RESCISSION REVIVED BY 9TH CIRCUIT COURT OF APPEALS

Hat tip to Ken McLeod and to Ron Ryan who argued endlessly that the former ruling was wrong in Arizona. Ron Ryan is a good lawyer and Ken McLeod is a good investigator. Both have years of experience investigating, analyzing and fighting illegal foreclosures.

Courts are catching on and as I have predicted, the ultimate determination of the merits of foreclosure cases are largely going to turn on the application of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Previously this same court held that tender of the money was required to rescind a transaction — the exact opposite of what the Federal statutes and regulations required. Now, correcting its prior error, the court says that a cause of action and defense exists by pleading rescission. Any document indicating the intent to rescind is sufficient.

The purpose of the TILA provision was to put the burden on the lender to prove that they had complied with all aspects of TILA in providing adequate disclosure and otherwise performing those acts required for a valid closing. If the defense is that the loan contract was not completed because of lack of consideration or other violations of TILA or RESPA, then the appropriate action is to send a rescission letter. It then falls on the “lender” to file an action within 20 days to object to the rescission or return all money paid by the borrower and to file a satisfaction of mortgage along with returning the canceled note. And since the allegation of no consideration leaves nothing to be tendered “back”, there is no impediment to going forward with discovery.

This forces “lenders” to essentially file a judicial foreclosure suit and prove they made the loan, they have the right paperwork and made the right disclosures. Table funded loans are going to give them a problem since Reg Z says that any pattern of conduct with table-funded loans is “predatory per se,” it is hard to imagine that this decision won’t stop the “lenders” dead in their tracks.

The requirement of tender assumed that the “lender” had actually made the loan and was the source of funds. Now the Courts are starting to realize that there was a switch at closing with the borrower and very likely a switch at closing with the real lenders — the investors who thought they were buying valuable mortgage bonds. With the borrowers the closing agent took money from an undisclosed party and then had the borrower sign documents in favor of another party. With the investors, the investment bank took money from the investors and instead of funding the trust, used the money and the documents from closing as though it were their own.

Hence the need to fabricate endorsements, assignments etc. If the “securitization” of the loan had taken place there would be a chain of monetary transactions leading up to the ultimate transfer to the trust who would have issued payment for the loan. There would have been no need to fabricate, forge, or robosign documents and certainly no loss of loans due to destruction or misplacement, because the documents would have been forwarded to the named Depository.

The result was that the burden was placed on borrowers with the least access to the real information on the loan and an easy path of defense to the party with the most access to the real facts of the loans and alleged transfers of the loan. TILA was meant to level the playing field. If the borrower invoked rescission without right, then there were consequences. This law was passed to prevent predatory lenders escaping the consequences of illegal actions simply because they had greater resources, sophistication and factual knowledge.

Be careful here. There are several types of rescission — 3 Day, 3 Year and common law. Consult with an attorney who is licensed to practice in the jurisdiction in which your property is located.

For more information call 954-495-9867 or 520-405-1688

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Merritt v. Countrywide Financial Corp.

9th circuit opinion Issued July 16, 2014

Summary: Plaintiffs filed suit against Countrywide and others involved in their residential mortgage, alleging violations of numerous federal statutes. The district court dismissed the claims with prejudice and plaintiffs appealed. The court held that plaintiffs can state a claim for rescission under the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., without pleading that they have tendered, or that they have the ability to tender, the value of their loan; only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission – and then only on a case-by-case basis; and, therefore, the court reversed the district court’s dismissal of plaintiffs’ rescission claim and remanded for further proceedings. The court held that, although the limitations period in the Real Estate Settlement Practices Act (RESPA), 12 U.S.C. 2614, ordinarily runs from the date of the alleged RESPA violation, the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the violation; just as for TILA claims, district courts may evaluate RESPA claims case-by-case; and, therefore, in this case, the court vacated the dismissal of plaintiffs’ Section 8 of RESPA claims on limitations grounds and remanded for reconsideration.

Merritt v Countryside 9th circuit 09-17678-2014-07-16

 

Unconscionable and Negligent Conduct in Loan Modification Practices

JOIN US EVERY THURSDAY AT 6PM Eastern time on The Neil Garfield Show. We will discuss the Stenberger decision and other important developments affecting consumers, borrowers and banks. We had 561 listeners so far who were on the air with us or who downloaded the show. Thank you — that is a good start for our first show. And thank you Patrick Giunta, Esq. (Broward County Attorney) as our first guest. For more information call 954-495-9867.

In the case of Wane v. Loan Corp. the 11th Circuit struck down the borrower’s attempt to rescind. The reasoning in that case had to do with whether the originator was the real lender. I think, based upon my review of that and other cases, that the facts were not totally known and perhaps could have been and then included in the pleading. It is one thing to say that you don’t think the originator actually paid for the loan. It is quite another to say that a third party did actually pay for the loan and failed to get the note and mortgage or deed of trust executed properly to protect the real source of funds. In order to do that you might need the copy of the wire transfer receipt and wire transfer instructions and potentially a forensic report showing the path of “securitization” which probably never happened.

The importance of the Steinberger decision (see prior post) is that it reverts back to simple doctrines of law rather the complexity and resistance in the courts to apply the clear wording in the Truth in Lending Act. The act says that any statement indicating the desire to rescind within the time limits set forth in the statute is sufficient to nullify the mortgage or deed of trust by operation of law unless the alleged creditor/lender files an action within the prescribed time limits. It is a good law and it covers a lot of the abuses that we see in the legal battleground. But Judges are refusing to apply it. And that includes Appellate courts including the 9th Circuit that wrote into the statute the requirement that the money be tendered “back to the creditor” in order for the rescission to have any legal effect.

The 9th Circuit obviously is saying the they refuse to abide by the statute. The tender back to the creditor need only be a statement that the homeowner is prepared to execute a note and mortgage in favor of the real lender. To tender the money “back” to the originator is to assume they made the loan, which ordinarily was not the case. The courts are getting educated but they are not at the point where they “get it.”

But with the Steinberger decision we can get similar results without battling the rescission issue that so far is encountering nothing but resistance. That case manifestly agrees that a borrower can challenge the authority of those who are claiming money from him or her and that if there are problems with the mortgage, the foreclosure or the modification program in which the borrower was lured into actions that caused the borrower harm, there are damages for the “lender” to pay. The recent Wells Fargo decision posted a few days ago said the same thing. The logic behind that applies to the closing as well.

So lawyers should start thinking about more basic common law doctrines and use the statutes as corroboration for the common law cause of action rather than the other way around. Predatory practices under TILA can be alleged under doctrines of unconscionability and negligence. Title issues, “real lender” issues can be attacked using common law negligence.

Remember that the common allegation of the “lenders” is that they are “holders” — not that they are holders in due course which would require them to show that they paid value for the note and that they have the right to enforce it and collect because the money is actually owed to them. The “holders” are subject to claims detailed in the Steinberger decision without reference to TILA, RESPA or any of the other claims that the courts are resisting. As holders they are subject to all claims and defenses of the borrower. And remember as well that it is a mistake to assume that the mortgage or deed of trust is governed by Article 3 of the UCC. Security instruments are only governed by Article 9 and they must be purchased for value for a party to be able to enforce them.

All of this is predicated on real facts that you can prove. So you need forensic research and analysis. The more specific you are in your allegations, the more difficult it will be for the trial court to throw your claims and defenses out of court because they are hypothetical or too speculative.

Question: who do we sue? Answer: I think the usual suspects — originator, servicers, broker dealer, etc. but also the closing agent.

Rescission Returns in 3rd Circuit Opinion

Forbes has taken notice. There is a shift toward borrowers in mortgage litigation. The decision points back to the origination of the loan. This decision follows a similar decision in the 4th circuit. It all comes down to what actually happened at closing? And we don’t actually know if the decision to allow rescission indefinitely on second mortgages will extend to the first mortgage if it is all part of the same transaction. The result of rescission is that all payments of every kind must be returned to the borrower plus interest and attorney fees and potentially treble damages. All payments mean closing costs, fees, costs, expenses, principal interest, escrow and anything else. If the “lender” doesn’t do that the mortgage lien is expressly invalidated by operation of law, which is the same as being subject to a recorded satisfaction of mortgage. TILA is back!! — at least until the Supreme Court gets to weigh in on this ongoing dispute.

TILA requires only a clear statement and communication that the borrower wishes to rescind the transaction. The statute is clear that the burden shifts to the “lender” to either agree to rescission or sue to disqualify the rescission that must be supported by allegations and proof that the lender violated disclosure requirements at the time of origination of the loan. To be sure, there is a loophole created by the courts — that the rescinding borrower have the money to give back to the lender. But that is exactly what is going to cause the problem for Foreclosers. If the borrower can show some credible source of funds, the “lender” is screwed — because the lender is not the party who was named on the note and mortgage.

So the offer of the money will immediately cause an inquiry and discovery into the question who actually was the lender? We certainly don’t want to give the rescission money to the named party on the note and mortgage when the source of funds was a party with no legal relationship to the named “lender.” The facts will show that the mortgage lien was never perfected —and that therefore rescission under TILA is potentially unnecessary.

Either way, the debt turns up unsecured and can be discharged in bankruptcy. The problem for Wall Street is how they will explain to investors why the investors were not identified as the lenders in each closing. The answer is that Wall Street Banks wanted to use those loans as “assets” they could trade, insure, hedge and even sell contrary to the prospectus and PSA shown to pension Funds and other investors who advanced funds to investment banks as “payment” for mortgage bonds underwritten by those banks.

When the limelight is focused on the original closing, Pandora’s box will open for the bankers. It will show that they never used the money from investors to buy bonds issued by a REMIC trust. It will show the trusts to be unfunded. It will show the unfunded trusts never bought or funded the loans. It will show that the disclosure requirements and the reason for TILA (borrowers’ choices in the marketplace) were regularly violated.

That in turn will lead to the inquiry as to the balance of the loan that is now due. Rescission means giving back what you received. But what if, by operation of law, you have already given back some or all of the money? The investment banker will be hard pressed to describe itself as anything but the agent of the lender investors. As agent, it received payments from insurance, hedges and sales to the Federal Reserve. How will the Wall Street Banks explain why those payments should not be applied to reduce the account receivable of the investor lenders? How many times should the lender be paid on the same debt?

Remember that there is no issue of subrogation, contribution or other claims against the borrower here. They were expressly waived in the contracts for insurance and credit default swaps. Hence the payments should equitably be applied to the benefit of the investors whose money was used to start the false securitization scheme under false pretenses. Once the investors are paid or considered paid because their agents received the money from third party co-obligors, what is left for the borrowers to pay? Will the court order the borrower to pay “back” a lender who never made the loan?

Dreamli Zs 6:22pm Sep 28

http://www.forbes.com/sites/danielfisher/2013/02/07/court-decision-gives-borrowers-an-ace-in-the-hole-lenders-a-headache/

Court Decision Gives Lenders A Headache, Borrowers An Ace In The Hole
http://www.forbes.com
A court ruling gives borrowers an unlimited deadline for rescinding second mortgages

People Have Answers, Will Anyone Listen?

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Editor’s Comment: 

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

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

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

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

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

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

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

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

Before

The Congressional Progressive Caucus U.S. House of Representatives

Hearing On

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

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

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

Specifically, I will discuss the following:

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

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

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

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

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

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


National Notary Association Takes Up Robosigning

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Editor’s Comment: 

National Notary Association to take Up Issue of  Forgery, Robosigning and attesting to authority in corporate capacity.  Arizona’s Ken Bennett, Secretary of State, is among the officials leading the charge on this issue.

Notary Trade Group: Foreclosure Fraud Crisis Highlights Need For Legal, Trusted, Ethical Notarizations

Posted: 21 Apr 2012 09:07 PM PDT

The National Notary Association recently announced:

§ With the foreclosure ‘robo-signing’ crisis and the National Mortgage Settlement sending shockwaves through America’s mortgage industry, three nationally prominent Secretaries of State will convene a special Keynote Panel at the National Notary Association’s 34th Annual Conference this June to discuss the growing demand for trusted, legal notarizations, and what Notaries need to do to increase public protections and reduce liability risks.

§ Secretaries of State Elaine Marshall of North Carolina, Beth Chapman of Alabama, and Ken Bennett of Arizona are at the forefront of developments transforming the role of Notaries Public. Their insights will be a highlight of Conference 2012 — especially in light of mounting nationwide concerns over notarial compliance and risk management.

§ We are pleased that these three influential Secretaries — all of whom are among the top minds in notarial issues — will join us to address the nation’s Notaries and their employers during this critical time,” said NNA President and Chief Executive Officer Thomas A. Heymann.

§ The foreclosure crisis put the spotlight squarely on the high value of legal and ethical notarizations. These Secretaries will provide their perspectives on what needs to be done to strengthen the notarial process and avoid these types of financial crises.”

For more, see Secretaries of State to Address Notary Compliance, Liability, Consumer Protection Following National Mortgage Settlement(Distinguished State Leaders Will Convene Keynote Panel at the National Notary Association’s 2012 Conference in San Diego).

LPS: So We Fabricated and Forged Documents… So what? Here’s what!!

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IT’S ALL ABOUT THE MONEY, STUPID!

Editor’s Analysis: This is the moment I have been waiting for. After years of saying the documents were real, they admit, in the face of a mountain of irrefutable evidence, that the documents were not real, but that as a convenience they should still be allowed to use them. Besides the obvious criminality and slander of tile and all sorts of other things that are attendant to these practices, there is a certain internal logic to their assertion and you should not dismiss it without thinking about it. Otherwise you will be left with your jaw hanging open wondering how an admitted criminal gets to keep the spoils of illegal activities.

I have been pounding on this subject for weeks because I could see in the motions being filed by banks and servicers that they had changed course and were now pursuing a new strategy that plays on the simple logic that you took a loan, you signed a note, you didn’t make the payments as stated in the note — everything else is window dressing and for the various parties in securitization to sort amongst themselves.

All foreclosure actions are actually, when they boil them down, just collection actions. It is about money owed. So far, the arguments that have worked have been those occasions where the conduct of the Bank has been so egregious that the Judge wasn’t going to let them have the money or the house even if they stood on their heads.

But to coordinate an attack on these foreclosures, you need to defeat the presumption that the collection effort is simple, that the homeowner didn’t pay a debt that was due, and that the arguments concerning the forged, fabricated, fraudulent documents are paperwork issues that can be taken up with law enforcement or civil suits between the various undefined participants in the non-existent securitization chain.

Now we have LPS admitting false assignments. The question that must be both asked and answered by you because you have enough data and expert opinions to raise the material fact that there was a reason why the false paperwork was fabricated and forged and it wasn’t because of volume. Start with the fact that they didn’t have any problem getting the paperwork signed they wanted in the more than 100 million mortgage transactions “closed” during this mortgage meltdown period. Volume doesn’t explain it.

Your first assertion should be payment and waiver because the creditor who loaned the money got paid and waived any remainder. You use the Securitization and title report from a credible expert who can back up what you are saying. That gets you past the motions to dismiss and into discovery, where these cases are won.

Your assertion should be that the paperwork was fabricated because there was no transaction to support the contents of any of the assignments. And from that you launch the basic attack on the loan closing itself. First, following the above line of reasoning, they used the same tactics to create false paperwork at closing that identified neither the lender (contrary to the requirements of TILA and state lending statutes), nor ALL of the terms of the transaction, as contained in the prospectus and PSA given to investors.

But let us be clear. There are only two ways you can get out of a debt: (1) payment and (2) waiver. There isn’t any other way so stop imagining that some forgery in the documents is going to give you the house. It won’t. But if you can show payment or waiver or both, then you have a material issue of fact that completely or at least partially depletes the presumption of the Judge that you simply don’t want to pay a legitimate debt from a loan you now regret.

Why are the terms of the securitization documentation important?

  1. Because it was the investor who came up with the money and it was the borrower who took it. The money transaction was between the investors and the homeowners, with everyone else an intermediary or conduit.
  2. It is ONLY the securitization documents that provide power or authority for the servicer or trustee to act as servicer or trustee of the mortgage backed security pool.
  3. If the deal was between the investor who put up the money and the homeowner who took it, where are the documents between the investor and the homeowner? They can only exist if we connect the closing documents with the homeowner with the closing documents with the investor. 
  4. But if the transfer or assignment documents were defective, faulty, forged and fabricated, as well as fraudulent attempts to transfer bad loans into pools that investors said they would only accept good loans, then the there is nothing in the REMIC, there is no trust, there is no trustee of the pool and the servicer has authority to service nothing. 
  5. That breaks the connection between the so-called closing documents with the homeowner and the so-called closing documents with the investor. No connection means no nexus. No nexus means the investors have a claim arising from the fact that they loaned money but they don’t get the benefit of a secured loan and they especially don’t get anything unless THEY make the claim.
  6. If the investors choose not to make the claim for collection or foreclosure, there is nothing anywhere in any law that allows an interloper to insert himself into the process and say that if the investor doesn’t want it, I’ll take it.
  7. Your position should address the reality: appraisal fraud, deceptive lending practices, violations of TILA all contributed to the acceptance of a faulty loan product. But that isn’t why your client doesn’t owe the money. Your client does owe the money, but it has been paid to the creditor and the balance has been waived in the insurance and credit default swap contracts as well as the the Federal bailouts.
  8. The source of funding has been paid in whole or in part, they received the monthly payments even while they declared a default against your client homeowner, and they waived any right to pursue the rest from homeowners because they wish to avoid the exposure to defenses and affirmative defenses that the homeowner will  bring in the mortgage origination process.
  9. The failure to identify the true creditor contrary to the requirements of law and the failure to describe in the note and mortgage the full terms of the loans creates a fatal defect when applied to THIS case on its facts, which you will be able to prove if you are allowed to proceed in discovery.
  10. Allowing interlopers into the process to pretend as though they were the mortgage lenders or successors leaves the homeowner with nobody to sue for offset, and no defenses to raise against a party who had nothing to do with either the investor or the homeowner in the closing with the investor wherein mortgage bonds were purchased, and the closing with the homeowner in which a portion of the funds collected were used to fund a loan to the homeowner.

LPS Uses Bogus Florida IG Report on Firing of Foreclosure Fraud Investigators in Motion to Dismiss Nevada Lawsuit

By: David Dayen http://news.firedoglake.com/2012/01/31/lps-uses-bogus-florida-ig-report-on-firing-of-foreclosure-fraud-investigators-in-motion-to-dismiss-nevada-lawsuit/

We’re at T-minus four days for sign-ons to the foreclosure fraud settlement, and we know that Florida’s Pam Bondi is on board, despite pushback from advocates in her state, ground zero for the foreclosure crisis. There’s an interesting nugget buried in this article, though.

Bondi spokeswoman Jennifer Meale said in an email that their concerns are “misguided” because the settlement would provide a historic level of monetary relief and will overhaul the mortgage industry.

“Rather than engaging in political grandstanding, Attorney General Bondi is working hard to reach an agreement that gets Floridians substantial relief now and holds banks accountable for their misconduct,” Meale wrote.

The settlement is expected to provide $1,800 each for about 750,000 families across the country. It is a response to such practices as “robo-signing” by bank employees who often knew little or nothing about the mortgage documents they were hired to sign.

Nevada, New York, Delaware, New Hampshire and Massachusetts contend the deal isn’t strong enough because it would protect banks from future civil liability.

It will not, though, fully release them from future state criminal lawsuits.

Put aside Bondi’s dissembling for a second, and the idea that an $1,800 for the theft of your home represents “historic” relief. This lawyer in Utah called it what it is: “An arbitrary system of modifications administered by the same banks that knowingly perpetrated the fraud on the homeowner in the first place, and allowed to get off by paying $1800 for an illegal foreclosed home. That’s outrageous.”

But New Hampshire? That’s a new one. I know that Attorney General Michael Delaney has done some preliminary investigations of foreclosure practices in his state, and I know he was present at that meeting of 15 AGs looking for an alternative to the settlement. But Delaney has been pretty quiet overall. Since when is he listed among the holdouts?

That could just be bad information. And to be clear, liability isn’t the central issue anymore. But I don’t know how states like Massachusetts and Nevada, with active legislation against banks and document processors over the same conduct that would be released here, could possibly sign on to this deal.

There’s some news on that front. Lender Processing Services, which has been sued by Nevada for deceptive practices in generating false documents, sought to dismiss the complaint today in a filing with a state court.

The complaint by Nevada Attorney General Catherine Cortez Masto fails to allege any document executed by subsidiaries was incorrect or caused any borrower financial harm, Lender Processing Services said in a statement today.

The state’s claims “are a collection of suppositions, legal conclusions and inflammatory labels,” the company said in the court filing. The document couldn’t be immediately verified in court records [...]

Nevada sued the company in December, claiming that it engaged in a pattern of “falsifying, forging and/or fraudulently executing” foreclosure documents, requiring employees to execute or notarize as many as 4,000 foreclosure- related documents a day, according to a statement from the attorney general. Lender Processing Services also demanded kickbacks from foreclosure firms, the office said.

Two interesting things here. First, LPS leans hard on the idea that borrowers weren’t harmed by the use of false documents. The implication here is that the borrower was delinquent anyway, so there’s no abuse going on. But the more important part of the motion to dismiss (copy at the link) comes when LPS makes the claim that robo-signing isn’t really a crime. It’s merely “signing of documents by an authorized agent,” says LPS, and that is permitted under Nevada law. Here’s one way they justify that (DocX is a subsidiary of LPS):

The State of Florida has reached an identical conclusion regarding DocX’s surrogate signed documents. Two assistant attorneys general involved in that state’s investigation of the mortgage crisis, including DocX, prepared an information power point presentation in which surrogate signing was characterized as “forgery.” The two attorneys were subsequently terminated for alleged fraud, deficient and improper investigatory practices which triggered a formal review by the Inspector General of Florida. In a recently issued official report, the propriety of the termination of the attorneys was confirmed, and specifically, the power point characterization of surrogate signing as “forgery” was determined to be unsupported by the legal definition of forgery.

Wow. So LPS used the whitewash IG report from Florida to justify the dismissal of their lawsuit in Nevada. And remember, LPS lobbyists more recently urged the Florida AG’s office to intervene on their behalf in a criminal case in Michigan. The connections between the Florida AG’s office and LPS just continue to grow.

This also happens to be BS. Pam Bondi made a recent motion in a Florida appeals court, as part of a case against the foreclosure mill David J. Stern, which stated, among other things, this:

The Attorney General’s motion asks the Fourth DCA to certify that its decision in Stern passes upon the following question of great public importance: whether the creation of invalid assignments of mortgages by a law firm and subsequent use of such documents by the firm in foreclosure litigation on behalf of the purported assignee is an unfair and deceptive trade practice which may be the subject of an investigation by the Office of the Attorney General.

This is a tacit acknowledgement of illegal assignments, which is functionally the opposite of what the IG report said. So of course LPS uses the latter in their Nevada case.

It’s completely insidious. And if the foreclosure fraud settlement goes through, LPS will surely point to that as another reason why they should be held harmless for their illegal conduct.

Deutsch Bank Inquiry Reveals Insider Influence by Paulson

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Editor’s Comment: At the end of the day, everyone knows everything. The billions that Paulson made are directly attributable to his ability to instruct Deutsch and others as to what should be put into the Credit Default Swaps and other hedge products that comprised his portfolio. He did this because they let him — and then he traded on what he not only knew, he was trading on what he had done — all to the detriment of the investors who had purchased mortgage bonds and other exotic instruments.
The singular question that comes out of all this is what happened to the money? Judges are fond of saying that there was a loan, it wasn’t paid and the borrower is the one who didn’t pay it. Everything else is just window dressing that can be addressed through lawsuits amongst the securitization participants so why should a lowly Judge sitting in on a foreclosure case mess with any of that?
The reason is that the debt, contrary to the Judges assumption (with considerable encouragement from the banks and servicers) was never owed to the originator or the intermediaries who were conduits in the funding of the loan. The debt was owed to the investor-lender. And those who are attempting to foreclose are illegally inserting themselves into mortgage documentation in which they have no interest directly or indirectly.
If they are owed money, which many of them are not because they waived the right of recovery from the homeowner, it is through an action for restitution or unjust enrichment, not mortgage foreclosure. Banks and servicers are intentionally blurring the distinction between the actual creditor-lender and those other parties who were co-obligees on the mortgage bond in order to get the benefit of of foreclosure on a loan they did not fund or purchase.
So how does that figure in to what happened here. Paulson an outside to the transaction with investors and an outside to the investors in the bogus loan products sold to homeowners, arranges a bet that the mortgages were fail. He is essentially selling the loans short with delivery later after they fail and are worth pennies. But the Swap doesn’t require delivery, so he just gets the money. The fees he paid for the SWAP are buried into the income statement of Deutsch in this case. So it looks like a transaction like a horse-race where you place a bet — win or lose you don’t get the horse and you don’t have to feed him either.
But in order for this transaction to occur, the money received by Deutsch and the money paid to Paulson must be the subject of a detailed accounting. Without a COMBO Title and Securitization search and Loan Level Accounting, you won’t see the whole picture — you only see the picture that the servicer presents in foreclosure which is snapshot of only the borrower payments, not the payments and receipts relating to the mortgage loan, which as we all know were never owned by Deutsch or anyone else because the transfer papers were never executed, delivered or recorded without fabrication and forgery.
Paulson is an extreme case where claw-back of that money will be fought tooth and nail. But that money was ill-gotten gains arranged by Paulson based upon insider information, that directly injured the investor-lenders who were still buying this stuff and directly injured the borrowers who were never credited with the money that either was received by the investor creditors, or should have been received or credited tot hem because the money was received on their behalf.
Once you factor in the third party obligee payments as set forth in the PSA and Prospectus, you will find that we have a choice: either the banks get to keep the money they stole from investors and borrowers, or the money must be returned. If it must be returned, then a portion of that should go to reducing the debt, as per the requirements of the note, for payment received by the creditor, whether or not it was paid by the borrower.
BOTTOM LINE: Securitization never happened. And the money that was passed around like a whiskey bottle (see Mike Stuckey’s article in 2009) has never been subject to an accounting. Your job, counselor, is not to prove that all this true, but to prove that you have a reasonable belief that the debt has been paid in whole or in part to the creditor and that the default doesn’t exist. This creates the issue of fact that allows you to proceed the next stage of litigation, including discovery where most of these cases settle. They settle because the intermediaries who are bringing these actions are doing so without authority or even interest from the investor-creditors.
What is needed, is a direct path between investor creditors and homeowners debtors to settle up and compare notes. This is what the banks and servicers are terrified about. When the books are compared, everyone will know how much is missing, that the investors should be paid in full and that the therefore  the debt does not exist as set forth in the closing papers with the borrower. Watch this Blog for an announcement for a program that provides just such a path — where investors and borrowers can get together, compare notes, settle up, modify or mediate their claims, leaving the investors in MUCH better position and a content homeowner who no longer needs to fear that his world, already turned upside down, will get worse.
It may still be that the homeowner borrower has on obligation, but it isn’t to the creditor that loaned the money that funded the mortgage loan. Any such debt is with a third party obligee whose cause of action has been intentionally blurred so that the pretenders can pretend that they have rights under a mortgage or deed of trust in which they have no interest on a deal where they was no transfer or sale.

SEC looks into Deutsche Bank CDO shorted by Paulson

Tuesday, January 31, 2012
Deutsche Bank is facing an SEC investigation for its role in structuring a synthetic CDO, according to a report by Der Spiegel. The German publication states that the bank’s actions in raising a CDO under its Start programme will come under question after it allegedly allowed hedge fund Paulson to select assets to go into the fund. The bank is then said to have neglected to have told investors about Paulson’s role in the transaction as well as concealing the fact that the hedge fund had taken a short position on the assets, allowing it to profit as the deal collapsed.
According to the article, Goldman Sachs settled a similar case with the SEC for $500 million regarding Goldman’s role in arranging an Abacus CDO.

 

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