Falling Into the Traps Set By the Banks

For the past 15 years there has been a huge chasm between what a document says and what actually occurred. In foreclosure settings, the conscious decision has been made to ignore the Truth and proceed on the falsehoods promulgated by the banks. This arises from the “national security” fear that if the banks are not allowed to continue their fraudulent behavior, the entire financial system will collapse taking the entire society down with it. This myth is promulgated by the Banks, who supply the government with people to regulate the banks. Even as a theory it is untested, and unsupported by any real evidence. Unfortunately for Americans, too many people believe it.

Listen to the last Last Neil Garfield Show at http://tobtr.com/s/9673161

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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We are constantly analyzing the documentation that is produced by the banks or their surrogates. But we are failing our clients when we say that something actually occurred just because a piece of paper says it occurred.
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“Prepared by” is just a hearsay statement that the document was prepared by the entity identified after those words. It does not mean that the document was in fact prepared by that entity — usually a title or closing agent — nor does it necessarily mean that the identified entity actually even handled the document.
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Too often, and virtually the rule, is that facially valid documents are telling the truth about what occurred. In the present context of “lending” the facially valid documents relied upon by foreclosing parties are usually fabricated, forged, robosigned and prepared by entities who create and maintain the records upon which the foreclosure proceeds — separate and apart from the alleged “Trust” or other “owner” and separate and apart from the party identified as the servicer but who actually do nothing except lend its name for use in a foreclosure.
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We don’t want to be saying (and therefore admitting) that the title or closing agent DID prepare the document — but rather admit the obvious: that the document says that they prepared it. It is the same with other documents.
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We don’t want to say that an assignment was made; in our reports we say that the document labeled “assignment” says there was an assignment. It is easy to fall into the trap of assuming that basic references are truthful when in fact they are not. We do a disservice to our customers if we submit a report that plays right into the hands of the banks. It also misdirects the lawyer or pro se litigant into failing to object to the references within a facially valid document because then those defenses are probably waived.
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But looking at the “prepared by” and “return to” instructions on an instrument may give you another lead to a witness who is unwilling to lie about the the alleged transaction.
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The closing agent or escrow agent may be willing to state that they received money, as they were instructed, and that they dispersed the money as instructed. They might be willing to admit that they did not prepare the documents but rather received them from a source that also might not have prepared them. And they might be willing to admit that they have no knowledge of from whence the money came for the alleged “closing.” Thus their testimony could be that they can provide no foundation to the assertion that a loan was made by the named mortgagee or beneficiary.
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A facially valid document, particularly if it is recorded in the public records, normally carries with it a presumption of truthfulness unless there is evidence to suggest that the document was fabricated, forged, robosigned or that there are other indications that the document is just a self-serving fabrication. But the admission of such a document into evidence should be the start of the argument not the end.
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Once the document is admitted into evidence, hopefully over the timely objection of foreclosure defense counsel (lack of foundation), the statements within the documents are hearsay unless the hearsay objection is waived. Those statements, without foundation testimony cannot be used as foundation for other testimony about the authority of the “servicer”, the “trustee,” or anyone else posing as owner or servicer of the DEBT.
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A simplified example: A warranty deed executed by John Doe, executed with the formalities required by statute is a facially valid instrument. The recipient Jane Roe received title ownership of the property according to the provisions stated on the face of the deed. If the deed is then recorded in the County records, it establishes notice to all the world that Jane Roe is the owner of the property described in the deed.
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But if John Doe never owned the property then the deed conveys nothing. It is a wild deed. It can be ignored by the world and everyone else. It can be removed from chain of title generally by a quiet title action (lawsuit in local jurisdiction) or simply an affidavit saying that John Doe mistakenly executed the deed describing the wrong property or whatever situation arose to cause the recording of a false deed in the chain of title to someone else’s property.
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But if Jane Roe insists that she does own the property described in the false deed and acts on that assertion, that is where things get messy. If Jane Roe files a quiet title or other lawsuit and presents the facially valid warranty deed from John Doe, the deed will be admitted into evidence, probably over the objections of the real property owner. It is admitted to prove only that the document exists in the county records and NOT to prove that the truthfulness of representations on the deed (“Grantor is full seized and owner of the property”), which is still the burden of proof for Jane Roe. There is also generally a representation as to the payment of good and valuable consideration, which we will presume Jane Roe never paid and obviously can’t prove. And THAT is where Jane Roe’s case should fail.
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The mistake made by pro se litigants and lawyers defending foreclosures is that they don’t go back to these basics. The original note and mortgage may indeed have been signed by the present homeowner. But the representations concerning payment of good and valuable consideration by the party named as mortgagee (or beneficiary under the deed of trust) are untrue as to most of the original “transactions” and therefore all succeeding documentation purporting to “sell’ grant bargain and deed” the note and mortgage to another party. Even where the originator does fund the initial “loan” (a small minority of originated documentation) the assignments are mysteriously missing any actual payment and therefore there can be no proof of payment of good and valuable consideration.
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In plain language, the fact that the homeowner owes SOMEBODY doesn’t mean that they owe just ANYBODY.
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For the past 15 years there has been a huge chasm between what a document says and what actually occurred. In foreclosure settings, the conscious decision has been made to ignore the Truth and proceed on the falsehoods promulgated by the banks. This arises from the “national security” fear that if the banks are not allowed to continue their fraudulent behavior, the entire financial system will collapse taking the entire society down with it. This myth is promulgated by the Banks, who supply the government with people to regulate the banks. Even as a theory it is untested, and unsupported by any real evidence.
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It is this policy of presumptive national security that has sacrificed the lives of 20 million people thus far.
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Questionable Documents: Investigation and Discovery Required
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NOTE: Analytical reports on title or securitization are not evidence without foundation testimony and/or affidavit, as the court permits. Our analytic summaries represent our observation and opinion as to issues regarding Chain of Title, Authenticity, Forgery, Fabrication or Robo-signing. Actions to be considered include sending a Qualified Written Request (QWR) under RESPA, Debt Validation Letter (DVL) under FDCPA, letters/complaints to State Attorney General and Consumer Financial Protections Board, and legal claims and defenses as to Legal Standing.

New “Original Notes” from Visionet Systems: How False Original Signatures Are Created

reapplying the “signature images” upon stored copies.”

I have obtained confirmation from a large bank vendor (Visionet Systems, Inc.) that it rectifies “lost notes” by reapplying the “signature images” upon stored copies. —- Bill Paatalo, December 10, 2016

Kudos to Bill Paatalo who has quantified and identified what I have been talking about for years — the production of “original” notes that were previously destroyed. The sarcasm from the bench has dripped ridicule on anyone even suggesting that the “blue ink” signature is merely a reproduction on a fabricated document. The revelations in this article might be a step toward changing that attitude. — Neil Garfield

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://bpinvestigativeagency.com/automated-affidavit-verifications-and-lost-note-reproductions-for-bank-vendors-its-standard-business-practice/

This is something that everyone ought to read because it not only reveals the details of how consumers are being screwed by illegal actions taken by the banks, but also shows how we have now institutionalized illegal behavior.

Perhaps most important is the take-away question from this revelation: Why is the fabrication and forging and robosigning documents necessary if these were all bona fide loans? Answer: They were not bona fide loans and the loan documents were fabrications that the borrower was fraudulently induced to sign.

The money given to “borrowers” was not a loan, but it was a liability.  The liability arose because the homeowner received the benefit of the money advanced somewhere near the time of the fictitious closing. But because of the larger scheme of stealing money from pension funds et al, the use of their money at the so-called closing was hidden from BOTH the investors and the “borrowers.” No loan contract was ever formed. Hence the need for repeated fabrications to cover up the illegal behavior and to create the illusion of literally “the greater weight of the evidence.”

In virtually every foreclosure case the money trail (i.e., reality) does not in any way dovetail or reconcile with the false paper trail created by the world’s largest banks.

Excerpts from Bill’s Article:

I have obtained confirmation from a large bank vendor (Visionet Systems, Inc.) that it rectifies “lost notes” by reapplying the “signature images” upon stored copies. 

Astonishingly enough, this is not the only business practice that appears to violate the $25B National Consent Judgment. Visionet advertises that it prepares “OCR Legal Packages” which involves the use of a sophisticated computer software program to create and verify foreclosure affidavits. Apparently, humans are too slow, as Visionet points out, “Servicers routinely lag behind on completing the legal package reviews in a timely manne[r.”]

[For reference, here is a copy of the “Consent Judgement” (CJ) signed on April 11, 2012 (consent_judgment_boa-4-11-12)]

This investigation begins with yet another “surrogate signed” mortgage assignment “Prepared By: Visionet Systems, Inc.,” executed and recorded December 2015 in Collier County Florida (see: collier-county-florida-assignment). The assignment is executed by “Stacy Pierce – Vice President – MERS as nominee for Greenpoint Mortgage Funding, Inc.” Of course, this mortgagee went out of business on August 20, 2007.

I looked up “Stacy Pierce” and found her LinkedIn resume which shows “VP of Operations” for Visionet Systems, Inc. (see: https://www.linkedin.com/in/stacy-pierce-53047162)

I visited Visionet’s website (https://www.visionetsystems.com/about) and found this marketing brochure describing a product called “Visirelease.” (see: visirelease-marketing-brochure) I was curious as to the following language located on page 2:

“A database driven Business Engine enables the users to define complex business conditions. These business conditions are associated with the relevant tasks to ensure verification at completion of each task. A powerful and flexible print engine is implemented for printing of release, assignments and lost notes, with or without signature images.”

The persons signing the eventual automated affidavits are simply relying on the auto-produced document, and do little if any human verification. The prime example is the above assignment on behalf of defunct Greenpoint! Still, if the witness was doing the actual verification, then why the need for OARS? In all the cases I have been involved, having read and heard countless servicer witnesses’ testimony, I have yet to hear any of these bank witnesses divulge that the affidavits relied upon in the proceedings were prepared and “verified” by a third-party automated computer program. How’s that for hearsay?

Here is the laundry list of potential violations to the Consent Judgment. Nowhere do I see room for “automated affidavit verification solutions” by undisclosed third-party vendors such as Visionet Systems, Inc.

[(CJ – A1-A3):

2. Servicer shall ensure that affidavits, sworn statements, and Declarations are based on personal knowledge, which may be based on the affiant’s review of Servicer’s books and records, in accordance with the evidentiary requirements of applicable state or federal law.

3. Servicer shall ensure that affidavits, sworn statements and Declarations executed by Servicer’s affiants are based on the affiant’s review and personal knowledge of the accuracy and completeness of the assertions in the affidavit, sworn statement or Declaration, set out facts that Servicer reasonably believes would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. Affiants shall confirm that they have reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose, including the borrower’s loan status and required loan ownership information. If an affiant relies on a review of business records for the basis of its affidavit, the referenced business record shall be attached if required by applicable state or federal law or court rule. This provision does not apply to affidavits, sworn statements and Declarations signed by counsel based solely on counsel’s personal knowledge (such as affidavits of counsel relating to service of process, extensions of time, or fee petitions) that are not based on a review of Servicer’s books and records. Separate affidavits, sworn statements or Declarations shall be used when one affiant does not have requisite personal knowledge of all required information.

5. Servicer shall review and approve standardized forms of affidavits, standardized forms of sworn statements, and standardized forms of Declarations prepared by or signed by an employee or officer of Servicer, or executed by a third party using a power of attorney on behalf of Servicer, to ensure compliance with applicable law, rules, court procedure, and the terms of this Agreement (“the Agreement”).

6. Affidavits, sworn statements and Declarations shall accurately identify the name of the affiant, the entity of which the affiant is an employee, and the affiant’s title.

7. Servicer shall assess and ensure that it has an adequate number of employees and that employees have reasonable time to prepare, verify, and execute pleadings, POCs, motions for relief from stay (“MRS”), affidavits, sworn statements and Declarations.

10. Servicer shall not pay volume-based or other incentives to employees or third-party providers or trustees that encourage undue haste or lack of due diligence over quality.

11. Affiants shall be individuals, not entities, and affidavits, sworn statements and Declarations shall be signed by hand signature of the affiant (except for permitted electronic filings). For such documents, except for permitted electronic filings, signature stamps and any other means of electronic or mechanical signature are prohibited.

 

FAMILIARITY IS BREEDING CONTEMPT IN THE COURTS

Business Records Exception On Shaky Ground: The main point is foundation: the affidavit or testimony by the robo-witness must show that the company he works for is in fact the servicer of the loan, as authorized by the owner of the debt, and that he/she has actual knowledge of the procedures and posting policies of the servicer and the owner of the debt. I would add that this “corporate representative” must show that he/she and the “servicer” is authorized to speak for, and thus appear for the foreclosing party.

see http://www.newyorklawjournal.com/home/id=1202770275522/Casting-Doubt-on-Validity-of-Servicer-Affidavits-in-Foreclosure-Litigation?mcode=1202615326010&curindex=0&slreturn=20160925141040

Hearsay is always excluded from evidence — at least when it is ruled as hearsay. A document is hearsay in nearly all instances and thus may not be introduced into evidence — unless it satisfies the elements of a exception to the hearsay rule of exclusion.

In foreclosures the main hearsay event arises from the fact that no creditor appears in court. It is virtually always a company that claims to be a servicer for the owner of the debt, but the situation is nearly always opaque as to the identity of the owner of the debt who they say authorized them as servicer.

The typical testimony from a robo-witness, on leading questions from the attorney, is that he/she is familiar with the the record keeping process and policies of the servicer and that the letter, or payment history sought to be introduced into evidence was produced in the ordinary course of business from records kept in the ordinary course of business based upon entries made at or near the time of an actual event. Of course, with most of such documents there is no “event” and that is a problem for banks and servicers.

New York seems to be leading the way on the issue of whether these documents are trustworthy exceptions to the hearsay rule of exclusion. See the above link.

Judges in New York now know they will be reversed unless there is clear and competent evidence that the witness can attest from their own personal knowledge using one or more of their five senses — i.e., that they have seen and heard and followed the process of making and keeping records and that they had access to the records showing that the “servicer” was authorized to act as such.

The reason why banks have shifted from the old tried and true practice of sending a representative of the alleged owner of the debt to court is that such a person knows too much and would either be required to perjure themselves or tell the truth, to wit: that the company he/she works for is not the owner of the debt and he/she has no idea who is the owner. Such a person would be forced to admit either ignorance of any transaction in which their employer purchased the loan or that the loan was not in fact purchased by his/her employer.

Such an admission would completely obliterate the claim of the company claiming to be a servicer on behalf of the owner of the debt. This in turn would eliminate the business records exception to the hearsay rule of exclusion. We could go deeper into the number of IT platforms that are maintained and by whom they are maintained and whether the “servicer” even has access to the actual records, but it seems potentially unnecessary with decisions coming from appellate courts who are worried about opening the door on hearsay in millions of other cases unrelated to foreclosure.

Those courts are rapidly retreating from the temporary imposition of an extended exception to the hearsay rule because they can readily see how justice would not be served in criminal and civil matters if the rule remains as loose as it is now.

It is much better for the banks to send someone who knows nothing and therefore cannot accidentally or otherwise tell the truth about these bogus loans and fraudulent foreclosures. The banks are in essence throwing the servicers under the bus, along with the attorneys hired by the servicers. But the walls are caving in on them and they will soon need to put up or shut up — producing a real witness with real (not presumed) knowledge or take a voluntary dismissal. As we have seen in thousands of cases, when presented with that choice the banks voluntarily dismiss their actions even when it means they must pay attorney fees to the homeowner.

The obvious conclusion is that there is no such witness and the facts asserted by the foreclosing party are pure fiction, reliant entirely upon illusion and the erroneous application of legal presumptions.

From the article cited above:

“Lenders will need to find ways in which to meet the new requirements imposed in order to satisfy the business records exception to the hearsay rule announced in decisions such as Royal. For instance, lenders may seek to avoid altogether obtaining affidavits from third-party loan servicers, and instead use representatives of the lender, who can attest to their familiarity with the lender’s record-keeping practices and procedures, in order to submit affidavits and documents to the court.

 
Alternatively, if lenders continue to insist, even after Royal and the other decisions of the Second Department discussed above, to use affidavits from third-party loan servicers in mortgage foreclosure litigation, then the best practice will be to have loan servicers (as opposed to lenders) be the party to act as the plaintiff in the foreclosure litigation. So long as the loan servicer is authorized to do so by the lender, courts have found that loan servicers have standing to present claims for foreclosure and sale on behalf of the lender that owns and holds the note and mortgage at the time of the commencement of the action. See, e.g., Flushing Preferred Funding Corp. v. Patricola Realty Corp., 964 N.Y.S.2d 58 (Sup. Ct. Suffolk Co. 2012).”

Quiet Title “Packages”

The promise by some title search vendors of a cheap lawsuit that will get rid of your mortgage is generally not based in reality. You might be able to beat a foreclosure with title issues but you probably won’t get rid of the mortgage or deed of trust without pleading and proving that the mortgage or deed of trust is completely void — like it never should have existed or doesn’t exist now by operation of law.
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
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There are many people out there who are pursuing a business model of offering a quiet title package, sometimes using the word “Turnkey.” Most of these people are well-meaning but not lawyers and they are lacking basic legal knowledge. While the title work by people like BPInvestigations is excellent, the promise by some title search vendors of a cheap lawsuit that will get rid of your mortgage is generally not based in reality. You might be able to beat a foreclosure with title issues but you probably won’t get rid of the mortgage or deed of trust without pleading and proving that the mortgage or deed of trust is completely void — like it never should have existed or doesn’t exist now by operation of law.

Personally I think that condition is satisfied by TILA rescission, but the courts are still rebelling against the idea of giving that much power to borrowers. So while I am certain it is correct, I am equally certain that the defense shield raised by the banks is working even though it does not pass muster legally and will probably be struck down again by the US Supreme Court.

While these offers may sound attractive there are many pitfalls and trap doors that will prevent a homeowner from actually achieving anything by focusing on a strategy that is dependent upon a court issuing a declaration quieting title. The very word “quiet” should give you a hint. There must be an actual controversy or dispute involving a present situation requiring the court to decide the rights of the parties. Courts are NOT in the business of issuing advisory opinions.

The Marketing title says it all — it is a “turnkey” “quiet title” package suing for damages. There is no such thing as turnkey title — they don’t know all the possibilities of defects in title. And they won’t know it even after they produce a title report either, although they will have a pretty good list of possibilities of title defects.
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Without a title expert (usually an attorney) analyzing the title going back to the last time that a real title examiner looked carefully at title to the subject property, nobody knows what is a defect, what can be corrected by affidavit, and what prevents the grantee of an instrument from doing anything with it. This might mean going back 30 years or more.

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Quiet title is an action in equity that is a complaint for declaratory relief wherein the court says “here are the names of the stakeholders and here is the stake of each holder.” But no court is going to allow the lawsuit for that without pleading a present controversy — because that would be the Court giving legal advice.

So you would have to say “A is the owner of the property but B (or B, C and D) is/are saying it is the owner of the property (or B is saying that it has a valid encumbrance upon the land. I am trying to sell, refinance the land and I can’t complete the transaction because of B’S claim, which I think is bogus because [fill in the blank, e.g., the mortgage is a void or wild instrument because …]. So in order to complete my pending transaction I need a declaration from the court as to whether B is a stakeholder, like they say or B is not a stakeholder like I say.” If you don’t have those elements present the court will dismiss the lawsuit 99 times out of 100.

The promise of damages is bogus. That is an action at law that could be derived from any number of breaches or torts by the defendant(s). It could never derive from a turnkey quiet title package even if there was one. It would be a different lawsuit saying B had this duty, they breached it, or committed an intentional tort, and that was the proximate cause of actual damages to me that include x, y and z.

 

And as many people have found out when they sued for quiet title and had their suit dismissed or judgment entered against them there are two main reasons for that. First, they could not properly plead a present controversy or the competing “stakes” in the property. Second, they could not tie in ACTUAL damages to a breach of duty or intentional tort by the defendant. Proximately caused means legally caused.

Most judges view such lawsuits as “”B is bad. Give me title and whatever monetary damages you think will punish them.” The homeowners are skipping the part that where there are no actual damages you don’t get punitive damages. You can’t sue for JUST punitive damages. If you don’t have actual damages you don’t have standing to sue. The Latin for this is damnum absque injuria. Just because somebody was negligent or greedy doesn’t mean you can sue if you are not a party who suffered actual damages from their illegal act.

TBW Taylor Bean Chairman Arrested On Fraud Charges

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

Editor’s Note: TBW has been high on my list of incompetent fraudsters. I always thought it was a stupid risk to “sell” mortgages and “sell” the servicing rights (probably to their own entity), and then take the servicing back. Stupid maybe, but they had no choice. The entire Taylor Bean operation wreaks of fraud and inconsistencies.

Bottom Line: If you have a TBW as the originating “lender” this article indicates, as we have known all along, that they were using OPM (Other People’s Money) and they were NOT the lender even though they said they were. It is highly likely that few, if any, of the loans were actually “securitized” because the loans were either nonexistent as described, never accepted by any pool (even though there might be a pool out there that claims ownership) and that none of the assignments were ever completed.

Thus your claims against TBW (including appraisal fraud, predatory loan practices, deceptive loan practices, fraud etc.) are properly directed, to wit: TBW still owns the paper, although the obligation is subject to an equitable unsecured claim from investors who funded the loan.

June 16, 2010

Executive Charged in TARP Scheme

By ERIC DASH

Federal prosecutors on Wednesday accused the former chairman of Taylor, Bean & Whitaker, once one of the nation’s largest mortgage lenders, of masterminding a fraud scheme that cheated investors and the federal government out of billions of dollars and led to last year’s sudden failure of Colonial Bank.

The executive, Lee B. Farkas, was arrested late Tuesday in Ocala, Fla., after a federal grand jury in Virginia indicted him on 16 counts of conspiracy, bank fraud, wire fraud and securities fraud. Separately, the Securities and Exchange Commission brought civil fraud charges against Mr. Farkas in a lawsuit filed on Wednesday.

Prosecutors said the fraud would be one of the biggest and most complex to come out of the housing collapse and the government’s huge bailout of the banking industry. In essence, they described an elaborate shell game that involved covering up the lender’s losses by creating fake mortgages and passing them along to private investors and government agencies.

Federal officials became suspicious after Colonial BancGroup, the main source of financing for Mr. Farkas’s company, tried to obtain $553 million in bailout money from the Troubled Asset Relief Program. The TARP application, filed in early 2009, was contingent on the bank first raising $300 million from private investors.

According to the S.E.C. complaint, Mr. Farkas and his partners said they would contribute $150 million, two private equity firms would each contribute $50 million, and a “friends and family” investor group would contribute another $50 million. “In truth, neither of the $50 million investors were private equity investors and neither ever agreed to participate,” the complaint said.

Mr. Farkas pocketed at least $20 million from the fraud, which he used to finance a private jet and a lavish lifestyle that included five homes and a collection of vintage cars, prosecutors said.

But the case is likely to expand beyond Mr. Farkas. The complaints cite the involvement of an unnamed Colonial Bank executive and other co-conspirators in the suspected fraud, and prosecutors said they might hold others accountable down the road.

“The fraud here is truly stunning in its scale and complexity,” said Lanny A. Breuer, assistant attorney general in the criminal division of the Department of Justice. “These charges send a strong message to corporations and corporate executives alike that financial fraud will be found, and it will be prosecuted.”

Officials said the many layers of the scheme resulted in more than $1.9 billion of losses to investors; a $3 billion loss to the Department of Housing and Urban Development, which guaranteed many of the loans that Mr. Farkas’s company sold; and a $3.6 billion hit to the Federal Deposit Insurance Corporation, which had to take over Colonial Bank and pay its depositors after many of the bank’s assets were found to be worthless.

The complaints also list BNP Paribas and Deutsche Bank, which provided financing to Mr. Farkas’s company, as victims of the suspected fraud. Together, they lost $1.5 billion.

According to the complaints, the fraud started as early as 2002 with an effort to conceal rising operating losses at Taylor, Bean & Whitaker, a mortgage lender founded by Mr. Farkas. The first stage involved an attempt to hide overdrafts on a credit line the company had with Colonial Bank. As those overdrafts grew, prosecutors contend, Mr. Farkas and his associates started selling fake mortgage assets to Colonial Bank in exchange for tens of millions of dollars.

Once they determined that that approach might be difficult to conceal, they started selling mortgage pools and other assets to Colonial Bank that they knew to be worthless, officials said. Mr. Farkas and his partners relied on this technique to sell more than $1 billion of fraudulent assets over the course of several years, even covering up the fraud by recycling old fake assets for new ones, according to the complaints.

The transactions were “designed to give the false appearance that the loans were being sold into the secondary mortgage market,” Mr. Breuer said. “In fact, they were not.”

By 2008, prosecutors contend, the scheme had entangled the federal government. Investigators in the Office of the Special Inspector General for TARP took notice of the size of Colonial Bank’s bailout application and became suspicious of the accuracy of the bank’s statements.

That led investigators to alert other federal officials and draw a connection between Colonial Bank and Taylor, Bean & Whitaker, whose offices were raided by federal agents in August 2009. Both companies would soon stop operating.

“We knew it was a longstanding and close relationship between Colonial and T.B.W., and we decided that we needed to take a much closer look,” Neil M. Barofsky, the TARP special inspector general, said at a news conference on Wednesday. Investigators also discussed the situation with Treasury officials to “make sure the money would not go out the door.”

Federal officials have conducted nearly 80 criminal and civil investigations into companies that accepted TARP money, but so far they have filed charges in only one other case. In March, the head of Park Avenue Bank in Manhattan was accused of trying to defraud the government bailout program.

Magnetar Echoes Livinglies call for Alignment of Investors, Servicers and Borrowers

see Magnetar%20Mortage%20Recovery%20Backstop%20Whitepaper%20Jun09.pdf

Magnetar Mortage Recovery Backstop Whitepaper Jun09

Two things jump out at me with this paper from June, 2009.

First it is obvious that the “real money” investors are defined as those seeking low risk and willing to take lower yield. The fact that they are called “Real Money Investors” underscores my point about the identity of the creditor. Those “traditional” investors are no longer available to buy the mortgage backed securities or any other resecuritized derivative package based upon mortgage backed securities. Legal restrictions requiring the securities to be investment grade would prevent them from jumping back in even if they wanted to do so, which they obviously don’t.

Thus the inevitable conclusion drawn almost a year ago and borne out by history, is that the fair market value of the securities, trading as pennies on the dollar, is reflective of a lack of demand for mortgage backed securities no matter how high the yield (i.e., no matter how low the price).

Second there is a growing realization that the interests of the investor and the borrowers are actually aligned in many ways and that the solution to mortgage modification, principal reduction, and other aspects of the mortgage mess and the foreclosure crisis lies in recognizing certain realities and then dealing with them in an equitable manner. The properties were never worth the amount of the appraisal in most instances and now they are worth even less than they were when the loan deals were closed. The securities were also “appraised” far too high thus creating a giant yield spread premium for the investment bank-created seller of mortgage backed securities.

In my opinion, based upon a sampling of the data available, it is entirely possible that the “true” fair market value of those securities in the best of circumstances is probably less than 40% of the initial offering price. It is this well-hidden analysis that is not getting the attention of the Obama administration and which completely explains why servicers are obstructing modifications under instruction from investment banking intermediaries like the “Trustee”.

Leaving the servicers and other parties as the middlemen “in the middle” to sort this out is another license to steal creating another mark-up applied against both borrowers and investors as the “real money” parties. The status quo is what is causing the stagnation in lieu of recovery. Until everyone accepts basic notions of “real party in interest” and eliminates those who don’t fit that description, the moral hazards will remain and escalate.

As concluded in this paper, either judicial or executive intervention is required to kick the middlemen out of the way and let the light in. When investors and borrowers are able to compare notes and work with each other the figures for both will be enhanced, foreclosures will decline, losses will be taken, and yes it is highly probable that the number of investor lawsuits will proliferate against those who defrauded them.

The lender is identified as the investor in this paper (indirectly) and the party who defrauded them is not some greedy borrower with stars in his eyes, it was the usual suspect — a financial wizard making a sales pitch that was so complex, the buyer basically was forced to rely upon the integrity of the investment banking house for appropriate pricing. That is where the system fell apart. Moral hazard escalated to moral mess.

States Ignore Obvious Remedy to Fiscal Meltdown

without raising taxes one cent, many states could recover much or all of their deficit and perhaps some states could be looking at a surplus.
The money is sitting on Wall Street waiting to be claimed through existing tax laws, regulatory fees, and even damage claims much like the Tobacco litigation.
Editor’s Note: Bob Herbert of the New York Times correctly depicts the tragedy of the cuts to education, health care for children, and other essential services that we expect from government. And any economist would agree with him that budget cuts are the last thing a state or any government ought to do in a recession. But his story, and that of dozens of other reporters and opinion writers misses the simple fact that this crash, which is depression (not a recession) for many states need not be so painful.

The money is sitting on Wall Street waiting to be claimed through existing tax laws, regulatory fees, and even damage claims much like the Tobacco litigation. As I have repeatedly stated to Arizona’s Republican State Treasurer Dean Martin and Andre Cherney, the Democrat who wants to replace him, along with legislative committees and other government departments of many states, including Florida, they are owed taxes, fees, penalties and damages from the investment bankers who brought us the great financial meltdown.

It’s really simple, but the bank lobby is so strong and the misconceptions are so great, that they just don’t want to get it. In the securitization of mortgages, there were numerous transfers on and off record (mostly off-record).

Each of those transfers resulted in fees or profits made by the parties involved. All of that was ordinary income, taxable transfers, subject to recording and registration fees,and regulation by state agencies with whom the parties never bothered to register.

Each transaction that should have been recorded would produce revenue for counties in their recording offices if they simply enforced it. Each profit or fee earned was related to a transfer of real property interests in the state that were NOT subject to any exemption. The income tax applies. Arizona calculated what the income would be if they enforced tax collection against these fees and came up with $3 billion. I think it is three times that, but even accepting their estimate, that would completely eliminate their deficit and allow them to continue covering the 47,000  children they just cut from health care.

So without raising taxes one cent, many states could recover much or all of their deficit and perhaps some states could be looking at a surplus.
There are many ways to actually collect this money as I have explained to legislators, agency heads and aides. The ONLY reason communities are closing down police and fire departments, closing schools and cutting medical care for children is because the people in power are too beholden to the banking lobby and too fearful of angering the real powers on both the national and state levels — Wall Street.
March 20, 2010
Op-Ed Columnist, NY Times

A Ruinous Meltdown

A story that is not getting nearly enough attention is the ruinous fiscal meltdown occurring in state after state, all across the country.

Taxes are being raised. Draconian cuts in services are being made. Public employees are being fired. The tissue-thin national economic recovery is being undermined. And in many cases, the most vulnerable populations — the sick, the elderly, the young and the poor — are getting badly hurt.

Arizona, struggling with a projected $2.6 billion budget shortfall, took the drastic step of scrapping its Children’s Health Insurance Program. That left nearly 47,000 low-income children with no coverage at all. Gov. Jan Brewer is also calling for an increase in the sales tax. She said, “Arizona is navigating its way through the largest state budget deficit in its long history.”

In New Jersey, the newly elected governor, Chris Christie, has proposed a series of budget cuts that, among other things, would result in public schools receiving $820 million less in state aid than they had received in the prior school year. Some well-off districts would have their direct school aid cut off altogether. Poorer districts that rely almost entirely on state aid would absorb the biggest losses in terms of dollars. They’re bracing for a terrible hit.

For all the happy talk about “no child left behind,” the truth is that in Arizona and New Jersey and dozens of other states trying to cope with the fiscal disaster brought on by the Great Recession, millions of children are being left far behind, and many millions of adults as well.

“We’ve talked in the past about revenue declines in a recession,” said Jon Shure of the Center on Budget and Policy Priorities, “but I think you have to call this one a revenue collapse. In proportional terms, there has never been a drop in state revenues like we’re seeing now since people started to keep track of state revenues. We’re in unchartered territory when it comes to the magnitude of the impact.”

Massachusetts, which has made a series of painful cuts over the past two years, is gearing up for more. Michael Widmer, president of the Massachusetts Taxpayers Foundation, told The Boston Globe: “There’s no end to the bad news here. The state fiscal situation is already so dire that any additional bad news is magnified.”

California has cut billions of dollars from its education system, including its renowned network of public colleges and universities. Many thousands of teachers have been let go. Budget officials travel the state with a glazed look in their eyes, having tried everything they can think of to balance the state budget. And still the deficits persist.

In the first two months of this year, state and local governments across the U.S. cut 45,000 jobs. Additional layoffs are expected as states move ahead with their budgets for fiscal 2011. Increasingly these budgets, instead of helping people, are hurting them, undermining the quality of their lives, depriving them of educational opportunities, preventing them from accessing desperately needed medical care, and so on.

The federal government has tried to help, but much more assistance is needed.

These are especially tough times for young people. “What we’re seeing now in Arizona and potentially in New Jersey and other states spells long-term trouble for the nation’s children,” said Dr. Irwin Redlener, a pediatrician who is president of the Children’s Health Fund in New York and a professor at Columbia University’s Mailman School of Public Health.

“We’re looking at all these cuts in human services — in health care, in education, in after-school programs, in juvenile justice. This all points to a very grim future for these children who seem to be taking the brunt of this financial crisis.”

Dr. Redlener issued a warning nearly a year ago about the “frightening” toll the recession was taking on children. He told me last April, “We are seeing the emergence of what amounts to a ‘recession generation.’ ”

The impact of the recession on everyone, of whatever age, is only made worse when states trying to balance their budgets focus too intently on cutting services as opposed to a mix of service cuts and revenue-raising measures.

As Mr. Shure of the Center on Budget noted, “The cruel irony is that in a recession like this, the people’s needs go up at the same time that the states’ ability to meet those needs goes down.”

Budget cuts also tend to weaken rather than strengthen a state’s economy, especially when they entail furloughs or layoffs. Government spending stimulates an economy in recession. And wise spending is an investment in everyone’s quality of life.

All states have been rocked by the Great Recession. And most have tried to cope with a reasonable mix of budget cuts and tax increases, or other revenue-raising measures. Those that rely too heavily on cuts are making guaranteed investments in human misery.

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