Same Old Story: Paper Trail vs, Money Trail (Freddie Mac)

Payment by third parties may not reduce the debt but it does increase the number of obligees (creditors). Hence in every one of these foreclosures, except for a minuscule portion, indispensable parties were left out and third parties were in reality getting the proceeds of liquidation from foreclosure sales.

The explanations of securitization contained on the websites of the government Sponsored Entities (GSE’s) clearly demonstrate what I have been writing for 11 years and reveal a pattern of illusion and deception.

The most important thing about a financial transaction is the money. In every document filed in support of the illusion of securitization, it steadfastly holds firm to discussion of paper instruments and not a word about the actual location of the money or the actual identity of the obligee of that money debt.

Each explanation avoids the issue of where the money goes and how it was “processed” (i.e., stolen, according to me and hundreds of other scholars.)

It underscores the fact that the obligee (“debt owner” or “holder in due course” is never present in any legal proceeding or actual transaction or transfer of of the debt. This leaves us with only one  conclusion. The debt never moved, which is to say that the obligee was always the same, albeit unaware of their status.

Knowing this will help you get traction in the courtroom but alleging it creates a burden of proof for you to prove something that you know is true but can only be confirmed with access to the books, records an accounts of the parties claiming such transactions ands transfers occurred.

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

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For one such example see Freddie Mac Securitization Explanation

And the following diagram:

Freddie Mac Diagram of Securitization

What you won’t find anywhere in any diagram supposedly depicting securitization:

  1. Money going to an originator who then lends the money to the borrower.
  2. Money going to a named REMIC “Trust” for the purpose of purchasing loans or anything else.
  3. Money going to the alleged unnamed beneficiaries of a named REMIC “Trust.”
  4. Money going to the alleged unnamed investors who allegedly purchased “certificates” allegedly issued by or on behalf of a named REMIC “Trust.”
  5. Money going to the originator for sale of the debt, note and mortgage package.
  6. Money going to originator for endorsement of note to alleged transferee.
  7. Money going to originator for assignment of mortgage.
  8. Money going to the named foreclosing party upon liquidation of foreclosed property. 
  9. Money going to the homeowner as royalty for use of his/her/their identity forming the basis of value in issuance of derivatives, hedge products and contract, insurance products and synthetic derivatives.
  10. Money being credited to the obligee’s loan receivable account reducing the amount of indebtedness (yes, really). This is because the obligee has no idea where the money is coming from or why it is being paid. But one thing is sure — the obligee is receiving money in all circumstances.

Payment by third parties may not reduce the debt but it does increase the number of obligees (creditors). Hence in every one of these foreclosures, except for a minuscule portion, indispensable parties were left out and third parties were in reality getting the proceeds of liquidation from foreclosure sales.

“Failure to Add Indispensable” Parties: Why Not Raising This Defense in Your Client’s Mortgage Foreclosure Case May be a Ticket to a Legal Malpractice Claim

“Failure to Add Indispensable” Parties: Why Not Raising This Defense in Your Client’s Mortgage Foreclosure Case May be a Ticket to a Legal Malpractice Claim

This article is intended for attorneys who choose to defend a mortgage foreclosure action. As has been repeatedly published in this blog, in the great majority of instances we have seen, the Plaintiff in the foreclosure action is something along the lines of “ABC Bank as Indenture Trustee for the Registered Holders of XYZ Asset-Backed Bonds Series 2005-V”, or something of that ilk. Per a previous article published on this blog by this author, when the name of the Plaintiff is something akin to this example, you need to dig, as that type of moniker tells you, right up front, that there were several assignments of the note and mortgage to various entities before these instruments wound up in some tranche in some special investment vehicle which may be in the Cayman Islands or with a batch of thousands of other notes and mortgages in some vault in Reykjavik, Iceland.

In other instances and in addition to the “red flag” name of the Plaintiff, we have seen  other cases where the Plaintiff admits that they do not own or hold the note or mortgage, do not know where they are, and in one case the Plaintiff actually put a settlement offer into the allegations of the Count for “Enforcement of Lost Documents” that the Plaintiff would “agree to a Final Judgment of Foreclosure which would require the Plaintiff to indemnify and hold [the named borrower Defendant] harmless” from someone who may come along later and claim ownership of the original note and mortgage. Talk about chutzpah!

Which begets the defense of failure to add indispensable parties. As soon as you see a case where the Plaintiff is some trustee or some assignee of some group of unnamed investors or holders of some series of mortgage-backed securities or bonds, etc., the Motion to Dismiss for Failure to Add Indispensable Parties should be filed forthwith. The allegation is that the Plaintiff knows or should know, by its very title, that the mortgage and note were assigned or sold or transferred at least one or more times between the time of loan origination and the time of the filing of the action, and that there are thus real parties in interest who may claim an interest in the note or mortgage who have not been named. Remember, the classic definition of an indispensable party is “one without whose joinder the complete rights and obligations of the parties cannot be determined”. The case cited above where the Plaintiff admitted that there may be some other party or parties out there who may, at some point, claim an interest in the note or mortgage is proof positive of the Plaintiff’s actual knowledge of this material issue.

Not filing this Motion can be a ticket to a claim for legal malpractice. Even if you prevail in defending the foreclosure on one or more of the substantive defenses, if you do not ascertain all other potentially interested parties in your intensive discovery, there is the distinct possibility that someone is going to come out of the woodwork down the road with the original note and mortgage and go “AHA, this property belongs to me!”, whereupon you, as the underlying foreclosure defense attorney, then get the letter from your client (or his malpractice attorney) requesting copies of your E&O or professional liability policy, dec sheet, etc.

Bottom line: file the Motion, do the discovery, and find out who all of the players were who may have an interest, and force the Plaintiff to add them as Defendants. In any settlement, make it an absolute “deal breaker” that the settling party sign an iron-clad  indemnification and hold harmless agreement, even if it means putting up a bond if the settling party’s future existence is dubious (a la Bear Stearns) or may be teetering on the verge of bankruptcy or closing its doors.

Stay tuned to this blog for examples of the type of discovery you will need to advance this most important issue in your client’s defense.

Jeff Barnes, Esq.

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