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

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

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

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

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

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

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

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For one such example see Freddie Mac Securitization Explanation

And the following diagram:

Freddie Mac Diagram of Securitization

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

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

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

Compelling Discovery and Explaining Why You want Answers

Livinglies Team Services: see GTC HONORS Services, Books and Products

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This is not legal advice on your case. Consult a lawyer who is licensed in the jurisdiction in which the transaction and /or property is located.

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I have always said that these cases will be won in discovery. Discovery must of course be preceded by proper pleading. Typically borrowers ask all the right questions and get no answers. They are met with objections that are, to say the least, disingenuous. The motion to compel better answers or to overrule the objections of the party seeking foreclosure is the real battle ground, not the trial. And speaking from experience, just noticing the objections for hearing or using a brief template and then  relying on oral argument will not, in most cases, cut to the quick.  The motions and hearings aimed at forcing the opposition to answer fairly simple questions (yes or no responses are best) should be accompanied with a brief that states just why the question was relevant, and why you need the answers from the opposition and why you can’t get it any other way. This involves educating the judge as to the fundamentals of your position, your defenses and your claims as the backdrop for why the discovery requests you filed should be compelled.

Practically every case in which there was a major settlement under seal of confidentiality involves an order from a judge wherein the servicer or bank was required to answer the real questions about the actual money trail and the accounting and management of the money from soup to nuts. So if a judge says that the borrower gets all the information about the loan starting with the source of funding at the alleged time of origination and the judge says that the borrower is entitled to know where the borrower’s money was sent after being received by a servicer, and the judge says the borrower can know what other payments were made on account of the subject loan, the case is ordinarily settled in a matter of hours.

The only money trail is the one starting with investors who thought they were buying mortgage backed securities, the proceeds of which sale would go to a REMIC trust, but were instead diverted to the coffers of the investment bank who created and sold those mortgage backed securities. And it ends with a “remote” vehicle sending money to a clueless closing agent who assumes that the money came from the originator. BECAUSE THE MONEY DIDN’T COME FROM THE ORIGINATOR, THERE IS NO MONEY TRAIL AFTER THE ALLEGED “CLOSING.” Who would pay an originator for a loan they know the originator never funded? Who would pay an assignor when they know the assignor never paid any money to acquire the loan, debt, note or mortgage? Answer nobody. And that is why the servicers and banks cannot open their books up — the entire scheme is an illusion.

What follows is an abstract from my notes on one such case: (The trial was bifurcated in time)

What we are seeing here is a master at obfuscation. In one case I have in litigation, Wells Fargo wants to assert that it can foreclose on the mortgage in its own name. It has alleged in the complaint that it is the owner of the loan and then testified that it is not the owner but rather the servicer. It has testified that Freddie Mac was the investor from the start but it has produced an assignment from a nonexistent entity in which Wells Fargo was the assignee.

Nobody testified that they were in court on behalf of any investor and the only thing we have is the bare assertion from the witness stand that Freddie Mac is the investor from the start. And yet during this whole affair, Wells posed as the lender, owner and then servicer of the loan without any authority to do so. And they posed as a party who could foreclose on the borrower without any evidence and probably without any knowledge as to what was showing on the books and records of whoever actually did the funding of this loan (or if the funding was in the amount claimed at closing) or whoever is claimed to be the owner of the loan.

A Motion to Compel should be filed citing their response to Yes or No questions — objection vague and ambiguous etc.

The point should be made that the defendants are the sole source of records, data and witnesses by which the Plaintiff’s case can be proven as to liability, damages and punitive damages. We have limited discovery to asking about their procedures as they relate to this particular alleged loan.

The issue at hand is that our position is that they knew that the alleged originator could not have been the lender because they did not exist, did not have bank account etc. And they have admitted that the named successor was not the lender either and  admit that the foreclosing party did not buy the loan, the debt, the note or the mortgage.. Not until the first part of trial did the representative from Wells state that contrary to the pleading they were acting as servicer not the creditor or owner of the loan. And they stated that the real lender was Freddie mac “from the start.”

So we are asking how it happened that Wells entered the picture at all as servicer or representative for any actual creditor — the only indication we have that some creditor exists is the surprise testimony from the designated representative of Wells in which he admitted that the named originator was not the lender, could not explain how such an “originator” was put on the note and mortgage and that Wells Fargo was not the lender or owner of the loan either. But we have no documentary evidence or data or witness from them explaining why they proceeded to assert any right to collect any money much less enforce a loan of money that came from somewhere but we don’t know from where.

The corporate representative of Wells says Freddie Mac was the “investor from the start.” But we have the direct refusal of Wells Fargo to produce a servicing, agency or representative agreement that applies to this loan.

We know that Freddie Mac was never a lender in the sense that they never originated any loans. So now we are asking for how they did get involved. The charter of Freddie Mac allows them to be two things: (1) guarantor and (2) Master trustee for REMIC Trusts. Freddie can buy loans with either cash or mortgage backed bonds issued by the REMIC Trust if such bonds were issued by one or more Trusts to Freddie Mac.

But all of that still leaves the question of where did the money come from — the money that was used to give to the borrower? It appears that the money came from investors who bought mortgage backed securities from REMIC Trust if Freddie Mac was really involved (A fact that is unknown at this time) or that the money came from investors who bought mortgage backed securities from a private label REMIC trust that is not registered with the SEC. But the money came from somewhere and we want to know the identity of the source because it will tell us who was really involved. And it is only in the context of knowing who was really involved that we assess the behavior of Wells Fargo and why they did what they did.

We ask them about their risk of loss and they respond by saying that they deny that they would not incur damages if the borrower defaults on the loan. Since they have said they didn’t provide funding and that they were not the investor (they say Freddie Mac was the investor (from the start), and they have no servicing agreement or at least not one they are willing to produce, then exactly how would they suffer damages on “default” on the loan?

They should be compelled to answer our discovery requests in a more forthright manner. If they are answering truthfully, which we must assume they are, for the moment, then that could only mean that there is a deal somewhere in which they have some potential exposure and which has never been disclosed. That exposure has nothing to do with the debt, note or mortgage that was originated in the name of the alleged originator. And THAT goes to the essence of their motivation to lie to the borrower and to interfere with her ability to sell the property and pay off the loan.

The exposure relates to the fact that without a foreclosure judgment and subsequent sale of the property, they lose their ability to recover servicer advances. Servicer advances are the exact opposite of the basis for a foreclosure action. In a foreclosure action it is based upon the fact that the creditor experienced a default — i.e., the creditor did not receive payments. With servicer advances, the investor gets the money regardless of whether or not the borrower pays. They are volunteer payments because the borrower is not in privity with the advancer of payments to the creditor and in fact is completely unaware of the fact that such payments are being made.

It also hints at another proposition: that some third party would hold them responsible unless they got a foreclosure judgment. We are left with equivocating answers that continue the pattern of obscurity as to the nature of the origination of the loan and the ownership or authority to represent anything. So it might just be that they they could not give a payoff figure and that their motivation was obtain the foreclosure judgment at all costs, even if they had to lie and dodge to get it. It would also explain why they lured her into the default. Certainly their turnover of SOME of the audio files which did not include the call in which she was told she needed to be 90 days behind (contrary to HAMP) in order to get some sort of relief.

And there is another issue that comes up when you consider borrower’s testimony that she did receive a forbearance 2 years earlier. Did they have authority to do that? What changed, if anything? Did some other party intervene? Was there a change in internal Wells Fargo policy?

All these things could be answered if they would be more forthright in their answers and if they reconciled the obvious discrepancy between not being the owner of the loan, but alleging that they were, not being the servicer or unwilling to state the source of their authority to represent another party, and testifying that they were the servicer, and testifying about Freddie Mac involvement without any records showing that involvement (indicating that the witness did NOT have access to the entire file). This also goes to the issue of whether there was any default at all if there is a PSA for a trust that claims ownership and if that PSA shows that through servicer advances or other payments means the real creditors — the investors — were NOT showing any default at all.

The point of this diatribe is that this case highlights the fact that in virtually all Wells Fargo cases (and with other banks), the real party seeking a foreclosure judgment is the servicer (since they are the only ones showing up at trial anyway), but that whatever the servicer’s interest is or whatever their risk of loss is, it relates to a claim either not against the borrower or not based upon the mortgage which is either void or owned by someone else.

If the self-proclaimed servicer is saying they will suffer damages upon default and they admit they have no ownership of the loan nor did they fund the original loan transaction, then any recovery would be based upon a cause of action other than a foreclosure of a mortgage where they are neither the mortgagee, successor or creditor. Their claim if caused by volunteer payments (servicer advances) to the creditors, it is based upon unjust enrichment not breach of the contractual duty to pay the loan.

Remember that the witness testified to being the corporate representative of Wells Fargo as servicer and not to being a corporate representative of the “investor.” And the witness testified that the records of the investor were never available to him, so how can he testify that the creditor has experienced a default? Since the borrower never had any privity with Wells Fargo as servicer or lender how else could they be exposed to a loss? And more importantly, why are they suing the borrower for collection on the note and enforcement of the mortgage when the actual creditor has not experienced any default?

THAT is the draft of the memo or brief that should accompany the Motion to Compel answers to simple questions. It is almost comical that their answer to a yes or no question was an objection that it was too broad, ambiguous etc. What IT platform are you using? Answer: None of your business. But it is written as an objection to the form or content to the question. That is how the servicers stonewall borrowers and that is how borrowers are prevented from ever knowing the truth about the origination or management of their loan.

No. Carolina Appeals Court Approves Dismissal of Foreclosure With Prejudice

For Further information or assistance please call 954-495-9867 or 520-405-1688

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see 13-450 N Carolina Appellate Decision on Holder, PETE, HDC and Owner of the Debt 2013 Decision

There are several interesting features to this appellate case, not the least of which is that it comes from North Carolina which has not been particularly friendly to borrowers. What is interesting is that the court was looking at the substance of the transaction and finding that the the bank was playing games and now wanted to play more. The trial court said no, and then the appellate court said no. The decision is one year old but was recently brought to my attention of a litigant who is confronting the “bank” that claims rights to collect, enforce and foreclose.

This was a case in which the foreclosing party never established any of the conditions under which it was (a) the owner of the debt, (b) the payee on the note or (c) the PETE — party entitled to enforce the note. The Court considered the situation and dismissed the foreclosure WITH PREJUDICE —a trial court decision that is highly unusual looking back 7 years but not so unusual looking back 12 months.

The appellate decision looks first where I said to look — the payee on the note. If the foreclosing party IS the payee on the note then it need not allege how it became the “holder” but it probably has some burden of proving the loan. We will see about that. SO if you are the Payee most of the case is presumed. The problem is that most courts having been applying that universally accepted presumption to cases in which the foreclosing party is NOT the payee on the note. And, as pointed out by this court, that is wrong.

The trial court correctly dismissed the case with prejudice because dismissal was mandatory and in the absence of any action by the bank, the dismissal must be with prejudice. The bank can’t come back later and assert a right to amend when they could have voluntarily dismissed, moved to amend, or taken some action that would put the issue of amendment before the court. As this court states, it is not up to the trial judge, sua sponte, to provide a path to amendment. Hence the same rules that have cooked borrowers for years because they admitted or waived defenses unintentionally now comes back and bite the bank.

And most importantly, when you look to the DEBT, it is the substance of the claim that counts not just the paperwork.

Neither the trial court nor the appellate court liked the fact that the affidavit submitted was so vague that it said nothing — particularly about the acquisition of the DEBT, and nothing about how it was a PETE. This simple statement in the body of the opinion, might represent a sea change in judicial attitude. After all, the point of commercial paper, negotiable instruments, foreclosures etc is that they are all about the same thing — MONEY. The laws (UCC etc) were never meant to facilitate theft from innocent parties (investors, borrowers etc.).

The bank argued that it should not have been dismissed with prejudice and that it should have been given an opportunity to amend, citing to laws, cases and rules that permit liberal amendment. But here the court turned the same indifference to consequences that has plagued borrowers and used it against the bank. You might call it blind justice in practice. The court found that the failure of the bank to do anything to protect its right to amend was sufficient to uphold the trial court’s dismissal with prejudice. The bank argued that this was an extreme remedy implying a windfall fro the borrower. But the appellate court said, quite correctly, how do we know that?

The court was clearly implying that a subsequent action by a real party in interest could theoretically be brought against the homeowner either on the debt, the note the mortgage or all of those. They clearly thought that the party who was bringing the action in this case was a sham party filing a sham action. And they obviously wanted to stop that practice.

It remains to be seen how many cases we will see that discuss the foreclosure the way this court did. I am hopeful and ever optimistic that the courts will follow the money trail and not allow shuffling of paper to replace actual transactions. Every time we enforce an APPARENT transaction we take the risk of ignoring the real transaction. Each time foreclosure judgments are entered raises the probability that a second debt is being created.

Who Can Sign a Lost Note Affidavit? What Happens When It Is “Found?”

For further information and assistance, please call 954-495-9867 or 520-405-1688

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Let’s start with the study that planted the seed of doubt as to the validity of the debt, note, mortgage and foreclosure and whether any of those “securitized debt” foreclosures should have been allowed to even get to first base. Katherine Ann Porter, when she was a professor in Iowa (2007) did a seminal study of “lost” documents and found that at least 40% of ALL notes were lost as a result of intentional destruction or negligence. You can find her study on this blog.

The issue with “lost notes” is actually simple. If the note is lost then the court and the borrower are entitled to an explanation of the the full story behind the loss of the note, why it was intentionally destroyed and whose negligence caused the loss of the note. And the reason is also simple. If the Court and the borrower are not fully satisfied that the whole story has been told, then neither one can determine whether the party claiming rights to collect or enforce the note actually has those rights.

This is the question posed to me by a knowledgeable person involved in the challenge to the validity of the debt, note, mortgage and foreclosure:

Who is finding the Note?  Can a servicer execute a Lost Note Affidavit as a holder?  Non holder in possession?

It took me a while to get to the obvious point of the above defense.  It is intended in the event that party A loses the Note and files a LNA [Lost Note Affidavit}, that the Issuer, does not have to pay party B even if he appears with a blank endorsed note, unless B can prove holder in due course (virtually impossible these days, esp in foreclosure cases).

This is critical.  The foreclosing party, through a series of mergers and successions, files a case as successor by merger to ABC.  Can’t locate note, so it files a LNA, stating ABC lost the Note.  Note is found, but the foreclosing party says, oops, was in a custodial file for which we were the servicer for XYZ.   While the foreclosing party has the note, it cannot unring the fact it got the Note from XYZ after ABC lost it.

Good questions. He understands that the requirements as expressly stated in the law (UCC, State law etc.) are quite stringent. You cannot re-establish a lost note with a copy of it unless you can prove that you had it and that you were the person entitled to enforce it (known as PETE). You also cannot re-establish the note unless you can prove that the note was lost or destroyed under circumstances where it is far more likely than not that the original won’t show up later in the hands of someone else claiming PETE status. So there should be a heavy burden placed on any party seeking to foreclose or even just to collect on a “lost note.” But courts have steamrolled over this obvious problem requiring something on the order of “probable cause” rather than actual proof. While there is some evidence the judiciary is turning the corner against the banks, the great majority of cases fly over these issues either because of presumptions by the bench or because the “borrower” fails to raise it — and fails to make appropriate motions in limine and raise objections in trial.

But the person who posed this question drills down deeper into the real factual issues. He wants to know details. We all know that it is easier to allege that you destroyed it accidentally or even intentionally than to allege the loss of the note. A witness from the party asserting PETE can say, truthfully or not, “I destroyed it.” Proving that he didn’t and that the copy is fabricated is very difficult for a homeowner with limited resources. If the allegation and the testimony is that the note was lost, we get into the question of what, when where, how and why. But in a lost note situation most states require some sort of indemnification from the party asserting PETE status or holder in due course status. That is also a problem. I remember rejecting the offer of indemnification from Taylor, Bean and Whitaker after I reviewed their financial statements. It was obvious they were going broke and they did. And the officers went to jail for criminal acts.

So the first question is exactly when was the “original” note last seen and by whom? In whose possession was it when it was allegedly lost? How was it lost? Who has direct personal information on the location of the original and the timing and method of loss? And what happens when the note is “found?” We know that original documents are being fabricated by advanced technology such that even the borrower doesn’t realize he is not being shown the original (that is why I suggest denying that they are the holder of the note, denying they are PETE, denying they are holder in due course etc.)

In the confusion of those issues, the homeowner usually fails to realize that this is just another lie. But in discovery, if you are awake to the issue, you can either learn the facts (or deal with the inevitable objections to discovery). And then the lawyer for the homeowner should graph out the allegations and testimony as best as possible. The questioner is dead right — if the party NOW claiming PETE status or HDC status received the “found” original note but received it from someone other than the party who “lost” it, there is no chain upon which the foreclosing party can rely. In simple language, what they are attempting to do is fly over the gap between when the note was lost and destroyed and the time that the current claimant took possession of the paper. And once again I say that the real proof is the real money trail. If the underlying transactions exist, then there will be some correspondence, agreements and a payment of money that will reveal the true transfer.

And again I say, that if you are attacking the paper you need to be extremely careful not to give the impression that the borrower is attempting to get out of a legitimate debt. The position is that there is no legitimate debt IN THIS CHAIN. The debt lies outside the chain. The true debt is owed to whoever supplied the money that was received at the loan closing, regardless of what paperwork was signed. Failure to prove the original loan transaction should be fatal to the action on the note or the mortgage (except if the foreclosing party can prove the status of a holder in due course). The fact that the paperwork was signed only creates a potential second liability that does not benefit the party whose money was used for the loan.

The foreclosure is a thinly disguised adventure in greed — where the perpetrators of the false foreclosure, use fabricated, robo-signed paper without ANY loan at the base of the paper trail and without any payments made by any of the parties for possession or enforcement of the paper. They are essentially stealing the house, the proceeds, and the money that was used to fund the “loan” all to the detriment of the real parties in interest, to wit: the investors who were tricked into directly lending the money to borrowers  and the homeowners who were tricked into signing paperwork that created a second liability for the same loan.

Why do we need to force the banks to accept more money in modification?

Selecting a forensic analyst or a lawyer to represent you in a mortgage dispute. You need to look at their credentials rather than listen to their sales pitch. And you need people who really believe that you can and SHOULD win. For our services and products call our customers service numbers at 520-405-1688 on the West Coast, and 954-495-9867. Or visit http://www.livingliesstore.com. Don’t waste your money if the people lack the credentials and experience and commitment to make things work out the way you want it. Everyone promises the world. We promise expertise and guidance on how to use it in court.

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It seems obvious. And if you are a lawyer practicing in real estate, you have probably attending CLE seminars about mortgage lending requirements and what to do when the borrower is in default or claimed to be in default. The answer is always a “workout” wherever possible. And the reason is that you get more from a workout than the proceeds from a foreclosure and all the financial requirements of ownership like maintenance, taxes, insurance and the expenses of selling, repairs etc. It really is that simple.

But Banks don’t want workouts or modifications. They only want to use the illusory promise of modification to get the borrower in so deep he sees no way out when the application is eventually denied. Why are so many trial modifications now in court because the bank denied the permanent modification after the trial modification as approved and the borrower met all the requirements including payments? why are the banks pursuing a strategy where they are guaranteed far less money than ramping up the “workout” programs. Maybe because if they did, they would be admitting that the loan was defective in the first place, the appraisal was inflated, the viability of the loan was zero, and the borrower had been tricked.

So why do the Banks need to be forced to take more money and less responsibility for the property? It seems obvious that they would want a workout rather than a foreclosure because it will end up with more money in their pockets and the whole mortgage mess behind them with a nice clean note and mortgage.

The answer can only be that the Banks oppose such efforts because the rational strategy of a true lender won’t end up with more money in THEIR pockets. And THAT can only be true if they are working off some different business model than a lender. It means by definition in a rational world, as Greenspan likes to say, that they could not possibly be the lender or working for the lender.

It can only be true if they are protecting the fees they are earning on nonperforming loans and justifying their stubborn resistance to modification and principal reduction by showing that the foreclosure was the only way out even though it wasn’t. The destruction of tens of thousands of homes in various cities shows that the net value of the foreclosure was zero even while the homeowners were applying for modifications that, if approved, would have not only saved individual homes, but entire neighborhoods.

The other reason of course is that the banks don’t own the loans and they did receive multiple payments on the loans from multiple sources. A foreclosure hides these payments.

So the practice hint is to be persistent and insistent on following the money trail. What the San Francisco study revealed as well as other similar studies and are own study here at livinglies is that the courts are rubber stamping foreclosures that are in favor of complete strangers tot he transaction. They don’t have a dime in the deal. But they are being given judicial nod that they are the creditor even though they are clearly not the creditor. This false creditor now has authority to claim the status of creditor and to buy property worth millions of dollars with a non-monetary credit bid in the amount of their claim, thus “out bidding” any conceivable competition and guaranteeing their ownership of the property, or allowing someone else to outbid them and taking the money from the sale even though everything they had done up to that point was false.

So you have these people and companies in a cloud of false claims of securitization selling the loan multiple times through insurance and other gimmicks making a ton of money assuming the identity of the investors and assuming ownership over the borrower’s identity and trading on that all for the purpose of ill-gotten gains. It is fraud, identity theft, RICO and Ponzi Schemes all rolled into the fog that comprises the false claims of securitization.

PRACTICE HINT: Test each transaction claimed to see if money exchanged hands and if so between what parties. You will find that the money transactions — that is the reality of what was going on bears no resemblance to the paper trail. The paper trail is meant to lead you down the rabbit hole. First establish what is in the paper trail, then establish what transactions actually occurred and then compare the two and show that the paper trail is a trail of lies.

THE KEY TO THIS MESS IS TO REPLACE OR SUBSTITUTE THE CURRENT SYSTEMS OF SERVICERS WITH AN ENTIRELY DIFFERENT SYSTEM OF SERVICING AND A DIFFERENT SET OF SERVICERS TO REPLACE THOSE WHO ARE BLOCKING THE DIALOGUE BETWEEN LENDERS AND BORROWERS.

Mortgage borrowers get more foreclosure protection from Mass. bank regulators
http://www.bizjournals.com/boston/news/2013/10/17/mortgage-borrowers-get-more.html

The Very Worst Thing About Foreclosures Today Is Watching Consumers That You Know Could be Helped Standing in Court Without An Attorney
http://ireport.cnn.com/docs/DOC-1050081/

 

Foreclosure Defense: Notes on Practice

I went to a hearing a few days ago and discovered to my surprise a Judge, in a remote section of Florida, who was fully conversant in the rules of procedure, due process and the laws of evidence. It would be improper for me to name him as I am currently counsel of record in an active case before him. The first thing that caught my attention was that in a case before me the Judge reserved ruling on an uncontested motion for summary judgment, to give himself time to review the paperwork and make sure that the paperwork was all in order. That is old style court practice.

In the 1970’s through the 1990’s that is what judges did to make sure the lawyer for the Bank had done his job properly — and that was before routine questions relating to who made the loan, whether the loan was properly originated, whether the loan was properly sold, whether the balance due was properly stated and whether there was an actual creditor who was present in court — someone who fulfilled Florida laws on the description of a creditor who could submit on credit bid at the auction.

The Judge also mentioned that he had presided over three bench trials the day before, two of which he had given judgment to the borrower because the Plaintiff had been unable to make its case. This bespeaks an understanding, knowledge, acceptance and execution of the procedural requirement of establishing a prima facie case thus shifting the burden of proof to the Defendant. And contrary to current practice in many courts, this Judge does not view his role as rubber stamping Foreclosures.

This Judge wants to see the things we have been pointing out on this blog: that if you are the Plaintiff you must prove your case according to the rules. First you must have a witness that actually knows something instead of merely reading off of a computer or a computer report. You must establish a proper foundation rather than an illusion by merely giving the appearance of proffering testimony from an incompetent witness with no knowledge of their own whose employment description consists of testifying in court. And your chain of evidence must be complete before you can be recognized as having established a prima facie case.

In the case in which I appeared the Plaintiff had filed a foreclosure against two homeowners, husband and wife, who then pro se fended off the Plaintiff with materials mostly from this blog and from other sources. But they were at the point where being a lawyer counts, knowing the content and timing of objections, filing motions to strike, motions in limine, responding to 11 th hour motions for protective order etc.

In this case their exists a legitimate question over whether the loan was subject to securitization. Originated in 1996 the loan date goes to the beginning of the era of securitization and this one didn’t have MERS, which I argue is evidence per se of securitization because there is no reason for MERS if your intent is not securitization. But 2 days after the alleged closing the loan was transferred to a player in the world of securitization. Thus the first argument is that this was obviously a table funded loan. Hence the question of where the money came from at the alleged closing table.

Adding to the above, the notice letter to the borrowers of default, acceleration and the right to reinstate suggests that the then “holder” was, in their own words “either a Servicer or lender.” So the very first piece of evidence in the file raises the issue of securitization since the party who sent the notice was not the transferee mentioned above two days after the alleged closing.

Thus questions about the origination and transfers of the loan were appropriately asked in discovery. The Judge was on the fence. Could one slip of the pen open up a whole area of discovery even with the table funded loan allegation?

But in the halls of the foreclosure mills, they had decided to file standardized pretrial statements disclosing witnesses and exhibits. So they filed a motion for protective order as to the discovery, refusing to answer the Discovery, and filed a statement that identified the witness they would use at trial 19 days later as “a corporate representative.” That is no disclosure of a witness and is subject to a motion in limine to block the introduction of any witness. The witness disclosure also attached a list of possible witnesses —37 of them, which I argued is worse than no disclosure and the Judge agreed.

Then in their list of exhibits that they will present at trial they refer to powers of attorney, pooling and servicing agreement, investors, servicer’s, sub-servicers, and all the other parties and documents used in creating the illusion of securitization.

I argued that if they filed a pretrial statement referring to all the parts of securitization of a mortgage loan, then the issues surrounding that are properly the subject of inquiry in discovery and that the 11 th hour filing of a sweeping motion for protective order and failure to respond to any discovery was in bad faith entitling us to sanctions and granting our two motions in limine. The judge agreed but removed the problem by setting the trial for February, and setting forth a schedule of deadlines and hearings a few days after the deadlines so both sides could develop their cases. The ruling was in my opinion entirely proper, even if it denied the motions in limine since he was giving both sides more time to develop their cases.

The moment the hearing ended, opposing counsel approached and was asking about settlement. I countered with a demand that his client immediately show us the chain of actual money starting with origination. He said that wouldn’t be a problem because this was definitely not a securitized loan. I told him I actually knew the parties involved and that most probably this was amongst the first group of securitized loans. I also told him that he would most likely fail in getting the proof of payment at closing, and proof of payment in each of the alleged transfers of the loan.

We’ll see what happens next but I would guess that there will be a lot of wrestling over discovery and more motions in limine. But this time I have a Judge who no matter his personal views that are most likely very conservative, will dispassionately call balls and strikes the way a judge is supposed to do it.

The Real Deal and How to Get There

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The Real Deal and How to Get There

If you read the Glaski case any of the hundreds of other decisions that have been rendered you will see one glaring error — failure to raise an issue or objection in a timely manner. This results from ignorance of the facts of securitization. So here is my contribution to all lawyers, wherever you are, to prosecute your case. I would also suggest that you use every tool available to disabuse the Judge of the notion that your goal is delay — so push the case even when the other side is backpedaling, ask for expedited discovery. Act like you have a winning case on your hands, because, in my opinion, you do.

The key is to attack the Judge’s presumption whether stated or not, that a real transaction took place, whether at origination or transfer. Once you let the Court know that is what you are attacking the Judge must either rule against you as a matter of law which would be overturned easily on appeal and they know it, or they must allow penetrating discovery that will reveal the real money trail. The error made by nearly everyone is that the presumption that the paperwork tells THE story. The truth is that the paperwork tells a story but it is false.

Nevertheless the burden is on the proponent of that argument to properly plead it with facts and as we know the facts are largely in the hands of the investment banker and not even the servicer has it. My law firm represents clients directly in Florida and provides litigation support to any attorney wherever they are located. We now send out a preservation letter (Google it) as soon as we are retained. We send it to everyone we know or think might have some connection to the file. If they can’t find something, the presumption arises they destroyed it if we show that in the ordinary course of business they would keep records like that. We also have a computer forensic analyst who is a lawyer that can go into the computers and the data and see when they were created, by whom and reveal the input that was done to create certain files and instruments.

Once the facts are properly proposed, then the proponent still has the burden of proving the allegations through discovery. That is because the paperwork raises a rebuttable presumption of validity. The Glaski case gives lots of hints as to how and when to do this. Neither judicial notice of an instrument nor the rebuttable presumption arising out of an instrument of commerce gives the bank immunity. And the requests for discovery should attack the root of their position — that the foreclosing party is true beneficiary or mortgagee.

With the Glaski Case in California and we have one just like it in Florida, the allegation must be made that the transaction is void as to the transfer to the Trust. You have a related proof challenge when they insist that the loan was not securitized. You say it was subject to claims of securitization. That puts you in a he said she said situation — which puts you in the position of the Judge ruling against you because you have not passed the threshold of moving the burden back to the Bank. What penetrates that void is the allegation and proof of the absence of any actual transaction — i.e., one in which there was an offer, acceptance of the offer and consideration. The UCC says an instrument is negotiated when sold for value. You say there was no value. Proving the loan is subject to claims of securitization may require discovery into the accounting records of the parties in the securitization chain. What you are looking for is a loan receivable account or account receivable that is owned by the party to whom the money is owed. At the servicer this does not exist, which is why the error in court is to go with the servicer’s records, which are incomplete because they do not reveal the payments OUT to third party creditors or others, nor other payments IN like from the investment bank who funds continued payment to the creditors to keep them ignorant that their portfolio is collapsing.

The transaction is void if there was an attempt to assign the loan into the trust. First, it violated the instrument of the trust (PSA) because of the cutoff rule. The court in Glaski correctly pointed out that under the circumstances this challenge was valid because of the prejudice to the beneficiaries of the trust. They use discretion to assert that there is prejudice to the beneficiaries because of the economic impact of losing their preferential tax status. They did not add (because nobody raised it), that the additional prejudice to the beneficiaries is that it is usually a loan that is already declared in default that is being assigned. Judge Shack in New York has frequently commented on this.

Hence the proposed transfer violates the cutoff date, the tax status and the requirement that the loan be in good standing. Sales of the bonds issued by the trust were based upon the premise that the bonds were extremely low risk. Taking defaulted loans into the trust certainly  violates that and under federal and state regulations the pension funds, as “Stable managed funds” can ONLY invest in extremely low risk securities.

Hence the possibility of ratification is out of the question. First, it is isn’t allowed  under the IRC and the PSA and second, it isn’t allowed under the PSA because the investors are being handed an immediate loss — a purchase with their funds (which you will show never happened anyway) of a defaulted loan. But to close the loop on the argument of possible ratification, you must take the deposition of the trustee of the trust.

Without the possibility of ratification, the transaction is definitely void. In that depo it will be revealed that they had no access or signature authority to any trust account and performed no duties. But they are still the party entrusted with the fiduciary duties to the beneficiaries. So when you ask whether they would allow the purchase of a bad loan or any loan that would cause the REMIC to lose its tax status they must answer either “no” or I don’t know. The latter answer would make appear foolish.

A note in the Glaski case is also very revealing. It is stated there that BOTH sides conceded that the real owner of the debt is probably unknown and can never be known. So tread softly on the proposition that the real owner of the loan NOW is the investor. But there is a deeper question suggested by this startling admission by the Court and both sides of the litigation. If the facts are alleged that a given set of investors somehow pooled their money and it was used to fund the loan origination or to fund the loan acquisition, what exactly do the investors have NOW? It would appear to be a total loss on that loan. They paid for it but they don’t own it because it never made it into the trust.

The alternative, proposed by me, is that this conclusion is prejudicial to the beneficiary, violates basic fairness, and is contrary to the intent of the real parties in interest — the investors as lenders and the homeowners as borrowers. The proper conclusion should be, regardless of the form of transaction and content of instruments that were all patently false, that the investors are lenders and the homeowner is a borrower. The principal is the amount borrowed. The terms are uncertain because the investors were buying a bond with repayment terms vastly different than the repayment terms of the note that the homeowner signed. Where this occurs the note or obligation is generally converted into a demand obligation, which like tender of money in a loan dispute, is enforced unless it produces an inequitable result, which is patently obvious in this case since it would result in a judgment and judgment lien that might be foreclosed against the homeowner.

With the assignment to the trust being void, and the money of the investor being used to fund the loan, and there being no privity between the investor and the homeowner, the only logical conclusion is to establish that the debt exists, but that it is unsecured and subject to the court’s determination to fashion the terms of repayment — or mediation in which the unsecured loan becomes legitimately secured through negotiations with the investors.

Since the loan was not legally assigned into the trust and the trust did not fund the origination of the loan, the PSA no longer governs the transaction; thus the authority of the servicer is absent, but the servicer should still be subpoenaed to produce ALL the records, which is to say the transactions between the servicer and the borrower AND the transactions between the servicer and any third parties to whom it forwarded the payment, or with whom it engaged in other receipts or disbursements related to this loan.

Since the loan was not legally assigned into the trust, the trustee has no responsibility for that loan, but the investment bank who used the investors money to fund the the loan is also a proper target of discovery as is the Maser Servicer and aggregators, all of whom engaged in various transactions that were based upon the ownership of the loan being in the trust. Now we know it isn’t in the trust. The Banks have used this void to jump in and claim that they own the loan, which is obviously inequitable (if not criminal). But the equitable and proper result would be to establish that the investors own an account receivable from borrowers in this type of situation since they were the ones who advanced the money, not the banks.

Since the loan was not legally assigned into the trust, the servicer has no  actual authority or contract with the investors who are now free to enter into direct negotiations with the borrowers and avoid the servicers who are clearly serving the interest of the parties in the securitization chain (which failed) and not the investors. Thus any instrument executed using the securitization or history of “assignments” (without consideration) as the foundation for executing such an instrument is void. That includes substitutions of trustees, assignments, notices of default, notices of sale, lawsuits to foreclose or any effort at collection.

Note that without authority and based upon intentionally false representations, the servicers might be subject to a cause of action for interference with contractual rights, especially where a modification proposal was “turned down by the investor. “ If the investor was not the Trust and it was the Trust allegedly who turned it down (I am nearly certain that the investors are NEVER contacted), then the servicer’s push into foreclosure not only produces a wrongful foreclose but also interference with the rights and obligations of the true lenders and borrowers who are both probably willing to enter into negotiations to settle this mess.

The second inquiry is about the balance of the account receivable and the obvious connection between the account receivable owned by the investors and the account payable owed by the homeowners. I don’t think there is any reasonable question about the initial balance due, because that can easily be established and should be established by reference to a canceled check or wire transfer receipt. But the balance now is affected by sales to the Federal Reserve, insurance, bailouts and credit default swaps (CDS).

Since the loan was not assigned to the trust then the bond issued by the trust that purports to own the loan is wrong. The insurance, CDS, guarantees, purchases and bailouts were all premised on the assumption that the false securitization trail was true, then it follows that the money received by anyone represents proceeds that does not in any way belong to them. They clearly owe that money to the investor to the extent of the investors’ advance of actual money, with the balance due to the homeowner, as per the agreement of the parties at the closing with the homeowner. But the payors of those moneys also have a claim for refund, buy back, or unjust enrichment, fraud, etc.

Those payors have one obvious problem: they executed agreements that waived any right to collect from the borrower. Thus they are stuck with the bond which is worthless through no fault of the beneficiaries. So their claim, I would argue, is against the investment bank. The guarantors (Fannie, Freddie et al) have buyback rights against the parties who sold them the loans they didn’t own or the bonds representing ownership that was non-existent. Here a fair way of looking at it is that the investors are credited with the third party mitigation payments, the account payable of the borrower is reduced proportionately with the reduction of the account receivable (by virtue of cash payment to their agents which reduces the account receivable because the money should be paid to and credited to the investor) and the balance of the money received should then go to the guarantor to the extent of their loss, and then any further balance left divided equally amongst the investors, borrowers and guarantors.

To do it any other way would either leave the banks with their ill-gotten gains and unjust enrichment, or over payment to the investors, over payment to the borrowers who are entitled to such proceeds as per most statutes governing the subject, or over payment to the guarantors. The argument would be made that the investors, borrowers and guarantors are getting a windfall. Yes that might be the case if the over payments resulting from multiple sales of the same loan exceeded all money advanced on the actual loan. But to leave it with the Banks who were never at risk and who are still getting preferential treatment because of their shaky status would be to reward those who intended to be the risk takers, but who masked the absence of risk to them through false statements to the parties who all collectively advanced money and property to this scheme without knowing that they were all doing so.

 

The question is on what basis should the banks be rewarded with the windfall. I can find no support for that proposition. But based upon public policy or other considerations regarding the nature of the hedge transactions used to sell the same loan over and over again, it might be argued that the investment bank is entitled to retain SOME money if the total exceeds the full balances owed to the investors (thereby extinguishing the payable from the borrower), and the full balances owed to the guarantors.

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