Rooker Feldman Explained — Finally

The RF doctrine is generally thought to mean that anything that was litigated in state court cannot be brought up in Federal court and that the reverse is also true. One of my anonymous contributors has detected a case that makes the whole RF doctrine thing and res judicata doctrines COMPARED and found to be different.

Here is what he sent me from the decision

from the case:

What   Johnson   adds—what   the   defendants   in   this   suit   have   failed   to   appreciate—is   that   federal   courts   retain   juris-­‐‑ diction   to   award   damages   for   fraud   that   imposes   extra-­‐‑ judicial   injury.   The   Supreme   Court   drew   that   very   line   in   Exxon  Mobil:

Nor  does  [the  doctrine]  stop  a  district  court  from  exercising  sub-­‐‑ ject-­‐‑matter   jurisdiction   simply   because   a   party   attempts   to   liti-­‐‑ gate   in   federal   court   a   matter   previously   litigated   in   state   court.   If   a   federal   plaintiff   “present[s]   some   independent   claim,   albeit   one   that   denies   a   legal   conclusion   that   a   state   court   has   reached   in   a   case   to   which   he   was   a   party   …   ,   then   there   is   jurisdiction   and   state   law   determines   whether   the   defendant   prevails   under   principles   of   preclusion.”   GASH   Assocs.   v.   Rosemont,   995   F.   2d   726,  728  (7th  Cir.  1993);  accord  Noel  v.  Hall,  341  F.  3d  1148,  1163– 1164  (9th  Cir.  2003).

544   U.S.   at   293.   In   other   words,   if   a   plaintiff   contends   that   out-­‐‑of-­‐‑court   events   have   caused   injury   that   the   state   judici-­‐‑ ary  failed  to  detect  and  repair,  then  a  district  court  has  juris-­‐‑ diction—but   only   to   the   extent   of   dealing   with   that   injury.   As  we  wrote  in  Johnson,  the  federal  court  cannot  set  aside  the   state  court’s  judgment.

Iqbal   alleges   that   the   defendants   conducted   a   racketeer-­‐‑ ing   enterprise   that   predates   the   state   court’s   judgments.   He   cannot   have   those   judgments   annulled   but   can   contend   that   he   was   injured,   out   of   court,   by   being   “set   up”   by   Patel   and   Johnson   so   that   they   could   take   over   his   business   and   reap   the   profits   he   anticipated.   The   district   court   believed   that   any  pre-­‐‑litigation  fraud  is  “intertwined”  with  the  state  court   judgments   and   therefore   forecloses   federal   litigation,   but   Exxon   Mobil   shows   that   the   Rooker-­‐‑Feldman   doctrine   asks No.  14-­‐‑1959   5  

what  injury  the  plaintiff  asks  the  federal  court  to  redress,  not   whether  the  injury  is  “intertwined”  with  something  else.  See   544  U.S.  at  291;  see  also  Richardson  v.  Koch  Law  Firm,  P.C.,  768   F.3d   732,   734   (7th   Cir.   2014)   (deprecating   any   inquiry   into   what  is  intertwined  with  what).  

Because  Iqbal  seeks  damages  for  activity  that  (he  alleges)   predates  the  state  litigation  and  caused  injury  independently   of   it,   the   Rooker-­‐‑Feldman   doctrine   does   not   block   this   suit.   It   must  be  reinstated.  

Logically   the   district   court’s   next   inquiry   is   whether   the   doctrine   of   claim   preclusion   (res   judicata)   applies.   (Exxon   Mobil  observes,  544  U.S.  293,  that  preclusion  differs  from  the   Rooker-­‐‑Feldman   doctrine   and   comes   to   the   fore   once   the   fed-­‐‑ eral   court   concludes   that   it   has   subject-­‐‑matter   jurisdiction.)   At   least   two   decisions   by   intermediate   appellate   courts   in   Indiana   hold   that   fraud   causing   nonpayment   is   a   compulso-­‐‑ ry   counterclaim   in   a   debt-­‐‑collection   suit.   Ratcliff   v.   Citizens   Bank,   768   N.E.2d   964,   967–69   (Ind.   App.   2002);   Broadhurst   v.   Moenning,  633  N.E.2d  326,  331–32  (Ind.  App.  1994).  Cf.  Fox  v.   Maulding,   112   F.3d   453   (10th   Cir.   1997)   (similar   conclusion   under  Oklahoma  law).  State  law  determines  the  rules  of  pre-­‐‑ clusion,  see  28  U.S.C.  §1738,  so  the  district  court  will  need  to   decide   whether   the   Supreme   Court   of   Indiana   is   likely   to   agree  with  these  decisions,  and  if  so  whether  there  is  any  ex-­‐‑ ception  to  the  rules  of  preclusion.  The  court  also  will  need  to   consider   whether   Patel   and   Johnson   receive   the   benefits   of   any   compulsory-­‐‑counterclaim   requirement,   given   that   S-­‐‑ Mart  Petroleum  was  the  sole  plaintiff  in  the  state  actions.

The   judgment   is   reversed,   and   the   case   is   remanded   for   further  proceedings  consistent  with  this  opinion.

20 days for the Banks to File Lawsuit or Waive Any Claim Against Borrower’s TILA Rescission

NEW FEATURE: YOU KNOW THERE IS SOMETHING STUPID GOING ON: You know there is something stupid going on when the banks have us thinking that our FICO score is more important than having money. Isn’t that the real reason wages stagnated (replacing wages with debt)?

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For further information please call 954-495-9867 or 520-405-1688

This is not a legal opinion on your case. It is no substitute for an opinion from local licensed counsel who has done the research through Jesinoski.

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So the question that is coming up is the wrong question.”How do we know the bank’s defenses can’t be raised after 20 days.” The very fact that anyone asks that question means that they either have not read or perhaps did not understand the US Supreme Court in Jesinoski. The bank’s CLAIMS are not DEFENSES. They can’t be raised as defenses because rescission is full, final and complete the moment it is dropped into the mailbox. Reading conditions or contingencies into the TILA statute is wrong. In fact, it is illegal and unconstitutional.

The question people are asking shows that many lawyers and many borrowers still don’t understand the simplicity of rescission under TILA. Everyone seems to reading into it the same way the thousands of courts in millions of decisions did — who were reprimanded by Justice Scalia speaking for a unanimous Supreme Court in Jesinoski. The Supreme Court says, in essence “STOP reading into the statute.” Nobody has a right to do that when the statute is clear on its face. Any attempt at interpreting conditions into TILA rescission is wrong and always has been wrong. AND THAT MEANS THAT RESCISSION IS EFFECTIVE BY OPERATION OF LAW ON THE DAY WHEN IT WAS SENT IN THE MAIL.”

How do we know this? Because the statute says so. End of discussion. Why can’t we continue arguing about it or questioning it? because the Supreme Court said so. The discussion is over.

The bank is required to comply with the TILA rescission within 20 days. And as Justice Scalia said, the statute is clear on its face and therefore NOT subject to a judge’s interpretation of it. So the point is that the rescission has already happened the moment the borrower drops it in the mail.
If the bank feels aggrieved by the rescission they must petition a court for relief — to get the court to agree that the suing party has standing and that they have meritorious CLAIMS (not defenses). Their action must specify why they should not be obligated to comply with the TILA rescission statute. But there are no grounds specified in the statute that state or even imply that if the banks raise issues about whether the rescission was proper, they could be relieved for that reason. And the bank (or its successor) can only do that within 20 days from the date the notice was mailed. The reason for the 20 days is that Congress specifically wanted to deprive the banks of any opportunity of trapping the borrower into an unwanted loan deal.

The statute does not allow for any stonewalling by the banks. How do we know? — because it isn’t there in the statute. If your question relates to “why couldn’t the bank…”[fill in the blank] the answer is “because it isn’t in the clear unambiguous statute.”

Congress gave the banks 20 days in which to comply. After that, they are in violation of the statute. They have blown the time to comply. So IF they want to bring a lawsuit, they MUST file within 20 days while the clock is still ticking on when compliance with TILA rescission is due.  Any other interpretation would negate the 20 day compliance requirement (improper “interpretation” of the statute).

Think about it. If the banks could bring their claims as defenses, then the rescission would never be truly effective until a Judge said so —exactly the opposite of what the statute says, exactly contrary to the Supreme Court ruling on exactly that subject and exactly in violation of the Federal Reserve (REG Z).

Many of you are searching for something in the statute that not only isn’t there, it also doesn’t belong there considering the goal of the statute. Any attempt to read something “extra” or contingent into the statute is clearly unauthorized after the Jesinoski decision.

In the lawsuit filed by the bank (or successor) they can raise the issues that so many people are calling “defenses” but the entire burden is on them to prove (a) JURISDICTION: standing without the void note and mortgage and (b) whatever grounds they want to assert that they should be relieved from their obligation to comply with the statute. There is nothing contingent about the rescission.

When the Notice of Rescission is dropped in the mail it is done and has the same effect as a Judge entering a court order and having the court order made a part of a court record. But the statute removes the requirement that the rescission be made a part of any court record, and removes any possibility that the borrower would need to sue to GET a rescission. This is the part that most lawyers and borrowers are still not comprehending probably because they can’t believe it would be that easy.

This is not to say that there won’t be litigation after rescission as banks attempt to wriggle out of this perfectly clear statute that is “unambiguous” according to a unanimous US Supreme Court. The effect of this statue means that all disclosures to all investors were wrong, possibly fraudulent and certainly incomplete.

The banks will try everything they can think of because in most cases they cannot file (lack of standing) the lawsuit seeking to get relief from the TILA statutes requiring their compliance with TILA rescission, to wit: (a) return of the canceled promissory note, (b) filing papers to release the property from any lien or encumbrance or mortgage or deed of trust related to the subject loan and (c) paying the borrower all interest principal and fees ever paid to anyone on this loan.

It is the anticipation of further legal action — like when the borrower goes to court saying “You can’t foreclose on me because your mortgage and note are void” that  we offer the rescission package. The banks will try to raise the “defenses” that everyone is talking about. The smart lawyer won’t get pulled into that controversy. The issue is whether the rescission was mailed. If so, it was effective and is effective from that moment on.

And THAT is why our help is needed to provide local counsel with the strategies and tactics to combat the futile attempts of the bank to raise issues that they waived by not filing within the 20 days. The best example is the the Jesinoski decision itself. But there are many other cases that have started up. Most of them are getting settled on very favorable terms to the borrower but many are headed for an actual decision. With the Jesinoski decision only being final this past February, there hasn’t been enough time for these cases to wind their way all the way through the court systems.

In view of the Jesinoski decision, it is probably a stronger argument to say that NO action is permitted after the rescission notice has been sent, than to say that the banks can raise “defenses” at any time — clearly against the express wording of the statute as drafted and passed by the US Congress. To say that the banks could raise these as defenses to rescission at any time would mean that the rescission is somehow contingent upon a ruling of a court. THAT is clearly and expressly (read Scalia’s opinion) off the table thanks to the TILA Statute, the Supreme Court and the Federal Reserve (REG Z).

PRACTICE HINT FOR LAWYERS: Be careful in researching this because all decisions before Jesinoski are explicitly wrong. For the lawyer casually researching the matter it will appear as though the greater weight of the law is clearly in favor of the banks. Nothing could be further from the truth. The deck is now stacked in favor of borrowers.

OCC Finds 6 Banks Have Not Complied With Consent Orders

see OCC NR 2015-6 Servicers Actions Restricted and 3 Services Released 2015 06 17

The OCC also has determined that EverBank; HSBC Bank USA, N.A.; JPMorgan Chase Bank, N.A.; Santander Bank, National Association; U.S. Bank National Association; and Wells Fargo Bank, N.A., have not met all of the requirements of the consent orders. As a result, the amended orders issued today to these banks restrict certain business activities that they conduct. The restrictions include limitations on:

  • acquisition of residential mortgage servicing or residential mortgage servicing rights (does not apply to servicing associated with new originations or refinancings by the banks or contracts for new originations by the banks);
  •   new contracts for the bank to perform residential mortgage servicing for other parties;
  •   outsourcing or sub-servicing of new residential mortgage servicing activities to otherparties;
  •   off-shoring new residential mortgage servicing activities; and
  •   new appointments of senior officers responsible for residential mortgage servicing orresidential mortgage servicing risk management and compliance.

SEE ALSO

Related Links

Rescission Devil in the Details Tonight on the Neil Garfield Show

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Most lawyers are concluding after much study that what I am saying on the blog is correct, albeit with disgust from the bench that basically regards borrowers as deadbeats trying to get out of a debt.

The purpose of our rescission package is to get lawyers clear on the strategies for people with an old mortgage who (a) sent a notice of rescission (b) were foreclosed after the rescission notice or (c) who want to send a rescission now. Each lawyer needs to study this a bit and stop skimming. And they  need to understand what happens when the rescission is being sent now and whether to file an enforcement action or wait the one year statute at which point the entire debt is waived. Of course at that point — one year after notice of rescission) the borrower is barred from suing to enforce the rescission and is only able to sue for Quiet title because at that point the mortgage and note have been void for over one year.

I want to make sure everyone thought through the process of TILA rescission and specifically that all three duties of the “lender” must be fulfilled before they can even allege a claim for repayment, which claim is obviously not secured by any encumbrance upon real property (because the mortgage (or DOT) is void the moment the notice is mailed).

The three duties are (a) return of canceled note (b) filing a release of the encumbrance in the county records and (c) return of all money ever charged or paid in connection with the loans. It is the last point that makes it unlikely that any entity is going to actually comply. The burden is reversed — it is the “creditor” who must actually pay (not just tender) the money to the borrower before the creditor may claim mo the borrower. No exceptions.

The banks are experimenting with a bluff — saying here is the the note and we filed the satisfaction of mortgage. But without payment to the borrower of all money the borrower or anyone else paid or received in connection with the loan, they are barred from making a claim for repayment. That last issue is going to make everyone previously claiming they were in the position of “lender”  back off — because they would be paying out perhaps hundreds of thousands of dollars to the borrowers in exchange for a dubious UNSECURED claim for repayment (not based on the note or mortgage).

Patricia Rodriguez in L.A. had it right when she said that rescission changes the burden of proof. But more importantly there likely won’t be any proof or evidentiary hearing. A rescission IS EFFECTIVE by operation of law when it is mailed, regardless of whether the borrower is right or wrong about his reasons for rescission, the statute of limitations or any other argument against it. Any argument against rescission is meaningless because TILA RESCISSION is effective by operation of law and is not contingent upon anything, as the Jesinoski decision tersely stated. The creditor who feels that it is aggrieved by the legally binding rescission from the borrower may sue to vacate the rescission and reinstate the mortgage and note which were rendered void at the moment the rescission was dropped in a mailbox. That lawsuit needs to be filed within 20 days from the date the notice was mailed. (Note there is a presumption that the date on the notice is correct as to mailing).

The creditor COULD sue within the 20 days allowed for compliance with TILA Rescission or not. If the “creditor” wishes to do so, they must establish standing. Here is the rub: they can’t establish standing through the note or mortgage which by operation of law (see Reg Z) are VOID as per the cancellation of the loan contract by the notice of rescission.

The creditor would need to allege that it is either the lender who loaned money to the borrower and still possesses the loan in its portfolio (4% of all loans) or that they had purchased the debt for value — otherwise they are not a creditor because there is no debt in their chain. They can’t use the void note or mortgage as a prop or anything else because you cannot seek legal relief or remedy based on claims whose origins lay in a void instrument — the note and mortgage. There is no standing without real risk of actual monetary loss on the debt.

The reason this is so important is that it puts a stake through the heart of the claims by banks and servicers who are playing the part of creditors and authorized agents for loans that were never purchased by REMIC Trusts (securitization fail, as per Adam Levitin). The cases we have won have been exactly on that point.

None of the current players are creditors. The only party with a legitimate claim is the group of investors whose money was used to directly fund the loans. Their claim is in quantum meruit or unjust enrichment because they have signed documentation that says they can’t bring any direct claim for constructive trust for the loan documentation (i.e., allowing them to bring the foreclosure action themselves). But it has always been THEIR money and nobody else. None of the assignments are supported by actual purchases (with rare exceptions). We know that because if they paid for the debt, they would be very quick to allege that they have status as holder in due course and that would put an end to the borrower’s defenses.

TILA Rescission in a Nutshell

For more information please call 954-495-9867 or 520-405-1688

NOTE: There are strategic nuances here on when to do what. That is included in our rescission package. Some things are better left unsaid in a public forum. This is not an opinion of law upon which you should rely. You should find an attorney who has studied this issue carefully and then rely on their advice.

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On the one hand you have a bunch of lawyers and judges who have studied the remedy of TILA rescission and all of them have come up with a unanimous conclusion: the deal is canceled when a notice of rescission is put in the mail.
On the other hand you have a bunch of judges and lawyers who have not studied the situation and who have arrived at the mistaken conclusion that they may reinterpret the TILA rescission anyway they want and that the rules of common law rescission will be applied.
Who is right? Answer: group #1. How do I know? Because the Supreme Court in the Jesinoski decision has already ruled and there is no higher place to go. The ruling from the US Supreme Court was unanimous which in our highly polarized world is as unusual as the TILA rescission remedy which they affirmed. The Supreme Court is not always right, but it is always final — their ruling is the law of the land. People can differ on whether they were right or wrong in Jesinoski — but either way there is nothing anyone can do about it. Only Congress can change the law.

TILA Rescission is a strategy that should considered in virtually all consumer loan cases. This might involve an enforcement action in Federal Court or State Court. The sooner you send the rescission the sooner the 20 days will expire. It is ONLY after the 20 days that you can take the position that they are in violation of statute and that they have waived any objection to the rescission — unless they file a lawsuit against you seeking to vacate the rescission, which IS effective by operation of law, the moment you drop it in the mailbox.

There are three TILA RESCISSION duties that arise for every lender and one remedy to get out of it. The three duties are (a) return of canceled note (b) filing any papers necessary to remove the mortgage encumbrance from the homeowner’s chain of title and (c) return of all money ever paid by the borrower or to anyone in relation to the loan whether it be for fees, interest, principal or other compensation. If they want to stop these duties from being applied against any of the people in the chain that made allegations of ownership, balance, servicing or default, they must file suit, as a creditor, within 20 days from the date of the notice and get an order within that time that vacates the rescission.

The creditor has 20 days in which to comply. If they don’t comply ( or sue and get a court order) there are the following consequences: (a) they are in violation of statute, subject to an enforcement suit on their duties under rescission (b) they have waived any objection to the rescission that should have been brought as their own lawsuit within the 20 days and (c) if they continue to stonewall their obligations for one year, the creditor (if there is one) waives any right to demand any payment on the rescinded loan — the debt is extinguished along with the previously extinguished note and mortgage. Standing for the lawsuit can only be by way of allegations that they are the true creditor and cannot be based upon the void note and void mortgage because you can’t use a void instrument as the basis for any claim.

Note that the suit to enforce the rescission is NOT a suit to make the rescission effective by operation of law. The cancellation of the note and mortgage has already happened as the Jesinoski decision made abundantly clear. The note and mortgage are void as of the date of mailing of the notice of rescission.

This is a very unusual remedy for borrowers that both judges and lawyers have been misinterpreting for years. The idea that a borrower, on their own, could end a loan involving hundreds of thousands of dollars with a simple letter is NOT what the Judges or lawyers think is the right approach. It doesn’t matter what they think. Congress passed this law and it was signed into law by the President 50 years ago.

The Courts cannot reinterpret it to mean something else without violation of separation of powers between the judiciary and the legislative branches of government.What matters is that It was not until the Jesinoski decision that thousands of Judges and tens of thousands of lawyers were told that they were wrong for the last 15 years. The loan is cancelled by the mailing of the notice of rescission.

TILA Rescission is a specific statutory scheme that is different from common law rescission. What the Judges and lawyers failed to perceive when they started messing around with the interpretation of a perfectly clear statute is that if their approach was upheld, the entire system of nonjudicial foreclosure would be subject to the same reinterpretation. And for those of you who recall in nonjudicial states, the challenges to nonjudicial foreclosures were met by the banks arguing that the courts have no business interpreting a specific statutory scheme that is very clear on its face and can only be overturned if it is deemed unconstitutional on its face or in its application. The banks won, which means borrowers win on the issue of rescission.

The January ruling from a unanimous Supreme Court was unusual unto itself. The opinion written by Justice Scalia was terse and caustic — showing the court’s irritation at having to remind judges and lawyers that there is a basic rule of law that says that the court may not “interpret” a statute that is unambiguous. This statute is clear as it could be. So even if a Judge doesn’t like it or doesn’t believe it should be the law, or doesn’t like the result, the Judge has no choice but to follow the rule of law set forth in TILA, in Reg Z and in the Supreme Court decision issued in January. The only way this can change is if Congress passes a new law.

The key to your rescission strategy is going to be the answer to this question: under what circumstances is the effective date of the rescission delayed or contingent? The answer is none. That answer follows from the fact that the rescission IS effective on the date of mailing BY OPERATION OF LAW. So the issue has already been decided by Congress, the Federal Reserve (reg Z) and the US Supreme Court. Like any order or act that is effective by operation of law, rescission may be vacated — but not ignored. And like other orders or actions that are effective by operation of law, there are limits on the ability to sue for temporary or permanent injunction.
And THE bank or alleged servicer writing a letter to YOU saying that you have no right to rescind means nothing except that they received the notice — just like when you write a letter to them asking them to please not foreclose because you have in fact made all your payments. The banks and servicers ignore those letters and get foreclosure judgments and sale of the property no matter how many letters you write. If you don’t challenge them IN COURT it means nothing.

Once the 20 days has expired you need to consider whether to hire counsel to prosecute the enforcement of the rescission. Those allegations consist of reference to the note and mortgage, the fact that you did rescind the transaction and that the loan contract is canceled and then the fact that the creditors are in default of their obligations under TILA. The upside is that it should result in cancelling the foreclosure case because the mortgage and note will then be void by operation of law. The Court lacks jurisdiction to enter a judgment of foreclosure on a mortgage that is void at the time the court hears the case. The downside is that if you win the enforcement action it is going to result, if they comply, in them sending the canceled note, filing the satisfaction of mortgage and giving you the money that was paid. But THEN the creditor may, for the first time, demand payment on the old loan. [see our rescission package on further details and strategies on this]

Securitization in Review at Trial

For more information please call 954-495-9867 or 520-405-1688

SEEK THE SERVICES OF AN ATTORNEY LICENSED TO PRACTICE IN THE JURISDICTION IN WHICH YOUR PROPERTY IS LOCATED. THIS IS NO SUBSTITUTE FOR A LAWYER WHO KNOWS YOUR CASE AND LOCAL RULES AND LAWS.

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Like rescission, if you start out from the wrong place, you get eaten alive by the arguments of counsel for the banks and servicers. Assume nothing. All of it is a lie. For example take the case of the Chase WAMU merger. Chase has argued in different venues that they did acquire the loans, that they didn’t acquire the loans, that they acquired the service rights and that they didn’t acquire the servicing rights. How did Chase acquire ANY rights over a loan that was previously declared to be sold to a trust where the Trustee and servicer were declared to be other parties — especially when the Trust never actually acquired the loan?
It is not correct to say that no assignment was necessary between Chase and WAMU. It is also not correct to assume that Chase could have acquired the loan — since it was obviously claimed to be “securitized” in a WAMU trust. Hence WAMU either (a) never funded the loan in the first place or (b) sold the loan immediately into the secondary market where it was allocated to (even if it was not purchased by) the Trust. So the assumption that Chase ever owned the loan is most likely wrong. Chase MAY have acquired the servicing rights. But probably not. Even if they can prove they are in privity with the trust, that is irrelevant if the Trust never acquired the loan.

But the servicing rights exist only by virtue of the provisions in the Pooling and Servicing Agreement. There are no other documents showing the transfer of servicing rights or even the original grant of servicing rights as to this loan. At trial they will attempt to surprise counsel for the homeowner with a “power of attorney” or some other document that does not actually transfer rights and comes from a party who has no ownership or rights to enforce the loan. They have disclosed that they will introduce the PSA as evidence in the trial. But the loan most likely never made it into the trust. If that is true then the PSA is irrelevant as to the loan because it only deals with loans owned by the trust. They always decline to show us any transaction in which the Trust paid money for the loan.

The reason that they are (a) not claiming holder in due course status and (b) won’t show us that the trust actually paid for the loan is that the trust didn’t pay for the loan. In actuality, legally speaking, they destroyed the possibility of using the note as a negotiable instrument and raising the assumptions and presumptions that attach to holding a negotiable instrument. THAT results in proof of debt and proof that the debt is secured by the mortgage as to some lender in the chain, since they are not alleging holder in due course.

They probably can’t do that because WAMU was in actuality acting as a conduit and sham nominee for undisclosed “lenders” — a direct violation of the Truth in Lending Act and Regulation Z issued by the Federal reserve which dubs those loans as table funded loans and predatory per se.

Predatory per se means that it is against public policy. Since the essence of the transaction was against public policy, the court should declare that the foreclosing party has unclean hands. If the foreclosing party has unclean hands then it should not be permitted to prevail in a court of equity — in other words, the equitable remedy of foreclosure is not available.

The problem we have is that the Courts fail to recognize this analysis most of the time. They focus on the fact that the borrower has been declared in default because the borrower stopped paying. And the court further assumes that the declaration of default is (a) authorized and (b) true. Neither one is correct.

If the foreclosing party has no legal right to collect on the note or foreclose on the mortgage or even to enforce the debt in equity, then the issue of whether the borrower stopped payment is irrelevant — because the actual “creditor” or potential “claimant” has NOT declared a default (most probably because they are receiving advance payments to give the impression that the loan was performing even though the servicer had declared a default) and because the reason they have not declared the default is that they have been paid..

The servicer declares the default in part because they want to recover servicer advances, which makes them the real party in interest. But the servicer’s interest is NOT secured by the mortgage because the servicer and the borrower were never in privity and the servicer has not been assigned the mortgage. And since the creditor(s) have been paid, there actually is no default event and the declaration of default by the servicer was for its own interests, which are in conflict with the interests of the creditor who has not experienced any shortfall or default. Hence the foreclosure is wrongly used as a means to collect on the servicer’s claim for unjust enrichment for having advanced funds “on behalf” of the borrower (as a volunteer).

The borrower didn’t create this situation. This was purely a scheme of the Wall Street banks who discovered they could sell out an IPO for an inactive trust and keep the proceeds of sale of securities issued by the trust.

At trial the robo-witness  is usually a corporate representative of the servicer, not the Plaintiff (foreclosing party). This person usually has had no access or knowledge as to what is on the books and records of the creditor. They, at best, only have information about what their employer has — which is  partial snapshot of the payments made by the homeowner to one or more parties who wrongfully claimed to have an interest in the the loan. It is generally assumed that if the borrower stopped making payments that a default exists — but not if the creditor continued to receive payments under the heading of “servicer advances” or any other third party payment.

Those advances are NOT a liability of the Trust or the investors/beneficiaries. But the servicer has a claim for payment out of the proceeds of recovery from only a failed Loan, which means it is in the interest of the servicer to declare the default or failure of the loan even if that action is against the interests of the creditor and the borrower. So the servicer does NOT get paid unless the servicer is successful in declaring and enforcing a default in foreclosure, which is to say only if the servicer is successful in convincing a judge to ignore the reported status of the debt on the books of the actual creditor.

Since the interests of the service are not aligned with the creditor, the records they seek to introduce in court lack the element of trustworthiness required to qualify as an exception to the hearsay rule under the business records exception. This is how thousands of borrowers are winning their cases — but you don’t hear about it because they are paid by the banks and servicers to execute a confidentiality agreement, so the case can’t be publicized. Thus it appears that the banks and servicers are a monolith that cannot be defeated, when in fact they are losing all the time.

CFPB Cordray Increases Disgorgement from $6 Million to $109 Million Against Lender for Insurance Kickbacks

For more information please call 954-495-9867 or 520-405-1688

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see http://www.acainternational.org/cfpbarticle-cfpb-director-richard-cordray-increases-mortgage-lenders-fine-in-administrative-ruling-36088.aspx

also see http://www.lexology.com/library/detail.aspx?g=4d27518f-a3a7-4338-8070-34af71e56d9e

At the end of the day, most everyone knows most everything. Here in a patent insurance kickback scheme that was obviously not disclosed to the borrower, the Judge ordered the lender to pay $6.4 million. On appeal Director Cordray (former Ohio Attorney General) said the administrative trial judge got it wrong. Cordray raised the stakes by ordering the lender to disgorge $109 million.

As our administrative and judicial systems come to grips with the massive fraud, fabrication, and manipulation of their systems they are revealing a callous disregard not only for rules and laws, but for society at large. And while it might be hard to make the connection, this is why Congress passed the Truth in Lending Act — to level the playing field with rescission and other remedies.

The question being asked “in defense” of rescission and other remedies is why should the borrower get a free house. And the answer, obvious to everyone except those in the judicial system, is that even if the debt is erased, the house was far from free for most borrowers. But in most cases, the remedy of rescission COULD result in payment of the original loan where there was misbehavior in origination and transfer of the loan; in fact that is exactly what WOULD happen if the proper party complied with the rescission (giving back the canceled note, satisfying the mortgage on record, and giving the borrower all the money he paid or which was paid on his behalf at origination and up through all the monthly payments).

The real problem for the banks is not that they will get screwed by rescission despite all PR to the contrary. They have no skin in the game: they have neither funded nor purchased any loans. And THAT is their problem. They are not filing lawsuits to vacate the rescission (which is effective by operation of law on the day it was mailed); and the reason is that they have no party that actually has standing. They can’t come in and assert standing based upon the the allegation that they “hold” the note and mortgage because both of those instruments are void since the moment the notice of rescission was dropped in the mail. They can’t assert standing on the basis of an instrument that is void on its face and by operation of law.

So they would need a party to step up and assert that they are the creditor by virtue of having funded or purchased the loan and then that party would need to prove it. They would need to plead that without the note and mortgage they will suffer some sort of damage. And THEN they would need to allege that the rescission should be VACATED because of the statute of limitations or that the loan does not fit the description in the statute — all questions of fact that must be raised during the 20 day window before they are in violation of TILA rescission statutes. They can’t do that because the money that went into the loan came from investors in direct breach of the securitization agreements. So nobody in the chain alleged by the banks and servicers actually has any economic risk or injury from the rescission. No injury=no standing.

The investors are the real “creditors.” But they only have claims in equity that are unsecured because by contract they are barred from raising direct claims against borrowers and they were never in privity with the borrower nor were they ever in privity with the sham nominee entities in the chain. Even huge entities like Countrywide were used as sham conduits to obscure the path of the money and obscure the ownership of the loan. In fact, even the big banks were acting not as lenders but as sham nominees in an elaborate scheme in which false claims of securitization were asserted and litigated as though they were real. The end result was that the “Lenders” never showed at closing and never showed up in court. The banks and servicers used the vacuum created by “securitization fail” (See Adam Levitin) to step in as though they had the right to grab property and money in violation of various contracts, laws and rules governing their behavior.

One of the reasons the banks and servicers performed these acts was the fee income (through illegal kickbacks) they could generate in violation of law, but which were never taken seriously by most people in government. Cordray takes in very seriously. You will see more from him soon.

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