First I want to thank the readers and the lawyers for climbing aboard this train on a highly improbable journey of turning the tide on Wall Street. Many of you are doing an outstanding job in this homeowner’s war to protect your property and our way of life. I am blessed to have been the recipient of so much help.

In discussions with lawyers I have come to realize that there is some confusion with my admonition to challenge everything and assume nothing. And it flies on the back of the deep guilt that most homeowners carry because they know they have not made a payment. Bottom Line: The mere fact that a payment wasn’t made doesn’t mean you are in default. Read that again. A default is a failure to make a payment that is due and it must also be a failure to pay the party to whom it is due. The fact is that from our vantage point here reviewing hundreds if not thousands of cases, we do not see the party to whom a payment could be due. Just as importantly, the parties suing in foreclosure, sending out notices of default, or notices of sale lack the knowledge to know whether a default exists or not. That is because they are layering the process so they can later claim plausible deniability when they are caught with their hand in the cookie jar, seeking title to property for which they have not contributed one dime other than the enforcement process itself.

Lack of payment is not a default. If you refinance your property, sell it or otherwise prepay your mortgage or, very importantly, if the Federal government or some insurance carrier has paid off your debt, your payment is either not due at all or it is due to an entirely different party than the one pretending to be a lender. When you sell your house and the old mortgage is paid off you stop making payments. Is that a default? Obviously not. So if the obligation has been partially or entirely paid by some third party in the securitization chain you are clearly entitled to know (a) who is holding the ownership rights to that loan, if anyone and (b) how much money they have already been paid and by whom.

The pretender lenders are bluffing their way through the process by having some company with an institutional sounding name send you a notice of default. A Notice of Default doesn’t create the default. Nor does a notice of default mean a default exists if it comes from a party you know lacks authority, knowledge, or standing.

The basic premise then of the process whether it is in judicial or non-judicial environments is not whether there is a “statutory scheme for the handling of these mortgages” but remains whether the loan is actually in default and if so what party is suffering financially as a result of the default (standing).

Bottom Line: If you concede the point that there is a default you are conceding your case away. Whether it is in a non-judicial or judicial proceeding, your effort should be to require the party seeking the real affirmative relief — the pretender lender — to prove that a default exists. That would require them to produce an accounting for every penny that was given to anyone in connection with your loan all the way up to the investor, and beyond, if a payment was made to or on behalf of the investor. This isn’t rocket science. In the old days, your mortgage lender would produce a payment record, show the court the original documentation and produce a witness that actually is the bookkeeper and records custodian on your loan. Both you and the court would see every penny they received from anyone in connection with the loan and every penny that was paid out under the terms of the note and mortgage. This is very basic stuff. But if you let them get away with it, they will bluff their way through it creating the presumption that you are in default and that presumption will be used against you unless you object and deny the allegation.

Practice TIP: In all probability the lawyer on the other side has never spoken with anyone outside his firm about your case. He therefore cannot represent anything factual to the court. In any event, the lawyer has no right to be representing facts to the Judge unless it is already admitted into evidence. That is virtually never the case since these motions come up before the first piece of evidence is even introduced, let alone admitted. If the lawyer starts blustering and making allegations of fact, he should be interrupted with an objection that he is either testifying or referring to facts that are not in evidence.

If he is testifying he is a witness and not the lawyer and is subject to cross examination and if you actually get that chance you’ll ask him what personal knowledge he has from his own perceptions regarding your loan account, the answer will be none, and he will disqualified as a witness because he lacks competence to testify. If he representing facts not in evidence, then he needs to allege them in a pleading and prove them with a competent witness. And the fact that he ac tually did not talk with anyone or otherwise make any effort to verify the default, means that he didn’t fulfill his obligation of due diligence to assure that the representations he is arguing in court are in fact supported by facts.

11 Responses

  1. I’ve been defending foreclosure with ‘produce the note’ for more than a year now.( other factors do come in to play) Been before the judge twice now and he would not sign the banks final summary judgement against me since I demanded production and did not get it. No note or any orginal paperwork on my mortgage can be found. Lost? I think not. I think its to the lenders advantage it remains ‘lost’. Anyway today I got a message on my answering machine from Legal aid stating we would have discovery in 20 days and my default would be removed. What exactly does that mean?

  2. Thank you Mr. Garfield for your response.

    Sorry, but I have a couple more questions I would like to ask you.

    Why doesn’t the homeowner make a claim? Is that even possible if you already sold the house? Do you know what is needed to make a claim? It would seem like the homeowner would have legal right to make a claim because they, like the investors, are vicitms.

    Thank you again!!!


  3. […] notice-of-default-real-or-fake Possibly related posts: (automatically generated)After yet another long pause […]

  4. Heather: You asked the trillion dollar question. Yes the pretender lender is stealing the money based upon everything I have seen. In most cases, perhaps all cases, the money is forwarded to nobody and maintained in suspense until someone steps forward to claim it. Often no such claim is made because the investors were paid or someone was paid on their behalf by insurance or the Federal government in the bailouts. This is why I suggest that you demand to know the identity of your real lender even if you are not behind in payments and even if you are ready to pay off the entire balance. It is at least theoretically possible for other parties in the securitization chain to later make a claim against you or the house if they have paperwork indicating that they are the true owner of the loan or they represent the true owner of the loan.

  5. Mr. Garfield,

    If someone DOES sell their house and the money is NOT due, then what happends to the money from the sale? I
    Did the “Pretender Lender” steal the money? Are they the ones who cashed the checks?

    Thank you,

  6. If the servicing and pooling agreement clause that prohibits investigation to ensure the correctness and validity of the debt, or if it alleviates the responsibility of due diligence, simply to circumvent or provide plausible deniability, its merely a vehicle to fraud using “only following orders” mentality that has given new meaning to the term ‘great American hoax’. All the parties involved, from the FSB to the servicing agencies they utilize to collect the funds, are guilty of collusion, fraud and racketeering. The question is…. will the American judiciary let them off the hook? Is the simplest path to success through the FDCPA? What might only appear to be a technicality (or technicalities) would be the undoing of it all, or very possibly the best points of law to pursue. Someone more familiar with consumer law or debt collection may be able to lend insight, or know better which have the greatest recourse. It should be pointed out that this could have never been perpetrated without the servicing agencies; someone collecting a debt because they can, without being required to explore its validity.
    I’ve never seen the power of a debt validation notice until now because the debt never has to be affirmed. Its affirmed by no one contesting it, when it should be done in exactly the opposite manner – confirmed BEFORE attempts to collect.As stated elsewhere @livinglies… Validation is not verification.
    What we’re actually looking for is a means to turn the tables and allow the consumer, for a change, to reap the benefits of the greed of the lending industry created. Is it only equitable if the bank receives a windfall in double payment? If the lenders have already been paid, in a court of equity the consumer should be granted a fair stake, which is “the greater good of many over the ill-gotten profit of a few”.

  7. They never learn from past mistakes. Here they go again with their scams.
    Subprime Brokers Back as Dubious Loan Fixers

    LOS ANGELES — From the ninth floor of a downtown office building on Wilshire Boulevard, Jack Soussana delivered staggering numbers of mortgages to homeowners during the real estate boom, amassing a fortune.
    By Mr. Soussana’s own account, his customers fared less happily. He specialized in the exotic mortgages that have proved most prone to sliding into foreclosure, leaving many now scrambling to save their homes.

    Yet the dangers assailing Mr. Soussana’s clients have yielded fresh business for him: Late last year, he and his team — ensconced in the same office where they used to broker mortgages — began working for a loan modification company. For fees reaching $3,495, with most of the money collected upfront, they promised to negotiate with lenders to lower payments on the now-delinquent mortgages they and their counterparts had sprinkled liberally across Southern California.

    “We just changed the script and changed the product we were selling,” said Mr. Soussana, who ran the Los Angeles sales office of Federal Loan Modification Law Center. The new script: You got a raw deal, and “Now, we’re able to help you out because we understand your lender.”

    Mr. Soussana’s partners at FedMod, as the company is known, were also products of the formerly lucrative world of high-risk lending. The managing partner, Nabile Anz, known as Bill, previously co-owned Mortgage Link, a California subprime lender, now defunct, that once sold $30 million worth of loans a month.

    Jeffrey Broughton, one of FedMod’s initial partners, served as director of business development at Pacific First Mortgage, a lender that extended so-called Alt-A mortgages for borrowers with tarnished credit for Countrywide Financial, which lost billions of dollars on bad mortgages before being rescued in an acquisition.

    FedMod is but one example of how many of the same people who dispensed risky mortgages during the real estate bubble have reconstituted themselves into a new industry focused on selling loan modifications.

    Despite making promises of relief to homeowners desperate to keep their homes, FedMod and other profit making loan modification firms often fail to deliver, according to a New York Times investigation based on interviews with scores of former employees and customers, more than 650 complaints filed with the Better Business Bureau, and documents filed by the Federal Trade Commission in a lawsuit against the company.

    The suit, filed in California federal court, asserts that FedMod frequently exaggerated its rates of success, advised clients to stop making their mortgage payments, did little or nothing to modify loans and failed to promptly refund fees. The suit seeks an end to FedMod’s practices, and compensation for customers.

    “Our job was to get the money in and then we’re done,” said Paul Pejman, a former sales agent who worked out of FedMod’s two-story headquarters in Irvine, Calif. He recounted his experience, he said, because “I really feel bad.”

    “I had people calling me crying, and we were telling them, ‘You can pay me or you can lose your house,’ ” Mr. Pejman said. “People were giving me every dime they had, opening credit cards. But I never saw one client come out of it with a successful loan modification.”

    Mr. Anz, who is challenging the F.T.C. lawsuit, acknowledged that FedMod’s business went “horribly wrong,” but he maintains the company made genuine efforts to help delinquent borrowers. He said FedMod has refunded fees to 3,000 dissatisfied customers, while modifying 1,500 mortgages.

    A New Mission

    FedMod is among dozens of similar companies that have been accused by state and federal authorities of fraudulent business practices. On the same day in April that the F.T.C. sued FedMod, it brought action against four similar companies and sent letters of warning to 71 others. Last week, the commission brought lawsuits against four more loan modification companies, advancing an enforcement campaign involving 23 states.

    Many of the companies formerly operated as mortgage brokers, The Times found. Since October, the California Department of Real Estate has ordered 210 businesses and individuals to stop offering loan modification or foreclosure prevention services, because they lacked a real estate license, as required by the state. In fact, nearly half the people have roots in the mortgage industry or other areas of real estate, according to public records.

    Debt Barter Inc. is among them. A loan modification company based in Irvine that was cited by the state in January for collecting upfront fees without a license, it is owned by Sean R. Roberts, who formerly headed Instafi, a mortgage broker that closed $2 billion worth of loans a year at its peak. Since February, customers have filed 17 complaints against Debt Barter with the Better Business Bureau. Most accused the company of charging upfront fees, then failing to lower their payments.

    “We can’t please everyone all the time,” said Mr. Roberts, who added that the company had modified loans for nearly 300 of its roughly 500 clients.

    In Aliso Viejo, Calif., the Citywide Mortgage Corporation, which previously brokered Alt-A and subprime loans, last year became a loan modification company, USMAC. The company has not received a cease and desist order, but complaints on numerous consumer Web sites assert that it fails to deliver.

    “I’m saving homes,” said the company’s president, Scott Gimbel, who claimed a success rate above 70 percent.

    Chris Mozilo, nephew of Angelo R. Mozilo, the former chief executive of Countrywide Financial — a name synonymous with the subprime disaster — recently started a new business, eModifyMyLoan. It sells software that homeowners can use to apply for loan modifications.

    Chris Mozilo worked at Countrywide for 16 years. “I’m very proud of my career in mortgage lending,” he said. “We helped millions of people achieve the goal of homeownership.”

    From its inception in the middle of 2008, FedMod aimed to dominate the loan modification industry, growing swiftly with the aid of a national advertising campaign.

    Mr. Broughton, 49, had worked in the mortgage industry since the mid-1980s. As the market ground to a halt in 2008, he founded FedMod with two Los Angeles entrepreneurs, Steven Oscherowitz and Boaz Minitzer.

    Mr. Broughton sought to distinguish his company from the unscrupulous ventures that dominate the industry.

    “You had a lot of these modification companies that were subprime guys,” he said. “All they cared about was making quick dollars.”

    But the partners behind FedMod had their own questionable backgrounds. In the mid-1990s, Mr. Oscherowitz settled an F.T.C. lawsuit that accused his company, Universal Merchants, of falsely marketing the weight-loss benefits of a dietary supplement.

    The partners entrusted Mr. Soussana with FedMod’s Los Angeles sales office precisely because he had proved adept at selling the sorts of loans that now required modification. In 2006, Mr. Soussana, then 30, was listed as the nation’s sixth most prolific mortgage broker by Mortgage Originator, a trade magazine, brokering $318 million worth of loans. The same year, he paid $1.8 million for a house near Beverly Hills.

    “He was one of the biggest guys in subprime mortgages,” Mr. Minitzer said. “He basically wanted to get back to his old days of 50, 60, 70 guys in his office, and we could help because we were basically taking over the market.”

    Bringing in the Law

    The three original partners brought in Mr. Anz to gain a crucial asset: his law license. Having a lawyer in charge enabled them to market their venture as a law firm and thus collect upfront payments under California rules.

    “Jeff asked me how I could, for lack of a better word, legitimize it,” Mr. Anz said.

    The California Department of Real Estate warns consumers that many dubious loan modification companies have organized themselves as law firms solely to allow them to collect upfront fees, even though the lawyers have little, if anything, to do with the services provided. The department cautions consumers against hiring such companies.

    In its lawsuit against FedMod, the F.T.C. contends that the company’s advertisements implied it had the backing of the federal government. “If you’re like the millions of Americans out there who are struggling to pay a mortgage, you may be eligible for the Federal Loan Modification Program,” radio ads beckoned.

    Aggressive marketing ensured that Mr. Pejman, 22, never lacked for calls when he started at the Irvine sales office in January. He had worked at three wholesale mortgage brokerages. Now, a trainer emphasized he was at a law center.

    “Our big sales pitch was that an attorney could do a better job with your loan modification,” Mr. Pejman said. “If you told them these were basically washed-up people from the mortgage industry, or just people sending in paperwork, they would say, ‘Well, why bother? I might as well do this myself.’ ”

    He went on: “It was misleading to the client. Attorneys never touched those files.”

    Among the 700-plus full-time employees who worked for FedMod this spring, only nine were lawyers, Mr. Anz said, though the company retained a lawyer in every state.

    Mr. Pejman and his fellow agents urged homeowners to send FedMod $3,495; the agents were promised a 30 percent commission for fees they took in. Most clients could not come up with more than $1,000 and agreed to a payment schedule for the rest. Assurances of relief from a homeowner’s loan terms were typically extravagant, Mr. Pejman said.

    “A big grabber was that your loan will be reduced to 2.5 percent to 5 percent on a 30-year fixed rate loan,” he said. “They’d print out all these mythical success stories for us to read over the phone.”

    Under FedMod’s policies, agents were prohibited from making false claims, counseling clients not to pay their mortgages or providing success rates, Mr. Anz said. New clients received follow-up compliance calls to ensure they understood nothing was guaranteed.

    But sales agents were told of such policies with a wink, Mr. Pejman said.

    “They basically told us, ‘Do whatever you need to do,’ ” he said. “ ‘It’s a sales floor. You’re here to sell.’ People would quote success rates and just pull them out of thin air. People would say 60 percent, 80 percent, 90 percent. To the average Joe in Kansas, that sounded great. But the reality is that 50 percent were immediately declined by the lender.”

    What shocked Mr. Pejman was how readily customers handed over their credit card numbers. Sales agents tapped into a deep vein of anxiety.

    “I’d hear people say, ‘Would you pay $1,000 to save your home? To save your marriage? Your kids’ education?’ ” he recalled. “I’d hear people say, ‘Yeah, we’re the federal government.’ There were a lot of corrupt people working there.”

    In Charlotte, N.C., Joshua Garland telephoned FedMod in March after seeing one of its television commercials. Mr. Garland’s wife had been laid off from her hospital job. He had lost his job as a chef and was now bartending. Their monthly income had plunged from $3,200 to less than $1,000. They were already three months behind on their mortgage.

    A FedMod agent confidently described how his company could cut their monthly payments from $1,200 to $532, Mr. Garland recalled. But first, he had to pay a $995 “retainer fee.”

    This was nearly as much as Mr. Garland earned in two weeks. Dental bills were piling up for his three children. He was behind on his utilities.

    “I told him, ‘We have $1,200 left to make our mortgage payment, and if we give that money to you, we’re going to get further behind,’ ” Mr. Garland recalled. “He said, ‘Go ahead and make the $995 payment, because once you’re under our plan, the bank can’t foreclose on you.’ ”

    After several follow-up calls from the agent, Mr. Garland paid. Then, months passed with no contact from FedMod, he said. He left countless messages seeking updates, demanding a refund. His lender foreclosed on his house, scheduling a sale for Aug. 26.

    “This guy hounds me for the $1,000, and then as soon as I pay him he disappears,” Mr. Garland said. “I usually don’t fall for stuff like this. I can usually tell if it’s a scam. But this guy, I mean he came with his guns loaded.”

    Overwhelmed by Cases

    FedMod was drowning in cases. The pipeline swelled by 8,000 clients from December to March, according to Mr. Anz.

    Once sales agents took in applications, they passed files on to the processing department, where case managers were supposed to assemble documents and submit them to lenders. But their offices were hopelessly underequipped.

    “The owners didn’t want to invest in software, so everything was tracked manually,” said Rachelle Cochems, who took over as operations manager on Jan. 19 and left the company in May after FedMod stopped paying her. “We couldn’t handle the volume we were taking in. The system was broken.”

    Each case manager was responsible for as many as 200 files at a time, Ms. Cochems said, making it impossible to keep in regular touch with customers. Some files floated in limbo, because sales agent did not bother handing them over.

    “You’re paying the sales agent upfront,” Ms. Cochems said. “So what motivation does he have to get it closed?”

    In February, Mr. Anz shut the Los Angeles sales office, uncomfortable with reports that Mr. Soussana had filled it with “unsavory types” from the mortgage industry, he said.

    “I’m not a shady person,” Mr. Soussana said.

    By March, sales agents were inundated by calls from furious clients who had paid long ago, but not heard from anyone. Some called from motels, their belongings piled in boxes, weeping as they recounted losing their homes.

    The agents let most calls go to voicemail, playing the most dramatic messages over speakerphones for communal amusement, Mr. Pejman said.

    “Guys would sit there and laugh,” he said. “ ‘This lady’s going crazy,’ that sort of thing.”

    The next month, Mr. Anz took full control of the company, banishing his partners and blaming them for “a train wreck.” He ceased marketing, he said, and concentrated on processing the backlog of files.

    In April, the F.T.C. filed its lawsuit, prompting credit card companies to freeze their accounts with FedMod. The court imposed a temporary restraining order, barring FedMod from acquiring new customers.

    By the time Rana Hajjar began working there on April 13 as a client representative, she found the company utterly chaotic.

    “They just handed me 70 files and told me to call these people because they’re very upset,” Ms. Hajjar recalled. “The majority of them had paid three or four months earlier and had never heard from anyone. I was yelled at from today until tomorrow.”

    Several times a week, clients called to report that the police were at their door, ordering them out for foreclosure sales, Ms. Hajjar said. When she alerted negotiators, they sometimes called banks and postponed sales, but usually they ignored her messages, she said.

    When Ms. Hajjar cashed her first paycheck, it bounced, she said. Over the next three weeks, she never received payment. On Monday, May 11, her manager told her and dozens of other employees to take the rest of the week off because the company had no money for payroll.

    She was never called back, later adding her name to a file of more than 120 wage disputes leveled against FedMod with the California Labor Commissioner.

    Today, FedMod has only 40 employees, said Mr. Anz, pledging to plow through the company’s 4,200 remaining files.

    “We’re doing what we can,” he said. “I’m the bad boy of loan mods.”

    Yet as television advertisements attest, many other companies remain aggressive in what amounts to perhaps the last growth industry left in American real estate.

  8. Mr. Garfield-thank you very much for all that you have done for all of us.

    This explanation makes perfect sense to us lay folks.

    Thanks again. We do appreciate when you come and talk to us on your LL.

  9. Nice 🙂

  10. this statement of ” not in default” is brilliant in its simplicity .
    at that point “plausible deniability” by way of – if memory serves me correct that in the loan servicing&pooling agrmnt.. there is wording of
    [ certain parties? like servicers or?] “not” required and or even ” prohibited” from ascertaining or investigating the correctness or truth of facts in the loan docs &
    SPA , loophole for to the servicers and others relating to any due diligence ??

  11. thank you atty. garfield for a very good argument. it is a common sense approach. i will be seeing you on july 26, 2009 and i need more info about how to defend yourself from other pretending lender and trustee from stealing your valuable asset. you are a big help for lawyers and homeowners who did not actually understand the process of securitization in mortgages. i was lucky to find out a law firm that understand the process of securitization. i have a hearing coming up in bankruptcy court on august 6, 2009 to lift the automatic stay on my two houses, but my lawyer representing me is ready to attack them. i will let the readers know about the outcome of my hearing.. all we learned from this site will be be use to surprise the pretender lenders and the trustee. there are many hands trying to get in one pot and believe me i will not stop until i defeated the enemy and expose their scam. no doubt in my mind that the one who “SABOTAGE” our economy is the very person we trusted to keep our money and investment and it was the BANKS, WALL STREET AND THE FEDERAL RESERVES WHO INITIATE THE 1% interest to gear up the home buying spree., just like a department store announcing for a big sale of the year. and we as the homeowners and the real investors are the victims.

Contribute to the discussion!

%d bloggers like this: