying mortgage payments were insured — a fact that played out in the real world where payments continued being made to creditors who were advancing money for “investment” in bogus mortgage bonds. This leaves only the equitable powers of the court to fashion a remedy, perhaps by agreement between the parties by which the lenders are made parties to the action and the borrowers are of course parties to the action but he servicers are left out of the mix because they have an interest in continuing the farce rather than seeing it settled, because they are receiving fees and picking up property for free (credit bids from non-creditors).

This is precisely the point that the courts are missing. By looking at the paperwork first and disregarding the actual money trail they are going down a rabbit hole neatly prepared for them by the banks. If there was no commercial transaction then the UCC doesn’t apply and neither do any presumptions of ownership, right to enforce etc.

The question of “ownership” of the note and mortgage are a distraction from the fact that neither the note or the mortgage tells the whole story of the transaction. The actions of the participants and the real movement of money governs every transaction.

Whether the courts will recognize the conversion factor or something similar remains to be seen. But it is obvious that the confusion in the courts relates directly to their ignorance of the the fact that the actual money transaction is not brought to their attention or they are ignoring it out of pure confusion as to what law to apply.

Now UCC Me, Now You Don’t: The Massachusetts Supreme Judicial Court Ignores the UCC in Requiring Unity of Note and Mortgage for Foreclosure in Eaton v. Fannie Mae
http://4closurefraud.org/2013/05/20/now-ucc-me-now-you-dont-the-massachusetts-supreme-judicial-court-ignores-the-ucc-in-requiring-unity-of-note-and-mortgage-for-foreclosure-in-eaton-v-fannie-mae/

High court rules in favor of bank in Suwanee foreclosure case
http://www.gwinnettdailypost.com/news/2013/may/20/high-court-rules-in-favor-of-bank-in-suwanee/

Wells Fargo slows foreclosure sales, BofA not so much
http://www.bizjournals.com/orlando/morning_call/2013/05/wells-fargo-slows-foreclosure-sales.html

Estoppel: When the Bank Tells You to Stop Making Payments

IMPORTANT PRACTICE NOTE: The use of the doctrine of estoppel on the facts presented in this article is only a temporary solution. If a representative of the bank told you to stop paying and then declared you in default and foreclose  it is unfair and that is exactly why we have the doctrine of estoppel. However, on these facts, the doctrine can only be applied for as long as the issue of modification or settlement is on the table. Whether it can be bootstrapped into an action for slander of title or breach of contract is an issue that will be decided by the courts.

My opinion is that on these facts the doctrine of estoppel will not serve as the foundation for an action for slander of title or breach of contract.

However, my opinion is that a lawsuit for intentional interference in the contractual rights of another could be brought if an intermediary between you and the servicer or between you and the creditor instructed you to stop making payments if you wish to seek a modification or settlement. 

If you are making that allegation you obviously want to say that the party who made that representation fraudulently induced you to believe that they have the authority to do it, but in fact lacked that authority inasmuch as  the sub servicer is almost certainly going to deny that they had the authority to make such representations.  In discovery the truth will come out —  the representative had been instructed to make those representations to homeowners by a sub servicer who lacked actual authority to make collections or decisions concerning the disposition of the loan because the entire paper trail of the securitization chain was false. This will enable you to sue both the representative and the sub servicer who gave the instruction. (Make sure you seek the advice of an attorney who is licensed in the jurisdiction in which a property is located and is familiar with these issues and does research to corroborate and fortify the arguments).

If you then received a declaration of default, notice of sale or a foreclosure lawsuit it could be argued that the intermediary was not a party with whom the homeowner was in privity. This argument would be fortified by a denial from the sub servicer that the intermediary had any authority make that statement.

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 ANALYSIS AND COMMENT:  Judges seem to find it hard to believe that a creditor would tell the borrower to stop making payments. It sounds ridiculous. But the fact remains that the majority of the homeowners who have been declared in default were told exactly that by a representative with apparent authority to speak for the sub servicer and apparent authority to speak for the creditor.

I would suggest that anyone reading this article who has received that instruction from a person, party or institution draft an affidavit that is notarized that can be used by other parties to show the judge that this is a pattern of conduct that permeates the entire foreclosure industry. You can send those affidavits to me at NeilFGarfield@Hotmail.com  and without charge we will make those available to any lawyer or pro se litigant in need of those affidavits.  And by the way, let your lawyer draft the affidavit and retain an original copy which means you should be signing two of them each of which is notarized separately.

Those affidavits should include any information regarding subsequent correspondence, telephone calls or instructions from the same or different representative of the alleged sub servicer or creditor. And it should include any events in which the  sub servicer claim to have lost your submission of documents that were requested. As a practice hand, it is my opinion that no such submission should be made without a specific offer from the homeowner certified by a real estate professional.

This can subsequently be used as corroboration of the allegation that sub servicer neither considered the modification request or the modification proposal.  In addition it will fortify the allegation that the creditor was never informed of the offer and that therefore the sub servicer or representative is in violation of the laws of the nation and potentially of the state in which the property is located.

The Wall Street banks have created the illusion that they don’t want to foreclose but they have no other choice. In fact they have engaged in a pattern of conduct that made foreclosure an inevitable conclusion. Most people believe that the banks don’t want the property and therefore they would not foreclose if there was a real opportunity to settle or modified below with the assistance of the federal government under HAMP and HARP. Of course when you are dealing with Wall Street strategies the situation is  always more complex than the simplistic arguments used by attorneys seeking foreclosure or defending claims from borrowers.

It is hard to argue that the banks don’t want property when they have walked away from hundreds of thousands of homes that were emptied as a result of the wrongful foreclosure and eviction of the homeowner. In places like Cleveland and Detroit tens of thousands of homes were literally bulldozed because entire neighborhoods lost all of their residents and the homes became headquarters for drug deals and other illicit activities.

The simple truth is that the banks are not nearly as interested in the property as they are in the foreclosure. It is the foreclosure sale that creates the illusion of a stamp of approval from the state government that the entire securitization scheme was valid and it creates the reality of a presumption of the validity of the deed issued at the so-called auction of the property upon submission of  false credit bid from a non-creditor who is a stranger (not in privity) to the transaction alleged.

Their motivation is also quite simple, to wit: they have already received insurance proceeds and the proceeds of credit default swaps far in excess of the principal supposedly due on the note. If the loan were converted from “nonperforming” to “performing” it is highly likely that the Wall Street banks and their affiliates would be responsible for refunding the insurance money and proceeds of credit default swaps, all of which frequently amounted to multiples as high as 42 times the amount of the note.

The Dodd-Frank Law  makes it illegal for any servicer or representative of a creditor to engage in the consideration of a modification or settlement regarding the loan and at the same time pursue foreclosure. But even without that law, the doctrine of promissory estoppel accomplishes the same result.

I would point out that the reason that provision was made part of the Dodd-Frank  law was that there was no dispute as to the fact that servicers were encouraging people to stop making payments if they wanted to see an approval on a modification of their loan, a short sale of the property, or any type of settlement whatsoever.

The doctrine of promissory estoppel can be used both offensively in the nonjudicial states and defensively in the judicial states. It is important for a lawyer who is licensed in the jurisdiction in which the property is located to do the research on the statutes and case law dealing with promissory estoppel. The state and federal system do have differences.

In general, the elements of promissory estoppel consists of a promise or representation from one party that leads another party to reasonably rely on that promise or representation and act to their own detriment.  Generally it is not important that the benefits of the statement or action by the first party result in a benefit to that party. It is generally understood that the detriment to the homeowner as a result of the promise or representation may be all that is required in order to establish promissory estoppel, which of course must be properly alleged in a lawsuit or affirmative defenses depending upon whether the case is in a nonjudicial jurisdiction or a judicial jurisdiction.

There is no legal or business reason to tell a homeowner to stop paying if they want their loan modified, or if they want their property approved for short sale, or they want to settle with the creditor or creditors, the identity of which is closely guarded by the Wall Street banks and all of the parties in the securitization chain that turns out to be more of a paper chain of sham transactions than anything else.

The reason why homeowners are being told to stop making payments and why they are given trial modifications that are subsequently denied status as permanent modification is that the goal is foreclosure in order to keep the illicit proceeds of insurance and credit default swaps. As soon as the homeowners are told to stop making payments, and subsequent payments are often returned, the securitization parties are slowly edging the borrower into a position where it is impossible for them to make up the payments and therefore inevitable that the foreclosure will proceed. And the reason why becomes impossible for them to make up the payments is that they are told  that the back payments at worst will be added to the end of the loan. They are told this to make sure that the borrower spends the money and no longer has the money to bring the loan current.  It is a perfect storm for the Wall Street banks.

If the borrower is taken the trouble to send a qualified written request or a debt validation letter and will fortify the claim because the sub servicer or other representative will have failed to  provide proof of payment or funding for the acquisition or the origination of the loan and will have failed to provide proof of authority to represent the creditor and further failed to identify the creditor so that the authority to represent could be confirmed.

Sitting on the desk of the governor of the state of Florida is a crazy bill that would make it impossible for most homeowners to defend wrongful foreclosures. If he signs the bill into law the banks will be cheering, but not for long. Using the doctrine of estoppel the foreclosure will be stopped dead in most cases assuming the homeowner was in fact instructed to  cease making  payments and was promised that if they follow the rules their request for modification would be considered —  which is something which is required under existing federal law dating back to the time of TARP.

If the homeowner takes the position in litigation that all payments that were due were in fact paid, and that in fact the homeowner believes he has overpaid, a question of fact emerges that probably cannot be handled in the summary proceedings under what might be the new Florida law and similar laws passed in other jurisdictions.  If the homeowner also takes the position that he is neither in privity with nor does he owe any money to either the party bringing the foreclosure proceedings, this raises additional questions of fact that must be dealt with under the rules of evidence in a properly noticed hearing.

PRACTICE NOTE: Procedurally I have come to the opinion that in order to take control of the narrative away from parties who are essentially strangers to the transaction, lawyers should issue subpoenas rather than notices under the Rules of Civil Procedure. Those subpoenas should go out immediately upon receipt of any notice of foreclosure or any lawsuit seeking foreclosure. The subpoenas should ask for a competent witness to testify at deposition and require the witness produce proof of payment or consideration in the acquisition or origination of the loan. The subpoena should specify the type of information you are seeking, to wit: a canceled check, wire transfer receipt, and ACH confirmation, or check 21 confirmation. The failure of the opposing party to respond even if they file timely objections are motions to quash will raise issues as to the amount of any payment alleged to have been missed in the amount of any principal alleged to be unpaid. If I am right, the Florida law may well turn out to be a landmine for the banks from which they cannot recover.

Don’t Take Advice from Banks! It’s All Scripted to Get You in Foreclosure and then Default

What Obama Still Has Wrong and Why the Recession Will Drag On for years

It is encouraging that Obama is the police trying to get the housing and foreclosure situation resolved. But he is starting from a premise that is faulty just as Florida and other states are passing legislation from a similar premise, to wit: that the blame for title corruption, litigation and the court that is clogging the system, and the housing market, together with the bogus mortgage bonds that were issued by nonexistent unfunded special purpose vehicles (“trusts”) is somehow the fault of borrowers.

In his weekly Saturday address, Obama made reference to reckless behavior without specifying that the reckless behavior was that of the banks.  The pervasive and insidious assumption is that 30 million borrowers woke up one morning and decided to enter into a conspiracy that would destroy the countries economy and financial system.  If anything is obvious it is that only the Wall Street banks had the capacity and sophistication as well as the motive and opportunity to ruin the lives of millions of people, corrupt a title system that had been working perfectly for centuries, and control the governmental response using the influence they had acquired through lobbyists and direct financial contributions.

The reason that is so important is not just that the bankers probably belong in jail just like they ended up going to prison in the savings-and-loan crisis of the 1980s;  the real reason it is important to start with the premise that the banks on Wall Street created a fraudulent Ponzi scheme that has not yet been addressed. Neither the economy nor the corrupted title system in our country can enjoy any serious correction without at least considering the idea that the entire bogus plan  of false securitization was premeditated and clearly intentional.

This is not to say that there was no fraud on the part of any of the borrowers. But it is quite obvious from news reports that any prosecutions for mortgage fraud have been directed at borrowers who merely used the same techniques, procedures, tactics and fabricated documents that the banks used when they caused the loans to be originated and caused the worthless paper from the “loan closing” to be assigned, sold, insured and hedged as though the loans were the property of the Wall Street banks who in fact had merely used the deposits of unsuspecting investors. Even a appraisal fraud is being prosecuted against small individual investors who merely followed the directions of the thinly capitalized” originator” and mortgage broker. The reason those loans went through was not because of the fraudulent intent of the actors who were prosecuted but because of the fraudulent intent of the Wall Street banks and their affiliates whose business plan called for the origination of loans in unsustainable amounts and the diversion  of the documents that were supposed to protect the investors whose money was used for the origination or acquisition of loans.

If the securitization of debt had been real, there would’ve been no need for MERS, or  any private system that was used in reality to track transactions that were a complete sham. The Wall Street banks made sure that they used the money of third parties and created “paper closings” in favor of entities, “originators”, and even banks who pretended to underwrite the loans but who never had any risk of loss and in fact in most cases never showed any bookkeeping or accounting entries reflecting the creation of a loan receivable. The amount of “money” in the shadow banking system of insurance, collateralized debt obligations, credit default swaps and other exotic instruments is now said to exceed one quadrillion dollars. It is universally accepted, and I agree, that this amount is geometrically larger than any real money in the system, with estimates of real value varying from $25 trillion-$70 trillion.

My point here is simply that the Wall Street banks entered into a relationship with investors wherein the investors were principles of the Wall Street banks were agents. Regardless of how many layers the Wall Street banks used in terms of the use of subsidiaries and affiliates, their actions were subject to the expectations of the investors and the written promises to those investors, all of which were breached nearly all of the time by the Wall Street banks. Hence their trading in the defect of loans and unenforceable paper created at the “paper closings” produced a volume of “trading profits” which were in reality the proceeds of transactions that should have been used to reimburse the investors.

Once you accept the notion that the above scenario is true, the legal question of whether or not a monthly payment is due or in fact whether any payment is due from the borrower becomes the front and Center question in all action seeking to collect or foreclose on consumer debt including but not limited to alleged “mortgages”.

PRACTICE note:  this is why you want to issue a subpoena or other discovery device that forces the party seeking foreclosure or collection to produce a live witness and documents that shows that there is an actual risk of loss by virtue of an actual transaction on a specific date for a specific amount of money which was paid by the party seeking foreclosure to another party who actually on the loan by virtue of another actual transaction on another specific date for a specific amount of money that was paid by check, wire transfer, ACH, or check 21. All the information that I have indicates that none of those transactions actually occurred, no money ever exchanged hands, and that the assignments and endorsements reflect transactions that were a sham —  including but not limited to the so-called “origination” or assignment or any other form of acquisition of the loan.  This is important not only on the issue of standing and subject matter jurisdiction in which there is no injured party, but on the issue of identifying a party who could conceivably submit a credit bid at the time of the auction of the foreclosed property. In judicial states the final judgment of foreclosure identifies the amount of the judgment awarded without there having been any actual  trial or hearing in which evidence is heard on the actual payment, proof of loss, and the dates and amounts in which money  exchanged hands.  this entitles the foreclosing party to submit a credit bid when in fact they never had paid any money toward the origination or acquisition of the loan. Thus it is important to bring the issue up very early by way of subpoena to show that the party seeking foreclosure lacks standing, and has filed an action for which there is no substantive jurisdiction, nor any remedy without  a financial injury.

Weekly Address: Growing the Housing Market and Supporting our Homeowners
http://www.whitehouse.gov/blog/2013/05/11/weekly-address-growing-housing-market-and-supporting-our-homeowners

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.

Robo-Litigation: Attorney Misconduct at Foreclosure Mills

Millions of dollars per month are being paid to foreclosure mills employing young attorneys who are probably not aware of the fact that they are participating in fraud, forgery, perjury, and fabrication. Even those who suspect that there are problems with the cases that they are filing wish to keep their jobs just as their employer will do virtually anything to maintain the relationship with pretender lenders who do not have any stake or risk of loss in loans that were funded by third parties.

Dustin A Zacks  has written an extensive article in the Cleveland state law review that details the various dubious acts by the law firms and the attorneys that they hire. The article challenges courts and the Bar Association to get more involved in discipline of attorneys who are consistently breaching their code of ethics and the disciplinary rules of their Bar Association.

Specifically, the article examines how the foreclosure mills differ in makeup from  traditional large law firms.  The article presents an examination of three policy options to prevent another surge in attorney misconduct: changing ethical rules, improving ethical education, and increasing state bar association funding and authority.

Strategically it is important for those attorneys who challenge the enforceability of the debt, note, mortgage, default, sale or even the right to collect on these  fatally defective documents that are regularly used in litigation against consumers and homeowners. I encourage all practitioners to read the article in its entirety, since it contains numerous clues as to what to expect from the other side as they pursue claims without merit.

“Robo-litigation”
http://www.legalethicsforum.com/blog/2013/05/robo-litigation.html

Courts Tripping Over Themselves Ignoring the Obvious

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.

At the risk of lecturing judges on the law allow me to point out that the transfer of an apparently “negotiable instrument” is not a transaction that can be interpreted or enforced under the Uniform Commercial Code unless it is accompanied by payment or exchange of value, which is to say that there must be money involved. A loan that was originated without any money from the payee under the note or the secured party under the mortgage is not to be interpreted by reference to the Uniform Commercial Code because of the lack of consideration.

That leaves the pooling and servicing agreement. Employing and servicing agreement specifies the precise manner in which loans can be transferred into the asset pool and one of the things that is not allowed is an endorsement in blank. This provides no protection to the investors which is why the provisions in the pooling and servicing agreement require that the endorsement be in recordable form and in order to the benefit of the investors or the asset pool.

The problem is that the judges are searching for a way to rule in favor of the banks instead of searching for a way to simply rule on the admissibility and credibility of evidence.  It often happens that the attorney for the borrower argues that the Uniform Commercial Code does not allow recipients of a transfer of loan documents,  which then leaves the court to say that the transfer occurred pursuant to the terms of the pooling and servicing agreement. Or some courts seeing that the transfer was not performed in accordance with the terms of the pooling and servicing agreement applied the Uniform Commercial Code even though there is a material dispute of fact as to whether or not any consideration was involved in the transfer of the loan.

If the loan was transferred into the pool pursuant to the pooling and servicing agreement then why were the other terms of the pooling and servicing agreement ignored? I have yet to see any pooling and servicing agreement that provided for an endorsement in blank. Such a thing could not possibly exist since the investors thought that they were buying mortgage-backed securities. The pooling and servicing agreement clearly specifies the method of transfer and clearly does not include an endorsement in blank as an approved method.

The object of the investors was to take ownership of the loans by way of the mortgage-backed securities and distribute the risk and income proportionately to their investments. What the banks did was instead of putting the investors first and inserting the name of the asset pool on the loan origination documents or the assignment executed in the manner provided by the pooling and servicing agreement, they used an exotic and completely unnecessary chain of title for what was essentially a very simple transaction. By having the loan originated by the nominee of a nominee acting under power of attorney they created the illusion that the “holder” of the paper was presumptively the creditor. This is the exact opposite of what the pooling and servicing agreement required; had it been known that they were going to operate this way they never would have received their AAA rating, their insurance, or any credit default swaps. It is clear that they inserted themselves or their nominees as the apparent owner of the debt even know the nominee did not make the loan. It is equally apparent that they inserted themselves or their nominee as the apparent owner of the debt even though they paid nothing for the assignment or transfer of the loan.

If the investment banks had intended to operate properly and legally they would have had no need for any nominees much less the parallel title tracking systems including MERS  and all the other entities that pretend to have business interests even know they were so thinly capitalized and covered by layers of entities whose corporate veils need to be pierced. They would simply have placed the name of the asset pool on the mortgage and note making reference to an actual transaction involving actual money that changed hands between the lender and the borrower.

These nominee entities were planned far in advance as “bankruptcy remote” vehicles through which the bankers could channel nonexistent transactions. By creating the illusion that they were the owners of the debt it appeared as though the note and mortgage were valid. But they could never have been the owners of the debt since it was the investors who actually funded the mortgage. No document exists anywhere in which the investors or the asset pool assigned the ownership rights to the loans to the investment banks or any of their affiliates or nominees.

The courts are not clogged because of the volume of litigation. The volume of litigation is bottlenecked in the courts because the courts refused to accept at face value the pleadings and assertions of both parties and because the courts refused to require both parties to prove their claims. For those that assert their claim as a creditor they need only provide proof of payment and proof of loss, which is to say that they have not resold the  loans or mortgage backed securities.

Instead, the banks insist on arguing for the presumption that a bona fide transaction took place for value in which money exchanged hands rather than being required to prove that assertion by simply producing a canceled check or wire transfer receipt.  If you were the bank and you had proof of your payment and proof of your loss why wouldn’t you end the litigation in the first couple of months rather than let it stretch out for years? It is clear that the banks need judges to accept the presumption because the banks don’t have the actual proof.

http://www.nakedcapitalism.com/2013/04/foreclosure-review-hearings-show-its-time-to-burn-down-the-occ.html

Force Placed Insurance Used As Excuse to Foreclose

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.

Forced placed insurance is a mechanism by which the banks can force people into foreclosure based on collusive action between the insurer and the bank. If that happens then they  have unilaterally changed the APR and breached the contract. Demanding the payment and declaring a default based upon a false declaration of insurance failure or a false declaration of the cost of force-placed insurance could invalidate the note of default, the foreclosure, the sale and the eviction.

Sound crazy? That is because it is crazy, but nonetheless quite true. It has led to numerous civil prosecutions in various states where “lenders” have agreed to to reinstate loans improperly declared in default and in which the “lenders” paid tens of millions of dollars in fines and refunds. The bottom line is that they will do anything to get homes into foreclosure or to use the failure to pay insurance as a reason for declining a modification. It is a clear opening for borrowers to attack everything from soup to nuts because if the “lender” is demanding the wrong amount of money it not only invalidates the notice of default, the foreclosure and the sale, it  also violates the homeowners’ redemption rights.

The key to unlocking this particular version of bank fraud is to put pen to paper.  Figure out the (make a call) how much the premium should be on say a home that was mortgaged for $700,000. Then ask for the premium if the insurance was only $200,000. Anybody who reads this blog will know instantly that the amount of the insurance premium is going to be less when the insurer accepts a $200,000 risk instead of a $700,000 risk.

Here is where the sleight of hand comes in. We know that the insurance carrier is not going to pay more than the replacement value or fair market value of the house which ever is less (or more depending on the policy).

When the Bank “buys” insurance under force-placed insurance, it is “buying” a policy for a stated risk of $700,000, which is the amount of their loan. But both the bank and the insurance company know that the real risk has declined to $200,000.

The premium charged is for the $700,000 policy even though the  product sold (risk assumed by insurance) is only $200,000. THEN the bank puts a surcharge based upon the premium “paid” for the $700,000 policy.

But did they really pay for the $700,000? No, they split it up with the broker, the carrier and their own service department at the expense of the borrower who if they do reinstate is being price gouged and if they can’t pay the overcharge, they face foreclosure.

The insurance policy the borrower purchases is intended to cover the replacement cost of the house, not the mortgage. When the borrower misses a payment or fails to keep up the insurance the bank create a situation in which forced placed insurance is imposed at a multiple of the regular premium.

But it goes further than that. the original insurance premium was based upon a value placed on the house by the appraiser and which the bank used to find the initial loan.

Before the current era of mortgage madness, the likelihood that the house would be worth less at the time of foreclosure than the time of purchase was extremely low. The issue which I am discussing is not one which applies to the old mortgages, although the insurance premium included a surcharge that was force-placed placed and those could be considered unconscionable simply based upon the fact that the premium imposed by the bank was much higher than the premium which would have been charged directly by the insurer to the borrower.

In the current situation we have an entirely different set of facts which definitely creates an affect on the unconscionability of the insurance charge to the borrower or in force-placed placed insurance. where the replacement value of the home has declined substantially, the amount of insurance which the insurance carrier would carry as a risk is limited to the amount that would be required to replace a home.

This should result in a decrease in the premium at a time when the property was originally insured add a much higher value. Let’s take a case where the property was originally appraised at nine hundred thousand dollars and the price for the purchase of the property was $850,000 and we assume that the buyer put hey down payment of $150,000, the amount of insurance value for the bank was the amount of the mortgage which is $700,000.

At that point the insurance carrier has not done anything to verify the replacement value of the property. They are simply taking the closing documents as a representation of the fair market value of the property. But their liability is limited to the replacement value of the home.

If the fair market value of the property has declined to $200,000 and if we take that figure as the replacement cost of the home and the event of a total loss we can assume that the carrier will only cover the replacement value or $200,000.

The premium for a home insurance policy in which the risk assumed by the insurance company is $200,000 would result in a much lower premium than the premium that was originally charged when the insurer was taking on a risk of $700,000.

Since it is clear that both the insurer and the bank both know that the premium being charged to the borrower is for the $700,000 policy while the actual insurance is limited to a risk of loss of $200,000 an assessment of a premium based upon the $700,000 figure would be an overpayment, unconscionable, and probably in breach of contract as well as collusive in defrauding the borrower.

Adding the surcharge imposed by the bank for force-place insurance based on the premium for a $700,000 policy results in an insurance payment that is many times the actual amount of the premium that would be charged by the insurer to the borrower or the “bank.”

The insurer would simply pay the replacement value in the event of a total loss even know it had received a premium based upon a $700,000 value. The surcharge imposed by the bank for force-placed insurance would be based upon the premium for the $700,000 policy which we have just seen is fabricated. therefore using force placed insurance as an excuse for foreclosure leads to various defenses.

A similar situation arises in the case of title insurance. title: carriers will routinely deny coverage for any corruption of title caused by claims the resulting from supposed land transactions in which the loan was sold or securitized. A subpoena issued to the title insurance carrier would reveal that the reason they would deny coverage is that the chain of title was corrupted from the beginning and therefore misrepresented which induced the carrier to accept a risk of loss which was not was in the four corners of the insurance contract.

It’s by going after the nickles and dimes that things pile up and reveal wholesale fraud. Don’t take my word for it —figure it out for yourself. Nearly all force-placed induced foreclosures were the product of fraud and collusion and that is what states around the country are prosecuting, passing new regulations, and passing new laws. The refund is subject to contingency fees for the lawyer — another open can of worms with deep pockets and weak defenses.

Regulators Review Costs of Force-Placed Insurance

By EDWARD WYATT

A widespread practice by lenders of buying often-costly insurance for mortgaged property and billing the owner is under scrutiny.

http://www.liveinsurancenews.com/force-placed-insurance-settlement-achieved-in-new-york/8522034/

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

Unfortunate Decision of 9th Circuit

Hat tip to Darrell Neilander and Charles Cox for bringing this one to my attention.

Editor’s Comment: In a twisted display of circular reasoning and reverse logic, the 9th Circuit has issued an opinion that attacks the precise foundation of the Truth in Lending Act. Go to any seminar on TILA and the first thing they will tell you is that the purpose of the act was to provide the borrower with choice of lenders and the ability to apply competitive pressures on one lender versus another.

If a Borrower wants a loan and does NOT want it with Wells Fargo or Merrill Lynch for reasons of his own, then he has a specific right explicitly stated in TILA to know who the lender is and all the parties who received compensation in putting the loan package together for sale to the borrower and sale to the investors. Under Gale vs. Franklin, 686 F. 3d 1055, July 12, 2012, the 9th Circuit said that the right to know the owner of the loan does not apply if you are dealing with the servicer. This directly conflicts with the intent and content of the FCFB definitions in addition to defying  logic. It also strips the specific remedy of clawback of undisclosed compensation.

An additional reason for knowing the name of the obligee is to be able to confirm the balance due and to apply for HAMP or HARP modifications or settlement. How can you do that if you don’t know who the “decider” is?

As for asking for the identity of the creditor, the court incredibly concluded that “Failing to read and respond to letters may be impolite; however, ²a breach of [*1057]  good manners² is not always ²an invasion of any legal right.²  Spaulding v. Evenson , 149 F. 913, 920 (C.C.E.D. Wa. 1906). Richard Gale faults his lender, First Franklin Loan Services (²Franklin²), for failing to respond to his correspondence regarding ownership of his loan, and alleges that this failure amounted to a violation of the Truth in Lending Act (²TILA²), and Nevada’s covenant of good faith and fair dealing. Because Franklin was not legally required to respond in its capacity as loan servicer, we affirm the district court’s dismissal of these claims. However, Gale also alleges [**2] that after failing to respond to his letter, Franklin and the other defendants engaged in illegal conduct by wrong-fully foreclosing on his property. We remand these remaining state law claims to the district court.”

So as an aside, the Court cleaned out the carcass of RESPA as well. This decision cannot and will not stand in my opinion and the entry of politics and ideology clearly clouded the real issues of due process, statutory duties, and justice. But worse, the court put its stamp of approval on screwing around with the title records corrupting them beyond recognition.

This Court has given a back-door to those who engaged in such behavior and left the title problems for future owners, lenders and beneficiaries of trusts. In my opinion I would continue to plead the same actions and bring it up on appeal — perhaps in the state appellate decisions and maybe even direct to the State Supreme Court on public policy and urgency for consistency in decisions.

But once again, we have admissions that helped the court along in this wrong application of the law. The “FACTS” are that Gale “refinanced his home with Franklin.” In order to recite those facts, it would have been necessary to have the borrower admit that the transaction was real and actually took place. Now if Franklin actually did the loan and it was not subject to claims of securitization, this might be an inevitable admission. But Franklin does not appear to be one of the exceptions of those banks that did not play securitization PONZI roulette. The “Facts” show otherwise. [As soon as you see MERS" you know claims of securitization are involved.]

The same applies to “Gale defaulted on the loan.” How did that get in the record unless Gale admitted it? How does Gale know that there was a payment due? He presumed it because Franklin was the originator. With what is in the public domain now, we know that the loan might well have been paid in full or paid in part or that the payments to the real creditor continued to be made even after the borrower stopped paying. If the payment was made, there was no payment due, and thus there could be no default. But the Borrower here appears to have admitted it.

The one sort of bone thrown out to borrowers, is that the Court concluded that if the Gale claim arose after passage of Dodd-Frank, the results might have been different. They completely missed the point that the rules and regulations in Dodd-Frank were already stated or inherent under common law and existing statutory law, both Federal and State.

In short, the 9th Circuit is treating the sham transactions and strawmen of the fake securitization scheme with the deference one might give to a king. If the shoe was on the other foot, such behavior would not be tolerated for even a moment. Can you imagine the same court finding that a borrower does not need to disclose his principal in a loan? This decision is twisted, absurd and wrong.

by Charlie Guy

In Gale v. First Franklin Loan Services, 686 F.3d 1055 (9th Cir. 2012), the Ninth Circuit held that a borrower has no right under the federal Truth in Lending Act (“TILA”) to require a loan servicer to identify the owner of a loan obligation. TILA requires a servicer to identify the owner of the loan only when the servicer owns the loan, and only when the servicer owns the loan by assignment.

In Gale, the borrower refinanced his home mortgage with First Franklin Loan Services, which both originated the loan and serviced it. After the borrower became delinquent, he demanded First Franklin identify the “true” owner of the obligation. First Franklin ignored the requests and proceeded with foreclosure. The borrower filed suit claiming, in part, a violation of TILA. The trial court dismissed the TILA cause of action as a matter of law, and the Ninth Circuit affirmed.

On appeal, the borrower argued that the plain language of TILA, 15 U.S.C. Section 1641(f)(2), required First Franklin to respond to his inquiries regarding the identity of the owner of the loan. That section states that upon written request, “the servicer shall provide the obligor . . . with the name, address, and telephone number of the owner of the obligation . . .” The Ninth Circuit explained that this provision does not apply to all loan servicers, but only those servicers who are owners of the loan by assignment after loan origination. In this case, First Franklin was both the original lender and the servicer, so this section did not apply.

The Ninth Circuit also noted that, since a 2010 amendment to the Real Estate Settlement Procedures Act, all servicers must identify the owner of a real estate loan if requested, under all circumstances. This change, however, does not apply retroactively to claims (like the claim in Gale) that accrued prior to 2010.

gale-v-first-franklin-loan-se

Are You Already There?

• CHECK OUT OUR NOVEMBER SPECIAL
• GET A CONSULT WITH NEIL GARFIELD

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

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

Here in America, we abuse our poor and call it the lottery, we neglect to discipline our children and call it building self-esteem, we allow the theft of our homes and refer to it as “allowing the market to self-adjust”, we elect people to public office who cannot balance their own checkbooks because the banking cartel tells us in the media that this is our only choice, and we reward laziness and call it welfare… I for one, am not contributing to the spectacle that we call the “Democratic process” any longer…instead, I will do my part in relieving the 1% of my share of the American dream by systematically encouraging every eligible person to file for bankruptcy protection, thus re-starting the debt basis from a given point and estopping the “creditors” from their orgy of taking everything from us…the ones who drive the bus! The wealthiest people in the world use the bankruptcy laws to their advantage every single day of the year and secretly hide the processes from the masses of eligible, hard working people who are the only ones who truly deserve the protections of this economic tool given to us centuries ago.

     Don’t let the social stigma of “the B word” discourage you from exploring the untold benefits of a well strategized bankruptcy filing…talk about it at parties, question your local counselors and attorneys, smile and relish the thought of burying your un-wanted, un-payable debt service…the banks are not counting on a massive move to by the general public to the protections of the bankruptcy court because it is they who have espoused the “dangers” of personal bankruptcy filings…yet is also they who use and abuse these exact laws to their benefit. If everyone files for bankruptcy…everyone will also be available to garner new credit ratings and offers of credit in the future…or the banks will simply cease to exist…not a bad scenario for anyone…eh?

     Why do you think that the banks are the only ones who publicly denounce the use of bankruptcy as a financial tool? Yet, only months after the confirmation of a plan in bankruptcy, the average debtor receives many new offers of credit. The banks cannot survive without you, America…start acting like you’re driving the bus…not being thrown under it. Do your part to kick-start the economy for the future generations of Americans…file Bankruptcy and force the politico to come to heel… or drag your financial chains down the road another few years until  you cannot afford to eat or pay for health care…or are you already there?

jim

Barofsky: We Are Headed for a Cliff Because of Housing

Editor’s Note: Hera research conducted an interview with Neil Barofsky that I think should be  read in its entirety but here the the parts that I thought were important. The After Words are from Hera.

After Words

According to Neil Barofsky, another financial crisis is all but inevitable and the cost will be even higher than the 2008 financial crisis. Based on the way that the TARP and HAMP programs were implemented, and on the watering down of the Dodd-Frank bill, it appears that big banks are calling the shots in Washington D.C. The Dodd-Frank bill left risk concentrated in a few large institutions while doing nothing to remove perverse incentives that encourage risk taking while shielding bank executives from accountability. Neither of the two main U.S. political parties or presidential candidates are willing to break up “too big to fail” banks, despite the gravity of the problem. The assumption that another financial crisis can be prevented when the causes of the 2008 crisis remain in place, or have become worse, is unrealistic. In the mean time, what Mr. Barofsky describes as a “parade of scandals” involving highly unethical and likely criminal behavior is set to continue unabated. Although the timing and specific areas of risk are not yet known, there is no doubt that U.S. taxpayers will be stuck with another multi-trillion dollar bill when the next crisis hits.

*Post courtesy of Hera Research. Hera Research focuses on value investing in natural resources based on original geopolitical, macroeconomic and financial market analysis related to global supply and demand and competition for natural resources

Excerpts from Interview:

HR: Did the TARP help to restore confidence in U.S. institutions and financial markets?

Neil Barofsky: Yes, but it was intended and required by Congress to do much more than that and Treasury said that it was going to deploy the money into banks to increase lending, which it never did.

HR: Were the initial goals of the TARP realistic?

Neil Barofsky: First, if the goals were unachievable, Treasury officials should never have promised to undertake them as part of the bargain. Second, even if the goals were not entirely achievable, it would have been worth trying. Treasury officials didn’t even try to meet the goals.

HR: Can you give a specific example?

Neil Barofsky: The justification for putting money into banks was that it was going to increase lending. Having used that justification, there was an obligation, in my view, to take policy steps to achieve that goal, but Treasury officials didn’t even try to do it. The way it was implemented, there were no conditions or incentives to increase lending.

HR: What policy steps could the U.S. Department of the Treasury have taken to help the economy?

Neil Barofsky: There are all sorts of things that Treasury could have done. For example, they could have reduced the dividend rate—the amount of money that the banks had to pay in exchange for being bailed out—for lending over a baseline, which would have decreased the bank’s obligations. Or, they could have insisted on greater transparency so that banks had to disclose what they were doing with the funds. Treasury chose not to do any of these things.

HR: Weren’t there other housing programs like the Home Affordable Modification Program (HAMP)?

Neil Barofsky: Yes, but there were choices made to help the balance sheets of struggling banks rather than homeowners. The HAMP program was a massive failure but it wasn’t preordained. It was the result of choices made by Treasury officials.

HR: What could have been done differently in the HAMP?

Neil Barofsky: HAMP was deeply flawed with conflicts of interest baked into the program. The management of the program was outsourced to the mortgage servicers, which were thoroughly unprepared and ill equipped. The program encouraged servicers to extend out trial modifications. It was supposed to be a three month period but it often turned into more than a year. The servicers, because they could accumulate late fees for each month during the trial period, were incentivized to string the trial periods out then pull the rug out from under the homeowner, putting them into foreclosure, without granting a permanent mortgage modification. The servicers could make more money doing that then by doing mortgage modifications. If they had done permanent mortgage modifications, the banks couldn’t have kept the late fees.

HR: Are you saying that the program encouraged banks to extract as much cash as possible from homeowners before foreclosing on them anyway?

Neil Barofsky: Yes. The mortgage servicers exploited the conflicts of interest that were in the program, and blatantly broke the rules, and Treasury did nothing.

HR: When you were serving as Inspector General for TARP, you issued a report indicating that government commitments totaled $23.7 trillion. What was that about?

Neil Barofsky: $23.7 trillion was simply the sum of the maximum commitments for all the financial programs related to the financial crisis. The number was misconstrued as a liability but the government never stood to lose that much. For example, the government guarantee of money market funds was a multi-trillion dollar commitment. Of course, not all of that money could have been lost because it would have required every fund to go to zero. The government guaranteed commercial paper but, again, for that commitment to have been wiped out, every company would have had to have defaulted. But the numbers were very important in terms of transparency. All of the data were provided by the agencies responsible for the various programs, so the $23.7 trillion number was simple arithmetic. It was important to understand the scope of the extraordinary actions that were being taken.

HR: What are the potential future losses that the U.S. government—that taxpayers—might have to absorb?

Neil Barofsky: The real issue is the potential for another financial crisis because we haven’t fixed the core problems of our financial system. We still have banks that are “too big to fail.” Standard & Poor’s estimated last year that the up-front cost of another crisis, including bailing out the biggest banks yet again, would be roughly 1/3 of the U.S. gross domestic product (GDP) or about $5 trillion. The resulting problems will be even bigger.

HR: What were the problems resulting from the 2008 financial crisis?

Neil Barofsky: When you look at the fiscal impact of the 2008 crisis, you have to look at it not only in terms of lost tax revenues and increased government debt, but also in terms of the loss of household wealth. People who became unemployed suffered tremendous losses and the government’s social benefit costs expanded accordingly. One of the reasons we had the debt ceiling debate last year, when the U.S. credit rating was downgraded, and why we are facing a fiscal cliff ahead is the legacy of the 2008 crisis.

We have a lot less dry powder to deal with a new crisis and we almost certainly will have one.

HR: Why do you expect another financial crisis?

Neil Barofsky: It just comes down to incentives. A normally functioning free market disciplines businesses. The presumption of bailout for “too big to fail” institutions changes the incentives of a normally functioning free market. In a free market, if an institution loads up on risky assets with too little capital standing behind them, it will be punished by the market. Institutions will refuse to lend them money without extracting a significant penalty. Counterparties will be wary of doing business with companies that have too much risk and too little capital. Allowing “too big to fail” institutions to exist removes that discipline. The presumption is that the government will stand in and make the obligations whole even if the bank blows up. That basic perversion of the free market incentivizes additional risk.

HR: Are “too big to fail” banks taking more risks today than they did before?

Neil Barofsky: Bailouts give bank executives an incentive to max out short term profits and get huge bonuses, because if the bank blows up, taxpayers will pick up the tab. The presumption of bailout increases systemic risk by taking away the incentives of creditors and counterparties to do their jobs by imposing market discipline and by incentivizing banks to act in ways that make a bailout more likely to occur.

HR: Is it just a matter of the size of banking institutions?

Neil Barofsky: The big banks are 20-25% bigger now than they were before the crisis. The “too big to fail” banks are also too big to manage effectively. They’ve become Frankenstein monsters. Even the most gifted executives can’t manage all of the risks, which increases the likelihood of a future bailout.

HR: Since bank executives are accountable to their shareholders, won’t they regulate themselves?

Neil Barofsky: The big banks are not just “too big to fail,” they’re ‘too big to jail.’ We’ve seen zero criminal cases arising out of the financial crisis. The reality is that these large institutions can’t be threatened with indictment because if they were taken down by criminal charges, they would bring the entire financial system down with them. There is a similar danger with respect to their top executives, so they won’t be indited in a federal criminal case almost no matter what they do. The presumption of bailout thus removes for the executives the disincentive in pushing the ethical envelope. If people know they won’t be held accountable, that too will encourage more risk taking in the drive towards profits.

HR: So, it’s just a matter of time before there’s another crisis?

Neil Barofsky: Yes. The same incentives that led to the 2008 crisis are still in place today and in many ways the situation is worse. We have a financial system that concentrates risk in just a handful of large institutions, incentivizes them to take risks, guarantees that they will never be allowed to fail and ensures that the executives will never be held accountable for their actions. We shouldn’t be surprised when there’s another massive financial crisis and another massive bailout. It would be naïve to expect a different result.

HR: Didn’t the Dodd-Frank bill fix the financial system?

Neil Barofsky: Nothing has been done to remove the presumption of bailout, which is as damaging as the actual bailout. Perception becomes reality. It’s perception that ensures that counterparties and creditors will not perform proper due diligence and it’s perception that encourages them to continue doing business with firms that have too much risk and inadequate capital. It’s perception of bailout that drives executives to take more and more risk. Nothing has been done to address this. The initial policy response by Treasury Secretaries Paulson and Geithner, and by Federal Reserve Chairman Bernanke, was to consolidate the industry further, which has only made the problems worse.

HR: The Dodd-Frank bill contains 2,300 pages of new regulations. Isn’t that enough?

Neil Barofsky: There are tools within Dodd-Frank that could help regulators, but we need to go beyond it. The parade of recent scandals and the fact that big banks are pushing the ethical and judicial envelopes further than ever before makes it clear that Dodd-Frank has done nothing, from a regulatory standpoint, to prevent highly unethical and likely criminal behavior.

HR: Is the Dodd-Frank bill a failure?

Neil Barofsky: The whole point of Dodd-Frank was to end the era of “too big to fail” banks. It’s fairly obvious that it hasn’t done that. In that sense, it has been a failure. Dodd-Frank probably has been helpful in the short term because it increased capital ratios, although not nearly enough. If we ever get over the counter (OTC) derivatives under control, that would be a good thing and Dodd-Frank takes some initial steps in that direction. I think that the Consumer Financial Protection Bureau is a good thing.

Nonetheless, the financial system is largely in the hands of the same executives, who have become more powerful, while the banks themselves are bigger and more dangerous to the economy than before.

HR: How are OTC derivatives related to the risk of a new financial crisis?

Neil Barofsky: Credit default swaps (CDS) were specifically what brought down AIG, and synthetic CDOs, which are entirely dependent on derivatives contracts, contributed significantly to the financial crisis. When you look at the mind numbing notional values of OTC derivatives, which are in the hundreds of trillions, the taxpayer is basically standing behind the institutions participating in these very opaque and, potentially, very dangerous markets. OTC derivatives could be where the risks come from in the next financial crisis.

HR: Can anything be done to prevent another financial crisis?

Neil Barofsky: We have to get beyond having institutions, any one of which can bring down the financial system. For example, Wells Fargo alone does 1/3rd of all mortgage originations. Nothing can ever happen to Wells Fargo because it could bring down the entire economy. We need to break up the “too big to fail” banks. We have to make them small enough to fail so that the free market can take over again.

HR: Does the political will exist to break up the largest banks?

Neil Barofsky: The center of neither party is committed to breaking up “too big to fail” banks. Of course, pretending that Dodd-Frank solved all our problems, as some Democrats do, or simply saying that big banks won’t be bailed out again, as some Republicans have suggested, is unrealistic. Congress needs to proactively break up the “too big to fail” banks through legislation. Whether that’s through a modified form of Glass-Steagall, size or liability caps, leverage caps or remarkably higher capital ratios, all of which are good ideas, we need to take on the largest banks.

HR: Do you think the U.S. presidential election will change anything?

Neil Barofsky: No. There’s very little daylight between Romney and Obama on the crucial issue of “too big to fail” banks. Romney recently said, basically, that he thinks big banks are great and the Obama Administration fought against efforts to break up “too big to fail” banks in the Dodd-Frank bill. Geithner, serving the Obama White House, lobbied against the Brown-Kaufman Act, which would have broken up the “too big to fail” banks.

HR: What will it take for U.S. lawmakers to finally take on the largest banks?

Neil Barofsky: Some candidates have made reforms like reinstating Glass-Steagall part of their campaigns but the size and power of the largest banks in terms of lobbying campaign contributions is incredible. It may well take another financial crisis before we deal with this.

HR: Thank you for your time today.

Neil Barofsky: It was my pleasure.

HOA SCramble to Make Ends Meet BUt Are They Missing an Opportunity?

First thing to add to the list of things you ought to know before you buy is (a) whether the home is part of an Homeowners Association or Condominium or Cooperative association and second whether there are major repairs that are needed or under way because that may mean really big assessments. Once you have purchased the property, YOU are the person responsible  for payment of monthly and special assessments not the former owner and not the title company that issued you a title policy.

Even if you have a contract with the previous owner, unless the association agrees in writing that won’t enforce the special or delinquent assessments against you, they can still foreclose on the property just like a mortgagee can foreclose.

But here is where it  gets interesting. Most of the “good” decisions for borrowers came about as a result of two institutions fighting it out rather than David vs Goliath. They are considered to be on more even footing legally and practically by the person sitting on the bench wearing those black robes.

As I have already stated in numerous TV and radio interviews, the associations stand in a unique position to help correct the housing crisis.

If the Associations foreclose against the homeowner AND they name the originating lender and any assignee as junior lienholders or unsecured lienholders, there is a much better chance that the Judge is going to take a much closer look at the paperwork. Where that has occurred the I am receiving reports the association was successful. That raises the interesting prospect of allowing the homeowner to redeem on the association foreclosure and then have the house free and clear of the pretender lenders.

This same logic applies to  homes foreclosed by pretenders and then  abandoned or at least ill-maintained. The association should foreclose against the “former” homeowner and name the pretender as junior or unsecured. This might just revive a blighted neighborhood.

The fact remains that the Association does have its paperwork in order and the pretender lender never did.

Do Your Homework Before Buying into HOA Communities

by Chad Elliott, http://www.sheltertampa.com/homeowners-associations-foreclosures

Homeowners Associations Under Siege By Foreclosures

• At August 13, 2012
• By Chad Elliott
• In Foreclosure, Homeowners Association

Do your homework on the Homeowners Association before Buying.

About one in six Americans currently live in a community run by a condo or homeowners association.  With the recent increase in foreclosures, some homeowners associations are running out of cash.  HOA’s are like miniature governments that depend on revenue to finance upkeep of common areas, community pools, tennis courts and private roads.

Before a property goes into foreclosure, many owners stop paying their monthly HOA dues. In fact, HOA fees are generally among the first bills struggling homeowners quit paying.   If they can’t afford their mortgage, then they aren’t going to pay their HOA fees.  Adding to the problem, some banks aren’t paying HOA fees on properties they have foreclosed on and now own.   As a result, association fees rise and the property may be less desirable to buyers.

In the current climate of foreclosures, it’s even more important for potential buyers to read the bylaws; as the bylaws will explain what services are provided and if there is a cap on the annual fees.   Some of the bylaws even include information on how they’ll handle foreclosures and payments of fees.  It’s also important to know how the board is managed.   Boards are typically managed two different ways; by the homeowners themselves, or by an outside company that has been hired by the homeowners association.  In the uncharted waters of foreclosures, a professional management company may be the best bet for a home owners and potential buyers.

When looking at the balance sheet of a homeowners association, a buyer should look at their reserves. Buyers want to make sure there is enough cash on hand to take care of maintenance and other services.  If there is no reserve fund, the association may have to impose special assessments when major projects become necessary.   If HOA’s don’t have reserves, they may be forced to close community amenities like parks, pools and community centers, because they can no longer afford to build and maintain them.

It’s also important for buyers to remember that Associations aren’t corporations.   They operate year to year. They collect in dues what they believe they need to pay for amenities and services that residents expect.  Even though many homeowner associations have the power to foreclosure if dues are in arrears, few have the money or means to do it.

Buyers need to do their due diligence; as it will help them avoid surprises after they move in.   Realtors who specialize in being a Buyer’s agent or who have the Accredited Buyers Representative designation can help guide a buyer to get the documentation they need; as well as they can find out how many foreclosures are in the area.

Fagan Strikes Again: CA Judge Connects failure to Comply With Discovery with Right to Foreclose

Editor’s note: One of the tricks in civil procedure that has gone over the heads of some Judges is that the banks and servicers are refusing to comply with discovery, and while their refusal is subject to a later hearing they proceed with the foreclosure because there is no TRO.

In this case, Judge Tarle understood the connection immediately. While normally the Court is fairly liberal in giving parties time to respond to discovery, he also understood that this could open a window of opportunity for them to foreclose making the case moot for all intents and purposes. So he wrote in his order the same thing that a Judge would right in granting a TRO and prevented them from taking any action on the loan until the issues of discovery was resolved.

see Fagan – 7.27.12 Minute Order Re Ex Parte Hearing

I’ve asked the leading attorneys for banks that are not involved in the securitization illusion. They all respond the same way:

Q; You are the attorney for a bank, right?

A: Yes

Q: And as such you are required to file foreclosure actions on borrowers who can’t pay, right?

A: Yes if the board orders it, which is only after attempts have been made to do a workout.

Q: If you were met with challenges as to whether you funded the loan, owned the loan or had it as an account receivable would you delay discovery?

A: Absolutely not. I would immediately comply with the discovery, produce affidavits from witnesses and copies of our books and records showing the funding of the loan and our continuous ownership of the loan.

Q: If your bank said we have the note but we don’t have this loan as a loan receivable because it is owed to someone else, would you tell them to foreclose?

A: Absolutely not, unless they foreclosed in the name of the real owner of the obligation where the trail of assignments leads to that real creditor.

Q: At the auction of the property, if you were asked to submit a credit bid for the bank you are representing, you would ordinarily submit it in the name of that bank, right?

A: Yes

Q: But if you were only representing the bank who had documented authority to foreclose on behalf of another lender, on whose behalf would you submit the credit bid?

A: Obviously the real creditor, That is what the statute says. You pay cash unless you are the actual creditor to whom the money is owed and the note is collateralized by the property.

 

TBTF: “Too Tall for Law”

ALL THIS IS DISCUSSED IN MY SEMINAR IN CHANDLER THIS THURSDAY 7/26 AT 9:00 AM.

SIGN UP NOW FOR SEMINAR IN CHANDLER, AZ — THERE IS HOPE

Editor’s Comment: If there is one thing we can plainly see now it is that the bigger the bank, the bigger the oil corporation, the bigger the enterprise, — it all means that the rule of law will not be followed. What applies to smaller companies and individuals who would be prosecuted criminally, required to make restitution and all the rest simply does not apply if you grow big enough to buy your way into government.

Even the judiciary is intimidated by the sheer size of the TBTF banks. While they inch their way to finding that there are indeed causes of action for wrongful foreclosure that should result in return of the home and millions in compensatory and punitive damages, they continue to ignore the slaughter on main street, the corruption of title, and the requirements of reporting, registering, and filing documents for recording.

All of those things were done using other people’s money like you or your neighbor who is receiving a pension that is under management by the same banks that sold the bogus mortgage bonds. None of that matters if you have a trillion dollar balance sheet even if half of it represents assets that are either nonexistent or should be written down to their real value.

Too Big To Fail should be renamed just like Libor was renamed either LieBore or Lie-More. They are tinkering with our lives when they breach the trust of other banks and people and small companies. TBTF should be renamed “Too Tall for Law.”

What to do? My answer is that ANYONE who is taking money from the banks that created this largest economic crime in human history should be voted out of office regardless of party affiliation. Think about that the next time a pollster asks you a question. We have stopped talking about foreclosures, which lie at the heart of the illusion of a recession made too real on normal people, while the banks continue to report record profits and bonuses.

Think about it. Banks are supposed to be the intermediaries in transactions, not the transaction itself. But they broke all the rules, laws and regulations, and we still have them operating as though they were king of the hill. Maybe they are the king, but they don’t have to stay that way — YOU CAN MAKE  A DIFFERENCE.

The Size of the Big Banks Is – Literally – Destroying the Rule of Law

http://www.zerohedge.com

Pulitzer prize-winning journalist Ron Suskind quotes Treasury Secretary Timothy Geithner as saying:

The confidence in the system is so fragile still… a disclosure of a fraud… could result in a run, just like Lehman.

In other words, Geither said that the big bankers are “too big to jail”, because disclosing any portion of their massive fraud would cause bank runs.

Former IMF economist Simon Johnson notes:

The main motivation behind the administration’s indulgence of serious criminality evidently is fear of the consequences of taking tough action on individual bankers.

***

The message to bank executives today is simple: build your bank to be as big as possible – and then keep growing. If you manage to become big enough, you and your employees are not just too big to fail, but also too big to jail.

Glenn Greenwald notes:

To justify this lack of accountability for the nation’s wealthiest lawbreakers, the all-too-familiar excuses long used to shield the politically powerful are trotted out on cue. Once again, we are told that prosecutions are too disruptive; that it’s more important to fix the system than to seek retribution for the past; that because the wrongdoers’ reputation is in tatters, they have already suffered enough; that we need the goodwill of financial titans to ensure our common prosperity; and so on.

Indeed, the Obama administration has made it official policy not to prosecute fraud.

Top economists, on the other hand, completely contradict Geithner and the rest of the administration … saying that fraud caused the Great Depression and the current financial crisis, and that the economy will never recover until fraud is prosecuted.

Top economists and experts on fraud say that fraud is not only widespread, it is actually the business model adopted by the giant banks. See this, this, this, this, this and this.

Therefore, unless the big banks are broken up, financial fraud will grow exponentially like cancer, and the economy will be destroyed.

Their Size Allows Them to Rig the Market

The “father of free market economics” – Adam Smith – knew that monopolies hurt the economy.

As the Libor scandal shows, the size and concentration of the biggest banks allows them to commit massive manipulation in the world’s biggest markets, and to engage in insider trading on a scale never before seen in history.

In addition, Richard Alford – former New York Fed economist, trading floor economist and strategist – showed that banks that get too big benefit from “information asymmetry” which disrupts the free market.

Nobel prize winning economist Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market:

“The main problem that Goldman raises is a question of size: ‘too big to fail.’ In some markets, they have a significant fraction of trades. Why is that important? They trade both on their proprietary desk and on behalf of customers. When you do that and you have a significant fraction of all trades, you have a lot of information.”

Further, he says, “That raises the potential of conflicts of interest, problems of front-running, using that inside information for your proprietary desk. And that’s why the Volcker report came out and said that we need to restrict the kinds of activity that these large institutions have. If you’re going to trade on behalf of others, if you’re going to be a commercial bank, you can’t engage in certain kinds of risk-taking behavior.”

The giants (especially Goldman Sachs) have also used high-frequency program trading which not only distorted the markets – making up more than 70% of stock trades – but which also let the program trading giants take a sneak peak at what the real (aka “human”) traders are buying and selling, and then trade on the insider information. See this, this, this, this and this. (This is frontrunning, which is illegal; but it is a lot bigger than garden variety frontrunning, because the program traders are not only trading based on inside knowledge of what their own clients are doing, they are also trading based on knowledge of what all other traders are doing).

Goldman also admitted that its proprietary trading program can “manipulate the markets in unfair ways”. The giant banks have also allegedly used their Counterparty Risk Management Policy Group (CRMPG) to exchange secret information and formulate coordinated mutually beneficial actions, all with the government’s blessings.

In other words, a handful of giants doing it, it can manipulate the entire economy in ways which are not good for the American citizen.

And the political system. No wonder Nobel prize-winning economist Paul Krugman thinks that we have to break up the big banks to stop their domination of the political process.

If We Break Up the Giants, Smaller Banks Will Thrive … And Loan More to Main Street

Do we need to keep the TBTFs to make sure that loans are made?

 

Criminal Charges Expected Against BofA, Citi, JP Morgan Chase

ALL THIS IS DISCUSSED IN MY SEMINAR IN CHANDLER THIS THURSDAY 7/26 AT 9:00 AM.

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NEW NAME FOR LIBOR: LIE-BORE

NEW BUSINESS MODEL: LIE MORE

Editor’s Note: I was sort of expecting this from the Obama administration. Like others I long suspected the Libor was rigged but it seemed like they were covering their tracks too well to be sued or prosecuted. What I was expecting was that some MAJOR action would be brought against the banks in a way that wouldn’t look political. The prosecutions directly in the mortgage scandal were a bit long in the tooth for it not to look like political timing. But Libor, closely tied to all the loans and Loan resets and all the derivatives brings us back to first base with England leading the case.

As I have stated before, it does not seem likely that the voting public will look kindly on any politician in bed with the banks. About the only thing our divided electorate can agree upon is that the Banks screwed everything up and pretty much did it intentionally. Running against the banks is the smartest political move regardless of where you are on the political spectrum. Obama, probably knowing all about this investigation but not able to comment about it until the story broke, now has a clear path to run against the Banks while Romney practically is a bank.

As the economy worsens, and it will, the blame for it is going to be laid squarely at the doorstep of the banks where it belongs. The strategy of blaming Obama for past administration errors and failure of leadership in the economy is blowing up in the face of Republicans who actually do have platforms that are electable. Their problem is like the Democrats who didn’t really talk about their core issues in past elections.

Obama will correctly be seen as leading the charge against the banks whom everyone now hates. The dominant issue of the campaign has been delivered to the incumbent wrapped in a paper bow.

A 33% Minimum Probability Of Criminal Charges Against JP Morgan In Lieborgate?
http://www.zerohedge.com/news/33-minimum-probability-criminal-charges-against-jp-morgan-lieborgate

Millions Over 50 Now Hit with Foreclosure

ALL THIS IS DISCUSSED IN MY SEMINAR IN CHANDLER THIS THURSDAY 7/26 AT 9:00 AM.

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Editor’s Note: The CNN article is one of many that broke this weekend about senior citizens faced with foreclosure, moving in with children, having their life savings wiped out by “modification” promises and other scams both by the banks and servicers and by private scam artists.

So many people who thought they had dodged the bullet are now finding out that they are stuck in quicksand. But it is an illusion created by Wall Street and if you simply DENY AND DISCOVER, (the subtitle of my workshop tour starting Thursday), you will find out why they fold every time when forced to open up their books and records. The reason is very simple. There are no books and records, there were no transactions and all the papers are fictional including the note and mortgage signed at closing. Practically nobody did a transaction in which money exchanged hands between the homeowner and the party shown on the note as the lender and the party shown on the mortgage as the secured lender.

And the reason this is important is that if investors and borrowers got their act together the foreclosure problem would vanish. It is clearly in the interest of the investors to modify these mortgages to fit with reality rather than to lose even more of their investment in a foreclosure.

The banks and servicers are luring and duping the public and the press into believing that there are serious modification programs underway. It isn’t true. The banks don’t want modifications, they want foreclosures because they don’t give a damn about the investor who bought bogus mortgage bonds and they don’t give a damn about the homeowners. What they care about is being too remote to jail (as opposed to the popular expression of Too Big To Fail, which is also a lie, along with Libor which is now known as Lie-bore).

Once they get a foreclosure they think they have a get out of jail free card. After all the state authorities put their stamp of approval on the foreclosure, Tittle MUST have been as represented in order for the experts in each state to have done that. But there are no experts in the states on what Wall Street and that is why pensions are getting slashed, cities are going bankrupt, homeowners are going bankrupt and why millions more people weary of paying under ht yoke of a debt that can never be covered by the asset they were told was worth so much more, are walking away in greater and greater numbers.

Millions of older Americans at risk of foreclosure
By Les Christie @CNNMoney July 20, 2012: 2:15 PM ET
NEW YORK (CNNMoney) — A growing number of older Americans are falling into serious mortgage debt, with more than three million borrowers over the age of 50 at risk of losing their homes to foreclosure, according to a recent report from the AARP.
Since the housing crisis started, more than 1.5 million homeowners age 50 or older have already lost their homes to foreclosure, pushing the foreclosure rate among this group to 2.9% in 2011 from 0.3% in 2007, according to the AARP’s Public Policy Institute. And another 3.5 million have found themselves underwater, owing more on their mortgage than their homes are worth.
Long believed to be cushioned from the blow of the housing crisis — because they owned their homes outright or hold large equity stakes that they could draw from in case of financial hardship — older Americans are “carrying more mortgage debt than ever before.”
“As the mortgage crisis continues, millions of older Americans are struggling to maintain their financial security,” the report said.
Underlying the problem is that more older Americans have mortgages than they did 20 years ago — and the amount of debt they owe is much greater.
The percentage of families with mortgages held by someone age 75 or older, for example, jumped to 24.2% in 2010, up from 6.3% in 1989, according to the Federal Reserve. Over the same time period, the amount of mortgage debt this group of borrowers owed jumped to a median of $52,000, up from $11,800.
Many of these older borrowers were saddled with toxic subprime loans issued during the latter years of the housing bubble, said David Jones, president of the non-profit Association of Independent Consumer Credit Counseling Agencies.
Older homeowners were often convinced to refinance their mortgages for more than they owed and use the extra cash to repair their homes or pay bills.
Related: ‘Retiring in 7 years. Am I prepared?’
These subprime loans were often enticing because the interest rates were low for the first few years. But the rates jumped after that and borrowers soon found themselves saddled with unaffordable monthly payments.
Compounding the problem was the sharp decline in home values. Nationwide,home prices have fallen about 34% since the mortgage meltdown began in mid-2006, according to the latest S&P/Case-Shiller home price index. But they were specially hard hit in states that attract retirees, like Florida, Arizona, Nevada and California, pushing many of the borrowers that live there underwater on their loans and making them more vulnerable to foreclosure.
Less time to regain ground: When older borrowers lose their homes, there’s less of a chance that they will recover financially.
“Foreclosures unduly weigh on older borrowers because so many are on fixed incomes,” said Kathleen Day, spokeswoman for the Center for Responsible Lending. “They have little time to rebuild their finances.”
Older workers who lose their jobs, for example, have a harder time getting hired than younger workers. And those who do find a job often end up taking a pay cut, making it more difficult for them to afford their mortgage payments, the report said.
And while the economy is slowly recovering and home prices are starting to stabilize, it may be too little too late for many older homeowners — especially the 3.5 million who are currently underwater on their mortgages.
Many of these borrowers don’t have enough time left to rebuild their finances before declining health or disability forces
1 of 2    7/22/12 11:19 AM
AARP: Millions of older Americans at risk of foreclosure – Jul. …    http://money.cnn.com/2012/07/20/real_estate/foreclosure-aarp/
them into retirement and starts eating away at their savings.
Related: Where home prices are rising the fastest
The AARP offered up a few recommendations for easing the mortgage problems of older homeowners, including the use of principal reduction, or forgiving some of the mortgage debt that is owed on the home. The group cited growing evidence that default rates decline when mortgage balances are lowered to better reflect current market value of homes.
AARP also said more states should introduce mandatory foreclosure prevention programs. Under these programs, servicers cannot pursue foreclosures until a review and mediation is conducted.
It also recommended stepped up enforcement against foreclosure prevention scams that offer to save people’s homes, collect a substantial up-front fee and then do little or nothing.
A recent report by the Lawyers’ Committee for Civil Rights revealed that nearly half of these scams roped in older Americans, who lost a collective $16 million to these types of fraud.

What To Do When Confronted With Foreclosure?

ALL THIS IS DISCUSSED IN MY SEMINAR IN CHANDLER THIS THURSDAY 7/26 AT 9:00 AM.

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If you are not interested in keeping the house the options are
(a) simply walking away from it after you have spent a few months (or years) rent free,
(b) a short-sale in which banks are sometimes paying some serious money to avoid litigation,
(c) modification but there are two kinds. The first is the one the bank steers people into which merely puts off the inevitable foreclosure and where you waive all your defenses, of which there are many more than you might think. The second is a HAMP or similar modification which can be forced in litigation because the truth is they are not considering the modification offer and certainly not transmitting it to the investor lender who bought a bogus mortgage bond. So a well reasoned well documented modification proposal should be followed by a motion or lawsuit stating that they violated the HAMP statute by not considering it and that you can prove it — by showing that your proposal produces a far better result for the investor than the impending foreclosure. Our experience shows that when you demand to see what the “servicer” used as a standards or what the investor used as standards to consider the modification proposal the case settles on the terms or close to the terms proposed by the borrower, because they have no formula or even a record of who considered the proposal, much less any analysis showing a reasonable basis for rejecting the borrower’s offer.
(d) Wrongful foreclosure lawsuit for damages: This is favored by many lawyers especially for those who no longer want to live in the home. It is a lawsuit for money damages only and includes the possibility of punitive damages. Some awards have been in the millions of dollars.

If you DO want to keep the house you must follow the rules as to when to object, when to seek a Temporary restraining Order etc. As I explain thoroughly, it is far better to DENY AND DISCOVER that to make allegations where the burden is on you to prove facts that are exclusively known by the other side.

This is particularly effective after a bankruptcy where one party gets the automatic stay lifted and another party forecloses. That is as close to open and shut as we get. The Judges\’s order usually includes a finding that the party who moves for relief from stay is the owner of the loan. So the second party to actually foreclose, without getting a court order lifting stay for them to foreclose is in deep doo-doo. They can’t say it doesn’t matter because there has already been a finding of fact that the the first one to come to court alleged that they were the owner of the loan and the court entered the order on that basis. The second one is a stranger to the transaction, against which compensatory, punitive, exemplary damages are awardable and there is one developing case law showing that it is possible to get an award for emotional distress. The action is a  cause of action called wrongful foreclosure and it is recognized in all states in common law and in many states as statutory law.

Be patient and make them commit to what their proffer is tot he court so they can’t turn it around alter saying they made a mistake. Wells Fargo, US Bank and BOA are among the banks fined millions for misrepresenting their true status in the loan chain and thus misrepresenting the status of the loan.

Whether you are seeking damages for a home lost or trying to prevent the home from being lost, do not fall into the trap of following the documents. All evidence points to the fact that the documents from beginning to end were fabricated and were not the result of ANY financial transaction, even with you when the loan was funded.

There were two loan closings when you closed — one which you knew about where a “naked nominee”with no money, no authority and nothing to do with the transaction rented their name to Wall Street to play the part of the lender and named on a note as the lender and named on the mortgage as the lender protected by the collateral of the house. But you never had a financial transaction with THAT lender. And the closing agent should have informed you of the fact that there were two closings occurring. But they didn’t.

You thought there was due diligence and confirmation of the appraisal when it was just the reverse. The appraiser was told if they didn’t come back with an appraisal at least $20k higher than the contract price or refi price then they would never work again.

So the first closing had documents but no transaction. The second closing was a transaction but was not documented where the investor lender and borrower agreed to terms. There was no note, so that is why the battle cry of those defending these bogus foreclosures is DENY and DISCOVER.

Most lawyers and realtors don’t understand or even want to understand the securitization scheme of Wall Street. They just want to use tired old procedures and defenses to justify their fee rather than win their case. The fact is that in many if not most cases, the servicer was paying the creditor your monthly payment whether you paid it or not, thus reducing the creditor’s claim against you making the notice of default and notice of sale invalid.

The second major issue is that, as the San Francisco study and many others like it across the country discovered, was that the creditor who submitted a “credit bid” at auction had no right to order the auction much less submit a credit bid lieu of cash.

While the attempts to “get a free house” are ascribed to homeowners, the real culprits are the banks and servicers who are seeking a free house by making it appear as though they are legitimate “lenders” or that they purchased the loan, and then they show the assignment. But if in discovery you ask to see the transaction where they paid for that assignment and if you ask to see the trail of money where your loan was funded, you will find that nothing in the documents that were fabricated, forged, robo-signed etc. is true. There was o transaction and the actual creditor has received payments that were not recorded and may well have settled and moved on to another investment vehicle.

If you are getting the feeling that the banks claimed losses to get bailout and insurance money when they had actually used money of investors (often without the investors knowing there were ANY investments in mortgages) then you are right. The banks lost nothing on loan defaults and the bailout was a sham. And the odds are overwhelming in your favor that the part of the obligation that was intended to be secured with the collateral of the home was in fact never secured and therefore not subject to foreclosure.

Before taking any action on anyone’s opinion in this column make absolutely certain you consult with an attorney who is fully conversant with the current mortgage and foreclosure climate. It is far different than it was ten years ago.

 

Retirees Buying Trouble When They Buy Foreclosure

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Editor’s Notes:  

there are a lot of good blogs out there on retirement. Some like the Top Retirement blog, whose link is included here, try to give retirees guidance on where to live in retirement. While these blogs do a pretty good job of covering many of the major issues in retirement, they are mostly targeting people who are looking at monetary issues, like taxes, rather than satisfaction and comfort. I’d like to see more people issues than money issues.

But if you want to talk money issues, these blogs are clueless about the mortgage meltdown and how that changes the equation. First and foremost the cost of buying a home that has been foreclosed or has a “securitized loan” in it’s chain of title greatly increases that either they or their loved ones are going to end up in a title dispute that can only be resolved in court.

So the admonition here is that before you consider that cute house with the low real estate taxes and no income taxes, figure in the cost of an attorney who can negotiate a REAL title policy rather than the junk paper they are giving out. That can amount to hours of work. And even after you get a qualified title policy you still need good title, so someone needs to file a lawsuit that asks the court to confirm the title. What if someone in the securitization chain didn’t get the memo and defends the quiet title action? Now you have an adversary proceeding on your hands.

The cost of getting good, quiet title can run high. But the people part of this is what really counts. Do you really want that hassle? Just check the title of any property you are buying and ask one question: has this property ever been the subject f claims of assignment or securitization of loans? If the answer is yes and you love the property then make sure you have a very competent property lawyer and lay the financial price to avoid trouble later.

Worst States to Retire 2012: Northeast and Midwest Come Up Losers

January 10, 2012 — There are plenty of best places to retire lists. But how about the places where it’s not such a good idea to retire? Last year our “worst 10 states” list caused quite a sensation, so we are back at it again for 2012. The purpose is to try to help baby boomers understand where, all other things being equal, they can enjoy their hard-earned retirement without taking on more problems. To make sure you don’t miss updates to this and other lists like it, sign up for our free weekly “Best Places to Retire” newsletter. And of course, don’t miss our 2012 list of the 10 Best States for Retirement.

Your retirement is unique
.  Every individual has to consider his or her own criteria for identifying the worst or best states to retire. One of the most important factors for anyone is proximity to family and friends. So, if you want to be near your grandchildren the worst state on our list could be the best state on your list. Likewise, you might not share the same considerations we used to develop this list. Tax issues might be most important for you, or you might not care about spending winters in a warm state. Our 2012 list is based on 5 considerations that we think will be important to most people, but freely admit that these factors could be totally irrelevant to many other folks.

Our Top Weighting Criteria.  
This year we expanded the criteria we used from 3 to 5 factors. The factors for 2012 are: Fiscal health, property taxes, income taxes, cost of living, and climate. Each criterion was worth up to 1 negative point. If these are not key factors for you, your list might look very different. Also new this year is a page where you can customize your “worst states” list by eliminating criteria that might not be important to you. You will find detailed explanations of these factors along with our sources following the list. The negative point range this year went from 4.05 for #1 CT to 2.45 for #10 WI.

The 10 Worst States for Retirement – 2012
  Three new states made our list this year: Vermont, Minnesota, and Maine. That means that 3 states were lucky enough to leave the list: Ohio (low property and income taxes), Nevada (in terrible financial shape but no income tax and low property taxes), California (bad financial shape and high property taxes, but almost no income tax on our prototypical couple, plus a great climate). The additions and subtractions do not necessarily mean that these states got worse or better since last year; that probably has more to do with the changes from our new rating factors. And, since the data is always trailing, the ratings might not be a perfect reflection of today’s reality.

1. Connecticut. We actually had a numerical tie for 1st place. CT won the tie-breaker because it has much higher property taxes, income taxes, and cost of living than Illinois. Most pension income is taxable, although there are some significant exemptions for social security, depending on income. CT had the 3rd highest tax burden of any state in 2009. The Nutmeg State does have considerable charm and some terrific places to live like the resurging city of New Haven, the quaint village of Stonington, or upscale Madison.

2. Illinois. Illinois (along with Nevada) faces serious economic troubles. Its pension funding, deficit spending, unemployment, and foreclosure rates are among the worst of any states. The state began to address its problems last year when it raised income tax rates. Although Illinois does not tax most pension or social security, other earnings and investment income are taxed at a fairly high rate thanks to its 5% flat tax rate.

3. Rhode Island. The Ocean State has severely underfunded pension/health liabilities and budget deficits. It has the 5th highest median property taxes paid. Our prototypical couple would face much higher income taxes here than they would in most other states. It does have some great places to live like in the bustling city of Providence, or along its extensive coastline and numerous bays and harbors in towns like Westerly.

4. Vermont. The Green Mountain State has very high median property and income taxes, with a top 10 cost of living. Winters here are better for skiing than golf.

5. Massachusetts. In the Bay State our prototypical retiree couple would face property taxes that are among the highest of any state. Even though social security income is exempt, income taxes would be high for our couple because of the flat rate applied to other earnings. Most government pensions are exempt, but private sector ones are taxed. The cost of living is high. See reviews of great places to retire like the college towns of Williamstown or Northampton.

6. New Jersey. New Jersey residents are the biggest losers when it comes to property taxes – the median property tax in the Garden State is the highest in the U.S. at $6579. It also has the highest tax burden (as reported by the Tax Foundation), a large budget deficit issue, and a very high cost of living. New Jersey has both an estate and an inheritance tax. On the plus side, it excludes most pension and social security income for couples making less than $100,000.

7. Minnesota. Another newcomer to our list, Minnesota, would impose the 4th highest income tax on our prototypical couple. That is mostly due to the absence of any pension or social security exemptions. Property taxes are just below the top 10. Minnesota has a

large budget deficit issue. Anyone care to winter in Minnesota?

8. New York. The Empire State was essentially tied with #9 Maine. We broke the tie because New York has the 4th highest median property taxes and one of the highest tax burdens. Surprisingly, the state did not earn any negative points for income taxes, since it offers generous exemptions for social security and pensions, along with a high standard deduction. Its cost of living is one of the highest, plus a very cold winter climate. On the plus side, New York’s Governor Cuomo is waging a campaign to limit property tax increases and improve the state’s fiscal condition. College towns like Ithaca can be awfully nice though.

9. Maine. Maine’s property taxes are much lower than New York’s, while Maine’s income tax on our prototypical couple would be about $1000 higher. Winters are even colder, but cost of living is lower. Maine’s governor has vowed to try to exempt retirement income from taxation, although nothing has happened on that front yet.

10. Wisconsin. Property taxes are among the highest in the country. It has a high foreclosure rate. Wisconsin’s high income taxes are mitigated somewhat for retirees because social security income is exempt and because there is a high standard deduction. Madison, of course, is a great place to live.

See our entire list of great places to retire by state.

Criteria used in developing this list
 Fiscal health. Just as the U.S. government is spending more than it takes in, many of the 50 states have serious financial problems of their own. “The Widening Gap:” from the Pew Center on the States provides a good understanding of the problem. To determine the fiscal health component of our rankings we used 4 inputs this year: deficit, unfunded pension liabilities, unemployment rates, and foreclosures. Why do we think these are important things to rate on, you might ask? Just think about the turmoil Greece and Spain are experiencing as they are finally start to address their deficits and borrowing. Social services are being cut, taxes are being raised, and there is civil unrest. Similarly for states that run into financial trouble, the pain will be acute when the piper is paid, and you probably don’t want to be part of it. We combined these factors; if a state was in the top 10 for all four problems it received 1 negative point in the rankings (.25 each).

Property taxes. In our opinion property taxes are usually the most oppressive taxes for retirees, since they can be so high in some states and bear no relation to one’s income. The 10 states with the highest property taxes were awarded 1 point on a sliding scale, with New Jersey actually earning 1.1 points since its median taxes are so much higher than any other state.

State income taxes. We think too many baby boomer retirees focus too much attention on state income taxes as a reason to move. That’s because unless you have a lot of income, they are not a factor. In our analysis we created a hypothetical couple that has $70,000 in earnings from social security, pension, earnings, and retirement savings; equal to the top earning quartile of people 65+. Using data from the Congressional Research Service we assumed this couple received 20% of its income from social security, 23% from pension, and 47% from earnings and investments. We used those inputs to estimate income taxes for each state at tax-rates.org. Obviously, your earning profile will probably be different. If your joint earnings are significantly below $70,000, this rating component is probably not significant. Here is where you can see the ratings with this component eliminated. The 10 states with the highest taxes on this factor earned up to 1 negative point.

Cost of living. Most people retiring today are very concerned about how they are going to make it work financially. We awarded states with the highest cost of living 1 negative point.

Climate. We believe the majority of today’s retirees have a bias towards places with warmer winters. States north of the Mason-Dixon line were awarded a negative 1 point for their colder climate. (See also our 2011 article – “Worst Places to Retire for Weather and Natural Disasters“)

You can customize your “worst states” list by using the rankings on this rankings page.

Other criteria for identifying the best or worst retirement state:
While our rankings concentrated on fiscal health, taxes, cost of living, and climate, here is a more complete list of possible criteria for developing your personal rankings of retirement states and towns:

- Proximity to friends and family
- Sales taxes (Not usually a deal breaker, but annoying)
- Inheritance and Estate taxes (Some states have neither, a few have both)
- Crime
- Recreation
- Transportation
- Healthcare
- Education including colleges
- Cultural resources
- Natural disasters
- Fitting in socially, politically, religiously

Should the States Be Trying to Attract Retirees – and What Should They Do?
There are some states that actively try to attract retirees – notably Texas, Louisiana, West Virginia, Mississippi, and Tennessee. They have bought into the idea that the “mailbox” economic value of retirees (the pension and social security checks arrive in the mailbox) is as important as attracting new industries. Most of those retirees are being recruited are coming from the high tax states up north, only a few of which are actively trying to stem that tide. Property tax freezes for seniors, taxation of pensions and social security, and investments in infrastructure are some ideas that could help states in the northeast and midwest avoid losing valuable citizens whose retirements are being compromised by indifferent legislators. Share your ideas with them, and us!

More about our sources and criteria:
Pension/Health Funding and Budget Deficit data – Pew Center
Budget Deficit data – Center on Budget and Policy Priorities
Unemployment data – Bureau of Labor Statistics
Foreclosure rates – CNBC.com
Property Taxes – Tax-rates.org
Income taxes – here we used the income tax calculator from Tax-rates.org
Cost of Living – Missourieconomy.org

For further reference:
Worst States for Retirement – 2011
State Retirement Guides

Tax Foundation Tax Burden by State
Tax Friendly States
The Most Important Issue Might Not Be What You Think
Our 2011 List of the “100 Best Retirement Towns”
Best Retirement States for 2012”

We were happy to have seen this article extensively quoted by Yahoo.Finance, Money.msn, MarketWatch, and AOL.DailyFinance

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Mass Supremes Declare Note and Mortgage Must Be Owned by Same Party

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“We disagree that § 14 is unambiguous. The section is one in a set of provisions governing mortgage foreclosures by sale, and that set in turn is one component of a chapter of the General Laws devoted generally to the topic of foreclosure and redemption of mortgages. The term “mortgagee” appears in several of these statutes, and its use reflects a legislative understanding or assumption that the “mortgagee” referred to also is the holder of the mortgage note.”

Editor’s Analysis:  Hat tip to stopforeclosurefraud.com. And a special hat tip to Fr. Emmanuel Lemelson, who is a Greek orthodox Priest, and author of the article below. I add the editorial comments of the blog site because they are exactly on point.

First, let’s note that the Court tried to limit the effect of its ruling to future foreclosure actions and possibly those already in process. But the attempt fails because of their acknowledgment that foreclosure is not a single event but rather a process in which several elements must be present to conclude the matter. That process includes:

1. Declaring a default and demanding a payment that is plainly wrong after taking into account the financial transactions of the Master Servicer and thus the one true creditor. As a fraud upon the court, this opens the door to going back retroactively and attacking the notice.
2. Commencing foreclosure proceedings. Just because you are allowed to initiate a foreclosure by court order (Motion to Lift Stay) or appellate decision, doesn’t make you a creditor who can submit a credit bid at auction.his is the Achilles heal of the 5 million preceding foreclosures and all of the ones planned for the future.
3. The court clearly states that the statutes and case law allowing the initiation of foreclosure proceedings are restricted by other statutes and legislative assumptions. The requirement of holding both the note and mortgage as owner is phrased in terms of redemption; but the logic also applies to the credit bid submitted in lieu of a cash bid at the sham auction of the property.
4. A credit bid by definition can only be submitted and accepted if it comes from the secured creditor in the transaction that originated the paperwork giving rise to all the false claims of securitization and assignments. Thus a bid received by a party other than the secured creditor listed on the paperwork is no bid at all. We call that lack of consideration. hence the auctioneer had no choice but to ignore the “credit bid” and move on to cash bids, which is why I tell people to go to their auctions and make a bid. They should also register an objection in writing that the auction is unauthorized and fraudulent, and deny the debt, obligation, note, mortgage, default etc. If there was no cash bid, then the property is still owned by the homeowner, the deed in foreclosure should be set aside, and this new decision might apply to renewal of foreclosure proceedings.
5. In Bankruptcy the Motion to Lift stay need only be supported by some colorable right to proceed in foreclosure. From now on unless the party can establish that it has possession and ownership of the note, they have no right to get relief from automatic stay because they have no right to submit a credit bid.
6. The reference to redemption raises interesting issues. While the court waffled and more or less came down on the side of the banks as to prior completed foreclosures, there is still an attack left standing under the old law and the new law. How can you redeem, modify mediate or even litigate where the true creditor’s identity is being intentionally withheld from the borrower and the court? The right of redemption thus becomes a doorway to reopen the title question. If accompanied by valid causes of action for fraudulent and predatory lending, slander of title etc. the redemption price cold be reduced to zero or less — giving the homeowner both the title and possession of his home plus a monetary award.
7. If the auction was conducted improperly and the deed issued without consideration then it follows that the eviction must be overturned as well.
8. Hence, CAVEAT EMPTOR to those looking for bargain homes where the home is alleged to be owned as REO property or the property is being subjected to a short sale where the “prior” fraudulent mortgage is paid off to a stranger to the transaction who issues an invalid release and satisfaction.
9. The main point is that Massachusetts foreclosures are now likely to come to a dead stop, which will have rippling effect throughout the world of mortgages, foreclosure and finance. This in turn will reveal that the assets carried on the books of the mega banks are fictitious. As those facts are revealed, BOA and Citi, as well as other banks are going to take another brutal hit on their credit ratings — enough to finish off BOA and Citi and maybe one or two others.

Watch later for our article on warnings to those purchasing US properties investment or retirement. You might well be the victim of another scam perpetrated by Wall Street.

Henrietta Eaton and the Boston Foreclosure Party

By Fr. Emmanuel Lemelson

To read entire article go to:

Henrietta Eaton and the Boston Foreclosure Party

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It’s Down to Banks vs Society

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

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

Editor’s Comment: 

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

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

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

The reason for the unreasonable behavior, as it appears, is that it is perfectly reasonable in a lending environment turned on its head — where the object was to either fund a loan that was sure to fail, or keep a string attached that would declare it as part of a failed “pool” that would trigger insurance and swaps payments.

Steve Keen: Why 2012 Is Shaping Up To Be A Particularly Ugly Year

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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