I think what Bill Paatalo did here was expose “Mortgage Servicing Fraud” as a clear category and path for homeowners to follow, where appropriate, which is most of the time (in my opinion). The devil is in the details. Paatalo exposes the low hanging fruit that lawyers and homeowners skipped over when they analyzed the case. If the “servicer” tells you something, it is probably untrue.*Paatalo uses simple arithmetic to show that the postings and calculations and demands of servicers are often wrong regardless of premise.*And the other point he raises puts a stake in the heart of securitization — that the REAL creditors (passive investors) as a group have actually received the payments they were expecting even when the “borrowers” stop paying. That is because the “borrowers” were never paying them. The skipped fact is this: investors are paid based upon the mortgage bond indenture which is different in every material respect from the promissory notes executed by “borrowers.” This includes the amount they are owed and the amount they receive as principal and the amount they receive as interest. And THAT is why no servicer comes to court with the records of the trust or beneficiaries — records that would show the payment and receipt of money by the very party(ies) who are alleged to have suffered financial injury*If you ask a robo-witness in court who received payments from the servicer, they will tell you they don’t know — a stark admission from someone who said that he/she reviewed all the records pertinent to the “borrowers.”
And THAT means that it is the Master Servicers (renting names from other parties) who are prosecuting foreclosures to which they are not and never were entitled. But no money is owed to “servicers” by “borrowers.” Even if you take the wild leap and say that somehow the investors were secured by a mortgage that never named them, there is no right for them to foreclose either if they as creditors have not suffered a default. If they got paid, there is no default. Crazy, right? Investors cannot foreclose because they have not been injured. Servicers cannot foreclose because the debt is not owned by them. The very act of foreclosure then becomes an act contrary to the interest of the investors, whose “collateral” is diminished every time another foreclosure is filed.
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Over the past couple of years, having investigated cases involving “Nationstar” as servicer in various cases throughout the country, a pattern has developed involving “Capitalization Modifications” on loans without borrowers’ knowledge or consent. Before I detail some of this evidence, here is a description of “Loan Modification and Refinance Fraud” and “Mortgage Servicing Fraud” provided at www.FFIEC.gov.
Per the Federal Financial Institutions Fraud Investigations Symposium’s 2009 “White Paper” titled, “The Detection and Deterrence of Mortgage Fraud Against Financial Institutions: A White Paper,” (See: https://www.ffiec.gov/exam/mtg_fraud_wp_feb2010.pdf) the following is provided on P.27:
“Loan Modification and Refinance Fraud
With respect to any mortgage loan, a loan modification3 is a revision to the contractual payment terms of the related mortgage note, agreed to by the servicer and borrower, including, without limitation, the following:
- Capitalization of any amounts owed by adding such amount to the outstanding principal balance.
3 American Securitization Forum: Recommended Definitions and Investor Reporting Standards for Modifications of Securitized Residential Mortgage Loans, December 2007″
“Mortgage Servicing Fraud
Mortgage servicing typically includes, but is not limited to, billing the borrower; collecting principal, interest, and escrow payments; management of escrow accounts; disbursing funds from the escrow account to pay taxes and insurance premiums; and forwarding funds to an owner or investor (if the loan has been sold in the secondary market). A mortgage service provider is typically paid on a fee basis. Mortgage servicing can be performed by a financial institution or outsourced to a third party servicer or sub-servicer.
Mortgage servicing fraud generally involves the diversion or misuse of principal and interest payments, loan prepayments, and/or escrow funds for the benefit of the service provider.”
Recently, I conducted an investigation for a client in Michigan which revealed that the servicer (Nationstar) was reporting to the investors of a REMIC trust that the loan/debt received a “Capitalization Modification” in the midst of foreclosure proceedings, and just prior to the Sheriff’s Sale of the property. (This isn’t the first time I have uncovered this fact pattern.) This was news to the client, as she was never aware or privy to any such modification. With my client’s permission, the following excerpts are from my report:
“Attached within the loan level data zip File is a file titled “.MOD” which reveals the details of the modification as follows:
Modified Loan amount – $177,466.94
Loan Status – Current
Effective distribution Date – 03/25/2014
Capitalization – Y – (“Yes”)
Scheduled Balance = $180,134.10
Actual Balance – $180,400.81
Pre-Mod P&I – 963.46
Post-Mod P&I – $1,016.74
Capitalization amount – $2,667.11
These numbers are clearly inconsistent with the amounts declared in the default notices. In the Notice of Sale recorded on July 10, 2013, the amount declared as “unpaid” was “$251,943.71.” This is approx. $72k more than the amount shown internally a year later. The data shows that the loan/debt balance was in decline at the time of the Notice, and thus there was no default to the certificateholders of the FHAMS 2006-FA4 Trust. The monthly remittance report file for July 2013 (.REM1307) shows a “Beginning Balance of $170,259.75″ and “Ending Balance of $170,003.00.”
In addition, the Sheriff’s Deed dated April 2, 2014 states that the Trust was the highest bidder for “269,870.20.” This amount was approx. $100k more than the balance owed to the certificateholders at that time. The Covenant Deed issued on December 17, 2014 to “[REDACTED]” states that this party paid “$108,150.00″ for the purchase of the property. No such payments in either the Sheriff’s Deed or Covenant Deed are reflected in the remittance reports for the subject loan. In fact, attached within the loan level data is the “Loss File” titled “.LOS.” This filed shows the loan/debt was “paid off” on 01/25/2015 in the amount of “$180,400.80.” This number does not match-up with the deeds. This file shows continued amounts being applied to the loan/debt each month after the sale which means the account remained active after the sale right up until June 2016.”
As a result of these findings, a Motion to Compel was filed and granted on behalf of my client. (See: ecf143-order-on-mot-compel-modification-advances-by-nationstar).
Per the Order:
“IT IS HEREBY ORDERED that defendant shall produce remittance reports as to the two loans in question only, limited to the time period when Nationstar was acting as servicer on those loans, within 28 days of the date of this order.
IT IS FURTHER ORDERED that defendant will provide complete answers as described on the record to Interrogatory Nos. 6 and 7 within 28 days of the date of this order.
IT IS FURTHER ORDERED that defendant will produce copies of unredacted and redacted documents provided to plaintiff within seven days to determine whether attorney/client and/or attorney work product privileges were properly claimed.”
Here’s the Discovery Requests referred to in the Order. (See: discovery-requests-motion-to-compel-michigan-craigie)
There appear to be many layers to this servicing fraud scheme, one of which is the likely collection of modification stipends from the federal government for each reported modification. In this subject case, the borrower had no knowledge of any “Capitalization Modification” while the investors likely had no knowledge of any default by the borrower due to the advance payments and the reporting of the modification. After all, just prior to the Sheriff’s Sale, the loan was reporting as “current.”
This is why it is very important to have an investigation conducted to see what exactly is being reported in the internal loan level data to the investors. If these “false modifications” by Nationstar were legally on the “up and up,” there shouldn’t be this type of push-back.
Stay tuned for Nationstar’s response. Investigator Bill Paatalo will join Neil Garfield on the next Neil Garfield Radio program to discuss his findings.
If you need assistance finding the issues in your mortgage documentation you can reach Investigator Bill Paatalo at:
Bill Paatalo – Private Investigator – OR PSID#49411
BP Investigative Agency
“Forensic “Securitization” Auditing, Chain of Title Analysis, Legal Support Services, Bonded & Insured”
Call: (406) 328-4075