SEC Corroborates Livinglies Position on Third Party Payment While Texas BKR Judge Disallows Assignments After Cut-Off Date

Maybe this should have been divided into three articles:

1. Saldivar: Texas BKR Judge finds Assignment Void not voidable. It never happened.
2. Erobobo: NY Judge rules ownership of note is burden of the banks. Not standing but rather capacity to sue without injury.
3. SEC Orders Credit Suisse to disgorge illegal profits back to investors. Principal balances of borrowers may be reduced. Defaults might not exist because notices contain demands that include money held by banks that should have been paid to investors.

But these decisions are so interrelated and their effect so far-reaching that it seems to me that if you read only one of them you might head off in the wrong direction. Pay careful attention to the Court’s admonition in Erobobo that these defenses can be waived unless timely raised. Use the logic of these decisions and you will find more and more judges listening with increasing care. The turning point is arriving and foreclosures — past, present and future — might finally get the review and remedies that are required in a nation of laws.

 

Courts and SEC Drilling Down on Reality of BANK Fraud.

The effects will be far-reaching. The complexity of the false securitization scam was intended to shield Wall Street from continuing its endless pattern of conduct of fraud, misdeeds, perjury and other crimes and other acts of contempt for the courts. The result was that the entire finance system and the economies of the world were turned upside down. Now we are going to see them turn right-side up.

It has taken years, but the SEC and the Courts are now unraveling the mysteries behind the secret curtains of the scam of securitization, which turns out to be nothing more than a cover for a giant PONZI scheme that fell apart as soon as investors stopped buying mortgage bonds. That is the hallmark of PONZI schemes — using the new investor money to pay the expected returns to the older investors.

If it was a legitimate business plan, the failure of the investors to buy more mortgage bonds would have no effect on the rest of the system. Each bond, each mortgage would have either succeeded or failed on its own merit. But that is not what happened.

As can be seen by the decisions noted below, Wall Street defrauded investors on many levels, defrauded the government, and defrauded the borrowers on mortgages they knew with certainty would never survive even a few months.

In confidential deals, the banks entered into agreements to be compensated for the failure of the mortgage bonds and defaulting loans and then simply lied to regulators, investors and borrowers — and kept the money for themselves instead of turning over the money to the investors who were going to lose more money than they had ever dreamed on “triple A” rated “insured” and “hedged” (credit default swaps).

The SEC is now ordering Credit Suisse (and soon others) to disgorge $60 million that clearly should have been paid to investors and thus reduced the accounts receivable of investors. A much better educated SEC and much better educated Judges are peeking behind the curtains and they don’t like what they see. These decisions are, in my opinion, the precursors of a wave of decisions that overturns the entire foreclosure tragedy.

The bottom line is that investors funded the mortgages (plus a lot of fees and “proprietary trading profits” that were hidden from the investors and indeed the world), the banks stole the money, the accounts due to the investors is much lower than what is alleged in foreclosure actions, and none of the foreclosers have any right to be in court because (a) they have no capacity to sue in the absence of financial injury caused by the borrower and (b) they are relying on assignments that in the eyes of the law never happened. They not only didn’t lose money, they made more money than most people imagined. Now they are being ordered to pay back the money they promised to investors whose losses will be correspondingly reduced.

How this will be apportioned to the principal balance supposedly due from borrowers has yet to be determined. But it is clear that the receivable from the only real lender is being reduced by the amount of money received by the intermediaries in the securitization chain — in deals that were intended to defraud investors on two levels — not giving the money that the investors should have received and withholding disclosure about the actual quality of the loans.

The reduction in loss or accounts receivable of the investors should proportionately reduce the amount due from borrowers, which means that most foreclosures were based upon a number of false premises: a balance due, a default by borrowers, and the right to submit a false credit bid at auction from a non-creditor on a “foreclosure” that should never have occurred in the first place. Ownership of the note can only be proven if the would-be forecloser received the actual note (not a photo-shopped “original”) in a transaction in which it paid money pursuant to the actual authority to enter into the transaction. That is three elements: the real note, real ownership of the note and real authority to enter into the transaction by which the loans were allegedly assigned years after the cut-off date. The authority for this position is (a) New York Law, (b) the Internal revenue Code, (c) constitutional requirements of due process, (d) the UCC requiring an instrument to be “negotiated rather than just delivered (meaning payment was involved) and (e) common sense, to wit: lenders are entitled to be repaid but only once.

It has been argued here that the REMICs were ignored and that therefore they could not possibly be in the ownership chain of the note and mortgage. We have also argued that the originator of the mortgage has originated nothing if they didn’t pay anything.

With the help of the SEC and the these two court decisions we can see that there are many reasons why the REMIC could not be the owner of the loan and that no party in the securitization chain could be secured unless we invent a new entity in which all the parties in the securitization chain are rolled into one entity.

In the absence of such an entity or the lawful ability to create one retroactively we are left with an unsecured debt — the amount of which runs the gamut from the banks owing the borrower money to the substantial reduction of the principal due after credit is given for the ill-gotten gains stolen by the banks from the investors. Given these facts, there is no legal justification for even contemplating the purported existence of a default by the borrower since the amount due, and the amount of the required payment are both unknown without an accounting from ALL parties in the securitization chain.

If the cut-off date and the Internal Revenue Code and the Pooling and Servicing Agreement all state that any transaction assigning a loan after the cut-off date is not allowed, then the assignment is void. Add to that New York law that expressly states that the transaction is void, not voidable, (see below) which means that legally it never happened. Without a valid assignment, there can be no foreclosure. Add to that the lack of any consideration, and you have a dead shark on your hands —something that struck fear into the hearts of homeowners, governments, and investors but is now lying, gasping for breath, as the finale nears.

There is nothing left to hide because the doors are all open. It will still take years to unravel the financial mess, but now we have a chance to change policy and direct relief to where it belonged all along — to the investors who supplied the money and the homeowners who were duped into crazy, exotic mortgages that hid the real objective: foreclosure.

REQUIRED READING: Read Carefully and Take Notes

“Plaintiff’s ownership of the note is not an issue of standing but an element of its cause of action which it must plead and prove.(e.s.) … 

… dismissal on a pre answer motion by the defendant and are waived if not raised in a timely manner.” (e.s.) Wells Fargo v Saitta 4/29/13 Slip Op 50675

140156203-Ero-Bobo

PRACTICE AND DISCOVERY NOTE: “

In fact, the identity of the owner of the note and mortgage is information that is often in the exclusive possession of the party seeking to foreclose. Mortgages are routinely transferred through MERS, without being recorded. (e.s.) The notes underlying the mortgages, as negotiable instruments, are negotiated by mere delivery without a recorded assignment or notice to the borrower. A defendant has no method to reliably ascertain who in fact owns the note, within the narrow time frame allotted to file an answer. In light of these facts and the fact that Defendant contested the factual allegations asserted in Plaintiff’s pleading, Defendant’s general denial is sufficient to contest whether Plaintiff owns the note and mortgage.”

4^th paragraph, page 11

“Since the trustee acquired the subject note and mortgage after the closing date, the trustee’s act in acquiring them exceeded its authority and violated the terms of the trust.The acquisition of a mortgage after 90 days is not a mere technicality but a material violation of the trust’s terms, which jeopardizes the trust’s REMIC status.”

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SEC FINDS FRAUD, ORDERS DISGORGEMENT OF ILLEGAL PROFITS.

http://www.sec.gov/litigation/admin/2012/33-9.368.pdf

This SEC decision is one that deserves several readings. It essentially condenses 6 years of teaching on this blog into one decision, although they have still not quite drilled down all the way on the money trail. But they have drilled down far enough to discover that the banks made settlements on buy-backs, kept the money and didn’t give to the investors because (1) they wanted to keep it for themselves and (2) the huge number of early defaults would have led the investors to question whether industry standards were being followed in the underwriting of these loans. Had that happened, the well would have dried and nobody would be buying mortgage bonds because they would be revealed as PONZI certificates.

Even if you have been following this blog for years, as I know many of you have done, reading this decision from the SEC will bring it all together as to who , what, where, why and when. Anyone who takes another step in litigation without reading this is stepping into the darkness.

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Next Case: Saldivar

And then there is this: the assignment is void, not voidable and therefore the banks can’t attack the ability of the homeowner to attack the assignment since they are arguing that the assignment never really took place. It puts the burden of proof back on to the banks, where it belongs — a burden they cannot sustain because they cannot prove anything that would give traction to their position of keeping the money, taking the houses, taking the insurance taking the credit default swap proceeds, and taking the federal bailouts, all without giving an accounting other than the subservicer’s partial snapshot consisting of accounting records reflecting ONLY transactions with the borrower, neither proving nor offering to prove the validity or existence of the assignment. What you have essentially is what I have said a few times before on this blog — offer, without acceptance or the right to accept and no consideration.

saldivar-memo-opinion

This decision is important because of the reasoning, the logic and most importantly the application of New York law. Virtually all the REMIC trusts were common law trusts formed under New York law for a lot of reasons. So this decision is extremely important as persuasive authority in its finding that if the REMIC is closed, there is nothing to make the assignment TO after the close-out date, which as the Judge points out is the start of business for the trust.

He reasons that if the assignment after the close out date could be ratified then it is voidable and not void. If it is voidable then the homeowner has no standing to challenge the validity of the assignment. But, the Judge says if the assignment was void ab initio then there is nothing to ratify because the event never happened. If the event never happened then the homeowner does have standing to challenge the validity if the assignment. Essentially the homeowners saying that he denies there was any assignment. If there was no assignment then any action by the assignee is without any right, justification or excuse.

It is potentially standing which is jurisdictional to be sure but it is in personam jurisdiction now instead of subject matter jurisdiction — or perhaps both.

As pointed out above, the capacity to sue involves the basic elements of any lawsuits for money or equitable relief based upon a money debt: (1) duty, (2) breach of duty, (3) injury and (4) causation — the injury was caused by the borrower. As pointed out by these cases, NONE of the required elements are present and therefore, there is no capacity to sue. Capacity to sue is close to the issue of standing but it isn’t the same thing. While standing involves jurisdictional issues over the parties, capacity to sue involves jurisdictional issues over the subject matter. There is no subject matter jurisdiction unless the foreclosing party can make a case for stating the four elements of any lawsuit.

The keys here are the Judge’s citation to two things. First that the law of New York says it is void and the court must use the laws of the state of New York — a position mercilessly pounded into the courts by the banks. Now that position is blowing up in their faces. Second, he points out that under the Internal Revenue Code contains huge penalties and negative economic consequences if the REMIC was still accepting assignments after the cut- off date. Thus the Judge used reason, logic, New York law, and the negative effect imposed by the IRC if the REMIC provisions were violated. We might also add that the PSA contained the same restrictions. He concludes that the assignment 3 years after the cutoff was void, not void able and that it was void ab initio which means that there was no effective assignment despite the fabrication of a piece of paper.

This puts Deutsch and others who have stated they are the trustee for the REMIC in a no-win position. To the extent they have corroborated the assignment they have delivered an economic blow to the investors in the REMIC — and are now subjected to potential liability in the trillions of dollars. If they have not tried to back up the assertions of those bringing foreclosure then they clearly won’t do it now. And it explains why no actual signature for an actual Deutsch officer or employee is on any document used in bringing the foreclosure.

The further interesting point is that this is the fire in the brush that flushes the investors out. They must corroborate what we have been saying — that their agents violated the restrictions of the pooling and servicing agreement and that they, the investors, cannot be held to be bound to the ultra vires actions of their agents. And it raises the question of what else did these intermediaries do that violated the terms of the investment in mortgage bonds? It raises, most importantly, the question of WHY they violated the terms of the PSA and prospectus.

The only rational answer is MONEY — like the insurance and CDS proceeds. But beyond that and tantalizingly raised in this decision is — if the investors gave up money and it wasn’t through the REMIC — then you have two choices, to wit: either they invested in nothing or, as I have repeatedly stated on the blog and in my expert testimony, they became involuntary common law partners in a common law general partnership.

This raises issues that Wall Street wants to stay very far from. All their authority comes from a PSA that is now revealed to have been violated resulting in the inescapable conclusion, using the logic from this Texas bankruptcy judge, that Wall Street has no power over these transactions — including servicing loans. This means we can insist on the identity of the investors and that the ONLY people to go to for HAMP are the investors or some new authorized agent. But remember that in a true common law general partnership with no documentation there are some real knotty problems as to how investors could hire a Servicer without 100% of the holders of what might indivisible interests in loans, insurance proceeds and credit default swaps bought with money from the investors.

Sitting on a Powder Keg: Riots and Demonstrations Worldwide

With the addition of Sweden to those countries rocked by and surprised by rioting over economic conditions and inequality, the day of reckoning for the banks and the governments controlled by the banks is nearing. As we saw in the Arab Spring and other social phenomena when passions reach critical mass, things change — and not always for the best, at least not at first.

History shows us that when inequality and social welfare are at their worst, as perceived by the public, a significant minority rises up, changes government and takes their revenge on the wicked and innocent alike. Our own revolution was a minority movement that achieved critical mass with very few people leading to the charge or even attending meetings.

Sweden, a country that prides itself on social justice, was hit yesterday by the fury of rioting citizens. And the Occupy Movement demonstration yesterday resulted in 17 arrests and Taser of at least one demonstrator. Anyone who believes that this will blow over without consequences is mistaken. The underlying problems of inequality were not the result of a business cycle: they were the result of criminal behavior of bankers colluding to take wealth, property and income away from virtually everyone.

The manipulation of LIBOR and the indexes that feed into LIBOR is an example of the arrogance of bankers who seem to know they won’t go to jail and probably will suffer no penalty whatsoever. Meanwhile the loans tied to changes in LIBOR as published by the Wall Street Journal had changes in interest rates dictated not by market forces by by the brute force of arrogant bankers whose religion is money.

The mortgage situation all over the world is what is causing the economies around the world to bleed. It was caused by bankers who cornered the market on money thus acting against free market forces which they pretend to like so much. They created an unprecedented storm by raising asset prices artificially, betting that the prices would come down to normal levels and defrauding pension funds and other investors plus defrauding homeowners, consumers, and tax-paying citizens. In the end they have the money and property and everyone else suffers. This fact is not lost on the public.

If we want to avoid the same fate as dozens of other countries around the world in turmoil we must return to being a nation of laws. It is in the public domain now that the banks have illegally foreclosed on millions of homeowners. Not only have they not gone to jail for mortgage fraud, wire fraud, RICO and other criminal actions, they have been rewarded with both more money and weakening of regulations that might prevent them from doing it again — if we ever get out of this mess.

The right thing to do when the wrong thing was done, is to make it right. If someone was foreclosed upon illegally they should get their house back or bargain for a dollar settlement that takes into account economic loss and the indignities of damage to lifestyle and reputation. As things stand now, this remedy is slipping away — and yet it is the only right thing to do. Millions of people in this country and Europe are falling into poverty, which means they don’t have the resources to put food on the table or a roof over their heads. To add insult to injury when tragedy strikes in places like Moore, Oklahoma the insurance companies are paying the banks that have no loss whatsoever.

I counsel people to avoid violence and to never disobey a direct instruction from anyone in law enforcement. It will only make matters worse. But I can tell from people who contact me and the mainstream news stories that people have no respect left for a legal system that does not respect the right of people and favors corporations and institutions even if they have obviously committed crimes against humanity, the state and millions of individual citizens. We have seen violence before and nobody liked it. I think it might be coming to our shores with a vengeance.

We can save ourselves the trouble if we break up the mega banks, break their hold on government and reduce them to the status of utilities regulated carefully so that they don’t run away with transactions conducted by their customers — which is exactly what happened in the continuing mortgage  meltdown. Occupy is right, Elizabeth Warren is right, and even the rioters are right (even if we disagree with their methods).

Sweden’s capital hit by worst riots in years

http://uk.reuters.com/article/2013/05/22/uk-sweden-riots-idUKBRE94L0C720130522

Millions falling into poverty in recession-racked Italy: report

http://www.reuters.com/article/2013/05/22/us-italy-economy-poverty-idUSBRE94L0AX20130522

Peaceful Foreclosure Protester Tased At Department of Justice

http://crooksandliars.com/susie-madrak/peaceful-foreclosure-protester-tased-

How Foreclosure Undermined Black and Brown Wealth

http://www.theroot.com/buzz/how-foreclosure-undermined-black-and-brown-wealth

Warren asks feds: Why no cases against bankers?

http://www.cbsnews.com/8301-505123_162-57584642/warren-asks-feds-why-no-cases-against-bankers/

Elizabeth Warren Asks New Treasury Secretary If He’ll Be As Bad On Big Banks As The Old One (VIDEO)

http://www.huffingtonpost.com/2013/05/21/elizabeth-warren-jack-lew_n_3315005.html

Banks Win Big as Regulators Refuse to Rein in $700 Trillion Derivatives Market

http://www.truth-out.org/video/item/16500-banks-win-big-as-regulators-refuse-to-rein-in-700-trillion-derivatives-market

The PR of Modifications: Banks Want Foreclosure Not Reinstatement of Loan

If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 and for the West coast the number remains 520-405-1688. Customer service for the livinglies store with workbooks, services and analysis remains the same at 520-405-1688. The people who answer the phone are NOT attorneys and NOT permitted to provide any legal advice, but they can guide you toward some of our products and services.

The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Comment: There has been a spike of questions about modifications, short sales and settlements with the banks. My unvarnished opinion is that all this activity is Public Relations and a substantive policy intended to increase rather than avert foreclosures. Quite the contrary, offers of modifications are excuses to drag more money out of borrowers, give them a “trial run” and then deny the modification. I will admit that there have been more modifications of late but they are few in comparison to the number of loans that should be modified, naming the creditor, the balance due, the terms of repayment and perfecting what is now an empty unperfected lien.

In the law we look to the intent to determine the intent. If a reasonable person would understand the consequences of their actions, it is deemed intentional despite all protestations to the contrary.

The result we see from bank policies and conduct is that people go into a declared “default” on a false loan because the bank representative who has no money in the game told them that the only way they can apply for relief is by being behind in their payments at least 90 days. Translation: We are advising you to breach your loan documents and go into debt on past due payments such that you won’t be able to reinstate.

People go into trial modifications on a false loan with a bank or entity with no authority to offer it during which they deplete their savings and retirement, go totally broke from paying the “offer of trial modification” thinking they are saving their home. Then they are told that the permanent modification was denied because of some obscure reason and they have a few days to reinstate the loan with money they don’t have and with a credit score that took a major hit because of the reporting by the same non-creditor who threatened them with foreclosure.

The objective is to wear people down financially, emotionally and physically. Turmoil in the household caused by the stress of impending foreclosure causes divorce, physical ailments and even suicides. The result is that the house goes into foreclosure despite the fact that the borrower made a perfectly valid offer of modification whose proceeds far exceed the proceeds from foreclosure.

The banks are like any other business searching for profit. So at first blush one might assume that anything they can do to mitigate their loss they would jump at, which is the way it always was until the whole “securitization” thing came along. What changed was that instead of having a risk of loss if the loan failed, the banks made tons of money betting on the failure. So as soon as mortgages were declared in default, they collected 100 cents on the dollar, insurance and the proceeds of hedges like credit default swaps. The irony here is that the banks collected the mitigation payments from insurance and credit default swaps while it was investors who were actually losing the money.

The payment from insurance and credit default swaps was triggered by a declaration from the Master Servicer that the value of the portfolio had decreased. This was not subject to challenge by the insurance company or the counterparty of the credit default swap contract. So in effect the loans were being sold multiple times. In the case of Bear Stearns, they were leveraged as much as 42 times. That means they were in a double bind position of taking fees for insuring portfolios that were sure to fail or at least sure to be declared as having failed, and they were getting money on their own insurance and credit default swap protections.

Translation: a loan that comes out of delinquency or declared default represents a huge liability for a bank that has already collected millions of dollars on a $200,000 loan. If everyone paid off their loan, the banks would owe back the money they received from insurance and credit default swaps. It isn’t the difference between the foreclosure proceeds and the offer of modification that motivates them, it is the difference between the millions they already received from insurers and counterparties and the nominal principal of the loan. And the only way they can be sure that they never have that liability to pay back millions of dollars on a loan they declared in default is by forcing it into foreclosure.

But the government and public are expecting the banks to act reasonably in the context of the old mortgages where the lenders had a risk of loss if the borrower didn’t pay. Now they have a risk of loss of the borrower does pay. Confusion over this had led the government, courts and borrowers to expect that the modification process would bring a stop to the tsunami of foreclosures, but as we have seen in recent weeks, the wave of foreclosures is coming again and millions of people are going to lose their homes to non-creditors who have already been paid multiple times for the “value” of the loan.

The only way out of this which has received some traction in the courts is to allege that contrary to the requirements of HAMP and HARP and other programs, the servicer and creditor did NOT “Consider” the modification proposal, which of course is an accurate portrayal of the the real world of loans that are subject to claims of securitization —  even though those claims are probably false.

People who have made this challenge and who do so with professional help point out the obvious: that the proceeds from the modification are far better than the proceeds of a foreclosure. But the question is better for whom? If we take the real creditors, the investor lenders, the analysis is simple. They want the most money they can get. Since they were not included in the payment of insurance and credit de fault swaps, their only hope to mitigate their real loss is by real money from the homeowner which the homeowner is offering, based upon real documentation which is enforceable unlike the current fabricated, forged documents done without authority, right justification or excuse.

So the banks have an interest that is entirely adverse to that of the investors who were their clients. The banks want foreclosure so they can keep the insurance money and the investors want the loans reinstated so they can get their money back. This conflict of interest is so severe that the country is barely grinding through a recession that is entirely caused by the behavior of these banks who sucked the money out of the economy and are now holding it all over the world in tens of thousands of  shell companies around the world.

The moral of the story is that if you are serious about modification or short-sale be prepared for a long journey where in the end your petition is denied and you must still litigate. For those who get the modification they want arising from the cover-up PR campaign of the banks, congratulations you are one in thousands who should have received the same benefit.

Banks Could Owe Trillions on Fake Rigged Credit Bids

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 Analysis of Auctions of Foreclosed Properties: Nobody thinks about it because it basically never happened. The laws of each state whose statutes I have looked at including the provisions of most promissory notes are clear — if the creditor receives a payment in excess of the amount due, the excess must be paid to the borrower.

We all know how keen I am on applying that that precept to the receipt of insurance, credit default swaps, guarantees and Federal bailouts, but there is a much simpler aspect to this that can be pled in the alternative when one is attacking the foreclosure sale. Remember that in most states alternative pleading is allowed and even encouraged. So your alternative pleading in this case would be that the foreclosure was wrongful OR, if it wasn’t wrongful then the borrower is entitled to money. How? Why?

If the Judge won’t let you come in through the front door, you find another door or point of entry. In this case, the strategy I am proposing puts the issue  right on the table and could even be limited to this one cause of action. It would be breach o contract and perhaps a second count for breach of statutory duty, nullification of instrument (the deed in foreclosure). What you are looking for is damages.

The allegations supporting the cause of action for damages would be that the creditor never alleged pr proved the amount they lost or misrepresented the amount they lost. We are talking money here, not notes, mortgages, assignments and indorsements. Money is the key to the evil that was perpetrated and money is what will bring the perpetrators into a perp walk even if the government is reluctant to do so.

If the non-creditor bids $350,000 for the property based upon the  Foreclosure Judgment or the papers filed with the “substitute trustee” (why is there ALWAYS a substitute trustee?), then the amount due on the bid is $350,000.

If your allegation is that the “creditor” never had a loss, never showed proof of payment , proof of loss or any actual transaction in which money exchanged hands from the “creditor” to any other party to acquire or fund the origination of the loan, then there is no loss. Yet the non-creditor paid nothing because it submitted a credit bid which if you look at your state statutes you will see is near impossible for them to offer and certainly should not be accepted in lieu of cash. The statutes say the bidder must pay for the bid, especially if they have already received the deed on foreclosure (which you have pled alternatively should be nullified). Paying the bid means payment in cash.

So the court is faced with a conundrum. On the one hand it ignored your prior arguments of lack of standing, lack of injured party, but on the other hand the Judge has before him or her a perfectly valid complaint that cannot be dismissed on its face on the basis of res judicata or collateral estoppel because the cause of action arose AFTER final judgment. If the Judge does the right thing, then he wil deny any motion to dismiss from the other side and then allow discovery.

Once you get into discovery the only issue is whether the “creditor” was indeed a creditor and if so how much they actually “lost” by the alleged breach of the promissory note by the borrower. They can only prove their side of the case by showing that money exchanged hands and that the money came from their pocket, not someone else’s pocket.

This discovery will also lead to the question of what was reported to investors, how the proceeds of insurance and credit default swaps were applied, all of which reduce the amount due from the borrower because they reduce the amount payable to the “creditor.”

Assuming the “creditor” is unable to account for the application of proceeds of insurance and credit default swaps, and assuming that they are unable to show a canceled check or wire transfer receipt and wire transfer instructions, then the amount of their injury is zero or perhaps even less than zero if they received fees and compensation from the yield spread premium, the insurance, and the guarantees and hedges like credit default swaps.

The auctioneer has a duty to collect the money and distribute it according to statute. If the “Creditor” submitted any bid, you have just proved that they were owed nothing and therefore their bid should have been paid in cash. The Court must them either nullify the sale or, if enough time has gone by, the probabilities rise that the “creditor” will be forced to pay for the bid. The amount paid is an “overpayment” for the actual loss. Under statute and the note, such overpayment are due back to the borrower.

This is an easy case, like personal injury only less paperwork, for lawyers to take on contingency and make a ton of money for themselves and their clients. With standard contingency if the bidder is forced to make a payment in the amount of the bid, then your fee in the above example would be over $100,000.

If the Court nullifies the foreclosure, the next step is quieting title perhaps in the same order, and you get paid by a note from the client with collateral — namely the house upon which there are no longer any encumbrances. That note can be negotiated into the secondary market the way the banks should have done in the first place.

The next step would obviously be the abuse of process, wrongful foreclosure and slander of title just to name a few causes of action that can be prosecuted against the “creditor” and its successors or assigns, seeking damages, treble damages, punitive damages and exemplary damages.

The moral of the story is that the banks can fake the story about the money in the loan documents, the assignments and indorsements. But they can’t fake the money transaction for which their are footprints at the banks, account processors for the banks, Federal reserve and network exchanges where the money is routed when paid. They will argue that they already proved their case with the note. But the note proves the DEBT not the LOSS.

Insurance, Credit Default Swaps, Guarantees: Third Party Payments Mitigate Damages to “Lender”

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 Analysis: The topic of conversation (argument) in court is changing to an inquiry of what is the real transaction, who were the parties and did they pay anything that gives them the right to claim they suffered financial damages as a result of the “breach” by the borrower. And the corollary to that is what constitutes mitigation of those damages.

If the mortgage bond derives its value solely from underlying mortgage loans, then the risk of loss derives solely from those same underlying mortgages. And if those losses are mitigated through third party payments, then the benefit should flow to both the investors who were the source of funds and the borrowers balance must be correspondingly and proportionately adjusted. Otherwise the creditor ends up in a position better than if the debtor had paid off the debt.

If your Aunt Sally pays off your mortgage loan and the bank sues you anyway  claiming they didn’t get any payment from YOU, the case will be a loser for the bank and a clear winner for you because of the defense of PAYMENT. The rules regarding damages and mitigation of damages boil down to this — the alleged injured party should not be placed in a position where he/she/it is better off than if the contract (promissory) note had been fully performed.

If the “creditor” is the investor lender, and the only way the borrower received the money was through intermediaries, then those intermediaries are not entitled to claim part of the money that the investor advanced, nor part of the money that was intended for the “creditor” to offset a financial loss. Those intermediaries are agents. And the transaction,  while involving numerous intermediaries and their affiliates, is a single contemporaneous transaction between the investor lender and the homeowner borrower.

This is the essence of the “Single transaction doctrine” and the “step transaction doctrine.” What the banks have been successful at doing, thus far, is to focus the court’s attention on the individual steps of the transaction in which a borrower eventually received money or value in exchange for his promise to pay (promissory note) and the collateral he used to guarantee payment (mortgage or deed of trust). This is evasive logic. As soon as you have penetrated the fog with the single transaction rule where the investor lenders are identified as the creditor and the homeowner borrower is identified as the debtor, the argument of the would-be forecloser collapses under its own weight.

Having established a straight line between the investor lenders and the homeowner borrowers, and identified all the other parties as intermediary agents of the the real parties in interest, the case for  damages become much clearer. The intermediary agents cannot foreclose or enforce the debt except for the benefit of an identified creditor which we know is the group of investor lenders whose money was used to fund the tier 2 yield spread premium, other dubious fees and profits, and then applied to funding loans by wire transfer to closing agents.

The intermediaries cannot claim the house because they are not part of that transaction as a real party in interest. They may have duties to each other as it relates to handling of the money as it passes through various conduits, but their principal duty is to make sure the transaction between the creditor and debtor is completed.

The intermediaries who supported the sale of fake mortgage bonds from an empty REMIC trust cannot claim the benefits of insurance, guarantees or the proceeds of hedge contracts like credit default swaps. For the first time since the mess began, judges are starting to ask whether the payments from the third parties has relevance to the debt of the borrower. To use the example above, are the third parties who made the payments the equivalent of Aunt Sally or are they somehow going to be allowed to claim those proceeds themselves?

The difference is huge. If the third parties who made those payments are the equivalent of Aunt Sally, then the mortgage is paid off to the extent that actual cash payments were received by the intermediary agents. Aunt Sally might have a claim against the borrower or it might have been a gift, but in all events the original basis for the transaction has been reduced or eliminated by the receipt of those payments.

If Aunt Sally sues the borrower, it would  be for contribution or restitution, unsecured, unless Aunt sally actually bought the loan and received an assignment along with a receipt for her funds. If there was another basis on which Aunt Sally made the payment besides a gift, then the money should still be credited to the benefit of the investor lenders who have received what they thought was a bond payable but in reality was still the note payable.

In no event are the intermediary agents to receive those loss mitigation payments when they had no loss. And to the extent that payments were received, they should be used to reduce the receivable of the investor lender and of course that would reduce the payable owed from the homeowner borrower to the investor lender. To do otherwise would be to allow the “creditor” to end up in a much better position than if the homeowner had simply paid off the loan as per the promissory note or faked mortgage bond.

None of this takes away from the fact that the REMIC trust was not source the funds used to pay for the mortgage origination or transfer. That goes to the issue of the perfection of the mortgage lien and not to the issue of how much is owed.

Now Judges are starting to ask the right question: what authority exists for application of the third party payments to mitigate damages? If such authority exists and the would-be foreclosures used a false formula to determine the principal balance due, and the interest payable on that false balance then the notice of delinquency, notice of default, and foreclosure proceedings, including the sale and redemption period would all be incorrect and probably void because they demanded too much from the borrower after having received the third party payments.

If such authority does not exist, then the windfall to the banks will continue unabated — they get the fees and tier 2 yield spread premium profits upfront, they get the payment servicing fees, they get to sell the loan multiple times without any credit to the investor lender, but most of all they get the loss mitigation payments from insurance, hedge, guarantee and bailouts for a third party loss — the investor lenders. This is highly inequitable. The party with the loss gets nothing while a party who already has made a profit on the transaction, makes more profit.

If we start with the proposition that the creditor should not be better off than if the contract had been performed, and we recognize that the intermediary investment bank, master servicer, trustee of the empty REMIC trust, subservicer, aggregator, and others did in fact receive money to mitigate the loss on those certificates and thus on the loans supposedly backing the mortgage bonds, then the only equitable and sensible conclusion would be to credit or allocate those payments to the investor lender up to the amount they advanced.

With the creditor satisfied or partially satisfied the mortgage loan, regardless of whether it is secured or not, is also satisfied or partially satisfied.

So the question is whether mitigation payments are part of the transaction between the investor lender and the homeowners borrower. While this specific application of insurance payments etc has never been addressed we find plenty of support in the case law, statutes and even the notes and bonds themselves that show that such third party mitigation payments are part of the transaction and the expectancy of the investor lender and therefore will affect the borrower’s balance owed on the debt, regardless of whether it is secured or unsecured.

Starting with the DUTY TO MITIGATE DAMAGES, we can assume that if there is such a duty, and there is, then successfully doing so must be applicable to the loan or contract and is so treated in awarding damages without abridgement. Keep in mind that the third party contract for mitigation payments actually refer to the borrowers. Those contracts expressly waive any right of the payor of the mitigation loss coverage to go after the homeowner borrower.

To allow all these undisclosed parties to receive compensation arising out of the initial loan transaction and not owe it to someone is absurd. TILA says they owe all the money they made to the borrower. Contract law says the payments should first be applied to the investor lender and then as a natural consequence, the amount owed to the lender is reduced and so is the amount due from the homeowner borrower.

See the following:

Pricing and Mitigation of Counterparty Credit Exposures, Agostino Capponi. Purdue University – School of Industrial Engineering. January 31, 2013. Handbook of Systemic Risk, edited by J.-P. Fouque and J.Langsam. Cambridge University Press, 2012

• “We analyze the market price of counterparty risk and develop an arbitrage-free pricing valuation framework, inclusive of collateral mitigation. We show that the adjustment is given by the sum of option payoff terms, depending on the netted exposure, i.e. the difference between the on-default exposure and the pre-default collateral account. We specialize our analysis to Interest Rates Swaps (IRS) and Credit Default Swaps (CDS) as underlying portfolio, and perform a numerical study to illustrate the impact of default correlation, collateral margining frequency, and collateral re-hypothecation on the resulting adjustment. We also discuss problems of current research interest in the counterparty risk community.” pdf4article631

Whether this language  makes sense to you or not, it is English and it does say something clearly — it is all about risk. And the risk of the investor lender was to have protected by Triple A rating, insurance, and credit default swaps, as well as guarantees and provisions of the pooling and servicing agreement, for the REMIC trust. Now here is the tricky part — the banks must not be allowed to say on the one hand that the securitization documents are real even if there was no money trail or consideration to support them on the one hand then say that they are not real for purposes of receiving loss mitigation payments, which they want to keep even if it leaves the real creditor with a net loss.

To put it simply — either the parties to the underwriting of the bond to investors and the loan to homeowners were part of the the transaction (loan from investor to homeowner) or they were not. I fail to see any logic or support that they were not.

And the simple rule of measure of how these parties fit together is found under the single transaction doctrine. If the step transaction under scrutiny would not have occurred but for the principal transaction alleged, then it is a single transaction.

The banks would argue they were trading in credit default swaps and other exotic securities regardless of what lender fit with which borrower. But that is defeated by the fact that it was the banks who sold to mortgage bonds, it was the banks who set up the Master Servicer, it was the banks who purchased the insurance and credit default swaps and it was the underwriting investment bank that promised that insurance and credit default swaps would be used to counter the risk. And it is inescapable that the only risk applicable to the principal transaction between investor lender and homeowner borrower was the risk of non payment by the borrower. These third party payments represent the proceeds of protection from that risk.

Would the insurers have entered into the contract without the underlying loans? No. Would the counterparties have entered into the contract without the underlying loans? No.

So the answer, Judge is that it is an inescapable conclusion that third party loss mitigation payments must be applied, by definition, to the loss. The loss was suffered not by the banks but by the investors whose money they took. The loss mitigation payments must then be applied against the risk of loss on the money advanced by those investors. And the benefit of that payment or allocation is that the real creditor is satisfied and the real borrower receives some benefit from those payments in the way of a reduction of the his payable to the investor.

It is either as I have outlined above or the money — all of it — goes to the borrower, to the exclusion of the investor under the requirements of TILA and RESPA. While the shadow banking system is said to be over $1.2 quadrillion,  we must apply the same standards to ourselves and our cases as we do to the opposing side. Only actual payments received by the participants in the overall obscured investor lender transaction with the homeowner borrower.

Hence discovery must include those third parties and review of their contracts for the court to determine the applicability of third party payments that were actually received in relation to either the subject loan, the subject mortgage bond, or the subject REMIC pool claiming ownership of the subject loan.

The inequality between the rich and not-so-rich comes not from policy but bad arithmetic.

As the subprime mortgage market fell apart in late 2007 and early 2008, many financial products, particularly mortgage-backed securities, were downgraded.  The price of credit default swaps on these products increased.  Pursuant to their collateral agreements, many protection buyers were able to insist on additional collateral protection.  In some cases, the collateral demanded represented a significant portion of the counterparty’s assets.  Unsurprisingly, counterparties have carefully evaluated, and in some cases challenged, protection buyers’ right to such additional collateral amounts.  This tension has generated several recent lawsuits:

• CDO Plus Master Fund Ltd. v. Wachovia Bank, N.A., 07-11078 (S.D.N.Y. Dec. 7, 2007) (dispute over demand     for collateral on $10,000,000 protection on collateralized debt obligations).

• VCG Special Opportunities Master Fund Ltd. v. Citibank, N.A., 08 1563 (S.D.N.Y. Feb. 14, 2008) (same).

• UBS AG v. Paramax Capital Int’l, No. 07604233 (N.Y. Sup. Ct. Dec. 26, 2007) (dispute over demand for $33 million additional capital from hedge fund for protection on collateralized debt obligations).

Given that the collateral disputes erupting in the courts so far likely represent only a small fraction of the stressed counterparties, and given recent developments, an increase in counterparty bankruptcy appears probable.

http://www.capdale.com/credit-default-swaps-the-bankrupt-counterparty-entering-the-undiscovered-country

Follow the Money Trail: It’s the blueprint for your case

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 Analysis and Comment: If you want to know where all the money went during the mortgage madness of the last decade and the probable duplication of that behavior with all forms of consumer debt, the first clues have been emerging. First and foremost I would suggest the so-called bull market reflecting an economic resurgence that appears to have no basis in reality. Putting hundred of billions of dollars into the stock market is an obvious place to store ill-gotten gains.

But there is also the question of liquidity which means the Wall Street bankers had to “park” their money somewhere into depository accounts. Some analysts have suggested that the bankers deposited money in places where the sheer volume of money deposited would give bankers strategic control over finance in those countries.

The consequences to American finance is fairly well known here. But most Americans have been somewhat aloof to the extreme problems suffered by Spain, Greece, Italy and Cyprus. Italy and Cyprus have turned to confiscating savings on a progressive basis.  This could be a “fee” imposed by those countries for giving aid and comfort to the pirates of Wall Street.

So far the only country to stick with the rule of law is Iceland where some of the worst problems emerged early — before bankers could solidify political support in that country, like they have done around the world. Iceland didn’t bailout bankers, they jailed them. Iceland didn’t adopt austerity to make the problems worse, it used all its resources to stimulate the economy.

And Iceland looked at the reality of a the need for a thriving middle class. So they reduced household debt and forced banks to take the hit — some 25% or more being sliced off of mortgages and other consumer debt. Iceland was not acting out of ideology, but rather practicality.

The result is that Iceland is the shining light on the hill that we thought was ours. Iceland has real growth in gross domestic product, decreasing unemployment to acceptable levels, and banks that despite the hit they took, are also prospering.

From my perspective, I look at the situation from the perspective of a former investment banker who was in on conversations decades ago where Wall Street titans played the idea of cornering the market on money. They succeeded. But Iceland has shown that the controls emanating from Wall Street in directing legislation, executive action and judicial decisions can be broken.

It is my opinion that part or all of trillions dollars in off balance sheet transactions that were allowed over the last 15 years represents money that was literally stolen from investors who bought what they thought were bonds issued by a legitimate entity that owned loans to consumers some of which secured in the form of residential mortgage loans.

Actual evidence from the ground shows that the money from investors was skimmed by Wall Street to the tune of around $2.6 trillion, which served as the baseline for a PONZI scheme in which Wall Street bankers claimed ownership of debt in which they were neither creditor nor lender in any sense of the word. While it is difficult to actually pin down the amount stolen from the fake securitization chain (in addition to the tier 2 yield spread premium) that brought down investors and borrowers alike, it is obvious that many of these banks also used invested money from managed funds as gambling money that paid off handsomely as they received 100 cents on the dollar on losses suffered by others.

The difference between the scheme used by Wall Street this time is that bankers not only used “other people’s money” —this time they had the hubris to steal or “borrow” the losses they caused — long enough to get the benefit of federal bailout, insurance and hedge products like credit default swaps. Only after the bankers received bailouts and insurance did they push the losses onto investors who were forced to accept non-performing loans long after the 90 day window allowed under the REMIC statutes.

And that is why attorneys defending Foreclosures and other claims for consumer debt, including student loan debt, must first focus on the actual footprints in the sand. The footprints are the actual monetary transactions where real money flowed from one party to another. Leading with the money trail in your allegations, discovery and proof keeps the focus on simple reality. By identifying the real transactions, parties, timing and subject moment lawyers can use the emerging story as the blueprint to measure against the fabricated origination and transfer documents that refer to non-existent transactions.

The problem I hear all too often from clients of practitioners is that the lawyer accepts the production of the note as absolute proof of the debt. Not so. (see below). If you will remember your first year in law school an enforceable contract must have offer, acceptance and consideration and it must not violate public policy. So a contract to kill someone is not enforceable.

Debt arises only if some transaction in which real money or value is exchanged. Without that, no amount of paperwork can make it real. The note is not the debt ( it is evidence of the debt which can be rebutted). The mortgage is not the note (it is a contract to enforce the note, if the note is valid). And the TILA disclosures required make sure that consumers know who they are dealing with. In fact TILA says that any pattern of conduct in which the real lender is hidden is “predatory per se”) and it has a name — table funded loan. This leads to treble damages, attorneys fees and costs recoverable by the borrower and counsel for the borrower.

And a contract to “repay” money is not enforceable if the money was never loaned. That is where “consideration” comes in. And a an alleged contract in the lender agreed to one set of terms (the mortgage bond) and the borrower agreed to another set of terms (the promissory note) is no contract at all because there was no offer an acceptance of the same terms.

And a contract or policy that is sure to fail and result in the borrower losing his life savings and all the money put in as payments, furniture is legally unconscionable and therefore against public policy. Thus most of the consumer debt over the last 20 years has fallen into these categories of unenforceable debt.

The problem has been the inability of consumers and their lawyers to present a clear picture of what happened. That picture starts with footprints in the sand — the actual events in which money actually exchanged hands, the answer to the identity of the parties to each of those transactions and the reason they did it, which would be the terms agreed on by both parties.

If you ask me for a $100 loan and I say sure just sign this note, what happens if I don’t give you the loan? And suppose you went somewhere else to get your loan since I reneged on the deal. Could I sue you on the note? Yes. Could I win the suit? Not if you denied you ever got the money from me. Can I use the real loan as evidence that you did get the money? Yes. Can I win the case relying on the loan from another party? No because the fact that you received a loan from someone else does not support the claim on the note, for which there was no consideration.

It is the latter point that the Courts are starting to grapple with. The assumption that the underlying transaction described in the note and mortgage was real, is rightfully coming under attack. The real transactions, unsupported by note or mortgage or disclosures required under the Truth in Lending Act, cannot be the square peg jammed into the round hole. The transaction described in the note, mortgage, transfers, and disclosures was never supported by any transaction in which money exchanged hands. And it was not properly disclosed or documented so that there could be a meeting of the minds for a binding contract.

KEEP THIS IN MIND: (DISCOVERY HINTS) The simple blueprint against which you cast your fact pattern, is that if the securitization scheme was real and not a PONZI scheme, the investors’ money would have gone into a trust account for the REMIC trust. The REMIC trust would have a record of the transaction wherein a deduction of money from that account funded your loan. And the payee on the note (and the secured party on the mortgage) would be the REMIC trust. There is no reason to have it any other way unless you are a thief trying to skim or steal money. If Wall Street had played it straight underwriting standards would have been maintained and when the day came that investors didn’t want to buy any more mortgage bonds, the financial world would not have been on the verge of extinction. Much of the losses to investors would have covered by the insurance and credit default swaps that the banks took even though they never had any loss or risk of loss. There never would have been any reason to use nominees like MERS or originators.

The entire scheme boils down to this: can you borrow the realities of a transaction in which you were not a party and treat it, legally in court, as your own? So far the courts have missed this question and the result has been an unequivocal and misguided “yes.” Relentless of pursuit of the truth and insistence on following the rule of law, will produce a very different result. And maybe America will use the shining example of Iceland as a model rather than letting bankers control our governmental processes.

Banking Chief Calls For 15% Looting of Italians’ Savings

http://www.infowars.com/banking-chief-calls-for-15-looting-of-italians-savings/

California Trial Court INserts Reason Into Chaotic World of Foreclosure

Editor’s Comment: There is no question that the primary tactic of all pretender lenders in the false claims of securitization is that they should not have to prove the transactions. According to the banks they only have to bring a storybook to class that talks about the transaction. The story book consists of the original promissory note, deed of trust (mortgage) and alleged sales or transfers of the note or loan. These documents talk ABOUT the transaction in which money exchanged hands but here are no pictures showing the transaction itself — like a picture of me handing you $100 on a note you signed saying you owe me $100.

But what if you signed the note to get the loan and then I didn’t give you the loan? No money exchanged hands. The answer appears to be that I can still sue you as the holder of the note but the presumption that I am the owner of the note or that the note is evidence of the debt is rebutted by your testimony and denial of ever having received the money. So I can sue but I can’t win.

Suppose you got the real loan from someone else the same day. I could point to that transaction to show that you DID receive the money and if you didn’t know  how to handle that argument, you would end up paying off a loan you never received. Or you would point out to the Judge that the cancelled check is made out from someone else than me and that I failed to show privity or agency between me and the third party.

The problem is that in most cases, the storybook is a fairy tale. The payee never loaned the money and was a naked nominee along with MERs who was also a naked nominee, leaving no party in interest on either the note or the mortgage (deed of trust). Neither the designated “lender” nor the designated nominee holder of the security (MERS) handled, funded or accepted any money from the borrower.

The reason why the banks have gotten this far is that the illusion was complete when the money arrived at the closing table. It was assumed that the money came from the payee or secured party. It was further assumed that assignments and transfers of the loan would not have taken place unless there was proof of payment exhibited by the assignor. It never occurred to anyone that the money had not come from the originators but from an undisclosed third party whose name should have been on the note and mortgage. It never occurred to anyone, despite the clear provisions of TILA, that there was a duty to disclose to the borrower with whom he or she was dealing and how much they were making in profit or fees or other compensation out of this little loan. In some cases the profit exceeded the loan itself.

In Discovery, the principal thing you want to see is the proof of payment and proof of loss. The proof of loss is a showing that the holder actually paid money for the loan. In nearly all cases, no such transaction exists. Proof of payment is the same thing but together they require an answer to whether the trust still exists and whether the mortgage bond has since been renegotiated or sold or reconstituted into a different asset pool.

This is why most cases end in discovery. The bankers are the ones with unique access to the information you need, without which they submit a credible explanation of where the documents went, where they were last seen and to whom they were being sent. At some point, the bankers are forced to fess up that they don’t have the original note, they didn’t pay for the loan, they don’t own the loan, and thus have no right to submit a credit bid at auction. They will be forced to admit that the funding for the loan came from a third party undisclosed to Borrower and whose compensation was undisclosed to borrower, and that this was intentionally hidden from both the investor/lenders and the borrowers — for the sole purpose of collecting insurance and credit default swap money diverting it from the investors.

If the investors prove that they are entitled to the insurance and credit default swap money, then their loan balances will be correspondingly reduced with each dollar received (which they should have received in the first place). The investors’ receivable account would be correspondingly reduced which means that the receivable from borrowers would be correspondingly reduced since the creditor is not entitled to more than one payment. This in turn would have substantially reduced the principal due by borrowers, the number of “defaults”, the number of underwater borrowers and increased the number of settlements and modifications.

Further, the terms agreed to by the borrower were changed and contradicted by the conversion of the loan receivable to a bond receivable based upon indentures of a bond wherein a trust or REMIC was supposedly buying the loans.

But if you look for the actual monetary transaction between the trust and the party supposedly endorsing the note or selling the loan to the trust, the transaction in which money exchanged hands is entirely missing. No cancelled check, no wire transfer receipt, no wire transfer instructions, no ACH confirmation, no check 21 confirmation. It simply isn’t there which means that the investor money never funded the trust, and thus the trust lacked the funds to purchase the loans.

The bankers do a perfect two-step at this point. First they they ARE agents of the trust or REMIC and that is what made the transaction legal and enforceable, then they say they were NOT agents of the investors when it came to receiving insurance, credit default swaps proceeds or federal bailouts. I can find no support in the law of principal and agent that supports their position and I doubt if there is any such support.

In the case below, the bankers are essentially saying that for purposes of the discovery the claims of the borrower should be treated as a story book with no likelihood of success whereas the stories in the bankers’ comic book (i.e., the note and mortgage) should be taken seriously. The trial Court disagrees and lands squarely on its feet simply following common sense, precedent and existing rules. Discovery granted.

. 250068 – Taylor v. JP Morgan Chase

On 4 Dec.2012, Plaintiff served deposition notices for Deborah Brignac (hereafter “Brignac”) and Colleen Irby (hereafter “Irby”), officers of Defendant California Reconveyance Co. (hereafter “CRC”), along with a deposition notice for another person not involved in this motion, Luis Alvarado (hereafter “Alvarado”).  (Naicker Dec., ¶2, Ex.A).   Plaintiff set the depositions for 10 Jan.2013.  (Ibid.)  Defendants served objections on January 4, 2013, asking P to withdraw the deposition notices.  (Id., ¶4, Ex.B).  Defendants asserted that the depositions would cause unnecessary burden, expense, and intrusion which would outweigh the benefits of the discovery, arguing that certain of Plaintiff’s claims lacked merit, thus rendering the discovery unwarranted.  (Ibid.)  Defendants also objected on the ground that Plaintiffs had “unilaterally” served the deposition notices with a chosen date without first meeting and conferring with Defendants about acceptable dates.  (Ibid.)  Defendants move to quash the deposition notices of Brignac and Irby, or, in the alternative, to issue a protective order. Defendants argue that Brignac and Irby can have no information likely to lead to discovery of admissible evidence because Brignac only signed an assignment (the 1st Assignment) of the deed of trust (Deed) which was rescinded and Irby’s sole alleged role was to sign the subsequent assignment  (2nd Assignment), and Plaintiff’s claims regarding the conduct in which they may have been involved, are invalid.

Plaintiff opposes this motion, arguing that the deponents both possess likely relevant information because they are officers of CRC, they both signed assignments of the Deed involved in this case, so were personally involved in Plaintiff’s transactions at some point, and Plaintiff needs information on the murky transactions amongst the Defendants, about which he is otherwise unable to obtain information.

A party may serve written objections or risk waiving any problems with a deposition notice.  (Code of Civ. Proc. § 2025.410(a)).  A party may also file a motion for an order staying the deposition and quashing the deposition notice.  Code of Civ. Proc. § 2025.410.  A “deposition is stayed pending determination of motion.”  (Code of Civ. Proc. § 2025.410(c)).

A party may “promptly” seek a protective order before, during, or after a deposition.  (CCP section 2025.420).

On a motion for a protective order, the court, “for good cause shown, may make any order that justice requires to protect any party… from unwarranted annoyance, embarrassment, or oppression, or undue burden and expense.”   (Code of Civ. Proc. § 2025.420).   The burden of proof is on the party seeking the protective order to demonstrate “good cause.”  (Emerson Elec. Co. v. Sup.Ct. (1997) 16 Cal.4th 1101, 1110).

Defendants’ arguments appear to be entirely groundless.  Defendant’s argue, essentially, that P’s claims are invalid on the merits so any deposition of these witnesses would be a waste of time and thus the burdens would outweigh the benefits.  That argument is completely invalid since there is no basis for a party to argue that another party has no right to obtain evidence supporting a claim simply because the claim may fail.  The appropriate methods for raising such arguments are demurrer, which has failed, or judgment on the pleadings, or summary judgment or adjudication and Defendants present no authority indicating that this is a valid basis for avoiding deposition.   Defendants also argue that the deponents will not likely provide relevant information because Plaintiff has been able to allege nothing more than the fact that they signed two assignments of his Deed.  This is unpersuasive since, as Plaintiff argues, he is not likely to have any information of the inner workings of the Defendant corporations absent discovery.  What Plaintiff has shown, and Defendants admit, indicates that these two witnesses clearly have at least some personal involvement beyond simply beyond being potentially knowledgeable officers, and thus are to some degree percipient witnesses to some of the events at issue in this action.  Defendants also argue that the notices are improper because Plaintiff served them without first warning Defendants that he was going to notice the depositions or without first obtaining an agreed deposition date.  These arguments are not supported by authority.

Accordingly, Defendant’s motion to quash and for a protective order is denied.

 

Sanctions

Code of Civil Procedure section 2025.420(d) states that on a motion for a protective order the court “shall” impose monetary sanctions on the losing party unless that party acted with substantial justification or other circumstances make sanctions unjust.

Both parties seek monetary sanctions.  In this case, the motion lacks merit and Plaintiff’s opposition was warranted.  Plaintiff seeks sanctions of $875 for about 2.5 hours spent at $350 an hour; Defendants seek sanctions of $3,460. The court awards sanctions to Plaintiff in the amount of $875.  Defendant’s request for sanctions is denied.

The Truth Keeps Coming: When Will Courts Become Believers?

If you are seeking legal representation or other services call our Florida customer service number at 954-495-9867 (East Coast) 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.

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Editor’s Comments and Practice Suggestions: On the heels of AG Eric Holder’s shocking admission that he withheld prosecution of the banks and their executives because of the perceived risk to the economy, we have confirmation and new data showing the incredible arrogance of the investment banks in breaking the law, deceiving clients and everyone around them, and covering it up with fabricated, forged paperwork. And they continue to do so because they perceive themselves as untouchable.

Practitioners should be wary of leading with defenses fueled by deceptions in the paperwork and instead rely first on the money trail. Once the money trail is established, each part of it can be described as part of a single transaction between the investors and the homeowners in which all other parties are intermediaries. Then and only then do you go to the documentation proffered by the opposition and show the obvious discrepancies between the named parties on the documents of record and the actual parties to the transaction, between the express repayment provisions of the promissory note and the express repayment provisions of the bond sold to investors.

Practitioners should make sure they are up to speed on the latest news in the public domain and the latest developments in lawsuits between the investment banks, investors and guarantors like the FHA who have rejected loans as not conforming to the requirements of the securitization documents and are demanding payment from Chase and others for lying about the loans in order to receive 100 cents on the dollar while the actual loss was incurred by the investors and the government sponsored guarantors.

Another case of the banks getting the money to cover losses they never had because at all times they were mostly dealing with third party money in funding or purchasing mortgages. It was never their own money at risk.

Three “deals” are now under close scrutiny by the government and by knowledgeable foreclosure defense lawyers. For years, Chase, OneWest and BofA have taken the position that they somehow became the owner of mortgage loans because they acquired a combo of WAMU and Bear Stearns (Chase), IndyMac (OneWest), and a combo of Countrywide and Merrill Lynch (BofA).

None of it was ever true. The deals are wrapped in secrecy and even sealed documents but the truth is coming out anyway and is plain to see on some records in the public domain as can be easily seen on the FDIC site under the Freedom of Information Act “library.”

The naked truth is that the “acquiring” firms have very complex deals on those mortgage loans that the acquiring firm chooses to assert ownership or authority. It is  a pick and choose type of scenario which is neither backed up by documentation nor consideration.

We have previously reported that the actual person who served as FDIC receiver in the WAMU case reported to me that there was no assignment of loans from WAMU, from the WAMU bankruptcy estate, or the FDIC. “if you are looking for an assignment of those loans, you are not going to find it because there was no assignment.” The same person had “accidentally” signed an affidavit that Chase used widely across the country stating that Chase was the owner of the loans by operation of law, which is the position that Chase took in litigation over wrongful foreclosures. Chase and the receiver now take the position that their prior position was unsupportable. So what happens to all those foreclosures where the assertions of Chase were presumed true?

Now Chase wants to disavow their assumption of all liabilities regarding WAMU and Bear Stearns because it sees what I see — huge liabilities emerging from those “portfolios” of foreclosed properties that were foreclosed and sold at auction to non-creditors who submitted credit bids.

You might also remember that we reported that in the Purchase and Assumption Agreement with the FDIC, wherein Chase was acquiring certain operations of WAMU, not including the loans, the consideration was expressly stated as zero and that the bid price from Chase happened to be a little lower than their share of the tax refund to WAMU, making the deal a “negative consideration” deal — i.e., Chase was being paid to acquire the depository assets of WAMU. Residential loans were not the only receivables on the books of WAMU and the FDIC receiver said that no accounting was ever done to figure out what was being sold to Chase.

Each of the deals above was complicated by the creation of entities (Maiden Lane LLCs) to create an “off balance sheet” liability for the toxic loans and bonds that had been traded around as if they were real.

Nobody ever thought to check whether the notes and mortgages recorded the correct facts in their content as to the cash transaction between the borrower and the originator. They didn’t, which is why the investors and the FDIC both now assert that not only were the loans not subject to underwriting rules compatible with industry standards, but that the documents themselves were not capable of enforcement because the wrong payee is named with different terms of repayment to the investors than what those lenders thought they were buying.

In other words, the investors and the the government sponsored guarantee organizations are both asserting the same theory, cause of action and facts that borrowers are asserting when they defend the foreclosure. This has been misinterpreted as an attempt by borrowers to get a free house. In point of fact, most borrowers simply don’t want to lose their homes and most of them are willing to enter into modifications and settlements with proceeds far superior to what the investor gets on foreclosure.

Borrowers admit receiving money, but not from the originator or any of the participants in what turned out to be a false chain of securitization which existed only on paper. The Borrowers had no knowledge nor even access to the knowledge that they were actually entering into a loan transaction with a stranger to the documents presented at the loan “closing.” This pattern of table funded loans is branded by the Truth in Lending Act and Reg Z as “predatory per se.” The coincidence of the money being received by the closing date was a reasonable basis for assuming that the originator was not play-acting, but rather actually acting as lender and underwriter of the loan, which they were certainly not.

The deals cut by Chase, OneWest and BofA are models of confusion and shared losses with the FDIC and other investors who participated in the Maiden Lane excursion. The actual creditor is definitely not Chase, OneWest nor BofA. Bank of America formed two corporations that merely served as distractions — Red Oak Merger Corp and BAC Home Loans and abandoned both after several foreclosures were successfully concluded by BAC, which owned nothing.

As we have previously shown, if the mortgage securitization scheme had been a real financial tool to reduce risk and increase lending, the REMIC trust would have ended up on the note and mortgage, on record in the office of the County Recorder. There would have been no need to establish MERS or any other private database in which trades were made and “trading profits” were booked in order to siphon off a large chunk of the money advanced by investors.

The transferring of paper does not create a transaction wherein a loan is proven or established in law or in fact. There must be an actual transaction in which money exchanged hands. In most cases (nearly all) the actual transaction in which money exchanged hands was between the borrower and an undisclosed third party entity.

This third party entity was inserted by the investment bankers so that the investment bank could claim ownership (when legally the loans already were owned by the investors) and an insurable interest in the loans and bonds that were supposedly backed by the loans. This way the banks could assert their right to proceeds of sale, insurance, and credit default swaps leaving their investor clients out in the cold and denying the borrowers the right to claim a reduction in the liability for their loan.

In litigation, every effort should be made to force the opposition to prove that the investor money was deposited into the a trust account for the REMIC trust and that the REMIC trust actually paid for the loans. Actually what you will be doing is forcing an accounting that shows that the REMIC was never funded and was never the buyer of the loans. Hence nobody in the false securitization chain had any ownership of the debt leading to the inevitable conclusion that for them the note was unenforceable and the mortgage was a nullity for lack of consideration and a lack of a meeting of the minds.

Once you get to the accounting from the Trustee of the Trust, the Master Servicer and the subservicer, you will uncover trades that involve representations of the investment bank that they owned the loans and in fact the mortgage bonds which were clearly pre-sold to investors before the first application for loan was ever received.

Thus persistent borrowers who litigate for the actual truth will track the money and then show that the cash transactions differ from the documented transactions and that the documented transactions lacked consideration. The only way out for the banks is to claim that they embraced this convoluted route as agents for the investors, but then that still means that money received in federal bailouts, insurance and credit default swaps would reduce the receivable of the actual creditors (investors) and thus reduce the amount payable by the actual borrowers (homeowners).

The unwillingness of the Department of Justice to enforce long standing laws regarding fraud and deceit, identity theft and other crimes, tends to create an atmosphere of impunity a round the banks and a presumption that the borrowers are merely technical objections of a certain number of documents not having all their T’s crossed and I’s dotted.

From a public policy perspective, one would have to concede that protecting the banks did nothing for liquidity in the marketplace and nothing for the credit markets in particular. Holder’s position, which I guess is also Obama’s position, is that it is better to allow average Americans to sink into poverty than to hold the banks and bankers accountable for their white collar crimes.

Legally, if the prosecutions ensued and the cases were proven, restitution would be ordered based not on some back-room deal but on approval of the Court. Restitution would clawback much of the capital of the mega banks who are holding that money by virtue of illegal transactions. And restitution would provide the only stimulus to the economy that would be fundamentally sound. Investors and borrowers would both share in the recovery of at least part of the wealth lost to the banks during the mortgage maelstrom.

I have no doubt that the same defects will appear in auto loans, student loans and other forms of consumer loans especially including credit card loans. The real objection of the banks is that after all this effort of stealing the money and the homes they might be forced to give it all back. The banks perceive that as a “loss.” I perceive it as simple justice applied every day in the courtrooms of America.

JPM: The Washington Mutual Story

http://www.ritholtz.com/blog/2013/03/jpm-wamu/

Bear Stearns, JPMorgan Chase, and Maiden Lane LLC

http://www.federalreserve.gov/newsevents/reform_bearstearns.htm

Mistakenly Released Documents Reveal Goldman Sachs Screwed IPO Clients

http://news.firedoglake.com/2013/03/12/mistakenly-released-documents-reveal-goldman-sachs-screwed-ipo-clients/

Bond Buyers Beware: Student Loans Mirror Mortgage Meltdown

CHECK OUT OUR EXTENDED DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

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

Editor’s Comments: Close your eyes. Imagine an upside down world in which the borrowers are having the most trouble keeping their loans current are the very same loans that investors can’t get enough of. Sound like the mortgage meltdown? That is because Wall Street is using the same business model. “Demand for the riskiest bunch—those that will lose money first if the loans go bad—was 15 times greater than the supply, people familiar with the deal said.”

So why would fund managers intentionally invest money in which they are most likely to lose money and their jobs? Answer: they wouldn’t. Somehow wall Street has again convinced or coerced fund managers to buy bogus bonds backed by student loans that are spiraling down the toilet even as we speak.

The “experts” attribute the surge to investor demand. I would scratch the surface and see why investor demand was so high, besides the obvious need to increase yield at a time when yields have never been lower.

The problem is that there is still no accountability for these loans or bonds. A young student asks for a loan and the bank showers him with “extra” amounts beyond what he requested. The payment is zero, so it is like free money and the novice financial victim doesn’t have the knowledge or skills to understand the flaws in what is being proposed to him or her.

Before you know it, the $25,000 loan he asked for is now $50,000 to take care of incidentals and living expenses, and the real amount borrowed will go up by anywhere from 6%-15% as interest accumulates is added to the principal. Once out of school, the interest rates shoots up and the next he or she knows, she now has around a $60,000 loan (despite asking for $25,000) with an interest rate of 8%, which means that interest alone is $4800 per year or $400 per month — the payment for a small car and insurance.

The mystery of why demand is so high when on the last round there was such a disaster can only be explained by reference to the sales talk given to fund managers and perhaps some overlapping or conflicting areas of interest.

This is not rocket science. The number of student loans failing is spiking and getting worse every day. Any asset backed security using student loans is depreciated worse than a new car driving off the show room floor. And listening to the bankers selling this stuff is like getting medical advice from a crack dealer.

So why are they putting pension fund money into an obviously failing investment? That is my quest. When I have the answer i will probably be able to further unravel the mortgage backed bonds a little further as well.

I keep  wondering if the bankers are actually doing the same thing they did with the mortgage backed bonds — tell the investor the investment is triple A rated, insured and hedged with credit default swaps. And I wonder if the fund managers understand that the triple A rating is subject to revision down to unrated, and that the insurance and hedges are payable not to the investors but to the investment bankers.

I also wonder if the notes will again disappear because of misrepresentations as to their content, and if the intermediary banks will again retain control over the collection process, create fabricated forged documents and offer of perjured testimony and affidavits from incompetent witnesses?

And I wonder if once again we have a stream of money coming from an unidentified funding source whose name is not included in the closing documents, and who agreed to repayment terms different than those set forth on the promissory note signed by the borrower.

This is why I am including Student Loans as an area of concentration on this blog and I will include other subjects as well that inform and assist those “in trouble” due to the greed and predatory lending tactics used by private bankers. It is worth mentioning that the private banking loans are in the process of being phased out for precisely the reasons stated above.

Now SOMEBODY must be making money on these bad loans and the good loans far in excess of the basis points usually applicable to lending. Where is that profit coming from? It can only come from the investors since they are the only ones who are putting their money at risk.

So to recap, after the mortgage meltdown we have what appears to be a repeat situation going on with student loans. The investment bankers are skimming deeply into investor money before they lend out anything. The loans were mostly bad loans that will eventually fail. The  bankers will collect insurance, credit default swaps and potentially another federal bailout. Nobody ends up with what they wanted except the investment bankers, of course.

Student-Loan Securities Stay Hot

http://online.wsj.com/article/SB10001424127887323293704578334542910674174.html

What’s Really Behind the Student Debt Boom

http://www.fool.com/investing/general/2013/03/05/whats-really-behind-the-student-debt-boom.aspx

Deny and Discover — Where the Rubber Meets the Road

CHECK OUT OUR DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

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

Editor’s Analysis: The banks are broke and this rule properly applied will reveal exactly how badly they fall short of capital requirements. It can be found at Volume 77, No. 169 of the Federal Register dated, Thursday, August 30, 2012 2012-16759 Capital Risk Disclosure Requirements Under Dodd Frank.

Admittedly this is not for the feint of heart or those with limited literacy in economics, accounting and finance; but if you find yourself in the position of not understanding, then go to any economist or banker or finance specialist or accountant  and they will explain it to you.

Lewtan which produces ABSnet is offering a service to banks that will give the banks and plausible deniability when the figures come up all rosy for the banks. Lewtan should be careful in view of the action being taken against the ratings companies, which is the start of an assault on the citadel of evil intent on Wall Street.

The fundamental aspect of these new rules are that the bank must report on the degree of risk it has taken on in any activity or holding. They must also  show how they arrived at that assessment and under the Freedom of Information Act (FOIA) you might be able to get copies of their filing whether they do it themselves (doubtful) or hire someone like Lewtan which is obviously going to do the bidding of its paying clients.

The main problem for the banks is that they are holding overvalued assets and some non-existent assets on their balance sheet. A review to assess risk if properly conducted, will definitely turn up both kinds of assets reported on the balance sheet of the banks, which in turn will reduce their reported capital reserves, which in turn will result in changing the ratio between capital and risk.

This might sound like gumbo to you. But here is the bottom line: the banks were using investor money. We all know that. In baby language, the question is if they were using someone else’s money how did the banks lose any money?

They did receive the money from investors like pension funds, and other managed funds for retirement or contingencies. But they diverted the money and the documents to make it appear that the bank owned the assets that were intended to be purchased for the REMIC trusts. The Banks then purchased and claimed to be an insured or a party who had sustained a loss when in fact the loss was incurred by the investors and the mortgage bonds and loans were owned collectively by the investors.

By doing that the insurance proceeds were paid to the banks creating an instant liability to the investors to whom they owed a common law and contractual duty to provide an accounting and distribution based upon the insurance recovery. At no time did the banks ever have a risk of loss nor an insurable interest in their own name. And at not time were they bound by the REMIC documents because they ignored the REMICs and conducted transactions through an entirely different superstructure.

As agents of the investors they should have followed the REMIC documents and purchased the insurance and CDS protection for the benefit of the investors. But they didn’t do that. They kept the money for the bank who never had any proof of loss, proof of payment and was a mere intermediary claiming the rights of the principal. The same thing happened with Credit Default Swaps and Federal bailouts.

That is why the definition of toxic assets changed over a weekend when TARP was started. It was thought that the mortgages had gone bad for the banks.

Then they realized that the mortgages weren’t going bad to the extent reported and that the bank was suffering no loss because they were using investor money to create the funding of loans and the funding of proprietary trading in which they masked the theft of trillions from investors.

So the government quietly changed the definition of toxic assets to mortgage bonds — but that ran into the same problem, to wit: the mortgage bonds were underwritten by the banks but purchased by the investors (pension funds etc.).

Now the rubber meets the road. The claim that somehow the banks got stuck with mortgage bonds is patently absurd. If they have mortgage bonds it is not because they bought them, it is because they created them but were unable to sell them because the market collapsed and the PONZI scheme fails whenever the suckers stop buying.

The actual proceeds from theft from the investors and the borrowers is parked off shore around the world. The Banks having been feeding the money back in very slowly because they want to create the appearance of an increasingly profitable bank, when in fact, their revenues sand earnings are slipping away quickly — except for the bolstering they get from repatriating stolen money from investors and borrowers and calling them “proprietary trades.”

Nobody on Wall Street is making that kind of money on trades, proprietary or otherwise, but the banks are claiming ever increasing profits, raising their stock price, defrauding their stockholders. So against each overvalued and non-existent asset claimed by the mega banks on their balance sheet is a liability of far exceeding the assets or even the combined assets of the banks. Treasury knows, this, the Fed knows this and central bankers around the world know it. But they have been drinking the Kool-Aid believing that if they call out the mega banks on this fake accounting, the entire financial system will collapse.

So yes there is a consensus between those who pull the levers of power that they will allow the banks to pretend to have assets, that their liabilities are fairly low, and that the risks associated with their business activities, assets and liabilities are minimal even while knowing the converse is true. The system’s foundation is a loose amalgamation of lies that will eventually collapse anyway but everyone likes to kick the can down the road.

You are getting in this article a sneak peek into why the banks all rushed to foreclose rather than modify or settle on better terms. What is important from the practice point of view is that (1) the “Consideration” mandated by HAMP is not happening and you can prove it with the right allegations and discovery and (2) the reports tendered to OCC and the Fed under this rule will reveal that the issue of proof of loss, risk of loss, proof of payment and ownership is completely muddled — unless you follow the money trail (see yesterday’s article). You can subpoena the reports given by the banks from both the bank itself or the agency. My opinion is that you fill find a treasure trove of information very damaging to the banks and the Treasury Department.

There will be caveats in the notes that express the risk of inaccuracy and which reveal the possibility that the banks neither own nor control the mortgages except as agents for the investors, that the liability to the investors is equal to the money received from insurance, CDS, and bailouts, and that the borrower’s loan payable balance was corresponding reduced as to the investor and increased to entities that are not or cannot press any claims against the borrowers. Educate yourself and persist — the tide is turning.

Excerpt from attached section of Federal Register:

The bank’s primary federal supervisor may rescind its approval, in whole or in part, of the use of any internal model and determine an appropriate regulatory capital requirement for the covered positions to which the model would apply, if it determines that the model no longer

complies with the market risk capital rule or fails to reflect accurately the risks of the bank’s covered positions. For example, if adverse market events or other developments reveal that a material assumption in an approved model is flawed, the bank’s primary federal supervisor may require the bank to revise its model assumptions and resubmit the model specifications for review. In the final rule, the agencies made minor modifications to this provision in section 3(c)(3) to improve clarity and correct a cross-reference.

Financial markets evolve rapidly, and internal models that were state-of-the- art at the time they were approved for use in risk-based capital calculations can become less effective as the risks of covered positions evolve and as the industry develops more sophisticated modeling techniques that better capture material risks. Therefore, under the final rule, as under the January 2011 proposal, a bank must review its internal models periodically, but no less frequently than annually, in light of developments in financial markets and modeling technologies, and to enhance those models as appropriate to ensure that they continue to meet the agencies’ standards for model approval and employ risk measurement methodologies that are, in the bank’s judgment, most appropriate for the bank’s covered positions. It is essential that a bank continually review, and as appropriate, make adjustments to its models to help ensure that its market risk capital requirement reflects the risk of the bank’s covered positions. A bank’s primary federal supervisor will closely review the bank’s model review practices as a matter of safety and soundness. The agencies are adopting these requirements in the final rule.

Risks Reflected in Models. The final rule requires a bank to incorporate its internal models into its risk management process and integrate the internal models used for calculating its VaR-based measure into its daily risk management process. The level of sophistication of a bank’s models must be commensurate with the complexity and amount of its covered positions.

Major Economists Tell Obama to Reduce Mortgage Debt

What’s the Next Step? Consult with Neil Garfield

CHECK OUT OUR NOVEMBER SPECIAL

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

Editor’s Comment: I think Obama is stuck on the idea that correction of loans to reflect their true value is a gift to undeserving people — because that is the message he is getting from Wall Street. I have demonstrated on these pages that correction of loan principal is not a gift, it is paid in full, and even if you disagree with indisputable facts, it is the only practical thing to do as Iceland has clearly shown, with the only growing economy in Western nations.

Now we find out that Obama was given exactly that advice 18 months before he won reelection. Let’s see if he does it. He sought got the advice of seven of the world’s leading economists who all agreed that reduction of household debt — and in particular the dubious mortgage debt that Wall Street is using to make more and more profit, is something that the administration should do right away.

We can only guess why the administration has not done it, but I know from background sources that this ideological battle has been going on in the White House since Obama was first elected. What is needed is for Obama to take the time to get to know the real facts. And those facts show clearly that (1) the foreclosures that already were allowed to proceed did so on imperfected liens which is to say the right to foreclose was absent regardless of the amount and (b) the principal claimed as due on those loans was (1) not due to the people who claimed it and (2) far above the real amount that was due because the banks stole the money from insurance, credit default swaps and federal bailouts from investing pension funds and other managed funds.

The banks claimed ownership of loans they neither funded nor purchased and also had the audacity to claim the losses and then overstated the losses by a factor of 10. The insurance companies and counterparties on the credit default swaps, along with the federal government, paid the banks who didn’t have a dime in the deal and therefore lost nothing. The investors received small pittances in settlements when they should have received from their investment bankers (agents of the investors) the money that was received.

An accounting from the Master Servicer and the trustee or manager of the “pools” would clearly show that the money was received and not allocated in accordance with the contrnacts nor common law. As a result we are left with a fake loss that was tossed over the fence at the investors. Had they allocated the gargantuan payments received from multiple insurance policies on the same bonds and loans, the principal would be reduced anyway.

This is why I keep saying that you should use Deny and Discover as  your principal strategy and direct it not just to the subservicer who deals directly with the homeowner borrowers but also the Master Servicer who deals with the subservicer, the insurance companies, the counterparties on credit default swaps, and the federal government.

Following the money trial will in most cases show that the lien recorded was imperfect and not enforceable because the party who was designated as the lender was not the lender, hence “pretender lender.” Following this trail from one end to the other and forcing the books open will show that most loans were table funded (predatory per se as per TILA reg Z) — and not for the benefit of the investors, but rather for the benefit of the bankers (a typical PONZI scheme).

In an economy driven by consumer spending, the reduction in household debt will drive the economy forward and upward. The real total in many cases is zero after credits for insurance, CDS, and federal bailouts. If you leave the tax code alone, and let the “benefit” be taxed, the federal government will receive a huge amount of taxes that the banks evaded, but they would get it from homeowners, whose tax debt would be a small fraction of the mortgage debt claimed by the banks.

The problem can be solved. It is a question of whether the leader of our nation studies the issues and comes to his own conclusions instead of being led on a string by Wall Street spinning.

Failure to act will produce a wave of strategic defaults because like any business failure, the “businessman” — i.e., the homeowner — has concluded that the investment went bad and they will just walk away — resulting in another windfall to the banks who after cornering the world’s supply of money will have cornered the world’s supply of real estate.

dc83f25e-2e87-11e2-89d4-040c9330702a_story.html

More Bailouts Coming

What’s the Next Step? Consult with Neil Garfield

CHECK OUT OUR NOVEMBER SPECIAL

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

Editor’s Comment: Ignoring the obvious, Federal Agencies and the Courts are compounding the problems caused by the sham securitization scheme that covered up the largest PONZI scheme in history. And the taxpayers are paying for it. Investors are losing money and homeowners are losing money and their homes as the plain fact of defects in the origination documents are ignored, except when it comes to agencies and institutions suing each other, all alleging the same thing — the documents are unenforceable.

This isn’t just a paperwork problem, which is why I keep saying that while the UCC arguments have merit they are not dispositive of the real issues. The paperwork is bad because banks intentionally created a scheme that they never would have accepted from borrowers — using layers and ladders of corporate veils to hide the real parties in interest.

They diverted the investor money into their own piggy banks and they diverted the origination documents from the investors because they had plans for that paperwork — plans that required them to be able to “prove” they owned the loan and therefore could trade the loans, sell them, hedge them, insure them and even take Federal bailouts because of “defaults” on loans the mega banks never made nor purchased.

Now the FHA is going to need extra money to make good on guarantees on toxic documents that are not necessarily bad loans but were insured at the mortgage bond level. The banks are getting paid over and over again as they laugh all the way to their accounts in the Cayman Islands.

But it doesn’t end there. The investors were mostly managed funds for retirement including vested pension funds that in some cases have reduced the assets held by the fund so drastically that they have already declared themselves “underfunded” which is another way of saying they are insolvent. Some are insured and some are not. But either way, if pensioners and retirees are going to get the income they counted on in retirement the funds are going to need money. And there is no place to get it except from the Federal government.

The accounting for the loans excludes any information from the Master Servicer (the only party with ALL the information about the loan and the money and the documents) and specifically the third party payoffs received by the banks who at all times were, whether they like it or not, acting as agents of the investors. The money the banks made belongs to the investors — the managed retirement funds; but they are not getting it except if they sue for fraudulent representations made at the time of the sale of the bogus “mortgage-backed” bonds.

If the investors did get their share of the money that was paid by insurance, credit default swaps, other hedges and federal bailout, they would not have lost nearly as much as they did in the value of their assets and they probably would not be “underfunded.”

But this creates the politically unacceptable consequence of lowering the amount due on each obligation owed to the investor — a benefit that would inure to the benefit of homeowners who are one of the obligees on those debts.

Somehow we have arrived at the conclusion that it is better to reward the perpetrator of the crime rather than give restitution to the victims. Somehow we have arrived at the conclusion that the windfalls should continue going the way of the banks instead of the investors and borrowers.

Just looking at all the actions filed by agencies and institutions there is a clear consensus that the loans were bad from the start. They named the wrong (strawman) payee, they named the wrong mortgagee/beneficiary (strawman) and they never disclosed or referred to the real obligation to the investors as set forth in the mortgage bond which was the ONLY reason the investors advanced the money.

This is why I am pushing DENY AND DISCOVER  as the principal strategy to pursue coupled with discovery aimed not at the document trail but at the money trail where the would-be forecloser must show that the origination documents accurately recited the the true facts of the transaction and where the assignments were transferred for “value received.” When you ask for proof of payment, wire transfer instructions, wire transfer receipts, they are completely absent in assignments and in the origination they clearly show that the loan was never funded by the party “disclosed” as the lender at closing. They never show the terms of repayment as set forth in the bond. And therefore they leave the borrower and all other people or entities with a stake in the property after that transaction in a state of limbo because there is no clear path to clear title.

Too many cases are being lost in all forums because pro se litigants and lawyers and Judges are too willing to take the word of the party in the room that they MUST be the creditor — why else would they be there? It is because in most cases they are getting a free house when they were playing with investor money and they have created the losses to the investors, the homeowners and the taxpayers.

The government should claw back the money paid to the banks and claw back the profits they made using investor money to gamble with. The accounts should be settled with the investors and then allocated to the debts of each borrower to see what balance, if any, is left. The losses will largely vanish just be applying existing law and long-standing standards of accounting and bookkeeping. The resulting balance, if  any can easily be paid off by borrowers who will again have some equity in their homes because of the vast amount of over-payments received by the banks which they paid out in bonuses to their employees for their participation and silence in the PONZI scheme. As soon as the investors stopped buying the the bogus mortgage bonds the scheme collapsed — the hallmark of every illicit scheme based not on on real business but rather the appearance of of doing business.

F.H.A. Audit Said to Show Low Reserves

By GRETCHEN MORGENSON, NY Times

The Federal Housing Administration’s annual report is expected to show a sharp deterioration in the agency’s financial condition, including a shortfall in reserves, the result of escalating losses on the $1.1 trillion in mortgages that it insures, according to people with knowledge of the entity’s operations.

The F.H.A., the Department of Housing and Urban Development unit that insures home mortgages, reports on its capital reserves at the end of each fiscal year and makes projections for its financial position in the coming year. If the report, due later this week, showed that the F.H.A.’s capital reserves had fallen deep into negative territory, it would be a stark reversal from projections last year that it would show a positive economic value of $9.4 billion in 2012.

Capital reserves are kept to cover future losses. Outsiders have questioned whether the agency would some day need an infusion from Treasury if its reserves are insufficient.

Alex Wohl, a spokesman for the F.H.A., said, “We’re not going to comment on it until the actuarial report comes out on Friday.”

This year, the F.H.A. has tried to improve its financial position by raising the premiums that it levies on loans and increasing its volume significantly. But those efforts may have been negated by rising loan losses, even on mortgages that it insured long after the credit crisis took hold.

More than one in six F.H.A. loans are delinquent 30 days or more, according to Edward Pinto, a resident fellow at the American Enterprise Institute who specializes in housing. Delinquencies increased by 166,000 from June 30, 2011, to September 2012, he said, a 12 percent increase. Loans insured by the F.H.A. often allow very small down payments of 3.5 percent of the purchase price.

“There’s a fundamental problem with the F.H.A.,” Mr. Pinto said. “Its loans are too risky and that has to be addressed. It’s not the legacy book that’s creating all the problems. It’s beyond that.”

Brian Chappelle, a former F.H.A. official who is now at Potomac Partners, a mortgage consulting firm, said that he had not seen the audit report but that he had been told some of the shortfall resulted from less optimistic projections for home prices than were in last year’s audit.

“In and of itself, it doesn’t mean that they’re going to need a draw from the Treasury,” he said.

At the same time, “there is no question that F.H.A. was going to suffer,” he added. “The amazing thing is that F.H.A. stayed solvent for as long as it did.”

The F.H.A. is subject to a statutory capital requirement of 2 percent of loans, or about $22 billion on its $1.1 trillion portfolio. An economic value of negative $5 billion to $10 billion would leave the F.H.A. $27 billion to $32 billion short of this statutory requirement, Mr. Pinto said. This would be the fourth consecutive year that F.H.A. has failed to meet the requirement, he added.

Tax “break” about to expire on debt “forgiveness”

Editor’s Comments on policy:

Depending upon what Congress does between now and the end of the year the waiver of a tax on debt forgiveness as ordinary income will expire. My take is that it should expire and that at the same time the debt should be reduced by virtue of payments received or due from  subservicers, Master Servicers,  insurers, and counterparties to credit default swap contract, where appropriate. This is because (a) it was never secured and (b) it was never funded or acquired for “value received” by the parties whose name appears as payee and mortgagee on closing papers and (c) the debts have been paid off multiple times by multiples sales of the same loan under the structure of an outright sale (of something they didn’t own), insurance, credit default swaps and even federal bailout.

The added reason is that the homeowners were defrauded: the appraisals were cooked and the borrower justifiably relied upon them as did the investors. So we are talking restitution here not forgiveness.

That would leave each borrower with a tax instead of a mortgage. It would also give back the money to the Federal government and investors. In many cases the investors are also the borrowers if they pay taxes or are depending upon a managed institutional fund that bought the bogus mortgage bonds. By converting the defective mortgage, note and assignments to a tax, the borrower’s liability would be reduced and payable in installments.

Obama wants as little Federal involvement as possible, but he is missing the point that a large scale fraud took place here that ended up corrupting the title records in all fifty states and in which investors suffered losses only because their agents, the investment banks, never shared the enormous profits they received from “trading” (Tier 2 yield spread premium), buying insurance in which the investment bank was the payee instead of the investors, and buying additional coverage from credit default swaps again making themselves the payee instead of the investors.

This is a mirror of the closings at which the loans were supposedly originated. Instead of making the investors or their REMIC the payee on the note or recording an assignment with actual payment in cash, the banks “borrowed” ownership from the investors and made a ton of money trading on it.

The Federal government MUST get involved here and straighten this out or there will continue to be uneven inconsistent opinions emanating from state and federal courts across the country making the title situation (and uncertainty in the marketplace) even worse than it is now.

The fact is that in most loans the amount received from Federal bailouts and the hedge contracts that were used, as well as the outright multiple sales of the same loans, have been paid in full several times over whether they are in foreclosure or not — and that includes the prior “foreclosures” that were put through the system based upon false, defective documentation and fraudulent representations to the borrowers and all others involved in the process.

The remedy I propose is indeed extreme if you look at it as a gift. But if you look at it from the point of view that the investors and borrowers were lured into the scheme by the same lies to support a PONZI scheme that collapsed as soon as investors stopped buying the bogus mortgage bonds, it is easy to see that the balance due from borrowers is zero. In fact, it is even possible that legally the overpayment left over after the investors are paid, might be due back to homeowners by virtue of the terms of the notes they signed. That might also be taxable but the homeowner would have the money with which to pay the tax.

This proposal would stimulate the economy by automatically reducing the amount of household debt based upon tax brackets, while also increasing revenue to pay back the Federal government for all the “favors” done for the banks. Whether the Feds decide to prosecute the banks for restitution would their choice.

As it stands now, as long as homeowners focus their strategy or DENY and DISCOVER and demand to see the actual transfers of money to prove ownership of the loan and the existence of an unpaid loan receivable, the decisions are already turning toward the borrowers, albeit slowly. One way or the other, this issue with taxation of the “forgiveness” of debt when in fact it was actually paid is going to surface.

Think about it. Comments welcome.

Tax break for struggling homeowners set to expire

http://money.cnn.com/2012/11/07/real_estate/mortgage-forgiveness-tax-break/

Fear of Being Called a Vexatious Litigant.

Editor’s comment: While I agree with the Appellate Court and its findings, reversing the judgment against the borrower for being a vexatious litigant, I strongly disagree with the characterization of the case which probably comes from bad pleading and bad argument in court. That is the danger of going into court without at least getting a consult from a knowledgeable attorney and why the number of people purchasing time from me for exactly that purpose is rising exponentially. Click Now to Consult with Neil Garfield

The obvious error here is at the  beginning, in the facts. The writer says “Factually it is yet another story of a debtor who borrowed money to buy a home, couldn’t repay it, and then filed everything she could think of pro se to prevent foreclosure.”

If the deal was subject to claims of securitizations and assignments, then the case was probably started improperly and argued improperly. Deny and Discover is getting the traction across the country. The simple reason is that if you admit that  you borrowed the money and impliedly or expressly admit that you borrowed it from the people foreclosing or their predecessors, you are already dead in the water. The transaction should have been denied.

If you admit non-payment and impliedly or expressly admit that the payment was due, you are once again, dead in the water. How do you know the payment was due? How do you whether the creditor has not already been settled out years ago with insurance, credit default swaps, federal bailouts, or Federal Reserve purchases? How do you know whether the investor-creditors made claims against the investment bank that sold them bogus mortgage bonds and then settled the case out? Why would you admit either principal or payment is due without a complete accounting from the subservicer, Master Servicer and Trustee (who by the way  knows nothing because there is probably an unfunded trust with a “trustee” who has no powers). Why would you admit something you know nothing about except that in the public domain you know these things were happening?

Deny and Discover is the way to force the other side to put up or shut up. This case was dismissed probably because the borrower admitted everything that was an element of a proper foreclosure. There was nothing left for the Judge to do except let it go through.

Madison v. Groseth (CA1 6/5/12)

Posted on June 5, 2012 by azappblog

This will interest those involved in foreclosures but for our purposes is significant as a useful discussion of the nuts and bolts of handling a vexatious litigant.

Factually it is yet another story of a debtor who borrowed money to buy a home, couldn’t repay it, and then filed everything she could think of pro se to prevent foreclosure. When she eventually lost, the trial court declared her a “vexatious litigant” and ordered her not to file further lawsuits about the property without court permission.

The court tells us in a footnote that such things are normally done by unappealable administrative order but that since this order was in a judgment (dismissing Madison’s Complaint) it is “essentially” an award of injunctive relief, which is appealable. Sometimes court are very strict about jurisdiction; other times, it seems, “essentially” having it is good enough.

A court has inherent authority over vexatious litigants but this opinion adopts a Ninth Circuit case (DeLong 1990) establishing procedural requirements. The trial court has to give notice and an opportunity to be heard, make a record for review, make “substantive findings as to the frivolous or harassing nature of the litigant’s actions,” and tailor the order narrowly.

The third step was at issue here and the Court of Appeals decides that the trial court got it wrong. Although it apparently made findings about all the lawsuits she had filed, it didn’t specifically find that any or all were frivolous or harassing. “[A] vexatious litigant order must rest on more than a recitation of the number of previously filed lawsuits.” In fact, it impliedly found to the contrary, at least about this particular lawsuit, by denying the defendants’ Rule 11/12-341.01C motion for fees. The court affirms the dismissal of Madison’s lawsuit but reverses the “vexatious litigant” order judgment.

Sometimes we like to think we have some effect on opinion writing, more often we realize we probably don’t, and once in a while we get paranoid and think that courts throw in things we won’t like just to spite us. One or two of the nine footnotes here might possibly be missed if they weren’t there. If jurisdiction is important enough to mention then its one of the more important things in the opinion and shouldn’t be stuck in a footnote. But what, for example, can possibly be the need, after mentioning in passing that this pro se plaintiff sued, among other things, for “conversion” of her home, for a footnote saying (and citing a case) that conversion applies only to chattels? The court sees the problem and so throws in a justification: “to avoid future confusion.” But who will be or has been confused? As for the people in this case, its over – and if it weren’t, if the case were going back on remand, then the court wouldn’t dare mention it. Does the court really think that somebody is going to read this case in the future and decide that it changed the law of conversion? Or is the court going out of its way to augment Ms. Madison’s legal education (for the next time she files one of those non-vexatious lawsuits)? And if it thinks that mentioning this allegation that had nothing to do with anything before the court will confuse, why mention it?

(link to opinion)

With All the Settlements, What is Owed on Principal?

CREDITOR HAS BEEN PAID

The complexity and shroud of mystery surrounding claims of securitizations, assignments etc can be simplified if you just look at the money. This is why I have forensic auditors who chase this information down. Call living lies customer service 520-405-1688 if you can’t find an adequate analyst of your own who REALLY dig in.

1. What money was paid to whom? When? How? Who is a witness that can authenticate and verify the documents used (ACH, Wire transfer, check) the documents used for money transfer?
2. If the creditor already settled with the investment bank, then is the claim for collection or foreclosure on the mortgage still viable?
3. How was the settlement allocated as to the investor-lenders?
4. If the investor-lenders received all or part of the money from the investment bank, how much is owed by the homeowner and to whom?
5. To whom was money paid? Who received the actual payments from borrowers, co-obligors, insurance, credit default swaps, federal bailouts and civil settlements? How much of this money was received as agent for the investor-lenders (creditors)?

There are lots of questions but they can all be answered with arithmetic. If investor bought a bogus mortgage bond for $100 million and received $50 million in settlement, then they are either owed still $50 million or they settled the claim and if you contact them, they will say they have no interest in pursuing the matter any further. So why the foreclosure? And if there is a foreclosure, who gets the money? Who is the “creditor that submits a “credit bid.?”

People don’t like talking about the free house syndrome, but SOMEONE IS GETTING A FREE HOUSE one way or the other — either the banks or the homeowner.

One thing I am sure about is that there is a claim that can be firmly supported by the presence of a settlement or proceeds from co-obligors (insurers, CDS counterparties etc.). Either the amount due is wrong, eliminated or at least subject to a proper accounting. This would negate the issues of foreclosure, at least for a while, in the notice of default and initiation of foreclosure based upon the assertion that the creditor has been identified as beneficiary or mortgagee and the amount due is as stated. The amount due is probably NOT as stated and the creditor identified might not even have a dog in the race anymore.

Judges get angry at borrowers for bringing this up. I think lawyers should have the guts to stand up to such judges and say your anger is misplaced. Don’t shoot the messenger! The borrower didn’t create this mess, it was the financial industry and this loan was not even originated using standard rules of underwriting and document preparation.

Commercial Property Securitized? Problems Look Like Same Games as Residential

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Banks Trying to Get Bill Through Congress Protecting MERS

Editor’s Comment: It is no small wonder that the banks are scared. After all they created MERS and they control MERS and many of them own MERS. The Washington Supreme Court ruling leaves little doubt that MERS is a sham, leaving even less doubt that an industry is sprouting up for wrongful foreclosure in which trillions of dollars are at stake.

The mortgages that were used for foreclosure are, in my opinion, and in the opinion of a growing number of courts and lawyers and regulatory agencies around the country, State and Federal, were fatally defective and that leads to the conclusion that (1) the foreclosures can be overturned and (2) millions of dollars in damages might be payable to those homeowners who were foreclosed and evicted from homes they legally owned.

But the problem for the megabanks is even worse than that. If the mortgages were defective (deeds of trust in some states), then the money collected by the banks from insurance, credit default swaps, federal bailouts and buyouts and other hedge instruments pose an enormous liability to the large banks that promulgated this scam known as securitization where the last thing they had in mind was securitization. In many cases, the loans were effectively sold multiple times thus creating a liability not only to the borrower that illegally had his home seized but a geometrically higher liability to other financial institutions and governments and investors for selling them toxic waste.

There is a reason that that the bailout is measured at $17 trillion and it isn’t because those are losses caused by defaults in mortgages which appear to total less than 10% of that amount. The total of ALL mortgages during that period that are subject to claims of securitization (false claims, in my opinion) was only $13 trillion. So why was the $17 trillion bailout $4 trillion more than all the mortgages put together, most of which are current on their payments?

The reason is that some bets went well, in which case the banks kept the profits and didn’t tell the investors about it even though it was investor with which money they were betting.

If the loan went sour, or the Master Servicer, in its own interest, declared that the value of the pool had been diminished by a higher than expected default rate, then the insurance contract and credit default contract REQUIRED payment even though most of the loans were intact. Of course we now know that the loans were probably never in the pools anyway.

The bets that ended up in losses were tossed over the fence at the Federal Government and the bets that were “good” ended up with the insurers (AIG, AMBAC) having to pay out more money than they were worth. Enter the Federal Government again to make up the difference where the banks collected 100 cents on the dollar, didn’t tell the investors and declared the loans in default anyway and then proceeded to foreclose.

The banks’ answer to this knotty problem is predictable. Overturn the Washington Supreme Court case and others like it appellate and trial courts around the country by having Congress declare that the MERS transactions were valid. The biggest hurdle they must overcome is not a paperwork problem —- it is a money problem.

In many if not most cases, neither MERS nor the named payee on the note nor the “lender” identified on the note and mortgage had loaned any money at all. Even the banks are saying that the loans are owned by the “Trusts” but it now appears as though the trusts were never funded by either money or loans and that there were no bank accounts or any other accounts for those pools.

That leaves nothing but nominees for unidentified parties in all the blank spaces on the note and mortgage, whose terms were different than the payback provisions promised to the investor lenders. And THAT means that much of the assets carried on the books of the banks are simply worthless and non-existent AND that there is a liability associated with those transactions that is geometrically higher than the false assets that the banks are reporting.

So the question comes down to this: will Congress try to save MERS? (I.e., will they try to save the banks again with a legal bailout?). Will the effort even be constitutional since it deals with property required to be governed under States’ rights under the constitution or are we going to forget the Constitution and save the banks at all costs?

When you cast your ballot in November, remember to look at the candidates you are considering. If they are aligned with the banks, we can expect slashed pension benefits next year along with a whole new round of housing and economic decline.

mers-is-dead-can-be-sued-for-fraud-wa-supreme-court.html

CFPB Safe Harbor Rule Would Allow Homeowners to Fight Bad Mortgages

Editor’s Comment: The practice of disregarding normal loan underwriting standards creates a claim that homeowners were tricked into loans that they could never repay. The Consumer Financial Protection Bureau, built by Elizabeth Warren under Obama’s direction is about to pass a rule that addresses that very issue. The new Rule would allow homeowners contesting foreclosure to introduce evidence challenging whether the “lender” correctly determined a borrower’s ability to repay the loan.

The details of the test for the “safe harbor” provision that is being contested are not yet known. The objective is to separate those who are using general knowledge of bad practices in the industry from those who were actually hurt by those practices. It would provide the presiding judge with a simple, clear test to determine whether the evidence submitted (not merely allegations — so the burden is still on the homeowner) are sufficient to determine that the “lender” wrote a loan that it knew or should have known could not be repaid.

The game being indirectly addressed here is that the participants in the fake securitization scheme intentionally wrote bad loans and then were successful at entering into contracts that paid insurance, credit default swap and federal bailout proceeds to the participants in the scheme even though they neither made the loan nor did the forecloser actually buy the loan (no money exchanged hands).

Those who do not meet the test would have “frivolous” claims dismissed summarily by the Judge. But they would have other grounds to sue the “lender” or the party making false claims of default and foreclosure. Those who do meet the test, would defeat the foreclosure leaving the loan in a state of limbo.

The net legal effect of the rule could be that the mortgage is void and the note is no longer considered evidence of the entire transaction — because the risk of loss on the homeowner shifts to the lender, at least in part. This would clear the path for principal reduction and new loans that would correct the corruption of title in the county title records.

The rule is coming at the behest of the Federal Reserve, which has is own problems on how to account for the trillions they have advanced for “bad” mortgages or worthless bogus mortgage bonds.

The question remains whether the purchase of these bonds conveys some right of action to collect money that the investors advanced, and who would receive that money. It also leaves open the question of whether a mortgage bond purportedly owned by the Federal reserve or even sold by the the Federal Reserve changes the players with standing to bring lawsuits or other foreclosure proceedings.

This rule, when it is finally written and passed, won’t solve all the problems but it could have a cascading effect of restoring at least some homeowners to at least a better financial condition than the one in which they find themselves.

The issue that would be interesting to see litigated is whether the homeowners who meet the test now have a claim to recover part or all of the money they paid on the mortgage thus far or if they are given an additional credit for the overage they paid — another way of reducing principal.

The bottom line is that there is recognition at all levels of government agencies —Federal and State — that there are problems with the origination of the loans and not just with the robo-signed assignments, allonges endorsements and fake powers of attorney. This recognition is going to be felt throughout the regulatory and judicial system and will redirect the attention of Judges to the reality that Wall Street banks wanted bad loans so they could make millions on each bad loan through multiple sales of the same loans using insurance, credit default swaps, TARP and other schemes to cover it all up.

http://www.housingwire.com by John Prior

Consumer Financial Protection Bureau Director Richard Cordray told a House committee Thursday that mortgage lenders would still not be safe if the bureau elects to grant a safe harbor provision to the upcoming Qualified Mortgage rule.

“The safe harbor versus rebuttable presumption is a mirage,” Cordray said. “Even safe harbor isn’t safe. You can always be sued for whether you meet the criteria or not to get into the safe harbor. It’s a bit of a marketing concept there. The more important point is are we drawing bright lines? If someone were to say to me safe harbor or anything else, I would go with a safe harbor. But I don’t think safe harbor is truly safe. And I think it oversimplifies the issue.”

Rep. Michael Grimm, R-N.Y. then right away pressed Cordray on which he would choose: a safe harbor or rebuttable presumption. The director was forced to remind him the rule was still under development and would be finalized in January.

“I have not taken a position. I have discussed the issue,” Cordray said.

Mortgage industry lobbyists have been pressing the bureau since it overtook QM rulemaking responsibility from the Federal Reserve last year to install “clear, bright lines” and a legal safe harbor that protects lenders from future homeowner suits during foreclosure.

A rebuttable presumption provision allows homeowners to introduce evidence in court challenging whether the lender correctly determined a borrower’s ability to repay the loan before it was written. But a safe harbor allows a simple test for a judge to find if the mortgage met the QM rule, and frivolous suits could be dismissed early.

The Mortgage Bankers Association even showed the CFPB that attorney fees go up to an average $84,000 for a summary judgment from $26,000 if it’s dismissed. The risk of this increased cost would be passed on to borrowers, they claim.

Some consumer advocacy groups previously said such suits are rare, and a safe harbor could clear lenders from risks down the road rule makers cannot anticipate now.

Cordray repeatedly said in the hearing Thursday that his goal on QM and upcoming rules for the mortgage market is to protect consumers but not cut off access to credit. Forcing courts to define areas left gray by regulators is not something he would permit.

“As a former attorney general in Ohio, gray areas of the law are not appreciated,” Cordray said. “They’re difficult for people trying to comply. If we write rules that are murky, they’ll end up getting resolved in courts and it will take years and be very expensive. We are making real efforts to draw very bright lines.”

jprior@housingwire.com

State Treasurers Finally Get Message: Sue the Banks

Editor’s Note: State Treasurers and Finance Directors are realizing that their own jobs are on the line when the voters go to the polls. While avoiding the third rail of wrongful and illegal foreclosures, the trading in illegal and fraudulent instruments, states can no longer avoid the reaction from those who marshal the the state’s financial resources. LIBOR has been manipulated for what appears to be at least 15 years and perhaps longer. It was easy to do considering the “trust” that Banks talk about all the time and which enable them to get the upper hand in foreclosure litigation where they are getting the benefit of the doubt.

The fall out from this is that you finally have experienced personnel sifting through data that makes other state officials go to sleep. They are discovering losses caused by the manipulation of LIBOR, the most prominent benchmark index for lending rates in the world. The deeper they dig, the closer they will get to another inconvenient truth. Whether they broadcast the results or not, they will be moving perilously close to the stonewall that currently protects the freedom of bankers in creating the largest Ponzi scheme in human history, which, by the way, is still going on.

Securitization as it has been described  to both investors, regulators and legislatures was (like LIBOR) a big fat lie. The result could well upset thousands of government liens as well as having deprived the governments of revenue to which they were entitled. Just as in the LIBOR scandal all the outward appearances of propriety were visible, the dark ugly truth is simply that bankers were stealing the money from pension funds, putting into their own pockets, and using a little to fund mortgages. When they did the fund the mortgages, they completely ignored the securitization “structure” that had been described in the prospectus and pooling and servicing agreement.

These descriptions were used to get fund managers for pension funds to buy bogus, worthless mortgage bonds and together the bonds and descriptions were used to get ratings of the securities, insurance and trading profits from the bonds, the loans, credit default swaps and other exotic vehicles.

There is no need to unravel securitization because it never happened. The investor money was controlled by the investment banks, not by “trustees” of common law trusts whose assets were loans. The banks played the role of commercial banks in funding the loans and directed that the lender be a party other than the lending source — so people started making stuff up and tracking it in the make-believe world of MERS title transfer system. The reason Wall Street needed the note and mortgage to avoid making the real source of lending was because they were stealing the money, trading with the money for their own accounts, instead of for the pension funds.

Like any embezzler starting a Ponzi scheme, Wall Street “borrowed” the money from the investors in “mortgage bonds.” There were no mortgage bonds, there were no pools, there were no loan receivable accounts, and thus no valid note that was evidence of the obligation that was owed to the pension funds (unknown to the borrower). With no valid note, the security relied upon by the pension funds also never existed. A perfected lien could not be established without the payee on the note funding the loan. It never happened.

When all is said and done, the pension funds have claims against the bankers, AND they are the only creditors who can and should expect payment from the borrowers — but without a note or mortgage or deed of trust. And the pension funds’ agents who received money from trading, insurance, credit default swaps and other sources present a new problem to the pension fund investors in mortgage-backed securities. The receipt of those funds by their agents although never turned over to the creditors, is due the creditor. Thus the bond principal is reduced.

With the bond principal reduced, the creditor’s account receivable is correspondingly reduced because the pension fund is only entitled to be repaid once. Hence my prior statements that the entire loan receivable account, if it even exists, must be examined starting with the origination of the loan through the present. The reductions at the creditor level in the TOTAL account receivable inure to the benefit of the borrowers whose principal has been paid by co-obligors that the borrower never knew existed and may well have never wanted to partner with. But those payments were paid and received.

Allowing those same intermediary banks to foreclose “borrowing” the name of some non-existent trust with a non existent bank account is where the windfall, the free house rears is head — not as has been presupposed to the borrower homeowner who still owes the money to someone.

If that balance is forgiven the homeowner has received a benefit — a taxable benefit that could be recouped in the existing income tax structure with installment payments with an even stronger lien than the mortgage lien that never was perfected. State and Federal Treasuries would be replenished, the middle class  on the road to recovery, and consumer confidence was break through the roof with at least some of their wealth restored. This is not a free ride for homeowner borrowers. The free ride is for the bankers who pay nothing in off-shore tax havens on the proceeds of loans they neither funded nor purchased except with money stolen from pension fund managers.

The devil is in the details. The current Libor investigation can reveal not only illegal trading that resulted in losses to state treasuries but also losses to both the state treasuries and the homeowners whose loans were set, even at fixed rate, based upon Libor. This “game” is far from over.

The only way the bankers can avoid jail is the time-honored way of continuing the Ponzi scheme until you can’t. That is what is happening and that is exactly what is close to being revealed. And those revelations might end up replacing at least some substantial return of the wealth stolen from pension funds, homeowners, state treasuries and other agencies for fees, fines, interest and penalties. When we get to the point where the realization becomes generally accepted that the documents were all lies, fabricated out of thin air and the recorded, then we start getting into concrete areas where criminal laws apply.

Banks Face Suits as States Weigh Libor Losses

By NATHANIEL POPPER, NY Times

The scandal over global interest rates has state officials like Janet Cowell of North Carolina working intensely behind the scenes to build a case for suing the nation’s largest banks.

Ms. Cowell, the state’s elected treasurer, and several of her staff members have spent the summer combing through the state’s investments trying to determine how much the state may have lost because of suspected manipulation of the London interbank offered rate, or Libor, which is used as a benchmark for trillions of dollars of financial contracts around the world.

“We think this could be as big as the mortgage crisis settlement, that this could be a really high impact situation and that we should be aggressive on this,” Ms. Cowell said, referring to the $25 billion settlement that the nation’s biggest banks entered with state attorneys general.

The activity provides a glimpse at how widely the Libor scandal has spread through the financial world, and how much damage may still be in store for the banks accused of manipulating Libor. Her work also suggests just how difficult it is, and how long it may take, to get to the bottom of the losses.

The attorneys general in Maryland, Massachusetts, New York and Connecticut have all been examining how much their states may have lost as a result of a lowered Libor. A spokeswoman for Connecticut’s attorney general, George C. Jepsen, said that the state’s work with New York’s attorney general, Eric T. Schneiderman, “has broadened significantly over the last few weeks and we are now coordinating with a much larger group of attorneys general.”

Even before the British bank Barclays admitted in June that its employees had tried to manipulate Libor, there were a number of lawsuits filed by cities and municipal agencies seeking damages from large banks for manipulating Libor. But while those cases were filed by private sector lawyers, the public officials are looking at bringing more wide-ranging lawsuits on behalf of the states. The Justice Department has coordinated with the states and is leading its own investigation.

The government officials are hoping that their cases will be bolstered by new settlements between regulators and individual banks that are suspected of participating in the manipulation. Most of the more than one dozen banks involved in setting Libor have said in official filings that they are in discussions with regulators about their involvement in the Libor process.

Libor is supposed to represent how much banks are paying for short-term loans from other banks. It is determined by the British Bankers Association after a daily poll of the world’s largest banks. It then serves as a benchmark for rates paid by consumers and businesses on everything from mortgages to derivatives to student loans.

Barclays said in its settlement that it and other banks pushed Libor down artificially during the financial crisis to appear more healthy. Barclays also admitted that its traders tried to manipulate Libor at other points in order to sweeten particular financial deals. Barclays paid $450 million to settle the charges.

The financial products used by states and local governments are especially vulnerable to an artificially lowered rate.

Ms. Cowell, a 44-year-old Democrat and former business consultant who is running for another four-year term, was aware of the potential implications of the Libor case for North Carolina almost as soon as the Barclays settlement was announced on June 27. The next Monday, at her weekly staff meeting, she asked her office’s lawyers and investment officers to begin looking into it.

The inquiry has focused primarily on two areas of the state’s finances.

One was the state’s public pension plans, which in North Carolina are overseen by the treasurer. A state money manager began identifying bonds held by the state pension fund and money market fund investments that derived their value from Libor.

In July, lawyers from the treasurer’s office took part in a conference call on the topic with pension funds in other states. Ms. Cowell and members of her staff have found a few investments held by the $76 billion pension fund that were tied to Libor, but they have now determined that the losses were most likely “pretty small.”

The other, more significant area where Ms. Cowell began looking for losses was in a kind of financial contract that many states use, known as an interest rate swap. States use swaps when they want to issue a bond at a floating interest rate but protect themselves from future swings in rates. In a standard swap, a state makes a regular payment to its bank and gets a payment back that is determined by the level of Libor. If Libor was lower, the payments will be, too.

North Carolina had two major swaps at the time the benchmark was suspected of being rigged. Together, the two swaps were tied to $1.3 billion of bonds that were issued in 2002 and 2005. The banks on the other side of these contracts included Bank of America, of Charlotte, N.C., and JPMorgan Chase & Company based in New York, both of which are involved in setting Libor.

The challenge facing North Carolina and other states is that there is no agreement yet on how much the banks actually manipulated Libor, and for how long. The lawsuits that have already been filed have estimated that the banks held Libor down by at least 30 basis points, or 0.30 percent, for three years. By one method of calculation, that could have meant losses for North Carolina of around $10 million on their swaps.

Ms. Cowell said she assumed that as more banks settled with regulators, those numbers would become clearer. In the meantime, the treasurer’s office is working out formulas for losses that they can plug numbers into if and when new settlements are made public. At that point, Ms. Cowell also plans to share her work with other municipal agencies in North Carolina that held about 40 swaps during the period in question.

“This is an unprecedented level of analysis, and an unprecedented wide spectrum of financial impact,” Ms. Cowell said.

The inquiry could provide a political bump for Ms. Cowell, who is seeking another term as anti-Wall Street sentiment is running high. A graduate of the Wharton School of Business, she served on the Raleigh, N.C., City Council and then the state Senate before taking office in 2008. She cites among her accomplishments the state’s maintaining its status as one of eight with a AAA rating from the major credit rating agencies.

North Carolina’s attorney general will make the final determination on whether the state will join existing lawsuits, proceed with its own case or take no action at all. The attorney general’s office did not respond to requests for comment.

But the office has been involved in many of the discussions with the treasurer’s staff, people involved in the meetings said.

 

The Documents Fannie and Freddie Never Received

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Editor’s Comment:

Go to the link below which will take you to the article posted on StopForeclosureFraud where  you will see a list of documents (just like the Pooling and Servicing Agreements that everyone ignored) that should have been received by Freddie, Fannie, Ginnie, FHA et al.  Since we now know that the securitization chain of documents was nonexistent until the dealers were called upon to fabricate them for cases in litigation, we know that the absolute minimum requirements for Fannie and Freddie approval were absent. 

This means, contrary to the assertions of 99% of the securitization “auditors”, and contrary to the appearance of a loan on a Fannie or Freddie website, that the loan was never delivered to those agencies nor any of the documents required.  Just as the REMICs never received the loans, Freddie never received the loans.  And since Freddie never received the loans it became the master trustee of “trusts” that never received the loans and were therefore empty.

All this means is that we have to go back to the first day of the alleged transaction.  Investor lenders, operating through dealers, (investment banks) were advancing money for the “purchase” of residential mortgage loans.   The money was advanced to the closing agent who paid off the party claiming to be the prior mortgagee, giving the balance to the seller of the property or to the borrower (if the transaction was supposedly a refinance).  The nightmare for the banks is that if we go back to that first day the parties named as “lender”, “beneficiary”, “mortgagee” are the only parties of record with an apparent recorded interest in the property.  Their problem is that contrary to conventional foreclosure practice, those entities (many of which do not exist anymore) never funded nor even handled the money as a conduit for the loan.  Thus the note and mortgage are fatally defective and cannot be enforced. 

This would mean that the loan never made it into any pool.  That would mean that all of the deals made by the dealers (investment banks) based on the existence of that loan would fall apart leaving them with an enormous liability since they had sold the same deal dozens of times.  And that is the sole reason why the bailout, insurance, credit default swaps, guarantees and other credit enhancements were so large.  The banks used their ability to control the people with their hands on the levers of power within our government to pay for the malfeasance of the banks that have wrecked our economy and our society.

As Iceland has already proven and Europe is in the process of proving, the only answer is to take the stolen money back from the banks, put it back into the private sector, and put it back into government budgets. 

Freddie Mac Designated Counsel/Trustee For Foreclosures and Bankruptcies 2012

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