OK, We Fabricated and Forged the Documentation. So What?

As Bill Paatalo (who brought this to my attention) says: “You can’t make this s–t up.” Reality is much stranger than fiction. This marks the point where we have entered the Twilight Zone in law where the rule of law is just a guidepost not to be confused with the real rule of men.

Sheila Bair  was forced out of the Chairmanship of the FDIC by Geithner when it became obvious that this was a game she was unwilling to play. Even worse she was making her opposition public, essentially saying that the government was becoming complicit in a criminal conspiracy (not her exact words, publicly but evidence suggests she said exactly that to Geithner and probably Obama).

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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seeFOIA Request Reveals Servicer’s “Justification” for Fraud In Fabricating Limited Power of Attorney from FDIC

FACTS as admitted by the Servicer: They fabricated and forged documents to create a chain of title. They justified it on grounds that it would be cost prohibitive to get a title report and then request or demand execution of affidavits and other documents that would clear up the presently fatally defective chain of title. The present title shows that they have no legal ownership or other interest in the loan. The fabrication and forgery is just an efficient way to change title, such that it reflects the self proclaimed interests of parties who wish to enter the foreclosure arena.

If you don’t see what is wrong with that, I don’t know why you are reading this article.

By the same logic Homeowners could do the same thing — fabricate and forge satisfactions of mortgage, with one minor exception, to wit: Homeowners go to jail for such activities whereas banks continue to suck the lifeblood out of the American and indeed the world economy.

And THIS is why, according to all legal doctrine until the securitization era began, no party to litigation was entitled to a legal presumption of facts when they had engaged in patterns of conduct in which they had forged, fabricated or otherwise attempted to use self-serving documents that were neither official documents nor otherwise credible. The fact that presumptions continue to be used shows just how much the courts have thrown themselves behind a political decision rather than coming to legal decisions.

Presumptions are simply procedural gimmicks to assume in evidence that which is obvious and credible. Up until now they were not used, nor was their use affirmed on appeal, when the facts assumed were not obvious and subject to doubt as to credibility.

There is no workaround on that — it is in every book, treatise, article and case decision on evidence — until now. Where there was any doubt about whether the “presumption” depended upon a self serving document prepared for trial, the simple fall back position, never reversed on appeal, was that the party seeking to apply legal presumptions in proving their case, had to prove the facts without the presumptions.

So this “explanation” of bad behavior made right might be reframed like this: “It’s not economical for us to try you for murder so we are just going to presume you did it.” There is a simple fix to this obvious breach of due process: force the state to actually prove each fact instead of relying on presumptions or assumptions. That is all we ask — make the foreclosing party prove each element and each fact of their case.

Try a due process pilot program as if due process was just a suggestion. Force the foreclosers to prove each element and each fact of their case. If any of them win based upon actual facts that prove the convergence of the money trail and the paper trail then fine, keep presuming that the foreclosers are entitled to a presumption. But if they can’t prove that the way everyone had to before the mortgage meltdown, then they should lose the right to prove liability by legal presumption and lose the right to prove damages by legal presumption.

Remember even in a default situation they still must prove actual damages. Spoiler alert, they can’t. They have no person or entity that they can point to and say “Yes, they are the obligee of the debt and we represent them.”


Definition of Obligee:

The individual to whom a particular duty or obligation is owed.

The obligation might be to pay a debt or involve the performance or nonperformance of a particular act.

The term obligee is often used synonymously with creditor.

Definition of Obligor:

The individual who owes another person a certain debt or duty.

The term obligor is often used interchangeably with debtor.

Top New York Judge Urges Greater Legal Rights for the Poor

Editor’s Note: Judge Lippman is certainly onto something here. There is no doubt that the poor get the short end of the stick when it comes to legal matters. Whether this will have any effect on foreclosures is a question that cannot be answered as yet. With more people moving into the poverty level due to declining real wages and joblessness, it would certainly be a step in the right direction to provide legal assistance to people when it comes to having a roof over their head.

With foreclosures the problem is getting an attorney who understands that most mortgages these days are securitized and that this has important ramifications for defense of foreclosures and evictions. it is entirely possible that the wrong party is acting against the tenant or owner or that the mortgage has been paid in whole or in part through various credit enhancement instruments that protect the creditor (the one who actually advanced the money) from loss.

April Charney is leading the way for Legal Aid and other organizations to provide competent help for indigent or financially challenged persons in the cross hairs of some pretender lender. There is no way for her to do it alone. Inch by inch we seem to be crawling away from this mess. But progress is slow and might be illusory. Recent events in Europe show that these manipulations of exotic financial instruments are wreaking havoc on everyone.

The real answer is to bust the Oligarchy of banking interests who have literally cornered the market on money itself. That takes a lot of will power, a lot of people demonstrating their willingness to engage the banks, and a lot of politicians who need to be coerced into blocking the financial sector from meddling in our lives.
May 3, 2010

Top New York Judge Urges Greater Legal Rights for the Poor


New York’s chief judge called on Monday for a new guarantee of a lawyer for poor people in civil cases, like suits over eviction and other disputes where basic needs are at stake, pushing the state to the forefront of a national effort to expand the right to representation for the indigent.

In a speech in Albany, the chief judge, Jonathan Lippman, said his proposal, the first such plan by a top court official in New York, reflected a commitment by the state’s courts “to bring us closer to the ideal of equal access to civil justice” that he described as one of the foundations of the legal system.

“I am not talking about a single initiative, pilot project or temporary program,” Judge Lippman said, “but what I believe must be a comprehensive, multifaceted, systemic approach to providing counsel to the indigent in civil cases.”

There was no price tag on the proposal, which could cost many millions of dollars. But Judge Lippman sought to avoid having it fall victim to the politics of the recession by announcing that he would hold hearings before pushing a detailed plan forward next year.

The government has been required to provide lawyers for people facing jail because of criminal charges since a landmark ruling by the United States Supreme Court in 1963, Gideon v. Wainwright.

But that protection has never included civil cases. Lawyers for the poor argue that it should because civil courts are where people who cannot afford lawyers often face the loss of the necessities of life in lopsided legal battles. Opponents say more government-paid lawyers for the poor will paralyze the courts with needless disputes.

Some Democratic legislators said they were interested in Judge Lippman’s idea. In a statement, Speaker Sheldon Silver said the Assembly had been a strong supporter of civil legal services for nearly 20 years.

Austin Shafran, a spokesman for the State Senate Democratic leader, John L. Sampson, said the senator had always supported programs that provided lawyers for indigent New Yorkers and was looking carefully at what Judge Lippman had put forward.

Judge Lippman, a longtime court administrator, has set an unabashedly liberal course as chief judge, a position he assumed last year after he was nominated by Gov. David A. Paterson. In addition to a seat on the highest court in New York, the chief judge also has a broad role as the top administrative official of the state’s sprawling court system.

The speech may well give Judge Lippman national prominence in efforts in recent years by lawyers for the poor, consumer advocates and some legislators around the country to expand the right to a lawyer. California passed a law in 2009 intended to expand legal counsel in civil cases.

There have been local bills elsewhere, including in New York City, and lawsuits in several states arguing that the protections of the legal system are often meaningless to people too poor to hire lawyers. In 2006, the American Bar Association said there should be a right to a lawyer in civil cases where basic human needs were at stake, like those dealing with shelter, sustenance, safety, health or child custody.

Advocates for the right to a lawyer in civil cases — some of them call it a “civil Gideon” right, referring to the 1963 ruling for criminal cases — said Monday that Judge Lippman’s speech was one of the most notable steps in their efforts.

“It is a very important statement, both in New York and nationally, about the need for access to justice. I don’t know that any stronger voice has come forward,” said Donald Saunders, a vice president of the National Legal Aid and Defender Association, the largest national group of lawyers for the poor.

In his speech, Judge Lippman said the recession had swelled the ranks of New Yorkers who could not afford lawyers facing civil legal problems to more than two million a year.

Judge Lippman said he would hold hearings beginning this fall in every part of the state to assess the extent and nature of the unmet need for civil legal representation. He said the hearings would end with recommendations to the Legislature of the kinds of civil cases in which legal representation should be required and what financing would meet those needs.

Legal Aid and other providers of civil legal representation to poor people in New York State operate on about $200 million a year, officials say, a combination of federal, state, local and privately raised money. Those organizations said that they were unable to meet the needs but that the extent of the shortfall was not known.

Steven Banks, the attorney in chief of the Legal Aid Society in the city, called it “a huge step” for the leader of the court system to endorse the idea that poor people had a right to a lawyer, whether they found themselves in criminal or civil court.

Rigging the Bids at Foreclosure Sales

From Dan Edstrom:

Department of Justice Press Release

For Immediate Release
April 16, 2010 United States Attorney’s Office
Eastern District of California
Contact: (916) 554-2700
Stockton Real Estate Executive Pleads Guilty to Bid Rigging at Auctions of Foreclosed Properties

SACRAMENTO, CA—United States Attorney Benjamin B. Wagner and Assistant Attorney General Christine Varney of the Department of Justice’s Antitrust Division announced today that Anthony B. Ghio, 43, of Stockton, pleaded guilty today before United States District Judge Edward J. Garcia to conspiring to rig bids at public real estate foreclosure auctions held in San Joaquin County.

These charges arose from an ongoing federal antitrust investigation of fraud and bidding irregularities in certain real estate auctions in San Joaquin County. The investigation is being conducted by the U.S. Attorney’s Office for the Eastern District of California, the Antitrust Division’s San Francisco Office, the Federal Bureau of Investigation, and the San Joaquin County District Attorney’s Office.

According to Assistant United States Attorneys Robin R. Taylor and Russell L. Carlberg, who are prosecuting the case with assistance from Barbara Nelson and Richard Cohen of the Antitrust Division, Ghio admitted in his guilty plea that he conspired with a group of real estate speculators who agreed not to bid against each other at certain public real estate foreclosure auctions in San Joaquin County. The primary purpose of the conspiracy was to suppress and restrain competition and obtain selected real estate offered at San Joaquin County public foreclosure auctions at noncompetitive prices.

Court documents show that after the conspirators’ designated bidder bought a property at a public auction, they would hold a second private auction. Each participating conspirator would submit bids in the private auction above the public auction price. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the noncompetitive price at the public auction and the winning bid at the second auction was the group’s illicit profit, and it was divided among the conspirators in payoffs. Ghio participated in the bid-rigging scheme from April 2009 until October 2009.

Ghio is charged with bid rigging, a violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victim of the crime, if either of those amounts is greater than the statutory maximum fine. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory sentencing factors and the Federal Sentencing Guidelines, which take into account a number of variables.

The investigation is continuing. Anyone with information concerning bid rigging or fraud related to real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660 or visit http://www.justice.gov/atr/contact/newcase.htm, or the FBI’s Sacramento Division at 916-481-9110, or the U.S. Attorneys Office for the Eastern District of California at 916-554-2900.

Media inquiries to the U.S. Attorney’s Office should be directed to Lauren Horwood at 916-554-2706. Media inquiries regarding the department’s Antitrust Division should be directed to Gina Talamona at 202-514-2007.

This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force.

President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

One component of the FFETF is the national Mortgage Fraud Working Group, co-chaired by U.S. Attorney Wagner.

Dan Edstrom

Foreclosure Prevention 1.1

Nobody ever thought that returning a lady’s purse to her after a purse snatcher ran away with it was a gift. So why is anyone contesting returning the purse to homeowners who had their lives snatched from them?

The baby steps of the Obama administration are frustrating. Larry Summers, Tim Geithner and those who walk with Wall Street are using ideology and assumptions instead of reality and facts.

First they started with the idea of modifications. That would do it. Just change the terms a little, have the homeowner release rights and defenses to what was a completely fraudulent and deceptive loan transaction (and a violation of securities regulations) and the foreclosure mess would end. No, it doesn’t work that way.

The reality is that these homeowners are being drained every day and displaced from their lives and homes by the consequences of a scheme that depended upon fooling people into signing mortgages under the false assumption that the appraisal had been verified and that the loan product was viable. All sorts of tricks were used to make borrowers think that an underwriting process was under way when in fact, it was only a checklist, they were even doing title checks (using credit reports instead), and the viability of the loan was antithetical to their goals, to wit: to have the loans fail, collect on the insurance and get the house too without ever reporting a loss.

Then it went to modification through interest rate reduction and adding the unpaid monthly payments to the end of the mortgage. Brilliant idea. The experts decided that an interest rate reduction was the equivalent of a principal reduction and that everything would even out over time.

Adding ANYTHING to principal due on the note only put these people further under water and reduced any incentive they had to maintain their payments or the property. Reducing the interest was only the equivalent of principal reduction when you looked at the monthly payments; the homeowner was still buried forever, without hope of recovery, under a mountain of debt based upon a false value associated with the property and a false rating of the loan product.

Adding insult to injury, the Obama administration gave $10 billion to servicing companies to do modifications — not even realizing that servicers have no authority to modify and might not even have the authority to service. Anyone who received such a modification (a) got a temporary modification called a “trial” (b) ended up back in foreclosure anyway (c) was used once again for unworthy unauthorized companies to collect even more illegal fees and (d) was part of a gift to servicers who were getting a house on which they had invested nothing, while the real source of funds was already paid in whole or in part by insurance, credit default swaps or federal bailout.

Now the Obama administration is “encouraging” modifications with reductions in principal of perhaps 30%. But the industry is pushing back because they don’t want to report the loss that would appear on their books now, if a modification occurred, when they could delay reporting the “loss” indefinitely by continuing the foreclosure process. The “loss” is fictitious and the push-back is an illusion. There is no loss from non-performance of these mortgages on the part of lending banks because they never lent any money other than the money of investors who purchased mortgage-backed bonds.

You want to stop the foreclosures. It really is very simple. Stop lying to the American people whether it is intentional or not. Admit that the homes they bought were not worth the amount set forth in the appraisal and not worth what the “lender” (who was no lender) “verified.” Through criminal, civil and/or administrative proceedings, get the facts and change the deals like any other fraud case. Nobody ever thought that returning a lady’s purse to her after a purse snatcher ran away with it was a gift. So why is anyone contesting returning the purse to homeowners who had their lives snatched from them?

Tax Apocalypse for States and Federal Government Can be Reversed: Show Me the Money!

SEE states-look-beyond-borders-to-collect-owed-taxes







As we have repeatedly stated on this blog, the trigger for the huge deficits was the housing nightmare conjured up for us by Wall Street. Banks made trillions of dollars in profits that were never taxed. The tax laws are already in place. Everyone is paying taxes, why are they not paying taxes? If they did, a substantial portion of the deficits would vanish. Each day we let the bankers control our state executives and legislators, we fall deeper and deeper in debt, we lose more social services and it endangers our ability to maintain strong military and law enforcement.

The argument that these unregulated transactions are somehow exempt from state taxation is bogus. There is also the prospect of collecting huge damage awards similar to the tobacco litigation. I’ve done my part, contacting the State Treasurers and Legislators all over the country, it is time for you to do the same. It’s time for you to look up your governor, State Treasurer, Commissioner of Banking, Commissioner of Insurance, State Commerce Commission, Secretary of State and write tot hem demanding that they pursue registration fees, taxes, fines, and penalties from the parties who say they conducted “out-of-state” transactions relating to real property within our borders. If that doesn’t work, march in the streets.

The tax, fee, penalty and other revenue due from Wall Street is easily collectible against their alleged “holding” of mortgages in each state. One fell swoop: collect the revenue, stabilize the state budget, renew social services, revitalize community banks within the state, settle the foreclosure mess, stabilize the housing market and return homeowners to something close to the position they were in before they were defrauded by fraud, predatory lending and illegal practices securitizing loans that were too bad to ever succeed, even if the homeowner could afford the house.

Give me a little help here: Trusts, REMICs, and the Authority of the Trustee or Trustee’s Attorney to Represent

When U.S. Bank comes in as Trustee for the the holders of series xyz etc., the use of the words Trustee and series certificates give it an air of legitimacy. But this is probably just another bluff. Reading the indenture on the bond (mortgage backed security) and the prospectus, you will see that the “Trust” may or may not be the the Special Purpose Vehicle that issued the bonds.

And of course I remind you that the “borrower” (whom I call an “issuer” for reason explained in other posts) signed a note with one set of terms and the source of funding, the investor received a bond with another set of terms (and parties) who in turn received some sort of transmittal delivery or conveyance of a pool of “assets” from a pool trustee or other third party who obtained the “assets” under an entirely different set of terms (and parties) including a buy back provision which would appear to negate the entire concept of any unconditional “assignment” (a primary condition for negotiability being the absence of conditions and the certainty that the instrument sets forth all obligations without any “off-record” activity creating a condition on payment).

In short, we have a series of independent contracts that are part of a common scheme to issue unregulated securities under false pretenses making the “borrower” and the “investor” both victims and making the “borrower” an unknowing issuer of an instrument that was intended to be used as a negotiable instrument and sold as as a security.

One of the more interesting questions raised by another reader is this issue of trusts. care to comment on the following? I’ll make it an article and post it. Send it to me at ngarfield@msn.com. Want to be a guest on the podcast show? Submit an article that gets posted.

1. What is a trust? How is it defined? How is it established for legal existence? Does it need to be registered or recorded anywhere?
2. Can a trust legally exist if it is unfunded? (If there is nothing in the trust to administer, is there a trust?)
3. What are the powers of the Trustee of an unfunded trust? Can a Trustee claim apparent or actual authority to represent the holders of bonds (mortgage backed securities) issued by a Special Purpose Vehicle — as an agent? as a trustee? Again what are the “Trustee’s” (agent?) powers?
4. Who can be a Trustee.
5. Can a financial services entity otherwise qualified to do business in the state claim to be an institutional trustee?
6. Can a financial services entity that does not qualify to do business in the state, not chartered or licensed do business as a bank? a lender? a securities issuer? a trustee? a trust company?
7. If the mortgage backed securities (bonds) are sold to investors what asset or res can be arguably in the trust?
8. If the mortgage backed securities (bonds) contain an indenture that purports to convey a pro rata share of the mortgages and notes in a pool to the owner of the certificate of mortgage backed security (bond) what asset or res can be arguably in the trust?
9. If the Special Purpose Vehicle has filed with the IRS as a REMIC conduit (see below) then how it own anything since by definition it is a conduit and must act as a conduit or else it loses tax exempt status and subjects itself to income and capital gains taxes?


Real Estate Mortgage Investment Conduits, or “REMICs,” are a type of special purpose vehicle used for the pooling of mortgage loans and issuance of mortgage-backed securities. They are defined under the United States Internal Revenue Code (Tax Reform Act of 1986), and are the typical vehicle of choice for the securitization of residential mortgages in the US.

REMIC usage

REMICs are investment vehicles that hold commercial and residential mortgages in trust and issue securities representing an undivided interest in these mortgages. A REMIC assembles mortgages into pools and issues pass-through certificates, multiclass bonds similar to a collateralized mortgage obligation (CMO), or other securities to investors in the secondary mortgage market. Mortgage-backed securities issued through a REMIC can be debt financings of the issuer or a sale of assets. Legal form is irrelevant to REMICs: trusts, corporations, and partnerships may all elect to have REMIC status, and even pools of assets that are not legal entities may qualify as REMICs.[2]

The Tax Reform Act eliminated the double taxation of income earned at the corporate level by an issuer and dividends paid to securities holders, thereby allowing a REMIC to structure a mortgage-backed securities offering as a sale of assets, effectively removing the loans from the originating lender’s balance sheet, rather than a debt financing in which the loans remain as balance sheet assets. A REMIC itself is exempt from federal taxes, although income earned by investors is fully taxable. As REMICs are typically exempt from tax at the entity level, they may invest only in qualified mortgages and permitted investments, including single family or multifamily mortgages, commercial mortgages, second mortgages, mortgage participations, and federal agency pass-through securities. Nonmortgage assets, such as credit card receivables, leases, and auto loans are ineligible investments. The Tax Reform Act made it easier for savings institutions and real estate investment trusts to hold mortgage securities as qualified portfolio investments. A savings institution, for instance, can include REMIC-issued mortgage-backed securities as qualifying assets in meeting federal requirements for treatment as a savings and loan for tax purposes.

To qualify as a REMIC, an entity or pool of assets must make a REMIC election, follow certain rules as to composition of assets (by holding qualified mortgages and permitted investments), adopt reasonable methods to prevent disqualified organizations from holding its residual interests, and structure investors’ interests as any number of classes of regular interests and one –- and only one -– class of residual interests.[3] The Internal Revenue Code does not appear to require REMICs to have a class of regular interests.[4]

Qualified mortgages

Qualified mortgages encompass several types of obligations and interests. Qualified mortgages are defined as “(1) any obligation (including any participation or certificate of beneficial ownership therein) which is principally secured by an interest in real property, and is either transferred to the REMIC on the startup day in exchange for regular or residual interests, or purchased within three months after the startup day pursuant to a fixed-price contract in effect on the startup day, (2) any regular interest in another REMIC which is transferred to the REMIC on the startup day in exchange for regular or residual interests in the REMIC, (3) any qualified replacement mortgage, or (4) certain FASIT regular interests.”[5] In (1), “obligation” is ambiguous; a broad reading would include contract claims but a narrower reading would involve only what would qualify as “debt obligations” under the Code.[6] The IRC defines “principally secured” as either having “substantially all of the proceeds of the obligation . . . used to acquire or to improve or protect an interest in real property that, at the origination date, is the only security for the obligation” or having a fair market value of the interest that secures the obligation be at least 80% of the adjusted issue price (usually the amount that is loaned to the mortgagor)[7] or be at least that amount when contributed to the REMIC.[8]

Permitted investments

Permitted investments include cash flow investments, qualified reserve assets, and foreclosure property.

Cash flow investments are temporary investments in passive assets that earn interest (as opposed to accruing dividends, for example) of the payments on qualified mortgages that occur between the time that the REMIC receives the payments and the REMIC’s distribution of that money to its holders.[9] Qualifying payments include mortgage payments of principal or interest, payments on credit enhancement contracts, profits from disposing of mortgages, funds from foreclosure properties, payments for warranty breaches on mortgages, and prepayment penalties.[10]

Qualified reserve assets are forms of intangible property other than residual interests in REMICs that are held as investments as part of a qualified reserve fund, which “is any reasonably required reserve to provide for full payment of” a REMIC’s costs or payments to interest holders due to default, unexpectedly low returns, or deficits in interest from prepayments.[11] REMICs usually opt for safe, short term investments with low yields, so it is typically desirable to minimize the reserve fund while maintaining “the desired credit quality for the REMIC interests.”[12]

Foreclosure property is real property that REMICs obtain upon defaults. After obtaining foreclosure properties, REMICs have until the end of the third year to dispose of them, although the IRS sometimes grants extensions.[13] Foreclosure property loses its status if a lease creates certain kinds of rent income, if construction activities that did not begin before the REMIC acquired the property are undertaken, or if the REMIC uses the property in a trade or business without the use of an independent contractor and over 90 days after acquiring it.[14]

Regular interests

It is useful to think of regular interests as resembling debt; they tend to have lower risk with a corresponding lower yield. Regular interests are taxed as debt.[15] A regular interest must be designated as such, be issued on the startup day, contain fixed terms, provide for interest payments and how they are payable, and unconditionally entitle the holder of the interest to receive a specific amount of the principal.[16] Profits are taxed to holders.

Residual interests

Residual interests tend to involve ownership and resemble equity more than debt. However, residual interests may be neither debt nor equity. “For example, if a REMIC is a segregated pool of assets within a legal entity, the residual interest could consist of (1) the rights of ownership of the REMIC’s assets, subject to the claims of regular interest holders, or (2) if the regular interests take the form of debt secured under an indenture, a contractual right to receive distributions released from the lien of the indenture.”[17] The risk is greater, as residual interest holders are the last to be paid, but the potential gains are greater. Residual interests must be designated as such, be issued on the startup day, and not be a regular interest (which it can effortlessly avoid by not being designated as a regular interest). If the REMIC makes a distribution to residual interest holders, it must be pro rata; the pro rata requirement simplifies matters because it usually prevents a residual class from being treated as multiple classes, which could disqualify the REMIC.[18]


A REMIC can issue mortgage securities in a wide variety of forms: securities collateralized by Government National Mortgage Association (Ginnie Mae) pass-through certificates, whole loans, single class participation certificates and multiclass mortgage-backed securities; multiple class pass-through securities and multiclass mortgage-backed securities; multiple class pass-through securities with fast-pay or slow-pay features; securities with a subordinated debt tranche that assumes most of the default risk, allowing the issuer to get a better credit rating; and Collateralized Mortgage Obligations with monthly pass-through of bond interest, eliminating reinvestment risk by giving investors call protection against early repayment.

The advantages of REMICs

REMICs abolish many of the inefficiencies of collateralized mortgage obligations (CMOs) and offer issuers more options and greater flexibility..[19] REMICs have no minimum equity requirements, so REMICs can sell all of their assets rather than retain some to meet collateralization requirements. Since regular interests automatically qualify as debt, REMICs also avoid the awkward reinvestment risk that CMO issuers bear to indicate debt. REMICs also may make monthly distributions to investors where CMOs make quarterly payments. REMIC residual interests enjoy more liquidity than owner’s trusts, which restrict equity interest and personal liability transfers. REMICs offer more flexibility than CMOs, as issuers can choose any legal entity and type of securities. The REMIC’s multiple-class capabilities also permit issuers to offer different servicing priorities along with varying maturity dates, lowering default risks and reducing the need for credit enhancement.[20] REMICs are also fairly user-friendly, as the REMIC election is not difficult, and the extensive guidance in the Code and in the regulations offers “a high degree of certainty with respect to tax treatment that may not be available for other types of MBSs.”[21]

The limitations of REMICs

Though REMICs provide relief from entity-level taxation, their allowable activities are quite limited “to holding a fixed pool of mortgages and distributing payments currently to investors.”[22] A REMIC has some freedom to substitute qualified mortgages, declare bankruptcy, deal with foreclosures and defaults, dispose of and substitute defunct mortgages, prevent defaults on regular interests, prepay regular interests when the costs exceed the value of maintaining those interests,[23] and undergo a qualified liquidation,[24] in which the REMIC has 90 days to sell its assets and distribute cash to its holders.[25] All other transactions are considered to be prohibited activities and are subject to a penalty tax of 100%,[26] as are all nonqualifying contributions.

To avoid the 100% contributions tax, contributions to REMICs must be made on the startup day. However, cash contributions avoid this tax if they are given three months after the startup day, involve a clean-up call or qualified liquidation, are made as a guarantee, or are contributed by a residual interest holder to a qualified reserve fund.[27] Additionally, states may tax REMICs under state tax laws.[28] “Many states have adopted whole or partial tax exemptions for entities that qualify as REMICs under federal law.”[29]

REMICs are subject to federal income taxes at the highest corporate rate for foreclosure income and must file returns through Form 1066.[30] The foreclosure income that is taxable is the same as that for a real estate investment trust (REIT)[31] and may include rents contingent on making a profit, rents paid by a related party, rents from property to which the REMIC offers atypical services, and income from foreclosed property when the REMIC serves as dealer.[32]

The REMIC rules in some ways exacerbate problems of phantom income for residual interest holders, which occurs when taxable gain must be realized without a corresponding economic gain with which to pay the tax.[33] Phantom income arises by virtue of the way that the tax rules are written. There are penalties for transferring income to non-taxpayers, so REMIC interest holders must pay taxes on gains that they do not yet have.

Wells Fargo Steps on A Rake (We Hope) — EGGS — a New Country

And when that rakes hits them in the head, it will hopefully start a domino effect with the rest of the pretender lenders. OH Sup Ct – Wells Fargo Appeal

WF has decided to go for the brass ring by bringing an appeal from a case they lost. What they are saying to the Ohio Supreme Court is that if the borrower doesn’t raise the issue of “who owns the loan” early enough, they have waived it. They are also saying that when they finally record the assignment documents should have no effect on who can enforce the note and mortgage. Lastly, and most importantly they are really saying “this is the way we do things now and the courts must conform to industry practice even if it leads to unjust, inequitable, foul results.”All of this would have been considered a bad joke on a law school exam deserving an “F” for failure to have absorbed even the the most basic elements of Black Letter Law or even common decency. Now it is being treated as a real issue.

TRANSLATION: WF wants the Ohio Supreme Court to rule that ANYONE in the securitization chain can enforce the note and mortgage and that the effect on the marketability of title to the property and the clouding of title should be ignored. And they are saying they can do that without notifying, serving or suing anyone else in the securitization chain — even though WF never funded the loan, doesn’t have a dime in the deal and basically is using procedural devices the steal homes from unwary homeowners who do not have the legal expertise or access to to lawyers with sufficient understanding of securitization to oppose the obviously unfair and unjust result.

When we started this blog we predicted that the entire issue, in legal circles, would come down to whether the pretender lenders were successful in getting the courts to see only the individual transactions, rather than all the transactions in the securitization chain taken as a whole. In legal theory this is known as the single transaction doctrine or the step transaction doctrine. The basic test is whether the deal would have ever happened if all the parties knew what was going on. The answer is clearly “NO!”

  • Would an investor have knowingly invested cash into a pool where the loans were based upon obviously inflated property values that could not, would not and did not withstand the test of time (even a few weeks in some cases), NINJA (no income, no job, no assets, no problem) or were subprime borrowers with credit histories that were questionable?
  • Would investors have funded $800,000 for a bond (mortgage-backed security) where the proceeds were to be used for funding a $300,000 mortgage and the rest was kept for fees and profits? Who would buy something for investment where the moment they executed the paperwork they were taking a 60% loss? Never mind the fact that on the secondary market the bonds are selling for $.01-$.03 cents on the dollar. So what does that mean? They are either worthless, unenforceable or both. The mortgage and the note have been “separated” unlike what you have always heard about mortgages following notes and vice versa….the legal consequences of securitization are this…the note is at best unsecured and worst ….for the investor unenforceable.
  • Would borrowers have signed papers and put up their home for collateral if they knew about the inflated home values when they were depending upon the appraisers who were hired by the lenders?
  • Would investors have signed papers and put up the cash for the securitization chain if they knew about inflated securities values, bogus AAA ratings and security quality when they were depending upon rating agencies that were hired by investment banks who were the issuers of the bonds and insurance policies from companies insuring the potential default of the mortgages backing the cash flows that provided the return on the securities without  insufficient assets to cover the liability to pay in the event of a claim?
  • Would borrowers have signed papers knowing that the profit being made by intermediaries was as much or more than the amount of their loan? Obviously not.
  • How many borrowers would have knowingly signed papers and moved into a house from which it was certain they would be evicted? because the “lender” knew or should have know that mortgage would default with the first adjustment in payment…
  • This all occurred because Wall Street and all the intermediaries, banks, mortgage originators, mortgage brokers etc. kept the investor and the borrower from ever meeting or even knowing they existed.

Even if this tricky theory of WF was to be accepted arguendo, in order to have a complete adjudicate of all rights and obligations and in order to clear title and present a certificate of title that was marketable (not subject to being later overturned by claims of fraud on the court) ALL parties in the securitization scheme must be given notice and an opportunity to be heard. Just how well would some hedge fund like it if they received a notice from Wells Fargo or Countrywide or Ocwen or HSBC saying that there was a foreclosure going on, that the hedge fund was named as a defendant because their interest mortgages and notes they were told they had purchased were about to be extinguished and kept by an intermediary?

WF is trying to make the Ohio Supreme Court a party to fraud. Isn’t that why Countrywide was sued by Greenwich Financial et al? The investors were saying that Countrywide had no right to agree to short sales, modifications or anything else because the Hedge fund owned the loans not the servicer. This is not theoretical… it is actual. Why did “mortgage modifications” come to a halt last fall and early this year? Despite Obama and Financial Institution rehetoric about assisting homeowners and modifyin “millions of mortgages” the Greenwich vs. Countrywide suit “froze” all modifications because the parties, from servicers to “loan mod” companies claiming to assit borrowers have NO authority to modify the mortgage and would not act for fear of similar litigation. WF admits in its brief that the issue is multiple liability for the borrower because ANYONE in the securitization chain can sue, but says that doesn’t matter. Probably true. It doesn’t matter to these interlopers but it sure matters to the “borrower” and the “investor” (both of which could simply be regarded as VICTIMS). They are the only parties that stand to lose money or assets….READ: actually be damaged.

Of course the effect on title to the property is horrific. Think about it. You have a homeowner who is on the deed and upon foreclosure a certificate of title is issued to a party that was not named in the mortgage or deed of trust. You have a bondholder who has received a bond (mortgage backed security) listing the borrower and the security interest in the property as being conveyed to the investor. And it is all in the public record and public domain. You have a mortgage or deed of trust that when all the smoke and mirrors are cleared away says “we are going to pass the title around here to whomever we want and when we are good and ready we’ll tell you who has title.” So the notice of record declares that there will off-record transactions but that nobody can know until private parties declare the effect of those transactions. What they are advocating is the judicial act of ignoring the requirements of federal law, state law and common law.

Why don’t they just come out and say it like Dick Durbin, Senior Senator from Illinois said it “When it comes to banking, they own the the government.” They certainly used the government as their private bank account (TARP, Federal Bailout, U.S. Treasury bailout and credits, etc.). Why don’t we just come right out and say it — forget the constitution, forget the declaration of independence, forget the rule of law, forget federal legislation, executive agency rules, state laws and common law, we are now the Empire of Great Goldman Sachs.

And they are saying this is “industry practice” now. True, it IS industry practice and that is why the indsutry as a whole has put itself in the position of potential civil, administrative and criminal liability and sanctions. But up until the last few years any such practice would have have been properly condemned.

Everything is relative, a new “common industry practice” over a brief 5-10 years  is not what changes Black Letter Property Law, which for 200 plus years has been belonged to the states. Just because the banking industry quit crossing their T’s and dotting their I’s and devised a scheme, using their own proprietary, member based, electronic system(MERS) to avoid the various state and local taxes and fees dues states and counties for recording an interest in real property.

In a society of laws (not men) it is government that has the power to declare true title of record. It is only in a nation where we governed by the rule of privileged men instead of laws that we grant such powers to private entities and bind public branches of government to the edict of companies like MERS (Mortgage Electronic Registration Systems). EGGS seeks to complete its bloodless coup turning a republic into an oligopoly and unfortunately the Obama administration doesn’t seem to get it even though the citizens of this once great country see it clearly. If this doesn’t turn the rule of law on its head, I don’t know what does.

We can only hope that as these cases slowly move up the appellate process that all judges come to realize this is not an ideological issue it is a moral issue and a constitutional issue. We are under attack — even the people who don’t think they under attack. The most basic rights enunciated in the United States Constitution and the Declaration of Independence are being siphoned away. This is no longer about the people who have lost their homes or the people who are in the process of losing their homes. This is about the clear and present danger that any of us could lose anything we have by edict from the rich and powerful. If the Courts go along with it, we are doomed as a nation, as a society and as hope for the world.

The genius’ on Wall Street forgot that we are dealing with REAL property here and more importantly REAL people…and families. When we talk about “Black Letter Law” we are not just talking about circa last 200 years adopted from the English Lords where the issue of “standing”  came from….Go back to your Bible and read the Old Testament Book of Ruth….even Boaz took off his shoe and had 10 elders in the town witness the legal transfer of interest in real property from Naomi’s heirs so there would be no “cloud on his title” or one might say today that he “perfected his interest” in that property.  Wells Fargo’s argument is that a group of us in the mortgage industry came up with our own set of rules a few years ago and in recent history(the last 10 years not the last 100 years) it kind of became industry practice so ….we expect the courts ….after the fact to adapt to OUR standard….yeah right. Talk about a weak argument….it would get you an “F” in Law school…consequently the American public knows it doesn’t hold water.

Judges are you listening?

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