Menendez and Booker Take on Zombie Foreclosures

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This is for general information only. Get a lawyer.



It seems ridiculous. Why would a lender reject a workout, reject modification, reject a short sale and insist on a foreclosure — and then walk away from the property? Why has this not been a center of attention as hundreds of communities, cities and states have been decimated by this phenomenon?

The answer turns on the themes of this blog and several other media outlets but nobody in a position to change the conversation wants to face up to the single true statement about this: somehow the banks are making more money going to foreclosure (and walking away from the property) than doing a workout to save the loan as a valuable asset. The foreclosure sale is worth more to them than the property.

The banks are not stupid. They know that destroying neighborhoods and cities results in a precipitous drop in home values (going to zero in many places). They know that this results in a disastrous deterioration of the value of the security for the alleged loans.

So we are faced with a second undeniable truth: the banks are not losing money on foreclosures, they are making money.

So when Senators like Menendez and Booker from New Jersey write a letter to federal regulators asking them to look into the wild phenomenon of Zombie foreclosures, we can only hope that such Senators and the federal regulators will ask themselves some very simple questions. That is the only way this crisis will be averted and it is a vehicle for bringing down the largest banks who are performing illegal acts every day in foreclosures across the country.

If we go beyond the basic questions, then we start to drill down to the real facts — not the ones that practically everyone assumes to be true.

How could the banks not be losing money on Zombie foreclosures? The loss of the loan and the loss of the property securing the loan obviously reduces the value of the alleged loan to zero. In fact, it creates a liability to the bank for walking away after they kicked out the people who own the house. The City can go after them for taxes and the prospect of liability for attractive nuisance and other torts requires them to pay for insurance or brace for impact when the lawsuit happens. Any normal banker will tell you that this is not an acceptable scenario nor is it industry practice amongst banks who make loans.

Hence the conclusion that the parties who invoking the foreclosure procedures did not make loans — nor did anyone else in their alleged chain. The part of the deal where the lender hands over the cash to the closing agent never happened in those loans. If it had happened then the loan and the property would have value to these banks and other entities. Since it was “other people’s money” involved in that “loan” transaction, the banks simply don’t care what happens to the loan or the property except that THEY want the foreclosures to the detriment of the owners of the property, the detriment to the Pension funds whose money was somehow used to make the alleged loans, the detriment of our communities, and the detriment of government which ramped up to handle all the new housing only to find that their tax base vanished.

So if the banks are not losing money on the alleged default of the borrower, it opens the door to understanding that practically anything else they do would result in profits to the banks who are illegally and fraudulently controlling the foreclosure process. When they bring a foreclosure action they use self proclaimed authority that is presumed to be true even though truth is not involved. They have credibility even though they lack the truth.

It’s a perfect world to Wall Street. They use nonexistent entities as claimants in the foreclosure process thus insulating themselves from liability for wrongful foreclosure when those few cases actually get decided on the merits. The money from the pension funds goes into the pocket of the Wall Street banks instead of those empty Trusts.

The pension funds gets a certificate of ownership and debt from the empty trust and they are contractually bound not to ask questions about any specific loan. Ever wonder why that provision is in every Pooling and Service Agreement. So while intermediary parties have a party with pension money, the pension money was used to fund loans that were underwritten for the purpose of loss instead of the usual profit motive. And by knowing that the loans would fail the banks were able to get even more money by betting on loans that they knew would fail. And then they got even more money by betting on the loss of value of the certificates. And they got even more money when they engaged in the Re-REMIC practice of closing out the old trust and starting a new one. And to add insult to injury, the pension fund keeps getting paid by the wrongdoers from a “reserve fund” consisting entirely of pension money. Pouring salt on that wound is the bank’s hubris in claiming the right to recover “servicer advances” made from the reserve pool — only upon foreclosure sale. And the cherry on top is that the “servicers” who are not servicers sell the right to recover servicer advances in additional securitization schemes.

Homeowners take it personally when the servicer tells them  they were rejected by the investor for a modification (false claim). They think it must be personal because no other explanation makes sense to them. But that is because they don’t have the information on “securitization fail.”

The BIG LIE is that lenders are foreclosing. They are not. In fact, there are no lenders in the legal and conventional use of the word. There are only victims of fraud.

Zombie Title Exposes The Real Deal in Foreclosures


What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for enforcement of association liens or wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Analysis: This is not a new problem. For along time in Florida, the banks would delay the foreclosure sale until they thought they could sell the property fairly quickly. When I was representing several hundred associations we had different tactics we used to get the monthly maintenance and special assessments from the bank but that was when the mortgages were real and the foreclosures were honest.

The homeowner associations were stuck between a rock and hard place. Now they are foreclosing anyway and including the pretender lender as at best a junior lien holder. Practically every development in which an HOA or condo association is involved has the problem if they were built anytime after 1996. Even the ones built before that are having the problem.

The bank chases the homeowner out with threats of foreclosure, perhaps even initiates the foreclosure and then dismisses it leaving the ownership and liabilities of the home in limbo,. Florida addressed the problem by giving time limits to the bank before they were liable for the assessments.

In the worst cases, so many people are chased out of their homes that the remaining homeowners, sometimes as few as 5%-10% of the total homes must shoulder the burden of maintaining the entire complex.

In current circumstances the homeowner who left is dogged by a house he thought was gone, with cities suing them for liens and eyesores on stripped homes that are literally falling apart. In many cities tens of thousands of homes were actually bull dozed by the city for the zombie title homes that were abandoned by the pretender lender who chased people out of homes they would have stayed in, paid the taxes, paid the insurance and maintained the property.  The more homes that are hit with this phenomenon the more likely it is that more families are going to walk away from their homes as the neighborhood turns into crack houses and squatters.

This puts pressure on home values not only in those neighborhoods but in surrounding communities. So Wall Street as the articles are now trumpeting, is in the process of buying up as much property as it can and can’t do it fast enough  because they are getting the property for pennies on the dollar.

The only good part about Wall Street’s involvement in the purchase of these properties is that the same set of companies and investment banks who foreclosed knowing they were not creditors and were at least partially acting for their own selfish benefit are the people who end up holding the properties. That should make it easier to get the properties back into homeowner hands, because there is no bona fide purchaser for value without notice of claims. They fail on both value and notice.

When the day of reckoning comes and the titles are found to be void or voidable, the REITs will discover the same thing that the REMICs did — they got a holographic image of an empty paper bag. In that sense, the investors in both the REMICs and the REITs will find themselves holding the bag, so to speak. as the unofficial seller of the properties to the REITs Wall Street will report record profits, just like when they said they “sold” mortgages to the REMICs, when in fact they had not.

If Wall Street follows the plan they used with the REMICs, they will issue undivided proportional interests in REITs and then later decide what properties to assign to the REIT. The ones likely to lose money they will bet against and receive the money on the interests they sold leaving the investors, once again, out in the cold.

This will undoubtedly take the fatal chunk out of our private pension systems and even several public pensions that end up investing in high rated “insured” REIT investments. If the rating agencies don’t look under the hood to see what is happening and they take the information supplied by Wall Street as true, the securities will be high rated. The already underfunded pension funds will lose still more money while Wall Street continues to record record profits.

If you step back from the situation to get a broader view. you will see the pattern and the reality. The pretender lenders forced most of the foreclosures away from settlement, modifications and short-sales because they would expose themselves to huge liabilities for repayment of insurance proceeds and credit default swaps on derivative instruments that were called out as devalued.

The foreclosure had nothing to do with the need to foreclose or the realities of the situation. It is simply a device for the banks to cover their tracks leaving the title to properties, already corrupted beyond recognition, in doubt as to just about every property and every loan transaction between 2001 and the present.

Ever alert to profit opportunities the banks knew that they controlled the market prices by forcing foreclosures down the throat of all stakeholders, including city and county and state coffers depending upon property and related taxes. This only opened up the market to underwrite more municipal bonds. Wall Street wins again while everyone else loses.

Now that they don’t seem to be able to drive prices down much further they are manipulating more and more regional markets bring prices up so they can sell the REIT the fake interest of the REMIC acquired in a fabricated foreclosure in which a deed was issued based upon a completely fabricated credit bid from a non-creditor. Wall Street wins again while everyone else loses.

There actually is a remedy to change Wall Street and reinstatement of the Glass-Steagal Act is only one of the things needed. The real problems started when (1) the accounting rules started to change into exotic formulas and allowances that made absolutely no sense and (2) when investment firms were allowed to shield themselves from liability by becoming corporations that offered their own stock to the public, Before that the partners were liable for every trade and everything else that went on in their firm.

If you think about it an “off-balance sheet” transaction is unicorn — a mythological construct. In the case of current accounting standards the damage is deadly and pervasive. It allows companies hide what they are really doing and exposes both customers and shareholders in the investment bank to risks they know nothing about. It allows the firm to pay outlandish bonuses for results that are mostly hidden and riddled with liabilities that should bring the firm crashing down.

And if you think about it, taking the risk of loss away from management people and shifting it to shareholders was the single most disastrous invitation to moral hazard. Partners were suddenly transformed into having nothing to lose and everything to gain. Since they decided the compensation, the “profits” were taken largely by management before any distribution to shareholders and the value of the stock was heavily dependent upon the so-called profits. Most of the profits are now coming from “proprietary trading” which is the vehicle through which the investment firms are repatriating money siphoned out of the economy in the last crash. In reality they are trading with themselves and declaring a profit. It would be a joke if it were not true.

People in the Obama administration have taken the party line that we unfortunately made these activities legal and in many cases that is true. But the civil theft aspect, the fraud aspect, the market manipulation aspect are not legal.

The entire mortgage meltdown was a PONZI scheme that fell apart like all PONZI schemes, when investors stopped buying the bogus mortgage bonds issued by unfunded entities that violated the REMIC statute. These are crimes against humanity as we have seen events unfold around the world and they should be punished. But more than that the mega banks need to be broken up into entities that are not too big to regulate, with some of them failing altogether because of the money they owe the investors which would reduce the balance due from “borrowers.”

We are lucky enough to have 7,000 depository institutions, most of which are healthy who can pick up the pieces without loss of any service now provided by the large banks. The electronic funds transfer backbone and the Check 21 rule changes allow the smallest bank to provide the same services as the large bank including inexpensive ATM transactions at the site of the smallest of merchants. Convenience and service would go up while bank fees would go down.

People say I’m a dreamer …. but I’m not the only one (John Lennon).

Zombie foreclosures terrorize ex-homeowners

Another Nightmare, “Zombie Title” Shows How Servicer Refusal to Foreclose Hurts Stressed Homeowners and Communities

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