Predominant Interest Defines “True Lender”

Based on the totality of the circumstances, the Court concludes that CashCall, not Western Sky, was the true lender. CashCall, and not Western Sky, placed its money at risk. It is undisputed that CashCall deposited enough money into a reserve account to fund two days of loans, calculated on the previous month’s daily average and that Western Sky used this money to fund consumer loans. It is also undisputed CashCall purchased all of Western Sky’s loans, and in fact paid Western Sky more for each loan than the amount actually financed by Western Sky. Moreover, CashCall guaranteed Western Sky a minimum payment of $100,000 per month, as well as a $10,000 monthly administrative fee. Although CashCall waited a minimum of three days after the funding of each loan before purchasing it, it is undisputed that CashCall purchased each and every loan before any payments on the loan had been made. CashCall assumed all economic risks and benefits of the loans immediately upon assignment. CashCall bore the risk of default as well as the regulatory risk. Indeed, CashCall agreed to “fully indemnify Western Sky Financial for all costs arising or resulting from any and all civil, criminal or administrative claims or actions, including but not limited to fines, costs, assessments and/or penalties . . . [and] all reasonable attorneys fees and legal costs associated with a defense of such claim or action.”

Accordingly, the Court concludes that the entire monetary burden and risk of the loan program was placed on CashCall, such that CashCall, and not Western Sky, had the predominant economic interest in the loans and was the “true lender” and real party in interest. [E.S.]

See 8-31-2016-cfpb-v-cash-call-us-dist-ct-cal

Federal District Court Judge John Walter appears to be the first Judge in the nation to drill down into the convoluted “rent-a-bank” (his term, not mine) schemes in which the true lender was hidden from borrowers who then executed documents in favor of an entity that was not in the business of lending them money. This decision hits the bulls eye on the importance of identifying the true lender. Instead of blindly applying legal presumptions under the worst conditions of trustworthiness, this Judge looked deeply at the flawed process by which the “real lender” was operating.

A close reading of this case opens the door to virtually everything I have been writing about on this blog for 10 years. The court also rejects the claim that the documents can force the court to accept the law or venue of another jurisdiction. But the main point is that the court rejected the claim that just because the transactions were papered over doesn’t mean that the paper meant anything. Although it deals with PayDay loans the facts and law are virtually identical to the scheme of “securitization fail” (coined by Adam Levitin).

Those of you who remember my writings about the step transaction doctrine and the single transaction doctrine can now see how substance triumphs over form. And the advice from Eric Holder, former Attorney General under Obama, has come back to mind. He said go after the individuals, not just the corporations. In this case, the Court found that the CFPB case had established liability for the individuals who were calling the shots.

SUMMARY of FACTS: CashCall was renting the name of two banks in order to escape appropriate regulation. When those banks came under pressure from the FDIC, CashCall changed the plan. They incorporated Western Sky on the reservation of an an Indian nation and then claimed they were not subject to normal regulation. This was important because they were charging interest rates over 100% on PayDay loans.

That fact re-introduces the reality of most ARM, teaser and reverse amortization loans — the loans were approved with full knowledge that once the loan reset the homeowner would not be able to afford the payments. That was the plan. Hence the length of the loan term was intentionally misstated which increases the API significantly when the fees, costs and charges are amortized over 6 months rather than 30 years.

Here are some of the salient quotes from the Court:

CashCall paid Western Sky the full amount disbursed to the borrower under the loan agreement plus a premium of 5.145% (either of the principal loan amount or the amount disbursed to the borrower). CashCall guaranteed Western Sky a minimum payment of $100,000 per month, as well as a $10,000 monthly administrative fee. Western Sky agreed to sell the loans to CashCall before any payments had been made by the borrowers. Accordingly, borrowers made all of their loan payments to CashCall, and did not make a single payment to Western Sky. Once Western Sky sold a loan to CashCall, all economic risks and benefits of the transaction passed to CashCall.

CashCall agreed to reimburse Western Sky for any repair, maintenance and update costs associated with Western Sky’s server. CashCall also reimbursed Western Sky for all of its marketing expenses and bank fees, and some, but not all, of its office and personnel costs. In addition, CashCall agreed to “fully indemnify Western Sky Financial for all costs arising or resulting from any and all civil, criminal or administrative claims or actions, including but not limited to fines, costs, assessments and/or penalties . . . [and] all reasonable attorneys fees and legal costs associated with a defense of such claim or action.”

Consumers applied for Western Sky loans by telephone or online. When Western Sky commenced operations, all telephone calls from prospective borrowers were routed to CashCall agents in California.

A borrower approved for a Western Sky loan would electronically sign the loan agreement on Western Sky’s website, which was hosted by CashCall’s servers in California. The loan proceeds would be transferred from Western Sky’s account to the borrower’s account. After a minimum of three days had passed, the borrower would receive a notice that the loan had been assigned to WS Funding, and that all payments on the loan should be made to CashCall as servicer. Charged-off loans were transferred to Delbert Services for collection.

“[t]he law of the state chosen by the parties to govern their contractual rights and duties will be applied, . . ., unless either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.”
Restatement § 187(2). The Court concludes that the CRST choice-of-law provision fails both of these tests, and that the law of the borrowers’ home states applies to the loan agreements.

after reviewing all of the relevant case law and authorities cited by the parties, the Court agrees with the CFPB and concludes that it should look to the substance, not the form, of the transaction to identify the true lender. See Ubaldi v. SLM Corp., 852 F. Supp. 2d 1190, 1196 (N.D. Cal. 2012) (after conducting an extensive review of the relevant case law, noting that, “where a plaintiff has alleged that a national bank is the lender in name only, courts have generally looked to the real nature of the loan to determine whether a non-bank entity is the de facto lender”); Eastern v. American West Financial, 381 F.3d 948, 957 (9th Cir. 2004) (applying the de facto lender doctrine under Washington state law, recognizing that “Washington courts consistently look to the substance, not the form, of an allegedly usurious action”); CashCall, Inc. v. Morrisey, 2014 WL 2404300, at *14 (W.Va. May 30, 2014) (unpublished) (looking at the substance, not form, of the transaction to determine if the loan was usurious under West Virginia law); People ex rel. Spitzer v. Cty. Bank of Rehoboth Beach, Del., 846 N.Y.S.2d 436, 439 (N.Y. App. Div. 2007) (“It strikes us that we must look to the reality of the arrangement and not the written characterization that the parties seek to give it, much like Frank Lloyd Wright’s aphorism that “form follows function.”).4 “In short, [the Court] must determine whether an animal which looks like a duck, walks like a duck, and quacks like a duck, is in fact a duck.” In re Safeguard Self-Storage Trust, 2 F.3d 967, 970 (9th Cir. 1993). [Editor Note: This is akin to my pronouncement in 2007-2009 that the mortgages and notes were invalid because they might just as well have named Donald Duck as the payee, mortgagee or beneficiary. Naming a fictional character does not make it real.]

In identifying the true or de facto lender, courts generally consider the totality of the circumstances and apply a “predominant economic interest,” which examines which party or entity has the predominant economic interest in the transaction. See CashCall, Inc. v. Morrisey, 2014 WL 2404300, at *14 (W.D. Va. May 30, 2014) (affirming the lower court’s application of the “predominant economic interest” test to determine the true lender, which examines which party has the predominant economic interest in the loans); People ex rel. Spitzer v. Cty. Bank of Rehoboth Beach, Del., 846 N.Y.S.2d 436, 439 (N.Y. App. Div. 2007) (“Thus, an examination of the totality of the circumstances surrounding this type of business association must be used to determine who is the ‘true lender,’ with the key factor being ‘who had the predominant economic interest’ in the transactions.); cf. Ga. Code Ann. § 16-17-2(b)(4) (“A purported agent shall be considered a de facto lender if the entire circumstances of the transaction show that the purported agent holds, acquires, or maintains a predominant economic interest in the revenues generated by the loan.”).

Although a borrower electronically signed the loan agreement on Western Sky’s website, that website was, in fact, hosted by CashCall’s servers in California. While Western Sky performed loan origination functions on the Reservation, the Court finds these contacts are insufficient to establish that the CRST had a substantial relationship to the parties or the transaction, especially given that CashCall funded and purchased all of the loans and was the true lender. Cf. Ubaldi v. SLM Corp., 2013 WL 4015776, at *6 (N.D. Cal. Aug. 5, 2013) (“If Plaintiffs’ de facto lender allegations are true, then Oklahoma does not have a substantial relationship to Sallie Mae or Plaintiffs or the loans.”).

The Court concludes that the CFPB has established that the Western Sky loans are void or uncollectible under the laws of most of the Subject States.7 See CFPB’s Combined Statement of Facts [Docket No. 190] (“CFPB’s CSF”) at ¶¶ 147 – 235. Indeed, CashCall has admitted that the interest rates that it charged on Western Sky loans exceeded 80%, which substantially exceeds the maximum usury limits in Arkansas, Colorado, Minnesota, New Hampshire, New York, and North Carolina. (Arkansas’s usury limit is 17%; Colorado’s usury limit is 12%; Minnesota’s usury limit is 8%; New Hampshire’s usury limit is 36%; New York’s usury limit is 16%; and North Carolina’s usury limit is 8%). A violation of these usury laws either renders the loan agreement void or relieves the borrower of the obligation to pay the usurious charges. In addition, all but one of the sixteen Subject States (Arkansas) require consumer lenders to obtain a license before making loans to consumers who reside there. Lending without a license in these states renders the loan contract void and/or relieves the borrower of the obligation to pay certain charges. CashCall admits that, with the exception of New Mexico and Colorado, it did not hold a license to make loans in the Subject States during at least some of the relevant time periods.

Based on the undisputed facts, the Court concludes that CashCall and Delbert Services engaged in a deceptive practice prohibited by the CFPA. By servicing and collecting on Western Sky loans, CashCall and Delbert Services created the “net impression” that the loans were enforceable and that borrowers were obligated to repay the loans in accordance with the terms of their loan agreements. As discussed supra, that impression was patently false — the loan agreements were void and/or the borrowers were not obligated to pay.

The Court concludes that the false impression created by CashCall’s and Delbert Services’ conduct was likely to mislead consumers acting reasonably under the circumstances

The Court concludes that Reddam is individually liable under the CFPA.

“An individual may be liable for corporate violations if (1) he participated directly in the deceptive acts or had the authority to control them and (2) he had knowledge of the misrepresentations, was recklessly indifferent to the truth or falsity of the misrepresentation, or was aware of a high probability of fraud along with an intentional avoidance of the truth.” Consumer Fin. Prot. Bureau v. Gordon, 819 F.3d 1179, 1193 (9th Cir. 2016) (quotations and citations omitted).

The Court concludes that Reddam both participated directly in and had the authority to control CashCall’s and Delbert Services’ deceptive acts. Reddam is the founder, sole owner, and president of CashCall, the president of CashCall’s wholly-owned subsidiary WS Funding, and the founder, owner, and CEO of Delbert Services. He had the complete authority to approve CashCall’s agreement with Western Sky and, in fact, approved CashCall’s purchase of the Western Sky loans. He signed both the Assignment Agreement and the Service Agreement on behalf of WS Funding and CashCall. In addition, as a key member of CashCall’s executive team, he had the authority to decide whether and when to transfer delinquent CashCall loans to Delbert Services.

 

So all that said, here is what I wrote to someone who was requesting my opinion: Don’t use this unless and until you (a) match up the facts and (b) confer with counsel:

Debtor initially reported that the property was secured because of (a) claims made by certain parties and (b) the lack of evidence to suggest or believe that the property was not secured. Based upon current information and a continuous flow of new information it is apparent that the originator who was named on the note and deed of trust in fact did not loan any money to petitioner. This is also true as to the party who would be advanced as the “table funded” lender. As the debtor understands the applicable law, if the originator did not actually complete the alleged loan contract by actually making a loan of money, the executed note and mortgage should never have been released, much less recorded. A note and mortgage should have been executed in favor of the “true lender” (see attached case) and NOT the originator, who merely served as a conduit or the conduit who provided the money to the closing table.

Based upon current information, debtor’s narrative of the case is as follows:

  1. an investment bank fabricated documents creating the illusion of a proprietary common law entity
  2. the investment bank used the form of a trust to fabricate the illusion of the common law entity
  3. the investment bank named itself as the party in control under the label “Master Servicer”
  4. the investment bank then created the illusion of mortgage backed securities issued by the proprietary entity named in the fabricated documents
  5. the investment bank then sold these securities under various false pretenses. Only one of those false pretenses appears relevant to the matter at hand — that the proceeds of sale of those “securities” would be used to fund the “Trust” who would then acquire existing mortgage loans. In fact, the “Trust” never became active, never had a bank account, and never had any assets, liabilities or business. The duties of the Trustee never arose because there was nothing in the Trust. Without a res, there is no trust nor any duties to enforce against or by the named “Trustee.”
  6. the investment bank then fabricated documents that appeared facially valid leading to the false conclusion that the Trust acquired loans, including the Petitioner’s loan. Without assets, this was impossible. None of the documents provided by these parties show any such purchase and sale transaction nor any circumstances in which money exchanged hands, making the Trust the owner of the loans. Hence the Trust certainly does not own the subject loan and has no right to enforce or service the loan without naming an alternative creditor who does have ownership of the debt (the note and mortgage being void for lack of completion of the loan contract) and who has entered into a servicing agreement apart from the Trust documents, which don’t apply because the Trust entity was ignored by the parties seeking now to use it.
  7. The money from investors was diverted from the Trusts who issued the “mortgage backed securities” to what is known as a “dynamic dark pool.” Such a pool is characterized by the inability to select both depositors and beneficiaries of withdrawal. It is dynamic because at all relevant times, money was being deposited and money was being withdrawn, all at the direction of the investment bank.
  8. What was originally perceived as a loan from the originator was in fact something else, although putting a label to it is difficult because of the complexity and convolutions used by the investment bank and all of its conduits and intermediaries. The dark pool was not an entity in any legals sense, although it was under the control of the investment bank.
  9. Hence the real chain of events for the money trail is that the investment bank diverted funds from its propriety trust and used part of the funds from investors to fund residential mortgage loans. The document trail is very different because the originator and the conduits behind what might be claimed a “table funded loan” were not in privity with either the investors or the investment bank. Hence it is clear that some liability arose in which the Petitioner owed somebody money at the time that the Petitioner received money or the benefits of money paid on behalf of the Petitioner. That liability might be framed in equity or at law. But in all events the mortgage or deed of trust was executed by the Petitioner by way of false representations about the identity of the lender and false representations regarding the compensation received by all parties, named or not,
  10. The current parties seek to enforce the deed of trust on the false premise that they have derived ownership of the debt, loan, note or mortgage (deed of trust). Their chain is wholly dependent upon whether the originator actually completed the loan contract by loaning the money to the Petitioner. That did not happen; thus the various illusions created by endorsements and assignments convey nothign because the note and mortgage (deed of trust) were in fact void. They were void because the debt was never owned by the originator. hence the signing of the note makes it impossible to merge the debt with the note — an essential part of making the note a legally enforceable negotiable instrument. The mortgage securing performance under the note is equally void since it secures performance of a void instrument. Hence the property is unsecured, even if there is a “John Doe” liability for unjust enrichment, if the creditor can be identified.
  11. The entire thrust of the claims of certain self-proclaimed creditors rests upon reliance on legal presumptions attached to facially valid documents. These same entities have been repeatedly sanctioned, fined and ordered to correct their foreclosure procedures which they have failed and refused to do — because the current process is designed to compound the original theft of investors’ money with the current theft of the debt itself and the subsequent theft of the house, free from claims of either the investors or the homeowner. The investment bank and the myriad of entities that are circulated as if they had powers or rights over the loan, is seeking in this case, as in all other cases in which it has been involved, to get a court judgment or any order that says they own the debt and have the right to enforce the evidence of the debt (note and mortgage).
  12. A Judgment or forced sale is the first legal document in their entire chain of fabricated documentation; but the entry of such a document in public records, creates the presumption, perhaps the conclusive presumption that all prior acts were valid. It is the first document that actually has a legal basis for being in existence. This explains the sharp decline in “workouts’ which have dominated the handling of distressed properties for centuries. Workouts don’t solve the problem for those who have been acting illegally. They must pursue a court order or judgment that appears to ratify all prior activities, legal or not.

 

Expert Declarations, Affidavits and Testimony

The fundamental problem is that while virtually anyone can be accepted as an expert, the weight given to their testimony is zero. The reason is simple. The author most often lacks any traditional credentials other than experience as a “forensic analyst” and their work product sounds pretty good to the homeowner but sounds like advocacy to the court, presented in confused form. Such “experts” should stay away from opinions on ultimate facts or law of the case and stick with the evidence — or absence of evidence — despite all their work in attempting to dig out the truth. Then they would be taken seriously. Until then, most experts will have little or no effect on most of the cases for which they were hired.

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

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I have consistently stated in my expert witness seminars, writings and appearances that forensic analysts must be very careful NOT to call themselves experts in fields for which they lack qualifications and that it is far better to stay away from opinion evidence, which sounds like advocacy and lacks credibility, and stick with the facts that when presented carefully, might indeed hold sway with a court.I would add that for each time a forensic analyst gives testimony, there should also be n accountant who says “Yes, he/she used the correct standards.”
At this point most work done by most forensic analysts is between good and excellent —  but for their presentation — or at least that part that contains advocacy and opinions. Most have zero qualifications to really give opinions except MAYBE on the weight or quality of evidence. Their testimony has been thrown out of court or rejected because of this.

They would do much better by presenting FACTUAL findings as a forensic analyst and then applying instructions from counsel, answering the questions posed to them. Their graphs are meaningless to anyone other than people like me who already know the details. The Judges do not give any weight to such graphs and drawings because it comes off as advocacy instead of an independent expert.

They should state their qualifications which CAN include experience. Then they should state what questions have been posed to them. Then state the simple answer to the question. Then state the factual reason for the answer — something besides “everyone knows” or “it’s on the internet.”

The “expert” witness should state the work performed in coming to THAT SPECIFIC ANSWER. Don’t cross the line regularly into opinion evidence for which the witness has no qualifications to render an opinion — generally the witness is not an expert in banking practices, underwriting practices for loans or issuance of securities, bond trading, title, law, or accounting. If these witnesses would remove opinions their presentation would be much improved.

The way you get around opinions is to ask the right question. Instead of an opinion of who owns what loan, which the “expert” is not qualified to give they can still contribute without doing any different work. The witness  should be asked a question like “can you find any evidence to support the claim of XYZ that they are the owner of this loan?” or “Can you find any evidence that would identify the creditor in this transaction?” Then he/she could answer no, and tell the story about what standards were used, how and why those standards were applied, how he/she was given those standards to use, and how he/she tried to find the evidence but could not locate it and his/her opinion, as a forensic analyst for many years, that he/she has looked in all the places where one would expect to find such evidence. She therefore has concluded that notwithstanding the assertions of the XYZ company, there is no such evidence that would pass muster in the real world — in either a legal or accounting setting.

She could refer to the auditing standards of the FASB as what she used for guidance. Everything must be based upon some accepted standard. There is plenty of material there that says that what the banks are using in court is not acceptable in performing an audit and giving a clear opinion that the financial statements fairly represent the financial condition of the entity or their interest in an entity. Testimony from a CPA who performs audits verifying that the auditing standards she used were correct would go along way to giving the witness credibility.

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Florida FCCPA Has Teeth

The FCCPA is one of those statutes that are often missed opportunities to hold the banks and servicers accountable for illegal conduct. It is like “Mail Fraud” which only applies to US Postal Services (the reason why servicers prefer to communicate through Fedex or other private mail carriers.

REMEMBER THE ONE YEAR STATUTE OF LIMITATIONS. THE TIME RUNS FROM EACH NEW ACT PROHIBITED BY THE STATUTES.

Some of the prohibited practices are self explanatory. But others deserve comment and guidance:

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

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§559.72(5): Disclosure of alleged debt. This could be one of the grounds for an FCCPA action. If you accept the premise that in most cases the disclosing party has neither ownership nor authorization over the alleged debt, then it would follow that reporting to third parties about the debt would illegal under this section. This is escalated in the event that the “debt” (i.e., a description of a liability owed by A to B) does not exist. B may not be the creditor. Neither B nor any successor or other third party would be acting appropriately if they communicated with each other if neither “successors” nor B had any ownership or authority over the liability of A.
§559.72(6): Failure to disclose to third party that debtor disputes the debt. The catch here is “reasonably disputed.” But as you look at an increasing number of case decisions Judges are finding an absence of evidence supporting the claims of banks and servicers. After a failed attempt t foreclosure, it might be reasonably presumed that the debtor/homeowner was reasonably disputing the debt. After all he/she won the case.
§559.72(9): Enforcing an illegitimate debt. This one is self evident and yet it forms the basic structure and strategy of the banks and servicers. Perhaps my labeling is too narrow. The facts are that (A) alleged REMIC Trusts are making completely false claims about the Mortgage Loan Schedule and (B) banks and servicers are directly making false claims without the charade of the alleged trusts. This one has traction.
§559.72(15): Improper identification of the debt collector. My reasoning is that when the debt collector calls and says they are the servicer for the creditor, this section is being violated and the breach interferes with the HAMP and other loan modification programs. It is a pretty serious breach designed to lure the homeowner into foreclosure. Continued correspondence with the false servicer and the  false or undisclosed creditor probably doesn’t waive anything but it does given them an argument that you never objected. So my suggestion is that homeowners and their attorneys object to all such communications until they provide adequate evidence that they can identify the creditor (with evidence that can be confirmed) and adequate evidence that the creditor has indeed selected the debt collector as the servicer. My thinking is that as soon as they refuse to identify the creditor(s) they are in potential violation of this section.
§559.72(18): Communication with person represented by counsel. This is meant to prevent the debt collector from making an end run around the the lawyer. But it does get in the way of efficient communications. The alleged “servicer” starts sending correspondence tot he lawyer thus delaying the response. And the debt collector will call the lawyer to disclose the loan and ask for details about the loan, the property or the alleged debtor that are known only by the homeowner.

Florida Statutes §559.72 Prohibited practices generally.—In collecting consumer debts, no person shall:

(1) Simulate in any manner a law enforcement officer or a representative of any governmental agency.
(2) Use or threaten force or violence.
(3) Tell a debtor who disputes a consumer debt that she or he or any person employing her or him will disclose to another, orally or in writing, directly or indirectly, information affecting the debtor’s reputation for credit worthiness without also informing the debtor that the existence of the dispute will also be disclosed as required by subsection (6).
(4) Communicate or threaten to communicate with a debtor’s employer before obtaining final judgment against the debtor, unless the debtor gives her or his permission in writing to contact her or his employer or acknowledges in writing the existence of the debt after the debt has been placed for collection. However, this does not prohibit a person from telling the debtor that her or his employer will be contacted if a final judgment is obtained.
(5) Disclose to a person other than the debtor or her or his family information affecting the debtor’s reputation, whether or not for credit worthiness, with knowledge or reason to know that the other person does not have a legitimate business need for the information or that the information is false.
(6) Disclose information concerning the existence of a debt known to be reasonably disputed by the debtor without disclosing that fact. If a disclosure is made before such dispute has been asserted and written notice is received from the debtor that any part of the debt is disputed, and if such dispute is reasonable, the person who made the original disclosure must reveal upon the request of the debtor within 30 days the details of the dispute to each person to whom disclosure of the debt without notice of the dispute was made within the preceding 90 days.
(7) Willfully communicate with the debtor or any member of her or his family with such frequency as can reasonably be expected to harass the debtor or her or his family, or willfully engage in other conduct which can reasonably be expected to abuse or harass the debtor or any member of her or his family.
(8) Use profane, obscene, vulgar, or willfully abusive language in communicating with the debtor or any member of her or his family.

(9) Claim, attempt, or threaten to enforce a debt when such person knows that the debt is not legitimate, or assert the existence of some other legal right when such person knows that the right does not exist.

(10) Use a communication that simulates in any manner legal or judicial process or that gives the appearance of being authorized, issued, or approved by a government, governmental agency, or attorney at law, when it is not.
(11) Communicate with a debtor under the guise of an attorney by using the stationery of an attorney or forms or instruments that only attorneys are authorized to prepare.
(12) Orally communicate with a debtor in a manner that gives the false impression or appearance that such person is or is associated with an attorney.
(13) Advertise or threaten to advertise for sale any debt as a means to enforce payment except under court order or when acting as an assignee for the benefit of a creditor.
(14) Publish or post, threaten to publish or post, or cause to be published or posted before the general public individual names or any list of names of debtors, commonly known as a deadbeat list, for the purpose of enforcing or attempting to enforce collection of consumer debts.

(15) Refuse to provide adequate identification of herself or himself or her or his employer or other entity whom she or he represents if requested to do so by a debtor from whom she or he is collecting or attempting to collect a consumer debt.

(16) Mail any communication to a debtor in an envelope or postcard with words typed, written, or printed on the outside of the envelope or postcard calculated to embarrass the debtor. An example of this would be an envelope addressed to “Deadbeat, Jane Doe” or “Deadbeat, John Doe.”
(17) Communicate with the debtor between the hours of 9 p.m. and 8 a.m. in the debtor’s time zone without the prior consent of the debtor.

(a) The person may presume that the time a telephone call is received conforms to the local time zone assigned to the area code of the number called, unless the person reasonably believes that the debtor’s telephone is located in a different time zone.
(b) If, such as with toll-free numbers, an area code is not assigned to a specific geographic area, the person may presume that the time a telephone call is received conforms to the local time zone of the debtor’s last known place of residence, unless the person reasonably believes that the debtor’s telephone is located in a different time zone.
(18) Communicate with a debtor if the person knows that the debtor is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address, unless the debtor’s attorney fails to respond within 30 days to a communication from the person, unless the debtor’s attorney consents to a direct communication with the debtor, or unless the debtor initiates the communication.
(19) Cause a debtor to be charged for communications by concealing the true purpose of the communication, including collect telephone calls and telegram fees.
History.—s. 18, ch. 72-81; s. 3, ch. 76-168; s. 1, ch. 77-457; ss. 1, 6, ch. 81-314; ss. 2, 3, ch. 81-318; ss. 1, 3, ch. 83-265; ss. 7, 13, ch. 93-275; s. 819, ch. 97-103; s. 1, ch. 2001-206; s. 4, ch. 2010
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CHASE FALSE CLAIMS COMPLAINT REVEALED IN INVESTOR LAWSUIT

This lawsuit reveals a reason for Chase slipping in a new servicer into the chain. Having already discharged or released a loan, the “accounts” were nonetheless transferred or sold in derogation of the rights of investors who had already purchased them from Chase.

Chase decreased its liabilities, increased its revenues, avoided its obligations, and provided little to no relief to consumers.

all loan modification programs must be made available to all borrowers, who may then apply to determine eligibility. Hundreds of thousands of borrowers’ accounts, in the RCV1 system of records, were not considered for all eligible loss mitigation options (even though they could likely have qualified).

Hundreds of thousands of borrowers’ mortgage loan accounts in the RCV1 system of records were not offered and thereby unable to be considered for all eligible loss mitigation options (even though they likely could have qualified)

numerous borrowers, whose 1st mortgages had been sold by Chase to the Relator, had their 1st mortgages liens quietly released.

The Program Guidelines pursuant to the Treasury Directives are cataloged in the MHA Handbook (“Handbook”).

UNITED STATES OF AMERICA, THE
STATES OF CALIFORNIA,
DELAWARE, FLORIDA, GEORGIA,
HAWAII, ILLINOIS, INDIANA, IOWA,
MASSACHUSETTS, MINNESOTA,
MONTANA, NEVADA, NEW
HAMPSHIRE, NEW JERSEY, NEW
MEXICO, NEW YORK, NORTH
CAROLINA, RHODE ISLAND,
TENNESSEE, VIRGINIA, AND THE
DISTRICT OF COLUMBIA.,

Plaintiffs,

Ex rel. LAURENCE SCHNEIDER,
Plaintiff-Relator,

v.

J.P. MORGAN CHASE BANK,
NATIONAL ASSOCIATION, J.P.
MORGAN CHASE & COMPANY; AND
CHASE HOME FINANCE LLC,
Defendants.

Case. No. 1:14-cv-01047-RMC

Judge Rosemary M. Collyer

SECOND AMENDED COMPLAINT

<excerpt>

I. INTRODUCTION

A. Defendant’s Fraud

3. Defendant Chase’s fraud arises out of its response to efforts by the United States Government (“Government” or “Federal Government”) and the States (the “States”)1 to remedy the misconduct of Chase and other financial institutions whose actions significantly contributed
to the consumer housing crisis.

4. Defendant’s misconduct resulted in the issuance of improper mortgages, premature and unauthorized foreclosures, violation of service members’ and other homeowners’ rights and protections, the use of false and deceptive affidavits and other documents, and the waste and abuse of taxpayer funds.

Each of the allegations regarding Defendant contained herein applies to instances in which one or more, and in some cases all, of the defendants engaged in the conduct alleged.

5. In March 2012, after a lengthy investigation (in part due to other qui tam
plaintiffs) under the Federal False Claims Act, the Government, along with the States, filed a complaint against Chase and the other banks responsible for the fraudulent and unfair mortgage practices that cost consumers, the Federal Government, and the States tens of billions of dollars. Specifically, the Government alleged that Chase, as well as other financial institutions, engaged in improper practices related to mortgage origination, mortgage servicing, and foreclosures, including, but not limited to, irresponsible and inadequate oversight of the banks’ quality control standards.

6. These improper practices had previously been the focus of several administrative enforcement actions by various government agencies, including but not limited to, the Office of the Controller of the Currency, the Federal Reserve Bank and others. Those enforcement actions
resulted in various other Consent Orders that are still in full force and effect.

7. In April 2012, the United States District Court for the District of Columbia approved a settlement between the Federal Government, the States, the Defendant and four other banks, which resulted in the NMSA. The operative document of this agreement was the Consent Judgment (“Consent Judgment” or “Agreement”). The Consent Judgment contains, among other things, Consumer Relief provisions. The Consumer Relief provisions required Chase to provide over $4 billion in consumer relief to their borrowers. This relief was to be in the form of, among other things, loan forgiveness and refinancing. Under the Consent Judgment, Chase received “credits” towards its Consumer Relief obligations by forgiving or modifying loans it maintained as a result of complying with the procedures and requirements contained in Exhibits D and D-1 of the Consent Judgment.

8. The Consent Judgment also contains Servicing Standards in Exhibit A that were intended to be used as a basis for granting Consumer Relief. The Servicing Standards were tested through various established “Metrics” and were designed to improve upon the lack of quality control and communication with borrowers. Compliance was overseen by an
independent Monitor.

9. The operational framework for the Servicing Standards and Consumer Relief requirements of the NMSA was based on a series of Treasury Directives that were themselves designed as part of the Making Home Affordable (MHA) program. The MHA program was a critical part of the Government’s broad strategy to help homeowners avoid foreclosure, stabilize the country’s housing market, and improve the nation’s economy by setting uniform and industry-wide default servicing protocols, policies and procedures for the distribution of federal and proprietary loan modification programs.

10. Before the Consent Judgment was entered into, Chase sold a significant amount of its mortgage obligations to individual investors. Between 2006 and 2010, the Relator bought the rights to thousands of mortgages owned and serviced by Chase. Unbeknownst to the Relator, these mortgages were saturated with violations of past and present regulations, statutes and other governmental requirements for first and second federally related home mortgage loans.

11. After both the Consent Judgment was signed and the MHA program was in effect, numerous borrowers, whose 2nd lien mortgages had been sold by Chase to the Relator, received debt-forgiveness letters from Chase that were purportedly sent pursuant to the Consent Judgment.

12. Relator, through his contacts at Chase, was made aware that 33,456 letters were sent by Chase on September 13, 2012 to second-lien borrowers. On December 13, 2012 another approximately 10,000 letters were sent, and on January 31, 2013 another approximately 8,000 letters were sent, for a total of over 50,000 debt-forgiveness letters. These letters represented to the recipient borrowers that, pursuant to the terms of the NMSA, the borrowers were discharged from their obligations to make further payments on their mortgages, which Chase stated, it had
forgiven as a “result of a recent mortgage servicing settlement reached with the states and federal government.” None of these borrowers made an application for a loan modification as required by the Consent Judgment. These letters were not individually reviewed by Chase to ensure that Chase actually owned the mortgages or to ensure the accuracy and integrity of the borrower’s information but instead were “robo-signed”; each of the letters sent out was signed by “Patrick
Boyle” who identified himself as a Vice President at Chase.

13. Relator’s experience with Chase’s baseless debt-forgiveness letters was not unique. Several other investors were also affected by Chase choosing to mass mail the “robo-signed” debt-forgiveness letters to thousands of consumers from its system of records in order to earn credits under the terms of the Consent Judgment and to avoid detection of its illegal and
discriminatory loan servicing policies and procedures.

14. In addition to the debt forgiveness letters sent, and after both the Consent Judgment was signed and the MHA program was in effect, numerous borrowers, whose 1st mortgages had been sold by Chase to the Relator, had their 1st mortgages liens quietly released.

15. Relator, through his third party servicer, which was handling normal and customary default mortgage servicing activities, was made aware that several lien releases were filed in the public records on mortgage loans that were owned by Relator in the fall of 2013. Through Relator’s subsequent investigation of the property records for 1st mortgage loans that Chase had previously sold to Relator, scores of additional lien releases were also discovered.

16. During the course of Relator’s investigation of Chase’s servicing practices, he discovered that Chase maintains a large set of loans outside of its primary System of Records (“SOR”), which is known as the Recovery One population (“RCV1” or “RCV1 SOR”). RCV1 was described to the Monitor by Chase as an “application” for loans that had been charged off
but still part of its main SOR. However, once loans had been charged off by Chase, the accuracy and integrity of the information pertaining to the borrowers’ accounts whose loans became part of the RCV1 population was and is fatally and irreparably flawed. Furthermore, the loans in the
RCV1 were not serviced according to the requirements of Federal law, the Consent Judgment, the MHA programs or any of the other consent orders or settlements reached by Chase with any government agency prior to the NMSA.2

17. Chase’s practice of sending unsolicited debt-forgiveness letters to intentionally pre-selected borrowers of valueless loans did not meet the Servicing Standards set out in the Consent Judgment to establish eligibility for credits toward its Consumer Relief obligations. This practice enabled Chase to reduce its cost of complying with the Consent Judgment and MHA program, while at the same time enhancing its own profits through unearned Consumer Relief credits and MHA incentives. Chase sought to take credit for valueless charged-off and third-party owned loans instead of applying the Consumer Relief under the NMSA and MHA2 By letter dated September 16, 2015 to Schneider’s counsel, in reference to Relator’s claim that “Chase concealed from the Monitor and MHA-C both the existence of the RCV1 charged-off and the way those loans were treated for purposes of HAMP solicitations and NMS metrics
testing”, Chase’s counsel stated that “Those allegations are wholly incorrect. Chase repeatedly disclosed the relevant facts to both the Monitor and MHA-C.”

Schneider’s counsel requested that Chase provide all documents demonstrating the “relevant facts” to support Chase’s statement. Chase has refused to provide said documents, citing Chase‘s concerns with providing documents that it had previously provided to the U.S.
Government. While Chase has offered to allow Chase’s counsel to read such documents “verbatim” to Schneider’s counsel, Schneider knows of no supportable reason why documents previously disclosed to the U.S. Government should not be shared with Schneider in his capacity
as a Relator under the FCA. No privilege exists for such a claim and therefore Schneider has rejected this limitation. Such documents, if they in fact exist, should be produced before such a defense can be raised, particularly because Chase’s counsel has raised the issue of Rule 11
responsibilities.

18. The Servicing Standards and the Consumer Relief Requirements of the Consent Judgment are set forth in Exhibits A and D of that document. The Consent Judgment is governed by the underlying Servicer Participation Agreements of the MHA program, which required mandatory compliance with the Treasury Directives under the MHA Handbook (“Handbook”). Chase is required to demonstrate compliance with the Handbook’s guidelines in the form of periodic certifications to the government. Chase ignored the requirements of Exhibits A and D of the Consent Judgment, especially with respect to the RCV1 population of loans. Therefore, Chase has been unable to service with any accuracy the charged-off loans it
owns and to segregate those loans that it no longer owns. As such, any certifications of compliance with the Consent Judgment or the Services Participation Agreement (“SPA”) are false claims.

19. Relator conducted his own investigations and found that the Defendants sent loan forgiveness letters to consumers for mortgages that Chase no longer owns or that were not eligible for forgiveness credit. Further, Chase continues to fail to meet its obligations to service
loans and to prevent blight as required by both the Consent Judgment and SPA. Chase’s intentional failure to monitor, report and/or service these loans, and its issuance of invalid loan forgiveness letters and lien releases, evidence an attempt to thwart the goal of the Consent Judgment and the MHA program. The purpose of this scheme was to quickly satisfy the
Defendant’s Consumer Relief obligations as cheaply as possible, without actually providing the relief that Chase promised in exchange for the settlement that Chase reached with the Federal Government and the States. In addition, Chase applied for and received MHA incentive
payments without complying with the MHA mandatory requirements. In short, Chase decreased its liabilities, increased its revenues, avoided its obligations, and provided little to no relief to consumers.

20. The mere existence of RCV1 makes all claims by Chase that it complied with the Servicing Standards and the Consumer Relief Requirements of the Consent Judgment false. Likewise, the existence of RCV1 makes all claims by Chase that it complied with the SPA of the MHA program false.

B. Damages to the Government Related to the NMSA

21. Exhibit E of the Consent Judgment provides for penalties of up to $5 million for failure to meet a prescribed Metric of the Servicing Standards. Exhibit E, ¶ J.3(b) at E15.

22. Exhibit D of the Consent Judgment provides:

If Servicer fails to meet the commitment set forth in these Consumer Relief Requirements within three years of the Servicer’s Start Date, Servicer shall pay an amount equal to 125% of the unmet commitment amount, except that if Servicer fails to meet the two year commitment noted above, and then fails to meet the three year commitment, the Servicer shall pay an amount equal to 140% of the unmet three-year Commitment amount.

Exhibit D, ¶10.d. at D-11.

23. The required payment set out in Exhibit D, ¶10.d is made either to the United States or the States that are parties to the Consent Judgment. Fifty percent of any payment is distributed to the United States. Consent Judgment, Exhibit E, ¶ J.c.(3)c. at E-16.

24. As explained in more detail below, Chase was required to certify that it was in compliance with the Servicing Standards and the Consumer Relief Requirements. Many, if not all, of the loans that Chase identified for credits against the $4 billion Consumer Relief provisions were not eligible for the credit, because Chase did not comply with the Servicing
Standards or the Consumer Relief Requirements. Specifically, all loan modification programs must be made available to all borrowers, who may then apply to determine eligibility. Hundreds of thousands of borrowers’ accounts, in the RCV1 system of records, were not considered for all eligible loss mitigation options (even though they could likely have qualified). Due to this omission none of the loan modification programs qualified for Consumer Relief Credit. Thus,
Chase did not and does not qualify for any of the Consumer Relief Credit for which it applied.

25. For these reasons, each of Chase’s certifications to the Federal Government of compliance represents a “reverse” false claim to avoid paying money to the Government.

26. Under the FCA a person is liable for penalties and damages who: [k]nowingly makes, uses, or causes to be made or used, a false record or
statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government. 31 U.S.C. § 3729(a)(1)(G).

27. Under the FCA, “the term ‘obligation’ means an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3).

28. Thus, under the FCA, Chase is liable for its false claims whether or not the government fixed the amount of the obligation owed by Chase.

29. Under the FCA, “the term ‘material’ means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” U.S.C. § 3729(b)(3).

30. Under the “natural tendency” test Chase is liable for its false statements so long as they reasonably could have influenced the government’s payment or collection of money. A statement is false if it is capable of influencing the government’s funding decision, not whether it
actually influenced the government.

31. Each of Chase’s false certifications is actionable under 31 U.S.C. §
3729(a)(1)(G), because they represent a false record or statement that concealed, avoided or decreased an obligation to transmit money to the Government.

32. The Federal Government and the States agreed to the NMSA with Chase, with the understanding that Chase would meet its obligations under the Consent Judgment.

33. As set out in the Consumer Relief Requirements, the measure of the Federal and State Governments’ damages is up to 140 percent of the credits that Chase falsely claimed met the requirements of the Consent Judgment and up to $5 million for each Metric the Chase failed
to meet.

34. These damages are recoverable under the Federal Civil False Claims Act, 31 U.S.C. § 3729 et seq. (the “FCA”), and similar provisions of the State False Claims Acts of the States of California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina,
Rhode Island, Tennessee, the Commonwealths of Massachusetts and Virginia, and the District of Columbia.

35. The Federal Government and the States are now harmed because they are not receiving the benefit of the bargain for which they negotiated with Chase due to the false claims for credit that have been made by the Defendant.

C. Damages to the Government Related to the HAMP

36. The Amended and Restated Commitment to Purchase Financial Instrument and Servicer Participation Agreement between the United States Government and Chase provided for the implementation of loan modification and foreclosure prevention services (“HAMP
Services”).

37. The value of Chase’s SPA was limited to $4,532,750,000 (“Program Participation Cap”).

38. The value of EMC Mortgage Corporation’s (“EMC”) SPA (Chase is successor in interest) was limited to $1,237,510,000.

39. As explained in more detail below, Chase must certify that it is in compliance with the SPA and the MHA program and must strictly adhere to the guidelines and procedures issued by the Treasury with respect to the programs outlined in the Service Schedules (“Program Guidelines”). The Program Guidelines pursuant to the Treasury Directives are cataloged in the MHA Handbook (“Handbook”). None of the loans that Chase and EMC identified and submitted for payment against their respective Participation Caps were eligible for the incentive payment, because neither Chase nor EMC complied with the SPA and Handbook guidelines. Specifically, all loan modification programs must be made available to all borrowers, who must then apply to determine eligibility. Hundreds of thousands of borrowers’ mortgage loan accounts in the RCV1 system of records were not offered and thereby unable to be considered for all eligible loss mitigation options (even though they likely could have qualified). Due to the omission of the RCV1 population for any loss mitigation options, none of the modifications that Chase provided qualified for HAMP incentives. Thus, Chase does not qualify for any of the
HAMP incentives for which it applied and received funds.
40. Therefore, Chase’s certifications of compliance and its creation of records to support those certifications represent both the knowing presentation of false or fraudulent claims for a payment and the knowing use of false records material to false or fraudulent claims.

41. Under the FCA, a person is liable for penalties and damages who:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; 31 U.S.C. § 3729(a)(1)(A)
and
(B) knowingly makes, uses, or causes to be made or used, a false record or
statement material to a false or fraudulent claim. 31 U.S.C. § 3729(a)(1)(G).

42. Each of Chase’s false certifications is actionable under either 31 U.S.C. §3729(a)(1)(A) and (B), because they represent a false or fraudulent claim for payment or approval of a false record or statement material to a false or fraudulent claim.
43. Under HAMP, the Federal Government entered into the Commitment with Chase, with the understanding that Chase would meet its obligations under the SPA and related Treasury directives. The Federal Government is now harmed because it is not receiving the benefit of the bargain for which it negotiated with Chase due to the false claims for payment that have been made by the Defendant.

Problems with Lehman and Aurora

Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.

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

—————-
I keep receiving the same question from multiple sources about the loans “originated” by Lehman, MERS involvement, and Aurora. Here is my short answer:
 *

Yes it means that technically the mortgage and note went in two different directions. BUT in nearly all courts of law the Judge overlooks this problem despite clear law to the contrary in Florida Statutes adopting the UCC.

The stamped endorsement at closing indicates that the loan was pre-sold to Lehman in an Assignment and Assumption Agreement (AAA)— which is basically a contract that violates public policy. It violates public policy because it withholds the name of the lender — a basic disclosure contained in the Truth in Lending Act in order to make certain that the borrower knows with whom he is expected to do business.

 *
Choice of lender is one of the fundamental requirements of TILA. For the past 20 years virtually everyone in the “lending chain” violated this basic principal of public policy and law. That includes originators, MERS, mortgage brokers, closing agents (to the extent they were actually aware of the switch), Trusts, Trustees, Master Servicers (were in most cases the underwriter of the nonexistent “Trust”) et al.
 *
The AAA also requires withholding the name of the conduit (Lehman). This means it was a table funded loan on steroids. That is ruled as a matter of law to be “predatory per se” by Reg Z.  It allows Lehman, as a conduit, to immediately receive “ownership” of the note and mortgage (or its designated nominee/agent MERS).
 *

Lehman was using funds from investors to fund the loan — a direct violation of (a) what they told investors, who thought their money was going into a trust for management and (b) what they told the court, was that they were the lender. In other words the funding of the loan is the point in time when Lehman converted (stole) the funds of the investors.

Knowing Lehman practices at the time, it is virtually certain that the loan was immediately subject to CLAIMS of securitization. The hidden problem is that the claims from the REMIC Trust were not true. The trust having never been funded, never purchased the loan.

*

The second hidden problem is that the Lehman bankruptcy would have put the loan into the bankruptcy estate. So regardless of whether the loan was already “sold” into the secondary market for securitization or “transferred” to a REMIC trust or it was in fact owned by Lehman after the bankruptcy, there can be no valid document or instrument executed by Lehman after that time (either the date of “closing” or the date of bankruptcy, 2008).

*

The reason is simple — Lehman had nothing to do with the loan even at the beginning when the loan was funded, it acted as a conduit for investor funds that were being misappropriated, the loan was “sold” or “transferred” to a REMIC Trust, and the assets of Lehman were put into a bankruptcy estate as a matter of law.

*

The problems are further compounded by the fact that the “servicer” (Aurora) now claims alternatively that it is either the owner or servicer of the loan or both. Aurora was basically a controlled entity of Lehman.

It is impossible to fund a trust that claims the loan because that “reporting” process was controlled by Lehman and then Aurora.

*

So they could say whatever they wanted to MERS and to the world. At one time there probably was a trust named as owner of the loan but that data has long since been erased unless it can be recovered from the MERS archives.

*

Now we have an emerging further complicating issue. Fannie claims it owns the loan, also a claim that is untrue like all the other claims. Fannie is not a lender. Fannie acts a guarantor or Master trustee of REMIC Trusts. It generally uses the mortgage bonds issued by the REMIC trust to “purchase” the loans. But those bonds were worthless because the Trust never received the proceeds of sale of the mortgage bonds to investors. Thus it had no ability to purchase loan because it had no money, business or other assets.

But in 2008-2009 the government funded the cash purchase of the loans by Fannie and Freddie while the Federal Reserve outright paid cash for the mortgage bonds, which they purchased from the banks.

The problem with that scenario is that the banks did not own the loans and did not own the bonds. Yet the banks were the “sellers.” So my conclusion is that the emergence of Fannie is just one more layer of confusion being added to an already convoluted scheme and the Judge will be looking for a way to “simplify” it thus raising the danger that the Judge will ignore the parts of the chain that are clearly broken.

Bottom Line: it was the investors funds that were used to fund loans — but only part of the investors funds went to loans. The rest went into the pocket of the underwriter (investment bank) as was recorded either as fees or “trading profits” from a trading desk that was performing nonexistent sales to nonexistent trusts of nonexistent loan contracts.

The essential legal problem is this: the investors involuntarily made loans without representation at closing. Hence no loan contract was ever formed to protect them. The parties in between were all acting as though the loan contract existed and reflected the intent of both the borrower and the “lender” investors.

The solution is for investors to fire the intermediaries and create their own and then approach the borrowers who in most cases would be happy to execute a real mortgage and note. This would fix the amount of damages to be recovered from the investment bankers. And it would stop the hemorrhaging of value from what should be (but isn’t) a secured asset. And of course it would end the foreclosure nightmare where those intermediaries are stealing both the debt and the property of others with whom thye have no contract.

GET A CONSULT!

https://www.vcita.com/v/lendinglies to schedule CONSULT, MAKE A DONATION, leave message or make payments.

 

FDCPA and FCCPA: Temperatures rising

FDCPA and FCCPA (or similar state legislation) claims are getting traction across the country. Bank of America violated the federal Fair Debt Collection Practices Act (“FDCPA”) and the related Florida Consumer Collection Practices Act (“FCCPA”). (Doc. 26). The Goodin case is a fair representation of the experience of hundreds of thousands of homeowners who have tried to reconcile the numbers given to them by Bank of America and others.

In a carefully worded opinion from Federal District Court Judge Corrigan in Jacksonville, the Court laid out the right to damages under the FDCPA and FCCPA. The Court found that BOA acted with gross negligence because they continued their behavior long after being put on notice of a mistake on their part and awarded the 2 homeowners:

  • Statutory damages of $2,000
  • Actual damages for emotional distress of $100,000 ($50,000 per person)
  • Punitive damages of $100,000
  • Attorneys fees and costs

 

See http://www.leagle.com/decision/In%20FDCO%2020150623E16/GOODIN%20v.%20BANK%20OF%20AMERICA,%20N.A.

The story is the same as I have heard from thousands of other homeowners. The “servicer” or “bank” misapplies payments, negligently posts payments to the wrong place and refuses to make any correction despite multiple attempts by the homeowners to get their account straightened out. Then the bank refuses to take any more payments because the homeowners are “late, ” “delinquent”, or in “default”, following which they send a default notice, intent to accelerate and then file suit in foreclosure.

The subtext here is that there is no “default” if the “borrower” tenders payment timely with good funds. The fact that the servicer/bank does not accept them or post them to the right ledger does not create a default on the part of the borrower, who has obviously done nothing wrong. There is no default and there is no delinquency. The wrongful act was clearly committed by the servicer/bank. Hence there is no default by the borrower in any sense by any standard. It might be said that if there is a default, it is a default by Bank of America or whoever the servicer/bank is in another case.

Using the logic and law of yesteryear, we frequently make the mistake of assuming that if there is no posting of a payment, no cashing of a check or no acceptance of the tender of payment, that the borrower is in default but it is refutable or excusable — putting the burden on the borrower to show that he/she/they tendered payment. In fact, it is none of those things. When you parse out the “default” none of the elements are present as to the borrower.

This case stands out as a good discussion of damages for emotional distress — including cases, like this one, where there is no evidence from medical experts nor medical bills resulting from the anguish of trying to sleep for years knowing that the bank or servicer is out to get your house. The feeling of being powerless is a huge factor. If an institution like BOA fails to act fairly and refuses to correct its own “errors,” it is not hard to see how the distress is real.

I of course believe that BOA had no procedures in place to deal with calls, visits, letters and emails from the homeowner because they want the foreclosure in all events — or at least as many as possible. The reason is simple: the foreclosure judgment is the first legally valid instrument in a long chain of misdeeds. It creates the presumption that all the events, documents, letters and claims were valid before the judgment was entered and makes all those misdeeds enforceable.

The Judge also details the requirements for punitive damages — i.e., aggravating circumstances involving gross negligence and intentional acts. The Judge doesn’t quite say that the acts of BOA were intentional. But he describes BOA’s actions as so grossly negligent that it must approach an intentional, malicious act for the sole benefit of the actor.

 

PRACTICE NOTE ON MERGER DOCTRINE AND EXISTENCE OF DEFAULT:

It has always been a basic rule of negotiable instruments law that once a promissory note is given for an underlying obligation (like the mortgage contract), the underlying obligation is merged into the note and is suspended while the note is still outstanding. Discharge on the note would (due to the rule that the two are merged) result in discharge discharge of the underlying obligation. Thus paying the note would also pay the obligation. Because of the merger rule, the underlying obligation is not available as a separate course of action until the note is dishonored.

 

The problem here is that most lawyers and most judges are not very familiar with the UCC even though it constitutes state law in whatever state they are in. They see the UCC as a problem when in fact it is a solution. it answers the hairy details without requiring any interpretation. It just needs to be applied. But just then the banks make their “free house” argument and the judge “interprets a statute that is only vaguely understood.

The banks know that judges are not accustomed to using the UCC and they come in with a presumed default simply because they show the judge that on their own books no payment was posted. And of course they have no record of tender and refusal by the bank. The court then usually erroneously shifts the burden of proof, as to whether tender of the payment was made, onto the homeowner who of course does not  have millions of dollars of computer equipment, IT platforms and access to the computer generated “accounts” on multiple platforms.

This merger rule, with its suspension of the underlying obligation until this honor of the note cut is codified in §3-310 of the UCC:

(b) unless otherwise agreed and except as provided in subsection (a), if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instruments were taken, and the following rules apply:

(2) in the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in the discharge of the obligation to the extent of the payment.

thus until the note is dishonored there can be no default on the underlying obligation (the mortgage contract). All foreclosure statutes, whether permitting self-help or requiring the involvement of court, forbid foreclosure unless the underlying debt is in”Default.” That means that the maker of the promissory note must have failed to make the payments required by the note itself, and thus the node has been dishonored. Under UCC §3-502(a)(3) a hello promissory note is dishonored when the maker does not pay it when the footnote first becomes payable.

About Those PSA Signatures

What is apparent is that the trusts never came into legal existence both because they were never funded and because they were in many cases never signed. Failure to execute and failure to fund the trust reduces the “trust” to a pile of ashes.

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

—————-
From one case in which I am consulting, this is my response to the inquiring lawyer:

I can find no evidence that there is a Trust ever created or operational by the name of “RMAC REMIC Trust Series 2009-9”. In my honest opinion I don’t think there ever was such a trust. I think that papers were drawn up for the trust but never executed. Since the trusts are phantoms anyway, this was consistent with the facts. The use of the trust as a Plaintiff in a court action is a fraud upon the court and the Defendants. The fact that the trust does not exist deprives the court of any jurisdiction. We’ll see when you get the alleged PSA, which even if physically hand-signed probably represents another example of robo-signing, fabrication, back-dating and forgery.

I think it will not show signatures — and remember digital or electronic signatures are not acceptable unless they meet the terms of legislative approval. Keep in mind that the Mortgage Loan Schedule (MLS) was BY DEFINITION  created long after the cutoff date. I say it is by definition because every Prospectus I have ever read states that the MLS attached to the PSA at the time of investment is NOT the real MLS, and that it is there by way of example only. The disclosure is that the actual loan schedule will be filled in “later.”

 

see https://livinglies.wordpress.com/2015/11/30/standing-is-not-a-multiple-choice-question/

also see DigitalSignatures

References are from Wikipedia, but verified

DIGITAL AND ELECTRONIC SIGNATURES

On digital signatures, they are supposed to be from a provable source that cannot be disavowed. And they are supposed to have electronic characteristics making the digital signature provable such that one would have confidence at least as high as a handwritten signature.

Merely typing a name does nothing. it is neither a digital nor electronic signature. Lawyers frequently make the mistake of looking at a document with /s/ John  Smith and assuming that it qualifies as digital or electronic signature. It does not.

We lawyers think that because we do it all the time. What we are forgetting is that our signature is coming through a trusted source and already has been vetted when we signed up for digital filing and further is backed up by court rules and Bar rules that would reign terror on a lawyer who attempted to disavow the signature.

A digital signature is a mathematical scheme for demonstrating the authenticity of a digital message or documents. A valid digital signature gives a recipient reason to believe that the message was created by a known sender, that the sender cannot deny having sent the message (authentication and non-repudiation), and that the message was not altered in transit (integrity).

Digital signatures are a standard element of most cryptographic protocol suites, and are commonly used for software distribution, financial transactions, contract management software, and in other cases where it is important to detect forgery or tampering.

Electronic signatures are different but only by degree and focus:

An electronic signature is intended to provide a secure and accurate identification method for the signatory to provide a seamless transaction. Definitions of electronic signatures vary depending on the applicable jurisdiction. A common denominator in most countries is the level of an advanced electronic signature requiring that:

  1. The signatory can be uniquely identified and linked to the signature
  2. The signatory must have sole control of the private key that was used to create the electronic signature
  3. The signature must be capable of identifying if its accompanying data has been tampered with after the message was signed
  4. In the event that the accompanying data has been changed, the signature must be invalidated[6]

Electronic signatures may be created with increasing levels of security, with each having its own set of requirements and means of creation on various levels that prove the validity of the signature. To provide an even stronger probative value than the above described advanced electronic signature, some countries like the European Union or Switzerland introduced the qualified electronic signature. It is difficult to challenge the authorship of a statement signed with a qualified electronic signature – the statement is non-reputable.[7] Technically, a qualified electronic signature is implemented through an advanced electronic signature that utilizes a digital certificate, which has been encrypted through a security signature-creating device [8] and which has been authenticated by a qualified trust service provider.[9]

PLEADING:

Comes Now Defendants and Move to Dismiss the instant action for lack of personal and subject matter jurisdiction and as grounds therefor say as follows:

  1. The named plaintiff in this action does not exist.
  2. After extensive investigation and inquiry, neither Defendants nor undersigned counsel nor forensic experts can find any evidence that the alleged trust ever existed, much less conducted business.
  3. There is no evidence that the alleged trustee ever ACTUALLY conducted any business in the name of the trust, much less a purchase of loans, much less the purchase of the subject loan.
  4. There is no evidence that the Trust exists nor any evidence that the Trust’s name has ever been used except in the context of (1) “foreclosure” which has, in the opinion, of forensic experts, merely a cloak for the continuing theft of investor money and assets to the detriment of both the real parties in interest and the Defendants and (2) the sale of bonds to investors falsely presented as having been issued by the “trust”, the proceeds of which “sale” was never received by the trust.
  5. Upon due diligence before filing such a lawsuit causing the forfeiture of homestead property, counsel knew or should have known that the Trust never existed nor has any business ever been conducted in the name of the Trust except the sale of bonds allegedly issued by the Trust and the use of the name of the trust to sue in foreclosure.
  6. As for the sale of the bonds allegedly issued by the Trust there is no evidence that the Trust ever issued said bonds and there is (a) no evidence the Trust received any funds ever from the sale of bonds or any other source and (b) having no assets, money or bank account, there is no possible evidence that the Trust acquired any assets, business or even incurred any liabilities.
  7. Wells Fargo, individually and not as Trustee, has engaged in a widespread pattern of behavior of presenting itself as Trustee of non existent Trusts and should be sanctioned to prevent it or anyone else in the banking industry from engaging in such conduct.

WHEREFORE Defendants pray this Honorable Court will dismiss the instant complaint with prejudice, award attorneys fees, costs and sanctions against opposing counsel and Wells Fargo individually and not as Trustee of a nonexistent Trust for falsely presenting itself as the Trustee of a Trust it knew or should have known had no existence.

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