Supreme Court « Livinglies’s Weblog

Thanks everyone for the comments. Just to clarify some nuances that are peculiar to this situation, here are some more thoughts.

1. No lender is going to file anything against this plan unless it forces them to take more of a loss today than they already are looking at. EVERY lender will do anything that gives them a reasonable prospect at curbing or stopping the losses.

2. EVERY lender is going to want a device that will enable them to reinstate the loan and thus avoid their indemnification liability to the buyers of the collateralized debt obligations.

3. The buyers of the CDOs are not going to worry about the smell test because it already stinks. They wrote off the CDOs or wrote down the CDOs which is what precipitated this crisis — by writing down the value of the CDOs under current “gaap” rules promulgated by the FASB, Fed Rules, FDIC rules and the SEC, their currency reserves were slashed into nothingness and worse still, caused a violation of reserve requirements which technically puts the financial institution into “insolvency.”

4. That is what happened at Bear Stearns which went into the toilet when the rumor spread they were insolvent. Technically, they were. Everyone showed up at the window to ask for their money. Bear Stearns already was in violation of reserve capitalization and obviously did not have the cash on hand to satisfy the demands of clients and depositors. So the Bear had to either tell people they can’t have their money (something that NOBODY wanted to hear including competitors who would suffer similar runs on their institutions with similar consequences) or they had to reassure people that they were NOT insolvent even if it meant going to another institution that was also technically insolvent (but nobody has figured that out yet because they haven’t reported yet — that is March 31).

But that’s OK because Morgan’s deal is that the Fed will pick up the slack which in the view of investors and depositors is still good for its word. (THAT is a questionable assumption for the time being, but it hasn’t come to the front burner yet, because the Fed still looks like it has money and still looks like it has credibility).

5. If they are able to reinstate the “value” of the CDOs, then their balance sheets improve. Combined with the decrease in the reserve requirement announced this morning, that would open up a considerable amount of money which is sitting in reserves or marked off as “lost value” and allow for lending to recommence.

That would increase salability and pricing of houses, which would tend to reassure both owners of homes and owners of CDOs that their investment is not so upside-down after-all.

6. All of this is important because you must realize that the proposal I am making, although an obvious target for endless litigation, is going to be greeted with enthusiasm by everyone. It stops the foreclosures and evictions which keeps people in the homes, keeps people other than the lender doing and paying the maintenance, utilities etc on the home, keeps the property from becoming abandoned and stripped by vandals of everything inside including the now valuable copper wiring, stops the creation of ghost towns, reinstates the full value of the mortgage even if there might be a write-off later, restores the value and reverses the capital write-downs that caused the crisis, and provides the owners of the CDOs an opportunity to recover some or at least more of their investment than they are currently looking at.

7. As for government, they will pass anything the Supreme Court asks them to if industry and consumers are both behind it. It doesn’t matter whether it is constitutional. Ask FDR. You put it in place until it is declared invalid. Meanwhile the benefits are won.

Municipal governments, County governments would pile on this plan like flies on poop — it represents their only chance to stem the bleeding from their budgets. They know the Federal government is not going to give them the money to rebuild and re-sell their neighborhoods. They know they can’t get tax revenue and maintain services unless values stabilize and then go up.

8. Of course you can’t take a foreclosed piece of property and force the new owner to give it back and put the old owner back in the house. But you can open the door to do just that if BOTH SIDES want it. THAT is the idea here.

9. This isn’t a matter of what or who is right and whether buyers were stupid or greedy or lenders were stupid or greedy or worse. This is a solution that turns a blind moral eye on the entire problem and addresses the stark truth and deals with it effectively. The stark truth is that, as Alan Greenspan so subtly put it yesterday, the U.S. is headed for the worst economic times since the end of WW II. This plan won’t stop the downslide completely but it will it slow it down and probably provide a more shallow grave than what is otherwise in store for us.

10. Anyone in government, industry or the consumer sector that argues against this is arguing for their own financial death.

Cut, paste, fill in the blanks and send it in along with your request that the filing fee be waived because of financial hardship. Just google the Supreme Court of your state and send it in.

xxxxxxxxxxxx, Sui Juris

Citizen of the State of Arizona

Address.

City, State ZIP

SUPREME COURT OF ARIZONA

IN RE: People of Arizona ) Case Number #320831

ex relatione )

XXXXXX SSSSSSSSS,

AND ALL OTHERS SIMILARLY

SITUATED ) VERIFIED PETITION

) FOR EMERGENCY CHANGES TO RULES

Petitioner, )

) OF CIVIL PROCEDURE FOR FORECLO- SURES AND EVICTIONS

_________________________)

The People of Arizona state send greetings:

TO: SUPREME COURT OF ARIZONA

FACTS

This is an original filing with the Supreme Court inasmuch as the this Court is the sole rule-making authority for the rules of civil procedure in the State of Arizona and an immediate danger exists for the citizens of Arizona, its counties, cities, towns, businesses, financial institutions and working men and women. The problem can only be ameliorated or mitigated by immediate action changing the rules of Civil procedure such that the number of foreclosures is processed in an orderly manner, allowing the protections of due process for all parties, and permitting the already overtaxed facilities of the State’s court system, to provide appropriate relief tot eh appropriate parties.

The current rules, while under normal circumstances might be considered expeditious in processing foreclosures and evictions never contemplated a circumstance where thee entire economy of the State might be jeopardized by the ruinous acts of people whose objective was greed at all costs and whose actions have reduced the wealth of every citizen of the State of Arizona and decreased the ability of every homeowner to make the payments, refinance, or sell their property.

FACTS PERTAINING TO THIS PETITIONER AND ALL OTHER PURCHASERS OF RESIDENTIAL REAL ESTATE FROM 2001-2007:

ON XX/XX/200X, your Petitioner attended a closing in which she purchased a residential dwelling in the City of XXXXXXX, County of XXXXXXXXX, State of Arizona.

The purchase price and closing settlement statements all reflect a purchase price of $XXXXXXXXXX, with a mortgage note indebtedness of $XXXXXXXXXX.

The contract with the Sellers, the acceptance by the Buyer/Petitioner and the Petitioner’s agreement to the terms of the purchase price and the terms of mortgage and note were all based upon a presumption that the terms were based upon the fair market value of the home at the time of contract and at the time of the closing.

Your Petitioner relied upon the appraisal, the lender’s evaluation, the mortgage broker, the underwriter of the mortgage and note, and general knowledge in accepting the apparent fair market value of the home.

Petitioner reasonably assumed that the lender would not approve a mortgage, note and fair market value appraisal unless there was reasonable and competent data in support thereof, and based upon the assumption that the lender was accepting a risk based on the fair market value and the risks of future market conditions.

In fact, the Lender knew it had no risk, encouraged and provided a variety of incentives to all OTHER parties who participated in the closing to complete the transaction, and received compensation from third parties for doing so, all without any disclosure to your Petitioner and without complying with the disclosure requirements of the Truth in Lending Act, and other applicable laws, rules and regulations.

In fact, the Lender knew that it would sell the note to a third party investment bank who would in turn sell aggregated packages of similar notes and and mortgages to third party investors, who would purchase these collateralized debt obligations (CDOS) because they were Triple-A rated (A RATING THAT WAS PROBABLY FRAUDULENTLY OBTAINED), insured (BY COMPANIES THAT ARE NOW INSOLVENT) and were being sold by “reputable” investment banking and retail brokerage companies, WHICH ARE NOW GOING OUT OF BUSINESS.

Thus the normal market forces in sharing risk were perverted and twisted without disclosure to the two classes of people or entities that would bear the brunt of the risk and the losses — buyers of the homes and buyers of the CDOs.

Within a matter of weeks the actual fair market value of the house became apparent to your Petitioner, having fallen by some 20% thus wiping out a down payment of $130,000. Within months the situation has worsened.

The above scenario is being played out across the State of Arizona in an inexorable March toward ruin of people’s lives, finances, and housing. The ruin of entire Arizona neighborhoods is in process, with attendant plummeting tax revenues and services, as the rate of foreclosures and attendant evictions soars beyond the State’s capacity to handle them because of lack of time, adequate procedures to provide due process to victims of the fraudulent scheme, knowledge or financial resources on the part of buyers were duped by a transnational scheme — a scheme that is in the process of destroying the economy of the State of Arizona, as well as the Federal Government, other States of the Union and even other sovereign nations and municipalities in those nations which are cutting back services as a result of losses incurred in their purchase of “cash equivalent” CDOs, WHICH ARE NOW EITHER WORTHLESS OR SUBSTANTIALLY REDUCED IN VALUE IN THE SAME WAY THAT THE HOUSING “VALUES” BECAME SUBSTANTIALLY REDUCED IN VALUE.

It is now apparent that the lenders are now in the position of being required to foreclose on properties that they do not want to own, which is causing a cascading process of housing price devaluation, and that the impact of the CDo devaluation, amounting to trillions of dollars in the aggregate, is having a proportionate effect on the value of the U.S. dollar, which is legal tender in the State of Arizona, and that this devaluation, combined with efforts to increase credit (monetary liquidity) are resulting in skyrocketing inflation, whose rate is increasing weekly. Thus the effect on the State and its citizens, all of whom receive incomes that are not indexed to real inflation, will be catastrophic unless the process of foreclosure and eviction is brought under control.

Accordingly, your Petitioner Prays that this Honorable Court take emergency action for the purpose of slowing the rush to foreclosure and evictions, giving parties adequate opportunity to present and defend their claims and providing a mechanism in which the parties may settle their competing claims through mediation. It is contemplated that emergency appointments of mediators along with the creation of mediated settlement templates would be helpful to stem the flow while at the same time restoring value and order to the housing and securities marketplace. Such templates can be created quickly by individuals with banking, finance and housing experience and expertise and would serve only as a guide for settlement.

Wherefore, Petitioner proposes the following emergency rule changes, subject to any changes, alterations, modifications, deletions or additions the Court deems fit:

Emergency Provisional Rules

Mortgage Foreclosures

These emergency rules of civil procedure apply to all foreclosures on all property, real or personal, initiated on or before January 1, 2007. No Judgment shall be executed, or if already executed, enforced, and no order of removal or eviction or seizure related to foreclosure shall be executed, or if already executed, enforced unless a Court of competent jurisdiction shall have executed an order finding as a matter of law and fact that the foreclosing party(ies) have complied with each and every provision contained herein.

1. Every Petition for Foreclosure and/or every action undertaken by a foreclosing party prior to seeking recovery or seizure, or occupancy of property, shall require the foreclosing party(ies) to file a verified complaint or affidavit alleging the facts supporting the claim for relief, executed by a person with actual knowledge of all facts alleged. The executing party on said verified Petition or affidavit shall affirmatively allege and actually be available for the taking of testimony by deposition or at an evidentiary hearing in the jurisdiction in which the property is located.

2. Each such Petition or Affidavit shall state the names and addresses of all parties involved in the loan transaction and shall be served under the rules governing service of process upon each of said parties as third party non-party litigants, if such parties were not the lender or borrower.

3. Each such Petition or Affidavit shall account for all funds that were passed through or to each party named in the action, the disposition thereof, and the manner and time in which the passage of said funds were dispersed, together with a citation to the mortgage documentation, including a quote of the relevant passages in the body of the Petition or Affidavit wherein said funds are disclosed and wherein said funds are authorized.

4. Each such Petition or Affidavit shall state with particularity whether any changes occurred after the closing of the subject loan transaction in which parties or persons were changed including the names and addresses of all parties and persons related to the transactions subject to the mortgage.

5. With respect to sale or assignment or any joint or sharing arrangements concerning ownership, distribution of risk, or securitization in which the subject loan was referenced as collateral or otherwise, each such Petition shall state with particularity the details of each such transaction, the distribution or re-distribution of funds, and the documents employed by said parties after said closing.

6. Each and every such Petition or Affidavit shall affirmatively state that the foreclosing party(ies) have standing and authority to bring the action, defend counterclaims and answer affirmative defenses. The signature of the attorney on said pleading shall be mandatory and shall constitute a representation to the COURT that the filing attorney has performed proper due diligence to ascertain the truth of the allegations of legal standing and all other allegations.

7. Each such Petitioner or Affidavit shall be accompanied by attachments of the referenced documents to be included with the first service of such Petition or Affidavit.

8. Each such Petition or Affidavit shall state with particularity and specificity each disclosure made to the borrower and any third parties involved in the transaction under the Truth in Lending Act and the corresponding provision of the mortgage documents executed by the borrower which supports said disclosure.

9. Each such Petition or Affidavit shall state with particularity and specificity each disclosure made to the borrower and any third parties involved in the transaction under the Truth in Lending Act and the corresponding provision of the mortgage documents executed by the borrower which does not support said disclosure. If any allegation other than “none” is made under this paragraph, the foreclosing party(ies) shall state with specificity the law or fact upon which they should be excused from compliance.

10. Each such Petition or Affidavit shall attach a full and complete accounting of all money, value or funds transmitted, paid or or promised between all parties involved in the loan transaction before or after the loan transaction. In the event the borrower has been overcharged, undercharged, or charged correctly, the Petition or Affidavit shall so state affirmatively, providing a full accounting of said funds.

11. No answer or response from the borrower shall be due unless and until the foreclosing party(ies) are in complete and full compliance with the provisions of these rules. Any prior answer or response may be amended by the borrower after a determination is made that the foreclosing party(ies) are in full compliance. No prior Judgement, order or other document or rule shall prevent the borrower from filing a response or answer after the foreclosing party(ies) are found to be in compliance with these rules.

12. In the event that the foreclosing party(ies) fails or refuses to comply with these rules, the foreclosure shall be barred with prejudice and until the terms of the mortgage are determined with certainty by the Court by clear and convincing evidence, no payments to the mortgagee shall be due. This provision that not apply to payment to taxing authorities. In such event of delay caused by the the foreclosing party(ies) the court may fashion such equitable remedies as the Court deems fit in its discretion. for example, the Court could apply delinquent payments to the end of the mortgage, thus extending the terms.

13. In the event of non-compliance with these rules wherein the foreclosing party(ies) demonstrate to the Court the probability that they could amend their filing to conform to the requirements herein, the foreclosing party(ies) shall file an amended Petition or Affidavit on or before thirty (30) days from the date of the order of the Court allowing the amendment. Failure to file within said thirty period shall be grounds for a mandatory immediate dismissal with prejudice.

14. In the event of the filing of a verified amended Petition or Affidavit, Borrower shall have sixty (60) days in which to answer or respond. Failure to answer or respond shall not relieve the burden of proof of the foreclosing party(ies) in compliance with state, local and Federal law, and in compliance with these rules.

15. The Court may grant attorney fees and costs to the prevailing party in each case where a motion or other filing occurs, wherein a determination is made in an adversary proceeding that the filing is in or out of compliance.

16. In the event a foreclosure has already been completed and all subsequent and customary actions have occurred and no bona fide third party has taken control or occupancy of the property, these rules may applied retroactively.

17. Once compliance has been established and the issues are joined, the Court shall enter an order requiring the parties to enter into a process of mediation. The purpose of the mediation shall be to fashion a settlement which provides relief and incentives to all affected parties, including non-party litigants. Mediation shall take place no earlier than thirty (30) days after the entry of the mediation order, and not later than is reasonably possibly given the volume of cases and the availability of competent mediators.

These rules are subject to review by the Court but are effective immediately. Comments and applications to be heard shall be available in keeping with the usual and customary methods of proposed rule changes. Said rules shall be effective unless and until stated otherwise by the Court.

VERIFICATION

I, xxxxxxxxxxxxxxxxxxxxxxxxxxxx, Sui Juris, hereby verify, under penalty of perjury, under the laws of the United States of America, without the “United States” (federal government), that the above statements of fact are true and correct, to the best of My current information, knowledge, and belief.

Dated: xx/xx/2008

Respectfully submitted,

/s/ xxxxxxxxxxxxxxxxxxxxx

PROOF OF SERVICE

I, xxxxxxxxxxxxxxxxxxxxxxxxxx, Sui Juris, hereby certify, under penalty of perjury, under the laws of the State of Arizona and the United States of America, that I am at least 18 years of age, a Citizen of one of the United States of America, and that I personally served the following document(s):

EMERGENCY PETITION FOR CHANGES TO RULES OF CIVIL PROCEDURE RELATING TO FORECLOSURES AND EVICTIONS

by placing one true and correct copy of said document(s) in first class United States Mail, with postage prepaid and properly addressed to the following:

Attorney General, State of Arizona

/s/ XXXXXXXXX SSSSSSSSSSSSSSSSSSS

_____________________________________

XXXXXXXXXXX, SSSSSSSSSSSSSSS, Sui Juris

The problem for homeowners is that however many ideas are put forward they won’t be effective in time to save most people, they won’t be in time to save the economy, and they won’t be in time to save our currency from further wrenching devaluation. It is the fierce urgency of now that cannot even wait to the election or January 20, 2009. There is only one place where immediate relief can be achieved — the Court System. There are constitutional impediments to interference with the mortgage foreclosure process. Yet there is authority in the judicial system to change the rules as long as it does not significantly impede or in this case, it should enhance access to the courts and the ability to mount a credible defense to foreclosures on predatory or fraudulent loans.

These are the rules that could be enacted by each court in the land that would [a] slow down the process and [b] protect borrowers from the steamroller of lender foreclosures and [c] protect lenders, investment bankers and investors from themselves. These rules preserve and enhance due process so that the unsophisticated borrower is not wiped out again by his or her lack of knowledge.