FASB on Sham Transactions

See AU Section 332 Auditing Derivative Instruments, hedging Activities and Investment in Securities.
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Every written instrument is by definition the memorialization of an event. Absent the event in the real world, the instrument is worthless at best and at worst fraudulent. This is derived from the my knowledge of generally accepted accounting principles (GAAP) as enunciated by the Financial Accounting Standards Board (FASB) supported by the American Institute of Certified Public Accountants (AICPA).
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In any audit of bookkeeping and/or accounting records written instruments are the starting point for inquiry as to whether the documents represents a true and fair representation of an actual transaction. While the auditor may be aware of certain legal presumptions concerning the validity of a facially valid instrument, the auditor is tasked with testing all transactions including those that appear to possess the attributes of facial validity.
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Specifically the audit process for alleged transactions relating to derivative securities (mortgage backed bonds, for example) goes further than standard auditing confirmation under the rules recognized as nationwide and binding. In large part because of the admissions or quasi admissions in settlements with government regulators, attorneys general and investors, it has become obvious that transactions that are related to activity in the derivative marketplace are subject to special scrutiny. Auditors are required to test the following, among other things:
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  1. Occurrence. Transactions and events that have been recorded have occurred and pertain to the entity.
  2. Completeness. All transactions and events that should have been recorded have been recorded.
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In the definition of the confirmation process required by auditors, it is clearly stated that a plan of confirmation is to be used. Facially valid documents are not excluded from the confirmation process. And as seen above, transactions relating to alleged securitization are subject to specific testing. The courts are out of their element in assessing the risk of fraudulent representation because the Courts’ inquiry generally starts and ends with the written instrument.
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The Auditor wants to know if the transaction memorialized in that instrument actually took place and wants to see evidence to that effect — i.e., the money trail as represented by cash flow, balance sheet and income statements as well as the general ledger (and supporting documents, bank statements and receipts) of the entity that claims to have been a party to a transaction and now claims an asset as a result.
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These sections are the beginning point for discovery and the foundation for objections when “business records” are proffered at trial as exceptions to the hearsay rule.
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The big question is whether the transactions that are represented in court as loans or assignments or endorsement are actually reflected on the general ledger, bookkeeping records and accounting records of the party who was supposedly involved in any of those transactions is proffering false testimony or fabricated documents into evidence.
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The answer is simple: based upon reliable sources the facts are that the big banks have produced a convoluted set records of loosely connected entities. One fact is clear: the acquisition of loans is generally not found in their records nor supported by any entry reflecting a financial transaction. The little originators and banks are generally buried after having gone out of business, but the ones that are left will show that most originated “loans” did not result in the flow of cash from the originator to the alleged borrower.
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My recommendation is that foreclosure defense attorneys employ the use of CPA’s who have specific auditing experience and knowledge. The testimony of these experts might be invaluable to the discovery process and lead the opposing side to soften their approach.

Freddie Mac Selling Toxic Loans: Do they really own those loans?

The resulting case law is opening up Pandora’s box as the law of these foreclosure cases spills over into hundreds of other situations.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://4closurefraud.org/2016/10/05/freddie-mac-sells-1-billion-of-seriously-delinquent-loans/

So I have two questions that should be sufficiently annoying to the banksters: (1) what makes Freddie think it owns the loans? and (2) if the loans are in default doesn’t that make the notes non-negotiable paper?

As to the first, my guess is that Freddie paid somebody something. What they used as currency was MBS issued by private label trusts. The MBS were worthless because they were issued by an unfunded paper trust. Freddie paid somebody using those bonds. But that somebody didn’t own the loans because the money had already been advanced by ANOTHER party (the investors) under a false deposit scheme with the investment/commercial banks.

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So the debt was at all times owned by an unidentified and perhaps unidentifiable  group of investors/victims who to this day may not know that their money was hijacked to make toxic loans. That makes any sale or assignment to anyone void, including Freddie Mac. And whoever is getting paper executed by Freddie Mac is getting exactly what Freddie owns: NOTHING.

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As to the second, if the loans in default are not negotiable paper, then the presumptions attendant to negotiable paper under Article 3 of the UCC do not apply. And if THAT is the case, the party in possession is not a holder, not a holder in due course and possibly not a possessor with rights to enforce. They would need to prove that they paid for the “loan” and they would need to show that there was a loan [not just from anyone. It must be an actual loan of money from the party identified as Payee on the note]. They would need to show that they not only bought the note but they also bought the debt.

As it turns out the note and the debt are owned by two different parties. The debt normally merges into the note so that when someone signs it they don’t have two liabilities. But what if the debt was owned by a third party at the time the maker signed the note? Assuming the maker did not know that a third party was involved, the maker is back in the position of two debts — the very problem that the merger rule was intended to prevent.

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So far the courts have endeavored to deal with this tricky problem by pretending it does not exist. The resulting case law is opening up Pandora’s box as the law of these foreclosure cases spills over into hundreds of other situations.

 

The First Step in Foreclosure Defense: Title Issues

The same judges that consistently ignore defenses with respect to the endorsements, assignments, or other issues instantly recognize that where there is an error or break in the chain of title, the “bank” must step back, dismiss the foreclosure and start over again.

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Last Thursday night I had North Carolina Attorney James Surane as a guest on my radio show. As I suspected it was technical but VERY interesting. He gave many examples where title issues had either resulted in an outright win or much greater leverage over the party claiming to be authorized to foreclose on property. In his state of North Carolina, the judicial climate is very frosty when it comes to a homeowner challenging foreclosures. But the same judges that consistently ignore defenses with respect to the endorsements, assignments, or other issues instantly recognize that where there is an error or break in the chain of title, the “bank” must step back, dismiss the foreclosure and start over again.

Although most people have stopped ordering title searches and title analysis by a lawyer, they are throwing out the baby with the bathwater. As I have previously discussed on this blog, the problem with the title reports is not that they are useless, it is that they don’t go back far enough. In the run-up to the mortgage meltdown some closing agents were processing loan closings at the rate of 100 per day. These agents and lawyers were overwhelmed by the volume. They made mistakes.

Here is a summary of what Jim said last Thursday night:

FIRST STEP IN FORECLOSURE DEFENSE CASE:

A thorough title search of the property being subject to foreclosure is an absolute necessity. This includes researching back to the plat in the case of a home in a subdivision, and back 30 years in a case in which the property is not in a subdivision. We have won many cases based upon errors in the chain of title. It must be remembered that a large majority of the mortgages that we deal with today were closed between the years of 1992 – 2007. During these years, closing attorneys and lenders were overwhelmed with business, and as a result many errors in preparing documents that compromised the lenders lien rights. In our title search, we are looking for:

  • Plat was recorded prior to conveyance of lot
  • Errors in the legal descriptions
  • The legal description was attached at the time the deed of trust was signed
  • Errors in the timing of the recordation of documents in the chain of title
  • Errors in the spelling of the grantor or grantee names
  • Both Grantors names in the body of the Deed of Trust and not just signed
  • Failure to include all necessary signatures on deeds
  • Recordings in the wrong county
  • The grantor owned the property at the time of the conveyance
  • The date on the note matches the date of the deed of trust
  • The names on the note match the names on the deed of trust
  • The grantors signed the Deed of Trust in the proper place (not under notary)
  • Check the Secretary of State on all corporate grantors
  • The date the substitute trustee was appointed relative to the Notice of Hearing
  • The proper substitute trustee filed the Notice of Hearing

Surane has won at least one case for each and every issue listed above. Some of the issues listed above have resulted in our winning several cases. Clerks and Judges are not reserved about recognizing errors in the chain of title, and will readily dismiss a case if the errors are properly presented to the Court. It is very important to thoroughly examine the chain of title before proceeding to identity errors with the lenders standing and endorsements to the promissory note.  As many people are aware, the standing and endorsement issues often lead to fertile ground for many additional defenses to a foreclosure action.

North Carolina is more or less a non-judicial state. But instead of the “trustee” recording a notice of default and notice of sale, the trustee in North Carolina files a Notice of Hearing. The Clerk actually has some power to either dismiss or require the filer to dismiss if the chain of title is clearly wrong. This makes North Carolina a somewhat safer place for homeowners than other non-judicial states because there is at least some minimum oversight over the process.

Not all errors in title result in an outright win in Court. But they do create a time interval that could be as long as years in which the homeowner can properly address other issues and seek modification.

At livinglies we provide a title report and an analysis, but most people don’t want to pay the extra cost of going back 3-4 owners. And they don’t want to spend time on a lawyer analyzing title issues. It’s boring stuff to most people. Most vendors providing title information CAN produce a report going back 30 years but they don’t because they have not been paid the extra money to do so — often requiring an actual trip to the building where the public records are kept in the county in which the property is located.

Some vendors, like TitleTracs, will point out potential areas of inquiry that assist a lawyer in analyzing title, but most lawyers don’t want to do the work even if they could get paid for it. It is a laborious task but people are missing “low hanging fruit” when they fail to raise a proper challenge to the substitution of trustee and other defenses.

The bad news is that Surane agrees with my current opinion — it is highly unlikely that any judge anywhere will enter an order quieting title where the mortgage or deed of trust is removed as an encumbrance to the property. Unless the mortgage or deed of trust is void, in our opinion it is not proper to bring the quiet title action. BUT, that said, as Surane pointed out on the show, he has made extensive use of declaratory actions that undermine the enforceability of the mortgage or deed of trust and potentially undermine the note as well. The catch is that courts don’t issue advisory opinions so you need a present controversy in order to get the court to rule.

If this article prompts you to order our COMBO Title and Securitization Report and you want the kind of in-depth title report that is described above the cost of the report is $1995.

Get a consult or order services! 202-838-6345

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

 

 

 

California Suspends Dealings with Wells Fargo

The real question is when government agencies and regulators PLUS law enforcement get the real message: Wells Fargo’s behavior in the account scandal is the tip of the iceberg and important corroboration of what most of the country has been saying for years — their business model is based upon fraud.

Wells Fargo has devolved into a PR machine designed to raise the price of the stock at the expense of trust, which in the long term will most likely result in most customers abandoning such banks for fear they will be the next target.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://www.sacbee.com/news/politics-government/capitol-alert/article104739911.html

John Chiang, California Treasurer, has stopped doing business with Wells Fargo because of the scheme involving fraud, identity theft and customer gouging for services they never ordered on accounts they never opened. It is once again time for Government to scrutinize the overall business plan and business map of Wells Fargo and indeed all of the top (TBTF) banks.

Wells Fargo is attempting to do crisis management, to wit: making sure that nobody looks at other schemes inside the bank.

It is the Consumer Financial Protection Bureau (CFPB) that was conceived by Senator Elizabeth Warren who has revealed the latest example of big bank fraud.

The simple fact is that in this case, Wells Fargo management made an absurd demand on their employees. Instead of the national average of 3 accounts per person they instructed managers and employees to produce 8 accounts per customer. Top management of Wells Fargo have been bankers for decades. They knew that most customers would not want, need or accept 5 more accounts. Yet they pressed hard on employees to meet this “goal.” Their objective was to defraud the investing public who held or would buy Wells Fargo stock.

In short, Wells Fargo is now the poster child for an essential defect in business structure of public companies. They conceive their “product” to be their stock. That is how management makes its money and that is how investors holding their stock like it until they realize that the entire platform known as Wells Fargo has devolved into a PR machine designed to raise the price of the stock at the expense of trust, which in the long term will most likely result in most customers abandoning such banks for fear they will be the next target. Such companies are eating their young and producing a bubble in asset values that, like the residential mortgage market, cannot be sustained by fundamental facts — i.e., real earnings on a real trajectory of growth.

So the PR piece about how they didn’t know what was going on is absurd along with their practices. Such policies don’t start with middle management or employees. They come from the top. And the goal was to create the illusion of a rapidly growing bank so that more people would buy their stock at ever increasing prices. That is what happens when you don’t make the individual members of management liable under criminal and civil laws for engaging in such behavior.

There was only one way that the Bank could achieve its goal of 8 accounts per customer — it had to be done without the knowledge or consent of the customers. Now Wells Fargo is trying to throw 5,000 employees under the bus. But this isn’t the first time that Wells Fargo has arrogantly thrown its customers and employees under the bus.

The creation of financial accounts in the name of a person without that person’s knowledge or consent is identity theft, assuming there was a profit motive. The result is that the person is subjected to false claims of high fees, their credit rating has a negative impact, and they are stuck dealing with as bank so large that most customers feel that they don’t have the resources to do anything once the fraud was discovered by the Consumer Financial protection Board (CFPB).

Creating a loan account for a loan that doesn’t exist is the same thing. In most cases the “loan closings” were shams — a show put on so that the customer would sign documents in which the actual party who loaned the money was left out of the documentation.

This was double fraud because the pension funds and other investors who deposited money with Wells Fargo and the other banks did so under the false understanding that their money would be used to buy Mortgage Backed Securities (MBS) issued by a trust with assets consisting of a loan pool.

The truth has emerged — there were no loan pols in the trusts. The entire derivative market for residential “loans” is built on a giant lie.  But the consequences are so large that Government is afraid to do anything about it. Wells Fargo took money from pension funds and other “investors,” but did not give the proceeds of sale of the alleged MBS to the proprietary vehicle they created in the form of a trust.

Hence the trust was never funded and never acquired any property or loans. That means the “mortgage backed securities” were not mortgage backed BUT they were “Securities” under the standard definition such that the SEC should take action against the underwriters who disguised themselves as “master Servicers.”

In order to cover their tracks, Wells Fargo carefully coached their employees to take calls and state that there could be no settlement or modification or any loss mitigation unless the “borrower” was at least 90 days behind in their payments. So people stopped paying an entity that had no right to receive payment — with grave consequences.

The 90 day statement was probably legal advice and certainly a lie. There was no 90 day requirement and there was no legal reason for a borrower to go into a position where the pretender lender could declare a default. The banks were steering as many people, like cattle, into defaults because of coercion by the bank who later deny that they had instructed the borrower to stop making payments.

So Wells Fargo and other investment banks were opening depository accounts for institutional customers under false pretenses, while they opened up loan accounts under false pretenses, and then  used the identity of BOTH “investors” and “borrowers” as a vehicle to steal all the money put up for investments and to make money on the illusion of loans between the payee on the note and the homeowner.

In the end the only document that was legal in thee entire chain was a forced sale and/or judgment of foreclosure. When the deed issues in a forced sale, that creates virtually insurmountable presumptions that everything that preceded the sale was valid, thus changing history.

The residential mortgage loan market was considerably more complex than what Wells Fargo did with the opening of the unwanted commercial accounts but the objective was the same — to make money on their stock and siphon off vast sums of money into off-shore accounts. And the methods, when you boil it all down, were the same. And the arrogant violation of law and trust was the same.

 

Who is the Creditor? NY Appellate Decision Might Provide the Knife to Cut Through the Bogus Claim of Privilege

The crux of this fight is that if the foreclosing parties are forced to identify the creditors they will only have two options, in my opinion: (a) commit perjury or (b) admit that they have no knowledge or access to the identity of the creditor

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://4closurefraud.org/2016/06/10/opinion-here-ny-court-says-bank-of-america-must-disclose-communications-with-countrywide-in-ambac-suit/

We have all seen it a million times — the “Trustees”, the “servicers” and their agents and attorneys all beg the question of identifying the names and contact information of the creditors in foreclosure actions. The reason is simple — in order to answer that question truthfully they would be required to admit that there is no party that could properly be defined as a creditor in relation to the homeowner.

They have successfully pushed the point beyond the point of return — they are alleging that the homeowner is a debtor but they refuse to identify a creditor; this means they are being allowed to treat the homeowner as a debtor while at the same time leaving the identity of the creditor unknown. The reason for this ambiguity is that the banks, from the beginning, were running a scheme that converted the money paid by investors for alleged “mortgage backed securities”; the conversion was simple — “let’s make their money our money.”

When inquiry is made to determine the identity of the creditor the only thing anyone gets is some gibberish about the documents PLUS the assertion that the information is private, proprietary and privileged.  The case in the above link is from an court of appeals in New York. But it could have profound persuasive effect on all foreclosure litigation.

Reciting the tension between liberal discovery and privilege, the court tackles the confusion in the lower courts. The court concludes that privilege is a very narrow shield in specific situations. It concludes that even the attorney-client privilege is a shield only between the client and the attorney and that adding a third party generally waives that privilege. The third party privilege is only extended in narrow circumstances where the parties are seeking a common goal. So in order to prevent the homeowner from getting the information on his alleged creditor, the foreclosing parties would need to show that there is a common goal between the creditor(s) and the debtor.

Their problem is that they can’t do that without showing, at least in camera, that the identity of the creditor is known and that somehow the beneficiaries of an empty trust have a common goal (hard to prove since the trust is empty contrary to the terms of the “investment”). Or, they might try to identify a creditor who is neither the trust nor the investors, which brings us back to perjury.

Self Serving Fabrications: Watch for “Attorney in Fact”

In short, the proffer of a document signed not by the grantor or assignor but by a person with limited authority and no knowledge, on behalf of a company claiming to be attorney in fact is an empty self-serving document that provides escape hatches in the event a court actually looks at the document. It is as empty as the Trusts themselves that never operated nor did they purchase any loans.

Get a consult! 202-838-6345

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

If you had a promissory note that was payable to someone else, you would need to get it endorsed by the Payee to yourself in order to negotiate it. No bank, large or small, would accept the note as collateral for a loan without several conditions being satisfied:

  1. The maker of the note would be required to verify that the debt and the fact that it is not in dispute or default. This is standard practice in the banking industry.
  2. The Payee on the note would be required to endorse it without qualification to you. Like a check, in which you endorse it over to someone else, you would say “Pay to the order of John Smith.”
  3. The bank would need to see and probably keep the original promissory note in its vault.
  4. The credit-worthiness of the maker would be verified by the bank.
  5. Your credit worthiness would be verified by the bank.

Now imagine that instead of an endorsement from the payee on the note, you instead presented the bank with an endorsement signed by you as attorney in fact for the payee. So if the note was payable to John Jones, you are asking the bank to accept your own signature instead of John Jones because you are the authorized as an agent of John Jones.  No bank would accept such an endorsement without the above-stated requirements PLUS the following:

  1. An explanation  as to why John Jones didn’t execute the endorsement himself. So in plain language, why did John Jones need an agent to endorse the note or perform anything else in relation to the note? These are the rules of the road in the banking and lending industry. The transaction must be, beyond all reasonable doubt, completely credible. If the bank sniffs trouble, they will not lend you money using the note as collateral. Why should they?
  2. A properly executed Power of Attorney naming you as attorney in fact (i.e., agent for John Jones).
  3. If John Jones is actually a legal entity like a corporation or trust, then it would need a resolution from the Board of Directors or parties to the Trust appointing you as attorney in fact with specific powers to that completely cover the proposed authority to endorse the promissory note..
  4. Verification from the John Jones Corporation that the Power of Attorney is still in full force and effect.

My point is that we should apply the same rules to the banks as they apply to themselves. If they wouldn’t accept the power of attorney or they were not satisfied that the attorney in fact was really authorized and they were not convinced that the loan or note or mortgage was actually owned by any of the parties in the paper chain, why should they not be required to conform to the same rules of the road as standard industry practices which are in reality nothing more than commons sense?

What we are seeing in thousands of cases, is the use of so-called Powers of Attorney that in fact are self serving fabrications, in which Chase (for example) is endorsing the note to itself as assignee on behalf of WAMU (for example) as attorney in fact. A close examination shows that this is a “Chase endorses to Chase” situation without any actual transaction and nothing else. There is no Power of Attorney attached to the endorsement and the later fabrication of authority from the FDIC or WAMU serves no purpose on loans that had already been sold by WAMU and no effect on endorsements purportedly executed before the “Power of Attorney” was executed. There is no corporate resolution appointing Chase. The document is worthless. I recently had a case where Chase was not involved but US Bank as the supposed Plaintiff relied upon a Power of Attorney executed by Chase.

This is a game to the banks and real life to everyone else. My experience is that when such documents are challenged, the “bank” generally loses. In two cases involving US Bank and Chase, the “Plaintiff” produced at trial a Power of Attorney from Chase. And there were other documents where the party supposedly assigning, endorsing etc. were executed by a person who had no such authority, with no corporate resolution and no other evidence that would tend to show the document was trustworthy. We won both cases and the Judge in each case tore apart the case represented by the false Plaintiff, US Bank, “as trustee.”

The devil is in the details — but so is victory in the courtroom.

Pennymac Forgeries Produce Some New Law

Pennymac tried to outwit the court system, succeeding at the trial level and then failing on appeal. The simple fact is that it is a rare instance where a party can lose a lawsuit based upon a forged instrument. The court will (and should) always find a way to deny such relief.

see sanabria-v-pennymac-mortgage-investment-trust-holdings-i-llc

Simple case. Closing attorney still had copy of the note — 5 pages. Pennymac sued on a 6 page note. Defendants denied that the note was real and denied they signed the document upon which Pennymac was relying. Pennymac said that Florida statutes required Defendants to file a cause of action to get rid of a forged document. The trial court agreed. The appellate court said no, the authenticity of the document and the signature is put in play once it is apparent to all that this the gravamen of the defense.

Florida Statutes 673.308.1 reads in relevant part: [Note §673 is UCC Article 3]

In an action with respect to an instrument, the authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings. If the validity of a signature is denied in the pleadings, the burden of establishing validity is on the person claiming validity, but the signature is presumed to be authentic and authorized unless the action is to enforce the liability of the purported signer and the signer is dead or incompetent at the time of trial of the issue of validity of the signature.

Pennymac Trust likens the statute’s passing reference to “specifically” denying a signature’s authenticity to the specificity required to plead a cause of action for fraud under Florida Rule of Civil Procedure 1.120(b): “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with such particularity as the circumstances may permit.”

So as long as you don’t contest the signature specifically there is an iron clad presumption that you signed it. If the facts fit, then deny or set forth an answer or affirmative defense that specifically denies you signed it. But the word of caution here is that denying it doesn’t do you any good if you don’t have some pretty hard evidence, like this case, that shows that the document and/or the signature is not authentic. In this case the proof was straightforward.

BUT notice that the obvious nature of the forgery, fraud upon the court still somehow managed to escape the Plaintiff Pennymac and the attorneys for Pennymac. I wonder when someone important will look at that and say that is not the way to practice law.

 

 

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