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Everyone knows the phrase “The wheels of justice grind slowly.” Here is an example of what happens when the courts catch up with reality. Remember that it is not the job of a court to go out and do investigation and research. The court is there only to rule on what is brought by the parties. The hatred of the courts in foreclosures is misplaced; although I do think that the rocket docket was chilling access to the courts. But the basic premise that there was something fundamentally wrong with the entire bank scheme could only be accepted after the courts had seen many cases with the same questionable elements and where the questions became better framed by lawyers and better presented and argued.
The big hurdle has been the distance between the actions on Wall Street and the consequences of what happened at ground zero where the loan occurred. The very thought that that loan did not exist, despite consensus that money showed up at the illusory “closing” was and still is unfathomable to many judges — but not all of them. The thought that the banks would target the must vulnerable members of society because they could sell those loans as though they were high quality, virtually risk free loans at an enormous yield spread premium, was neither known nor presented in many cases. Don’t blame the Judges. Let’s get to work.
In this case, the big TBTF (Too Big to Fail) banks took advantage of the complexity of the loan structures they had devised and lured homeowners into a virtually guaranteed — but fake — default; many of those homeowners had property in their families for generations. Entire cities were destroyed across the nation by having an army of sales people knocking on doors, selling more than 400 different styles of loan products, promising things that could and would never be. In Florida alone 10,000 new sales people appeared — each of whom had a criminal record for economic crimes.
The City of Miami sued in Federal Court saying that they were stuck with the bills for these communities that were destroyed, reducing the established tax base and causing enormous expense to the City for abandoned “zombie” homes caused by foreclosure and then abandonment by the banks. One might ask why the banks would go to the trouble of foreclosing if they were only going to abandon them? The answer lies in the depravity of the bank’s actions.
Their goal was to obtain a foreclosure judgment not on behalf of any creditor, but for the benefit of a “Master Servicer” of a nonexistent trust. The investment bank who was masquerading as a servicer could then stop making “servicer advances” and “recover” money paid to investors. The Investors were lulled (by receiving payments they thought were from the proceeds of loans that were in the REMIC Trust) into a false sense of security about the certificates they held. The insult added to injury is that the money which the investment banks are collecting from foreclosures as a claim for servicer advances is actually the “recovery” of money that was advanced from a pool of funds created from the money “invested” by pension funds and other investors.
THAT meets the definition of a Ponzi scheme. But in this instance, the wrinkle was cleverly designed to include the clues in the disclosures (prospectus) to investors. It’s possible that no laws were broken based upon THAT. But the fact is that the “IPO” of the REMIC Trust certificates produced trillions of dollars in proceeds that were NEVER delivered to the Trust, the Trustee or anyone working for the Trust. That of course is theft, but also securities fraud that is NOT within the exemption from regulation because the securities were NOT mortgage-backed as advertised.
Any lawyer reading this can easily see that the “creditor” was suffering no default at the time the foreclosure lawsuit was filed, because they were receiving monthly payments, albeit from their own money. It is also increasingly apparent that the creditors were intentionally cut off from the paper instruments executed at the illusory loan closing. Hence legally the creditors have no right to the note or the mortgage nor any responsibility for the defective disclosures. AND THAT means the creditors at present have no direct claim for the money they involuntarily loaned to borrowers instead of it being invested in the REMIC Trust.
So why the foreclosure? The answer should have been there isn’t any lawsuit because there is no default and the chain of title is fatally defective — leaving creditors (i.e., the investors) with unsecured claims for money that was actually loaned to borrowers. It is ONLY when the “Master Servicer” stops making payments to the investors that the creditors experience a default. Those payments are set by an entirely different formula than the one set forth on any of the promissory notes and they continue regardless of whether the borrower makes monthly payments.
So what you are going to see in this case is different. The 11th Circuit has stated that the damages are NOT too remote, that they COULD easily have been foreseen and that the conduct of the banks created the damages, according to the allegations of the complaint. This is paradigm shift giving critics of government policy a lot more credit for what we have been saying for years. These losses by the City of Miami should not be added to the burden already suffered by the people who are, or who are threatened with foreclosure. Some balance must be struck between the parties who have been effected. The only party that has not been required to bear their share of the losses are the banks who created the mess in the first place.