Problems with Lehman and Aurora

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


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

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

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

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

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

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


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


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


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

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


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


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

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

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

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

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

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

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Hunter vs Aurora: Fla 1st DCA Business Records Gets Tougher

Show me any other period in American history where banks lost so many cases. to schedule, leave message or make payments.




The heat on the banks has been steadily increasing for the last three years and has increased at an increasing rate during the past 18 months. More and more banks are losing in what the bank lawyers call a “Simple, standard foreclosure action.” Show me any other period in American history where banks lost so many cases. There is obviously nothing simple and nothing standard about these foreclosures that have caused ruination of some 25 million people living in around 9 million homes.

If things were simple, we wouldn’t be looking at musical chairs in servicing, plaintiffs and “holders.” If things were standard, the creditor would come forth with clear proof that it paid for this loan. Nobody I know has EVER seen that. I have written about why. Suffice it to say, if there was a real creditor who could come forward and end the argument, they would have done so.

Two years ago the Hunter case was decided. The court was presented with a panoply of the usual smoke and mirrors. The court took on the issue of the business records exception as a guide to the trial judges in the 1st District and to the trial lawyers who defend homeowners in foreclosure. This is a sample of the part of the analysis we do. Here are some quotes and comments from the case:

Aurora alleged in its “Complaint to Foreclose Mortgage and to Enforce Lost Loan Documents” that it owned and held the promissory note and the mortgage, [note that the allegation is never made that Aurora was the owner of the debt or was the lender. Why not? Who is the actual creditor?]
original owner of the note and mortgage was MortgageIT, and that MortgageIT subsequently assigned both to Aurora. A letter dated January 27, 2007, from Aurora to Mr. Hunter entitled, “Notice of Assignment, Sale, or Transfer of Servicing Rights,” directed him to remit mortgage payments to Aurora beginning February 1, 2007. The “Corporate Assignment of Mortgage” executed on June 11, 2007, and recorded on January 8, 2008, showed MortgageIT as the assignor and Aurora as the assignee. [MortgageIT was a thinly capitalized originator/ broker who could not have made all the loans it originated. Hence the presumption should be that it didn’t loan money to Hunter. Logically it follows that it never owned the debt and should not have had its name on the note or the mortgage. Nor did the source of funds ever convey ownership to MortgageIT. So what value or validity is there in looking at an assignment or endorsement or even delivery from Mortgage IT? And given that behavior (see below) do we not have circumstances in which the paperwork is suspect? Should that be enough to withhold the statutory presumptions attendant to “holding” a note?]
To establish that it held and had the right to enforce the note as of April 3, 2007, Aurora sought to put in evidence certain computer-generated records: one, a printout entitled “Account Balance Report” dated “1/30/2007,” indicating Mr. Hunter’s loan was sold to Lehman Brothers—of which Aurora is a subsidiary and for which Aurora services loans—and payment in full was received on “12/20/2006;” the second, a “consolidated notes log” printout dated “7/18/2007” indicating the physical note and mortgage were sent—it is not readily clear to whom—via two-day UPS on April 18, 2007. Neither document reflects that it was generated by MortgageIT. -[Interesting that Aurora is identified as a subsidiary of Lehman who was in bankruptcy in October of 2008. Aurora usually represents itself as a stand-alone company which is obviously not true. Equally obvious (see discussion above) is that the reason why Mortgage IT was not identified on the printout is that it had nothing to do with the actual loan money — neither payment of the loan as a lender nor payment for the loan from the homeowner. Mortgage IT, for all intents and purposes, in the real world, was never part of this deal.]

Section 90.803(6) provides one such exception for business records, if the necessary foundation is established:

A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinion, or diagnosis, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity and if it was the regular practice of that business activity to make such memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, or as shown by a certification or declaration that complies with paragraph (c) and s. 90.902(11), unless the sources of information or other circumstances show lack of trustworthiness. (e.s.) – [THIS is the point of my article. Under current circumstances both in the Hunter case and in the public domain the court should have considered the fact that the parties were well known to have fabricated, forged and otherwise misrepresented documents, together with outright lying about the existence of underlying transactions that would track the paperwork upon which courts have heaping one presumption after another. My argument is that Aurora should not have been given the benefit of the doubt (i.e. a presumption) but rather should have been required to prove each part of its case. My further argument is that virtually none of the foreclosure cases should allow for presumptions in evidence after the massive and continuing settlements for fraud relating to these residential mortgages. If this doesn’t show lack of trustworthiness, then what would?]

— If you want this kind of analysis done on your case —
See a description of our services  click here:



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Borrowers beware: your assumption that you are in default is based upon the fact that YOU didn’t make a payment. But you can only be in default if that payment was due. The payment cannot be due if the creditor has been satisfied in whole or in part by the various means by which these Bankers diverted money from the investors into their own pockets. You should be very concerned about that — because that money sitting in the pockets of Bankers is actually money that should be applied against the balance due on your “loan.” After all you paid for it with your own money in the form of taxes, payments to the servicer and the value of your signature and identity without which the mortgage bonds could never have been sold to investors.” Neil Garfield

EDITOR’S NOTE: I picked this up from the comments. It’s very good and helps describe some of the inner workings of how this crisis manifested as a grueling indictment of Wall Street and government laissez-faire, while the system played with our money, our future and the quality of our lives.

The one thing that keeps bothering me about the Lehman Brothers situation is that Lehman is in Bankruptcy while Aurora is not. But Aurora is essentially an arm of Lehman, and it is a mere servicer that is asserting rights of ownership over loans in direct derogation of the rights of (1) investors who put up the money and (b) borrowers who are trying to modify or settle the claims relating to their loan or  the title on their property. By what right is Aurora operating outside the scrutiny of the Bankruptcy Court in New York that is unraveling the Lehman puzzle?

I am aware of motions filed with respect to this issue but I am unaware of any resolution of those motions. It seems that the Bankruptcy Court is being used as yet another layer to keep investors from understanding or even knowing the facts about their investments. The goal is obviously  to deplete the apparent equity in the homes down to zero, which is why housing prices are going down. It is no mystery. The lower the housing prices, the easier it is to eat up the equity with fees that are uncontrollable.

Thus the Banks have a vested interest in keeping the housing market in a downward spiral just as they had a vested interest in keeping it in an upward spiral when they were soliciting unsophisticated borrowers and investors to buy into this game. I might add that  Alan Greenspan himself said in a television interview that he and a 100 other highly respected PhD economists looked at these financial products and were unable to decipher them.

Thus the effort by Wall Street to create asymmetry of information succeeded, which is all they needed to make the investors rely on the investment banks for the value of their investment and make the borrowers rely on them (through fraudulent inflated appraisals) for the value of their signature on paper that was in truth only part of the scheme of issuance of unregistered fraudulent securities. The fraud continues because the government regulators still don’t understand that the Banks are controlling the modification process, that they are producing scant modifications that fail anyway, just to pacify the government, and not to create an actual steady flow of modifications.

The Banks want the property, and then, using the valuation factors that were buried in the prospectus and pooling and services agreement, they are in the position of declaring a total loss  for the investors, while the Banks diverted money and assets that were due to the investors. This is really very simple. If the Banks wanted to settle the claims on the mortgages and foreclosures, they would have done so. They have the power, the infrastructure and the money to do it. They are not doing it because they are creating the appearance of a total loss while they line their pockets with investors money — money that should be paid to or credited to the investor.

If the investor actually received the money or was the recipient of a credit for the money pocketed by the Banks, then the amount due to the creditor would be reduced. This is turn would reduce the obligation due to the investor — an obligation that supposedly derives in large part from borrowers who thought they were entering into conventional loans but were in fact issuing paper that was traded without regulation or accountability. Thus all or part of the money that went into the pockets of the Banks is actually a credit against the obligation due to the ivnestor, a fact well known to investors and which is causing them to sue, the SEC to bring enforcement actions and other administrative actions to take a variety of actions, all leading presumably to criminal prosecutions.

The fact that is getting lost in all this is that if the obligation is reduced, then the amount claimed as due from the borrower is correspondingly reduced. The borrowers’ obligations may have been reduced to zero but in virtually all cases, it has been substantially reduced IN FACT, but applied IN LAW — i.e., the Notice of Default is wrong in every case as is the the notice of sale, the judgments entered, and the bogus auction that takes place in which title goes not to the investors or for the benefit of the investors but to the Banks who were using the money of the investors and thus had no loss.

In many cases the balance, unknown to the homeowner, was reduced to zero long before they were even notified that action was taken being against them for failing to pay — but what they failed to pay was a payment that was not due. IN fact, the diverted funds sitting in the pockets of the Bankers, is equal to far more than any group of so-called defaulted loans — and it is looking like far more than any group of loans that were funded during this period. That being the case, it is easy to see why the economy is anemic — the bankers have sucked out all the blood and as the body tries to cover they keeping taking that too.

Borrowers beware: your assumption that you are in default is based upon the fact that YOU didn’t make a payment. But you can only be in default if that payment was due. The payment cannot be due if the creditor has been satisfied in whole or in part by the various means by which these Bankers diverted money from the investors into their own pockets. You should be very concerned about that — because that money sitting in the pockets of Bankers is actually money that should be applied against the balance due on your “loan.” After all you paid for it with your own money in the form of taxes, payments to the servicer and the value of your signature and identity without which the mortgage bonds could never have been sold to investors.

Submitted on 2011/10/19 at 11:47 pm by Esther 9

I was watchng Cnbc around 1AM: it was about the repackagind of CDO’s and the great export they are, also stated that the issue in the mortgage origination and Kyle Vance who note the historic crash we are undergoing now …. I guess there are transcripts, set the stage from beginning to where we are now on Wall Street

Also, following in researchng HSBC:

How maths killed Lehman Brothers
by Horatio Boedihardjo
Submitted by plusadmin on June 1, 2009
• credit crunch
• finance
• financial mathematics
• financial modelling
• Plus new writers award 2009

This article is the winner in the university category of the Plus new writers award 2009.
On a sunny morning in 2001, a piece of investment plan landed on the desk of Dick Fuld, the then Chief Executive of Lehman Brothers. The document, compiled by a team of maths and physics PhDs, included a calculation to show how the bank will always end up with a profit if they invest on the real estate markets. Fuld was impressed. The next five years saw the bank borrowing billions of dollars to invest in the housing market. It worked. The housing market boom had turned Lehman Brothers from a modest firm into the world’s fourth largest investment bank.

The Lehman Brothers headquarters, Rockefeller Center, New York, before the collapse. Image: David Shankbone.
But as the housing market started to shrink, the assumptions that the PhDs made began to break down one by one. The investment now became a mistake, resulting in a stunning loss of $613 billion. On September 15 2008 Lehman Brothers collapsed — “The largest bankruptcy in the US history,” as described by Wikipedia.
The money making model
Imagine that you are working for Lehman Brothers and one morning you receive a phone call from HSBC.
“Hi! A hundred customers have each borrowed $1 million from us for a year. We would like to buy an insurance from you which will cover us in the case of any of them defaulting. From their application forms we reckon they each have a 3% chance of default. How much will the insurance cost?”
You can in fact calculate it, easily. The 100 customers each have a 3% chance of defaulting, so you expect three customers to default next year. That is, you will need to pay $3 million next year. Assuming the interest rate is about 3% each year, next year’s $3 million would be worth 3/(3/100+1)=3/1.03=2.91 million now.
Therefore HSBC will have to pay you at least $2.91 million for the insurance. Obviously Lehman Brothers wasn’t a charity and so, to make money, they would double the price to $5.82 million and expect to make $2.91 million out of each of these deals on average. This kind of insurance is called a credit default swap (CDS).
The legendary CDO
After putting down the phone, you might be quite worried about what would happen if ten of the borrowers defaulted, because then you would have to pay $10 million back! In this case, consider this deal: how about paying me a certain premium, and if more than ten defaults occur, you will only need to pay for ten of them and I will pay for the rest. If less than ten defaults occur, you will have to pay for all the defaults and I won’t pay anything. The type of deal that I am offering is called the senior tranche of a collateralised debt obligation (CDO) contract, while the one you are getting is called the junior tranche of the CDO.

Looks like a safe investment? Better think twice!
The attractiveness of the senior tranche is that almost all of the time I don’t have to pay anything, just pocketing my premium. Imagine how unlikely it is to have more than ten borrowers defaulting together! Senior tranches were generally considered to be almost as safe as borrowing money from the government. Since the senior tranche offers a better return than, but seems to be just as safe as, putting the money in the bank, the investors just loved it. In 2004 there were only $157.4 billion of CDO being issued, but by 2007 the amount grew to $481.6 billion.
But don’t you find it a bit unfair that you can have something as safe as bank deposits, that offers a higher return?

The pitfalls
Yes, it is unfair! In fact, CDO is a lot riskier than bank deposits, but Lehman Brothers, like many investors, didn’t seem to know that. Let’s go back to our original model. The first source of error is that we have assumed that each investor has a 3% chance of defaulting. How do we know that? It must be from historical data. The problem is, there hasn’t been a national drop of housing price since the great depression in the 1920s, so the chance that a borrower defaults was calculated on the basis of a good period when the housing prices surged. However, the housing market crashed in 2007. Many borrowers’ properties are now worth even less than the loan they have to pay in the future, so many of them refuse to pay. To worsen the situation, 22% of these borrowers are the so-called subprime borrowers — those who had little income and had little hope of returning money. Banks were not afraid of lending money to them because even if they defaulted, the insurance would pay them back. The participation of the subprime borrowers makes lending much riskier than before.
In fact, the default probability in the US has quadrupled from the 3% as assumed in the model to 12% since 2007, making it four times riskier. This means that investors like Lehman Brothers will be hit four times harder than they have anticipated.
Actually it is worse than that. The profitability, or lack of it, of financial products more complicated than CDS and CDO may depend on the square of the default probability, rather than the probability itself. Now as the default probability rises from 0.03 to 0.12, the square of the probability increased from 0.0009 to 0.0144 — that’s an increase by a factor of 16!

The Lehman Brothers headquarters on the night of September 15, 2008. Image: Robert Scoble.
There is also a second and more subtle source of error. Whether you can make money from selling the CDO insurance for the bank depends on whether the borrowers return the money, which in turns depends on the economy. So if the economy goes down, you are a lot more likely to lose money. If you are an active investor, then you probably have invested in the stock market as well. Now if the market crashes you lose both the money invested in the stock market and in the CDO. Suppose, on the other hand, that instead of spending the money on CDO, you bet on whether Manchester United will win the European Champion League. This time in order to lose all your money you need both the market to go down and Manchester United to lose their match — this is less likely than just having the market go down. Therefore, investing on CDO is a riskier choice than betting for Manchester United. The error in our model is that we have not taken into account this extra risk due to its dependence of CDO on the market.
These two errors were sufficient to mask the risk in CDO. In fact, the errors are so serious that 27 out of 30 of the CDOs issued by Merril Lynch were downgraded from AAA (the safest investment) to “junk” when the errors were spotted.
The fall of Lehman Brothers
Lehman Brothers, unaware of the hidden risks, decided to invest big on CDO. It even had a 35 to 1 debt to equity ratio, that is, it only owned $1 out of every $36 in its bank account — the other $35 were borrowed from somewhere. This meant that a loss of just 3% of the money on its balance sheet, would have meant the loss of all the money it owned. After suffering heavy losses (more than 3% of the money in its balance) from CDO, borrowers began to lose confidence and called back the loans. As Lehman had always relied on short-term loans, its lenders were able to pull their cash back quickly. Now the bank was in trouble. It borrowed much more than it was able to return and soon found itself unable to pay back.



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July 14, 2011, 2 hours ago | Jeff Barnes
July 14, 2011

An Iowa District Court has issued a 5-page Order denying Wells Fargo’s
(second) Motion for Summary Judgment. Wells Fargo had originally been
granted summary judgment against the borrower, who was pro se at the
time, in 2005 based upon a sworn affidavit that Wells Fargo was the
holder of the note. The borrower had filed an affidavit which stated
that she had spoken to Wells Fargo and was told that the “investor” on
her loan was Lehman. The case languished in an appellate posture and
was continued for various reasons.

Jeff Barnes, Esq. began representing the borrower in early 2010 with
local Iowa counsel Christine Sand, Esq., who immediately initiated
extensive discovery. The Court ordered Wells Fargo to submit an
original of the Note by July 20, 2010. The next day (after the time
for compliance with the Court’s Order had already passed), Wells Fargo
filed a Motion for additional time to comply with the Order, and a
Motion to Substitute Plaintiff which stated that pursuant to a
servicing agreement between Wells Fargo and Lehman Brothers Bank FSB
that the holder of the note and mortgage was Lehman. The 2005 summary
judgment was thus vacated.

Wells Fargo filed a “lost note affidavit” a month later on August 20,
2010 which the Court found did not disclose the specific facts in the
“record of account” which was reviewed by the Wells Fargo affiant upon
which she based her conclusion. On February 23, 2011, Wells Fargo
filed an Amended Foreclosure Petition alleging that Wells Fargo was
the owner and holder of the note and that Lehman Brothers Bank, Lehman
Brothers Holdings, and a securitized mortgage loan trust of which US
Bank was the “trustee” were added “for the purposes of quieting title
to subject property and to comply with” Iowa statutory law. The court
noted that it was unclear what form of relief was being sought with
the addition of these parties.

Wells Fargo filed another affidavit executed by the same Wells Fargo
affiant who executed the “lost note” affidavit. This “new” affidavit
stated that the original note and mortgage were sent to Wells Fargo’s
prior counsel in November 2004 and were lost while in the custody of
said counsel. The Court again found that the affiant did not state the
facts upon which the affiant relied for her conclusions nor what parts
of the file she reviewed upon which she relied.

In its Reply to the borrower’s opposition (which is termed
“Resistance” in Iowa) to Wells Fargo’s second Motion for Summary
Judgment, Wells Fargo attached a copy of a lost note affidavit which
the Court stated was “purportedly” executed by Wells Fargo’s attorney
in 2005. Wells Fargo’s current counsel represented to the Court in its
Reply that Wells Fargo’s previous counsel filed a lost note affidavit
on March 28, 2005. The Court stated that it had reviewed both the
docket sheet and the court file and found no evidence that the
original of the alleged 2005 lost note affidavit was ever filed.

Based on these matters, the Court found that there were factual issues
as to whether or not the note has been lost and whether the note has
been “transferred”, and denied summary judgment to Wells Fargo on its
foreclosure claim.

Our question to Wells Fargo is, were you lying then or are you lying
now? Round and around and around we go, and where Wells Fargo and its
attorneys will stop, nobody knows! Note, note, who has the note?
Lehman? Lehman Holdings? The USBank securitization? None of the above?

Separately, the Supreme Court of Nevada issued two opinions on July 7,
2011 which finally compel foreclosing parties in Nevada to produce
material documentation as to chain of title to the Note and Deed of
Trust in order to be permitted to continue with a foreclosure action
when mediation is requested. in Leyva v. National Default Servicing et
al., No. 55216, 127 Nev. Advance Opinion 40, the Supreme Court held
that strict compliance is required with Nevada statutes governing the
production of certain documents including any assignment of the Deed
of Trust; that a foreclosing party’s failure to do so “is a
sanctionable offense; and the district court is prohibited from
allowing the foreclosure process to proceed”. Wells Fargo was also the
culprit in this case.

Significantly, in discussing the transfer of the Note, the Supreme
Court of Nevada cited to the recent In Re Veal decision from the 9th
Circuit Bankruptcy Appeals Panel (which was previously discussed on
this website), holding that the borrower “has the right to know the
identity of the entity that is ‘entitled to enforce’ the mortgage note
under Article 3 (of the Uniform Commercial Code).” The Court concluded
that Article 3 “clearly requires Wells Fargo to demonstrate more than
mere possession of the original note to be able to enforce a
negotiable instrument”. The court found that there was no endorsement
and no assignment, and reversed the District Court.

The opinion in Leyva cited to the Court’s opinion in Pasillas v. HSBC
Bank as Trustee, No. 56393, 127 Nev. Advance Opinion 39 (also decided
July 7, 2011), which also reversed the District Court and also cited
to Veal , setting forth the requirements for production of evidence of
chain of title to the note and Deed of Trust in a foreclosure.

The multiple citations to Veal, which is a Federal Bankruptcy
appellate court opinion, by the state Supreme Court of Nevada, is more
than important. It demonstrates that simply because a foreclosure
issue is decided by a Bankruptcy court does not mean that it is not
applicable to a non-Bankruptcy (or non-Federal) foreclosure case. Time
and again, when we argue that an issue in a state foreclosure case has
already been decided by a Bankruptcy court in the foreclosure context,
attorneys representing foreclosing “lenders” and servicers argue
“Well, Judge, that was a Bankruptcy case, and we are not in Bankruptcy
Court”. Leyva and Pasillas have now put that argument to bed. If a
Federal Bankruptcy decision is good enough for the Supreme Court of
Nevada in two separate opinions, it should be good enough for any
state court.

We thank one of our dedicated readers for alerting us to these two
highly significant Nevada decisions.

Jeff Barnes, Esq.,


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Biggest Fish Face Little Risk of Being Caught

EDITOR’S NOTE: There is only one reason why there are not over 1,000 prosecutions that would successfully land the perps in jail — the reason is that the perps are the ones actually in charge. This is not rocket science. It is complex but it is not abstract requiring the intellect of Einstein. It takes elbow grease but not brilliance to make the case for fraud.




So much for Angelo Mozilo taking the fall for the financial crisis.

Late last week, word leaked out that Mr. Mozilo, who had co-founded Countrywide Financial in 1969 — and, for nearly 40 years, presided over its astonishing rise and its equally astonishing fall — would not be prosecuted by the Justice Department. Not for insider trading. Not for failing to disclose to investors his private worries about subprime loans. Not for helping to create a culture at Countrywide in which mortgage originators were rewarded for pushing fraudulent loans on borrowers.

In its article about the Justice Department’s decision, The Los Angeles Times said prosecutors had concluded that Mr. Mozilo’s actions “did not amount to criminal wrongdoing.”

Just months earlier, the Justice Department concluded that Joe Cassano shouldn’t take the fall for the financial crisis either. Mr. Cassano, you’ll recall, is the former head of the financial products unit of the American International Group, a man whose enthusiasm for credit-default swaps led, pretty directly, to the need for a huge government bailout of A.I.G. There was a time when it appeared that there was no way the government would let Mr. Cassano walk. But it did.

And then there’s Richard Fuld, the man who presided over Lehman Brothers’ demise. Though he was the subject of an investigation shortly after the Lehman bankruptcy, it appears that prosecutors are moving on.

Most of the other Wall Street bigwigs whose firms took unconscionable risks — risks that nearly brought the global financial system to its knees — aren’t even on Justice’s radar screen. Nor has there been a single indictment against any top executive at a subprime lender.

The only two people on Wall Street to have been prosecuted for their roles in the crisis are a pair of minor Bear Stearns executives, Ralph Cioffi and Matthew Tannin, whose internal hedge fund, stuffed with triple-A mortgage-backed paper, collapsed in the summer of 2007, an event that anticipated the crisis. A jury acquitted them.

Two and a half years after the world’s financial system nearly collapsed, you’re entitled to wonder whether any of the highly paid executives who helped kindle the disaster will ever see jail time — like Michael Milken in the 1980s, or Jeffrey Skilling after the Enron disaster. Increasingly, the answer appears to be no. The harder question, though, is whether anybody should.

Aficionados of financial crises like to point to the savings-and-loan debacle of the 1980s as perhaps the high-water mark in prosecuting executives after a broad financial scandal. When the government loosened the rules for owning a thrift, the industry was taken over by aggressive entrepreneurs, far too many of whom made self-dealing loans using savings-and-loan deposits as their own personal piggy banks.

In time, nearly 1,000 savings and loans — a third of the industry — collapsed, costing the government billions. According to William K. Black, a former regulator who teaches law at the University of Missouri, Kansas City, “There were over 1,000 felony convictions in major cases” involving executives of the thrifts. Solomon L. Wisenberg, a lawyer who writes for a blog on white collar crime, said, “The prosecutions were hugely successful.”

That is partly because the federal government threw enormous resources at those investigations. There were a dozen or more Justice Department task forces. Over 1,000 F.B.I. agents were involved. The government attitude was that it would do whatever it took to bring crooked bank executives to justice.

The executives howled that they were being unfairly persecuted, but the cases against them were often rooted in a simple concept: theft. And as prosecutors racked up victories in court, they became confident in their trial approach, and didn’t back away from taking on even the most well-connected thrift executives, like Charles Keating, who owned Lincoln Savings — and who eventually went to prison.

Today, Mr. Black says, the government doesn’t have nearly as many resources to pursue such cases. With the F.B.I. understandably focused on terrorism, there isn’t a lot of manpower left to dig into potential crimes that may have taken place during the financial crisis. Fewer than 150 of the bureau’s agents are assigned to mortgage fraud, for instance. Several lawyers who represent white collar defendants told me that outside of New York, there aren’t nearly enough prosecutors who understand the intricacies of financial crime and know how to prosecute it. It is a lot easier to prosecute people for old-fashioned crimes — robbery, assault, murder — than for financial crimes.

Which leads to another point: as Sheldon T. Zenner, a white collar criminal lawyer in Chicago, puts it, “These kinds of cases are extraordinarily difficult to make. They require lots of time and resources. You have some of the best, highest-paid and most sophisticated lawyers on the other side fighting you at every turn. You are climbing a really high mountain when you try to do one of these cases.”

Take, again, the one big case that prosecutors have brought, against Mr. Cioffi and Mr. Tannin. The Bear Stearns executives had written numerous e-mails expressing their fears and anxieties as the fund began to sink. Prosecutors viewed those e-mails as smoking guns, proof that the men had withheld important information from their investors. Thanks largely to those e-mails, prosecutors saw the case as a slam dunk.

But it wasn’t. For every e-mail the executives wrote predicting the worst, they would write another expressing their belief that everything would be O.K. Besides, expressing such fears publicly would have doomed the fund, because liquidity would have instantly vanished. Instead of viewing Mr. Cioffi and Mr. Tannin as crooks, the jury saw them as two men struggling to make the best of a difficult situation. By the time the trial was over, the e-mails, in their totality, made the defendants seem sympathetic rather than criminal.

It seems safe to say that the government’s failure to convict those two Bear Stearns executives has caused prosecutors to shy away from bringing other cases. After all, the case against Mr. Cioffi and Mr. Tannin was supposed to be the easy one. By contrast, a case against Angelo Mozilo would have been, from the start, a much harder one to win.

Although the Justice Department never filed charges against Mr. Mozilo, one can assume that its case would have been similar to the civil case brought earlier by the Securities and Exchange Commission. (On the eve of the trial date last fall, the S.E.C. blinked and settled with Mr. Mozilo.) One of the S.E.C.’s charges was insider trading — that Mr. Mozilo sold nearly $140 million worth of stock after he knew the company was in trouble. But the defense countered by pointing out that Mr. Mozilo was selling his stock under an automatic selling program that top corporate executives often use — thus mooting the insider trading accusation.

Like the Bear Stearns executives, Mr. Mozilo had written his share of e-mails expressing worries about some of Countrywide’s loan practices. He called one of Countrywide’s subprime products “the most dangerous product in existence, and there can be nothing more toxic.” The government argued that Mr. Mozilo had a legal obligation to share that information with investors.

But this case, too, would have been awfully difficult to make. Countrywide’s descent into subprime madness was hardly a secret. It made all sorts of crazy adjustable rate mortgages that required no documentation of income; its array of products was also well known and disclosed to investors. Indeed, Mr. Mozilo was quite vocal and public in saying that the housing market was due to fall, and fall hard. But he always assumed that whatever its losses, Countrywide was so strong that it would be one of the survivors and would feast on the carcasses of its former competitors. No internal e-mail he wrote contradicted that belief.

Was there outright fraud at Countrywide? Of course there was. That is a large part of the reason that Bank of America, which bought Countrywide in early 2008, has struggled so mightily with the legacy of all the Countrywide loans now on its books. But most of the fraudulent actions at Countrywide took place at the bottom of the food chain, at the mortgage origination level. It has been well-documented that mortgage brokers induced borrowers to take loans that they never understood, and often persuaded them to lie on their loan applications. [EDITOR’S NOTE: THEY STILL DON’T GET IT. WHO DO THEY THINK WAS GIVING THE INSTRUCTIONS? IN AN INDUSTRY THAT INVENTED THE TERM DUE DILIGENCE IS THERE ANY POSSIBILITY THAT MOZILO AND OTHERS DIDN’T KNOW EXACTLY WHAT WAS GOING ON? WHY NOT LET A JURY DECIDE?]

That kind of predatory lending is against the law — and it should be prosecuted. But going after small-time mortgage brokers isn’t nearly as satisfying as putting the big guy in jail, especially a big guy like Mr. Mozilo, who symbolizes to many Americans the excesses and wrongdoing embodied in the subprime lending mess. The problem is that Mr. Mozilo, though he helped create the culture that made such predatory lending acceptable, never made the fraudulent loans himself. Legally, if not morally, he’s off the hook.

A few days ago, I listened to a recording of a lengthy interview with Mr. Mozilo conducted by investigators working for the Financial Crisis Inquiry Commission and posted recently on the commission’s Web site. It was a remarkable performance; Mr. Mozilo expressed no regrets and no remorse. He extolled subprime loans as a way to allow lower-income Americans to get a piece of the American dream and “really build wealth” — just like people used to do during the housing bubble. He bragged that Countrywide, unlike the too-big-to-fail banks, never took a penny of government money. He said that Countrywide had helped put 25 million Americans in homes.

His voice rising passionately, he said finally, “Countrywide was one of the greatest companies in the history of this country.”

Which is a final reason Mr. Mozilo would have been difficult to prosecute. Delusion is an iron-clad defense.






Attorney Lenore L. Albert in Huntington beach, CA, attorney for Plaintiffs and the Class Action has secured an order that is worth reading both from the standpoint of what you should be looking for as well as what should be in your pleadings. The Court has obviously been convinced that Deutsch, Aurora, Quality Loan Service et al are involved in an enterprise that if not criminal, does not meet the standards of due process or even just plain common sense and fairness.

J Selna is paving the way for a permanent injunction against them for much the same reasons as we have seen in the high Court decisions around the country including the recent Ibanez decision in Massachusetts, and the very recent New jersey decision. The Order is important not only for its content but because of its form which is why I want you to read it.

The Order 1st prohibits the Defendants from taking ANY action with respect to the properties, and second sets the stage for making that prohibition permanent. What is interesting to me about this order is the specificity of the order and the timing in which it takes effect. See if you don’t agree.

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