Lehman to Pay $2.4 Billion out of Bankrupt Estate

“Lehman’s own documents show it was aware of the widespread problems and deteriorating performance of the loans it had securitized,” with half the loans at one point containing material misrepresentations, the trustees said in a court filing.

Editor’s Note: The difference is money — investors have it and borrower’s don’t. So while investors are successfully litigating fraud and deceit, the borrowers can’t afford to litigate the same issues. The idea that Lehman was somehow honest with borrowers and not with investors is preposterous.

Lehman recently closed out a $2 billion dispute with Citigroup Inc. over derivatives, and similar litigation over derivatives with Credit Suisse Group AG is the last major remaining contest.

Around 14 large institutional holders, including Goldman Sachs Asset Management LP and BlackRock Financial Management, broke ranks with hedge funds and accepted a settlement last year valuing claims around $2.4 billion. Chapman noted that these “sophisticated players” held around 24 percent of the RMBS.

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See Lehman Brothers Knew 1/2 the loans were misrepresented to both borrowers and investors

The trustees representing RMBS holders are Deutsche Bank National Trust Co., Law Debenture Trust Co. of New York, U.S. Bank National Association and Wilmington Trust Co., according to court papers.

A group of hedge funds, including Whitebox Advisors LLC, Deer Park Road Management Co. and Tilden Park Capital Management LP, was formed in 2016, and expanded in May 2017 to include Prophet Capital Management LP, Tricadia Capital Management LLC, BlueMountain Capital Management LLC and others, according to court records.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan.)

Practice note: Dig into the pleadings and exhibits in these cases and you will find a treasure trove of information that supports your contention at trial that the documents are unreliable and therefore the proof of the matters asserted must be proven with facts, not assumptions. You will probably uncover inconsistent allegations from Deutsch, Credit Suisse et al. They are most likely saying one thing in court with borrowers and another in court with investors.

An important note here is that these actions are based upon the presumptive finding of the US Bankruptcy trustee as to Lehman misrepresentations.

 

 

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DARK POOLS OF SECURITIES AND MONEY FUNDED MORTGAGE LOANS

In answer to questions frequently asked of me, the term “dark pool” was not coined by me nor was it discovered by me as an instrumentality of obscuring financial transactions. I have understood the workings of dark pools since my Wall Street days. But back then, in the 1960’s and 1970’s they were not so common.

What I did discover was a dark pools were in widespread use in the era of false claims of securitization — a discovery provoked by reading the prospectuses and pooling and servicing agreements (Trust instruments) for the issuance of of “certificates” a/k/a “mortgage bonds.”  There, in black and white, was a “reserve fund” consisting of money from investors who bought the certificates from underwriters using the fictitious name of a Trust that never existed. And it was stated therein that investors could be paid from this reserve — i.e.,. paid using their own money.

There were virtually no restrictions on the use of the “reserve fund.” The more I read and the more I asked my tipsters, it became very apparent that the reserve funds were interconnected, that the Trusts did not exist and so the reserve fund was actually a dark pool — a trading ground for securities and money. It is also the locale where the the most gross violations of law occur because they are hidden from public view and often hidden even from the financial statements of the participants.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

===========================

see DARK POOLS DEFINED — https://ag.ny.gov/press-release/ag-schneiderman-announces-landmark-resolutions-barclays-and-credit-suisse-fraudulent

Securitization was at first disclaimed by all the banks and servicers 10-15 years ago. Most people don’t remember that. The defense was “What Trust?”

Forensic researchers then discovered that underwriters or others had uploaded “securitization” documents to the SEC website and later added mortgage loan schedules, (that trend out to be false and fabricated) in which certain “REMIC” trusts claimed ownership of the “mortgage loans.”

Going with the flow, the banks and servicers then filed foreclosures in the name of the nonexistent trusts — and they got away with it. Today we have a mixed blend of claims of trust ownership of loans (i.e., the underwriter using the fictitious name of the nonexistent trust) and claims of corporate ownership of loans where a major bank or “successor” trust initiates foreclosure.

But in the end what they filed in foreclosures was antithetical to the claim they were making. None of the Trusts ever acquired loans from a settlor or trustor. Nor did any trust receive the proceeds of investor capital. By definition, securitization never actually happened. Adam Levitin calls this “securitization fail.”

The true money trail starts with the dark pool consisting of all proceeds of the sale of certificates or bonds issued by the underwriter in the name of the nonexistent trust. Hence the money is not in the trust; it is in the dark pool where money and trading, deposits and withdrawals occur in great frequency. Hence the underwriter has performed a Texas two step — on the one hand it claims that ownership is in the name of the fictitious REMIC Trust while at the same time funding the origination and acquisition of loans from the dark pool.

This is critically relevant to the foreclosures. In virtually all cases, the money came from the dark pool (not a trust) to originate (not allowed under the prospectus) or acquire loans. Careful securities analysis reveals a simple fact, to wit: that there IS a money trail but it leads back to the dark pools. Hence the paper trail that leads to the successors and “trusts” are documenting transactions that never occurred between the parties named on the written instruments. This in turn means that the certificates and bonds issued in the name of the named trust were neither backed by notes or mortgages and were most certainly not backed by debts.

A careful reading of certificates indicates that most of them have a disclaimer of any interest in the underlying debts, notes and mortgages. The investors acknowledge that all they are receiving is a promise to pay issued by in the name of the trust (but not issued By the trust). The real party in interest is the underwriter who also poses as “Master Servicer” for assets owned by the named Trust. But there are no such assets; so in the end we should be dealing with, and litigating with the underwriter.

Investors gave money to the underwriter believing their money would be deposited into the “REMIC” Trust. It wasn’t. Instead their money ended up in a dark pool with no rules. The money in the dark pool should be considered as deposits by investors rather than investments since the certificates were bogus. To consider it otherwise would be to deprive investors of the last vestige of ownership of the debts, notes and mortgages that were to be conveyed into the trust in exchange for the money paid to the “trust” by investors and then paid out by the “Trustee.” No such thing ever happened.

So the answer to the frequently asked question of “then where did the money come from” is that it came from an unregulated, undisclosed dark pool invented for the purpose of defrauding investors and homeowners. And the answer to the the other frequently asked question of “how do I prove that” is you don’t prove it. You prove the inevitable gaps that show that no financial transaction occurred anywhere along the paper trail.

Remember: documenting a false transaction doesn’t make it real. The document (note, mortgage, assignment, etc.) is either tethered to a real transaction in the real world that can be disclosed or it is untethered to any real transaction. If there is no real transaction in the real world the document becomes only a piece of paper. If there is a real transaction in the real world that your opposition can prove resulted in the creation of the document, then they win — simple as that. If there is no such transaction then the claimed liability does not exist, hence there can be no default. You can’t default on a nonexistent obligation. But obviously the investors have an equitable right to the loans funded with their money.

 

Deloitte and Touche Pays $149.5 Million Settling Claims of Audit Failure of Taylor Bean and Whittaker

One of the first cases I ever handled involved TBW in 2008. As usual they filed a lost note count in their foreclosure complaint. And as is required, they offered to indemnify the homeowner if someone else showed up with the original note. With financial firms dropping left and right, my position was two fold: (1) that an indemnification from a firm that was clearly in trouble as reported in the news was of dubious value and (2) that even if that wasn’t the case neither their complaint  nor their affidavit recited any facts about when the loss occurred, who was in possession of the note, whether the possessor had rights to enforce when the note was “lost” etc. TBW folded, went into bankruptcy shortly thereafter and its principals went to prison.

But throwing TBW under the bus, as much as they deserved it, takes nothing away from the fact that everyone was doing what they did. The only difference was they got caught and could not effectively indemnify the homeowner in the event they were lying about the possession of the original note — something that as proven beyond a reasonable doubt in the criminal trial of the execs..

Let us help you plan your discovery requests and defense narrative: 202-838-6345. Ask for a Consult.
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Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

Hat tip to Dan Edstrom

see  Multiple Sales of Same Loans Force Auditor to Cough Up $149.5 Million

PR shows like this one became one of the ways that the banks were able to throw a curtain over the real customs and practices of the industry — most of which were virtually identical to TBW. The impression from the collapse and prosecution of TBW and its executives implies that this was an unusual event — selling the same “loan” multiple times.

But close examination of the many claims of securitization of debt shows that exactly the same thing was happening in the rest of the industry. In fact, that is where the enormous “profits” came from as reported from their “trading desks.” The only difference is that TBW was blatant about it by using copies of notes that were repeatedly sold, not once, but multiple times.

The leverage of making multiple sales went to ridiculous heights — 42 times in the case of Bear Stearns mortgage related activities. Yes you read that right. That $200,000 loan produced around $8 million in “profit.” Of course none of this was disclosed to the borrower whose name and financial reputation would be used directly or indirectly to accomplish these “sales.” They did it by hiding behind “derivative” documents rather than the actual loan documents, but they also did what TBW did. But while TBW was exclusively faking sales, investment banks mixed up the process such that, if caught, they would be able to say that some of these things happened because of a failure of controls and that they will now correct it.

As the MBS marketplace slowed down and had some hiccups many of the contracts or derivatives came due and Bear Stearns simply didn’t have the money to honor them despite the enormous “profits” earned earlier. This also is a possible indicator that leverage was even higher than what has been reported. As the buying frenzy slowed down and investors suddenly became aware that they were holding certificates issued by entities that didn’t exist and were never active, the buying stopped — and like any Ponzi scheme, the entire infrastructure came crashing down.

Practice Note: So what all of this means is that questions should be posed to parties who file foreclosure actions. But you need to wade through the multiple servicers and multiple “assignees” and multiple “endorsees” and multiple “Underwriters of bogus RMBS to ask the simple question: how many contracts or securities have been issued with the respect to the subject loan? It’s relevant because it is asking whether the foreclosing party has sold its rights to an undisclosed third party. In 99% of all cases, the “REMIC Trust” was never used and the underwriter has already entered into various contracts, sales, and issued “derivatives” in which the PAPER was sold but the underlying debt, if it still exists, was never subject to any transfer, contract or derivative.

Vulture Firms: The Last Step in a Chain of Illegal Paper, with the Debt Long Gone

The key element of the paper strategy has been to create the illusion of transfers of assets, thus supporting the erroneous narrative that with all those parties purchasing the loans, a lot of due diligence MUST have been done and therefore the screaming defense of homeowners (attacking ownership) is nothing but a dilatory stall tactic.

What is consistently missed, even by people who are completely fed up with the banks and regulatory agencies that have given a wink and nod at plainly fraudulent practices, is that the only “asset” is the paper, and that the debt itself has never moved. In a true securitization the debt would indeed be transferred. But all claims of securitization of debt that are based upon CLAIMS of ownership rather than the ownership itself are groundless. Thus neither Vulture Firms nor any of their predecessors ever owned the debt.

This is why we have lawyers go to law schools. Such convoluted schemes are not easily deciphered without experts and lawyers. Lawyers understand the distinction between the debt, the note and the mortgage. But lawyers forget and lay people never knew about the distinction. It isn’t technical. It is all about keeping transactions on paper honest.

And right now nearly all of the hundreds of millions of documents are being used around the world to foreclose, or support the sale of the paper note and mortgage and derivatives based upon the value of those millions of documents containing false recitations and inferences of fact.

So borrowers, whether their payments (to the wrong party) are “current” or not, like the one in the story found in the link below are stuck in the very place that legislators and regulators have said could never happen in a legal mortgage lending situation: no knowledge about the identity of the obligee of the debt. Foreclosure defense lawyers who win cases punch holes in the foreclosure case simply by knowing they are not dealing with anyone who owns the debt nor anyone who is representing the obligee in the underlying debt (i.e., the real world).

Let us help you plan your discovery requests and defense narrative: 202-838-6345. Ask for a Consult.
Purchase now Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar including 3.5 hours of lecture, questions and answers, plus course materials that include PowerPoint Presentations. Presenters: Attorney and Expert Neil Garfield, Forensic Auditor Dan Edstrom, Attorney Charles Marshall and and Private Investigator Bill Paatalo. The webinar and materials are all downloadable.
Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

Hat tip Eric Mains and Bill Paatalo

see Vulture Firms Must Clean Up the Mess

So people ask me the obvious question, to wit: “If the paper didn’t transfer the debt because the seller, assignor or endorser never owned the debt, where is the debt now?”

The answer is simpler than you might imagine. The only two parties are the obligor (the person who took the money) and the obligee (the person who gave the money). The current obligee (owner of the debt) in most instances is a group of investors who are beneficiaries of multiple paper trusts that have never existed nor been active. THAT is why you never see any assertion that the debt has been purchased.

No money has exchanged hands in any of the transfers except in the case of vulture firms who pay fractions of a cent on the dollar for the paper. They don’t buy the debt because the seller of the paper doesn’t own the debt.

The one simple law school issue taught repeatedly in several classes — Contracts, Bills and Notes etc. — is that the debt arises no from paper but from action. There is no debt if there is no money exchanged between the parties claiming to be part of the transaction.

The debt arises by operation of law without  and even despite the existence or nonexistence of any written instruments — virtually all of which are subject to hearsay objections and lacking in factual foundation, to wit: an actual transaction in the real world in which reciprocal consideration was exchanged between the obligor and the obligee.

If the written instrument recites or assumes that the parties to the instrument are in fact identical to the parties to the real world transaction, then the parties to the debt would be identical to the parties on the written instrument. So keep this in your bonnet while you are planning defense strategy: at some point, usually at origination, a debt was created, separate and distinct from the recitals on the note and mortgage.

If the written instrument recites or assumes that the parties to the instrument are in fact identical to the parties to the debt, but the recital or assumption is untrue. Assumptions and presumptions are based upon one singular doctrine — they are used for judicial economy only where the the presumption clearly is true and where no contest to the presumption is introduced by the defense.

If the defense asserts and gives some argument or evidence that is inconsistent with the presumed “fact,” then the burden shifts back to the party who claimed the benefit of the presumption — i.e. they must prove the real world transaction that was being presumed. There is no prejudice to forcing such a party to prove the fact that they wished to be presumed — unless they were lying to begin with.

 

TILA RESCISSION: The Bottom Line for Now

Probably the main fallacy of the people who say that TILA Rescission is not possible or viable is that they project the outcome of a lawsuit to vacate rescission. Based upon their conjecture, they assume that Rescission is no more than a technicality. Congress, and SCOTUS beg to differ. It was enacted into law 50 years ago in an effort to prevent unscrupulous banks from screwing consumer borrowers.

Let us help you plan your TILA RESCISSION narrative and strategy: 202-838-6345. Ask for a Consult.

Register now for Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar.

Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

I keep getting emails from non lawyers who have a “legal opinion” that not only differs from mine, but also the opinion of hundreds of lawyers who represent the banks and servicers. They say that because disclosures were probably made that rescission is nothing more than a gimmick that will never succeed and they point to the many case decisions in which courts have ruled erroneously in favor of the banks despite a rescission that eliminated the subject matter jurisdiction of the court, since the loan contract, note and mortgage no longer exist. The debt, however, continues to exist even if it is unclear as to the identity of the party to whom it is owed.

First the courts ruled erroneously when they said that tender had to be made before rescission was effective. Then the courts said that no rescission could be effective without a court saying it was effective. That one put the burden on proving the figure to make proper disclosure on the homeowner. The Supreme Court of the United States, (SCOTUS — see Jesinoski v Countrywide) after thousands of decisions by trial and appellate courts, told them they were wrong. As of this date, no court has ever ruled that the rescission was vacated — the only thing that could stop it.

The lay naysayers keep harping on how wrong I am about rescission. Unfortunately many people believe what they read just because it is in writing. In my case I simply instruct the lawyers and homeowners to simply read the TILA Rescission statute and the unanimous SCOTUS decision in Jesinoski. What they will discover is that I am only repeating what they said — not making it up as some would have you believe.

To the naysayers and  all persons in doubt, i say the following:

As I have repeatedly said, in practice you are right, for the time being.
But the legal decision from SCOTUS will undoubtedly change the practice. The law is obvious and clear. SCOTUS already said that. So no interpretation is required or even permissible. SCOTUS said that too. TILA Rescission is mainly a procedural statute, not a substantive one. SCOTUS said that too. On the issue of when rescission is effective, it is upon mailing (USPS) or delivery. SCOTUS said that too. On the issue of what else a borrower needs to do to make TILA rescission effective, the answer is nothing. SCOTUS said that too.

Hence the current argument that you keep making is true “in practice” but only for the moment. SCOTUS will soon issue another scathing attack on the presumptuous courts who defied its ruling in Jesinoski. There can be no doubt that SCOTUS will rule that any “interpretation” that contradicts the following will be void, for lack of jurisdiction, because the loan contract is canceled and the note and mortgage are void:

  1. No court may change the meaning of the words of the TILA Rescission statute.
  2. Rescission is law when it is mailed or delivered.
  3. Other than delivery no action is required by the borrower. That means the loan contract is canceled and the note and mortgage are void. They do not exist by operation of law.
  4. Rescission remains effective even in the absence of a pleading filed by the borrower to enforce it.
  5. Due process is required to vacate the rescission. That means pleading standing and that proper disclosure was made, an opportunity for the borrower to respond, and then proof that the pleader has standing and that proper disclosures were made.
  6. Pleading against the rescission must be filed within 20 days or it is waived.
  7. At the end of one year both parties waive any remedies. That means the borrower can no longer enforce the duties imposed on the debt holder and the debt holder may no longer claim repayment.
  8. The only claim for repayment that exists after rescission is via the TILA Rescission statute — not the note and mortgage. This is based upon the actual debt, not the loan contract or closing documents.
  9. Any claim for repayment after rescission is predicated on full compliance with the three duties imposed by statute.
  10. A court may — upon proper notice, pleading and hearing — change the order of creditor compliance with the three duties imposed upon the debt holder. This does not mean that the court can remove any of the duties of the debt holder nor summarily ignore the rescission without issuing an order — upon proper notice, pleading and proof — that the rescission is vacated because the proper disclosures were made or for any other valid legal reason that does not change the wording of the statute.
  11. The three duties, which may not be ignored, include payment of money to the borrower, satisfaction of the lien (so that the borrower might have an opportunity to refinance), and delivery of the original canceled note.

Virtually 100% of lawyers for the banks and servicers agree with the above. They have advised their clients to file a lawsuit challenging the TILA Rescission because such a lawsuit could be easily won and would serve as a deterrent to people attempting to use TILA rescission as a defense to collection or foreclosure efforts. Yet their clients have failed to follow legal advice because they know that they have no debt holder to whom funds can be traced. If they did identify the debt holder(s) they would be showing that they played just as fast and loose with investor money as they have done with the paperwork in foreclosures.

Does this mean a free house to homeowners? Maybe. Considering how many times the loans were sold directly and indirectly, and how many times the banks received insurance, bailout and purchases from the Federal Reserve, that wouldn’t be a bad result. But the truth is that everyone knows that won’t happen unless the courts continue their decisions with blinders on.

In the end, the homeowners do owe money to the investors whose money was used too fund the loans, directly and indirectly. Whether it is secured or not may depend upon state law, but as a practical matter very few borrowers would withhold their signature from a valid mortgage and note based upon economic reality.

THE CURRENT BIAS: EVEN IF HOMEOWNER WINS, NO FEE RECOVERY

The continuing bias in favor of the banks’ fraudulent scheme of mortgages and foreclosures gives rise now to a nutty theory. The logic seems so obvious to the courts and yet it is erroneous. In a nutshell the theory goes, if a homeowner eventually proves that the parties attempting to foreclose have nothing to do with the loan, then the homeowner is barred from receiving fees under the contract.

The fact that the foreclosing party represented and fought for status as a party with standing and was entirely dependent upon their ability to enforce contract (note and mortgage) means nothing to the courts. They want to set up whatever obstacles they can to valid defenses  showing the homeowner owes nothing to the parties who are foreclosing.

Let us help you plan your narrative and strategy: 202-838-6345. Ask for a Consult.

Register now for Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar.

Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

see 4th DCA Reaffirms No Fees to Prevailing Homeowner

Essentially the courts are punishing homeowners for winning the case and letting the real offender go free without any form of sanctions or payment to the homeowner. By disallowing fees to the homeowner they make it less likely for homeowners to raise meritorious defenses including the key defense that the parties seeking foreclosure are scamming the court.

The logic of the court is that once you prove that the foreclosing party has no factual or legal relationship to the loan, you have destroyed your claim to enforce fees via statute, contract or both. This is also in keeping with the finding that fraud, forgery and fabrication once proven, means nothing in terms of clean hands.

The Courts could have shut down the flood of foreclosures that started 12 years ago and continues to this day. All they needed to do is continue their procedure of making absolutely certain that the foreclosing party actually had a right to foreclose. Instead of being worried about fraudulent claims, the courts are worried about meritorious defenses. THAT is the opposite of due process. It is a political decision instead of a legal one.

First the basis of this modern “doctrine” is that proof that the forecloser is a stranger means that there are no remedies to the victim of fraudulent behavior. That is simply due process in reverse. Once someone files something in the courts or county records, they are submitting themselves to the jurisdiction of the court, even if it is based upon fraudulent claims based upon forgeries and fabrications. If this “doctrine” were true and sustainable it  would present an optional basis to avoid penalty for lies told in court. They can do it and if they are caught they pay nothing.

Second, the forecloser has hoisted itself on its own petard. By proclaiming that it is the only party to a contract entitled to enforce it, it must suffer the consequences of failing to prove that — especially if the evidence shows, as in the case cited above in the link, that the failure was not just wrong or negligent, but rather intentional and fraudulent. The courts are rewarding bad behavior.

Third, fees, costs and other sanctions should be available against a party who lies to the court about a transaction and loses the case because they were found to be lying.

The entire concept of denying the existence of a contract when both parties agreed in court that the contract existed, is out of Gulliver’s Travels. Perhaps what is needed is some pleading in affirmative defenses or counterclaim that the action is frivolous and fraudulent, seeking fees for abuse of process or wrong full foreclosure. But that again puts the intolerable burden of litigating the right to title and possession of a homestead on the homeowner.

The courts are interposing an issue that should never come up, to wit: if you own your home and you have obvious defenses against foreclosure that shows that the party attempting to foreclose is lying to the court, you need to factor in the high cost of litigation before you defend — or get out and let the the liar enter the house.

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