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.

 

 

Wells Fargo “Lending” Securities It Didn’t Own

Translation: WFB was the “custodian” of alleged “mortgage-backed” certificates issued for the benefit of investors who paid billions of dollars for ownership of the certificates. WFB “Loaned” those alleged securities to brokers. The brokers in exchange provided “collateral” the proceeds of which were reinvested by WFB. In short, WFB was laundering the investors money for the sole benefit of WFB and not for the investors who owned the certificates and certainly to the detriment of the brokers and their buyers of derivative instruments based upon the loan of the securities.

This case reveals the flowering of multiple levels arising from false claims of securitization. First WFB issues certificates from a fictitious trust that owns nothing. Then it keeps both the money paid for those certificates and it keeps the certificates as well. On Wall Street this practice is called holding securities in “street name.” Then WFB engages in trading on securities it doesn’t own, but which are worthless anyway because the certificates only represent a promise from the REMIC trusts that exists only on paper.

It is all based upon outright lies. And that is why the banks get nervous when the issue of ownership of a debt, security or derivative becomes an issue in litigation. In this case the bank represented the trades as ownership or derivative ownership of “high grade money market instruments” such as “commercial paper or bank time deposits and CDs.”

None of it was true. WFB simply says that it thought that the “instruments” were safe. The lawsuit referred to in the linked article says they knew exactly what they were doing and didn’t care whether the instruments were safe or not. If the attorneys dig deeper they will find that the certificates’ promise to pay was not issued by an actual entity, that certificates were never mortgage-backed, and that WFB set it up so when there were losses it would not fall on WFB even though WFB was using the named trust basically as a fictitious name under which it operated.

So I continue to inquire: why does any court accept any document from WFB as presumptively valid? Why not require the actual proof?

Let us help you plan your defense strategy, 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).

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 Bill Paatalo

see  WFB Securities Lending Scheme

The investments by WFB went into “mortgage backed assets.” Really? So let’s see how that works. First they create the certificates and sell them to investors even though neither the investors nor the trust have any interest in mortgage assets. Then they “loan” the same certificates to brokers, who provide collateral to WFB so that WFB can “reinvest” investor money using commingled investor money from a variety of sources.

Then derivatives on derivatives are sold as private contracts or insurance policies in which when the nonexistent trust assets are declared by WFB to have failed, in which WFB collects all the proceeds. The investors from all layers are screwed. And borrowers, as was originally planned, are screwed.

The lender to the borrower in the real world (where money is exchanged) are be the investors whose money was in the dynamic dark pool when the loan of money occurred. But the investors have no proof of ownership of the debt because of the false documents created by the “underwriter” bank.  The money from the second tier of investors is used to “purchase” the certificates WFB is “printing”. And then derivatives and hybrid derivatives and synthetic derivatives are sold multiplying the effect of every certificate issued. Such has the control over currency shifted from central banks who control around $8 trillion of fiat currency to the TBTF banks who boast a shadow banking market of $1 quadrillion ($1,000,000,000,000,000.00).

This every loan and every certificate is multiplied in the shadow banking market and converted into real money in the real world. Based upon prior securities analysis and review of disclosures from the publicly held banks it thus became possible for a “bank” to receive as much as $4.2 million on a $0.1 Million loan (i..e, $100,000). But in order to maintain the farce they must foreclose and not settle which will devalue the derivatives.

Then having done all that through control of a dynamic dark pool of investor money they must of course create the illusion of a robust lending market. True this particular case involves a business acquired when WFB acquired Wachovia. But WFB acquired Wachovia because it was the actual party in control of a false securitization scheme in which Wachovia acted primarily as originator and not lender.

WFB barely cares about the interest rate because they know the loans that are being approved won’t last anyway. But its trading desk secures extra profits by selling loans with a high interest rate, as though the loans had a low interest rate thereby guaranteeing two things: (1) guaranteed defaults that WFB can insure and (2) buying low (with investor money) and selling high (to investors).

All of which brings us back to the same point I raised when I first wrote (circa 2007) about the systemic fraud in securitization not as an idea, but in the way it had been put into practice. Using established doctrines in tax litigation there are two doctrines that easily clear up the intentional obfuscation by the banks: (1) The single transaction doctrine and (2) the step transaction doctrine. Yes it is that simple. If the investors didn’t part with their money then the loan of money would have never reached the desk of the closing agent. If the homeowners had not been similarly duped as to who and what was being done, they would never have signed on the dotted line.

To assume otherwise would be the same as assuming that borrowers were looking for a way to waste money on non-deductible down payments, improvements and furniture in exchange for a monthly payment that everyone knew they couldn’t afford.

 

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New Florida Law Sneaks Under the Radar

BE CAREFUL HOW AND WHEN YOU FILE BANKRUPTCY PETITIONS

Governor Scott, admits 30 other bills signed SB 220 into law. You can barely find it using search engines. The law is   confusing at best and probably unconstitutional but here it is.

The new law makes BKR filings by Petitioner into presumptions in judicial foreclosures — but only the filings of the Petitioner (raising all sorts of constitutional issues). The filings by parties claiming to be creditors do not raise the same presumption unless other legal presumptions should be applied.

So now foreclosing parties can use the filings of the Petitioner against himself. As I have repeatedly stated, BKR filings by homeowners are generally misleading or wrong. Petitioners are admitting the lien and they temporarily surrender the property. The usual computer program that creates the Petition and schedules of bankruptcy makes it difficult to file anything but the wrong schedules.

This new law enables banks and servicers to use the interim period where the home is technically owned by U.S. Trustee in Bankruptcy, disregarding the fact that the Trustee typically abandons any such interest by the end of the BKR proceedings. The logic is the homeowner lacks standing to raise defenses because he/she has surrendered the  property to the court. It gets even worse when the schedules admit the debt and admit the security instrument. ALL OF THIS CAN BE USED AS PRESUMPTIVE (AND TREATED AS CONCLUSIVE) EVIDENCE IN FORECLOSURE PROCEEDINGS.

Bottom Line: Florida has enacted a law that is out of context and fails to treat debtors and creditors equally with respect to their filings in bankruptcy court. Homeowners in bankruptcy might be blocked from using the proceeding to stop a foreclosure, although the party claiming the status of “creditor” must still apply to lift the stay. Under the new law, the filing of a BKR petition  would essentially be a confession of judgment in foreclosure judicial proceedings blocking homeowners from raising any meritorious defenses because they no longer own the property.

Meanwhile the property records still show the homeowner as owner, and will continue to do so until the foreclosure judgment is entered and the judicial sale is complete together with a certificate of title to the bidder, who in most cases is a sham creditor claiming the right to submit a sham credit bid instead of paying for the home.

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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).
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 New Florida Law Traps Homeowners Who File for Bankruptcy Protection

So instead of getting protection from creditors, a Petitioner for Bankruptcy Relief gets the opposite -screwed out of meritorious defenses. This is what happens when nobody is watching and we keep voting for people who will vote or sign for any legislation against the homeowners and for the banks.

This is a law of evidence and until challenged, ruled unconstitutional or invalid, it MUST be followed by judges unless the judge in a foreclosure case rules the new Florida law is invalid. Good luck with that. Not likely.

PRACTICE POINTER: I have often seen Proofs of Claim (and exhibits attached thereto) filed for parties claiming to be creditors that differ materially from the filings in the court where the foreclosure is being heard. Those too could be admissions under existing rules of evidence. POCs are generally sworn documents.

And also keep in mind that if a creditor doesn’t file a timely proof of claim the debtor can file one for the creditor which can say almost anything. If your schedules don’t list a creditor with a secured interest and instead show that you don’t admit this party has that status many people have found that there is no admission that an be used in other courts.

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702.12 Actions in foreclosure.— 19

(1)(a) A lienholder, in an action to foreclose a mortgage, 20 may submit any document the defendant filed under penalty of 21 perjury in the defendant’s bankruptcy case for use as an 22 admission by the defendant. 23

(b) A rebuttable presumption that the defendant has waived 24 any defense to the foreclosure is created if a lienholder 25 submits documents filed in the defendant’s bankruptcy case 26 which: 27

1. Evidence the defendant’s intention to surrender to the 28 lienholder the property that is the subject of the foreclosure; 29

2. Have not been withdrawn by the defendant; and ENROLLED 2018 Legislature SB 220 2018220er Page 2 of 2 CODING: Words stricken are deletions; words underlined are additions. 30

3. Show that a final order has been entered in the 31 defendant’s bankruptcy case which discharges the defendant’s 32 debts or confirms the defendant’s repayment plan that provides 33 for the surrender of the property. 34

(2) Pursuant to s. 90.203, a court shall take judicial 35 notice of an order entered in a bankruptcy case upon the request 36 of a lienholder. 37

(3) This section does not preclude the defendant in a 38 foreclosure action from raising a defense based upon the 39 lienholder’s action or inaction subsequent to the filing of the 40 document filed in the bankruptcy case which evidenced the 41 defendant’s intention to surrender the mortgaged property to the 42 lienholder. 43

(4) This section applies to any foreclosure action filed on 44 or after October 1, 2018. 45 Section 2. This act shall take effect October 1, 2018.

 

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.

Let us help you plan your cross examination, 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.

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

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.

 

When and What is Consummation of Contract?

Like many other “Black letter law” situations, when it comes to foreclosures the courts are ignoring all precedent, statutes, rules and regulations when they consider a loan contract consummated when one party signs documents — without the other side showing it signed documents and performed its obligations. Without consideration passing both ways, there is no contract to enforce.

The argument that there is nothing for the lender to sign is without merit. The further argument that therefore the only signature that counts in a written contract is the signature of one side is equally ridiculous. It is true that lenders don’t sign the notes and mortgages. But for lenders, their part of the contract only comes alive when they comply with TILA and perform — i.e., they give the loan of money.

To view it any other way would be saying that performance by the “lender” is optional. And that would by all accounts be an executory contract that would be unenforceable until the optional performance was completed. Hence consummation can only be (a) when the money appears (b) from the “lender” identified on the disclosure documents.

The banks craftily spotted the loophole that lenders don’t sign the actual instruments that provide evidence of a written loan contract. But those instruments may not be used to sidestep mutuality and reciprocity that MUST be present in every situation where a party is relying upon paper instruments instead of proving the loan from scratch. If a third party performs the duties promised by the originator there is no enforceable contract even if there is a separate remedy for recovery of money.

Consummation and consideration should be treated as fair game in discovery instead of annoying protests from the homeowner. The Courts have the power to make legal decisions — not political ones.

Let us help you plan your discovery requests: 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.
—————-

Hat tip to Greg (cement boots)

Consummation vs Closing

Seems like various state laws redefine “consummation” as not the actual consummation (the initial fulfillment of promises made by both parties to a contract – think marriage) but instead, make it apply to the moment that a written obligation of a debtor (the wife) is signed at a “closing” in a loan transaction… These definitions do not take into account the duty of the originator or alleged lender (the husband) to timely perform their duties, especially to provide a record of the funding in the purported debtor’s name toward the discharge of the contracted obligation. This occurs most often in “refinance” deals where there is no seller or buyer, simply a rearranging of computer entries between financial institutions. This leaves the alleged debtor (the wife) wanting for proof of fidelity, consideration and performance while operating under the presumed legal disability created by the state’s definition. As you can imagine, and we have seen, this can have a deleterious effect on a judge’s or debtor’s ability to accurately calculate the deadline to timely file a TILA rescission notice within the three year statute of repose.

I think this comment is correct. By defining consummation as the moment when one party signs documents without regard to when or even whether the other party signs and performs contractual duties, the courts are letting originators off the hook for fraud, TILA violations and more. Like the debt itself the obligation is not open ended to anyone who claims it. It is owed to the party that owns the debt or obligation.

In normal contract law there is some fuzziness about consummation and sometimes rules of estoppel apply. But the normal rule is simply that the transaction is consummated and the documents are effective when the documentation is completed and executed by both sides, and consideration has passed both ways.

By considering consummation to be when only one party signs the courts are ignoring a basic legal doctrine that has been solid for centuries — consideration must pass before the documents can be used for enforcement.

This is particularly important in the modern era where “lenders” have been replaced by “originators.” In many cases the originator is not the lender. Hence no enforceable contract can be said to exist unless there is proof that the originator was acting for a third party Lender.

If the third party was not disclosed they would be admitting to a TILA violation. If the third party is not a lender either but rather a conduit, then we have (a) no consideration and (b) nondisclosure at “closing” as to the identity of the lender.

By “no consideration” I don’t mean that the homeowner did not receive money or the benefits of a disbursement.  I mean that nobody in the chain starting with the originator has paid that consideration and thus nobody in that chain of command is party to an enforceable contract. Like the fabricated assignments, allonges and endorsements, the existence of a paper instrument even if signed does not mean that the provisions contained therein are enforceable. Under contract law it is the transaction that must have consummated between the parties to the written contract. THAT is something that does not occur, even in the c leanest of cases, until after the closing and sometimes months or even years after.

By revealing the absence of a payment by the originator, one accomplishes two things. (1) the written loan contract (note and mortgage or Deed of Trust) was never enforceable and thus cannot be enforced by successors. (2) clear violations of TILA disclosure requirements have been violated.

BUT none of this means that there is no debt — assuming that money appeared after closing. The debt exists. The homeowner does owe money. And while the homeowner does not owe just anyone, he/she owes money to the person or parties who are out of pocket for the loan. Their remedy is probably an action in equity seeking to claim the paperwork AFTER they have proven that they are the real parties in interest. Or, their remedy would be simply the equitable action for unjust enrichment. In the first case they MIGHT preserve the mortgage encumbrance. In the second, they have no collateral.

Banks Fighting Subpoenas From FHFA Over Access to Loan Files

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

Get a consult! 202-838-6345

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

WHAT IF THE LOANS WERE NOT ACTUALLY SECURITIZED?

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

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

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

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

foreclosureblues.wordpress.com

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

Loan File Issue Brought to Forefront By FHFA Subpoena

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

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

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

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

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

The fact that servicers and trustees have been stonewalling even these

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

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

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

bald intransigence displayed by these financial institutions. After

all, they generally have clear contractual obligations requiring them

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

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

these private institutions would have should the dispute wind up in

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

suits.

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

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

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