OK so you feel a little lost. That is because most of us are jumping in at the end of a long series of events and documents.

The most important point for you to make in order to jar the Judge’s thinking is that the closing with the borrower took place in the middle of the chain of securitization and within the context of the securitization documents executed without the borrower, before the borrower existed even as a prospective customer for the loan product.

Those documents provide the context in which loans will be offered, approved, assigned, accepted, replaced, returned, insured etc. Thus the key documents that creates the securitization structure for the creation and pooling of loans precede the offering of a loan product to the borrower. The closing documents of the borrower are in the middle of the securitization chain not at the beginning. The assignment is near the end of the securitization chain in practice, contrary to the usual conditions and prohibitions contained in the original enabling documents that created the securitization structure and process.

NOTE: Do not make any assumptions that your loan was securitized. Even if it was securitized it is entirely possible, if not probable, that the “assignment” is barred by a cutoff date in the securitization documents, or that the assignment was not executed with the form and content required by the securitization documents. Thus even if there is an assignment, you should not assume that it was or could be accepted. It is highly possible if your loan appears to be securitized, or even if there is a “Trustee” under an alleged securitization structure that a party making a claim on an assignment is unaware of the absence of acceptance or even that there is no authority for the Trustee to accept the assignment.You can be certain that if the other party is unaware of these defects, that the Judge is equally unaware.

The key to understanding this evolving process is that the Judge is looking at your transaction as the beginning point. That is simply flat wrong and you need to make that point as clearly as you can.

The beginning was the creation of the securitization structure.

  • The first transactions that occurred was the sale of securities to unsuspecting investors.
  • The second transaction that occurred was that the investor money was put into an account at an investment banking firm.
  • The third transaction was that the investment banker divided the money between fees for itself and then distributing the funds to aggregators or a Depository Institution.
  • The fourth transaction was the closing with the borrower. The loan was funded with the money from the investor but because of the disparity between the interest payable to the investor and the interest payable by the borrower, a yield spread was created, adding huge sums to what the investment banker took as fees without disclosure to the ivnestors or the borrowers.
  • The fifth was the assignment AND ACCEPTANCE of the loan (See below) into between 1 and 3 asset pools, each bearing distinctive language describing the pool such that they appeared to be different assets than already presumed to exist in the first pool.
  • The sixth was the receipt of insurance or counter-party payments on behalf of the pool pursuant to the documents creating the securitization structure.
  • The seventh was the resecuritization of the pooled assets between one and three times.
  • The eighth was the federal bailout payments and receipts allocable to the balances owed on the loans that were claimed to be part of the pool.
  • The ninth are the foreclosures by parties who never handled any money who allegedly represent investors who no longer have any interest in the loan.

Through the creation of multiple entities that never existed before securitization of mortgage loans, the intermediaries are able to support the illusion that they never received payment from outside parties on the obligations owed from borrowers.

Most loans are assigned only after they are delinquent or even after foreclosure has been ordered. By definition, the documents creating the securitized pool usually prohibit such an assignment from being accepted into the pool. Therefore, although an assignment was executed, it is entirely possible that it accomplished nothing of legal consequence.

Also, even if the loan was ever in a securitized pool of assets, no assumptions should be made regarding the CURRENT STATUS of the “assigned” loan. Most documents that create the securitization structure, require the assignor to take back a non-performing loan and replace it with either cash or a comparable performing loan. Therefore, it is at the very least a question of fact as to whether the loan is still in the pool whether the assignment was effective or not.

I think the fundamental issue that we have been weak on presenting is ACCEPTANCE OF THE ASSIGNMENT and STATUS OF THE ASSIGNMENT. The pretender lenders have been successful thus far in directing the court’s attention to the note, Deed of Trust (Mortgage) and the assignment and away from the facts dealing with the obligation itself and the securitization. The error is in allowing the opposition and the Court to focus its attention on the creation of the obligation and the assignment of the note. In an ABCDE chain, this is the equivalent of looking at B and D and ignoring A,C and E.

Securitization involves many documents. In broad brush, it involves the

  • Closing documents between loan originators, servicers, Special Purpose Vehicles, aggregators, etc. including the pooling and services agreement, the assignment and assumption agreement, the Master Services Agreement  [if separate], none of which includes the borrower as party or references any specific debtor or borrower because the debtor is unknown when the securitization structure is created
  • pre-application documents before the borrower was even a prospect,
  • the pre-closing documents and effect of documents that are not referenced at closing
  • the closing documents with the borrower
  • the assignment(s)
  • the conditions imposed on the assignment (conditional assignment because the assignment was pursuant to the pre-application and pre-closing documents)
  • and post closing documents involving third party payments and resecuritization of the loan or resecuritization involving additional insurance, credit enhancements, federal bailouts etc.

It should be argued aggressively that the opposing party needs to prove its case and not have the benefit of the Court assuming that a prima facie case exists. The putative creditor in each case at bar is claiming their standing by virtue of an assignment. But that assignment only exists by virtue of a larger structure of securitization in which the documents describe the conditions under which such an assignment is acceptable and further conditions if the loans ceases to perform. Provisions requiring insurance, credit default swaps, credit enhancements, and others add co-obligors to the borrower’s transaction which takes place not at the beginning of the chain, but rather in the middle of the chain.

69 Responses

  1. In California it’s coming down to one key issue, MERS NOT having an assignment of the Note from the Original Lender to MERS, legally recorded.
    Which means MERS couldn’t assign the Note or Deed without first receiving assignment of the Note first.

    “The assignment of the lien without a transfer of the debt was a nullity in law.”
    “A lien is not assignable unless by the express language of the statute.”

    “The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.”
    CARPENTER V. LONGAN, 83 U. S. 271 (1872), U.S. Supreme Court

    More info at

  2. Also, just want to say that none of what I write negates the importance of Neil’s workshops. In fact, it emphasizes how important Neil’s workshops are to establish fraudulent chain, assignments, forgeries, invalid documents, etc.

    FASB will not stop parties from filing fraudulent foreclosures.

  3. Bob G

    The banks (security underwriter’s parent) removed on balance sheet loan receivables to unreported (accounting) off-balance sheet conduits. These off-balance sheet conduits (Qualifying Special Purpose Entities) must be dissolved (FASB 166 and 167) and with assets brought back onto balance sheet (if any assets remain). Banks were given a reprieve to do until June 2010, but many have already completed the process (how they report this may be difficult to decipher given massive filings for annual financial statements). Thus, if loan was current, it is back with bank. If not current, then bank is the one to tell you were it now is. They have always been the creditor – unless they sold collection rights elsewhere. But borrowers are not told bank is creditor.

    You are correct regarding disclosure of actual creditor in courts. Under “real party in interest” there is time to substitute the real party if wrong party is acting. But all these foreclosures have been going through without authority and with false docs/false party in courts. Thus fraudulent foreclosure action and counter-claims should be made against foreclosing entity.

    You will notice that many of cases coming out of New York, gives opportunity to establish the right party, chain, authority , and documents. Very often it simply cannot be done, and if it can, should have counter-claims in place for fraudulent foreclosure from the onset.

    Banks do not want to disclose their relationships with debt buyer and hedge funds because these are private agreements and would subject the bank to litigation. Opens a pandora’s box.

    Have to call the bluff.

    I am not an attorney and this is not meant to be construed as legal advise and only for educational purposes.

  4. Tuesday 18 May 2010


    Thank you for taking the time and effort to share your experience(s) and information. I have just begun to read the law review article you posted on this thread. It happens to be my alma mater.


  5. ANON

    It’s is not clear to me what exactly the banks are bringing back onto their balance sheets per 166 and 167. Can u clarify for us?

    Also, does this mean that once they bring back onto their balance sheets whatever it is that they are bringing, that they are then the creditor and can foreclose away without fear of being jammed up in the courts ala’ Neil’s tactics?

  6. anonymous

    I cant thank you enough, I will bring this info. to the attention of my lawyer. Your a life saver.

    Just a quick question, what is “FASB”

    Do you feel I should file a QWR with my servicer or use discovery to get this infomation?

  7. Daniela

    You make an good point. How did the “Holder” come to hold the note. Any assignments concealed or fraudulent, and any knowledge of wrong doing, questions Holder status. But, of course the media claims the borrowers did wrong – not the banks. Since there are so many “investor” lawsuits against banks, this alone questions their actions.


    The TILA May 2009 Amendment (under Making Homes Affordable Congressional Act) mandates that Creditors disclose themselves to borrowers after assignment/sale of the mortgage loan. The Act became effective immediately in May 2009. Later in the year the Federal Reserve published an “Opinion” regarding interpretation of the Act and as to what defines a “creditor” or “covered person” under the Act. According to the Opinion, servicers do not own the loan (unless they acquire legal title) and security “pass-through” beneficiaries (REMICs) “investors” – do not own loans because they do not acquire legal title. They are only beneficiaries of pass-through cash receivable payments, and therefore not the current creditor. Further, the Opinion (through example) emphasizes that who accounts for loan on balance sheet owns the loan and is the Creditor.

    Now, the FASB rules 166 and 167, mandates that off-balance sheet conduits be brought back onto banks balance sheet. Banks got a reprieve to take a little longer to bring back on. But most banks have started the process (must do now) and certain banks have already completed it – such as Citigroup. Thus, although they may try to say your do not have a creditor since the SPV is not yet back on balance sheet (ie no one is accounting for it yet), this is in process and should not allow them to use Trust/Trustee as creditor (since they are not) and accounting is in process.

    Since your assignment was done AFTER the Amendment (Act) was passed into law – you are entitled to know your real Creditor. By challenging the foreclosure, you have, in effect, asked for compliance with the Act. They have failed to comply by not providing you with the identity of the current creditor and by implying that your creditor is a trustee for a trust – for security pass-through of beneficiary cash payments – for which such “investors” are NOT the current creditor – according to the Federal Reserve Opinion.

    Anyone who has assignments prior to May 2009 – cannot enforce compliance of creditor disclosure since Amendment to TILA is not retroactive, but can use the Amendment to challenge the definition of Creditor – as by the Federal Reserve Opinion.

    I am not a lawyer and this is not meant to be construed as legal advise but only for educational purposes.

  8. Dec. 2009

  9. “In order to benefit from holder-in-due-course status, an assignee must take the loan in good faith and cannot have actual or implied knowledge of a variety of loan defects, including that the loan was originated through fraudulent means. Courts will also deny holder-in-due-course status to an assignee that has such a close connection with the originator that the originator effectively is an agent of the assignee35 or where knowledge of the originator’s wrongdoing can be imputed to the assignee on some other basis, such as joint-venture or aiding-and-abetting theories.36 In addition, assignees that engage in wrongful conduct themselves in connection with mortgage loans are subject to potentially serious liability under a variety of federal and state legislation. ”

  10. Angelo

    When in 2009 was the mortgage assignment done?? Important.

  11. To Alina – “Alina” is prettier.

    To Bob G – From a 2007 article – you may want to check out. “How Federal Regulators, Lenders, and Wall Street Created America’s Housing Crisis — Nine Proposals for a Long-Term Recovery”

    by Mike Larson 07-19-07

    Thehe author defines some terms you may you may want to research yourself. (See Below) From me – “Nonaccrual” basically relates to charge-off. Companies cannot continue to accrue interest after charge-off (but a debt buyer can claim you own it – problem with deficiency judgments..

    1) Past due loans – loans with payments past due by 90 days or more

    2) Nonaccrual loans – loans for which the institution no longer expects to receive interest payments.

    3) Nonperforming loans – the sum of past due loans and nonaccrual loans

    4) Charge-offs – the write-down of a nonperforming loan. The loan balance (plus foreclosure expenses) is charged against the institution’s loan loss reserve.

    5) Recoveries – the collection of payment or proceeds of liquidated collateral on a loan previously charged-off. Recoveries are usually credited against the loan loss reserve.

    6) Net Charge-Offs – charge-offs, less recoveries.


    Table #5: 20 Banks with the Most mortgage loan charge-offs

    Bank State Total Assets($1,000s) NetCharge-Offs of Total Mortgages($1,000s) Rating
    Citibank NA NV 1,076,949,000 111,000 B-
    JPMorgan Chase Bk NA OH 1,224,104,000 90,000 C+
    National City Bk OH 131,741,508 79,907 C+
    Wells Fargo Bk NA SD 396,847,000 73,000 C+
    SunTrust Bk GA 184,810,394 27,572 B-
    Wachovia Bk NA NC 518,753,000 27,000 B
    USBk NA OH 219,825,070 26,037 B-
    Bank ofAmericaNA NC 1,204,471,773 22,101 B-
    Fifth Third Bk MI 47,845,701 16,060 B+
    HSBC BkUSANA DE 169,010,168 13,269 C
    Fifth Third Bk OH 51,561,153 12,527 B+
    Regions Bank AL 133,224,309 9,898 B
    Charter One Bank, NA OH 45,954,950 8,822 C+
    Branch Bkg&TC NC 118,083,229 7,921 B
    Keybank NA OH 89,408,200 7,462 B-
    PNC Bk NA PA 90,405,030 6,465 B
    Wells Fargo Financial Bk SD 4,225,751 6,350 C+
    First Tennessee Bk NA TN 38,522,657 6,159 B-
    Irwin Union Bk IN 5,431,259 5,928 C-
    Huntington NB OH 34,489,760 5,618 C


    sorry, I’m not Ali – never have used that as a nickname – tempted to because of Ali McGraw.

  13. Bob G

    Simply accounting common practice. A mortgage loan is a “note receivable” to the owner – a current asset in accounting. Once the asset is no longer performing – it can no longer support the securitization structure – and must be removed from the Trust.. Many companies use 180 day guideline to write-off non-performing assets. But this is not set in stone – they do not have to write it off – but usually will (FASB has guidelines has to “non-collectible”.. Further, the securitization structure removes very delinquent loans by subordinating them to the bottom tranche – held by servicer (not securitized) The bank owner may wait until there is a significant portfolio of default loans before they sell collection rights to a distressed debt buyer. At this point, entire loan is written off by bank – and bank receives some “recovery” on its sale of default loans.

    During the height of the crisis – banks found it hard to find default buyers – as capital was tight – even for the debt buyers. But this has returned – check out PennyMac.

    While a bank MAY retain collection rights after the loan has been written off as “not collectible” – it just usually does not find it profitable to do so. However, this is what you have to find out – certainly the trust no longer has it – but did the bank retain collection rights.

    All of this does NOT mean you do not owe the debt – it just means – where is it???

  14. ANON –

    Help me out. Where’s the legal authority for your statement:

    “because the note is extinguished by CHARGE-OFF.”

    How do we know this, and how would we know if the note has been charged off?

  15. BoB G

    Web link is posted below – 4:35 yesterday comment.

    For others – it is important to look at both bad cases as well as good cases – to know what works and what does not work – or to perfect it. Sorry to take us much space – but see case below. Tough road to hoe when focus is on note holder, splitting, and payment already by swaps. Need fraud and to prove fraud in chain and collections rights. Also must emphasize that a default note is charged-off and no longer exists as a mortgage in original form. Court, below, focuses on what MAY have happened in the past – not on what is TODAY. Attorneys love to focus on past – this avoids acknowledging where the “default debt” rights are currently sold to. Default debt collection rights are transferred by ASSIGNMENT – and NOT by note negotiation – because the note is extinguished by CHARGE-OFF.

    WINFRIED P. RUGGIA, et al., Plaintiffs, v. WASHINGTON MUTUAL, a division of JPMORGAN CHASE BANK, N.A., et al., Defendants.

    Civil Action No.: 1:09-cv-1067


    2010 U.S. Dist. LEXIS 47373

    May 13, 2010, Decided
    May 13, 2010, Filed

    CORE TERMS: mortgage, amend, deed of trust, holder, deeds, illegal gambling, endorsement, default, negotiated…, allonge, promissory note, collector, lender, foreclosure, negotiation, declaratory judgment, collection, foreclose, quiet, fdic, debts owed, cause of action, misrepresentation, supplemental, securitized, discharged, appointed, empowered, securing, freely

    COUNSEL: [*1] For Winfried P. Ruggia, Eun Hui Ruggia, Plaintiffs: Christopher E. Brown, LEAD ATTORNEY, Brown Brown & Brown, Alexandria, VA.

    For Washington Mutual a division of JPMorgan Chase Bank, N.A., JPMC Specialty Mortgage, LLC, Mortgage Electronic Registration System, Inc., Equity Trustees, LLC, Defendants: Jonathan Stuart Hubbard, LEAD ATTORNEY, Troutman Sanders LLP, Richmond, VA; John C. Lynch, Troutman Sanders LLP, Virginia Beach, VA.

    JUDGES: Liam O’ Grady, United States District Judge.

    OPINION BY: Liam O’ Grady

    Memorandum Opinion

    This matter comes before the Court on Defendants’ Motion to Dismiss Plaintiffs’ Amended Complaint (Dkt. no. 19) filed on behalf of Defendants JPMorgan Chase Bank, N.A., as acquirer of certain assets and liabilities of Washington Mutual Bank from the Federal Deposit Insurance Corporation (“FDIC”), as Receiver for Washington Mutual Bank (“Chase”), JPMC Specialty Mortgage, LLC (“JPMC”), Mortgage Electronic Registration Systems, Inc. (“MERS”), and Equity Trustees, LLC (“Equity”) (collectively “Defendants”). For the reasons that follow, Defendants’ Motion (Dkt. no. 19) is hereby GRANTED. This case is DISMISSED WITH PREJUDICE, as any further effort to amend would prove futile.
    I. Background

    Plaintiffs [*2] filed their Amended Complaint on October 29, 2009, alleging claims under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq., as well as claims seeking to invalidate a contract due to “illegal gambling,” and claims for declaratory judgment, quiet title, and fraud. The pertinent factual allegations in this case, which the Court assumes to be true, are as follows.

    On April 14, 2006, Plaintiffs executed a promissory note (the “Note”) and deed of trust (the “Deed”), which placed a security interest on their home (the “Property”) with Accredited Home Lenders, Inc. (“Accredited”). 1 Amend. Compl. at PP 10-14. An allonge to the Note bears an endorsement which indicates a transfer of the Note from Accredited to Washington Mutual. The endorsement is signed by Mary K. Kochmer, who is listed as Assistant Secretary for Accredited. Washington Mutual’s assets were in turn assumed by Chase. 2 A second allonge to the Note shows that Chase negotiated the Note to JPMC via an endorsement signed by Barbara Hindman, who is indicated as Vice President for Chase.

    – – – – – – – – – – – – – – Footnotes – – – – – – – – – – – – – – –
    1 Plaintiffs explicitly reference and rely upon the Note and Deed at issue in this case, and do not plausibly dispute the [*3] authenticity of these documents. Thus, the Court may consider them at this stage in the case. See American Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004).2 Washington Mutual’s assets were placed into the receivership of the FDIC. The FDIC then sold those assets and certain liabilities to Chase. This information is publicly available. See

    – – – – – – – – – – – – End Footnotes- – – – – – – – – – – – – –

    Plaintiffs began receiving demands for payment from Washington Mutual (now Chase) in 2009. Amend. Compl. at PP 18-19. Plaintiffs allege that the Loan was then securitized and put into of a “pool of securitized mortgage and asset backed securities.” Amend. Compl. at PP 21-22. Plaintiffs were notified that they were in default, that their loan had been accelerated, and the date of the foreclosure sale. Amend. Compl. at P 36. Defendant Equity scheduled a foreclosure sale of the Property on August 6, 2009. Amend. Compl. at P 46. Equity was appointed as a “substitute trustee” and JPMC Specialty Mortgage, LLC acted as a “mortgage servicer.” That foreclosure sale has yet to go forward and no further action has proceeded against the property since the inception [*4] of this suit.
    II. Standard of Review

    Under FED. R. CIV. P. 12(b)(6) an adequate Complaint must contain “sufficient factual matter, accepted as true ‘to state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citing Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007)). A claim is “facially plausible” when a plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Further, because Count VI of the Amended Complaint alleges a claim for fraud, FED. R. CIV. P. 9(b) heightens the pleading standard applicable to that claim. See Anderson v. Sara Lee Corp., 508 F.3d 181,188 (4th Cir. 2007).
    III. Procedural Posture

    Plaintiffs filed their original Complaint in the Circuit Court of Fairfax County, Virginia on or about August 6, 2009. On September 22, 2009, Defendants removed the action to this Court. Defendants filed their Motion to Dismiss Plaintiffs’ original Complaint on September 29, 2009. On October 29, 2009, Plaintiffs filed their Amended Complaint, which Defendants subsequently moved to dismiss on November 11, 2009. The Court heard oral arguments on Defendants [*5] Motion to Dismiss on January 8, 2010 and requested supplemental briefing from the parties by Order dated March 26, 2010.
    IV. Analysis

    Plaintiffs’ allegations seek to challenge the authority of the various named Defendants to enforce the Deed securing the Note executed by Plaintiffs. 3

    – – – – – – – – – – – – – – Footnotes – – – – – – – – – – – – – – –
    3 In the Amended Complaint and Brief in Opposition to Defendants’ Motion to Dismiss, Plaintiffs’ counsel repeatedly uses the term “standing” or “Article III standing” in alleging that the various Defendants are without authority to foreclose on the Plaintiffs’ home or enforce the promissory note at issue. Counsel completely conflates and misunderstands the concept of “Article III standing,” which refers to a plaintiff’s ability to maintain a suit in federal court pursuant to the “case or controversy” requirement found in Article 111 of the United States Constitution. See Lujan v. Defenders of Wildlife, 112 S. Ct. 2130, 2136 (1992). The same can be said for counsel’s insistent citation of FED. R. CIV. P. 17’s “real party in interest” requirement which, again, pertains to the ability of a plaintiff to bring a suit in federal court. See 6A FED. PRAC. & PROC. Civ. § 1543 (2d ed.)(“By its very nature, Rule 17(a) [*6] applies only to those who are asserting a claim and thus is of most importance with regard to plaintiffs” and parties asserting cross-claims and counterclaims).

    – – – – – – – – – – – – End Footnotes- – – – – – – – – – – – – –

    Plaintiffs allege that the entities seeking to foreclose on their home are not entitled as a matter of law to do so. Specifically, Plaintiffs allege that “given the splitting, selling, trading, and insuring of the pieces of the Note on the secondary market, the Deed of Trust is split from the Note and is unenforceable …” Amend. Compl. at P 67. However, nothing in Plaintiffs’ conclusory allegations provides a plausible basis for relief after considering the settled law of negotiable instruments or the enforcement of deeds of trust securing notes after their negotiation.

    Under Virginia law, the holder of an instrument or a nonholder in possession of the instrument with the same rights as the holder may enforce the instrument. Va. Code. Ann. § 8.3A-301. Indeed, an individual may be “entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.” Id. An individual becomes the “holder” of an instrument through the process of negotiation, and if “an instrument [*7] is payable to an identified person, negotiation requires transfer of possession of the instrument and its endorsement by the holder.” Id. at § 8.3 A-201(b). On the other hand, if an instrument has a blank endorsement, it is considered “payable to bearer,” and may be negotiated by transfer of possession alone. See VA. Code §§ 8.3A-201(b) & & 8.3A-205.

    As reflected in its March 26, 2010 Order, the Court was careful to consider the nature of the transfer of the Note from the initial lender to its current holder, as the initial copy of Note submitted with Plaintiffs’ Motion to Dismiss established that Plaintiffs entered into a lending agreement with Accredited, but contained no further endorsements. Supplemental briefing from the parties revealed, however, that Defendants continue to possess the Note, together with two allonges. The allonges reflect the entire transactional history of the Note, and indicate that the Note was properly negotiated to JPMC. 4 The Court deems the allonges part of the Note because in Virginia, “[f]or the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is part of the instrument.” Va. Code § 8.3A-204. Thus, [*8] the documents referenced and relied upon in the Complaint demonstrate that the Note was executed by Plaintiffs and subsequently negotiated to JPMC, vesting JPMC with the rights and privileges of the holder of the Note.

    – – – – – – – – – – – – – – Footnotes – – – – – – – – – – – – – – –
    4 The first allonge to the Note contains an endorsement from Accredited to Washington Mutual, see Plaintiff’s Supplemental Ex. 1, demonstrating that it was negotiated by the original lender, Accredited, to Washington Mutual. The second allonge demonstrates that Chase negotiated the Note to JPMC via endorsement by Barbara Hindman, Vice President for Chase. Id.

    – – – – – – – – – – – – End Footnotes- – – – – – – – – – – – – –

    Finally, absent a contrary provision, notes are generally freely transferable, and the transferee retains the right to enforce the instrument. Under Va. Code Ann. § 8.3A-203(b), the “[t]ransfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument…” See also Johnson v. Ferris, 58 Va. Cir. 7, 2001 WL 1829719, at *4 (May 31, 2001 Va. Cir. Ct.)(noting that “in the absence of an express provision against assignment of a contract not involving personal skill, trust, or confidence, the contract is freely assignable” and citing J. Maury Dove Co. v. New River Coal, 150 Va. 796 (Va. 1928)).

    The [*9] explicit terms of the Note at issue here indicate that they are freely transferable. See Note at P 1 (“I understand that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the Note Holder”). As the Virginia Supreme Court noted long ago, the promise to pay a mortgage is a promise to pay a “negotiable note[] secured by [the mortgage] to the respective payees thereof, or to the person or persons to whom [it] might…be negotiated…” Blanton v. Keneipp, 155 Va. 668, 681 (Va.1931).

    The parties agree that Plaintiffs have ceased making payments on the Note. In Virginia, the obligation to pay an instrument can only be “discharged as stated in [Title 8.3A] or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract.” Va. Code § 8.3A-601. Plaintiffs offer no allegation that they reached an agreement with a noteholder or took any other action which would suffice to discharge the obligation under the Virginia statute. Thus, “to permit the parties to the [instrument] to object to its payment, on any of the grounds stated, would greatly impair the [*10] negotiability of bills and notes; their most distinguishing, most useful, and most valued feature.” Whhworth v. Adams, 1827 WL 1200 at *45 (Va. 1827).

    Next, the so-called “split” of the Deed from the Note alleged by Plaintiffs does not render the Deed unenforceable nor does it leave the Note unsecured. Under Virginia law, when a note is assigned, the deed of trust securing that debt necessarily runs with it. See Williams v. Gifford, 139 Va. 779, 784 (1924); see also Stimpson v. Bishop, 82 Va. 190, 200-01 (1886)(“It is undoubtedly true that a transfer of a secured debt carries with it the security without formal assignment or delivery.”). Moreover, as the Virginia Supreme Court has recognized, when deeds of trust and their underlying notes are “separate and distinct” documents,

    … in appropriate circumstances, we have recognized that ‘notes and contemporaneous written agreements executed as part of the same transaction will be construed together as forming one contract.’ So long as neither document varies or contradicts the terms of the other, terms of one document which clearly contemplate the application of terms in the other may be viewed together as representing the complete agreement [*11] of the parties.

    Virginia Housing Development Authority v. Fox Run Ltd. Partnership, 255 Va. 356, 364-365 (Va. 1998). Thus, a deed of trust continues to secure the holder of a note and nothing in the negotiation or putative securitization of a note renders it unsecured.

    In turn, pursuant to Va. Code § 55-59(9), “[t]he party secured by the deed of trust, or the holders of greater than fifty percent of the monetary obligations secured thereby” are empowered to appoint a substitute trustee, “regardless of whether such right and power is expressly granted in such deed of trust.” Id. Central to Plaintiffs’ argument is that Defendants are not the “party secured by the deed of trust” or “the holder of greater than fifty percent of the monetary obligations secured thereby,” and thus were not empowered to name a substitute trustee. However, as discussed above, the Note is possessed by Chase, which is thus the “party secured by the deed of trust.” Once appointed, the substitute trustee is empowered by Va. Code § 55-59(7) to foreclose and sell property provided as security for the Note.

    Finally, Plaintiffs also appear to advance the argument that because “credit default swaps” had been purchased [*12] on Plaintiffs’ loans, Plaintiffs are thereby discharged from their obligations under the promissory note due to some sort of impermissible “double recovery.” However, as this District recently held in a nearly identical case, and this Court agrees, “[Plaintiff] provides no factual or legal basis, and the Court finds none, to support his contention that because [Plaintiff’s] default triggered insurance for any losses caused by that default or ‘credit enhancements,’ he is discharged from the promissory notes and the Property is released from the deeds of trust.” Horvath v. Bank of New York, 2010 WL 538039 at *2 (E.D.Va. January 29, 2010).

    a. Count I Fair Debt Collection Practices Act (“FDPCA”)

    Count I of the Amended Complaint alleges violations of the FDCPA against Defendant Washington Mutual. In order to establish a FDCPA violation, Plaintiffs must prove that: (1) the plaintiff has been the object of collection activity arising from consumer debt; (2) the defendant is a debt collector as defined by the FDCPA; and (3) the defendant has engaged in an act or omission prohibited by the FDCPA. See Dikun v. Stretch, 369 F. Supp. 2d 781, 784-85 (E.D. Va. 2005). The FDCPA defines a debt collector [*13] as “any person who uses an instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C.A. § 1692a(6)(emphasis added).

    This District recently emphasized that “[m]ortgage servicing companies and trustees exercising their fiduciary duties enjoy broad statutory exemptions from liability under the FDCPA.” Horvath, 2010 WL 538039 (E.D. Va. Jan. 29, 2010)(citing 15 U.S.C. § 1692a(6)(F)(i) (“The term [debt collector] does not include any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement”) and 5 U.S.C. § 1692a(6)(F)(iii) (“The term [debt collector] does not include… any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity … concerns a debt which was not in default at the time it was obtained by such person.”)).

    The Amended Complaint does allege, albeit [*14] generically, that Washington Mutual acted without “authority to enforce the obligation, or in the alternative, the obligation has been extinguished, satisfied, or has been split from the Deed of Trust resulting in an unsecured Note.” Amend. Compl. at P56. However, these are precisely the type of “threadbare” and unsupportable assertions Twombly and Iqbal are meant to root out.

    Further, as this District has also previously recognized, “[i]t is well-settled that provisions of the FDCPA generally apply only to debt collectors. ..[a]nd, creditors are not liable under the FDCPA.” Scott v. Wells Fargo Home Mortg. Inc., 326 F.Supp.2d 709, 717 (E.D.Va. 2003). More specifically, “creditors, mortgagors, and mortgage servicing companies are not debt collectors and are statutorily exempt from liability under the FDCPA” Id.; see also Warren v. Countrywide Home Loans, Inc., 2009 U.S. App. LEXIS 18191 (1 lth Cir. Aug. 14, 2009) (“several courts have held that an enforcer of a security interest, such as a mortgage company foreclosing on mortgages of real property falls outside the ambit of the FDCPA…”).

    More importantly, even if the FDCPA did apply, Plaintiffs’ FDCPA claim, like Plaintiffs’ other claims, [*15] is based on the specious premise that the named Defendants somehow have no right, title, or interest in the Deed or the Note. As the foregoing makes clear, Plaintiffs offer no plausible basis on which the Court can agree with this premise.

    b. Count II – Declaratory Judgment

    Count II of the Amended Complaint seeks a declaratory judgment from the Court declaring that none of the Defendants have any proper legal or equitable interest in the Property. Amend. Compl. at P63. As Defendants note, this theory certainly seems inconsistent with Virginia’s status as a non-judicial foreclosure state. See Va. Code §§ 55-59.1-59.4.

    Given the Court’s foregoing discussion of the transferability of promissory notes and the deeds that secure them, the Court simply has no basis to award the declaratory relief sought by Plaintiffs in this action.

    c. Count III — Quiet Title

    In Count III, Plaintiffs assert a claim to quiet title to the property in dispute. Plaintiffs simply assert the legal conclusion that Plaintiffs are “the only party to this matter than can prove legal and equitable ownership interest in the Property.” Amend. Compl. at P 65. “An action to quiet title is based on the premise that a person [*16] with good title to certain real or personal property should not be subjected to various future claims against that title.” Maim v. Adams, 277 Va. 230,238 (2009). This claim resembles Count II, and essentially seeks a declaration that none of the Defendants hold any claim to or interest in the property, but does so in a wholly conclusory fashion, without any plausible factual pleadings in support.

    Again, given the Court’s foregoing discussion of the transferability of promissory notes and the deeds that secure them, the Court has no basis to award the relief sought by Plaintiffs in Count III of their Amended Complaint.

    d. Counts IV and V — “Declaratory Actions” Premised on Illegal Gambling

    In Counts IV and V of their Amended Complaint, Plaintiffs added claims for declaratory judgment, asking the Court to declare the loan agreement void, presumably due to illegality of purpose based on “illegal gambling.” The Virginia Code defines “illegal gambling” as:

    the making, placing or receipt, of any bet or wager in this Commonwealth of money or other thing of value, made in exchange for a chance to win a prize, stake or other consideration or thing of value, dependent upon the result of any game, [*17] contest or any other event the outcome of which is uncertain or a matter of chance, whether such game, contest or event, occurs or is to occur inside or outside the limits of this Commonwealth.

    Va. Code § 18.2-325(1). Plaintiffs argue that once the mortgage Note was securitized, Defendants “sold, shopped, and solicited others to purchase or obtain credit default swaps against the Plaintiff’s Note.” Amend. Compl. at P83. Plaintiffs allege this constituted participating in gambling activity in violation of Virginia law. Va. Code § 18.2-325(1). The “event” on which the Defendants purportedly “gambled” is Plaintiffs’ default on the Note.

    Of course, like Plaintiffs’ other claims, Counts IV and V fail for numerous reasons. First, and foremost, Plaintiffs have provided no authority, and the Court finds none, which supports the proposition that the practice of purchasing credit default swaps somehow constitutes “illegal gambling” under the Virginia statute. Moreover, the contract at issue here is not a contract to engage in “illegal gambling,” or any other illegal act for that matter. Generally, “a contract to perform an act prohibited by a statute is void and… an action will not lie to enforce [*18] the contract.” P.M. Palumbo, Jr., M.D., Inc. v. Bennett, 242 Va. 248, 251 (Va. 1991). Here, Plaintiffs do not (and cannot) allege that the Plaintiffs’ mortgage agreement was a “contract to perform an act prohibited by a statute.” The acts contemplated in the mortgage agreement were simply lending money on one hand, and, on the other, to repay that money with interest and provide the property as collateral. What the lender subsequently does with the mortgage note does not alter the nature of the initial agreement, and certainly does not render its purpose illegal.

    Further, to the extent that Plaintiffs attempt to bring a cause of action strictly for “illegal gambling,” the Court is unaware of any such private cause of action under Virginia law. Pursuant to Va. Code § 18.2-339, it is the province of Commonwealth Attorneys or the Attorney General to seek enjoinment of gambling activities. Finally, even if the foregoing were disregarded, Plaintiffs fail to plead any plausible factual allegations which meet the statutory definition of “Illegal Gambling.” Va. Code § 18.2-325(1). Moreover, since there is no specific statute of limitations for such claims, they fall under Virginia’s two-year [*19] catchall statute of limitations provided in Va. Code § 8.01-248.

    For these reasons, Counts IV and V must be dismissed.

    e. Count VI – Fraud

    Count VI of the Complaint alleges fraud. Namely, Plaintiffs allege Defendants fraudulently appointed a substitute trustee “without establishing their standing” to foreclose on the Property and “fraudulently set themselves up as having the right to commence or effectuate foreclosures” in Virginia. Amend. Compl. at PP 98, 99.

    Under Virginia law, a claim for fraud requires: (1) a false representation; (2) of a material fact; (3) intentionally or knowingly made; (4) with the intent to mislead another person; (5) which that person relied upon; (6) with resulting damage to that person. See Davis v. Marshall Homes, 265 Va. 159 (2003). Though there are a number of valid grounds on which this claim might be dismissed, the simplest is that even if any of Defendants’ actions constituted a “misrepresentation,” Plaintiffs fail to allege that such misrepresentation was made to Plaintiffs, or that Plaintiffs reasonably or detrimentally relied upon the alleged misrepresentation. Rather, Plaintiffs allege some indefinite sort of fraud upon the “Judicial system [sic] [*20] and the Courts of the Commonwealth of Virginia,” which, even if such a claim constituted a cognizable cause of action, does not survive the heightened pleading requirements of Rule 9.
    V. Conclusion

    Plaintiffs’ Amended Complaint fails to state a plausible basis on which relief may be granted. As such, all counts must be dismissed as to Defendants JPMorgan Chase Bank, N.A., as acquirer of certain assets and liabilities of Washington Mutual Bank from the Federal Deposit Insurance Corporation, as Receiver for Washington Mutual Bank, JPMC Specialty Mortgage, LLC, Mortgage Electronic Registration Systems, Inc., and Equity Trustees, LLC. As any further effort to amend would prove futile, this case is DISMISSED WITH PREJUDICE.

    An appropriate order shall issue.

    Alexandria, Virginia

    May 13, 2010

    /s/ Liam O’Grady

    Liam O’Grady

    United States District Judge


    Here’s the deal.

    I have a couple of properties where I am a tenant in common with the debtor. In fact, I hold over a 50% fee interest in these properties. I am not a mortgagor or debtor in these deals. My deeds were not recorded for specific reasons not germane at present.

    So the homeowner gets a NOD and judicial foreclosure is commenced against him as well as unknown defendants “John Doe” who may have an interest in the properties. (Mortgages are securitized.) I didn’t get any notice of these actions until about 10 days ago. The homeowner/mortgagor/defendant never put in an Answer to the Complaint.

    So obviously I need to jump into these foreclosure actions pretty quickly. (Plaintiffs have not yet made motions for summary judgment.)

    I’ve thought about how to do this, and it appears that there are a couple of ways. The first is to file motions to intervene, claiming that my property interests are in jeopardy and the named defendants have not put in any Answers. But that gives the Plaintiffs opportunities to oppose, and the judges discretion to deny.

    The second way is to file Answers as a “John Doe” defendant with the court and serve them upon the Plaintiffs. I have an affidavit of service from a friend stating that he has obtained from the named defendants a copies of the Plaintiffs’ summons and complaints and served them upon me. Cute.

    It has occurred to me that in these positions I will not be able to assert some affirmative defenses and counterclaims against the Plaintiffs that the mortgagor defendant would be able to assert. But on the other hand, I may be entitled to assert some that the mortgagor might not. Also, I believe that I am united in interest with the homeowners/mortgagors, so that any relief that I might obtain (striking note and mortgage) would redound to their benefit as well.

    Would appreciate any thoughts/ideas/suggestions re this matter.



  17. ANON –

    Could you also please forward to me the journal articles being forwarded to Alina? Or post links here?

    Also, what do you mean when you say “always for current receivables only” ?


  18. HI Alina

    Sorry I missed your post – found journal article later. Like this journal article (especially first one of group) because it is straight- forward. To me, it also indicates that challenges to foreclosure actions should be accompanied with counter claims (my opinion only). This helps against judges who say “So What?”

    Ali – (do not know if this is short for Alina)

    CWABS Inc, (the depositor subsidiary) should be registered. The Trust (certificates) itself does not have to be – since they are “securities” regulated by SEC. Of course, deregulation allowed for limited filing with SEC, and in CWABS case, the “securities” were largely backed by “distressed” asset (loan) receivables – not actually Triple A rated – which is required for mortgage-backed securities.

    Have to also remember that CWABS Inc., and other depositors, OWN the Trust – the beneficiaries are those that receive “pass-through” of Pooled receivable cash payments. In all cases – the beneficiary is the certificate holders – which is the security underwriter – who then repackages into another SPV ( a CDO SPV), for further cash-flow pass-through to subsequent security investors. But, most of these CDOs – were synthetic – not even actual securities – since CDO derived value from the first SPV certificates (securities) – and not the actual loans (asset receivables).

    All pass-through, however, is always for current receivables only.


  20. The law journal is excellent reading – has some great case law. I had posted it shortly after it was released on Foreclosure Hamlet.

    I also have several other law journals that are must reads.

  21. Make sure you see the SCRIBD box.

  22. I have posted this law journal article here before – with zero comments. Law journal articles have weight in court – as does the Federal Reserve Opinion.

    See below – page 20 regarding REMIC – no private right of action exists – but can be used for weight in court.

    I am not an attorney – you all know disclaimer now..

  23. Bob G

    MERS was just another vehicle to conceal. MERS is owned by banks. And some of these banks did sell the loans – after the process – to Fannie and Freddie.

    Speculative – but if loan had anything to do with MERS – highly likely Fannie or Freddie had something to do with it – at some point in time. In fact, they may have funded it.

    Only MERS can tell you that.

    Another thing – Countrywide Securities Corp. was a not an investment bank – or commercial bank (allowed to do investment banking by repeal of Glass – Steagal Act.) – which promoted securitization and pass-throughs across the world. They were a firm that targeted “distressed” loan making – likely the cause of demise and civil suits for securities violations. Such distressed loan “securities” were not valid triple A rated – required for mortgage-backed securities.


    You have a lot of good questions – which evidence that something is very wrong in foreclosure processes.
    Adept counsel for undisclosed “real party” foreclosure plaintiffs count on the confusion – and count on fact that most parties cannot question real legal representation in court – judges just accept all as Okay.

    Need to demonstrate that assignments do not comply with PSAs, Prospectus, or 8-K, and that security investors have no right to foreclosure. In fact, the ONLY certificate holders to the stated trust is – the security underwriters. This is stated in every prospectus you will find.

    Then you need to focus on fact that security pass-throughs must be for current receivables. This is securities law and Federal Reserve has confirmed this. Beneficiaries in in pass- through securities are NEVER the creditor. This is clear. Use it – and use Prospectus chain to demonstrate that chain of assignment (title) is clearly stated – and not validated in bogus assignments. Also, use REMIC rules and regulations that prohibit assignment after a certain time – and that foreclosure cannot be assigned to trusts if there is “improper knowledge” of current default.

    Federal Reserve had handed us a path to challenge foreclosures in courts – someone has to tell the courts. Do not let the attorneys for LPS or any other foreclosure mill – control the court process.

  24. Mario,

    We are still friends and can agree to disagree. We are here for each other.

  25. mario

    what great questions you have!!!!
    now i know why those”who gather around” do such.

    here is the irs tax ref. re -When an income item is properly accrued and subsequently becomes uncollectible, a taxpayer’s [ lenders or remic trustee] remedy is by way of a bad debt deduction under section 166 .
    have the bad loans have been sold off as uncollectible after insurance [cds] and tax deduction & additional profit of the sale to the bottom feeder debt buyers?

  26. As I read all this, I am starting to realize how unprepared I am for it all. I am of limited education and resources. The banksters already KNOW this. I am armed with nothing more than a high school education, a small income, and a natural tendency to fight when threatened.

    With that being said, I have come to realize that my purpose in all this is twofold:

    1. I have to try and save the family home. I need to protect our home from those who are trying to unjustly enrich themselves at the expense of my family. I have an adult child with special needs and I need to look after her best interest above all.

    2. I am under obligation to make my own contribution towards all the American families that are in this same predicament, just like others who have come before me have already done to my own benefit. Those that came before us, have paved the way for the rest of us, whether they prevailed or not.

    It is highly improbable that I will prevail against an institution that has unlimited resources and also has the courts on their side. I am at the mercy of the courts and if history has shown us anything, it is that justice is on THEIR side. But just as others before me have paved the way for those of us that came after, I will do the same. If others can learn from my mistakes so that they are better equipped to further their own cause, than I will be resigned to live with that.

    I might not be able keep my home for now, but if we all persist, eventually we will overcome. I am hopeful that these illegal foreclosures will be reversed and we will all regain our homes or be compensated for damages.

    In order to do this, we must become a united front. We have to remind ourselves who our true adversaries are and be grateful to our allies.

    I would like to take advantage of this moment to thank Neil for his efforts and numerous articles and all also to those who are educating us through their own personal experience via the comments. Had I not accidentally discovered this site, I would never have known that I was even victimized. Talk about being blind!

  27. Does anyone here know if loans held by Fannie or Freddie are different in a foreclosure context than the run of the mill Wall Street MBS trust?

  28. Repeat



  29. Back for bit before I go out again.

    First, did not mean for smiley face in post below – do not how it got there.

    Also, forgot to mention that in process, many loans were forced “Repurchases” (scratch and dent) for variety of reasons including early payment default (some were labeled early payment default even when they were not), missing documents, breach of representation, violation of TILA, etc. Even if loan was a repurchase – it will still show up in original “Mortgage Schedule”. Can only find this out through discovery.

    Bob G – will use Angelo’s CWABS 2002-BC3 as example.

    1) Parent is Countrywide Financial Corporation (now Bank of America Corporation) see below:
    Countrywide Securities Corporation, part of Countrywide Capital Markets, Inc., is a broker-dealer registered with the Securities and Exchange Commission. Countrywide Capital Markets, a subsidiary of Countrywide Financial Corporation, also includes Countrywide Servicing Exchange, a broker-dealer of loan servicing rights; Countrywide Asset Management Corp., which manages distressed-credit assets.

    2) Stated security underwriter(s) are: Countrywide Securities Corporation (Lead Manager)
    JPMorgan (Co-Manager)
    Lehman Brothers (Co-Manager)
    Blaylock & Partners, L.P.


    Subject to the terms and conditions set forth in the Underwriting Agreement among the Depositor, Countrywide Securities Corporation (an affiliate
    of the Depositor, the Seller and the Master Servicer), J.P. Morgan Securities Inc., Lehman Brothers Inc. and Blaylock & Partners, L.P. (collectively, the “Underwriters”), the Depositor has agreed to sell the Offered Certificates
    (other than the Class A-R Certificates) (the “Underwritten Certificates”) to the Underwriters, and the Underwriters have severally agreed to purchase from the Depositor the initial Certificate Principal Balance of each Class of the
    Underwritten Certificates from the Depositor set forth below.

    (from me chart is too big to copy here – but Countrywide Securities is largest share underwriter).

    3) Originator and “seller” is Countrywide Home Loans. See below:

    Section 2.01. Conveyance of Mortgage Loans.

    (a) The Seller hereby sells, transfers, assigns, sets over and otherwiseconveys to the Depositor, without recourse, all the right, title and interestof the Seller in and to the Mortgage Loans, including all interest andprincipal received and receivable by the Seller…

    4) Warehouse Lender – unknown – probably multiple – will research more later

    5) Depositor subsidiary – CWABS, Inc. See below


    CWABS, Inc., is a Delaware corporation and a limited purpose finance subsidiary of Countrywide Credit Industries, Inc., a Delaware corporation.

    See “The Depositor” in the prospectus.

    From me – Countrywide had large Attorney General settlement – and Bank of America Corp. should be modifying these loans. Also subject of security investor lawsuit.

    Out again.


  30. Mario,

    If I may – we have not educated the plaintiffs’ attorneys. The arguments that Neil presents have been presented in the past and there is very well established law. All you have to do is study the S&L crisis and the case law arising therefrom.

    What is happening now is an extension of that period in time. At that time, it was primarily commercial loansand there were changes to the bankruptcy code allowing commercial borrwers to more easily modify their loans through “cram downs” and other means. Donald Trump has used the bankruptcy “cram downs” to his advantage.

    There were loopholes in the UCC which became evident and were covered up by amendments to the UCC code such as 3-112.

    By the time, homeowners in mass numbers bcame defaulting and started looking for answers, the plaintiffs already had their defenses in hand. They were just too arrogant to think that the homeowners would find help on the internet. They were also too arrogant to think that no one would figure out what they had really done.

    Sharing our strategies helps everyone invovled – we are not letting any “cat” out of the bag by doing so. What may not work in one case, may work in another.

  31. Bob, I sent you an e mail let me know if it helps .

  32. Okay – but have to go out now. I will be back.


    Please, don’t stop posting, please !


    Please clarify/identify a couple of the players here by name and function, so that we can fully understand and comprehend what you are telling us.

    For example, where in a specific Prospectus, 8-K or PSA that you can direct us to, would all the following players be identified as to name and function?

    1. The Parent
    2. Stated Security Underwriter
    3. Originator
    4. Warehouse Lender
    5. Depositor subsidiary

  35. Bob G Angelo Mario Bob G etc.

    For reason I cannot divulge, much cannot be discussed here. And, rarely do I email anyone because of this. What I state below is my own opinion, which comes extensive (and long) review of SPV prospectus, 8-K, and PSA, and personal knowledge (I have a financial background). I am not an attorney, and what I state is not meant to be construed as legal advise but only for educational purposes. I do not in any way benefit from my posts here – they are motivated solely because I believe a great injustice has been, and continues to be, done against homeowners and foreclosure victims.

    My only contention with what is published on this blog – is the role of the “investor.” Purchase or assignment of mortgage loans must be accounted for – and security investors never account for mortgage loan ownership. They only account for a beneficial interest in a pass-through security (I have posted the Federal Reserve’s Interim Opinion for May 2009 TILA Amendment) which clearly defines who is, and is not, a “covered person” as the creditor.

    Trustees and trusts do not have balance sheets – they also cannot account for anything. One of the first questions that should be asked in courts is – who is going to account for the foreclosure recovery??

    This is the process of securitization:

    1) Parent of stated security underwriter purchases mortgage and loan from an originator or warehouse lender. They raise money to purchase by utilizing short-term financing including issues of commercial paper. We never see this sale to parent – but we should. And, very often it occurred before or at mortgage origination closing (RESPA violation).

    2). Parent of security underwriter sells “pooled” mortgage loan (loans receivables) (not the mortgage) to its “Depositor” subsidiary. This is done by removing the current receivables (pooled) from the parents on balance sheet to off balance sheet conduit (Depositor).

    3) The Depositor sets up a Trust – the Trust is set up as a REMIC pass-through. And the receivables to the loans are assigned to the Trust (via the Trustee).

    4) The security underwriter (also, a subsidiary of the parent) arranges receivable mortgage loan payments into tranches for security sale (security sale can only be for CURRENT) receivables. All the certificates to the Trust are sold to the security underwriters (except for some lower tranches which are NOT securitized and likely held by the servicer – also usually a subsidiary of the parent).

    5) The security underwriter repackages the certificates (securities) from the Trust into CDOs – which are most often synthetic – not actual securities- because they are DERIVED from the securities – and not the actual asset (loan receivables.)

    6) Once a default occurs in loan receivable – it can no longer “back” a security. This is obvious (as account is charged-off) – and therefore, must be removed from the SPV Trust. This is done through the lower tranche (held by the servicer). At this point, loan is deemed a “default debt.”

    7) Parent company may or may not keep collection rights to charged-off loan, but, most often, it does not. Usually, it sells default loan collection rights as a portfolio to a distressed debt buyer – could be a hedge fund or debt buyer.

    8) Once the “crisis” hit, the SPV Trusts were dissolved as a “credit default event” occurred by the Trust itself, and swaps were triggered to payoff the higher rated tranche SECURITY holders – which were the security underwriters themselves because they owned all certificates themselves.

    9) SPV trust is dissolved and trustee role is over. Neil is correct – servicer is the one who borrowers deal with now – and the servicer has the documents – and can tell you where your loan (collection rights) are now. But they do not tell.

    10) Foreclosure specialty companies are hired by servicer to initiate foreclosure for whoever the servicer is now servicing for. It is their obligation to present to court the “most convincing” way to push through the foreclosure – quickly and easily. They will use false documents if they have to. And, they will use legal technicalities to toss you out – before you even get to discovery.

    11) Therefore, most foreclosure actions are based on legal maneuvering which is way beyond the knowledge of pro se victims – or even small law firms. If you are lucky, you will get a judge like Judge Schack – who knows something is very wrong, or a state that demands complete and valid chain of title in foreclosures (a few states do – but you have to know to point out that the chain is invalid and assignments invalid – REMICs had strict rules as a “Qualifying Special Purpose Entity regulated by the IRS. These QSPEs must now be taken off-balance sheet and accounted for by parent – on balance sheet (FASB 166 and 167)). Many judges will simply shrug – and put the foreclosure through anyway.

    As PJ pointed out, states need taxpayers, many states are broke. But when a foreclosure occurs this simply a transfer of your home to someone else – at a great price – who also may – or may not – be able to make future payments. The debt buyers wind up with a “windfall” profit up front – they have no incentive to reduce your principal to the value the foreclosed home is eventually sold for. And, believe me, they are making profits because the default loan collection rights are sold for fraction of original value. All of this is just an unjustified transfer of wealth from one American homeowner to another. In my opinion – a public outrage.

    There needs to be a way to expose this – and that is my focus. I do not benefit from anything that I submit here. I am not selling anything. And, although I understand that no one should work for free to help others, I just believe there needs to be a new focus. This does not mean any other strategies to prevent foreclosure should be abandoned – all have merit. It just means that I think the process should be more inclusive – and the more we know the better we can fight the injustice. I do not mean to repeat myself and will not post here again for awhile. I wish the best, and success, to all of you.

    I am not attorney and this is not meant to be construed as legal advise but only for educational purposes.

  36. I wonder how the average American understands all of this FASB, REMIC, FASIT, mark to market, etc … We all have to become lawyers, accountants and researches if we want to win.

    ANONYMOUS – when I think i am understanding something… can you point where the report is wrong ?

    Mario – I understand you, I would like to purchase your information but i want you to know that i will share with a few people that I am trying to help.

    Roxanna – transform the anger into power to fight.

  37. I was going through my closing docs and discovered an expense report from the title company that charged me $55.00 for their agent’s monthly cell phone service. Why did I pay for someone’s monthly cell phone service? How did that become my responsibility? How do they justify that? That is outrageous!


    I do want to help this is why I come here or came here in the first place because I needed help and I have assisted many people and continue to do so to this very hour, I help people as mush as I can in the capacity, I have, which is limited in many ways.

    I simply do not know everything and I am very tired from fighting this long, it is not, that I am trying to talk down to anyone, but, I do know from my own experience that the plaintiff have righted the wrong after people like me let them know that they did wrong, thus the element of surprise was removed from the equation.

    The plaintiff buckled up and teamed up on us again, now the fight has gotten more difficult and we have to find a manner to not have this happen again, as we actually hurt not just ourselves, but other people, who are just coming in, some of the best fighters have already lost our homes, I may have been lucky, but I do not know for how long this luck might last, all I can really do is keep my fingers crossed.

    I noted you have some very valid insight, things that may benefit many people including me, and I think I may have some insight too, but I cannot put this kind of stuff out in public, for reasons I have stated herein, if you need my suggestions you are very welcomed to contact me, I am very easy to find.

    If or when you do contact me, will I know its you? I do not know but I will use my feelings, all the same.

  39. anonymous
    I might have stated it incorrectly, the assignment was to
    I meant TRUSTEE, not trust, if that is different I apologize.
    the “parent” or original lender was household bank, but im not sure where my loan is now. Mers was on the mortgage/deed of trust as nominee.
    can you email me so we can discuss this further, I would really appreciate it.


    Can u give us a concrete example of how this works using a real PSA ?

  41. Angelo

    Mortgages are never assigned to trusts. Only the rights to “pooled” mortgage loan RECEIVABLES are assigned to trusts. The mortgage and NOTE remains with the security underwriter’s PARENT corporation – until they charge it off and sell collection rights to a default debt (it is no longer a mortgage) buyer/hedge fund.

    That is the way it is.

    Further, no assignments to any TRUST, for anything, can be done years later. Impossible – according to IRS – and the Trust is long dissolved.

    We will not win until all who need help are helped.

    This should be about standing up for the people in general – standing up against ALL the wrongs.

    Will not win until we expose the fraud – and for all the people.

    Thought that was what we are about here.

  42. thanks Mario, for all the time & info you Gave me ,it will help.. as you said..find the question!!
    Neil THANK YOU once again for being our forum, All”foreclosure fighters” owe you our spirit & gratitude for the push to move forward against our common enemy.
    GRATEFUL & Knowing IT!

  43. I and we have done the assignments and such, and the wrong people foreclosing stuff, yeah sure, we have this, this is how we started off, but, the madness have grown and now new stuff is becoming available that adds to this basic core but, in any war all the material is necessary to put up a proper fight and or to get anywhere, so I am moving on to the other aspect.

    Some people have the questions but few have the answers, in any event I believe the questions come first, then, when one has the question, he has a need to seek the answer.

    I do not in any way, have all the all the questions, nor, all the answers, but I do believe, I do have enough of both to help myself and a few others along the way.

    It is ok to lose the battle, but, losing the war is fatal.

  44. Anonymous
    Please tell how this is not possible? I have a copy of the assignment, which i would love to email you. like i said before, the mortgage was assigned in dec 2009, not the note, to a trustee for a 2002 pool, i dont have the psa but it was definetly after the cut-off date.
    They made me a in-house modification offer, but its not great. I just dont know if its worth the risk to fight and maybe lose. Im looking for all the help i can, before i go to a lawyer. Ive done most of the leg work pro-se.

  45. Everyone thanks Neil for this blog – that allows us to share and express our views.

    People are still losing. Need to be better at what is being done.

    The successes I see have to do with invalid assignments, forgeries, incomplete chain of title, and wrong party foreclosing. Wrong party foreclosing is not only not legal, it prevents the victim from negotiating with the right party to avoid foreclosure – all in violation of Congressional mandates to prevent foreclosure.

    When you get too technical courts do not want to hear it.

    Daniella Mars

    Some errors in the NCLC report – they are aware of it.


    The assignment you discuss is impossible – there lies the fraud.

    Debt buyers, Debt buyers, Debt buyers – are behind it – and they are getting away it!!!!

  46. Mario

    What service are you selling?


    Servicer Compensation
    and its Consequences
    October 2009
    Why Servicers Foreclose
    When They Should Modify
    and Other Puzzles of
    Servicer Behavior

  48. Bob,

    because I can? and because the blog master allows me to post? and lastly because I am selling my service, is any of this good enough reason for you?

    Please note that the blog master has given me no right of association or any expressed permission whatsoever.

  49. Mario – why do you even bother posting here? You just want to tell us how clever you are? Since u don’t know who is a plaintiff’s atty here, you couldn’t even privately email someone on this blog about what you’ve discovered, without fear of the info getting into the “wrong hands.”

    So what’s your point in posting this stuff?

  50. I think you homeowners seem to forget or fail to realize that Neil is on our side, and has been from day one, I would be fed up if I were him.

    Its been four long years, but the good news is I still have my home and I still live in it, in peace, this is in part, with thanks to Neil, I said this to him many times, years ago and I say this again.

    Will I put my secrets on line for my plaintiff to see? NO, will I give my hard worked for knowledge for free any more? NO, and this is after I have helped hundreds of homeowners save their homes from every part of this country, for free, and I have inspired thousands to fight.

    If you do not have a lawyer the chances of losing your home is nearer to 100 percent. I am not a lawyer I work for several lawyers.

    We have done a great job at educating the plaintiff and I will do this no more.

    I will not work for free anymore either, however I do still help my dear friends, nationwide.

    I also will not help homeowners who come off as troublesome from the onset.

    After 4 years the plaintiff has not bothered me, there is a reason for this, do you want to know why?

    I have managed to find the answers to many questions in or of the homeowners war, it took me thousands of man hours of serious toil and constant study which is a continuam, if you do not know this you will lose your home.

    Fighting with the blog masters will not help you, save the fight for the judge or the plaintiff.

    Bad mouthing me is impossible as I never took a penny from anyone and doing so earns you a “no help card” from me, on and from from the onset.

    good luck

  51. Can you expand a little on UCC 9? My understainding is that while the collateral for the underlying promissory note is real property, the promissory note and the mortgage itself are both personal property. The buyer takes an interest in the mortgage – personal property which is subject to Article 9 when a security interest attaches to it.

    Under the definition of security interest in Article1-201(b)(35), the interest of a buyer of a promissory note is defined to be a security interest. When that security interest attaches to the note, the same security interest attaches to the mortgage pursuant to Article 9-203(g) (“(g) [Lien securing right to payment.]

    The attachment of a security interest in a right to payment or performance secured by a security interest or other lien on personal or real property is also attachment of a security interest in the security interest, mortgage, or other lien.)

    Further, under Article 9, a financing statment must be filed to perfect the security interest. additionally, notice of the assignment must be given to the mortgagor.

    However, in all these foreclosures, notice of the assignment is usually done at the same time that the mortgagors are served with foreclosures papers, not within the 30 days as required under UCC-9.

    Since the security interest was never prefected, does that not prevent the trusts from foreclosing.

    In Florida, there is case law that states that the bankers association does not recognize mortgages as falling under UCC-9. However, that may be an incorrect interpretation since as I said, the mortgage and note are considered personal property while the underlying real estate is real property.

    Additionally, there is one section of Article 9 which contains exceptions to the general rule excluding real estate (and liens on real estate) from the scope of Article 9. One of those exceptions, in 9-109(d)(11)(A), provides that Article 9 does apply to the “mortgage follows the note” rules in 9-203 and 9-308. See also the broad definition of “mortgage” in 9-102(a)(55).

    Neil, what is your take on this? And is the difference in interpretation of UCC 9 based on whether the state is a title state or a lien state?

  52. I’ll tell ya what i think. privately email me.

  53. Bob G.

    Been around and around the block and back – for a long time – that is how I know.

    Agree with you, why doesn’t Mario Kenny share???

  54. i am a borrower. my notewas originally with Aegis in 2006. It then got assigned to Wilshire Credit for purposes of collecting payments. In the fall of 2009 I went into the loan modification program and completed six payments which should have given me a permanent mod. It did not. Rather the note was assigned or transferred to BOAHL. When I went to the courthouse to see the DOT per the advice of a friend (I am myself a retired trial lawyer who did complex litigation) I found that the note when it was originated with Aegis did nt have Wilshire on it but MERS as the assignee. Wilshire appears nowhere. When the nte was assignedin Feb. 2010 to BOAHL it showed MLMI 2006-HE- 5 as the owner of the note. This is the first time I knew of this.

    I immediately started to have problems with BOAHL. First they would not take money, then they took a payment, then they claimed to loose the paperwork, sent them a ton of paperwork. Tried to get a reinstatement letter, they would not send one (I was three payments behind when I went into mod). Then they took three payments over the phone for april may and june. Then they did not cash april, then I called and they said I had to start loan mod over and they cancelled the payments and said no payments until the mod was approved. Then they said they would sen the reinstatement letter and the new mod paperwork. Did not come. Got another letter saying they were working on reviewing the paperwork they already had and to make payments.

    I filed suit on three grounds then. Quiet title, breach of fiduciary duty in handling the loan, and injunctiverelief requiring them to give me the mod as I had met the terms of the mod as set out t me. Sent it over nite to BOAHL in Simi Valley where I had been sending corr. No response. Its now two weeks. No response yet to the filing in Jackson Cty, Mo.

    I have a friend who has been sending me all this stuff on quiet title etc as an affirmative defense to foreclosure but after reading it it was clear that what was happening to me was jus setting me up for forecloure so I took affirmative steps.

    How will this affect burden of proof. For example, on quiet title will they have to prove they have title?

    I asked for a lot of discovery specifically aking them for all documentation on the loan from the gitgo and all paperwork showing payments from me and any source whatsoever and asked them to produce a person for dep who could testify as to the stream of paymets on this note. I speciically mentioned mers, mlmi-2006-he-5 (but of course the latter has no registered agent and the trustee appears no where.

    How can you sue for breach of fair dealing when you don’t even know the principle???? Don’t I have the right to know the principle so I can sue the principle as well as the alleged agents (MERS, BOAHL, Wilshre) for improperly handling the matter?????

    Anything anyone knows would be appreciated

  55. I have a question,
    what happens if they assign the mortgage only, no reference of the note in the assignment. The loan was 120 days late and assigned 3 days prior to the filing of the summons and complaintin 12,2009. Furthermore, the trustee is for certificateholders CWABS 2002-BC3, so this loan was placed into a pool with a cut-off in 2002, and had an assignment of the mortgage only in 2009, whats up with that?????

  56. Affadavit of Expert Witness in 2003 case against Bank One.
    Note; Emphasis added to this affidavit with Yellow Highlighting!
    BANK ONE, N.A., ) Case No. 03-047448-CZ
    Plaintiff, ) Hon. E.. Sosnick
    PRATIMA DAVE, jointly and severally, )
    Defendants. )
    Harshavardhan Dave and Pratima H. Dave Michael C. Hammer (P41705)
    C/o 5128 Echo Road Ryan O. Lawlor (P64693)
    Bloomfield Hills, MI 48302 Dickinson Wright PLLC
    Defendants, in propria persona Attorneys for Bank One, N.A.
    500 Woodward Avenue, Suite 4000
    Detroit, Michigan 48226
    (313) 223-3500
    Now comes the Affiant, Walker F. Todd, a citizen of the United States and the State of
    Ohio over the age of 21 years, and declares as follows, under penalty of perjury:
    1. That I am familiar with the Promissory Note and Disbursement Request and
    Authorization, dated November 23, 1999, together sometimes referred to in other
    documents filed by Defendants in this case as the “alleged agreement” between
    Defendants and Plaintiff but called the “Note” in this Affidavit. If called as a witness,
    I would testify as stated herein. I make this Affidavit based on my own personal
    knowledge of the legal, economic, and historical principles stated herein, except that I
    have relied entirely on documents provided to me, including the Note, regarding
    certain facts at issue in this case of which I previously had no direct and personal
    knowledge. I am making this affidavit based on my experience and expertise as an
    attorney, economist, research writer, and teacher. I am competent to make the
    following statements.
    2. My qualifications as an expert witness in monetary and banking instruments are as
    follows. For 20 years, I worked as an attorney and legal officer for the legal
    departments of the Federal Reserve Banks of New York and Cleveland. Among other
    things, I was assigned responsibility for questions involving both novel and routine
    notes, bonds, bankers’ acceptances, securities, and other financial instruments in
    connection with my work for the Reserve Banks’ discount windows and parts of the
    open market trading desk function in New York. In addition, for nine years, I worked
    as an economic research officer at the Federal Reserve Bank of Cleveland. I became
    one of the Federal Reserve System’s recognized experts on the legal history of central
    banking and the pledging of notes, bonds, and other financial instruments at the
    discount window to enable the Federal Reserve to make advances of credit that
    became or could become money. I also have read extensively treatises on the legal
    and financial history of money and banking and have published several articles
    covering all of the subjects just mentioned. I have served as an expert witness in
    several trials involving banking practices and monetary instruments. A summary
    biographical sketch and resume including further details of my work experience,
    readings, publications, and education will be tendered to Defendants and may be
    made available to the Court and to Plaintiff’s counsel upon request.
    3. Banks are required to adhere to Generally Accepted Accounting Principles (GAAP).
    GAAP follows an accounting convention that lies at the heart of the double-entry
    bookkeeping system called the Matching Principle. This principle works as follows:
    When a bank accepts bullion, coin, currency, checks, drafts, promissory notes, or any
    other similar instruments (hereinafter “instruments”) from customers and deposits or
    records the instruments as assets, it must record offsetting liabilities that match the
    assets that it accepted from customers. The liabilities represent the amounts that the
    bank owes the customers, funds accepted from customers. In a fractional reserve
    banking system like the United States banking system, most of the funds advanced to
    borrowers (assets of the banks) are created by the banks themselves and are not
    merely transferred from one set of depositors to another set of borrowers.
    4. From my study of historical and economic writings on the subject, I conclude that a
    common misconception about the nature of money unfortunately has been
    perpetuated in the U.S. monetary and banking systems, especially since the 1930s. In
    classical economic theory, once economic exchange has moved beyond the barter
    stage, there are two types of money: money of exchange and money of account.. For
    nearly 300 years in both Europe and the United States, confusion about the
    distinctiveness of these two concepts has led to persistent attempts to treat money of
    account as the equivalent of money of exchange. In reality, especially in a fractional
    reserve banking system, a comparatively small amount of money of exchange (e.g.,
    gold, silver, and official currency notes) may support a vastly larger quantity of
    business transactions denominated in money of account. The sum of these
    transactions is the sum of credit extensions in the economy. With the exception of
    customary stores of value like gold and silver, the monetary base of the economy
    largely consists of credit instruments. Against this background, I conclude that the
    Note, despite some language about “lawful money” explained below, clearly
    contemplates both disbursement of funds and eventual repayment or settlement
    in money of account (that is, money of exchange would be welcome but is not
    required to repay or settle the Note). The factual basis of this conclusion is the
    reference in the Disbursement Request and Authorization to repayment of
    $95,905.16 to Michigan National Bank from the proceeds of the Note. That was an
    exchange of the credit of Bank One (Plaintiff) for credit apparently and previously
    extended to Defendants by Michigan National Bank. Also, there is no reason to
    believe that Plaintiff would refuse a substitution of the credit of another bank or
    banker as complete payment of the Defendants’ repayment obligation under the Note.
    This is a case about exchanges of money of account (credit), not about exchanges of
    money of exchange (lawful money or even legal tender).
    5. Ironically, the Note explicitly refers to repayment in “lawful money of the United
    States of America” (see “Promise to Pay” clause). Traditionally and legally,
    Congress defines the phrase “lawful money” for the United States. Lawful money
    was the form of money of exchange that the federal government (or any state) could
    be required by statute to receive in payment of taxes or other debts. Traditionally, as
    defined by Congress, lawful money only included gold, silver, and currency notes
    redeemable for gold or silver on demand. In a banking law context, lawful money
    was only those forms of money of exchange (the forms just mentioned, plus U.S.
    bonds and notes redeemable for gold) that constituted the reserves of a national bank
    prior to 1913 (date of creation of the Federal Reserve Banks). See, Lawful Money,
    Webster’s New International Dictionary (2d ed. 1950). In light of these facts, I
    conclude that Plaintiff and Defendants exchanged reciprocal credits involving
    money of account and not money of exchange; no lawful money was or probably
    ever would be disbursed by either side in the covered transactions. This
    conclusion also is consistent with the bookkeeping entries that underlie the loan
    account in dispute in the present case. Moreover, it is puzzling why Plaintiff would
    retain the archaic language, “lawful money of the United States of America,” in its
    otherwise modern-seeming Note. It is possible that this language is merely a legacy
    from the pre-1933 era. Modern credit agreements might include repayment language
    such as, “The repayment obligation under this agreement shall continue until payment
    is received in fully and finally collected funds,” which avoids the entire question of
    “In what form of money or credit is the repayment obligation due?”
    6. Legal tender, a related concept but one that is economically inferior to lawful money
    because it allows payment in instruments that cannot be redeemed for gold or silver
    on demand, has been the form of money of exchange commonly used in the United
    States since 1933, when domestic private gold transactions were suspended (until
    1974).. Basically, legal tender is whatever the government says that it is. The most
    common form of legal tender today is Federal Reserve notes, which by law cannot be
    redeemed for gold since 1934 or, since 1964, for silver. See, 31 U.S.C. Sections
    5103, 5118 (b), and 5119 (a).
    Note: I question the statement that fed reserve notes cannot be redeemed for silver since
    1964. It was Johnson who declared on 15 Marcy 1967 that after 15 June 1967 that
    Fed Res Notes would not be exchanged for silver and the practice did stop on 15 June
    1967 – not 1964. I believe this to be error in the text of the author’s affidavit.
    7. Legal tender under the Uniform Commercial Code (U.C.C.), Section 1-201 (24)
    (Official Comment), is a concept that sometimes surfaces in cases of this nature.. The
    referenced Official Comment notes that the definition of money is not limited to legal
    tender under the U.C.C. Money is defined in Section 1-201 (24) as “a medium of
    exchange authorized or adopted by a domestic or foreign government and includes a
    monetary unit of account established by an intergovernmental organization or by
    agreement between two or more nations.” The relevant Official Comment states that
    “The test adopted is that of sanction of government, whether by authorization before
    issue or adoption afterward, which recognizes the circulating medium as a part of the
    official currency of that government. The narrow view that money is limited to legal
    tender is rejected.” Thus, I conclude that the U.C.C. tends to validate the classical
    theoretical view of money.
    8. In my opinion, the best sources of information on the origins and use of credit as
    money are in Alfred Marshall, MONEY, CREDIT & COMMERCE 249-251 (1929)
    and Charles P. Kindleberger, A FINANCIAL HISTORY OF WESTERN EUROPE
    50-53 (1984). A synthesis of these sources, as applied to the facts of the present case,
    is as follows: As commercial banks and discount houses (private bankers) became
    established in parts of Europe (especially Great Britain) and North America, by the
    mid-nineteenth century they commonly made loans to borrowers by extending their
    own credit to the borrowers or, at the borrowers’ direction, to third parties. The
    typical form of such extensions of credit was drafts or bills of exchange drawn upon
    themselves (claims on the credit of the drawees) instead of disbursements of bullion,
    coin, or other forms of money. In transactions with third parties, these drafts and bills
    came to serve most of the ordinary functions of money. The third parties had to
    determine for themselves whether such “credit money” had value and, if so, how
    much. The Federal Reserve Act of 1913 was drafted with this model of the
    commercial economy in mind and provided at least two mechanisms (the discount
    window and the open-market trading desk) by which certain types of bankers’ credits
    could be exchanged for Federal Reserve credits, which in turn could be withdrawn in
    lawful money. Credit at the Federal Reserve eventually became the principal form of
    monetary reserves of the commercial banking system, especially after the suspension
    of domestic transactions in gold in 1933. Thus, credit money is not alien to the
    current official monetary system; it is just rarely used as a device for the creation of
    Federal Reserve credit that, in turn, in the form of either Federal Reserve notes or
    banks’ deposits at Federal Reserve Banks, functions as money in the current
    monetary system. In fact, a means by which the Federal Reserve expands the money
    supply, loosely defined, is to set banks’ reserve requirements (currently, usually ten
    percent of demand liabilities) at levels that would encourage banks to extend new
    credit to borrowers on their own books that third parties would have to present to the
    same banks for redemption, thus leading to an expansion of bank-created credit
    money. In the modern economy, many non-bank providers of credit also extend book
    credit to their customers without previously setting aside an equivalent amount of
    monetary reserves (credit card line of credit access checks issued by non-banks are a
    good example of this type of credit), which also causes an expansion of the aggregate
    quantity of credit money. The discussion of money taken from Federal Reserve and
    other modern sources in paragraphs 11 et seq. is consistent with the account of the
    origins of the use of bank credit as money in this paragraph.
    9. Plaintiff apparently asserts that the Defendants signed a promise to pay, such as a
    note(s) or credit application (collectively, the “Note”), in exchange for the Plaintiff’s
    advance of funds, credit, or some type of money to or on behalf of Defendant.
    However, the bookkeeping entries required by application of GAAP and the Federal
    Reserve’s own writings should trigger close scrutiny of Plaintiff’s apparent assertions
    that it lent its funds, credit, or money to or on behalf of Defendants, thereby causing
    them to owe the Plaintiff $400,000. According to the bookkeeping entries shown or
    otherwise described to me and application of GAAP, the Defendants allegedly were
    to tender some form of money (“lawful money of the United States of America” is the
    type of money explicitly called for in the Note), securities or other capital equivalent
    to money, funds, credit, or something else of value in exchange (money of exchange,
    loosely defined), collectively referred to herein as “money,” to repay what the
    Plaintiff claims was the money lent to the Defendants. It is not an unreasonable
    argument to state that Plaintiff apparently changed the economic substance of
    the transaction from that contemplated in the credit application form,
    agreement, note(s), or other similar instrument(s) that the Defendants executed,
    thereby changing the costs and risks to the Defendants. At most, the Plaintiff
    extended its own credit (money of account), but the Defendants were required to
    repay in money (money of exchange, and lawful money at that), which creates at
    least the inference of inequality of obligations on the two sides of the transaction
    (money, including lawful money, is to be exchanged for bank credit).
    11.To understand what occurred between Plaintiff and Defendants concerning the alleged
    loan of money or, more accurately, credit, it is helpful to review a modern Federal
    Reserve description of a bank’s lending process. See, David H. Friedman, MONEY
    AND BANKING (4th ed. 1984)(apparently already introduced into this case): “The
    commercial bank lending process is similar to that of a thrift in that the receipt of cash
    from depositors increases both its assets and its deposit liabilities, which enables it to
    make additional loans and investments. . . . When a commercial bank makes a
    business loan, it accepts as an asset the borrower’s debt obligation (the promise to
    repay) and creates a liability on its books in the form of a demand deposit in the
    amount of the loan.” (Consumer loans are funded similarly.) Therefore, the bank’s
    original bookkeeping entry should show an increase in the amount of the asset
    credited on the asset side of its books and a corresponding increase equal to the value
    of the asset on the liability side of its books. This would show that the bank
    received the customer’s signed promise to repay as an asset, thus monetizing the
    customer’s signature and creating on its books a liability in the form of a
    demand deposit or other demand liability of the bank. The bank then usually
    would hold this demand deposit in a transaction account on behalf of the customer.
    Instead of the bank lending its money or other assets to the customer, as the customer
    reasonably might believe from the face of the Note, the bank created funds for the
    customer’s transaction account without the customer’s permission, authorization, or
    knowledge and delivered the credit on its own books representing those funds to the
    customer, meanwhile alleging that the bank lent the customer money. If Plaintiff’s
    response to this line of argument is to the effect that it acknowledges that it lent credit
    or issued credit instead of money, one might refer to Thomas P. Fitch, BARRON’S
    “Bookkeeping entry representing a deposit of funds into an account.” But Plaintiff’s
    loan agreement apparently avoids claiming that the bank actually lent the Defendants
    money. They apparently state in the agreement that the Defendants are obligated to
    repay Plaintiff principal and interest for the “Valuable consideration (money) the
    bank gave the customer (borrower).” The loan agreement and Note apparently still
    delete any reference to the bank’s receipt of actual cash value from the Defendants
    and exchange of that receipt for actual cash value that the Plaintiff banker returned.
    12.According to the Federal Reserve Bank of New York, money is anything that has
    value that banks and people accept as money; money does not have to be issued
    by the government. For example, David H. Friedman, I BET YOU THOUGHT. . . .
    9, Federal Reserve Bank of New York (4th ed. 1984)(apparently already introduced
    into this case), explains that banks create new money by depositing IOUs, promissory
    notes, offset by bank liabilities called checking account balances. Page 5 says,
    “Money doesn’t have to be intrinsically valuable, be issued by government, or be in
    any special form. . . .”
    13.The publication, Anne Marie L. Gonczy, MODERN MONEY MECHANICS 7-33,
    Federal Reserve Bank of Chicago (rev. ed. June 1992)(apparently already introduced
    into this case), contains standard bookkeeping entries demonstrating that money
    ordinarily is recorded as a bank asset, while a bank liability is evidence of money that
    a bank owes. The bookkeeping entries tend to prove that banks accept cash, checks,
    drafts, and promissory notes/credit agreements (assets) as money deposited to create
    credit or checkbook money that are bank liabilities, which shows that, absent any
    right of setoff, banks owe money to persons who deposit money.. Cash (money of
    exchange) is money, and credit or promissory notes (money of account) become
    money when banks deposit promissory notes with the intent of treating them
    like deposits of cash. See, 12 U.S.C. Section 1813 (l)(1) (definition of “deposit”
    under Federal Deposit Insurance Act). The Plaintiff acts in the capacity of a lending
    or banking institution, and the newly issued credit or money is similar or equivalent
    to a promissory note, which may be treated as a deposit of money when received by
    the lending bank.. Federal Reserve Bank of Dallas publication MONEY AND
    BANKING, page 11, explains that when banks grant loans, they create new money.
    The new money is created because a new “loan becomes a deposit, just like a
    paycheck does.” MODERN MONEY MECHANICS, page 6, says, “What they
    [banks] do when they make loans is to accept promissory notes in exchange for
    credits to the borrowers’ transaction accounts.” The next sentence on the same page
    explains that the banks’ assets and liabilities increase by the amount of the loans.
    14. Plaintiff apparently accepted the Defendants’ Note and credit application (money of
    account) in exchange for its own credit (also money of account) and deposited that
    credit into an account with the Defendants’ names on the account, as well as
    apparently issuing its own credit for $95,905.16 to Michigan National Bank for the
    account of the Defendants. One reasonably might argue that the Plaintiff recorded
    the Note or credit application as a loan (money of account) from the Defendants to
    the Plaintiff and that the Plaintiff then became the borrower of an equivalent amount
    of money of account from the Defendants.
    15. The Plaintiff in fact never lent any of its own pre-existing money,
    credit, or assets as consideration to purchase the Note or credit
    agreement from the Defendants. (Robertson Notes: I add that when the bank
    does the forgoing, then in that event, there is an utter failure of consideration for the
    “loan contract”.) When the Plaintiff deposited the Defendants’ $400,000 of newly
    issued credit into an account, the Plaintiff created from $360,000 to $400,000 of new
    money (the nominal principal amount less up to ten percent or $40,000 of reserves
    that the Federal Reserve would require against a demand deposit of this size). The
    Plaintiff received $400,000 of credit or money of account from the Defendants as an
    asset. GAAP ordinarily would require that the Plaintiff record a liability account,
    crediting the Defendants’ deposit account, showing that the Plaintiff owes $400,000
    of money to the Defendants, just as if the Defendants were to deposit cash or a
    payroll check into their account.
    16. The following appears to be a disputed fact in this case about which I have
    insufficient information on which to form a conclusion: I infer that it is alleged that
    Plaintiff refused to lend the Defendants Plaintiff’s own money or assets and recorded
    a $400,000 loan from the Defendants to the Plaintiff, which arguably was a $400,000
    deposit of money of account by the Defendants, and then when the Plaintiff repaid
    the Defendants by paying its own credit (money of account) in the amount of
    $400,000 to third-party sellers of goods and services for the account of Defendants,
    the Defendants were repaid their loan to Plaintiff, and the transaction was complete.
    17. I do not have sufficient knowledge of the facts in this case to form a conclusion on
    the following disputed points: None of the following material facts are disclosed in
    the credit application or Note or were advertised by Plaintiff to prove that the
    Defendants are the true lenders and the Plaintiff is the true borrower. The Plaintiff
    is trying to use the credit application form or the Note to persuade
    and deceive the Defendants into believing that the opposite occurred
    and that the Defendants were the borrower and not the lender. The
    following point is undisputed: The Defendants’ loan of their credit to Plaintiff, when
    issued and paid from their deposit or credit account at Plaintiff, became money in the
    Federal Reserve System (subject to a reduction of up to ten percent for reserve
    requirements) as the newly issued credit was paid pursuant to written orders,
    including checks and wire transfers, to sellers of goods and services for the account of
    18. Based on the foregoing, Plaintiff is using the Defendant’s Note for its own purposes,
    and it remains to be proven whether Plaintiff has incurred any financial loss or actual
    damages (I do not have sufficient information to form a conclusion on this point). In
    any case, the inclusion of the “lawful money” language in the repayment clause of the
    Note is confusing at best and in fact may be misleading in the context described
    19. I hereby affirm that I prepared and have read this Affidavit and that I believe the
    foregoing statements in this Affidavit to be true. I hereby further affirm that the basis
    of these beliefs is either my own direct knowledge of the legal principles and
    historical facts involved and with respect to which I hold myself out as an expert or
    statements made or documents provided to me by third parties whose veracity I
    reasonably assumed.
    Further the Affiant sayeth naught.
    At Chagrin Falls, Ohio
    December 5, 2003 _____________________________________
    WALKER F. TODD (Ohio bar no. 0064539)
    Expert witness for the Defendants
    Walker F. Todd, Attorney at Law
    1164 Sheerbrook Drive
    Chagrin Falls, Ohio 44022
    (440) 338-1169, fax (440) 338-1537

    At Chagrin Falls, Ohio
    December 5, 2003
    On this day personally came before me the above-named Affiant, who proved his identity
    to me to my satisfaction, and he acknowledged his signature on this Affidavit in my presence and
    stated that he did so with full understanding that he was subject to the penalties of perjury.
    Notary Public of the State of Ohio


    How do u know all this stuff?

  58. For MARIO KENNY:

    Don’t keep us in suspense. What’s the story?

  59. I have been following the posts on this blog since 2008 and find the info invaluable. However, on the question of the sequence of steps in the transaction and who the owner of the note and mortgage might be, I find the explanations conflicting (even as they are on this post and comments).

    Could anyone provide the citation to a case (preferably in NY) where the sequence provided by Neil or Anonymous r anyone is used as the basis for the defendant’s case (and won)?

  60. I am the only person who has figured out how property is transfered from the original lender`s name, after the sale, to any other name, I have discovered how to find the parties who claim to own anything, the answer was just below our noses all this time.

    I have uncovered a huge part of the puzzle to stalling or winning these cases, now all I have to do is get the ignorant judges to understand it.
    786 274 0527

  61. I think we are all in the home stretch as far as understanding how these labyrinthine deals were structured, probably the next revelation will be earthshaking. Anonymous- keep hounding Neil regarding the GAAP or FASB rules/laws which the players are all conveniently ignoring, and which lead to the conclusions which you are repeating. Who knows if what is supposed to be, actually is? Some of the info in the various agreements may be intentionally misleading. Why? Don’t ask me, but some of it just doesn’t seem to make any sense. Keep plugging.

  62. Neil

    I know you wish I would just go away – but I am adamant – and confidant in what I say – “security investors” no longer have an interest in default loans. Trust is finished and trustee role is over. And, “security investors” are whining because they lost their investment and did not get their 13 % ( or other high rate) loan shark interest rate for pass through of Wall Street receivables.

    Accounting is the root cause of the confusion. Investors do not own individual mortgage loans – and do not own any right to default loans. Wish you would really focus on this. Any action (implied or otherwise) against security investors, in my opinion, – is not a good path – UNLESS we can convince the media that the American investor is to blame – and – I highly doubt this will ever be accomplished. American investors were also victims of Wall Street banks – not that they have my sympathy.


    My take from your post is that the Bank or a Bank owns the note and is the benificial owner and holder?

  64. Yes, Neil, it is a good post. But, some problems – such as “The first transactions that occurred was the sale of securities to unsuspecting investors” This is not quite right.. The security underwriter parent utilized commercial paper funding (separate from known SPV) to raise money in order to fund THEIR purchase of the whole loans. Sale of securities to “unsuspecting investors” occurred long after the Wall Street Bank purchased (through outside funding) the whole loans and converted to securities via accounting mechanisms – off balance sheet conduits.

    Two” “The first transactions that occurred was the sale of securities to unsuspecting investors.” After Wall Street purchased the loans, THEY purchased the certificates from their own off-balance sheet SPV conduit, (THEY ARE THE ONLY CERTIFICATE HOLDERS). Wall Street then repackages for receivable pass-through to institutional investors.

    Three – “The fourth transaction was the closing with the borrower. The loan was funded with the money from the investor” Money was not funded by security investors directly to borrowers. Wall Street used warehouse lenders to fund loan origination – with agreements to purchase the loans from the warehouse lender. This warehouse “lenders” role – was finished. The next step was to set up conduit to pass through receivable payments (from Wall Street bank’s balance sheet) to “security investors” who buy shares in the BANKS “pooled receivables” – not the ACTUAL LOAN – they own have pro-rata share to Wall Streets “removed” pooled receivable pass-through – which IS NOT a sale of the individual mortgage loan.

    I think we need to recognize the distinction between security investors – and mortgage loan purchaser – they are not the same. Further, we need to know what the mortgage loan purchaser does with it’s charge-offs.

    Think this blog is the only place for the people. Just think there should be a focus on the BANK that purchased the loans – and the BANK that charged-off the loans. Investors in security pass-through are finished – and have no right in court to claim a right to your property.

  65. Thank you Neil. With every article of yours that I read, the smoke that has impaired my vision for so long gets lessened. I really appreciate how you make it easy to read and understand.

  66. Neil , good post .. I come here daily and save relevant items on my local machine .. this website is difficult to navigate .. it is especially difficult to find older but still relevant posts .. can a change be made to allow the creation of some kind of master index? Thanks a million …


    Consumer Asset-Backed Group Financial Guarantee Exposure (as of Dec 31, 2009)

    The information presented below has been prepared by Ambac Assurance. The information is believed to be accurate and complete as of the date indicated above. This information is provided solely to assist analysts and others in gaining a better understanding of Ambac Assurance’s Consumer Asset-Backed Group’s financial guarantee exposure*. Internal Ambac credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance. They are subject to revision at anytime and do not constitute investment advice. Ambac Assurance, or one of its affiliates, has insured the obligations listed and may also provide other products or services to the issuers of these obligations for which Ambac may have received premiums or fees. For definitions of the terms used in this table, please refer to the glossary.

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    * Excludes Securitized Student Loans.
    ¹ CUSIPs only provided for securities with non-zero net par balances.
    ² “N/A” designation applies to tranches where no CUSIP was assigned.

  68. Good post with excellant points.

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