Discovery Changes and Broadens After Hawaii Supreme Court Decision

Based on questions that greeted me when I got to my desk this morning, here are just some of the thoughts that apply — a case review and analysis for each case being necessary to actually draft the right questions and to close any trap doors.

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NOTE: Procedural questions should be posed to local counsel who knows local discovery rules and court procedure. My answer is based upon general knowledge and not based upon any experience in litigating discovery issues in your state.
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The effect of the new decision in the link above is most probably (a) a broadening of existing discovery requests (b) rehearings on recent decisions denying discovery and (c) an opportunity and a reason to ask the questions you really want to ask.
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The first question is whether the questions you would ask now are already within the scope of the questions you have already asked. If so, generally speaking, there is nothing to do. In this scenario you could send a letter, I think, that clarifies your questions in view of the new Supreme Court ruling. The letter would specifically address certain issues that were raised in questions already asked and tells them the details you expect. This could be done in a supplemental request for discovery citing the new Supreme Court decision. Check with local counsel.
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Second, and this is more likely, your case should be analyzed within the context of the new decision. It seems to me that the decision opens up some broader scope of discovery than had previously been submitted. Your opposition will fight this tooth and nail. Pointing to the Hawaii Supreme Court decision is not going to be enough even if the property is in Hawaii. You need to have a very clear narrative that explains why you are asking for the answers to questions and the production of documents and answers to request for admissions. Without a clear defense narrative your first Motion to Compel them to respond will likely fail. The general rule is that discovery, with certain exceptions, can be any request that could lead to the discovery of admissible evidence. By “admissible” the meaning is evidence that is relevant and “probative” to the truth of the matter asserted. It isn’t relevant unless it ties into either the case against you or the defense narrative. Lack of clarity can be fatal.
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The opposition is going to claim privilege, privacy, and proprietary information. You should force them to be more specific as to how the identification of the creditor is proprietary, or an invasion of privacy or some privilege. Tactically I would let them paint themselves into a corner, so you need someone who knows how to litigate. Once it is established that they can’t or won’t disclose the matters into which you have inquired, then the question becomes how they will prove authority from the creditor without identification of the creditor from whom all authority flows.
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That could lead to a motion for summary judgment wherein you allege that they have failed and refused to make disclosure as to the most fundamental aspect of pleading a case. Since their authorization to initiate and maintain a foreclosure action must relate back to the authorization of the creditor (owner of the debt) and they now have not or will not identify that party(ies), the presumption of authority must be considered rebutted, thus requiring them to prove their case with facts and not with the benefit of legal presumptions.
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Since they have admitted on record that they cannot prove they are acting on behalf of the creditor, it follows that they cannot prove authority to initiate or maintain a foreclosure action. Hence, the outcome is certain. They will not be able to prove standing although they might have made certain assertions or allegations that might pass for standing such that they can withstand a motion to dismiss or demurrer. The essential assertion of standing is either rebutted or barred from proof. Hence judgment should be entered for the homeowner.
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Some of this might come out in a motion for sanctions which is virtually certain to come from you when they fail to properly respond to your requests for discovery. This is intricate litigation that should be handled by a local attorney.
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Again don’t start a second front in the battle if you have already covered it in your previously submitted requests for discovery. I think you have asked most of the right questions, although now with this decision it becomes more refined.Among the questions I would ask in view of the new decision from the Supreme Court of Hawaii are the following presented only as narrative draft, subject to improvement by local counsel:
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  1. Does the trust exist under the laws of any jurisdiction? If yes, describe the jurisdiction in which the trust is recognized as existing.
  2. Was the trust organized under the laws of any jurisdiction? If yes, when and where?
  3. Does the trust own the subject debt? If yes, please explain why the trust is not claimed as a holder in due course.
  4. Does the trust allow the beneficiaries an interest in the assets of the trust?
  5. Please describe the manner in which the certificate holders are beneficiaries of a trust.
  6. Does the named Trustee of the Trust have any rights or obligations to monitor trust assets?
  7. Does the named Trustee of the Trust engage in any activities in which it is administering the assets of the Trust.
  8. Describe the assets of the Trust.
  9. Please identify the Trustor or Settlor of the Trust.
  10. Please identify the date, place and parties involved in any transaction in which assets were entrusted to the named trustee for the benefit of named or described beneficiaries.
  11. Please identify the date, place and parties involved in any transaction in which assets were purchased by the Trust or in which a Trustor or Settlor purchased assets that were then entrusted to the named trustee of the Trust for the benefit of named or described beneficiaries.
  12. Is the named Trust a fictitious name being used by one or more other entities?
  13. Do the certificates contain provisions in which the holder of the certificate disclaims any right, title or interest to assets of the Trust or any right, title or interest to the subject loan? If yes, please describe the provision, in what document it is located, the date of the document, and where that document currently exists in the care, custody and/or control of the Trust or any party doing business as or on behalf of the named Trust.
  14. Please describe the owner of the debt, to wit: describe the party currently carrying a receivable on its books that includes the subject loan, wherein no other party is ultimately entitled to proceeds of payments, proceeds or recovery on the subject loan.
  15. Is it your contention that residential foreclosure is legally allowed without ownership of the underlying debt from the borrower? If so, describe the elements of a party who would be legally allowed to foreclose on a residential mortgage without ownership of the underlying debt.
  16. Does the Trust have a bank account in the name of the Trust?
  17. Does the Trust have a bank account in the name of the named Trustee as Trustee for the Trust.
  18. If the answer to either of the two preceding question is yes, please describe the account, its location and identify the signatories on said account.
  19. Please describe the retainer agreement between the named Trust and current counsel of record including all the parties thereto, the date(s) of execution and date that the agreement became effective, the names of the signatories, and their authority to execute the instrument.
  20. With respect to loans attributed to or allegedly owned by the Trust please describe the parties who make decisions, along with a description of their authority, with respect to the following relating to the subject loan:
    1. Whether to foreclose
    2. When to foreclose
    3. What documents are needed for foreclosure
    4. Applications for modification
    5. Terms of modification
    6. Terms for settlement of the debt

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.

STANDING: Fla. 4th DCA Rules PSA Hearsay and Therefore Not Admissible — Case Dismissed

The Pooling and Servicing Agreement MIGHT be self-authenticating under F.S. 90.902 but still inadmissible as hearsay. Thus the PSA is NOT a substitute for evidence of an actual transfer of the loan to a purported REMIC trust.

PLUS: PRESUMPTION OF STANDING DOES NOT APPLY IF THE NOTE AT TRIAL IS DIFFERENT FROM THE NOTE ATTACHED TO THE FORECLOSURE COMPLAINT. “The note attached to the complaint was not in the same condition as the original produced at trial.”

NO PRESUMPTION: “where the copy [attached to the complaint] differs from the original, the copy could have been made at a significantly earlier time and does not carry the same inference of possession at the filing of the complaint.”

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See Fla 4th DCA Case PSA Hearsay and Diffferent Note
Friedle v BONY as successor in interest to JPM Chase, as Trustee
“the PSA purportedly establishes a trust of pooled mortgages.[e.s.].. [this] particular mortgage  was not referenced in the documents filed with the SEC … [the Plaintiff] did not present sufficient evidence through its witness to admit this unsigned document [e.s.] as its business record. While the witness testified that a mortgage loan schedule, which listed the subject mortgage, was part of the Bank’s business records, the mortgage loan schedule itself does not purport to show that the actual loan was physically transferred.” [e.s.]
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Here we have a court openly questioning whether claims of securitization are real or false. But they limit their opinion to the specific defects that arise from fatally defective evidence. And THAT is the way to win — i.e., to successfully defend an attempt at foreclosure.
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Those who follow my work here know that I have long said that the Trusts are empty and that the use of the name of the Trust is a fraud upon the court, since the Trust does not exist and the Trustee has no apparent or actual authority over any loans. If the Trustee has not received a particular loan to hold in trust, there is no trust — at least not as to that particular loan.
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You may also recall that I have repeatedly said starting in 2007, that there is no evidence that the notes exist after the alleged loan closings. As Katherine Ann Porter found when she did her study at the University of Iowa, the original notes were destroyed. Hence it has been my opinion that the “original” notes had to be fabricated and forged. Porter is the same Katie Porter who is now running for Congress in California. She wants to hold the banks accountable for their fraud.
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Interestingly enough the trial judge in this case was the same Senior Judge (Kathleen Ireland) as in a case I won with Patrick Giunta back in 2014 in which she said on record that the evidence was not real and dismissed the foreclosure case in that instance. Here she received the PSA as a self authenticating document. While I think that point is arguable, this case turns on the hearsay objection timely made by counsel for the homeowner. The point that has been missed and is missed across the country is that just because a document is authenticated — by any means — does not mean it is admissible into evidence. It is not admissible in evidence if it is excluded by other rules of evidence.
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The words on the PSA introduced at trial were plainly hearsay — just as the words in any document are hearsay. Apparently, as I have seen in other cases, the document as also unsigned. The words on the PSA are not admissible unless there is a qualifying exception to the hearsay rule. As such the appellate court ruled that the PSA had to be excluded from evidence. Since the Plaintiff was attempting to foreclose based upon authority granted in the PSA, Plaintiff was left standing naked in the wind because for purposes of this case, there was no PSA and therefore no authority.
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Plaintiff tried to make a case for the business records exclusion. But that cornered them.

In this case, the foreclosing bank’s witness could not testify that the Bank had possession of the note prior to filing the complaint. The Bank conceded that it presented no testimony that its present servicer or its prior servicer had possession of the note at the inception of the foreclosure action.

And at trial, Plaintiff attempted to prove possession by introduction of the PSA. Without possession there is no legal standing.

The Bank did not present sufficient evidence through its witness to admit this unsigned document as its business record.

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And there is the problem. The “servicer” (who also derives its purported authority ultimately from the PSA) cannot claim that the PSA is part of its business records without opening a door that the banks want to avoid. Even if the “servicer” had a copy of the PSA it could not state that this was a business record of the servicer nor that it was a copy of the original. If they did say that, then they would be opening the door for discovery, so far denied in most instances, into who gave the “servicer” the copy and why. it would also open up discovery into the business records of the trust, which would reveal a “hologram of an empty paper bag” as I put it 10 years ago.

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No PSA, no trust, = no plaintiff or beneficiary. Note that the testimony from the robo-witness employed by the subservicer scrupulously avoids saying that the “business records” are the records of the Plaintiff. That is implied but never stated because they are not business records of the Plaintiff Trust. That trust has no business, no assets and no existence as to any loan. The trust has no business records. That implication  should be attacked in cross examination. The foreclosing party will attempt to use circular reasoning to defeat your attack. But in the end they are relying upon the PSA which must be excluded from evidence.

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Lastly, this decision corroborates another thing I have been saying for years — that even minor changes on the face of an original instrument must be explained and reconciled. There is nothing wrong with putting annotations on the face of a note but you do so at your own risk. Whatever you have written or stamped on the note is an alteration. That doesn’t invalidate the note; but in order for the note to be received in evidence as proving the debt, the markings or alterations must be explained and reconciled by a witness with personal knowledge. None of the robo-witnesses have sufficient knowledge (or room in their memorized script) to explain all the markings.

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The mistake made by trial lawyers for homeowners is the failure to make a timely objection. The appellate court specifically addresses this in a footnote as it reconciles this opinion which is vastly different from its other opinions:

1 We have held in past cases that the PSA together with a mortgage loan schedule are sufficient to prove standing, but in those cases the witness offering the evidence appears to have been able to testify to the relationship of the various documents and their workings, or that the documents were admitted into evidence without objection. See, e.g., Boulous v. U.S. Bank Nat’l Ass’n., 210 So. 3d 691 (Fla. 4th DCA 2016).

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The court is pointing defense lawyers in the right direction without actually giving legal advice. They are saying that had cross examination been more proficient and a timely objection made they would have ruled this before. That may or may not be true. But the point is that they have now issued this ruling and it is law in the 4th DCA of Florida.

PRACTICE NOTE: I think the objections in this case could have been any or all of the following:
  1. OBJECTION! From the face-off the document there are no identifying stamps or marks that could be used to authenticate the PSA. Hence the document is not self-authenticating.
  2. OBJECTION! The document is unsigned, Hence the document is irrelevant.
  3. OBJECTION! The unsigned copy of a document is not the best evidence of the PSA as a trust instrument, if indeed one exists. 
  4. OBJECTION! Lack of foundation. If the Plaintiff is attempting to use the document anyway, counsel must elicit testimony and documents that provide an alternate foundation for admission of the PSA and an alternate foundation for authority that, so far, they claim arises from the PSA that cannot be admitted into evidence.
  5. OBJECTION! Hearsay! The document is and contains hearsay. There is no foundation for any exception to hearsay.

If the objection(s) is sustained, this should be followed by a Motion to Strike the testimony of the witness and all documents introduced as evidence except for his name and address. If you don’t do this your objection is sustained but the offending testimony and documents stay in the court record.

9th Circuit: Assignment in Breach of PSA is Voidable not Void. Here is why they are wrong

The thousands of trial court and appellate decisions that have hung their hat on illegal assignments being “voidable” demonstrates either a lack of understanding of common law business trusts or an adherence to a faulty doctrine in which homeowners pay the price for fraudulent bank activities.

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see Turner v Wells Fargo

Some of the problems might be in the presentation of evidence, failures to object and failure to move to strike evidence or testimony. But most of it deals with the inability of lawyers and the Courts to pierce the veil of uncertainty and complexity with which the banks have covered their fraudulent tracks.

Here are the reasons the assignment might be void. No self-serving newly invented doctrine can overcome the failure of an illegal assignment.

  1. Common Law Trusts are almost always formed under New York State law that allows unregistered trusts to be created for business purposes. Any act in contravention of the express provisions of the trust instrument (usually the Pooling and Servicing Agreement) is void, not voidable. It cannot be revived through ratification — especially when there is nobody around to change the trust instrument, thus ratifying the void act.
  2. Many if not most assignments are fabricated for foreclosure and either nonexistent or backdated to avoid the fact that the assignment is void when it is fabricated — years after the so-called trust was described in a trust instrument that is rarely complete because no mortgage loan schedule at the time of the drafting of what is in most cases an incomplete trust instrument.
  3. Assignments are clearly void and not entitled to any presumptions under the UCC if they are dated after the loan was declared in default (albeit by a party who had no right to declare a default much less enforce the debt or obtain a forced sale of homestead and other residential properties) schedule existed at the time of the drafting of the trust instrument. The application of UCC presumptions after the alleged date of default is simply wrong.
  4. The fact that an instrument COULD be ratified does not mean that it WAS ratified. What is before the court is an illegal act that has not been ratified. The possibility that the parties to the trust instrument (trustor, trustee, beneficiaries) could change the instrument to allow the illegal act AND apply it retroactively is merely speculative — and against all legal doctrine and common sense. These courts are ruling on the possibility of a nonexistent act that without analysis of the trust instrument, is declared to be possibly subject to “ratification.”
  5. Assuming the trust even exists on paper does not mean that it ever entered into an actual transaction in which it acquired the “loan” which means the debt, note and mortgage.
  6. Any “waiver” or “ratification” would result in the loss of REMIC status under the terms of the Internal Revenue Code. No rational beneficiary would ratify the act of accepting even a performing loan after the cutoff period. To do so would change the nature of the trust from a REMIC vehicle entitled to pass through tax treatment. Hence even if the beneficiaries were entitled to change, alter, amend or modify the trust instrument they would be firing a tax bullet into their own heads.  Every penny received by a beneficiary would be then be taxed as ordinary income including return of principal.
  7. No rational beneficiary would be willing to change the trust instrument from accepting only properly underwritten performing loans to loans already declared in default.
  8. No Trustee, or beneficiary has the power to change the terms of the trust or to ratify an illegal act.
  9. In fact the trust instrument specifically prohibits the trustee and beneficiaries from knowing or even asking about the status of loans in the trust. Under what reasonable scenario could anyone even know that they were getting a non-performing loan outside the 90 day cutoff period.
  10. The very act of introducing the possibility of ratification where none exists under the trust instrument is the adjudication of rights of senior investors who are not present in court nor given notice of its proceeding. Such decisions are precedent for other defenses and claims in which the trust instrument could be changed to the detriment of the beneficiaries.

Ally $52 Million settlement for “Deficient Securitization”

All of these adjectives describing securitization add up to one thing: the claims were false. For the most part none of the securitizations ever happened.

And that means that the REMIC trusts never purchased the debt, note or mortgage.

And THAT means the “servicer” claiming the right to administer a loan on behalf of the trust is false.

And THAT arguably means the business records of the servicer are not business records of the creditor.

And THAT my friends means what I have been saying for 10 years: virtually none of the foreclosures were legal, moral or justified. The real transaction was never revealed and never documented. The “closing” documents were fake, void and fraudulent. And THAT is grounds for cancellation of the note and mortgage.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://www.nationalmortgagenews.com/news/compliance-regulation/ally-to-pay-52m-to-settle-subprime-rmbs-investigation-1091364-1.html

It is hard to imagine any scenario under which Government cannot know what I have been saying for years — that the claims of securitization are false and the documents for the loans were fraudulent. Government has decided to ignore the facts thus transforming a nation of laws into a nation of men.

In plain English the decision was made to let the chips fall on borrowers, who were victims of the double blind fraud, despite clear and irrefutable evidence that the banks malevolent behavior caused the 2008 meltdown. The choice was made: based upon information from the birthplace of securitization fraud, Government decided that it was better to artificially prop up the securities markets and TBTF banks than to preserve the purchasing power and household wealth of the ordinary man and woman. The economy — driven by consumer spending (70% of GDP) — had the rug pulled out from under it. And THAT is why the effects of rescission are still with us 8 years after the great meltdown.

The fact that there are 7,000 community banks, credit unions and savings banks using the exact same electronic payments platform as the TBTF banks was washed aside by the enormous influence exerted by a dozen banks who controlled Washington, DC, the state legislatures, and the executive branch in most of the states.

The American voter came to understand that they had been screwed by their representatives in Government. They voted for Sanders, they voted for Trump and they voted for anyone who was for busting up government. But they still face daunting challenges as they continue to crash into a rigged system that favors a handful of merciless bankers who have bought their way into the Federal and State Capitals.

Chipping away at the monolithic Government Financial complex individual homeowners are winning case after case in court without notice by the media. It isn’t noticed because in most instances the cases are settled, even after judgment, with a seal of confidentiality. Most people don’t fight it at all. They sweep up and leave the keys on the counter believing they have committed some wrong and now they must pay the price. THAT is because they have not received the necessary information to realize that they can and should fight back.

Deutsch Bank: Going Down With the Details

It is getting increasingly obvious to the courts that there is something inherently wrong with foreclosures. The substitutions without leave of court and the repeated filing for foreclosure on the same default are coming back to bite the ‘securitization fail” scheme of the banks.

see http://www.newyorklawjournal.com/id=1202766695379/Deutsche-Bank-Trust-Co-Americas-v-Smith-20152381?kw=Deutsche%20Bank%20Trust%20Co.%20Americas%20v.%20Smith%2C%202015-2381&cn=20160907&pt=Daily%20Decisions&src=EMC-Email&et=editorial&bu=New%20York%20Law%20Journal&slreturn=20160807093854

If you start with the premise that the trusts were never funded and therefore never existed, everything starts to make sense. In ordinary circumstances with ordinary loans the pronouncement of every bank foreclosure attorney rings hollow: “Judge this is a standard foreclosure.” If that were true they wouldn’t be losing cases procedurally, allowing them to linger sometimes for a decade or more, and they wouldn’t be trying to slip in a “substitution of Plaintiff” without leave of court. And they probably would not be foreclosing on so many dead people.

This case, decided today, gives us an example of how things can go wrong for the banks, servicers and trustees. But first I would remind the reader that virtually all foreclosures over the past 10 years have been allowed without admissible evidence or pleading. They have succeeded in foreclosing based upon two elements: (1) fabricated paper and (2) getting a judge to apply legal presumptions that are contrary to the true facts. The banks have been helped by the judicial aversion to the “free house” myth, and the corollary myth that if the foreclosure is allowed to proceed, nobody is getting a free house. Neither myth is true.

So in this case there are two points made. First that New York like many states operates under the rule that if the case has been “discontinued” (i.e., dismissed twice) the third attempt should be dismissed because the two prior dismissals operate, as a matter of law, as an adjudication on the merits, meaning that res judicata applies. This is narrowly applied to those cases where the allegations are essentially the same as the two prior cases.

In prior decades I represented lenders and homeowner associations enforcing their liens by foreclosure. It was a rare occurrence that we ever had to go into court more than once to prove our case, and rarer still that we had our case dismissed because of inaction or refusal to answer discovery. Now it is practically the rule that the foreclosure cases are vetted on whether they are contested or not. Those cases that are contested are pushed to the back of the line because that is where the foreclosing parties, strangers to the transaction, are vulnerable to losing their spurious claims.

Since most foreclosures are uncontested, these banks, servicers and trustees are free to get their foreclosure judgments and forced sales without objection from anyone by a factor of roughly 25:1. So the banks are playing the odds. For every case that is contested it is best for banks to delay it while they get 25 others through without objection. But the Courts are catching up with this strategy and it won’t be long before some very strong orders are entered demanding explanations of what is really going on. The time is coming when we return to the days when judges scrutinized the foreclosures and asked pointed questions even in uncontested cases.

In prior times the lender or association would always show its records if it was demanded by the homeowner or property owner. Now despite a new Federal rule preventing blanket objections, banks routinely object to all or nearly all of the requests in discovery, frequently resulting in an order to compel discovery which is often ignored resulting in dismissal.

The other point raised by the Court was the practice of simply changing the style of the case by inserting a new or “corrected” name of the Plaintiff or foreclosing party. The principle is simple: if you want to substitute parties you need leave of court. In order to get permission you need to recite the facts under which the original lawsuit was correctly filed but now, as the result of intervening events, it needs to be prosecuted in favor of a new party. Often this requires an amendment to the complaint in a judicial state. This general rule is now universally rejected by the banks who have convinced judges to ignore the rules and allow the change in the name of the case — instead of demanding an explanation of the change.

The Banks don’t want to explain it because they have no reasonable explanation for changing the parties around. It is often done for strategic reasons rather than substantive reasons — neither of the Plaintiffs — old or new — having any interest in the loan, debt, note or mortgage.

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.

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

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

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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.
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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).
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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.

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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).

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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.

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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.

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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.

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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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