NJ Court: Possession of note + mortgage assignment is prerequisite to foreclosure

Pretender lenders are going to cite this case as support for the idea that the note and mortgage can be separated and that either one can be the basis of a successful foreclosure. They will rely on the “exception” implied in the court decision wherein the owner of the note has an agency relationship with the servicer who is the foreclosing party.

In this case Freddie Mac clearly possessed the note, although there was no evidence cited that Freddie Mac had actually purchased it. That was presumed in this case. The purchase of the note was not an issue on appeal.

Freddie Mac had made it clear in public announcements that foreclosures should be in the name of servicers. So the possession of one part of the paperwork by the agent and the other by the principal are joined as a single unit.

This decision was correct in ruling against the homeowner, given the issues before it. The homeowner was attempting to make a technical distinction contrary to the facts and contrary to law. The issue brought on appeal was whether Freddie Mac was the only party with standing to foreclose. I would say that shouldn’t have been the issue. Both Freddie Mac and Capital One had standing depending upon who asserted it. Either one could have foreclosed.

Any party may foreclose in its own name or through an agent with authority to do so — if they otherwise plead and prove their status as holder in due course, or holder, or non-holder with rights to enforce. The issue on appeal was a non-starter.

Despite the article, there is no exception here. This New Jersey court simply followed the law.

see Court-says-note-and-mortgage-assignment-both-prerequisites-to-foreclosure-but-makes-an-exception/

see case decision: Peck adv Capital One

The difference between this case and most other cases is that in this case there appears to be a tacit admission that Freddie Mac, as possessor of the note, was a holder or non-holder with rights to enforce because they had purchased the note. It is assumed in this case that Freddie was the actual owner of the debt.

The key differences between this case and most other cases are as follows:

  1. The “principal” in this case has been identified and assumed to be the owner of the debt.
  2. The “agent” in this case, Capital One, is a servicer whose authority to act as agent was not contested.

What is missing is whether Freddie Mac actually purchased the debt or the note and whether Freddie Mac still owned anything at all. Purchase of the note does not mean purchase of the debt if the debt is owned by someone other than the seller of the note. It is well settled law that only the owner of the debt can foreclose. But even if a purchase transaction did in fact take place, the question remains as to whether the interest of Freddie Mac was sold back to some private label REMIC Trust or some other third party such as the seller who may have given warranties as tot he performance of loans.

But if the note was purchased in good faith and without knowledge of the borrower’s defenses, if any, then the purchaser of the note increases their status to holder in due course where there are no defenses even if the preceding origination or transfers had defects.

On the other hand, if the seller of the note did not own the note, then the purchase by Freddie would be nullity. This is also well settled law. A seller of an interest that is nonexistent or in which the seller has no interest, cannot create the interest by selling it. This is the basic problem with “originations” and most “transfers” by endorsement or assignment. In such circumstances the buyer would be a possessor without rights to enforce unless the owner of the debt was in privity with the buyer of the note. The buyer would have a potential claim against the seller, but not the maker of the note.

In such circumstances, the owner of the debt or the true owner of the note would be able to file a claim against the maker and the buyer of the note, explaining how the possession of the note was lost and pleading (and proving) ownership of the debt.

NOTE THAT THERE IS A DEEPER ISSUE PRESENT. But it probably won’t get you any traction despite the clear basis in law and fact. Freddie Mac may or may not have actually made a purchase of the subject loan. If they didn’t then asserting them as the owner of the note might be OK for pleading, but the case ought to fail at trial — if the homeowner denies that they are the owner of the note.  

If it paid in money, then to whom was payment sent? This is different than who claimed ownership of the note and mortgage. More often than not the money trail is NOT the same as the paper trail.

Note that many transactions occurred in which the “Mortgage Loan Schedule” was incomplete or nonexistent at the time of the purported sale. The identity of the seller in such purported transactions is also obscured by clever wording.

If they paid using RMBS certificates, then things get more interesting. Because the RMBS certificates were in all probability worthless. Hence there would a failure of consideration and Freddie Mac could not claim to be a purchaser for value. The vast majority of RMBS were sold under the false pretense that they were “backed” my residential mortgages. The issuer of the certificates is asserted to be a named trust. But if the trust never came into ownership of the alleged mortgage loans, then the RMBS certificates were backed by nothing at all.

Not to draw too fine a point here, it is still possible that Freddie could be considered a purchaser for value even if the RMBS certificates appeared to be worthless. That is because in the  shadow banking marketplace, such certificates and the synthetic derivatives deriving their purported value from the purported value of the certificates nevertheless take on a life of their own. Even if they have no fundamental value they may well have a trading value that far exceeds anything that is fundamental to the certificates (i.e.m, zero).

Tonight — Silent Roles of Fannie Mae and Freddie Mac — Hiding Behind the Obtuse

How to Withhold Vital Information from Homeowners

Thursdays LIVE! Click in to the The Neil Garfield Show

Or call in at (347) 850-1260, 6pm Eastern Thursdays

Charles Marshall, Attorney and Bill Paatalo, licensed investigator discuss the moral hazard created by the Government Sponsored Entities (GSEs) banks, the courts and the regulators in allowing “presumptions” to be used even when the actual facts are different from the presumed facts.

Fannie and Freddie have long been a mystery wrapped in an enigma.

Before false claims of securitization, before fabrication and forgery of documents, the GSEs had fairly clear role in the origination, servicing and enforcement of mortgages. Now they are used as cover to hide lack of ownership where the banks and servicers make the homeowner travel and endless loop leading nowhere.

Now, as to any specific loan, we don’t know which of the following applies:

  1.  GSE is the guarantor of the loan (basically like a third party insurer with government backing)
  2. GSE is Master Trustee of a REMIC Trust in which there is a named Trustee who has the same powers, rights and obligations as the Master Trustee — i.e., no powers to actively administer the active affairs of the trust because there is no business or assets in the trust.
  3. GSE is or was a purchaser for cash.
  4. GSE is or was a purchaser using MBS issued by a named trust that either exists or doesn’t exist.
  5. GSE, using Trust A MBS paid Trust A for loans owned by the Trust or for loans not owned by the trust.
  6. GSE was a seller of the subject debt, note or mortgage.
  7. GSE claimed ownership when it didn’t own the subject debt, note or mortgage.
  8. GSE showed subject loan on its website but had no interest in the subject debt, note or mortgage (or foreclosure).
  9. Third parties claimed that GSE owned the subject debt, note and/or mortgage and it was true.
  10. Third parties claimed that GSE owned the subject debt, note and/or mortgage and it was false.

Deed Theft Scams: Why Not Prosecute the Banks Too?

It is supreme irony that individual scam artists are being prosecuted for false representations and deed theft — while the the institutional scam artists on Wall Street did the same thing raking in trillions of dollars, without a whiff of criminal prosecution.

Get a consult! 202-838-6345
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://www.foxnews.com/us/2017/04/22/scams-push-foreclosure-fraud-to-limit-taking-victims-homes.html

What the fraudster did in this case was reprehensible and criminal. Any person who does this deserves jail. So beware of anyone who suggests that they have some nifty way to save you from foreclosure if you just deed the property to them. It’s an industry. And it is based on your payment of rent while they zig and zag with the banks.

Beware of any who promises you guaranteed results. The only thing that will stop a foreclosure judgment or sale is a court order from a court of competent jurisdiction. In the real world of the justice system there is no such thing as guaranteed results.

But when you look at the details, it is impossible to distinguish between the fraud visited upon the victim in the article linked above and the fraud visited upon the same victim that put him in the position of losing his home to another complete stranger.

Consider this:

  • The “loan” you received was merely one part of a fraudulent scheme in which the money of third parties was swindled from them and then applied to create the illusion of your loan.
  • The note you signed was to the sales agent for the fraudulent scheme and not to the party whose money was used to make the “loan.”
  • By receiving the money you are obligated to pay it back. That’s called the debt.
  • By signing the note you are obligated to make payments to the payee on the note. That’s your second liability and it WILL be enforced if someone pays real money for your signed note, at least before it goes into default. That person would be a holder in due course.
  • By signing the mortgage deed or deed of trust, you have put your home up as collateral to guarantee payments on the fraudulent note, not to guarantee payment of the debt.
  • The mortgage deed or deed of trust are deeds. How is the above transaction different from conventional deed theft?
Quote from article:
“The scammers are no longer content with stealing $5,000. Now they want the whole house,” said Dina Levy, who heads the Homeowner Protection Program in the New York attorney general’s office, which has spread word about deed theft and prosecuted culprits.
Isn’t that what happened on Wall Street? No longer content to overcharge you for unaffordable loans the banks want your whole house. And no longer satisfied to take your house they want ten times the value of your house by “trading” in securities that everyone treats as non-securities under the 1999 law. But they are securities and they are in violation of SEC regulations and laws defining theft as a crime on the grandest scale ever seen in human history.

Banks Fighting Subpoenas From FHFA Over Access to Loan Files

Whilst researching something else I ran across the following article first published in 2010. Upon reading it, it bears repeating.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

WHAT IF THE LOANS WERE NOT ACTUALLY SECURITIZED?

In a nutshell this is it. The Banks are fighting the subpoenas because if there is actually an audit of the “content” of the pools, they are screwed across the board.

My analysis of dozens of pools has led me to several counter-intuitive but unavoidable factual conclusions. I am certain the following is correct as to all residential securitized loans with very few (2-4%) exceptions:

  1. Most of the pools no longer exist.
  2. The MBS sold to investors and insured by AIG and the purchase and sale of credit default swaps were all premised on a general description of the content of the pool rather than a detailed description with the individual loans attached on a list.
  3. Each Prospectus if it carried any spreadsheet listing loans, contained a caveat that the attached list was by example only and not the real loans.
  4. Each distribution report contained a caveat that the parties who created it and the parties who delivered it did not guarantee either authenticity or reliability of the report. They even had specific admonitions regarding the content of the distribution report.
  5. NO LOAN ACTUALLY MADE IT INTO ANY POOL. The evidence is clear: nothing was done to assign, indorse or deliver the note to the investors directly or indirectly until a case went into litigation AND a hearing was scheduled. By that time the cutoff date had been breached and the loan was non-performing by their own allegation and therefore was not acceptable into the pool.
  6. AT ALL TIMES LEGAL TITLE TO THE PROPERTY WAS MAINTAINED BY THE HOMEOWNER EVEN AFTER FORECLOSURE AND SALE. The actual creditor who submitted a credit bid was not the creditor. The sale is either void or voidable.
  7. AT ALL TIMES LEGAL TITLE TO THE LOAN WAS MAINTAINED BY THE ORIGINATING “LENDER”. Since there was no assignment, indorsement or delivery that could be recognized at law or in fact, the originating lender still owns the loan legally BUT….
  8. AT ALL TIMES THE OBLIGATION WAS BOTH CREATED AND EXTINGUISHED AT, OR CONTEMPORANEOUSLY WITH THE CLOSING OF THE LOAN. Since the originating lender was in fact not the source of funds, and did not book the transaction as a loan on their balance sheet (in most cases), the naming of the originating lender as the Lender and payee on the note, both created a LEGAL obligation from the borrower to the Lender and at the same time, the LEGAL obligation was extinguished because the LEGAL Lender of record was paid in full plus exorbitant fees for pretending to be an actual lender.
  9. Since the Legal obligation was both created and extinguished contemporaneously with each other, any remaining obligation to any OTHER party became unsecured since the security instrument (mortgage or deed of trust) refers only to the promissory note executed by the borrower.
  10. At the time of closing, the investor-lenders were the real parties in interest as lenders, but they were not disclosed nor were the fees of the various intermediaries who brought the investor-lender money and the borrower’s loan together.
  11. ALL INVESTOR-LENDERS RECEIVED THE EQUIVALENT OF A BOND — A PROMISE TO PAY ISSUED BY A PARTY OTHER THAN THE BORROWER, PREMISED UPON THE PAYMENT OR RECEIVABLES GENERATED FROM BORROWER PAYMENTS, CREDIT DEFAULT SWAPS, CREDIT ENHANCEMENTS, AND THIRD PARTY INSURANCE.
  12. Nearly ALL investor-lenders have been paid sums of money to satisfy the promise to pay contained in the bond. These payments always exceeded the borrowers payments and in many cases paid the obligation in full WITHOUT SUBROGATION.
  13. NO LOAN IS IN ACTUAL DEFAULT OR DELINQUENCY. Since payments must first be applied to outstanding payments due, payments received by investor-lenders or their agents from third party sources are allocable to each individual loan and therefore cure the alleged default. A Borrower’s Non-payment is not a default since no payment is due.
  14. ALL NOTICES OF DEFAULT ARE DEFECTIVE: The amount stated, the creditor, and other material misstatements invalidate the effectiveness of such a notice.
  15. NO CREDIT BID AT AUCTION WAS MADE BY A CREDITOR. Hence the sale is void or voidable.
  16. ANY BALANCE DUE FROM THE BORROWER IS SUBJECT TO DEDUCTIONS FOR THIRD PARTY PAYMENTS.
  17. ANY BALANCE DUE FROM THE BORROWER IS SUBJECT TO AN EQUITABLE CLAIM FOR UNJUST ENRICHMENT THAT IS UNSECURED.
  18. ANY BALANCE DUE FROM THE BORROWER IS SUBJECT TO AN EQUITABLE CLAIM FOR A LIEN TO REFLECT THE INTENTION OF THE INVESTOR-LENDER AND THE INTENTION OF THE BORROWER.  Both the investor-lender and the borrower intended to complete a loan transaction wherein the home was used to collateralize the amount due. The legal satisfaction of the originating lender is not a deduction from the equitable satisfaction of the investor-lender. THUS THE PARTIES SEEKING TO FORECLOSE ARE SUBJECT TO THE LEGAL DEFENSE OF PAYMENT AT CLOSING BUT THE INVESTOR-LENDERS ARE NOT SUBJECT TO THAT DEFENSE.
  19. The investor-lenders ALSO have a claim for damages against the investment banks and the string of intermediaries that caused loans to be originated that did not meet the description contained in the prospectus.
  20. Any claim by investor-lenders may be subject to legal and equitable defenses, offsets and counterclaims from the borrower.
  21. The current modification context in which the securitization intermediaries are involved in settlement of outstanding mortgages is allowing those intermediaries to make even more money at the expense of the investor-lenders.
  22. The failure of courts to recognize that they must apply the rule of law results not only in the foreclosure of the property, but the foreclosure of the borrower’s ability to negotiate a settlement with an undisclosed equitable creditor, or with the legal owner of the loan in the property records.

Loan File Issue Brought to Forefront By FHFA Subpoena
Posted on July 14, 2010 by Foreclosureblues
Wednesday, July 14, 2010

foreclosureblues.wordpress.com

Editor’s Note….Even  U.S. Government Agencies have difficulty getting
discovery, lol…This is another excellent post from attorney Isaac
Gradman, who has the blog here…http://subprimeshakeout.blogspot.com.
He has a real perspective on the legal aspect of the big picture, and
is willing to post publicly about it.  Although one may wonder how
these matters may effect them individually, my point is that every day
that goes by is another day working in favor of those who stick it out
and fight for what is right.

Loan File Issue Brought to Forefront By FHFA Subpoena

The battle being waged by bondholders over access to the loan files
underlying their investments was brought into the national spotlight
earlier this week, when the Federal Housing Finance Agency (FHFA), the
regulator in charge of overseeing Fannie Mae and Freddie Mac, issued
64 subpoenas seeking documents related to the mortgage-backed
securities (MBS) in which Freddie and Fannie had invested.
The FHFA
has been in charge of overseeing Freddie and Fannie since they were
placed into conservatorship in 2008.

Freddie and Fannie are two of the largest investors in privately
issued bonds–those secured by subprime and Alt-A loans that were often
originated by the mortgage arms of Wall St. firms and then packaged
and sold by those same firms to investors–and held nearly $255 billion
of these securities as of the end of May. The FHFA said Monday that it
is seeking to determine whether issuers of these so-called “private
label” MBS misled Freddie and Fannie into making the investments,
which have performed abysmally so far, and are expected to result in
another $46 billion in unrealized losses to the Government Sponsored
Entities (GSE).

Though the FHFA has not disclosed the targets of its subpoenas, the
top issuers of private label MBS include familiar names such as
Countrywide and Merrill Lynch (now part of BofA), Bear Stearns and
Washington Mutual (now part of JP Morgan Chase), Deutsche Bank and
Morgan Stanley. David Reilly of the Wall Street Journal has written an
article urging banks to come forward and disclose whether they have
received subpoenas from the FHFA, but I’m not holding my breath.

The FHFA issued a press release on Monday regarding the subpoenas
(available here). The statement I found most interesting in the
release discusses that, before and after conservatorship, the GSEs had
been attempting to acquire loan files to assess their rights and
determine whether there were misrepresentations and/or breaches of
representations and warranties by the issuers of the private label
MBS, but that, “difficulty in obtaining the loan documents has
presented a challenge to the [GSEs’] efforts. FHFA has therefore
issued these subpoenas for various loan files and transaction
documents pertaining to loans securing the [private label MBS] to
trustees and servicers controlling or holding that documentation.”

The FHFA’s Acting Director, Edward DeMarco, is then quoted as saying
““FHFA is taking this action consistent with our responsibilities as
Conservator of each Enterprise. By obtaining these documents we can
assess whether contractual violations or other breaches have taken
place leading to losses for the Enterprises and thus taxpayers. If so,
we will then make decisions regarding appropriate actions.” Sounds
like these subpoenas are just the precursor to additional legal
action.

The fact that servicers and trustees have been stonewalling even these

powerful agencies on loan files should come as no surprise based on

the legal battles private investors have had to wage thus far to force

banks to produce these documents. And yet, I’m still amazed by the

bald intransigence displayed by these financial institutions. After

all, they generally have clear contractual obligations requiring them

to give investors access to the files (which describe the very assets

backing the securities), not to mention the implicit discovery rights

these private institutions would have should the dispute wind up in

court, as it has in MBIA v. Countrywide and scores of other investor

suits.

At this point, it should be clear to everyone–servicers and investors
alike–that the loan files will have to be produced eventually, so the
only purpose I can fathom for the banks’ obduracy is delay. The loan
files should, as I’ve said in the past, reveal the depths of mortgage
originator depravity, demonstrating convincingly that the loans never
should have been issued in the first place. This, in turn, will force
banks to immediately reserve for potential losses associated with
buying back these defective mortgages. Perhaps banks are hoping that
they can ward off this inevitability long enough to spread their
losses out over several years, thereby weathering the storm caused (in
part) by their irresponsible lending practices. But certainly the
FHFA’s announcement will make that more difficult, as the FHFA’s
inherent authority to subpoena these documents (stemming from the
Housing and Economic Recovery Act of 2008) should compel disclosure
without the need for litigation, and potentially provide sufficient
evidence of repurchase obligations to compel the banks to reserve
right away. For more on this issue, see the fascinating recent guest
post by Manal Mehta on The Subprime Shakeout regarding the SEC’s
investigation into banks’ processes for allocating loss reserves.

Meanwhile, the investor lawsuits continue to rain down on banks, with
suits by the Charles Schwab Corp. against Merrill Lynch and UBS, by
the Oregon Public Employee Retirement Fund against Countrywide, and by
Cambridge Place Investment Management against Goldman Sachs, Citigroup
and dozens of other banks and brokerages being announced this week. If
the congealing investor syndicate was looking for political cover
before staging a full frontal attack on banks, this should provide
ample protection. Much more to follow on these and other developments
in the coming days…
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Posted by Isaac Gradman at 3:46 PM

Fannie, Freddie replace HAMP with new foreclosure prevention program

Say hello to the Flex Modification foreclosure prevention program

http://www.housingwire.com/articles/38758-fannie-freddie-replace-hamp-with-new-foreclosure-prevention-program

(Update 1: A previous version of this article stated the Flex Modification foreclosure prevention program replaced HARP. The article is now updated to say it replaced HAMP only)

Fannie Mae and Freddie Mac announced on Wednesday their replacement for the Home Affordable Modification Program. The government sponsored enterprises revealed the Flex Modification foreclosure prevention program, which is designed to help America’s families by offering reductions to their monthly mortgage payments.

The government’s Home Affordable Modification Program is slated to end on Dec. 31, 2016, concluding a seven-year government program designed to save struggling homeowners who are behind on their mortgage, or in danger of imminent default due to financial hardship.

HAMP’s sibling, the Home Affordable Refinance Program, which was created at the same time, was extended in August until Sept. 30, 2017 in order to create a smoother transition period for a new refinance product.

“The new Flex Modification announced by Fannie Mae and Freddie Mac (the Enterprises) today was designed based on lessons learned from crisis-era loan modification programs to help borrowers stay in their homes and avoid foreclosures whenever possible,” the FHFA said in a statement.

The Flex Modification also reflects input received over the course of extensive engagement with lenders, mortgage insurers, consumer advocates, and other stakeholders, the statement adds.  By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the Enterprises and taxpayers, the FHFA said, and it will provide borrowers who face permanent hardships with a sustainable modification.

“The Flex Modification is an adaptive program that will allow us to continue to assist struggling homeowners in a changing housing environment and simplify the process for servicers to deliver those solutions,” said Bill Cleary, Vice President of Single-Family Servicing Policy, Fannie Mae. “We believe the program is flexible to adjust for regional and even local differences in housing. It provides the greatest amount of assistance to those areas in need.”

This new modification will replace the current Fannie Mae Standard and Streamlined Modification offerings on and after Oct. 1, 2017. In the interim, Servicers must continue to evaluate borrowers for Standard and Streamlined Modifications following the evaluation hierarchy.

“We’re proud to announce the Flex Modification program, a carefully considered and transparent alternative for homeowners who want to avoid foreclosure in today’s post-crisis mortgage environment,” said David Lowman, executive vice president of Freddie Mac’s Single-Family Business. “We believe it strikes the appropriate balance between borrower relief and economic responsibility.

The Devil is in the Details — The Mortgage Cannot Be Enforced, Even If the Note Can Be Enforced

Cashmere v Department of Revenue

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Editor’s Introduction: The REAL truth behind securitization of so-called mortgage loans comes out in tax litigation. There a competent Judge who is familiar with the terms of art used in the world of finance makes judgements based upon real evidence and real comprehension of how each part affects another in the “securitization fail” (Adam Levitin) that took us by surprise. In the beginning (2007) I was saying the loans were securitized and the banks were saying there was no securitization and there was no trust.

Within a short period of time (2008) I deduced that there securitization had failed and that no Trust was getting the money from investors who thought they were buying mortgage backed securities and therefore the Trust could never be a holder in due course. I deduced this from the complete absence of claims that they were holders in due course. Whether they initiated foreclosure as servicer, trustee or trust there was no claim of holder in due course. This was peculiar because all the elements of a holder in due course appeared to be present because that is what was required in the securitization documents — at least in the Pooling and Servicing Agreement and prospectus.

If the foreclosing party was a holder in due course they would merely have to show what the securitization required — a purchase in good faith of the loan documents for value without knowledge of any of borrower’s defenses.  This would bar virtually any defense by the borrower and allow them to get a judgment on the note and a foreclosure based upon the auxiliary contract for collateral — the mortgage. But they didn’t allege that for reasons that I have described in recent articles — they could not, as part of their prima facie case, prove that any party in their “chain” had funded or paid any money for the loan.

After analyzing this case, consider the possibility that there is no party in existence who has the power to foreclose. The Trust beneficiaries clearly don’t have that right. The Trust doesn’t either because they didn’t pay anything for it. The Trustee doesn’t have that right because it can only assert the rights of the Trust and Trust beneficiaries. The servicer doesn’t have that right because it derives its authority from the Pooling and Servicing Agreement which does not apply because the loan never made it into the Trust. The originator doesn’t have the right both because they never loaned the money and now disclaim any interest in the mortgage.

Then consider the fact that it is ONLY the investors who have their money at risk but that they failed to get any documentation securing their “involuntary loans.” They might have actions to recover money from the borrower, but those actions are far from secured, and certainly subject to numerous defenses. The investors are barred from enforcing either the note or the mortgage by the terms of the instruments, the terms of the PSA and the rule of law. They are left with an unsecured common law right of action to get what they can from a claim for unjust enrichment or some other type of claim that actually reflects the true facts of the original transaction in which the borrower did receive a loan, but not from anyone represented at the loan closing.

Now we have the Cashmere case. The only assumption that the Court seems to get wrong is that the investors were trust beneficiaries because the court was assuming that the Trust received the proceeds of sale of the bonds. This does not appear to be the case. But the case also explains why the investors wanted to take the position that they were trust beneficiaries in order to get the tax treatment they thought they were getting. So here we have the victims and perpetrators of the fraud taking the same side because of potentially catastrophic results in tax treatment — potentially treating principal payments as ordinary income. That would reduce the return on investment below zero. They lost.

http://stopforeclosurefraud.com/wp-content/uploads/2014/09/Cashmere-v-Dept-of-Revenue.pdf

I have changed fonts to emphasize certain portion of the following excerpts from the Case decision:

“Cashmere’s investments merely gave Cashmere the right to receive specific cash flows generated by the assets of the trust at specific times. But if the REMIC trustee failed to pay Cashmere according to the terms of the investment, Cashmere had no right to sell the mortgage loans or the residential property or any other asset of the trust to satisfy this obligation. Cf. Dep’t of Revenue v. Sec. Pac. Bank of Wash. Nat’/ Ass’n, 109 Wn. App. 795, 808, 38 P.3d 354 (2002) (deduction allowed because mortgage companies transferred ownership of loans to taxpayer who could sell the oans in event of default). Cashmere’s only recourse would be to sue the trustee for performance of the obligation or attempt to replace the trustee. The trustee’s successor would then take legal title to the underlying securities or other assets of the related trust. At no time could Cashmere take control of trust assets and reduce them to cash to satisfy a debt obligation. Thus, we hold that under the plain language of the statute, Cashmere’s investments in REMICs are not primarily secured by mortgages or deeds of trust.
12
“Cashmere argues that the investments are secure because the trustee is obligated to protect the investors’ interests and the trustee has the right to foreclose. But, this is not always the case. The underlying mortgages back all of the tranches, and a trustee must balance competing interests between investors of different tranches. Thus, a default in one tranche does not automatically give the holders of that tranche a right to force foreclosure. We hold that if the terms of the trust do not give beneficiaries an investment secured by trust assets, the trustee’s fiduciary obligations do not transform the investment into a secured investment.

“In a 1990 determination, DOR explained why interest earned from investments in REMICs does not qualify for the mortgage tax deduction. see Wash. Dep’t of Revenue, Determination No. 90-288, 10 Wash. Tax Dec. 314 (1990). A savings and loan association sought a refund of B&O taxes assessed on interest earned from investments in REMICs. The taxpayer argued that because interest received from investments in pass-through securities is deductible, interest received on REMICs
should be too. DOR rejected the deduction, explaining that with pass-through securities, the issuer holds the mortgages in trust for the investor. In the event of individual default, the issuer, as trustee, will foreclose on the property to satisfy the terms of the loan. In other words, the right to foreclose is directly related to homeowner defaults-in the event of default, the trustee can foreclose and the proceeds from foreclosure flow to investors who have a beneficial ownership interest in the underlying mortgage. Thus, investments in pass-through securities are “primarily secured by” first mortgages.

“By contrast, with REMICs, a trustee’s default may or may not coincide with an individual homeowner default. So, there may be no right of foreclosure in the event a trustee fails to make a payment. And if a trustee can and does foreclose, proceeds from the sale do not necessarily go to the investors. Foreclosure does not affect the trustee’s obligations vis-a-vis the investor. Indeed, the Washington Mutual REMIC here contains a commonly used form of guaranty: “For any month, if the master servicer receives a payment on a mortgage loan that is less than the full scheduled payment or if no payment is received at all, the master servicer will advance its own funds to cover the shortfall.” “The master servicer will not be required to make advances if it determines that those advances will not be recoverable” in the future. At foreclosure or liquidation, any proceeds will go “first to the servicer to pay back any advances it might have made in the past.” Similarly, agency REMICs, like the Fannie Mae REMIC Trust 2000-38, guarantee payments even if mortgage borrowers default, regardless of whether the issuer expects to recover those payments. Moreover, the assets held in a REMIC trust are often MBSs, not mortgages.

“So, if the trustee defaults, the investors may require the trustee to sell the MBS, but the investor cannot compel foreclosure of individual properties. DOR also noted that it has consistently allowed the owners of a qualifying mortgage to claim the deduction in RCW 82.04.4292. But the taxpayer who invests in REMICs does not have any ownership interest in the MBSs placed in trust as collateral, much less any ownership interest in the mortgage themselves. By contrast, a pass-through security represents a beneficial ownership of a fractional undivided interest in a pool of first lien residential mortgage loans. Thus, DOR concluded that while investments in pass-through securities qualify for the tax deduction, investments in REMICs do not. We should defer to DOR’s interpretation because it comports with the plain meaning of the statute.

“Moreover, this case is factually distinct. Borrowers making the payments that eventually end up in Cashmere’s REMIC investments do not pay Cashmere, nor do they borrow money from Cashmere. The borrowers do not owe Cashmere for use of borrowed money, and they do not have any existing contracts with Cashmere. Unlike HomeStreet, Cashmere did not have an ongoing and enforceable relationship with borrowers and security for payments did not rest directly on borrowers’ promises to repay the loans. Indeed, REMIC investors are far removed from the underlying mortgages. Interest received from investments in REMICs is often repackaged several times and no longer resembles payments that homeowners are making on their mortgages.

“We affirm the Court of Appeals and hold that Cashmere’s REMIC investments are not “primarily secured by” first mortgages or deeds of trust on nontransient residential real properties. Cashmere has not shown that REMICs are secured-only that the underlying loans are primarily secured by first mortgages or deeds of trust. Although these investments gave Cashmere the right to receive specific cash flows generated by first mortgage loans, the borrowers on the original loans had no obligation to pay Cashmere. Relatedly, Cashmere has no direct or indirect legal recourse to the underlying mortgages as security for the investment. The mere fact that the trustee may be able to foreclose on behalf of trust beneficiaries does not mean the investment is “primarily secured” by first mortgages or deeds of trust.

Editor’s Note: The one thing that makes this case even more problematic is that it does not appear that the Trust ever paid for the acquisition or origination of loans. THAT implies that the Trust didn’t have the money to do so. Because the business of the trust was the acquisition or origination of loans. If the Trust didn’t have the money, THAT implies the Trust didn’t receive the proceeds of sale from their issuance of MBS. And THAT implies that the investors are not Trust beneficiaries in any substantive sense because even though the bonds were issued in the name of the securities broker as street name nominee (non objecting status) for the benefit of the investors, the bonds were issued in a transaction that was never completed.

Thus the investors become simply involuntary direct lenders through a conduit system to which they never agreed. The broker dealer controls all aspects of the actual money transfers and claims the amounts left over as fees or profits from proprietary trading. And THAT means that there is no valid mortgage because the Trust got an assignment without consideration, the Trustee has no interest in the mortgage and the investors who WERE the original source of funds were never given the protection they thought they were getting when they advanced the money. So the “lenders” (investors) knew nothing about the loan closing and neither did the borrower. The mortgage is not enforceable by the named “originator” because they were not the lender and they did not close as representative of the lenders.

There is no party who can enforce an unenforceable contract, which is what the mortgage is here. And the note is similarly defective — although if the note gets into the hands of a party who DID PAY value in good faith without knowledge of the borrower’s defenses and DID GET DELIVERY and ACCEPT DELIVERY of the loans then the note would be enforceable even if the mortgage is not. The borrower’s remedy would be to sue the people who put him into those loans, not the holder who is suing on the note because the legislature adopted the UCC and Article 3 says the risk of loss falls on the borrower even if there were defenses to the loan. The lack of consideration might be problematic but the likelihood is that the legislative imperative would be followed — allowing the holder in due course to collect from the borrower even in the absence of a loan by the so-called “originator.”

A Foreclosure Judgment and Sale is a Forced Assignment Against the Interests of Investors and For the Interests of the Bank Intermediaries

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Successfully hoodwinking a Judge into entering a Judgment of Foreclosure and forcing the sale of a homeowner’s property has the effect of transferring the loss on that loan from the securities broker and its co-venturers to the Pension Fund that gave the money to the securities broker. Up until the moment of the foreclosure, the loss will fall on the securities brokers for damages, refunds etc. Once foreclosure is entered it sets in motion a legal cascade that protects the securities broker from further claims for fraud against the investors, insurers, and guarantors.

The securities broker was thought to be turning over the proceeds to the Trust which issued bonds in an IPO. Instead the securities broker used the money for purposes and in ways that were — according to the pleadings of the investors, the government, guarantors, and insurers — FRAUDULENT. Besides raising the issue of unclean hands, these facts eviscerate the legal enforcement of loan documents that were, according to those same parties, fraudulent, unenforceable and subject to claims for damages and punitive damages from borrowers.

There is a difference between documents that talk about a transaction and the transaction documents themselves. That is the essence of the fraud perpetrated by the banks in most of the foreclosure actions that I have reviewed. The documents that talk about a transaction are referring to a transaction that never existed. Documents that “talk about” a transaction include a note, mortgage, assignment, power of attorney etc. Documents that ARE the transaction documents include the actual evidence of actual payments like a wire transfer or canceled check and the actual evidence of delivery of the loan documents — like Fedex receipts or other form of correspondence showing that the recipient was (a) the right recipient and (b) actually received the documents.

The actual movement of the actual money and actual Transaction Documents has been shrouded in secrecy since this mortgage mess began. It is time to come clean.

THE REAL DEBT: The real debt does NOT arise unless someone gets something from someone else that is legally recognized as “value” or consideration. Upon receipt of that, the recipient now owes a duty to the party who gave that “something” to him or her. In this case, it is simple. If you give money to someone, it is presumed that a debt arises to pay it back — to the person who loaned it to you. What has happened here is that the real debt arose by operation of common law (and in some cases statutory law) when the borrower received the money or the money was used, with his consent, for his benefit. Now he owes the money back. And he owes it to the party whose money was used to fund the loan transaction — not the party on paperwork that “talks about” the transaction.

The implied ratification that is being used in the courts is wrong. The investors not only deny the validity of the loan transactions with homeowners, but they have sued the securities brokers for fraud (not just breach of contract) and they have received considerable sums of money in settlement of their claims. How those settlement effect the balance owed by the debtor is unclear — but it certainly introduces the concept that damages have been mitigated, and the predatory loan practices and appraisal fraud at closing might entitle the borrowers to a piece of those settlements — probably in the form of a credit against the amount owed.

Thus when demand is made to see the actual transaction documents, like a canceled check or wire transfer receipt, the banks fight it tooth and nail. When I represented banks and foreclosures, if the defendant challenged whether or not there was a transaction and if it was properly done, I would immediately submit the affidavits real witnesses with real knowledge of the transaction and absolute proof with a copy of a canceled check, wire transfer receipt or deposit into the borrowers account. The dispute would be over. There would be nothing to litigate.

There is no question in my mind that the banks are afraid of the question of payment and delivery. With increasing frequency, I am advised of confidential settlements where the homeowner’s attorney was relentless in pursuing the truth about the loan, the ownership (of the DEBT, not the “note” which is supposed to be ONLY evidence of the debt) and the balance. The problem is that none of the parties in the “chain” ever paid a dime (except in fees) and none of them ever received delivery of closing documents. This is corroborated by the absence of the Depositor and Custodian in the “chain”.

The plain truth is that the securities broker took money from the investor/lender and instead of of delivering the proceeds to the Trust (I.e, lending the money to the Trust), the securities broker set up an elaborate scheme of loaning the money directly to borrowers. So they diverted money from the Trust to the borrower’s closing table. Then they diverted title to the loan from the investor/lenders to a controlled entity of the securities broker.

The actual lender is left with virtually no proof of the loan. The note and mortgage is been made out in favor of an entity that was never disclosed to the investor and would never have been approved by the investor is the fund manager of the pension fund had been advised of the actual way in which the money of the pension fund had been channeled into mortgage originations and mortgage acquisitions.

Since the prospectus and the pooling and servicing agreement both rule out the right of the investors and the Trustee from inquiring into the status of the loans or the the “portfolio” (which is nonexistent),  it is a perfect storm for moral hazard.  The securities broker is left with unbridled ability to do anything it wants with the money received from the investor without the investor ever knowing what happened.

Hence the focal point for our purposes is the negligence or intentional act of the closing agent in receiving money from one actual lender who was undisclosed and then applying it to closing documents with a pretender lender who was a controlled entity of the securities broker.  So what you have here is an undisclosed lender who is involuntarily lending money directly a homeowner purchase or refinance a home. The trust is ignored  an obviously the terms of the trust are avoided and ignored. The REMIC Trust is unfunded and essentially without a trustee —  and none of the transactions contemplated in the prospectus and pooling and servicing agreement ever occurred.

The final judgment of foreclosure forces the “assignment” into a “trust” that was unfunded, didn’t have a Trustee with any real powers, and didn’t ever get delivery of the closing documents to the Depositor or Custodian. This results in forcing a bad loan into the trust, which presumably enables the broker to force the loss from the bad loans onto the investors. They also lose their REMIC status which means that the Trust is operating outside the 90 day cutoff period. So the Trust now has a taxable event instead of being treated as a conduit like a Subchapter S corporation. This creates double taxation for the investor/lenders.

The forced “purchase” of the REMIC Trust takes place without notice to the investors or the Trust as to the conflict of interest between the Servicers, securities brokers and other co-venturers. The foreclosure is pushed through even when there is a credible offer of modification from the borrower that would allow the investor to recover perhaps as much as 1000% of the amount reported as final proceeds on liquidation of the REO property.

So one of the big questions that goes unanswered as yet, is why are the investor/lenders not given notice and an opportunity to be heard when the real impact of the foreclosure only effects them and does not effect the intermediaries, whose interests are separate and apart from the debt that arose when the borrower received the money from the investor/lender?

The only parties that benefit from a foreclosure sale are the ones actively pursuing the foreclosure who of course receive fees that are disproportional to the effort, but more importantly the securities broker closes the door on potential liability for refunds, repurchases, damages to be paid from fraud claims from investors, guarantors and other parties and even punitive damages arising out of the multiple sales of the same asset to different parties.

If the current servicers were removed, since they have no actual authority anyway (The trust was ignored so the authority arising from the trust must be ignored), foreclosures would virtually end. Nearly all cases would be settled on one set of terms or another, enabling the investors to recover far more money (even though they are legally unsecured) than what the current “intermediaries” are giving them.

If this narrative gets out into the mainstream, the foreclosing parties would be screwed. It would show that they have no right to foreclosure based upon a voidable mortgage securing a void promissory note. I received many calls last week applauding the articles I wrote last week explaining the securitization process — in concept, as it was written and how it operated in the real world ignoring the REMIC Trust entity. This is an attack on any claim the forecloser makes to having the rights to enforce — which can only come from a party who does have the right to enforce.

see https://livinglies.wordpress.com/2014/09/10/securitization-for-lawyers-conflicts-between-reality-the-documents-and-the-concept/

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