SERVICER ADVANCES: The Big Modification—> Foreclosure Scam by Wells Fargo and Others — “Better be 90 days behind”

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

This is not a legal opinion on any specific case. Get a lawyer.



The Big Question:

How can there be a declaration of default

when the creditor is showing no default and no loss on its books?

I have been through the ringer myself, as the homeowner in the article linked above said about himself. We have a steady policy of the banks luring homeowners into default or luring them into deeper defaults. The reason is clear. They want the foreclosure — not the house and definitely not the money owed. As one BOA manager said “we are in the foreclosure business not the modification business.” The facts are always the same: the homeowner is faced with two choices based upon the information that comes from the only source he or she knows about — the party claiming to own the loan or claiming the authority to service the loan. In nearly all cases neither representation is true.

The two choices are to find another way to get help from friends and relatives (i.e., forget about modification) or go into a default. The message is perfectly clear that the “customer representative” is inviting them to go into default. But they have a script that carefully avoids the direct words of “I am telling you to go into default.” And so nearly all judges say that this is not illegal legal advice and not fraudulent misrepresentation, even though the homeowner is told that there is nobody else they can talk to about their loan.

Millions of homeowners were looking for modification rather than a free house — mostly on loans that had reset to unaffordable monthly payments that were not properly disclosed at closing and which should never have been approved by any legitimate underwriting process. In fact, such loans were never approved prior to the era of the illusion of securitization in the secondary markets where mortgage loans are bought and sold. Industry practices, rules and regulations preventing banks from approving loans in which it was obvious that some or all of the terms would be breached based upon current information. So if a borrower is approved for a mortgage with a teaser payment of $500 per month in a household that grosses $50,000 per year, it is obvious what will happen when the payment resets to $5,000 per month ($60,000 per year) — $10,000 more than their entire income.

The ONLY reason why such loans were approved is that the banks were not putting the bank at risk in such loans and were making money hand over fist in the “secondary” markets that were completely under the control of the same banks. They sold that loan as though the $5,000 per month would be paid — and even had ratings and insurance indicating that the loan was “low risk” when the bank knew for sure that default was imminent due to the reset  of the amount of payments. And in fact, payments were made to the investor creditors just as expected —> but paid by the investment bank as “Servicer advances.”

But were they really paying the certificate holders in REMIC Trusts? Yes, but they were paying investors out of their own money which was hijacked into a commingled slush fund. But since they were called “servicer advances” that are now being bundled as derivatives and sold to the same investors as securitized debt, it is the SERVICER who has a claim for the advanced money even though it wasn’t their money that funded the “advances” which were really refunds out of the money paid by the investors themselves.

The banks created this scheme so that investors would remain ignorant that anything was wrong with the portfolio despite mountains of delinquencies that were DECLARED BY THE SERVICER to be “defaults.” And so the investors would buy more “mortgage backed” securities they were neither mortgage backed nor securities because the Trust never saw a penny of the offering of mortgage backed bonds and never operated nor purchased nor received ownership of the loans.

Those “advances” or refunds or whatever you want to call them can be “recovered” (I would say stolen) by the investment banks masquerading as the Master Servicer of a REMIC Trust that existed only on paper and not in the real world. But they can only “recover” those advances (that they are quickly selling to investors through new securitization schemes) if the property goes into foreclosure. If the property is foreclosed then the servicer no longer needs to make advances although in many cases it continues to do so in order to keep the investors in the dark. But more importantly it is ONLY when the property is sold that the “Master Servicer” can “recover” those servicer advances.

It’s complicated. But if you stop for a moment and put pencil to paper suddenly the reason for those long delays in prosecuting foreclosures becomes crystal clear. The investment bank is using the investor money to make “advances” to the investor to make good on the expectations of the investor in receiving income from their “investment.” Since the investment bank is not actually making the advances, the “receivable” due to the investment bank under this convoluted scheme increases with each passing month (without any corresponding liability or expense). So the investment bank that controls the slush fund where investor money is kept, makes payments to the investor for the amounts due regardless of whether the borrowers are paying.

In the example above, they want to keep that time running as long as possible. By making advances of $5,000 per month, that is $60,000 per year and over an 8 year period, for example, the receivable is now $480,000 without the bank having to spend one dime and in fact, actually collecting fees during the entire time at a premium rate for those loans that are distressed. So they have a $480,000 asset waiting. But there is a catch. They can only get the $480,000 if the property is foreclosed and the property is sold. It is only out of the sale proceeds that the bank as “master Servicer” can lay claim for its $480,000. Of course in the end the investors get screwed because that $480,000 was their money and THEY should have received it. But they didn’t and they don’t. Just read the prospectuses on the bundling of “servicer advances.”

So Wells Fargo and other banks adopted strategies that lure homeowners into default and get them believing and hoping they will get a modification when in fact they don’t give the modifications at all. In truth they are neither authorized to collect the money nor enforce the obligation because their so-called authority comes from the PSA for a REMIC Trust that was never used, never funded, never in operation. And they do it in a variety of ways—

Here are some excerpts from the article in the above link from about a year ago: Article

Wells Fargo put them “through the ringer”. “We were happy living in a rural-suburban area. Time went by quickly. One thing that we always did was pay our bills on time. We took pride in our credit score, which were 760 each. We were so proud when we needed a new car we could just “walk” off the lot with it. [I’m] not sure what happened, where everything went wrong. I actually believe it was President Obama telling Americans to apply for a Home Affordable Modification Program (HAMP) loan. When job loss occurred in our family, I was aware that we would qualify for that loan and I called Wells Fargo to inquire. They put us through the ringer. That is what started our tumble down the credit hole. Wells Fargo approved a forbearance agreement, while we submitted a HAMP application in 2009.” – See more at:

[HAMP had been introduced by the Obama administration as a tool to help homeowners keep their homes. It turned out that the yellow brick road led many into foreclosure disasters – a prolonged disaster that kept homeowners’ hope alive while chipping away their savings, their equity, and ruining their credit scores. Americans were watching in disbelief while the servicers and banks didn’t comply with the HAMP requirements, continued with dual tracking (processing modifications and foreclosing at the same time), pushing homeowners towards in-house modifications even when they qualified for HAMP, and many other irregularities.] – See more at:

This is when the games began,” continued J.S. “The forbearance ruined my credit score. Every fax I sent to Wells Fargo has not been received – that’s what their representatives claimed. Week after week, always [with] a two-week lag. Always something missing. Then I started my Internet research on “lost paper work” and I found Living Lies website, which led to Foreclosure Hamlet, and now Facebook. My search for answers brought many wonderful people in my life together with the answers and they helped me through the darkest moments of my life. [Editor’s note: Ruining the credit score of the homeowner is key to insuring a foreclosure. If their credit score remained high they would be able to refinance and the investment bank as Master Servicer would have no claim for “servicer advances.”]

“In 2009 I was informed by a Wells Fargo representative that I may not be approved because someone moved my application out of the review folder from her computer! Their incompetence was limitless. Eventually I was approved for a modification, but it was more than my original mortgage. However, I wanted to save my house at all costs. At this time I had a good job. [But] after the BP oil spill my salary was cut in half and I re-applied for the HAMP loan in 2010. – [Editor’s Note: I have personal knowledge and tape recordings of Wells Fargo employees speaking without realizing they were being recorded by their own system. In those recordings they acknowledged that images and data from one borrower was mixed in with another. They agree that they shouldn’t admit that to the borrower. Then Wells Fargo blames the borrower for not having sent the required documentation which they have had all along or destroyed. Evidence in a case involving BOA and other banks shows that on a periodic basis the banks simply destroy all applications and submissions by borrowers.]

“I was told by Wells Fargo that we had to be 90 days late before they would consider my HAMP loan application. At that time, I still had a great credit score, and now they were telling me to actually STOP PAYING MY MORTGAGE. I think that I literally freaked out then. I didn’t want to lose my home.” [This is the big one. And up till now it has been foolproof. Most homeowners are unaware of the news or history of other borrowers. So when they are told about the “90 day” requirement, they think they don’t qualify for relief unless they withhold payments for 90 days. But that isn’t true for two reasons — the bank is only telling them about the policy of Wells Fargo, not the investors (sometimes Fannie or Freddie).  The bank is creating the impression that they are a reliable source of information when in fact they are lying to the borrower in order to get them into default, foreclosure, sell the property and then claim “Servicer advances.”]

One of the biggest traps by the servicers during the HAMP modification process was pushing homeowners into default without telling them that they would be reported by those same servicers to the credit agencies, thus ruining their credit.] – See more at:

“After reluctantly not paying my mortgage for 90 days, I was able to apply for a HAMP loan. Again every fax I sent was lost. I didn’t know what to do anymore. My frustration reached its limits and I realized that next time I will FedEx my documents, so they can’t lose it, since there will be a tracking number as a proof of delivery. The new HAMP application letter stated that paper work was due on or before Feb. 14, 2011. I gathered everything and sent on Feb. 3, 2011. It was received on Feb. 4, 2011, and signed via FedEx tracking. On Feb. 16, 2014, I received a letter from Wells Fargo that my documents were not received. WHAT? I called them right away. They say they never received my package. After I cried over the phone, their representative sounded very upset and finally told me, ‘We have some of your documents, but things are missing.’ – See more at:

“I called FedEx and spoke to the supervisor of the delivery person and she tried to call Wells Fargo but I was told no one would answer the phone and she never contacted me again. I had no choice but to wait for foreclosure proceedings. They obviously wanted to give me the run around. I was served Dec. 27, 2011. I was ready. – See more at:

Mystery Solved! It’s the Servicers Who want the Foreclosure NOT the Certificate Holders or the “Trust”


So here is absolute proof that the real party in interest in the foreclosures are the unsecured servicers and also proof that the “default” never occurred. Notice how Freddie Mac figures in. Despite all denials and lies in court it is obvious that the servicers are, through one means or another, advancing payments to the certificate holders regardless of the payment status of the borrowers. And there are other people paying the creditors (certificate holders) as well. That means the secured creditors of the homeowner got paid, which means there is no default and they never declared one.

And THAT is why you rarely see US Bank as Trustee for the blah blah Pass through Certificates Trust hereby declares a default in your obligation; they don’t say that because neither the Trust nor the certificate holders have been short-changed, even as the servicer declares a default and moves toward foreclosure. This also explains why they don;t modify nearly as much as they should — they don’t collect their servicer advances that way. They only collect when there is a foreclosure and the property is sold. Why do they make those payments? Simple: They pay the certificate holders (1) so the certificate holders (investors) are kept in the dark about the real quality of the loan pool and (2) to lull the investors into a false sense of security such that they buy more of these worthless mortgage bonds.

The new “creditor” is the servicer who made the advances BUT they are unsecured. The only reason for the push for foreclosure is to make money selling new certificates of new securitization vehicles based upon the repayment rights of the servicer NOT the payments of the borrower. That means that the only party interested in the foreclosure is the servicer who (a) wants to stop making payments and (b) wants to collect on the unsecured volunteer payments the servicer made to creditors of the homeowner.

The story is that the servicers need to borrow the money in order to pay the certificate holders, but that isn’t true. They would never take that risk when the whole model is based upon the absence of risk. A close look at any REMIC prospectus, reveals a provision that says that some of the money of investors will be deposited into a pool that can be used to pay the investors their expected return on investment — i.e., their own money. Yes it’s a Ponzi scheme, but it is disclosed (not that anyone read it). AND the truth is that ALL of the invested money was pooled into accounts that had nothing to do with the REMIC trust.

And THAT is why the banks cannot connect the dots between the alleged loan closing, at which investor money was being used, and the paperwork which shows payees on the note and mortgagees on the mortgage as parties who have no relationship with the investors whose money was used to fund the loan. Bottom Line: The Banks are stealing from both ends.

Excerpts from the article:

There are some new features that issuers have to build into servicer advance trusts under the new rating criteria but “it’s been workable and issuers are finding ways to get deals done that work,” said Tom Hiner, a partner at law firm Hunton & Williams who has advised on a number of such transactions.

New Residential Investment Corp. is currently in the market with a $1.5 billion deal dubbed NRZ Advance Receivables Trust 2015-ON1. The real estate investment trust recently acquired the assets of Home Loan Servicing Solutions from Ocwen Financial; this deal refinances two existing securitizations, HLSS Servicer Advance Receivables Trust and HLSS Servicer Advance Receivables Trust.

The advance facility is backed by reimbursement rights to private-label mortgage-backed securities.

In June, Ocwen completed $450 million servicer advance refinancing of its Freddie Mac financing facility (formerly OFSART). The transaction securitizes the reimbursement rights to funds advanced on mortgages insured by the government-sponsored enterprise. S&P’s ratings on the notes issued by the deal, Ocwen Freddie Advance Funding LLC’s series 2015-T1, 2015-T2 and 2015-VF1, ranged from AAA to BBB and pay a weighted average interest rate of 2.225%.

In a July conference call discussing second-quarter earnings, Ocwen executives said the deal was positively received; it was upsized by $50 million and the advance rate on the notes was 8 percentage points higher than the facility it refinanced.

Hiner expects much of the market activity in the next two quarters to come from refinancing portions of the often unrated variable funding note commitments extended by bank lenders during the S&P moratorium on rating deals with term ABS.

This trend could result in a total of 10 to 12 term ABS deals by the end of the third quarter, according to Hiner.

The new deals have new features to address S&P’s recalibrated rating methodology, which takes into account the potential for extended timelines for reimbursements, the liquidity risk of the notes under stressed conditions, and the servicer’s ability to continue advancing based on its credit quality.

Timelines are further adjusted based on the actual recent experience of the servicer in recouping advances. The criteria establish “standard” reimbursement curves along with “above standard” and “below standard” ones for different advance types and rating scenarios.

The new methodology also includes a more stringent liquidity reserve fund requirements; this requirement varies according to the geographic diversification of receivables in the master trust.

“In a high-stress scenario, you could have potential issues where you didn’t receive cash from the receivables because you may not be liquidating properties as quickly,” said Jeremy Schneider, the agency’s director of RMBS ratings.

Hiner also expects to see more additional deals backed by repayments rights to advances on agency mortgages, similar to Ocwen’s. While servicing mortgages guaranteed by Fannie and Freddie is not as capital intensive as servicing nonagency mortgage securitizations, Hiner thinks that more participants with agency servicing portfolios will look to the ABS market for funding.

S&P’s older criteria for rating servicer advance receivables securitizations was not tailored for agency RMBS, simply because it had not seen many deals backed by IOUs from Fannie and Freddie. “But now there is more of an appetite,” said Waqas Shaikh, S&P’s managing director for RMBS ratings. The new criteria takes this into account.

Nationstar is the only other issuer to previously place agency notes under its Nationstar Agency Advance Funding Trust in January 2013.

There might not be any more deals from New Residential, however. The REIT said during its second-quarter earnings call that it has $3.5 billion of additional financing to fund increased balances of servicer advance receivables and upcoming maturities. The company acquired $5.1 billion of reimbursement rights through its purchase of HLSS; its portfolio now totals $8.5 billion.

And Ocwen, which has so far sold $66 billion of agency MSRs, is in the process of selling another $25 billion, according to its second-quarter earnings report. However, the issuer intends to remain in the agency space. On the company’s April 30 conference call to discuss operating results for the first quarter, CEO Ron Faris said Ocwen did not intend to sell any of its Ginnie Mae MSRs and would not completely exit GSEs or servicing or lending. The issuer still has $34 billion in GSE servicing rights and approximately $8 billion of GSE subservicing, and plans to continue to originate and service new Fannie Mae, Freddie Mac and FHA loans.

However, Ocwen executives said that they remain “optimistic” that the company will eventually be able to resume purchasing mortgage servicing rights based on discussions with the New York Department of Financial Services and the California Department of Business Oversight. The servicer’s ability to acquire new MSRs is currently restricted as part of last year’s settlements with the two regulators over its practices.”

Dan Edstrom senior forensic analyst for livinglies, says –This article lists many of the major servicers – some of whom have outright denied making payment advances in response to discovery from homeowners …
  • So homeowner is obligated to make payments
  • The note references others obligated also (guaranty / surety)
  • The PSA references the obligation and requirement to make advances of principal and interest
  • The PSA references the ability to make use of an “advance facility” to fund advances
  • Investors purchase securities (providing funding through the advance facility)
  • The funds from the advance facility investors are funneled through the trust to certificateholder investors to cover all payments that were required but were not made on the pool of loans in the trust
  • The servicer skims off their fees from the funds, which means they were paid their servicing fee even though the homeowner may not have made any payment
And of course the advance facility is a securitization, so there are other fees that are now spread across each of the “loans” that have missed payments, adding to the costs and fees charged to the homeowner and most likely ultimately paid by the original trust investors (it costs them money for the process where by they are paid even though the loan payments are not performing, and then the payments are pulled back from them later when the property is “liquidated” by foreclosure, shortsale or whatever).
The entire process is a scam. The investors would make more money of loan workouts were done instead of forcing homeowners into foreclosure.
Office: 916.207.6706

Rockwell P. Ludden, Esq. — A Lawyer who gets it on Securitization and Mortgages


As I write this, I have no recall of Mr. Ludden before today. BUT his article in of all places, the Cape Cod Times, struck me as astonishing in its concise description of the illegal foreclosures that are skimming past Judges desks with hardly a look much less the usually required judicial scrutiny. He says

No one should have the legal right to take your home merely by winking and nodding their way around a significant flaw in the securitization model and whatever burrs it may leave on the industry’s saddle. …

Is there anyone with a present contractual connection to you or the loan who has actually suffered a default? If not, any… foreclosure begins to bear an uncanny resemblance to double dipping.

It is time for Judges to dust off the principle of fundamental fairness that lies at the heart of our legal system, demand a level playing field, and stand behind alternatives to foreclosure that serve the legitimate interests of homeowner and industry alike.

His article is both insightful and concise, which is more than I can say for some of the things that I have written at length. And I guess if you are in the Cape Cod area it probably would be a good idea to contact him at He pierces through layers upon layers of subterfuge by the financial industry and comes up with the right conclusion — separation not just of note and mortgage — but more importantly the separation between the note and the ultimate certificate that spells out the rights of a creditor to repayment and the rights of anonymous individuals and entities to foreclose. In securitization practice the note ceases to exist.

He correctly concludes that the assignments (and I would add endorsements and powers of attorney) are a sham, designed to conceal basic flaws in the entire securitization model. The only thing I would add is something that has not quite made it to the surface of these chaotic waters — that the money from the investors never made it into the trust — something that is perfectly consistent with ignoring the securitization model and the securitization documents.

The ‘assignment’ creates the appearance of [the] missing connection. But it is all hogwash, the only discernible purpose of which is to grease the skids for an illegal foreclosure. It is done long after the Trust has closed its doors. [referring to both the cutoff date and the fact that the trust actually does not ever get to own the debt, loan, note or mortgage]

The banks kept the money and assigned the losses to the investors. Then they bet on the losses and kept the profits from their intentionally watered down underwriting practices. Then they stole the identity of the borrowers and the investors and bought insurance that covered “losses” that were never incurred by the named insured — the Banks. The family resemblance to Ponzi scheme seems closer than mere double dipping in an infinite scheme of dipping into the funds of thousands of institutional investors and into the lives of millions of homeowners.

see also A 21st Century Trust Indenture Act?

posted by Adam Levitin

Why Is the PSA Relevant?

Many judges in foreclosure actions continue to rule that the securitization documents are irrelevant. This would be a correct ruling in the event that there were no securitization documents. Otherwise, the securitization documents are nothing but relevant.

There are three scenarios in which the securitization documents are relevant:

  1.  The party claiming to be a trustee of a trust is claiming to have the rights of collection and foreclosure.
  2.  The party claiming to be the servicer  for a trust is claiming to have the rights of collection and foreclosure.
  3.  The party claiming to be the holder with rights to enforce is claiming to have rights of collection and foreclosure. If the party claims to be a holder in due course, the inquiry ends there and the borrower is stuck with bringing claims against the intermediaries, being stripped of his right to raise defenses he/she could otherwise have made against the originator, aggregator or other parties.

The securitization scheme can be summarized as follows:

  1.  Assignment and Assumption agreement:  This governs procedures for the closing. This is an agreement between the apparent originator of the loan and an undisclosed third-party aggregator. This agreement exists before the first application for loan is received by the originator, and before the alleged “closing.” It governs the behavior of the originator as well as the rights and obligations of the originator. Specifically it states that the originator has no rights to the whatsoever. The aggregator is used as a conduit for the delivery of funds to the closing table at which the borrower is deceived into thinking that he received a loan from the originator when in fact the funds were wired by the aggregator on behalf of an unknown fourth party. The unknown fourth party is a broker-dealer acting as a conduit for the actual lenders. The actual lenders are investors who believe that they were buying mortgage bonds issued by a REMIC trust, which in turn would be using the money raised from the offering of the bonds for the purpose of originating or acquiring residential loans. Hence the assignment and assumption agreement is highly relevant because it dictates the manner in which the closing takes place. And it demonstrates that the loan was a table funded loan in a pattern of conduct that is indisputably “predatory per se.” It also demonstrates the fact that there was no consideration between originator and the borrower. And it demonstrates that there was no privity between the aggregator and the borrower. As the closing agent procured the signature of the borrower on false pretenses. Interviews with document processors for both originators closing agents now show that they would not participate in such a closing where the identity of the actual lender was intentionally withheld.
  2.  The pooling and servicing agreement: This governs the procedures for collection, disbursement and enforcement. This is the document that specifies the authority of the trustee, the servicer, the sub servicers, the documents that should be held by the servicer, the servicer advance payments, and the formulas under which the lenders would be paid. Without this document, none of the parties currently bring foreclosure actions would have any right to be in court. Without this document trustee cannot show its authority to represent the trust or the trust beneficiaries. Without this document servicer cannot show that it performed in accordance with the requirements of a contract, or that it was in privity with the actual lenders,  or that it had any right of enforcement, or that it computed correctly the amount of payment required from the borrower and the amount of payment required to be made to the lenders. It also specifies the types of third party payments that are made from insurance, swaps and other guarantors or co-obligors.
  3. Of specific importance is the common provision for servicer advances, in which the creditors are receiving payments in full despite the declaration of default by the servicer.  In fact, the declaration of default by the servicer is actually an attempt to recover money that was voluntarily paid to the creditor. It is not correctly seen as a declaration of default nor any right to demand reinstatement nor any right to accelerate because the creditor is not showing any default. It is a disguised attempt to assert a claim for unjust enrichment because the servicer made payments on behalf of the borrower, voluntarily, to the creditor that are not recoverable from the creditor. Usually they make this payment by the 25th of each month. Hence any prior delinquency is cured each month and eliminates the possibility of a default with respect to the creditor on the residential loan.

It is argued by the banks and accepted by many judges that mere possession of the note sufficient to enforce it in the amount demanded by the servicer. This is wrong. The amount demanded by the servicer and does not take into account the actual payments received by the actual creditor. Accordingly the computation of interest and principal is incorrect. This can only be shown by reference to the securitization documents, including the assignment and assumption agreement, the pooling and servicing agreement, the prospectus and supplements to the PSA and Prospectus.

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

Use of Factual Findings of Servicer Advances

It is important that the content of the report dealing withservicer advances be argued strenuously.Servicer advances have been received by the creditor, thus reducing the amount the creditor is expecting to be paid. Hence there should be reduction in the amount that is due from the borrower — to the extent thatactual payments have been received by that creditor on this account whether the borrower was the source of those payments or not.The servicer has agreed to make the payments to the creditor regardless of whether the Borrower paid or not and has continued to make payments apparently right up through the present. The Title and Securitization report says that.

Hence there could have been no default. The acceleration was a breach of contract, the amount due for reinstatement was wrong, the amount due in the Notice of Default was wrong, and the amount due as claimed in the lawsuit is wrong. simply stated, there is no basis for a foreclosure lawsuit or even a suit on the note.

The servicer is trying to convert a hypothetical claim against the borrower fro advancing payments into a claim by the creditor. It is masking the fact that the creditor has been paid and that the servicer wants to recover the amounts advanced in lieu of payments from the borrower.

That would, at best, be an action for unjust enrichment, if they were able to prove the elements and it would not be secured by the mortgage.

The mortgage only secures indebtedness on the note — not to a claim outside of the note where a third party either as volunteer or intermeddler made the payments. The note is evidence of a debt owed by borrower (debtor) to the creditor. The creditor is the Trust according to their own pleadings.

Hence the creditor is not alleged to have a default on its books and records because it has been paid. The mortgage only secures THAT debt to THAT creditor. If it were otherwise, off record transactions would cloud the title on  virtually every mortgage loan creating uncertainty in the marketplace where no lender would make loans because they could never be sure whether some off record activity had occurred and that the payoff of the previous “lender” had included the money due to the secured party. Such a subsequent lender might inadvertently be placing itself in a  position of liability to the borrower for an overpayment to the creditor.

I provide litigation assistance and expert witnesses with real credentials who will corroborate this in expert declarations, affidavits and live testimony, if the facts match what is stated above. call 954-495-9867 or 520-405-1688.


Mortgage Lenders Network and Wells Fargo Battled over Servicer Advances

It is this undisclosed yield spread premium that produces the pool from which I believe the servicer advances are actually being paid. Intense investigation and discovery will probably reveal the actual agreements that show exactly that. In the meanwhile I encourage attorneys to look carefully at the issue of “servicer advances” as a means to defeat the foreclosure in its entirety.

As usual, the best decisions come from cases where the parties involved in “securitization” are fighting with each other. When a borrower brings up the same issues, the court is inclined to disregard the borrower’s defense as merely an attempt to get out of  a legitimate debt. In the Case of Mortgage Lenders  versus Wells Fargo (395 B.K. 871 (2008)), it is apparent that servicer advances are a central issue. For one thing, it demonstrates the incentive of servicers to foreclose even though the foreclosure will result in a greater loss to the investor then if a workout or modification had been used to save the loan.

See MLN V Wells Fargo

It also shows that the servicers were very much aware of the issue and therefore very much aware that between the borrower and the lender (investor or creditor) there was no default, and on a continuing basis any theoretical default was being cured on a monthly basis. And as usual, the parties and the court failed to grasp the real economics. Based on information that I have received from people were active in the bundling and sale of mortgage bonds and an analysis of the prospectus and pooling and servicing agreements, I think it is obvious that the actual money came from the broker dealer even though it is called a “servicer advance.” Assuming my analysis is correct, this would further complicate the legal issues surrounding servicer advances.

This case also demonstrates that it is in bankruptcy court that a judge is most likely to understand the real issues. State court judges generally do not possess the background, experience, training or time to grasp the incredible complexity created by Wall Street. In this case Wells Fargo moves for relief from the automatic stay (in a Chapter 11 bankruptcy petition filed by MLN) so that it could terminate the rights of MLN as a servicer, replacing MLN with Wells Fargo. The dispute arose over several issues, servicer advances being one of them. MLN filed suit against Wells Fargo alleging breach of contract and then sought to amend based on the doctrine of “unjust enrichment.” This was based upon the servicer advances allegedly paid by MLN that would be prospectively recovered by Wells Fargo.

The take away from this case is that there is no specific remedy for the servicer to recover advances made under the category of “servicer advances” but that one thing is clear —  the money paid to trust beneficiaries as “servicer advances” is not recoverable from the trust beneficiaries. The other thing that is obvious to Judge Walsh in his discussion of the facts is that it is in the servicing agreements between the parties that there may be a remedy to recover the advances; OR, if there is no contractual basis for recovering advances under the category of  “servicer advances” then there might be a basis to recover under the theory of unjust enrichment. As always, there is a complete absence in the documentation and in the discussion of this case as to the logistics of exactly how a servicer could recover those payments.

One thing that is perfectly clear however is that nobody seems to expect the trust beneficiaries to repay the money out of the funds that they had received. Hence the “servicer advance” is not a loan that needs to be repaid by the trust or trust beneficiaries. Logically it follows that if it is not a loan to the trust beneficiaries who received the payment, then it must be a payment that is due to the creditor; and if the creditor has received the payment and accepted it, the corresponding liability for the payment must be reduced.

Dan Edstrom, senior securitization analyst for the livinglies website, pointed this out years ago. Bill Paatalo, another forensic analyst of high repute, has been submitting the same reports showing the distribution reports indicating that the creditor is being paid on an ongoing basis. Both of them are asking the same question, to wit:  “if the creditor is being paid, where is the default?”

One attorney for US bank lamely argues that the trustee is entitled to both the servicer advances and turnover of rents if the property is an investment property. The argument is that there is no reason why the parties should not earn extra profit. That may be true and it may be possible. But what is impossible is that the creditor who receives a payment can nonetheless claim it as a payment still due and unpaid. If the servicer has some legal or equitable claim for recovery of the “servicer advances” then it can only be against the borrower, on whose behalf the payment was made. This means that a new transaction occurs each time such a payment is made to the trust beneficiaries. In that new transaction the servicer can claim “contribution” or “unjust enrichment” against the borrower. Theoretically that might bootstrap into a claim against the proceeds of the ultimate liquidation of the property, which appears to be the basis upon which the servicer “believes” that the money paid to the trust beneficiaries will be recoverable. Obviously the loose language in the pooling and servicing agreement about the servicer’s “belief” can lead to numerous interpretations.

What is not subject to interpretation is the language of the prospectus which clearly states that the investor who is purchasing one of these bogus mortgage bonds agrees that the money advanced for the purchase of the bond can be pooled by the broker-dealer; it is expressly stated that the investor can be paid out of this pool, which is to say that the investor can be paid with his own money for payments of interest and principal. This corroborates my many prior articles on the tier 2 yield spread premium. There is no discussion in the securitization documents as to what happens to that pool of money in the care custody and control of the broker-dealer (investment bank). And this corroborates my prior articles on the excess profits that have yet to be reported. And it explains why they are doing it again.

It doesn’t take a financial analyst to question why anyone would think it was a great business model to spend hundreds of millions of dollars advertising for loan customers where the return is less than 5%. The truth in lending act passed by the federal government requires the participants who were involved in the processing of the loan to be identified and to disclose their actual compensation arising from the origination of the loan — even if the compensation results from defrauding someone. Despite the fact that most loans were subject to claims of securitization from 2001 to the present, none of them appear to have such disclosure. That means that under Reg Z the loans are “predatory per se.”

To say that these were table funded loans is an understatement. What was really occurring was fraudulent underwriting of the mortgage bonds and fraudulent underwriting of the underlying loans. The higher the nominal interest rate on the loans (which means that the risk of default is correspondingly higher) the less the broker-dealer needed to advance for origination or acquisition of the loan; and this is because the investor was led to believe that the loans would be low risk and therefore lower interest rates. The difference between the interest payment due to the investor and the interest payment allegedly due from the borrower allowed the broker-dealers to advance much less money for the origination or acquisition of loans than the amount of money they had received from the investors. That is a yield spread premium which is not been reported and probably has not been taxed.

It is this undisclosed yield spread premium that produces the pool from which I believe the servicer advances are actually being paid. Intense investigation and discovery will probably reveal the actual agreements that show exactly that. In the meanwhile I encourage attorneys to look carefully at the issue of “servicer advances” as a means to defeat the foreclosure in its entirety.

I caution that when enough cases have been lost as a result of servicer advances, the opposition will probably change tactics. While you can win the foreclosure case, it is not clear what the consequences of that might be. If it results in a final judgment for the homeowner then it might be curtains for anyone to claim any amount of money from the loan. But that is by no means assured. If it results in a dismissal, even with prejudice, it might enable the servicer to stop making advances and then declare a default if the borrower fails to make payments after the servicer has stopped making the payments. Assuming that a notice of acceleration of the debt has been declared, the borrower can argue that the foreclosing party has elected its own defective remedy and should pay the price. If past experience is any indication of future rulings, it seems unlikely that the courts will be very friendly towards that last argument.

Attorneys who wish to consult with me on this issue can book 1 hour consults by calling 520-405-1688.

Challenging Deeds Issued After Auction (Sale) of Property

One of the rewarding aspects of what I do is to see more and more people not only hopping on board, understanding securitization, but adding to the body of knowledge I have amassed. In the following article Bill Paatalo, who has done the loan level accounting for many of our readers, expands upon a topic that I have introduced (and of course Dan Edstrom) but not explained nearly as well as Bill does: see

EDITOR’S NOTE: I would add that where servicer advances are paid to the creditor (or who we think is the creditor), then there is often an overpayment, which might account for why the “credit bid” is lower than the total amount demanded by the servicer for redemption or reinstatement. This anomaly could void the notice of default and notice of sale and create a problem on the amount required for redemption after the so-called sale.

The legal issue presented by Bill is whether the party who submitted the bid satisfies the state’s legal definition of a creditor who is allowed to submit a credit bid at closing in lieu of cash. This issue is fairly easily analyzed before any order or judgment is entered by a court.

But afterwards, because of the rubber stamping, the judgments mostly state something along the lines that $XXXX.XX is owed by the borrower to the opposing party in litigation. The judgment is final until overturned by appeal or a motion to vacate.

That Judgment makes them a possible creditor and even raises the presumption that they are a creditor when in fact there was no evidence to support that finding in the order or judgment. And ordinarily the courts require that the motion or other attack be verified by a sworn statement from the homeowner. That gets tricky because without having an actual forensic report in your hands, how would the borrower even know about such things?

The judgment can be attacked for fraud because the opposing party had never entered into a transaction wherein it paid value (see Article 9 of UCC) to originate or acquire the loan. Procedural rules vary from state to state on  how this is done and the time limit fro such challenges. In fact, none of the people in the cloud of “securitization” paid anything for the loan, with the exception of the servicer who is credited with having paid servicer advances to the creditor when in fact it appears as though the servicer advances were paid by the investment bank who reserved money out of the pool of money advanced by investors to pay the investors out of their own money. Hence, we see the reason for calling the scheme a PONZI scheme. This is why the issue of STANDING keep bouncing back front and center.

Without an attack on the Judgment I doubt if your state law will allow you to challenge the sale or the sale price. Obviously, before you act on anything on this blog, you need to consult with an attorney who is licensed and experienced in such matters and who practices in the jurisdiction in which your property is located.

For those who are good with computer graphics, here are two drawings I recently made to describe the process of securitization as it played out. The bottom line is that the investment bank diverted the money from the trust and diverted the documentation that was due to the investors to its own strawmen, trading on that documentation and making a ton of money while the investor/lenders and homeowner/borrowers lost either everything or a substantial amount of their wealth that ended up in the pocket of the banks. Anyone who is good with graphics is invited to donate their time to this website and make my hand drawn sketches easier to read and perhaps animated. Neil Garfield Securitization Diagrams 12-20-13

Posted by BPIA on December 18, 2013 bi Bill Paatalo:

For the past couple of years, I have been providing clients with the internal loan level accounting data, which reveals in most instances of private securitization, that all payments “due” on the notes have been paid regularly by undisclosed “co-obligors.” Thus there becomes an issue of fact as to whether or not the “note” is actually in “default.” Word through the grapevine is that this particular argument is gaining some momentum in certain jurisdictions throughout the United States.

Well now it’s time to use the same internal accounting data to attack those dubious “Trustee’s Deeds.” In non-judicial foreclosure states, a ”Trustee’s Deed Upon Sale” or Trustee’s Deed” is recorded after the foreclosure sale. Often, the property is sold back to the supposed creditor into what is called “REO” status. In cases where the subject loans were alleged to have been securitized, the Trustee’s Deed will typically state that the Trustee for “XYZ Mortgage-Backed Trust” was the “highest bidder” at the sale and paid cash in the amount of $………..(whatever dollar figure.) There are many reasons to question the validity of these documents; such as the actual parties submitting the “credit bids,” and whether or not any actual cash exchanged hands as attested to under notary acknowledgment. However, there is a way to provide evidence and proof that no such payment ever exchanged hands.

The following language was extracted from a typical Trustee’s Deed:

Trustees Deed language snip

In this particular case, the alleged amount owed in the “Notice of Default” was roughly $314,000.00. A check of the internal accounting for this particular loan (6-months after the sale) shows the loan in “REO” status with no such payment having ever been applied. In fact, the certificateholders (investors) are still receiving their monthly payments of P&I with the trust showing “zero” losses.

This is good hard evidence that the sale and subsequent Trustee’s Deed filed in this case was a “sham” transaction.

If your loan was alleged to have been securitized by a private mbs trust, and your home sold in similar fashion with a recorded Trustee’s Deed, contact me today ( to see if your Trustee’s Deed matches up with the internal accounting data.

Living lies now offers Expert Affidavits showing what was stated in the Trustee’s Deed as opposed to what has actually occurred behind the curtains. See Most people ask for consults with me and/or the expert, like Bill, so their lawyer understands what to do with this information.


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