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CHAIN OF TITLE by David Dayen. Available on Amazon

LISTEN LIBERALS! by Thomas Frank. Available on Amazon and Kindle.

Pretender Lenders: How Tablefunding and Securitization Go Hand in Hand” By William Paatalo and Kimberly Cromwell. CLICK:

David Dayen: The Only Person Jailed for the Foreclosure Crisis Will Soon Go Free

Lorraine Brown, the lone American convicted of a crime for the mass production of bogus documents used to illegally kick people out of their homes, will be released from prison in Pittsfield Township, Michigan, this week. After serving the minimum 40 months of a 20-year maximum state sentence, Brown is set to be paroled into the feds’ custody, where she will serve out the remainder of a concurrent federal sentence and should get released in the next year.

Brown was CEO of DocX, the third-party document-processing company that engineered the production of some 2 million fictitious mortgage assignments, often forged by people whose name didn’t match their signature, as a recent VICE investigation documented. These assignments were used as evidence in foreclosure cases nationwide beginning in the mid 2000s, leading to an untold number of people being ejected from their houses. Some 9 million Americans have surrendered their homes to banks since 2006, according to the Wall Street Journal, and the case that netted Lorraine Brown added to the evidence pile suggesting much of that misery was based on fraud.

In the course of their criminal investigation into foreclosure fraud, the FBI and US Attorney’s office in Jacksonville, Florida, home of the parent company of DocX (known as Lender Processing Services), called in dozens of agents and forensic examiners, conducted 75 interviews, issued hundreds of subpoenas, and reviewed millions of documents. But after all that, only Lorraine Brown went to prison. She was always something of a scapegoat, but that even she is now on her way out after doing paltry time is a testament to the ongoing failure of the American legal system to mete out proportional punishment for white-collar crime.

Check out the VICE News special on the demolition of foreclosed homes in Detroit.

In Brown’s case, the banking industry needed the raw materials her office provided because investment banks had apparently botched the ownership records on millions of securitized loans while packaging them into bonds. “The fraud in this matter was the result of negligence in the process of creating Mortgage Backed Securities (MBS),” read an FBI request for additional resources to prosecute the case that eventually took down Brown.

A review of 600 pages of documents from the FBI investigation, obtained by VICE through the Freedom of Information Act, focused on DocX, the company one former employee called a mortgage document “sweatshop.” Temporary and low-wage workers posed as bank vice presidents, working long hours signing documents at two long tables. Employees signed as many as 2,100 documents per day, and DocX accelerated the assembly line by having other workers sign on the behalf of those authorized by the bank.

For instance, Linda Green, a former shipping clerk for an auto-parts store, signed as the vice president of at least 20 other financial institutions, according to records compiled by Lynn Szymoniak, a whistleblower who wrote the fraud complaint that triggered the Jacksonville FBI investigation. But Green’s signatures all featured different styles of handwriting, because various people in the office wrote her signature on DocX mortgage assignments. According to a 60 Minutes profile from 2011, Green was selected to be the authorized bank officer because she had an easy-to-spell name.

Federal officials in Jacksonville believed that not only DocX, but their clients—the mortgage companies seeking false evidence—committed fraud by lacking a clear chain of title on millions of homes. And their superiors at FBI headquarters saw potential in the case, according to the FOIA documents. “If evidence collected shows intent to defraud investors by the real estate trusts, this matter has the potential to be a top ten Corporate Fraud case,” read one reply from the FBI’s Criminal Investigative Division that authorized additional resources to the Jacksonville office.

But besides Brown being singled out for some prison time, the US legal system basically swept the whole thing under the rug. Lender Processing Services, DocX’s parent company, paid millions in fines and settlements, but none of its executives were indicted. Neither were the executives of any of DocX’s clients, which included most of America’s major banks.

In fact, Brown’s indictment suggested she alone directed the document forgery and fabrication scheme “unbeknownst to DocX’s clients”—that is, without the banks who needed the illegal docs being in on the scheme.

“Lorraine Brown was a very small cog in a giant machine,” Szymoniak, the whistleblower, told me via email in response to the parole news.

The former CEO technically has 18 months left to run on her federal sentence, but her lawyer Mark Rosenblum told the Detroit News he expects her to serve only a portion of that. The Bureau of Prisons (BOP) can reduce up to 15 percent of any given sentence, and the most recent stats from 2012 show that federal prisoners for fraud crimes serve roughly 88 percent of their sentences. That would make Brown eligible for time served in about 11 months.

The activity that put Brown in prison was eventually wrapped into overlapping civil settlements by state and federal law enforcement that saw banks and associated companies involved in the scheme paid billions in penalties. At the time, Justice Department officials said they reserved the right to criminally prosecute anyone suspected of wrongdoing.



This lawsuit reveals a reason for Chase slipping in a new servicer into the chain. Having already discharged or released a loan, the “accounts” were nonetheless transferred or sold in derogation of the rights of investors who had already purchased them from Chase.

Chase decreased its liabilities, increased its revenues, avoided its obligations, and provided little to no relief to consumers.

all loan modification programs must be made available to all borrowers, who may then apply to determine eligibility. Hundreds of thousands of borrowers’ accounts, in the RCV1 system of records, were not considered for all eligible loss mitigation options (even though they could likely have qualified).

Hundreds of thousands of borrowers’ mortgage loan accounts in the RCV1 system of records were not offered and thereby unable to be considered for all eligible loss mitigation options (even though they likely could have qualified)

numerous borrowers, whose 1st mortgages had been sold by Chase to the Relator, had their 1st mortgages liens quietly released.

The Program Guidelines pursuant to the Treasury Directives are cataloged in the MHA Handbook (“Handbook”).






Case. No. 1:14-cv-01047-RMC

Judge Rosemary M. Collyer




A. Defendant’s Fraud

3. Defendant Chase’s fraud arises out of its response to efforts by the United States Government (“Government” or “Federal Government”) and the States (the “States”)1 to remedy the misconduct of Chase and other financial institutions whose actions significantly contributed
to the consumer housing crisis.

4. Defendant’s misconduct resulted in the issuance of improper mortgages, premature and unauthorized foreclosures, violation of service members’ and other homeowners’ rights and protections, the use of false and deceptive affidavits and other documents, and the waste and abuse of taxpayer funds.

Each of the allegations regarding Defendant contained herein applies to instances in which one or more, and in some cases all, of the defendants engaged in the conduct alleged.

5. In March 2012, after a lengthy investigation (in part due to other qui tam
plaintiffs) under the Federal False Claims Act, the Government, along with the States, filed a complaint against Chase and the other banks responsible for the fraudulent and unfair mortgage practices that cost consumers, the Federal Government, and the States tens of billions of dollars. Specifically, the Government alleged that Chase, as well as other financial institutions, engaged in improper practices related to mortgage origination, mortgage servicing, and foreclosures, including, but not limited to, irresponsible and inadequate oversight of the banks’ quality control standards.

6. These improper practices had previously been the focus of several administrative enforcement actions by various government agencies, including but not limited to, the Office of the Controller of the Currency, the Federal Reserve Bank and others. Those enforcement actions
resulted in various other Consent Orders that are still in full force and effect.

7. In April 2012, the United States District Court for the District of Columbia approved a settlement between the Federal Government, the States, the Defendant and four other banks, which resulted in the NMSA. The operative document of this agreement was the Consent Judgment (“Consent Judgment” or “Agreement”). The Consent Judgment contains, among other things, Consumer Relief provisions. The Consumer Relief provisions required Chase to provide over $4 billion in consumer relief to their borrowers. This relief was to be in the form of, among other things, loan forgiveness and refinancing. Under the Consent Judgment, Chase received “credits” towards its Consumer Relief obligations by forgiving or modifying loans it maintained as a result of complying with the procedures and requirements contained in Exhibits D and D-1 of the Consent Judgment.

8. The Consent Judgment also contains Servicing Standards in Exhibit A that were intended to be used as a basis for granting Consumer Relief. The Servicing Standards were tested through various established “Metrics” and were designed to improve upon the lack of quality control and communication with borrowers. Compliance was overseen by an
independent Monitor.

9. The operational framework for the Servicing Standards and Consumer Relief requirements of the NMSA was based on a series of Treasury Directives that were themselves designed as part of the Making Home Affordable (MHA) program. The MHA program was a critical part of the Government’s broad strategy to help homeowners avoid foreclosure, stabilize the country’s housing market, and improve the nation’s economy by setting uniform and industry-wide default servicing protocols, policies and procedures for the distribution of federal and proprietary loan modification programs.

10. Before the Consent Judgment was entered into, Chase sold a significant amount of its mortgage obligations to individual investors. Between 2006 and 2010, the Relator bought the rights to thousands of mortgages owned and serviced by Chase. Unbeknownst to the Relator, these mortgages were saturated with violations of past and present regulations, statutes and other governmental requirements for first and second federally related home mortgage loans.

11. After both the Consent Judgment was signed and the MHA program was in effect, numerous borrowers, whose 2nd lien mortgages had been sold by Chase to the Relator, received debt-forgiveness letters from Chase that were purportedly sent pursuant to the Consent Judgment.

12. Relator, through his contacts at Chase, was made aware that 33,456 letters were sent by Chase on September 13, 2012 to second-lien borrowers. On December 13, 2012 another approximately 10,000 letters were sent, and on January 31, 2013 another approximately 8,000 letters were sent, for a total of over 50,000 debt-forgiveness letters. These letters represented to the recipient borrowers that, pursuant to the terms of the NMSA, the borrowers were discharged from their obligations to make further payments on their mortgages, which Chase stated, it had
forgiven as a “result of a recent mortgage servicing settlement reached with the states and federal government.” None of these borrowers made an application for a loan modification as required by the Consent Judgment. These letters were not individually reviewed by Chase to ensure that Chase actually owned the mortgages or to ensure the accuracy and integrity of the borrower’s information but instead were “robo-signed”; each of the letters sent out was signed by “Patrick
Boyle” who identified himself as a Vice President at Chase.

13. Relator’s experience with Chase’s baseless debt-forgiveness letters was not unique. Several other investors were also affected by Chase choosing to mass mail the “robo-signed” debt-forgiveness letters to thousands of consumers from its system of records in order to earn credits under the terms of the Consent Judgment and to avoid detection of its illegal and
discriminatory loan servicing policies and procedures.

14. In addition to the debt forgiveness letters sent, and after both the Consent Judgment was signed and the MHA program was in effect, numerous borrowers, whose 1st mortgages had been sold by Chase to the Relator, had their 1st mortgages liens quietly released.

15. Relator, through his third party servicer, which was handling normal and customary default mortgage servicing activities, was made aware that several lien releases were filed in the public records on mortgage loans that were owned by Relator in the fall of 2013. Through Relator’s subsequent investigation of the property records for 1st mortgage loans that Chase had previously sold to Relator, scores of additional lien releases were also discovered.

16. During the course of Relator’s investigation of Chase’s servicing practices, he discovered that Chase maintains a large set of loans outside of its primary System of Records (“SOR”), which is known as the Recovery One population (“RCV1” or “RCV1 SOR”). RCV1 was described to the Monitor by Chase as an “application” for loans that had been charged off
but still part of its main SOR. However, once loans had been charged off by Chase, the accuracy and integrity of the information pertaining to the borrowers’ accounts whose loans became part of the RCV1 population was and is fatally and irreparably flawed. Furthermore, the loans in the
RCV1 were not serviced according to the requirements of Federal law, the Consent Judgment, the MHA programs or any of the other consent orders or settlements reached by Chase with any government agency prior to the NMSA.2

17. Chase’s practice of sending unsolicited debt-forgiveness letters to intentionally pre-selected borrowers of valueless loans did not meet the Servicing Standards set out in the Consent Judgment to establish eligibility for credits toward its Consumer Relief obligations. This practice enabled Chase to reduce its cost of complying with the Consent Judgment and MHA program, while at the same time enhancing its own profits through unearned Consumer Relief credits and MHA incentives. Chase sought to take credit for valueless charged-off and third-party owned loans instead of applying the Consumer Relief under the NMSA and MHA2 By letter dated September 16, 2015 to Schneider’s counsel, in reference to Relator’s claim that “Chase concealed from the Monitor and MHA-C both the existence of the RCV1 charged-off and the way those loans were treated for purposes of HAMP solicitations and NMS metrics
testing”, Chase’s counsel stated that “Those allegations are wholly incorrect. Chase repeatedly disclosed the relevant facts to both the Monitor and MHA-C.”

Schneider’s counsel requested that Chase provide all documents demonstrating the “relevant facts” to support Chase’s statement. Chase has refused to provide said documents, citing Chase‘s concerns with providing documents that it had previously provided to the U.S.
Government. While Chase has offered to allow Chase’s counsel to read such documents “verbatim” to Schneider’s counsel, Schneider knows of no supportable reason why documents previously disclosed to the U.S. Government should not be shared with Schneider in his capacity
as a Relator under the FCA. No privilege exists for such a claim and therefore Schneider has rejected this limitation. Such documents, if they in fact exist, should be produced before such a defense can be raised, particularly because Chase’s counsel has raised the issue of Rule 11

18. The Servicing Standards and the Consumer Relief Requirements of the Consent Judgment are set forth in Exhibits A and D of that document. The Consent Judgment is governed by the underlying Servicer Participation Agreements of the MHA program, which required mandatory compliance with the Treasury Directives under the MHA Handbook (“Handbook”). Chase is required to demonstrate compliance with the Handbook’s guidelines in the form of periodic certifications to the government. Chase ignored the requirements of Exhibits A and D of the Consent Judgment, especially with respect to the RCV1 population of loans. Therefore, Chase has been unable to service with any accuracy the charged-off loans it
owns and to segregate those loans that it no longer owns. As such, any certifications of compliance with the Consent Judgment or the Services Participation Agreement (“SPA”) are false claims.

19. Relator conducted his own investigations and found that the Defendants sent loan forgiveness letters to consumers for mortgages that Chase no longer owns or that were not eligible for forgiveness credit. Further, Chase continues to fail to meet its obligations to service
loans and to prevent blight as required by both the Consent Judgment and SPA. Chase’s intentional failure to monitor, report and/or service these loans, and its issuance of invalid loan forgiveness letters and lien releases, evidence an attempt to thwart the goal of the Consent Judgment and the MHA program. The purpose of this scheme was to quickly satisfy the
Defendant’s Consumer Relief obligations as cheaply as possible, without actually providing the relief that Chase promised in exchange for the settlement that Chase reached with the Federal Government and the States. In addition, Chase applied for and received MHA incentive
payments without complying with the MHA mandatory requirements. In short, Chase decreased its liabilities, increased its revenues, avoided its obligations, and provided little to no relief to consumers.

20. The mere existence of RCV1 makes all claims by Chase that it complied with the Servicing Standards and the Consumer Relief Requirements of the Consent Judgment false. Likewise, the existence of RCV1 makes all claims by Chase that it complied with the SPA of the MHA program false.

B. Damages to the Government Related to the NMSA

21. Exhibit E of the Consent Judgment provides for penalties of up to $5 million for failure to meet a prescribed Metric of the Servicing Standards. Exhibit E, ¶ J.3(b) at E15.

22. Exhibit D of the Consent Judgment provides:

If Servicer fails to meet the commitment set forth in these Consumer Relief Requirements within three years of the Servicer’s Start Date, Servicer shall pay an amount equal to 125% of the unmet commitment amount, except that if Servicer fails to meet the two year commitment noted above, and then fails to meet the three year commitment, the Servicer shall pay an amount equal to 140% of the unmet three-year Commitment amount.

Exhibit D, ¶10.d. at D-11.

23. The required payment set out in Exhibit D, ¶10.d is made either to the United States or the States that are parties to the Consent Judgment. Fifty percent of any payment is distributed to the United States. Consent Judgment, Exhibit E, ¶ J.c.(3)c. at E-16.

24. As explained in more detail below, Chase was required to certify that it was in compliance with the Servicing Standards and the Consumer Relief Requirements. Many, if not all, of the loans that Chase identified for credits against the $4 billion Consumer Relief provisions were not eligible for the credit, because Chase did not comply with the Servicing
Standards or the Consumer Relief Requirements. Specifically, all loan modification programs must be made available to all borrowers, who may then apply to determine eligibility. Hundreds of thousands of borrowers’ accounts, in the RCV1 system of records, were not considered for all eligible loss mitigation options (even though they could likely have qualified). Due to this omission none of the loan modification programs qualified for Consumer Relief Credit. Thus,
Chase did not and does not qualify for any of the Consumer Relief Credit for which it applied.

25. For these reasons, each of Chase’s certifications to the Federal Government of compliance represents a “reverse” false claim to avoid paying money to the Government.

26. Under the FCA a person is liable for penalties and damages who: [k]nowingly makes, uses, or causes to be made or used, a false record or
statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government. 31 U.S.C. § 3729(a)(1)(G).

27. Under the FCA, “the term ‘obligation’ means an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3).

28. Thus, under the FCA, Chase is liable for its false claims whether or not the government fixed the amount of the obligation owed by Chase.

29. Under the FCA, “the term ‘material’ means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” U.S.C. § 3729(b)(3).

30. Under the “natural tendency” test Chase is liable for its false statements so long as they reasonably could have influenced the government’s payment or collection of money. A statement is false if it is capable of influencing the government’s funding decision, not whether it
actually influenced the government.

31. Each of Chase’s false certifications is actionable under 31 U.S.C. §
3729(a)(1)(G), because they represent a false record or statement that concealed, avoided or decreased an obligation to transmit money to the Government.

32. The Federal Government and the States agreed to the NMSA with Chase, with the understanding that Chase would meet its obligations under the Consent Judgment.

33. As set out in the Consumer Relief Requirements, the measure of the Federal and State Governments’ damages is up to 140 percent of the credits that Chase falsely claimed met the requirements of the Consent Judgment and up to $5 million for each Metric the Chase failed
to meet.

34. These damages are recoverable under the Federal Civil False Claims Act, 31 U.S.C. § 3729 et seq. (the “FCA”), and similar provisions of the State False Claims Acts of the States of California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina,
Rhode Island, Tennessee, the Commonwealths of Massachusetts and Virginia, and the District of Columbia.

35. The Federal Government and the States are now harmed because they are not receiving the benefit of the bargain for which they negotiated with Chase due to the false claims for credit that have been made by the Defendant.

C. Damages to the Government Related to the HAMP

36. The Amended and Restated Commitment to Purchase Financial Instrument and Servicer Participation Agreement between the United States Government and Chase provided for the implementation of loan modification and foreclosure prevention services (“HAMP

37. The value of Chase’s SPA was limited to $4,532,750,000 (“Program Participation Cap”).

38. The value of EMC Mortgage Corporation’s (“EMC”) SPA (Chase is successor in interest) was limited to $1,237,510,000.

39. As explained in more detail below, Chase must certify that it is in compliance with the SPA and the MHA program and must strictly adhere to the guidelines and procedures issued by the Treasury with respect to the programs outlined in the Service Schedules (“Program Guidelines”). The Program Guidelines pursuant to the Treasury Directives are cataloged in the MHA Handbook (“Handbook”). None of the loans that Chase and EMC identified and submitted for payment against their respective Participation Caps were eligible for the incentive payment, because neither Chase nor EMC complied with the SPA and Handbook guidelines. Specifically, all loan modification programs must be made available to all borrowers, who must then apply to determine eligibility. Hundreds of thousands of borrowers’ mortgage loan accounts in the RCV1 system of records were not offered and thereby unable to be considered for all eligible loss mitigation options (even though they likely could have qualified). Due to the omission of the RCV1 population for any loss mitigation options, none of the modifications that Chase provided qualified for HAMP incentives. Thus, Chase does not qualify for any of the
HAMP incentives for which it applied and received funds.
40. Therefore, Chase’s certifications of compliance and its creation of records to support those certifications represent both the knowing presentation of false or fraudulent claims for a payment and the knowing use of false records material to false or fraudulent claims.

41. Under the FCA, a person is liable for penalties and damages who:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; 31 U.S.C. § 3729(a)(1)(A)
(B) knowingly makes, uses, or causes to be made or used, a false record or
statement material to a false or fraudulent claim. 31 U.S.C. § 3729(a)(1)(G).

42. Each of Chase’s false certifications is actionable under either 31 U.S.C. §3729(a)(1)(A) and (B), because they represent a false or fraudulent claim for payment or approval of a false record or statement material to a false or fraudulent claim.
43. Under HAMP, the Federal Government entered into the Commitment with Chase, with the understanding that Chase would meet its obligations under the SPA and related Treasury directives. The Federal Government is now harmed because it is not receiving the benefit of the bargain for which it negotiated with Chase due to the false claims for payment that have been made by the Defendant.

Why the Mortgages Cannot Legally Be Enforced

“The note is not a secured transaction (in and of itself)” — Dan Edstrom, senior forensic analyst for living lies.

from the point of view of Article 9 there can be no foreclosure of a mortgage without the party claiming rights under the mortgage showing that they purchased the mortgage for value



After completing another two trials — one of which went exceedingly well (I will be commenting on it in the next few days) — and receiving more inquiries about the same things I am revisiting the UCC. It seems that everyone is paying attention to Article 3 but nobody is paying any attention to a very simple proposition in Article 9. The important thing to remember is that the UCC is not some sort of guideline. It has been adopted as state law in all 50 states, most without any major revision. It is the law — and courts are supposed to follow it, not rewrite it. Of course they can’t do that unless the foreclosure defense attorney raises the issue.


Transfers of “property” (meaning real property, or personal property — which includes legal rights) can be accomplished in a number of ways. Gifts, loans, purchase and sale, endorsement, assignment, etc. So in our context, the transfer of negotiable paper (note not in default) or non negotiable paper (mortgages etc.) can occur legally in the stroke of a pen. But being the transferee is not the same as having all rights to the paper or property.


So if a courier picks up a bearer note, it has been transferred by delivery from Point A to the courier. Theoretically this would alow the courier to take the note to the maker and demand payment, and to sue for payment on the note. The courier would have standing because of legal presumptions. As the possessor of the note he is presumed to be the holder. But as holder of the note he is NOT presumed to be a holder in due course.


Follow the statute. So what are the rights of a holder? To make demand and sue on the note. On a motion to dismiss he is presumed to be entitled to enforce. The mistake by the courts is that they don’t allow for that presumption to be rebutted by evidence from the maker. If the courier wins at trial then the debt is merged into the judgment. (Remember the debt was merged into the note when the note was executed — otherwise there would be two liabilities for the same loan).


These are all rules about enforcing the NOTE. And the huge mistake the courts have made is that they have not followed all the applicable statutes. Ownership of the mortgage instrument even if assigned with all the right formalities does NOT allow the possessor or assignee to sue for foreclosure UNLESS the possessor assignee has purchased it for value.
So the interesting thing here is from the point of view of Article 9 there can be no foreclosure of a mortgage without the party claiming rights under the mortgage showing that they purchased the mortgage for value. What is interesting is that this flips back onto Article 3, which governs notes (as opposed to Article 9 which governs mortgages). If the statute adopting the UCC requires purchase of the mortgage to enforce it, it has the effect of requiring the holder of the note to be a holder in due course — a purchaser for value, in good faith without knowledge of the maker’s defenses.
But of course the banks and servicers and trusts never allege they are holder in due course because there was no purchase transaction.
If the courier DID purchase the mortgage for value (which is never the case) then the allegation that he is a holder rather than a holder in due course would give rise to a problem. Since payment was made, then the only way the courier would NOT be a holder in due course would be if the courier did not purchase it in good faith and DID know fo the borrower’s defenses, including lending violations etc.
If the courier did NOT purchase the mortgage or pay for transfer of the note, then the courier is neither a holder in due course nor may he foreclose on the mortgage.
But the courier could theoretically win in a suit just based on the note. The notion that the mortgage follows the note (etc.) is true as to ownership but not as to rights to enforce.
If the courier DID purchase the mortgage for value (which is never the case) then the allegation that he is a holder rather than a holder in due course would give rise to a problem. Since payment was made, then the only way the courier would NOT be a holder in due course would be if the courier did not purchase it in good faith and DID know fo the borrower’s defenses, including lending violations etc.
But the courier could theoretically win in a suit just based on the note. The notion that the mortgage follows the note (etc.) is true as to ownership but not as to rights to enforce. Banks and servicers and their lawyers are exploiting this confusion to win millions of foreclosure cases in which they DID have standing to sue on the note (Article 3) but they did NOT have standing to foreclose on the mortgage (Article 9) — even though they may have owned the “paper.”
So transfers are not the end of the story. to schedule CONSULT, leave message or make payments.
P.S. It would seem that our senior forensic analyst is sounding more like a lawyer every day …. READ THIS from Dan Edstrom, DTC Systems, Inc.
The note is not a secured transaction (in and of itself). The obligee of the note is the one entitled to repayment of a debt. The security is for repayment of the debt to the obligee, the one entitled to repayment. No security arises to a party that did not pay money to acquire the note (if they didn’t pay value they have no security to enforce). The security only arises to the specific amount A debt is owed, and only then to the one owed the debt.  A judgment on the note would entitle the alleged holder to be paid, but it would seem this would only be valid if issued in conjunction with a bond protecting the maker against double payment.
Further each payment to a party that did not pay value would be unjust enrichment, which is why the so called holder is subject to the defenses of the maker (real and personal) including the defense of lack of consideration and/or failure of consideration.  The “holder” who paid no value might be  entitled to be repaid the value they paid. They don’t have the ability to show even sufficient consideration, because there isn’t any. Further, to the extent the consideration might be nonmonetary, there were no promises passed between the parties.
Look to the intent of the parties.  The homeowner attempted to enter I to the transaction to give a security interest to the LENDER, and gave up a valuable Constitutional Right by way of contract. The right to the LENDER to foreclose, not the right to a party holding the note but which paid no money, who also has an interest adverse to the party that actually paid money.
The provisions in the security instrument apply to a lender, not some holder who is not even licensed as a lender.
And it would seem that there are conditions for repayment and the power of sale that are specifically for a lender and not for some party who at most might be considered a 3rd party incidental beneficiary with no ability to enforce the security instrument as a contract.

Trigaux: Auditor PwC settles $5.5 billion lawsuit as Taylor, Bean mortgage fraud case enters eighth year

Mortgage fraud case enters eighth year

In a Miami courtroom last Friday, defendant PwC settled a $5.5 billion lawsuit halfway through a six-week trial. At issue: the global auditor’s alleged failure to catch a massive fraud in Florida that led to the sixth-largest bank failure in U.S. history.

PwC (Pricewaterhouse­Coopers, as it was once called) served as auditor of Colonial Bank. The Alabama bank got in over its head in bad-news mortgage deals with an Ocala lender called Taylor, Bean & Whitaker. The firm ballooned from nothing into the nation’s 12th-largest mortgage lender in the hands of Lee Farkas, a con man with a love for sports cars and corporate jets.

Long story made short? The FBI raided Taylor Bean’s ornate headquarters in Ocala in 2009 shortly after the mortgage firm had agreed to take control of the vastly larger but struggling Colonial Bank — Taylor Bean’s main lender.

Taylor Bean would soon be shuttered with more than 1,000 workers losing their jobs. Farkas is still in the early innings of a 30-year jail term for fraud in a medium-security prison in Butner, N.C. Colonial Bank failed, badly, forcing its seizure by the Federal Deposit Insurance Corp. at a $3 billion cost to the federal agency.

From 2002 to 2008, PwC auditors gave Colonial Bank a clean bill of health, until the bank collapsed. The CNBC TV business crime series American Greed devoted an episode to this complex financial mess in the summer of 2012.

Which brings us full circle. Why did PwC opt to settle in the midst of its Miami trial?

PwC isn’t talking, but it’s a fair bet that things did not look promising in the courtroom. A lawsuit seeking $5.5 billion for “gross negligence” is not just a big number. It’s the largest suit ever brought against an auditing firm.

“Year after year, Pricewaterhouse didn’t do their job, they didn’t follow the rules and they failed to detect the fraud,” Steven Thomas, an attorney for Taylor Bean’s trustee, said in opening statements this month.

Better that PwC bite the bullet on a smaller (and confidential) settlement figure.

But PwC surely kept in mind the fate of one of its now-defunct peers. Auditing giant Arthur Andersen, formerly one of the nation’s “Big Five” accounting firms, once claimed Texas energy firm Enron as a client. In the wake of a now-infamous accounting scandal, Enron declared bankruptcy. Andersen went as far as to shred Enron audit documents, part of an effort to cover up billions in Enron losses.

In 2002, Arthur Andersen surrendered its licenses to practice as certified public accountants after being found guilty of criminal charges.

In PwC’s civil case, Taylor Bean trustees say Colonial Bank bought $1 billion of fake assets concocted on paper by the Ocala mortgage firm with help from Colonial executives. Yet PwC declared Colonial Bank was in fine shape. Until the bank failed.

So what exactly did PwC auditors do? Perhaps we’ll learn more soon.

PwC still faces two lawsuits heading to trial early next year from a Colonial Bank trustee and the FDIC.

Contact Robert Trigaux at Follow @venturetampabay.

Trigaux: Auditor PwC settles $5.5 billion lawsuit as Taylor, Bean mortgage fraud case enters eighth year 08/29/16 [Last modified: Monday, August 29, 2016 7:17pm]

New York Times: Prosecution of Financial Crisis Fraud Ends With a Whimper


In 2011, Robert Khuzami of the Securities and Exchange Commission announced charges against top executives from Fannie Mae and Freddie Mac. Credit Win Mcnamee/Getty Images

One source of great frustration from the financial crisis has been the dearth of cases against individuals over subprime lending practices and the related securitization of bad loans that caused so much financial havoc. To heighten the frustration, I offer Aug. 22, 2016, as the day on which efforts to pursue cases related to subprime mortgages were put to rest with no individuals — save perhaps the unfortunate former Goldman Sachs trader Fabrice Tourre — held accountable.

On that date, the Securities and Exchange Commission settled its last remaining case against a former Fannie Mae chief executive for securities fraud related to the disclosure of the company’s subprime mortgage exposure. The agency accepted a mere token payment that will not even come out of the individual’s own pocket.

On the same day, a federal appeals court refused to reconsider its May ruling that Bank of America’s Countrywide mortgage unit and one of its former executives did not commit fraud by failing to disclose to Fannie Mae and Freddie Mac that the subprime loans it was selling to them did not come close to the contractual requirements for such transactions.

In December 2011, the S.E.C. publicized its civil securities fraud charges against top executives from Fannie Mae and Freddie Mac for understating their exposure to subprime mortgages, which resulted in the government taking them over. Robert Khuzami, then the head of the S.E.C.’s enforcement division, said that “all individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”

That is not how it turned out, however. Five of the executives settled in 2015 by arranging for modest payments to be made on their behalf by the companies and their insurers, amounts that were never even described as penalties in the settlements.

Each also agreed not to hold a position in a public company that would require signing a filing on its behalf for up to two years. That is far short of the director and officer bar the S.E.C. usually seeks in such cases, but at least it had the sound of something punitive regardless of whether there was any real impact.

The settlement with the sixth defendant, Daniel H. Mudd, the former chief executive of Fannie Mae, disclosed in a judicial filing on Aug. 22, did not even reach that modest level of accountability. Fannie will make a $100,000 donation on his behalf to the Treasury Department — which is like shifting money from one pocket to another because the government already controls the company. Nor is there any ban on Mr. Mudd holding an executive position at another public company, something that at least resulted from the cases against the other executives.

What the S.E.C. accomplished in settling the cases against Mr. Mudd and the other executives hardly sends a message to other executives to be careful about how they act in the future. No money came out of the pockets of any of the defendants, and the prohibitions on future activity were token requirements. It was, after all, unlikely that any of the defendants would have been put in a leadership position at a public company within the applicable time. It is difficult not to come away with the impression that the settlements were little more than a slap on the wrist, and perhaps less than that for Mr. Mudd.

The case involving Countrywide may be more disheartening because it calls into question the scope of a federal statute from the savings and loan crisis, the Financial Institutions Reform, Recovery, and Enforcement Act, or Firrea, that the Justice Department used to extract large settlements from banks. That law authorizes the Justice Department to seek civil penalties for conduct that violates the mail and wire fraud statutes if it affects a bank.

The government won the jury trial in 2013. Preet Bharara, the United States attorney in Manhattan, said that “in a rush to feed at the trough of easy mortgage money on the eve of the financial crisis, Bank of America purchased Countrywide, thinking it had gobbled up a cash cow. That profit, however, was built on fraud.” The trial court hit Bank of America with a $1.267 billion penalty and ordered a former Countrywide executive, the only individual named as a defendant in the case, to pay a separate $1 million fine.

But the United States Court of Appeals for the Second Circuit in Manhattan overturned the verdict last year by ruling that the government had not shown fraud because there was no false statement made when Countrywide sold loans that did not meet certain contractual obligations it had with Fannie and Freddie. The opinion found that “willful but silent noncompliance” with a contract was not fraudulent without some later misstatement.

The government’s aggressive approach to the case may explain why the Justice Department asked the full appeals court to review the decision even though such a request is rarely granted.

The appeals court judges issued a terse order on Aug. 22 denying the government’s request without further comment, which means the only option for challenging the ruling will be to try to take the case to the Supreme Court. The last time the Justice Department asked the Supreme Court to review a case from Mr. Bharara’s office was in United States v. Newman, an insider trading decision. The justices rejected that request before granting review in a similar case from California.

The likelihood that the Supreme Court will take up the appeals court’s decision appears to be low. The issue about what constitutes fraud in a contractual relationship is narrow, raising arcane questions about how a court should construe an agreement between sophisticated parties and when full disclosure is required. This is the type of claim that is usually pursued in a private lawsuit rather than through a federal enforcement action, so the justices may not want to be dragged into a dispute that will have little precedential impact on the application of federal law.

The lack of cases identifying individuals for any misconduct related to the financial crisis has become an all-too common complaint. What will be additionally disheartening to many is that even those few cases that were brought have now ended up largely as defeats for the government.

Chris Hamby: The Court that rules the World- Part I

A parallel legal universe, open only to corporations and largely invisible to everyone else, helps executives convicted of crimes escape punishment. Part one of a BuzzFeed News investigation.

Michigan sets parole for ‘Linda Green’ robo-signer

By Brian O’Conner

The only person jailed in connection with a foreclosure forgery scandal that swept through Michigan and the rest of the country after the collapse of the housing bubble spends her days confined to the Women’s Huron Valley Correctional Facility in Pittsfield Township.

But not for long.

Sentenced in May 2013 to serve up to 20 years on racketeering charges, Lorraine Brown, now 55, will be paroled sometime this week, according to the Michigan Department of Corrections, after serving her 40-month minimum sentence. Brown will then be transferred to federal custody to serve the remainder of a 58-month federal sentence after pleading guilty to a single charge of conspiracy to commit mail and wire fraud.

Brown’s scheme netted $60 million between 2003 and 2006 for the parent company DocX, her Georgia-based document processing firm that forged more than 1 million foreclosure documents used by banks and attorneys to illegally turn homeowners homeless.

The parent firm, Lender Processing Services of Jacksonville, Florida, has paid millions in fines and settlements — including $800,000 to Michigan for attorneys’ fees and costs and another $1.7 million to the state as part of a 46-state $127 million settlement.

But none of Brown’s co-conspirators has been criminally charged. And despite civil actions and investigations into the same kind of document fraud routine in foreclosures across the country, few if any other individuals have faced jail time over “robo-signing” and foreclosure forgeries, according to a Los Angeles-based author and journalist who has reported extensively on foreclosure.

“Her problem was that she lied to the FBI and the FBI didn’t take kindly to that,” says David Dayen. “She was the scapegoat.”

Dayen’s recent book, “Chain of Title,” traces the original discovery of the widespread document fraud and forgery that permeated foreclosures. The fraud became known as robo-signing, a process where documents required in foreclosures and other legal filings were signed and notarized with faked signatures, illegally back-dated or recreated with false information.

Brown allegedly directed her workers at DocX to routinely sign the name “Linda Green” on thousands of filings in Michigan and the nation with vastly different handwriting. The investigation into robo-signing began in April 2011, following an expose of DocX in a “60 Minutes” broadcast. In Michigan, complaints were lodged by several county clerks who found “Linda Green” documents in their files. The Attorney General’s Office found more than 1,000 fraudulent documents on file.

But additional reporting by Dayen for the website Vice reveals that robo-signing went far beyond DocX, Linda Green and Lorraine Brown.

Dayen reviewed more than 600 pages of documents from the FBI’s Jacksonville field office that detail a widespread investigation into robo-signing, foreclosure fraud and illegal activity in the creation of the mortgage-backed securities that spawned the housing bubble and foreclosure crisis. The documents reveal that FBI investigators and Justice Department attorneys impaneled a grand jury, deployed dozens of agents and forensic examiners, conducted 75 interviews, issued hundreds of subpoenas and reviewed millions of documents.

And then made just one criminal indictment — Lorraine Brown.

“If you look at these documents, this was a serious case,” Dayen says. “It ended up with one person being convicted, and it’s just unconscionable.”

In early 2012, several months before Brown pleaded guilty in both Michigan and federal court, 49 states, the District of Columbia and the federal government approved the National Mortgage Settlement with five major mortgage servicers. The $25 billion agreement was the largest consumer financial protection settlement in U.S. history.

In the settlement, the Justice Department reserved the right to bring criminal prosecutions. But no one was charged.

Since then, federal authorities have pursued other servicers and lenders for abusive practices, but only in civil cases. And despite repeated violations of banking and consumer laws by major lenders such as J.P. Morgan Chase and Bank of America, no executives at those firms have been charged.

In Michigan, Attorney General Bill Schuette’s spokeswoman said in a statement: “The Attorney General has charged many over mortgage modification scams including some that used fraudulent documents.”

None of those cases, however, focused solely on forgery and fraudulent documentation in foreclosures. The most recent case, for example, involved a Birmingham attorney who pleaded guilty to two felonies and 27 misdemeanors for stealing money from Michigan residents facing foreclosures or who sought help with credit card debt.

According to documents obtained by The Detroit News in 2013 under the Freedom of Information Act, Schuette’s office did investigate complaints of robo-signing at Orlans & Associates, a major foreclosure law firm headquartered in Troy in 2011. After an investigation in which a retired Michigan State crime lab expert reviewed six suspect foreclosure documents signed by a single Orlans attorney, the investigator ruled there was “a high degree of probability” the signatures were authentic, and the case was closed.

The federal Department of Justice didn’t respond to questions.

Mark Rosenblum, Brown’s defense attorney in her federal case, questions the motives of state and local prosecutors who indicted Brown after her federal charges were filed, including Schuette.

“She became the poster child for mortgage fraud,” says Rosenblum, who’s now a federal public defender in in Jacksonville. “Not only did she go to jail, but she was prosecuted in four different jurisdictions. How often does that happen? No often in my experience. Everybody wanted to get a piece of her.”

Brown last week rejected a Detroit News request for an interview.

Dayen, the author, concludes that the extent of fraud discovered by the FBI, in both foreclosures and in the creation of the trusts that held the mortgages for investors, was so widespread that federal authorities balked at going forward with more criminal charges, either out of fear it would further damage the financial system, which was teetering after the housing crash, or for other reasons.

At one point, he says, FBI investigators felt it could become one of the top 10 white-collar fraud cases in U.S. history.

“My judgment in dealing with this case is that the Justice Department didn’t want this getting out of control,” Dayen says. “They didn’t want to get into any major criminal issue because, if this was a systemic practice, if you continued up the line, you’re going to look at scores of major executives on Wall Street, and they weren’t willing to do that.

“The million-dollar question is: Why did it end there?”

Sometime next week, Brown will go from being prisoner number 867624 in the Michigan Department of Corrections and become prisoner number 57729-018 under the Federal Bureau of Prisons. Her 58-month sentence runs concurrently with Michigan’s, leaving her 18 months to go. Because most federal prisoners serve 85 percent of their sentence, Rosenblum says she could be released in as little as 11 months and could serve out that time in a variety of ways, including house arrest.

As for the fraudulent “Linda Green” documents created by Lorraine Brown, DocX and Lender Processing Services, they continue to circulate in county recorder offices and local courtrooms.

Says Dayen: “Every day in America, someone continues to be thrown out of their home based on a false document.”

(313) 222-2145

Twitter: @BrianOCTweet


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