Why Are We having So Much Trouble Connecting the Dots?

Matt Weidner reports that he went to court on a case where IndyMAc was the plaintiff. IndyMac was one of the first banks to collapse. It was found that they owned virtually zero mortgages and had “securitized” the rest which is to say they never loaned the money or got paid off by a successor. Now the servicing rights on IndyMac have been sold. So when the time came for trial he finds the lawyer fighting with his own witness. It seems that she would not say she worked for IndyMac because she didn’t. That meant there was no corporate representative present to testify for the plaintiff. case over? Not according to what we have seen where IndyMac foreclosures continue to be rubber stamped by Judges who do not understand the gravity of the situation.

The precedent being set is for anyone who knows about a default to race to the courthouse with a complaint to foreclose after fabricated a notice of default and asserting themselves as the successor to whoever the borrower was paying. The borrower doesn’t know the difference and generally doesn’t care because they mistakenly think they are screwed no matter what. So the pretender lender that was collecting takes it time partly because they are simply collecting fees on “non-performing” loans. Meanwhile our creative criminal goes in and alleges that he is the holder of a lost note, submits affidavits, but of course stays away from the essential allegation that there ever was a transaction between himself and the borrower. These days Judges don’t seem to require that.

Judgment is entered for our creative criminal and he becomes by court order, the creditor who can submit a credit bid at auction. He makes the non-cash bid at the auction and presto he just got himself a free house which he sells at discount on the open market. He only needs to do a few of those before he vanishes with a few million dollars. In fact, we have learned that such “foreclosures” are going on now sometimes creatively named such that it looks like the name of a bank. That is why I have been saying for 7 years that  the foreclosures, if they are allowed to proceed, will eventually create chaos in the marketplace.

You might ask why the banks don’t raise a big stink about this practice. The answer is that there are only a few such scams going on at the moment. And the banks are relying on the loopholes created in pleading practice to get their own foreclosures through the same way as our criminal because they really don’t own the loan or even the servicing rights. Yup! That is called a syllogism: if the creative criminal is a criminal for doing what he did, then the bank or anyone else who engages in the same behavior is also a criminal.

And that is why the justice department and regulators are ramping up their investigations and charges, getting ready to indict the bankers who thought they were untouchable. If you read the reports of securities analysts, you will see three types of authors — those who obviously have drunk the Kool-Aide and believe Bank of America and Chase hinting the stock is a good buy, those who are paid to plant pretty articles about the banks, and supposedly declining foreclosures and increasing housing prices, and those who have looked at the jury conviction of Countrywide, looked at the pace of settlements, and looked at the announcements that there are many more investigations and charges to be resolved, and who have seen the probability of indictments, and they conclude that BOA is soon going to be on the chopping block for sale in pieces and the same will happen with Chase, Citi and maybe even Wells.

While the media is not paying attention to the impending doom of the mega banks, the market is discounting the stock and the book value of these companies is dropping like a stone because real investment analysts under stand that much of what is being carried on the books as assets, is really worthless garbage. Charges of fraud are announced practically everyday, saying that the banks defrauded investors, defrauded Fannie and Freddie, and defrauded each other, as well as insurance companies and counterparties on credit default swaps. In other words it is pretty well settled that the sale of mortgage bonds was a sweeping fraudulent scheme and that the word PONZI scheme is accurate, not some conspiracy theory as I was treated back in 2007-2010.

So now that we know that there was complete fraud at one end of the stick (where the funding for the origination and acquisition of mortgages took place), the question is why is anyone looking at foreclosures as inevitable or proper or even possible. It is the same stick. If one end is burning then it is quite likely that the other end will be burning soon and that is exactly what I predict for the coming months.

Having been in court multiple times over the last month representing clients seeking to retain their homes it is readily apparent that the Judges are changing their minds about whether the foreclosure is inevitable or that collection by these creative criminals is wise or legal — i.e., whether the enire exercise involves an arrogant willingness to commit perjury. Since the mortgages were part of the scheme and the part where the lender appeared with the money is covered in fraud, it is certainly reasonable to assume that the the fraudulent schemes included the origination and transfer of mortgage paper. And that is exactly the case.

If it wasn’t the case there never would have been fraud at the top because the investors would be on the note and mortgage and some some nominee of the broker dealer (“BANK”) or they would have been on a recorded assignment closed out within 90 days of the start of the REMIC trust, which would have been funded by money from investors paid to the investment bank (broker dealer) who then forwarded the net proceeds tot he Trust. None of that ever happened, though, which is how the fraud was enabled.

Practice Hint: I like to demonstrate by drawing a large “V” where the bottom is the closing agent, the left side is the money trail and the right side is the paper trail — and showing that they never meet. That means the paper trail is a fictional story about transactions that never occurred. The money trail is actual facts and data showing actual transactions where money exchanged hands but there was no documentation. The “Trust” was never funded with money or assets, so the money went straight down the left side from the investors at the top of the left side to the closing agent, who applied the investors money to close a transaction that was documented as though the originator had loaned the money. The same reasoning applies to transfers and assignments.

The core of the cases filed by the banks is that the Note is prima facie evidence that a transaction occurred. It is entitled to a presumption of validity. But where the borrower denies the transaction ever occurred, and files the right discovery to get evidence of the wire transfers and canceled checks, the banks go wild because they know their entire case will not only fall apart but subject them to prosecution.

Which brings us to Marshall Watson, who seeks to be licensed again to practice law, and David Stern who is about to be disbarred forever. The good news is that they were disciplined for fabrication and forgery of documents. The bad news is that the inquiry stopped there and nobody ever asked why it was necessary to fabricate or forge documents.

FRAUD! In Foreclosure Court Indymac/Onewest Doesn’t Own Notes and Mortgages, But “They” Continue To Foreclose Anyway
http://ireport.cnn.com/docs/DOC-1051166/

Suspended Ft. Lauderdale foreclosure mill head seeks return
http://therealdeal.com/miami/blog/2013/10/24/suspended-fort-lauderdale-foreclosure-mill-head-seeks-return/

Florida Bar referee calls for ex-foreclosure king’s disbarment
http://therealdeal.com/miami/blog/2013/10/30/florida-bar-referee-calls-for-ex-foreclosure-kings-disbarment/

2 Florida Cases Decided in Favor of Borrower

The Wadsworth case clearly shows that the appellate courts are requiring the trial court to scrutinize the claims and filings of would-be forecloser and that things like notice of acceleration and the right to cure are important enough to reverse summary judgment. This is directly contrary to the rulings of many judges who say that the lack of notice is NOT a basis for granting a motion to dismiss. It can be argued that if it is enough to defeat a motion for summary judgment, it ought to be sufficient to dismiss the complaint that does not allege the existence of the loan, the financial injury and the compliance with paragraph 22, with a copy thereof.

Wadsworth

The Beaumont decision is especially interesting because it deals with a rather obvious alteration of documents by Bank of America or its “successors” or lawyers. Or I would not be surprised to learn that LPS was involved in this one. They changed the due date and foreclosed. The trial court disregarded the defense that the note was altered and said it wasn’t enough that they alleged these facts on information and belief.  The appellate court that might be true, but the documents of records clearly raise the issue themselves.

Beaumont

Why do we need to force the banks to accept more money in modification?

Selecting a forensic analyst or a lawyer to represent you in a mortgage dispute. You need to look at their credentials rather than listen to their sales pitch. And you need people who really believe that you can and SHOULD win. For our services and products call our customers service numbers at 520-405-1688 on the West Coast, and 954-495-9867. Or visit http://www.livingliesstore.com. Don’t waste your money if the people lack the credentials and experience and commitment to make things work out the way you want it. Everyone promises the world. We promise expertise and guidance on how to use it in court.

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It seems obvious. And if you are a lawyer practicing in real estate, you have probably attending CLE seminars about mortgage lending requirements and what to do when the borrower is in default or claimed to be in default. The answer is always a “workout” wherever possible. And the reason is that you get more from a workout than the proceeds from a foreclosure and all the financial requirements of ownership like maintenance, taxes, insurance and the expenses of selling, repairs etc. It really is that simple.

But Banks don’t want workouts or modifications. They only want to use the illusory promise of modification to get the borrower in so deep he sees no way out when the application is eventually denied. Why are so many trial modifications now in court because the bank denied the permanent modification after the trial modification as approved and the borrower met all the requirements including payments? why are the banks pursuing a strategy where they are guaranteed far less money than ramping up the “workout” programs. Maybe because if they did, they would be admitting that the loan was defective in the first place, the appraisal was inflated, the viability of the loan was zero, and the borrower had been tricked.

So why do the Banks need to be forced to take more money and less responsibility for the property? It seems obvious that they would want a workout rather than a foreclosure because it will end up with more money in their pockets and the whole mortgage mess behind them with a nice clean note and mortgage.

The answer can only be that the Banks oppose such efforts because the rational strategy of a true lender won’t end up with more money in THEIR pockets. And THAT can only be true if they are working off some different business model than a lender. It means by definition in a rational world, as Greenspan likes to say, that they could not possibly be the lender or working for the lender.

It can only be true if they are protecting the fees they are earning on nonperforming loans and justifying their stubborn resistance to modification and principal reduction by showing that the foreclosure was the only way out even though it wasn’t. The destruction of tens of thousands of homes in various cities shows that the net value of the foreclosure was zero even while the homeowners were applying for modifications that, if approved, would have not only saved individual homes, but entire neighborhoods.

The other reason of course is that the banks don’t own the loans and they did receive multiple payments on the loans from multiple sources. A foreclosure hides these payments.

So the practice hint is to be persistent and insistent on following the money trail. What the San Francisco study revealed as well as other similar studies and are own study here at livinglies is that the courts are rubber stamping foreclosures that are in favor of complete strangers tot he transaction. They don’t have a dime in the deal. But they are being given judicial nod that they are the creditor even though they are clearly not the creditor. This false creditor now has authority to claim the status of creditor and to buy property worth millions of dollars with a non-monetary credit bid in the amount of their claim, thus “out bidding” any conceivable competition and guaranteeing their ownership of the property, or allowing someone else to outbid them and taking the money from the sale even though everything they had done up to that point was false.

So you have these people and companies in a cloud of false claims of securitization selling the loan multiple times through insurance and other gimmicks making a ton of money assuming the identity of the investors and assuming ownership over the borrower’s identity and trading on that all for the purpose of ill-gotten gains. It is fraud, identity theft, RICO and Ponzi Schemes all rolled into the fog that comprises the false claims of securitization.

PRACTICE HINT: Test each transaction claimed to see if money exchanged hands and if so between what parties. You will find that the money transactions — that is the reality of what was going on bears no resemblance to the paper trail. The paper trail is meant to lead you down the rabbit hole. First establish what is in the paper trail, then establish what transactions actually occurred and then compare the two and show that the paper trail is a trail of lies.

THE KEY TO THIS MESS IS TO REPLACE OR SUBSTITUTE THE CURRENT SYSTEMS OF SERVICERS WITH AN ENTIRELY DIFFERENT SYSTEM OF SERVICING AND A DIFFERENT SET OF SERVICERS TO REPLACE THOSE WHO ARE BLOCKING THE DIALOGUE BETWEEN LENDERS AND BORROWERS.

Mortgage borrowers get more foreclosure protection from Mass. bank regulators
http://www.bizjournals.com/boston/news/2013/10/17/mortgage-borrowers-get-more.html

The Very Worst Thing About Foreclosures Today Is Watching Consumers That You Know Could be Helped Standing in Court Without An Attorney
http://ireport.cnn.com/docs/DOC-1050081/

 

JPM Could Lose Its Charter for Criminal Responsibility in Madoff PONZI Scheme

From http://www.seekingalpha.com
JPM’s Madoff entanglement could prompt review of bank charter
The Office of the Comptroller of the Currency (OCC) has reportedly told the office of U.S. Attorney Preet Bharara that a criminal money laundering conviction of JPMorgan (JPM) for turning a blind eye to Bernie Madoff’s Ponzi scheme could trigger a review of the bank’s charter.

Editor’s Note: practically every day we hear of new gross violations of law and intentional misconduct by the large banks who squandered their brand recognition on absurd situations. I have always said that it was impossible for Madoff to have stolen $60 Billion without the knowledge and complicity of the major firms on Wall Street. The revelations of the Madoff theft of money from investors was quickly cast as the largest fraud in history. But it wasn’t. The largest fraud can be counted in the tens of trillions of dollars by all the key players on Wall Street in the PONZI scheme that is falsely called securitization of debt — the proof of which can easily be seen at ground level as investors and borrowers alike are settling claims or winning key verdicts.

The Madoff affair actually provided cover for the Wall Street banks and helped steer the narrative to supposedly reckless and irresponsible behavior when in fact management was deceiving, stealing and profiting from a PONZI scheme that depended upon (a) the sale of mortgage bonds and (b) the sale of mortgage products. Once investors stopped buying bonds and homeowners stopped buying loan products the scheme collapsed and banks had the temerity to say they had lost vast sums of money — a claim that is clearly untrue. They received a bailout for those losses in the form of TARP and other programs from the U.S. treasury, the Federal reserve and other sources, when it was investors, insurers, borrowers, taxpayers, guarantors and other parties who were taking losses having given tens of trillions of dollars to the Wall Street banks in money and property.

Now the chickens are coming home to roost. And the cries of well-known analysts that the banks are being treated unfairly is losing credibility by the hour. The banks are finally losing the narrative and the association of politicians with them is proving more costly than the benefit of taking money from the bank lobbyists to protect the banks from prosecution arising out of behavior that would land any ordinary mortal in jail for a long time.

Lawyers defending foreclosure cases should take note and use this information pointing out what the court already knows: that there was fraud at the top in the selling of worthless mortgage bonds deriving their value from defective mortgages, there was fraud in the robo-signing, LPS fabrication of documents, the intentional destruction of cash equivalent promissory notes that we now know were defective, in the words of the investors, insurers, government guarantee agencies, insurers and rating agencies.

PRACTICE NOTE: It should be noted and stated openly that any pleading, affidavit or testimony from those banks is inherently untrustworthy and should be subject to intense scrutiny. The remedy of forfeiture in Foreclosures is extreme according to the public policy of every state and should be strictly construed against the party seeking that remedy. Every legislature has put that statement in its laws. Instead, the narrative has been that deadbeat borrowers were clogging the system with bogus defenses.

It never occurred to the courts, the lawyers and even the borrowers that the courts were clogged with bogus claims of ownership, bogus accounting for receipts and disbursements, the existence of co-obligors when the note payable was converted to a bogus bond payable, and wrongful Foreclosures that the banks and the regulators know were wrongful, obtained settlements, consent orders and more promises from people whose business model is all about lying, manipulation of markets and theft.

Countrywide Found Guilty of Fraud, JPM Criminal Responsibility for Madoff PONZI Scheme

“The words PONZI SCHEME and FRAUD applied to the mortgage meltdown has been largely dismissed by policy makers, law enforcement and regulators. Instead we heard the terms RISKY BEHAVIOR and RECKLESSNESS. Now law enforcement has finally completed its investigation and determined that those who set the tone and culture of Wall Street were deeply involved in the Madoff PONZI scheme and were regularly committing FRAUD in the creation and sale of mortgage bonds and the underlying “DEFECTIVE” loans. The finding shows that these plans were not risky nor reckless. They were intentional and designed to deceive and cause damage to everyone relying upon their false representations. The complex plan of false claims of securitization is now being pierced making claims of “plausible deniability” RISKY and RECKLESS.

And if the loans were defective there is no reason to believe that this applies only to the loans claimed to be in default. It applies to all loans subject to false claims of securitization, false documentation for non existent transactions, and fraudulent collection practices by reporting and collecting on balances that were fraudulently stated in the first instance. At this point all loans are suspect, all loan balances stated are suspect, and all Foreclosures based on these loans were frauds upon the court, should be vacated and the homeowner reinstated to ownership of the property and possession of the property. All such loans should have the loan balance adjusted by the courts for appropriate set off in denying the borrowers the benefit of the bargain that was presented to them.

“It is now difficult to imagine a scenario where the finding of the intentional use and creation of defective mortgages will not trickle down to all mortgage litigation. The Countrywide decision is the first that expressly finds them guilty of creating defective loans. It is impossible to believe that Countrywide’s intentional acts of malfeasance won’t spread to the investment banks that used Countrywide as the aggregator of defective loans (using the proprietary desk top underwriting software for originators to get approval). The reality is coming up, front and center. And Judges who ignore the defenses of homeowners who were of course defrauded by the same defective mortgages are now on notice that bias towards the banks simply doesn’t work in the real world.” — Neil F Garfield,www.livinglies.me October 24, 2013

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By Neil F Garfield, Esq. Tallahassee, Florida October 24, 2013. If the mortgages were defective and were used fraudulently to gain illicit profits it is not possible to avoid the conclusions that homeowners are among the victims. By using false appraisals the huge banks created the illusion of rising prices. This was manipulation of market prices just as the banks were found guilty of manipulating stated market rates for interbank lending “LIBOR” and use of the manipulated pricing to trade for further benefit knowing that the reality was different. The banks have continued this pattern behavior and are still doing it, and laying fines as a cost of doing business in the manipulation and ownership of natural resources. They are a menace to all societies on the planet. The threat of that menace must be removed In the face of a clear and present danger posed by the real world knowledge that where an opportunity arises for “moral hazard” the banks will immediately use it causing further damage to government, taxpayers, consumers and investors.

None of it was disclosed or even referenced at the alleged loan closing with borrowers despite federal and state laws that require all such undisclosed profits and compensation to be disclosed or suffer the consequence of required payment to the borrower of all such undisclosed compensation. The borrowers are obviously entitled to offset for the false appraisals used by lenders to induce borrowers to accept defective loan products.

Further, borrowers have a clear right of action for treble damages for the pattern of conduct that constituted fraud as a way of doing business. In addition, borrowers can now be scene through a clear lens — that they are entitled to the benefit of the bargain that they reasonably thought they were getting. That they were deceived and coerced into accepting defective loans with undisclosed players and undisclosed compensation and undisclosed repayment terms raises the probability now that borrowers who present their case well, could well start getting punitive damages awards with regularity. It’s easy to imagine the closing argument for exemplary or punitive damages — “$10 billion wasn’t enough to stop them, $25 billion wasn’t enough to stop of them, so you, members of the jury, must decide what will get their attention without putting them out of business. You have heard evidence of the tens of billions of dollars in profits they have reported. It’s up to you to decide what will stop the banks from manipulating the marketplace, fraudulently selling defective loans to borrowers and pension funds alike with the intention of deceiving them and knowing that they would reasonably rely on their misrepresentations. You decide.”

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U.S. prepares to take action against JPMorgan over Madoff
In what would be an almost unheard of move when it comes to U.S. banks, the FBI and the U.S. attorney’s office are in talks with JPMorgan (JPM) about imposing a deferred prosecution agreement over allegations that the bank turned a blind eye to Bernie Madoff’s Ponzi scheme, the NYT reports.
Authorities would suspend criminal charges against JPMorgan but impose a fine and other concessions, and warn the bank that it will face indictments over any future misconduct.
However, the government has not decided to charge any current or former JPMorgan employees.
The report comes as the bank holds talks with various regulators over a $13B deal to settle claims about its mortgage practices.

Countrywide found guilty in U.S. mortgage suit
A federal jury has found Bank of America’s (BAC -2.1%) Countrywide unit liable for defrauding Fannie Mae (FNMA +22%) and Freddie Mac (FMCC +19.4%) by selling them thousands of defective mortgages.
The judge will determine the amount of the penalty – the U.S. has requested $848M, the gross loss to the GSEs as calculated by its expert witness.
The suit centered on Countrywide’s HSSL – High Speed Swim Lane – program instituted in August 2007, says the government, to keep the music playing as the property market was falling apart.

DOJ probes nine leading banks over sale of mortgage debt
The Department of Justice is reportedly investigating nine major banks over the sale of problematic mortgage bonds, although the probes are for civil infractions rather than criminal ones.
The banks are Bank of America (BAC), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), Morgan Stanley (MS), RBS (RBS), UBS (UBS) and Wells Fargo (WFC).
The inquiries span U.S. attorney’s offices from California to Massachusetts, and come as JPMorgan tries to reach a multi-billion dollar settlement over the issue.

The rules matter — CASE DISMISSED, without prejudice

For assistance with your mortgage go to http://www.livingliesstore.com or call 520-405-1688. Remember these issues not only apply to homeowners not paying their mortgages. They apply to everyone who has a mortgage or who has acquired title from someone who had a mortgage that was subject to claims of securitization.

Lenders and buyers can get a risk assessment report and recommendations to clear title from GGKW, with its home office in Tallahassee. Those in litigation can get information and their lawyers can get litigation support by calling 850-765-1236.

For information on direct representation of clients in Florida, call 954-495-9867 in Broward County, and 850-765-1236 for Northern Florida. GGKW is the acronym for Garfield, Gwaltney, Kelley and White, a law firm with offices currently in Tallahassee and Fort Lauderdale.

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When the dam breaks, the speed with which the water starts moving increases dramatically at first before it subsides. This is what is happening in the courts. Judges are increasingly becoming aware as they read the newspaper, that the big broker-dealer banks at the center (Master Servicer) of this mess in mortgages, committed civil fraud, and probably committed criminal fraud in connection with the sourcing of money for originating or acquiring loans from homeowners. The presumption of trustworthiness of the banks is gone, except for a fast shrinking group of judges around the country.

  • If there was fraud at the top of the sham securitization chain then why wouldn’t there by fraud at the bottom?
  • And if there was fraud in the origination of the loan, or the sourcing of money for the loan, then why wouldn’t there be a question of whether the note or mortgage or both were invalid empty pieces of paper referring to a non-existent transaction?
  • And therefore might that not explain why the banks do not allege in judicial states that a loan was made by the payee listed on the note?
  • Why didn’t the Trust show up in the County records within 90 days of its creation and right on the the original note and mortgage?
  • Why wouldn’t there be a question about whether there was any lien to foreclose because the banks were too busy screwing investors to create a perfected encumbrance on the collateral for the investors whose money was improperly channeled and used for the sole benefit of the banks.
  • And why are the banks not alleging the existence of a loan or financial injury in their complaints? Are they avoiding a can of worms that will show they have no transaction to sue on?
  • Are the real lenders so much in the dark that they don’t even know the case has been brought by someone without authority or consent of the lender of money (not the lender on paper)?

The colloquy between judge and counsel in the link below clearly shows what is happening in a growing number of cases where the Judges have stopped ignoring the rules of civil procedure, stopped ignoring the rules of evidence, and stopped assuming that the borrower is a deadbeat looking for a free house.

They are now getting the idea that the homeowner is in search of a lender, not a free house.

The homeowner is in search of a balance on his loan whether it is secured or not and is fully willing to execute new documentation in favor of any investor with an unpaid receivable attributable to the property of the homeowner. The banks are playing fast and loose with the rules and the judges are coming down as hard on them as they were knocking around borrowers just a few months ago. I know, I am seeing it in court over and over again. The entire atmosphere has changed.

So when the bank fails to send out a notice required by the judge’s order, civil procedure or the rules of evidence, they lose. And when they lose, without prejudice, if they have been sitting on it for more than 5 years in Florida they are barred by the statute of limitations at least as to the default that occurred 5 years before and probably everything up to the time of dismissal. The payments might not be cutoff by the statute but foreclosure or collection is barred. payments due after such an order are probably subject to a collection or foreclosure action but they should be met with an argument that due to the statute of limitations they are forever time-barred.

If the bank sends a pretrial statement to you saying “corporate representative” is their witness or even worse, attaches a list of 35 potential witnesses, that is the equivalent of not giving any notice of who the witness is going to be. That is subject to a motion in limine to prevent the bank from putting on witnesses. So far the judges are either extending the trial date out further and requiring compliance with the rules or they involuntarily dismissing the case thus entitling the Defendant to recovery of attorney fees in most cases.

Teaser: Take a close look at the laws of evidence passed by the legislature of your state. You will find some things in there that might prove deadly t the bank at the time of trial if you follow the path required and make your motions and preserve your objections. Those business records don’t belong in evidence and we all know it. They are not complete because they don’t include payment OUT to the creditor thus establishing WHO the creditor is and requiring an explanation of WHY the creditor is not the foreclosing party. But the fact that they are not complete is not nearly as strong as that they are by definition hearsay and inadmissible unless they are business records that follow the requirements of the evidence statutes that carve out an exception to the hearsay prohibition. 

Practice Hint: Judges always seem inclined to think they have discretion in virtually all matters. The evidence statute is a rule of law that the Judge has sworn to uphold, defend and enforce. Unless there is some ambiguity in the statute no judicial interpretation is allowed. The ambiguity must be raised by the party seeking to state that the statute is ambiguous. Without that, the Judge has NO DISCRETION, because it is a law and not a rule of civil procedure.

We are sitting on the edge of a cliff where the judges are ready to tip for the borrower. The sanction for trickery in notices and discovery will be judgment for the borrower or dismissal with prejudice. The conversation below shows just how close we are to that moment.

http://4closurefraud.org/2013/10/23/foreclosure-fight-club-another-trial-another-win-by-the-law-offices-of-evan-m-rosen-part-2/

Only $4 Billion of JPM $13 Billion Settlement Goes for “Consumer Relief”

For assistance in understanding the content of this article and purchasing services that provide information for attorneys and homeowners see http://www.livingliesstore.com.

Josh Arnold has written an interesting article that reveals both realities and misconceptions arising from gross misconceptions. His misperceptions arise primarily from two factors. First he either ignores the fact that JPM was integrally involved in the underwriting, sale and hedging of the alleged mortgage bonds, never actually acquired the loans or the bonds on which they claimed a loss, and made huge “profits” from fictitious trades disguised as “proprietary” trading which was a cover for tier 2 yield spread premiums that were never disclosed to investors or borrowers. The deregulation of those mortgage securities may have provided cover for the fraud that occurred to investors, but the failure to disclose this “compensation” to borrowers violates the truth in lending act and state deceptive lending laws.

Second, the article is based upon a point of view that is not surprising coming from a Wall Street analyst but which is bad for the country. The ideology behind this is clear — Wall Street is there to make money for itself. That has never been true. Wall Street exists solely because in a growing and complex economy, liquidity must be created by breaking up risks into portions small enough to attract investors to the table. Whether they make money or not depends upon their skill in running a company.

Unfortunately in the early 1970’s the door was flung wide open when broker-dealers were allowed to incorporate and go public. Just ask Alan Greenspan who believed the markets would self correct because the players would act rationally in their own self interest. As he he says in his latest book, the banks did not act rationally nor in their own best interest because they were being run by management that was acting for the self interest of management and not the company. Back in the 1960’s none of this would have occurred when the broker-dealers were partnerships —leading partners to question any transaction by any partner that put the partners at risk. Now the partners are remote and distant shareholders who are among the victims of management fraud or excess risk taking.

The effect on foreclosure defense is that, at the suggestion of the former Fed Chairman, we should stop assuming that the broker dealers that are now called banks were acting with enlightened or rational self-interest. The opening and closing statement should refer to the information like this article Quoted below as demonstrating that the banks were openly violating common law, statutory, and administrative rules because the losses from litigation would not be a liability of the actual people who caused the violations.

Any presumption in favor of the foreclosing bank should be looked at with intense skepticism. And in discovery remember to ask questions about just how bad the underwriting process was and revealing the absolute fact, now proven beyond any reasonable doubt, the goal was for the first time NOT to minimize risk, but rather to force applications to closing because of giant profits that could be booked as soon as the loan was sold, since at the time of closing the loans were already part of a reported chain of securitization. Investigation at real banks as opposed to “originators” will reveal two sets of underwriting rules and practices — one for their own portfolio loans in compliance with industry standards and the other for the vast majority of loans that were claimed to be part of a fictitious cloud of securitization that did not comply with industry standards.

In the end my initial assessment in 2007-2008 on these pages is proving to be true. The unraveling of this mess will depend upon quiet title lawsuits and lawsuits for damages resulting from violations of the Truth in Lending Act — where those gross profit distortions at the broker-dealer level are required to be paid to the homeowner because they were not disclosed at closing.
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From Seeking Alpha website, by Josh Arnold —

JPMorgan’s (JPM) legal woes got a lot worse over the weekend with its well-publicized $13 billion settlement. JPM already has much more than that set aside to pay legal claims so it’s really a non-event for the bank; they saw it coming to a degree. I’m not here to debate whether or not JPM’s employees misled investors, including Fannie and Freddie, but what I think the most important, and disconcerting, piece of this settlement is the way it was undertaken by the Administration.

Think back to 2008 when the world as we knew it was ending. Smaller financial institutions were failing left and right and even the larger players, including Lehman, Bear Stearns, Washington Mutual, Wachovia and others eventually found themselves in enormous trouble to the point where distressed sales were the only way to stave off bankruptcy (save Lehman, of course). The federal government, eager to avoid a massive crisis, asked JPM, Wells Fargo (WFC) and others to aid the effort to avoid such a calamity. Both obliged and we know history shows JPM ended up with Washington Mutual and Bear Stearns while Wells purchased Wachovia as it was on the cusp of going out of business. At the time, JPM CEO Jamie Dimon famously asked the government, as a favor for bailing out WaMu and Bear Stearns, not to prosecute JPM down the road for the sins of the acquired institutions. This is only fair and it should have gone without saying as the idea of prosecuting an acquirer for something the acquired company did as an independent institution is preposterous.

However, that is exactly where we find ourselves today with the settlement that has been struck. JPM has said publicly that 80% of the losses accrued from the loans that are the subject of this settlement were from Bear and WaMu. This means that, despite Dimon’s asking and the fact that the federal government “urged” JPM to acquire these two institutions, JPM is indeed being punished for something it had nothing to do with. This is a watershed moment in our nation’s history as the next time a financial crisis rolls around, who is going to want to help the federal government acquire failing institutions? Now that we know that the reward for such behavior is perp walks, public shaming via our lawmakers (who can’t even fund their own spending) and enormous legal fines and settlements, I’m thinking it will be harder for the government to find a buyer next time.

Not only is the subject of this legal settlement and the very nature of the way it has been conducted suspect, but even the fines themselves as part of the settlement amount to nothing more than tax revenue. The $13 billion is split up as follows: $9 billion in penalties and fees and $4 billion in consumer relief. The penalties and fees are ostensibly for the “wrongdoing” that JPM must have performed in order to be subject such a historic settlement. These penalties and fees are for allegedly misleading investors in these securities and misrepresenting the strength of the underlying loans. The buyers of these securities, however, were all very sophisticated themselves, including the government sponsored entities. These companies had analysts working on these securities purchases and could very well have realized that the underlying loans were bad. However, Fannie and Freddie blindly purchased the mortgages and were eventually saddled with large losses as a result. But instead of the GSE’s taking responsibility for bad investment decisions, the government has decided to simply confiscate $13 billion from a private sector company while Fannie and Freddie have claimed zero responsibility whatsoever for their role in the losses.

The other $4 billion is earmarked for “consumer relief” but the worst part of this is that these loans were sold to institutions. This means that this consumer relief is simply a bogus way to confiscate more money from JPM and the alleged reason has no basis in reality. The consumer relief portion would suggest that JPM misled the individual consumers taking the loans that were eventually securitized but that is not what the settlement is about. In fact, this is simply a way to redistribute wealth and the Administration is taking full advantage. In order for the redistribution of wealth to make the alleged victims whole it would need to be distributed among the institutions that purchased the securities. So is this part of the settlement, under the guise of “consumer relief”, really just another tax levy? Or is it going to consumers that had absolutely nothing to do with this case? Either way, it’s confiscatory and doesn’t make any sense. Based on reports about this consumer relief portion of the settlement, this money is going wherever the Administration sees fit. In other words, this is simply tax revenue that is being redistributed and given to consumers that have absolutely zero to do with this case.

Even the $9 billion in penalties and fees is going to be distributed among various government agencies and as such, this money is also tax revenue. Otherwise, the money for these agencies would eventually come from the Treasury but instead, JPM is going to foot the bill.

I’m not against companies that have done something wrong being punished. In fact, that is a necessary part of a fair and open capitalist system that allows the free world the economic prosperity it has enjoyed over history. However, this settlement is a clear case of the federal government confiscating private assets in order to redistribute them among government operations and consumers that had absolutely nothing to do with the lawsuit. I am extremely disappointed in the way the Administration has handled this case and other banks should be on notice; it doesn’t matter what you did or didn’t do, if you’ve got the money, the government will come after you.

In terms of what this means for the stock, JPM has already set aside $23 billion for litigation reserves so when the bill comes due for this settlement, JPM has more than enough firepower available to pay it. In fact, this settlement is likely a positive for the stock. Since this is likely to be the largest of the fines/settlements handed down on the Bank of Dimon, the fact that the uncertainty has been lifted should alleviate some concern on the part of investors. In addition to this, since JPM still has a sizable reserve, $10 billion or so, left for additional litigation, investors may be surprised down the road if JPM can actually recoup some of that litigation expense and boost earnings. Not only would that remove a multi-billion drain on book value but it could also increase the bank’s GAAP earnings if all litigation reserves weren’t used up. In any event, even if that is not the chosen path, JPM could still recognize higher earnings in the coming quarters if it sees it needs less money set aside each quarter for litigation reserves. Again, this is very positive for the stock but for more tangible reasons.

The bottom line is that JPM got the short end of the stick with this settlement. Not only is the bank paying for the sins of others but it is paying very dearly and sustaining reputational damage in the process. I couldn’t be more disappointed with the way the Administration’s witch hunt was conducted and the end result. But that is the world we apparently live in now and if you want to invest in banks you need to be prepared to deal with confiscatory fines and levies against banks simply because they can’t stop the government from taking it.

However, JPM is better positioned than perhaps any of its too-big-too-fail brethren to weather the storm and I think that is why there was virtually no movement in the stock when the settlement became public. JPM has been stockpiling litigation reserves when no one was looking and has done well in doing so. With the looming threat of this settlement now come and gone, investors can concentrate on what a terrific money making machine JPM is again. Trading at a small premium to book value and only nine times next year’s earnings estimates, JPM is the safe choice among the TBTF banks. Couple its very cheap valuation with its robust, nearly 3% yield and the largest settlement against a single company in our country’s history behind it and you’ve got a great potential long term buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Share this ArticleComments(8)

Don Dion
Oct 23 07:49 AM
Josh,

Great article. See also http://seekingalpha.co…

Don

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