Tonight! Foreclosure Mills Are Accountable Under FDCPA

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see Brock and Scott Law Firm Sued Under FDCPA

I think the recent spate of cases against law firms who collect debts is indicative of the tremendous liability assumed by a lawyer who, knowing that there are defects in the claim, pursues it anyway.

In foreclosure litigation countless law firms entered into agreements with various parties to achieve the result of a foreclosure sale. They knew or MUST have known that the documents that they referenced or attached to their pleadings in court were either fabricated by then, or at their instruction, or fabricated by others. They knew or MUST have known that the “client” was not the Plaintiff/Claimant but they fraudulently continued acting as if the named Plaintiff both existed and had a valid claim.

The reason they MUST have known is that every lawyer is required by his state and Federal bar ethical and disciplinary standards to engage in enough due diligence to know with certainty that the named claimant exists and that filing a lawsuit or other claim or sending out notices on behalf of such “clients” without having been retained by them, is legal and valid. Naming US Bank as trustee, when there is no trust is a breach of those standards no matter how you cut it. Naming or implying the existence of a trust when it is in fact nonexistent is also a breach.

Such actions among others are violations of the FDCPA. The banks suckered the lawyers into what appeared to be lucrative retainers to handle mass debt collection and foreclosure without disclosing the fact that with the retainer came liability for violation of multiple state and Federal laws.

These lawyers and law firms were intentionally set up by the banks to be thrown under the bus, followed by a disclaimer by the banks that they were unaware of their conduct when in fact the law firms were acting as instructed by the banks.

Don’t forget that if the law firm is proven t have been negligent as opposed to committing an intentional act, there might be insurance coverage. Besides the obvious reservoir of funds for payment of a settlement or judgment the presence of insurance assures that a lawyer who is far more objective than the law firm policyholder will be the one litigating and negotiating the claim.

Resources:

FDCPA Statute

Quotes from the Statute:

15 USC 1692

§ 802.  Congressional findings and declarations of purpose

(a) Abusive practices
There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.

(b) Inadequacy of laws
Existing laws and procedures for redressing these injuries are inadequate to protect consumers.

(c) Available non-abusive collection methods
Means other than misrepresentation or other abusive debt collection practices are available for the effective collection of debts.

(d) Interstate commerce
Abusive debt collection practices are carried on to a substantial extent in interstate commerce and through means and instrumentalities of such commerce. Even where abusive debt collection practices are purely intrastate in character, they nevertheless directly affect interstate commerce.

(e) Purposes
It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.

15 USC 1692e

§ 807.  False or misleading representations

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1) The false representation or implication that the debt collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof.

(2) The false representation of —

(A) the character, amount, or legal status of any debt; or

(B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.

(3) The false representation or implication that any individual is an attorney or that any communication is from an attorney.

(4) The representation or implication that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action.

(5) The threat to take any action that cannot legally be taken or that is not intended to be taken.

(6) The false representation or implication that a sale, referral, or other transfer of any interest in a debt shall cause the consumer to —

(A) lose any claim or defense to payment of the debt; or

(B) become subject to any practice prohibited by this subchapter.

(7) The false representation or implication that the consumer committed any crime or other conduct in order to disgrace the consumer.

(8) Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.

(9) The use or distribution of any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by any court, official, or agency of the United States or any State, or which creates a false impression as to its source, authorization, or approval.

(10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.

(11) The failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action.

(12) The false representation or implication that accounts have been turned over to innocent purchasers for value.

(13) The false representation or implication that documents are legal process.

(14) The use of any business, company, or organization name other than the true name of the debt collector’s business, company, or organization.

(15) The false representation or implication that documents are not legal process forms or do not require action by the consumer.

(16) The false representation or implication that a debt collector operates or is employed by a consumer reporting agency as defined by section 1681a(f) of this title.

15 USC 1692f

§ 808.  Unfair practices

A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.

(2) The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector’s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit.

(3) The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.

(4) Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.

(5) Causing charges to be made to any person for communications by concealment of the true purpose of the communication. Such charges include, but are not limited to, collect telephone calls and telegram fees.

(6) Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if —

(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;

(B) there is no present intention to take possession of the property; or

(C) the property is exempt by law from such dispossession or disablement.

(7) Communicating with a consumer regarding a debt by post card.

(8) Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.

15 USC 1692g

§ 809.  Validation of debts

(a) Notice of debt; contents
Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing —

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

(b) Disputed debts
If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector. Collection activities and communications that do not otherwise violate this subchapter may continue during the 30-day period referred to in subsection (a) unless the consumer has notified the debt collector in writing that the debt, or any portion of the debt, is disputed or that the consumer requests the name and address of the original creditor. Any collection activities and communication during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt or request the name and address of the original creditor.

(c) Admission of liability
The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.

(d) Legal pleadings
A communication in the form of a formal pleading in a civil action shall not be treated as an initial communication for purposes of subsection (a).

(e) Notice provisions
The sending or delivery of any form or notice which does not relate to the collection of a debt and is expressly required by title 26, title V of Gramm-Leach-Bliley Act [15 U.S.C. 6801 et seq.], or any provision of Federal or State law relating to notice of data security breach or privacy, or any regulation prescribed under any such provision of law, shall not be treated as an initial communication in connection with debt collection for purposes of this section.

15 USC 1692h

§ 813.  Civil liability

(a) Amount of damages
Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of —

(1) any actual damage sustained by such person as a result of such failure;

(2) (A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or

(B) in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector; and

(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney’s fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.

(b) Factors considered by court
In determining the amount of liability in any action under subsection (a) of this section, the court shall consider, among other relevant factors —

(1) in any individual action under subsection (a)(2)(A) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional; or

(2) in any class action under subsection (a)(2)(B) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector’s noncompliance was intentional.

(c) Intent
A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

(d) Jurisdiction
An action to enforce any liability created by this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs.

(e) Advisory opinions of Bureau
No provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Bureau, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.

Pay Attention! Look at the money trail AFTER the foreclosure sale

My confidence has never been higher that the handling of money after a foreclosure sale will reveal the fraudulent nature of most “foreclosures” initiated not on behalf of the owner of the debt but in spite of the the owner(s) of the debt.

It has long been obvious to me that the money trail is separated from the paper trail practically “at birth” (origination). It is an obvious fact that the owner of the debt is always someone different than the party seeking foreclosure, the alleged servicer of the debt, the alleged trust, and the alleged trustee for a nonexistent trust. When you peek beneath the hood of this scam, you can see it for yourself.

Real case in point: BONY appears as purported trustee of a purported trust. Who did that? The lawyers, not BONY. The foreclosure is allowed and the foreclosure sale takes place. The winning “bid” for the property is $230k.

Here is where it gets real interesting. The check is sent to BONY who supposedly is acting on behalf of the trust, right. Wrong. BONY is acting on behalf of Chase and Bayview loan servicing. How do we know? Because physical possession of the check made payable to BONY was forwarded to Chase, Bayview or both of them. How do we know that? Because Chase and Bayview both endorsed the check made out to BONY depositing the check for credit in a bank account probably at Chase in the name of Bayview.

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OK so we have the check made out to BONY and TWO endorsements — one by Chase and one by Bayview supposedly — and then an account number that might be a Chase account and might be a Bayview account — or, it might be some other account altogether. So the question who actually received the $230k in an account controlled by them and then, what did they do with it. I suspect that even after the check was deposited “somewhere” that money was forwarded to still other entities or even people.

The bid was $230k and the check was made payable to BONY. But the fact that it wasn’t deposited into any BONY account much less a BONY trust account corroborates what I have been saying for 12 years — that there is no bank account for the trust and the trust does not exist. If the trust existed the handling of the money would look very different OR the participants would be going to jail.

And that means NOW you have evidence that this is the case since BONY obviously refused to do anything with the check, financially, and instead just forwarded it to either Chase or Bayview or perhaps both, using copies and processing through Check 21.

What does this mean? It means that the use of the BONY name was a sham, since the trust didn’t exist, no trust account existed, no assets had ever been entrusted to BONY as trustee and when they received the check they forwarded it to the parties who were pulling the strings even if they too were neither servicers nor owners of the debt.

Even if the trust did exist and there really was a trust officer and there really was a bank account in the name of the trust, BONY failed to treat it as a trust asset.

So either BONY was directly committing breach of fiduciary duty and theft against the alleged trust and the alleged trust beneficiaries OR BONY was complying with the terms of their contract with Chase to rent the BONY name to facilitate the illusion of a trust and to have their name used in foreclosures (as long as they were protected by indemnification by Chase who would pay for any sanctions or judgments against BONY if the case went sideways for them).

That means the foreclosure judgment and sale should be vacated. A nonexistent party cannot receive a remedy, judicially or non-judicially. The assertions made on behalf of the named foreclosing party (the trust represented by BONY “As trustee”) were patently false — unless these entities come up with more fabricated paperwork showing a last minute transfer “from the trust” to Chase, Bayview or both.

The foreclosure is ripe for attack.

Breaking it Down: What to Say and Do in an Unlawful Detainer or Eviction

Homeowners seem to have more options than they think in an unlawful detainer action based upon my analysis. It is the first time in a nonjudicial foreclosure where the foreclosing party is actually making assertions and representations against which the homeowner may defend. The deciding factor is what to do at trial. And the answer, as usual, is well-timed aggressive objections mostly based upon foundation and hearsay, together with a cross examination that really drills down.

Winning an unlawful detainer action in a nonjudicial foreclosure reveals the open sores contained within the false claims of securitization or transfer.

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HAT TIP TO DAN EDSTROM

Matters affecting the validity of the trust deed or primary obligation itself, or other basic defects in the plaintiffs title, are neither properly raised in this summary proceeding for possession, nor are they concluded by the judgment.” (Emphasis added.) (Cheney v. Trauzettel (1937) 9 Cal.2d 158, 159-160.) My emphasis added

So we can assume that they are specifically preserving your right to sue for damages. But also, if they still have the property you can sue to get it back. If you do that and file a lis pendens they can’t sell it again. If a third party purchaser made the bid or otherwise has “bought” the property you probably can’t touch the third party — unless you can show that said purchaser did in fact know that the sale was defective. Actual knowledge defeats the presumptions of facially valid instruments and recorded instruments.

The principal point behind all this is that the entire nonjudicial scheme and structure becomes unconstitutional if in either the wording of the statutes or the way the statutes are applied deprive the homeowner of due process. Denial of due process includes putting a burden on the homeowner that would not be there if the case was brought as a judicial foreclosure. I’m not sure if any case says exactly that but I am sure it is true and would be upheld if challenged.


It is true that where the purchaser at a trustee’s sale proceeds under section 1161a of the Code of Civil Procedure he must prove his acquisition of title by purchase at the sale; but it is only to this limited extent, as provided by the statute, that the title may be litigated in such a proceeding. Hewitt v. Justice’ Court, 131 Cal.App. 439, 21 P.(2d) 641; Nineteenth Realty Co. v. Diggs, 134 Cal.App. 278, 25 P.(2d) 522; Berkeley Guarantee Building & Loan Ass’n v. Cunnyngham, 218 Cal. 714, 24 P.(2d) 782. — [160] * * * In our opinion, the plaintiff need only prove a sale in compliance with the statute and deed of trust, followed by purchase at such sale, and the defendant may raise objections only on that phase of the issue of title

So the direct elements are laid out here and other objections to title are preserved (see above):

  • The existence of a sale under nonjudicial statutes
  • Acquisition of title by purchase at the sale
  • Compliance with statutes
  • Compliance with deed of trust

The implied elements and issues are therefore as follows:

  • Was it a Trustee who conducted the sale? (i.e., was the substitution of Trustee valid?) If not, then the party who conducted the sale was not a trustee and the “sale” was not a trustee sale. If Substitution of Trustee occurred as the result of the intervention of a party who was not a beneficiary, then no substitution occurred. Thus no right of possession arises. The objection is to lack of foundation. The facial validity of the instrument raises only a rebuttable presumption.
  • Was the “acquisition” of title the result of a purchase — i.e., did someone pay cash or did someone submit a credit bid? If someone paid cash then a sale could only have occurred if the “seller” (i.e., the trustee) had title. This again goes to the issue of whether the substitution of trustee was a valid appointment. A credit bid could only have been submitted by a beneficiary under the deed of trust as defined by applicable statutes. If the party claiming to be a beneficiary was only an intervenor with no real interest in the debt, then the “bid” was neither backed by cash nor a debt owed by the homeowner to the intervenor. According there was no valid sale under the applicable statutes. Thus such a party would have no right to possession. The objection is to lack of foundation. The facial validity of the instrument raises only a rebuttable presumption.

The object is to prevent the burden of proof from falling onto the homeowner. By challenging the existence of a sale and the existence of a valid trustee, the burden stays on the Plaintiff. Thus you avoid the presumption of facial validity by well timed and well placed objections.

” `To establish that he is a proper plaintiff, one who has purchased property at a trustee’s sale and seeks to evict the occupant in possession must show that he acquired the property at a regularly conducted sale and thereafter ‘duly perfected’ his title. [Citation.]’ (Vella v. Hudgins (1977) 20 Cal.3d 251,255, 142 Cal.Rptr. 414,572 P.2d 28; see Cruce v. Stein (1956) 146 Cal.App.2d 688,692,304 P.2d 118; Kelliherv. Kelliher(1950) 101 Cal.App.2d 226,232,225 P.2d 554; Higgins v. Coyne (1946) 75 Cal.App.2d 69, 73, 170 P2d 25; [*953] Nineteenth Realty Co. v. Diggs (1933) 134 Cal.App. 278, 288-289, 25 P2d 522.) One who subsequently purchases property from the party who bought it at a trustee’s sale may bring an action for unlawful detainer under subdivision (b)(3) of section 1161a. (Evans v. Superior Court (1977) 67 Cai.App.3d 162, 169, 136 Cal.Rptr. 596.) However, the subsequent purchaser must prove that the statutory requirements have been satisfied, i.e., that the sale was conducted in accordance with section 2924 of the Civil Code and that title under such sale was duly perfected. {Ibid.) ‘Title is duly perfected when all steps have been taken to make it perfect, i.e. to convey to the purchaser that which he has purchased, valid and good beyond all reasonable doubt (Hocking v. Title Ins. & Trust Co, (1951), 37 Cal.2d 644, 649 [234 P.2d 625,40 A.L.R.2d 1238] ), which includes good record title (Gwin v. Calegaris (1903), 139 Cal. 384 [73 P. 851] ), (Kessler v. Bridge (1958) 161 Cal.App.2d Supp. 837, 841, 327 P.2d 241.) ¶ To the limited extent provided by subdivision (b){3) of section 1161a, title to the property may be litigated in an unlawful detainer proceeding. (Cheney v. Trauzettel (1937) 9 Cal.2d 158, 159, 69 P.2d 832.) While an equitable attack on title is not permitted (Cheney, supra, 9 Cal.2d at p. 160, 69 P.2d 832), issues of law affecting the validity of the foreclosure sale or of title are properly litigated. (Seidel) v. Anglo-California Trust Co. (1942) 55 Cai.App.2d 913, 922, 132 P.2d 12, approved in Vella v. Hudgins, supra, 20 Cal.3d at p. 256, 142 Cal.Rptr. 414, 572 P.2d 28.)’ ” (Stephens, Partain & Cunningham v. Hollis (1987) 196 Cai.App.3d 948, 952-953.)
 
Here the court goes further in describing the elements. The assumption is that a trustee sale has occurred and that title has been perfected. If you let them prove that, they win.
  • acquisition of property
  • regularly conducted sale
  • duly perfecting title

The burden on the party seeking possession is to prove its case “beyond all reasonable doubt.” That is a high bar. If you raise real questions and issues in your objections, motion to strike testimony and exhibits etc. they would then be deemed to have failed to meet their burden of proof.

Don’t assume that those elements are present “but” you have a counterargument. The purpose of the law on this procedure to gain possession of property is to assure that anyone who follows the rules in a bona fide sale and acquisition will get POSSESSION. The rights of the homeowner to accuse the parties of fraud or anything else are eliminated in an action for possession. But you can challenge whether the sale actually occurred and whether the party who did it was in fact a trustee. 

There is also another factor which is whether the Trustee, if he is a Trustee, was acting in accordance with statutes and the general doctrine of acting in good faith. The alleged Trustee must be able to say that it was in fact the “new” beneficiary who executed the substitution of Trustee, or who gave instructions for issuing a Notice of Default and Notice of sale.

If the “successor” Trustee does not know whether the “successor” party is a beneficiary or not, then the foundation testimony and exhibits must come from someone who can establish beyond all reasonable doubt that the foreclosure proceeding emanated from a party who was in fact the owner of the debt and therefore the beneficiary under the deed of trust. 

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Who Are the Creditors?

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Since the distributions are made to the alleged trust beneficiaries by the alleged servicers, it is clear that both the conduct and the documents establish the investors as the creditors. The payments are not made into a trust account and the Trustee is neither the payor of the distributions nor is the Trustee in any way authorized or accountable for the distributions. The trust is merely a temporary conduit with no business purpose other than the purchase or origination of loans. In order to prevent the distributions of principal from being treated as ordinary income to the Trust, the REMIC statute allows the Trust to do its business for a period of 90 days after which business operations are effectively closed.

The business is supposed to be financed through the “IPO” sale of mortgage bonds that also convey an undivided interest in the “business” which is the trust. The business consists of purchasing or originating loans within the 90 day window. 90 days is not a lot of time to acquire $2 billion in loans. So it needs to be set up before the start date which is the filing of the required papers with the IRS and SEC and regulatory authorities. This business is not a licensed bank or lender. It has no source of funds other than the IPO issuance of the bonds. Thus the business consists simply of using the proceeds of the IPO for buying or originating loans. Since the Trust and the investors are protected from poor or illegal lending practices, the Trust never directly originates loans. Otherwise the Trust would appear on the original note and mortgage and disclosure documents.

Yet as I have discussed in recent weeks, the money from the “trust beneficiaries” (actually just investors) WAS used to originate loans despite documents and agreements to the contrary. In those documents the investor money was contractually intended to be used to buy mortgage bonds issued by the REMIC Trust. Since the Trusts are NOT claiming to be holders in due course or the owners of the debt, it may be presumed that the Trusts did NOT purchase the loans. And the only reason for them doing that would be that the Trusts did not have the money to buy loans which in turn means that the broker dealers who “sold” mortgage bonds misdirected the money from investors from the Trust to origination and acquisition of loans that ultimately ended up under the control of the broker dealer (investment bank) instead of the Trust.

The problem is that the banks that were originating or buying loans for the Trust didn’t want the risk of the loans and frankly didn’t have the money to fund the purchase or origination of what turned out to be more than 80 million loans. So they used the investor money directly instead of waiting for it to be processed through the trust.

The distribution payments came from the Servicer directly to the investors and not through the Trust, which is not allowed to conduct business after the 90 day cutoff. It was only a small leap to ignore the trust at the beginning — I.e. During the business period (90 days). On paper they pretended that the Trust was involved in the origination and acquisition of loans. But in fact the Trust entities were completely ignored. This is what Adam Levitin called “securitization fail.” Others call it fraud, pure and simple, and that any further action enforcing the documents that refer to fictitious transactions is an attempt at making the courts an instrument for furthering the fraud and protecting the perpetrator from liability, civil and criminal.

And that brings us to the subject of servicer advances. Several people  have commented that the “servicer” who advanced the funds has a right to recover the amounts advanced. If that is true, they ask, then isn’t the “recovery” of those advances a debit to the creditors (investors)? And doesn’t that mean that the claimed default exists? Why should the borrower get the benefit of those advances when the borrower stops paying?

These are great questions. Here is my explanation for why I keep insisting that the default does not exist.

First let’s look at the actual facts and logistics. The servicer is making distribution payments to the investors despite the fact that the borrower has stopped paying on the alleged loan. So on its face, the investors are not experiencing a default and they are not agreeing to pay back the servicer.

The servicer is empowered by vague wording in the Pooling and Servicing Agreement to stop paying the advances when in its sole discretion it determines that the amounts are not recoverable. But it doesn’t say recoverable from whom. It is clear they have no right of action against the creditor/investors. And they have no right to foreclosure proceeds unless there is a foreclosure sale and liquidation of the property to a third party purchaser for value. This means that in the absence of a foreclosure the creditors are happy because they have been paid and the borrower is happy because he isn’t making payments, but the servicer is “loaning” the payments to the borrower without any contracts, agreements or any documents bearing the signature of the borrower. The upshot is that the foreclosure is then in substance an action by the servicer against the borrower claiming to be secured by a mortgage but which in fact is SUPPOSEDLY owned by the Trust or Trust beneficiaries (depending upon which appellate decision or trial court decision you look at).

But these questions are academic because the investors are not the owners of the loan documents. They are the owners of the debt because their money was used directly, not through the Trust, to acquire the debt, without benefit of acquiring the note and mortgage. This can be seen in the stone wall we all hit when we ask for the documents in discovery that would show that the transaction occurred as stated on the note and mortgage or assignment or endorsement.

Thus the amount received by the investors from the “servicers” was in fact not received under contract, because the parties all ignored the existence of the trust entity. It was a voluntary payment received from an inter-meddler who lacked any power or authorization to service or process the loan, the loan payments, or the distributions to investors except by conduct. Ignoring the Trust entity has its consequences. You cannot pick up one end of the stick without picking up the other.

So the claim of the “servicer” is in actuality an action in equity or at law for recovery AGAINST THE BORROWER WITHOUT DOCUMENTATION OF ANY KIND BEARING THE BORROWER’S SIGNATURE. That is because the loans were originated as table funded loans which are “predatory per se” according to Reg Z. Speaking with any mortgage originator they will eventually either refuse to answer or tell you outright that the purpose of the table funded loan was to conceal from the borrower the parties with whom the borrower was actually doing business.

The only reason the “servicer” is claiming and getting the proceeds from foreclosure sales is that the real creditors and the Trust that issued Bonds (but didn’t get paid for them) is that the investors and the Trust are not informed. And according to the contract (PSA, Prospectus etc.) that they don’t know has been ignored, neither the investors nor the Trust or Trustee is allowed to make inquiry. They basically must take what they get and shut up. But they didn’t shut up when they got an inkling of what happened. They sued for FRAUD, not just breach of contract. And they received huge payoffs in settlements (at least some of them did) which were NOT allocated against the amount due to those investors and therefore did not reduce the amount due from the borrower.

Thus the argument about recovery is wrong because there really is no such claim against the investors. There is the possibility of a claim against the borrower for unjust enrichment or similar action, but that is a separate action that arose when the payment was made and was not subject to any agreement that was signed by the borrower. It is a different claim that is not secured by the mortgage or note, even if the  loan documents were valid.

Lastly I should state why I have put the “servicer”in quotes. They are not the servicer if they derive their “authority” from the PSA. They could only be the “servicer” if the Trust acquired the loans. In that case they PSA would affect the servicing of the actual loan. But if the money did not come from the Trust in any manner, shape or form, then the Trust entity has been ignored. Accordingly they are neither the servicer nor do they have any powers, rights, claims or obligations under the PSA.

But the other reason comes from my sources on Wall Street. The service did not and could not have made the “servicer advances.” Another bit of smoke and mirrors from this whole false securitization scheme. The “servicer advances” were advances made by the broker dealer who “sold” (in a false sale) mortgage bonds. The brokers advanced money to an account in which the servicer had access to make distributions along with a distribution report. The distribution reports clearly disclaim any authenticity of the figures used, the status of the loans, the trust or the portfolio of loans (non-existent) as a whole. More smoke and mirrors. So contrary to popular belief the servicer advances were not made by the servicers except as a conduit.

Think about it. Why would you offer to keep the books on a thousand loans and agree to make payments even if the borrowers didn’t pay? There is no reasonable fee for loan processing or payment processing that would compensate the servicer for making those advances. There is no rational business reason for the advance. The reason they agreed to issue the distribution report along with money that was actually under the control of the broker dealer is that they were being given an opportunity, like sharks in a feeding frenzy, to participate in the liquidation proceeds after foreclosure — but only if the loan actually went into foreclosure, which is why most loan modifications are ignored or fail.

Who had a reason to advance money to the creditors even if there was no payment by the borrower? The broker dealer, who wanted to pacify the investors who thought they owned bonds issued by a REMIC Trust that they thought had paid for and owned the loans as holder in due course on their behalf. But it wasn’t just pacification. It was marketing and sales. As long as investors thought the investments were paying off as expected, they would buy more bonds. In the end that is what all this was about — selling more and more bonds, skimming a chunk out of the money advanced by investors — and then setting up loans that had to fail, and if by some reason they didn’t they made sure that the tranche that reportedly owned the loan also was liable for defaults in toxic waste mortgages “approved” for consumers who had no idea what they were signing.

So how do you prove this happened in one particular loan and one particular trust and one particular servicer etc.? You don’t. You announce your theory of the case and demand discovery in which you have wide latitude in what questions you can ask and what documents you can demand — much wider than what will be allowed as areas of inquiry in trial. It is obvious and compelling that asked for proof of the underlying authority, underlying transaction or anything else that is real, your opposition can’t come up with it. Their case falls apart because they don’t own or control the debt, the loan or any of the loan documents.

The Confusion Over Consideration: If they didn’t pay for it, they have nothing against the property

There have been multiple questions directed at me over the issue of consideration arising from presumptions made about a note and mortgage that appear to be facially valid. Those presumptions are rebuttable and indeed in many cases would be rebutted by the actual facts. That is why asserting the right defenses is so important to set the foundation for discovery.

The cases thrown at me usually relate to adequacy of consideration. Some relate wrongly to Article 3 as to enforcement of the note. I agree that enforcement of the note is easier than enforcement of the mortgage. But that is the point. If they really want the property even a questionable holder of the note might be able to get a civil judgment and that judgment might result in a lien against the property and it might even be foreclosed if the property is not homestead. That is how we protect creditors and property owners. To enforce the mortgage, the claim must be much stronger — it must be filed by a party who actually has the risk of loss because they paid for it.

One case just sent to me is a 2000 case 4th DCA in Florida. Ahmad v Cobb. 762 So 2d 944. The quote I lifted out of that case which was presented to me as though it contradicted my position is the most revealing:

“First, there is no doubt that Ahmad, as the assignee of the Resolution Trust Corporation, owned the rights to the Cobb Corner, Inc. note and mortgage and to the guarantees securing those obligations. He obtained a partial

[762 So.2d 947]

summary judgment which fixed the validity, priority and extent of his debt. Any questions as to the adequacy of the consideration he paid were settled in that ruling.

That is your answer. The time to contest consideration is best done before judgment when you don’t need to prove fraud by clear and convincing evidence. We are also not challenging adequacy of consideration — except that if it recites $10 and other value consideration for a $500,000 loan it casts doubt as to whether the third leg of the stool is actually present — offer, acceptance and consideration. People tend to forget that this is essentially contract law and the contract for loan is no exception to the laws of contract.

We are challenging whether there was any consideration at all because I already know there was none. There couldn’t be. The consideration flowed directly from the investors to the borrower. That is the line of sight of the debt, in most cases.

The closing agent mistakenly or intentionally applied funds from a third party who was not disclosed on the settlement documents. Without receiving any money from the “originator”, the closing agent proceeded to get the signature from the borrower promising to pay the originator when it was a third party who gave the closing agent the funds. If this was a “warehouse loan” in which the originator was borrowing the money with a risk of loss and the liability to pay it back then the originator is a proper party and any assignments from the originator would be valid — if they were supported by consideration. Some loans do fit that criteria but most do not.

I repeat that this is not an attempt to get out of the debt altogether. It is an attack on the note and mortgage because the actual terms of repayment were either never agreed between the investors and the borrowers or are as set forth in the PSA and NOT the note and mortgage.

If the third party (source of funds) is NOT in privity with the originator (which is the structure we are dealing with because the broker dealers wanted to shield themselves from liability for violating fair lending laws) then the closing agent should have obtained instructions from the source of funds as to the application of funds wired into escrow. Anyone who didn’t would be an idiot. But most of them, under that definition would qualify. The closing agent would also be wrong to have demanded the signature of the borrower on documents that (a) did not reveal the source of funds and (b) did not contain all the terms of repayment, as recited in the PSA.

The foreclosure crowd is saying the PSA is irrelevant — but only when it suits them. They are saying that the PSA gives them the authority to proceed with foreclosure but that the terms of the PSA are not relevant. That is crazy, but up until now judges have been buying it because they have not been presented with the fact pattern and legal argument that we are asserting.

In summary, we are saying there was NO CONSIDERATION. We are not attacking adequacy of consideration. I am saying there was no actual transaction between the originator and the borrower and there was no actual transaction between the assignor, indorsor, and the assignee or indorsee. Article 9 of the UCC is clear.

The terms of enforcement of a note govern a looser interpretation of when negotiable paper can be enforced. But the terms of a mortgage cannot be enforced by anyone unless they obtain it for value. Value is consideration. We are saying there wasn’t any consideration. Any decision to the contrary is wrong and can be contested with contrary decisions that are all correct and can be found not only in the public records but in treatises.

And this is absolutely necessary. In a mortgage foreclosure or even attachment, the party seeking the forfeiture must show that this forfeiture is necessary to secure repayment of a debt. It must also show that without this forfeiture, it will suffer a loss. In so doing they establish grounds not only for the foreclosure judgment but also for the foreclosure sale.

As pointed out in the above case, the creditor is the one who submits a creditor’s bid by definition. If the party bringing the action cannot satisfy the elements of a creditor in real money terms, then they are not permitted to bid anything other than cash. Allowing a party who did not acquire the mortgage rights for value would enable strangers to the transaction to acquire property for free, except the costs of litigation. Thus the “free house” argument is specious. It is a distraction from the real facts as to who is getting a free house.

Challenging Deeds Issued After Auction (Sale) of Property

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

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

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

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

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

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

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

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

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

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

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

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

Trustees Deed language snip

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

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

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

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

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