Editor’s Comment: One of the interesting things about this case is where we all stood on application of law back in 1979 versus what goes on now. If you read the entire case — pointed out to me by “KC” in her comments to the blog, you see how the court approached this case in an entirely different state of mind. If the courts had maintained the state of mind they had in 1979, and applied the law the way they did in 1979, the dockets would be free from foreclosures. Why?
Taking someone’s property by forfeiture is not like horse shoes — getting close doesn’t count at all, or at least it didn’t until the courts bent themselves into pretzels looking for ways not only to justify the forfeiture but to expedite in the fools errand of supposedly clearing the docket. What they have done is swept a mountain of explosive litigation under the rug, which as Judge Holloway in New Mexico said, is going to come back and haunt us in years to come.
But you can’t just blame the courts. Until 2007, no lawyer was presenting cases and defenses based upon any knowledge of actual securitization of debt and the illusion of securitization. Such defenses were classified along side of “Television intoxication” and other creative criminal defenses that have been tried. But now there is a difference. Since the middle of 2012, lawyers have gradually made the turn to realizing that they don’t need some elaborate legal excuse for their client to win. No, they simply need the truth.
And since then the tide has been turning. Because the truth is that the banks were and always will be intermediaries who violated every oath, law, rule and sense of fair play that could ever be applied. They stole the investors money, stole the investor’s identities, stole the borrower’s identity and made two different deals with each of them without either one knowing the identity of the other or the terms of the deal. It was a neat trick, because both sides THOUGHT they knew the terms of the deal and many still labor under that delusion.
The problem that is creeping up on the banks is that at the end of the day, everybody knows everything. They made a deal with the lenders (investors) and agreed to get them repaid through the trust. The trust joined into the deal by issuing mortgage bonds or certificates of indebtedness and ownership of loans. The deal called for all kinds of safeguards to protect the investor, but those safeguards were diverted from the investor to the intermediaries themselves. In most cases the investors HAVE been paid part or all of the amount they were due and the rest has been settled in deals totaling over $200 Billion and moving toward $300 Billion.
In the final analysis the deal with the investors was between the broker dealers (investment banks) and the investors directly — because the investment banks never followed through on the plan they had presented to the lenders (investors) through the prospectus and pooling and servicing agreement. The investment banks didn’t pool the money in the trust because the trust had no account. The bonds were completely bogus issued by an entity (REMIC trust, which has now been granted “amnesty” by the IRS to get their ducks in a row) that had no money, no assets, no income and no prospects — the very same thing that happened down at the borrower’s level with the NINJA loans (no income, no job, no assets — no problem, here’s is your loan). And the investment banks didn’t make the loans they said they would fund.
So the money that SHOULD have gone into the REMIC trust was instead funneled into the accounts of closing agents along with closing instructions from an originator who was not allowed to touch the money and who wasn’t the author of the closing instructions. The terms of repayment were, well, undocumented. There is no other way to say it. The terms of repayment were also false — fraudulent in the true sense of the word (as opposed to “selling forward” and putting the bonds in “street name nominee, non-objecting” status). No, this was all a lie.
So the broker dealers then created relationships with existing entities and brand new entities that would have official sounding names, or existing reputations that were being sold down the toilet to participate in the largest PONZI scheme in human history — a mark that will no doubt be retained for hundreds of years. The originators never entered into any financial transaction with anyone, for the most part, and no assignee ever paid for the assignment of the debt, note, mortgage, deed of trust, contract for loan or anything else; they didn’t need to pay it because the investors’ money was in play and nobody had to observe the usual nicety of actually paying a reasonable price for a $300,000 mortgage loan. There is of course an exception to this rule — each player in the chain was paid a FEE for pretending that there was an actual transaction. So technically, money did change hands.
Of course the deal with the borrowers was entirely different than the one that the lenders approved and gave up pension money to fund this scheme. The average interest rate was higher than projected. This seemed good too except for those nasty people who deal in truth. They argued that if the interest rate was rising then so was the risk of loss. The risk that investment banks were taking with the investor’s money was literally illegal. Those managed funds that invested in these bogus mortgage bonds were regulated such that they COULD NOT invest in anything other than the highest rated income securities. Using their money to fund higher risk loans, let alone toxic waste loans was and remains illegal.
The interest rate and the risk started to go up sharply in 2004 when the investment banks ran out of credit worthy people to finance new home purchases or refinance old home purchases. BUT the income was kept constant by “servicer advances” which I am sure will turn out to be funded by the broker dealers, because the servicers would have no other reasonable business purpose to advance payments on defaulted loans. If the borrower had learned that the participants in this scheme were being paid at the rate of 3-5 times the principal amount of the loan they would have been alerted to the fact that this loan would blow up in the face of everyone (except the investment banks who were claiming losses because they were claiming ownership, but in the final analysis pitched the loss over to the investor when they were done squeezing the orange for the last drop).
So we have two deals created by the investment bank — one with the lender and one with the borrower, with a “bankruptcy remote vehicle” layered between the investor lenders and the broker dealer and another “bankruptcy remote vehicle” (much of the time) layered between the borrower and the broker dealer.
So here is the real question: what is the proper rate of return on investment when the pretender lender was a thief who used the money of other people in a manner that was completely violative of the intent of the real lenders — and also violates law? If the answer is zero, so goes the foreclosures.
The REAL DEAL should be between the investors and the borrowers who meet for the first time and make a deal they can both live with. The servicers, investment bankers et al should be removed from the communication lines. And most of all, the decision as to whether the servicer can foreclose or foreclose in the name of the investors should NOT be entirely up to a third party; the principal in the transaction should actually see the proposed settlements and modifications that are being rejected by the servicers who report that the investor turned down the offer when in fact, the investor never knew about it.
MGIC FIN. v. HA Briggs Co., 600 P.2d 573 (Wash. Ct. App. 1979)
Court of Appeals of Washington
Date Filed: August 9th, 1979
Citations: 600 P.2d 573, 24 Wash. App. 1
Docket Number: 3481-2
24 Wn. App. 1 (1979)
600 P.2d 573
Having examined the record submitted, we agree with the trial court’s conclusion that this case is ripe for summary judgment. It is undisputed that MGIC knew of the Davises’ surety interest. Yet without the Davises’ consent, MGIC garnered title to virtually all of the debtor’s real estate, released the debtor’s personal liability on the deed of trust note, and failed for more than 3 years to join the Davises as defendants in the foreclosure suit while interest steadily accrued on the debt. Whether by design or neglect, the net result of these omissions was decidedly one-sided in favor of MGIC. The trial court properly balanced the equities when it released the Davises from the danger of losing their land to satisfy the debt of a principal who already had been discharged of all liability.
*10• The summary judgment in favor of the Davises is affirmed
Filed under: CASES, CORRUPTION, escrow agent, evidence, expert witness, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, TRUST BENEFICIARIES, trustee Tagged: | 600 P.2d 573 (Wash. Ct. App. 1979), MGIC FIN. v. HA Briggs Co.