For the last few weeks I have been harping on the concepts of holder in due course, holder with rights of enforcement, and holder. They are all different. The challenge in court is to get them treated as different in Court as they are in the statutes.
The Banks knew through their attorneys that the worst paper in the world could be turned into real value if they could dress up junk paper and sell it to an unsuspecting innocent third party. They did it with junk bonds, and then they did it again when they created a strategy of creating junk bonds that looked like investment grade securities, got the Triple A rating from the agencies and even got them insured as though they were the highest quality and lowest risk investment — thus enabling stable managed funds to buy them despite restrictions on what such fund managers could buy as investments for their pension fund, retirement fund etc.
The reason they were able to do it is that regardless of the defective nature of the loan closing, including the lack of any loan of money by the “lender”, the law protects and presumes the validity of the paper, subject to defenses of the borrower that might defeat that value. The one exception that the Banks saw as an opportunity to commit fraud and get away with it is if they could manage to sell the unenforceable mortgage documents to an innocent third party who was acting in good faith, paid real value for the loan, and knew nothing about the predatory nature of the loans, lack of consideration, and other defenses of the borrower, then the paper, no matter how bad, could still be enforced against the person who signed it. It doesn’t matter if there was a real contract, or if the transaction violated Federal and state laws or anything else like that.
Such an innocent third party is called a holder in due course. And the reason, like it or not, is that the legislatures around the country and the Federal statutes, favor the free flow of “negotiable instruments” if they qualify as negotiable instruments. If you sign a note in exchange for a loan you never received (and especially if you didn’t realize you didn’t received a loan from someone other than the “lender”) you are taking a risk that the loan documents will be enforced against you successfully even though you could have defeated the original lender easily.
The normal process, which the Banks knew because they invented the process, was for a “closing” to take place in which the loan documents, settlements statements, note, mortgage and other papers are signed by the borrower, and then the loan is funded usually after final review by the underwriters at the lender. But in the mortgage meltdown there was no real underwriting but there was someone called an aggregator (e.g. Countrywide, ABn AMRO et al) who was approving loans that qualified to be approved for sale into investment pools. And in the mortgage meltdown you signed papers but never received a loan of actual money from the party in whose favor you signed the papers. They were unenforceable, illegal and possibly criminal, but those signed papers existed.
All the Banks had to do was to claim temporary ownership over the loans and they were able to sell the “innocent” pension fund managers on buying bonds whose value was derived from these worthless loan papers. If they didn’t know what was going on, they had no knowledge of the borrower’s defenses. If they were not getting kickbacks for buying the bonds, they were proceeding in good faith. That is the classic definition of a Holder in Due Course who can enforce the loan documents despite any real defenses the the homeowner might possess. The homeowner is the maker of the note and should have had a lawyer at closing who would insist on seeing the wire transfer receipt and wire transfer instructions to the escrow agent.
No lawyer worth his salt would allow his client to sign papers, nor would he allow the escrow agent to retain such signed papers, much less record them, if he knew or suspected that the documents signed by his client were going to create a problem later. The delivery of the note to a party who had NOT made the loan created two debts — one to the source of the loan money which arises by operation of law, and the other to whoever ended up with the paper even though there was a complete lack of consideration at closing and no money exchanged hands in the assignment or transfer of the loan, debt, note or mortgage.
Since the paperwork went into the equivalent of a food processor, the banks were able to change various data points on each loan, and create sales and disguised sales over and over again on the same loan, the same loan pool, the same mortgage bonds, the same tranche, or the same hedges. Now they even the the technology to deliver what appears to be an “original” note to as many people as they want. Indeed we have seen court cases where both foreclosing parties tendered the “original” note to the court as part of the foreclosure process, as is required in Florida.
Thus borrowers are stuck arguing that it is not the debt that cannot be enforced, it is the paper. The actual debt was never documented making it appear as though the allegation of 4th party funding seem ludicrous — until you ask for the wire transfer receipt and instructions, until you ask for the way the participating parties booked the transaction on their own financial statements, and until you ask for the date, amount and people involved in the transfer or assignment of the worthless paper. The reason why clerical people were allowed to sign away note and mortgages that appeared to be worth billions and trillions of dollars, is that what they were signing was toxic waste — worse than unenforceable it carried huge liabilities to both the borrower and all the people who were scammed into buying the same worthless paper over and over again.
The reason the records custodian of the Bank or servicer doesn’t come into court or at least certify the “business records” as an exception to hearsay as permitted under Florida statutes and the laws of other states, is that no records custodian is going to risk perjury. The records custodian knows the documents were faked, never delivered, and not in the possession of the foreclosing party. So they get a professional witness who testifies he or she is “familiar with the record keeping” at one servicer, but upon voir dire and cross examination they know nothing in their personal knowledge and are therefore only giving voice to what is contained on the reports he brought to trial — classic hearsay to be excluded from evidence every time.
Like the robo-signors and “assistant secretaries”, “signing officer,” (and other made up names) these people who serve as professional witnesses at trial have no actual access to any of the raw data contained in any record keeping system. They don’t know what came in, they don’t know what went out, they don’t know who paid any money into the pool because there are so many channels of money being paid on these loans (directly or indirectly), they don’t even know if the servicer paid the creditors the amount that was due under the creditors’ part of the loan contract — the prospectus and PSA.
In fact, there is no production of any information to show that the REMIC trust was ever funded with the investor’s money. If there was such evidence, we never would have seen forgery, fabrication and robo-signing. It wouldn’t have been necessary. These witnesses might suspect they are lying, but since they don’t know for sure they feel insulated from prosecutions for perjury. But those witnesses are the first people to be thrown under the bus if somehow the truth comes out.
Thus the banks literally created money out of thin air by taking worthless, fraudulently obtained paper (junk) and then treating it at some point as though it was negotiable paper that was sold to an Innocent holder in due course. Under the law if they claimed status as Holder in Due Course (or confused a court into believing that is what they were alleging), the paper suddenly was enforceable even though the borrowers’ defenses were absolute.
BUT THAT TRANSACTION NEVER OCCURRED EITHER. Numbers don’t lie. If you take $100 million from an investor and put it on the closing tables for the origination or acquisition of loans, then you can’t ALSO put the money in the REMIC trust. Thus the unfunded trust has no money to transaction ANY business. But once again, in the illusion of securitization, it looks real to judges, lawyers and even borrowers who feel guilty that fighting the bank is breaking some moral code.
Amazingly, it is the victims who feel guilty and shamed and who are willing to pay even more money to intermediary banks whose fees and profits passed unconscionable 10 years ago. I’m not sure what word would apply as we look at the point of unconscionability in our rear view mirror.
And they sold it over and over again. The reason why there was no underwriting standards applied was that it didn’t matter whether the borrower paid or not. What mattered is that the Banks were able to sell the junk paper multiple times. Getting 100 cents on the dollar for an investment you never made is very lucrative — especially when you do it over and over again on each loan. It sure beats getting 5%. The reason the servicer made advances was that they were not using their own money to make payments to the investors. It is the perfect game. A PONZI scheme where the investors continue to get paid because the reserve fund and incoming investors are contributing to that reserve fund, such that the servicer has access to transmit funds to the investors as though the trust owned the loan and the loans were all performing. Yet as “servicers” they declared a default because the borrower had stopped paying (sometimes even if the borrower was paying).
And the Banks sprung into action claiming that the failure of the borrower to make a payment is the only thing that mattered. The Courts bought it, despite the proffer of proof or the demand for discovery to show that the creditor — the investors — were actually showing a default. I didn’t make this up. This is what the investors are alleging each time they present a claim or file suit for fraud against the broker dealer who did the underwriting on the mortgage bonds issued by the REMIC trust who should have received the money from the sale of the bonds. In all cases the investors, insurers, government guarantors, and other parties have alleged the same thing — fraud and mismanagement of funds.
The settlements of fines and buy backs and damages to this growing list of claimants on Wall Street is growing close to $1,000,000,000,000 (one trillion dollars). In all the cases where I have submitted an expert witness declaration or have given testimony the argument was not whether what I was saying was right, but were there ways they could block my testimony. They never offered a competing declaration or any expert who would contradict me in over 7 years in thousands of cases. They have never offered an explanation of how I am wrong.
The Banks knew that if they could fool the fund managers into buying junk bonds because they looked like they were high rated bonds, they could convince Judges, lawyers and even borrowers that their case was hopeless because the foreclosing party would be treated as a Holder in Due Course — even if they never said it — and even if they were the holders of junk paper subject to all of the borrower’s defenses. So far they have pillaged our economy with 6 million foreclosures displacing 15 million families on loans that were paid in full long before the origination or acquisition of the loan.
And here is their problem: if they start filing suit against homeowners for the money advanced on behalf of the homeowners (in order to keep the investments coming), then they will be admitting that most foreclosures are being filed for the sake of the intermediaries without any tangible benefit to the investors who put up the money in the first place. The result is like an old ribald joke, the Wolf of wall Street screws the investors, screws the borrowers, screws the third party obligors (including the government) takes the pot of gold and leaves. Only to add insult to injury they claimed non existent losses that were actually suffered by the investors who trusted the banks when the junk mortgage bonds were sold. And they were paid again.
Filed under: AMGAR, CASES, CDO, CORRUPTION, discovery, escrow agent, Eviction, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, GTC | Honor, interest rates, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, originator, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | 18 Comments »