TITLE AND SECURITIZATION ANALYSIS

I HAD A QUESTION FROM ONE OF OUR BLOG READER-CUSTOMERS AND I REALIZED EVERYONE SHOULD SEE THE ANSWER.

Chris: Your question is a smart one. Here is the deal. We provide the search capacity and if you want a complete analysis and accounting you’ll need to retain someone for that. we have that available if you want us to do it.

But the main point I want to stress hear is that the subject of securitization was the receivables and not the obligation, note or mortgage from the borrower.

  • The receivables consist of the proceeds of payment from MULTIPLE sources as you have no doubt seen on the blog.

    The borrower signs a note that is never actually given to the investor.

  • The investor receives a mortgage bond or actually evidence of a mortgage bond that was never disclosed, seen or signed by the borrower.

  • In practice, the obligation, note and mortgage (Deed of Trust) are never actually transmitted, transferred, assigned or indorsed to the lender.

  • It is all an illusion. Any transfer is from one intermediary pretender lender to another intermediary pretender lender. The actual loan transaction never actually reaches the loan pool — but in every foreclosure it is claimed to be there.

  • The legal issue that ensues is whether the originating lender still is the only lender of record without any money owed to it (which means the loan is unsecured but does NOT mean there is no obligation) OR whether the pretender lender can convince the Judge that despite the lack of legal proof and legal requirements, the loan should be treated as equitably in the pool even if it is not legally in the pool.
  • The problem is of course there is no such thing. And in Missouri when they tried to make the legal argument, it was soundly rejected and they never tried it again.
  • But they don’t have to try again because Judges are still confused by the legal effect of securitization. In their confusion they are treating the loan as part of the pool even though they have no actual evidence (because none exists) that the loan ever made it into the pool through normal assignments, indorsements etc..
  • As far as they are concerned, the borrower signed a note, owes the money, didn’t pay it and the case is closed.
  • The idea that that there are MULTIPLE channels of payment between the borrower and the real lender and that therefore the documents in the middle tell the real story is not one they really want to hear — it raises a complexity they don’t wish to deal with.

    It also raises a political hot potato. Any one of these cases if they were considered alone and not in the context of millions of others would be decided in favor of the borrower (in my opinion). Judges are loathe to issue an order that in essence turns the entire mortgage mess on its head in favor of borrowers — which really only means that the real parties in interest must come forward and the real parties in interests must strike a deal in light of the obvious defects in the securitization and title process.

  • So we are presently stuck between a majority of Judges who don’t want to apply the normal rules of evidence, pleadings and substantive law and the minority of Judges who see all too clearly the coming title cliff we are heading toward.
  • What this means for you is that you must realize that the title part of your search is the ground level search which shows the breaks in the chain and the securitization portion of your search shows the REST of the terms that were not contained in the note, describes but does not name the real lender, and adds co-obligors who are providing cover for the bond the the investor thinks he bought with virtually no risk.
  • Without the liability of third parties, the investor would not have entered the deal. Just as with knowledge that the home appraisal was falsely inflated neither the borrower nor the lender would have entered the deal and all that money, billions in bonuses and billions in “profits” would never have been recorded.
  • THIS IS WHY YOU MUST POUND AND POUND AND POUND ON THE FACT THAT THIS WAS A SINGLE TRANSACTION BETWEEN BORROWER AND ACTUAL LENDER AND THAT THE ORIGINATING LENDER AND EVERYONE ELSE WERE INTERMEDIARIES IN THE DEAL. THE REQUIREMENTS OF LAW IN PERFECTING A LIEN WERE NOT PRESENT.

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35 Responses

  1. I just bumped across the schdule for Judge Novack’s Salinas calender for Friday 10-23-2011 @ 10AM. He is a Bunkruptcy court Judge in San Jose California. I noticed that on his docket was case NO# 09-56522, This is a Final Hearing for Motion for Relief from Stay RS #PK-170, Filed by HSBC Bank USA, National Association as Trustee for Wells Fargo Asset-Backed Pass- Through Certificates 2007-PA5.

    However I can’t seem to find out the out come of this case , Could anyone assist with current information ?

    Thanks,

    Steve Baker

  2. folks, go back and look at OCC Interpretive Letter 1016 February 2005.
    Read every word
    it tells you that “only the Investors are the beneficiaries. ” That was the non-recourse assignment Ameriquest made to 2004-WWF1 investors as found in the Pooling and Servicing Agreement entered 11/1/2004.
    Learn how to read EDGAR
    stay up all night
    that’s what I’ve done for 4 years

  3. When its over–you are broken in spirit and pocket–when they have played you out until you must move on with your life but you KNOW IN YOUR GUT that they have stolen your pension money as an unknowing investor-and now they want your home too. Then you should demand the proceeds of sale go to your broken pension trusts rather than rebundled and shipped offshore to invest in high flying developing economies while yours rests in tatters. The mechanism is escheat—–if you cant have it do not let them or they will do it again and again. The incentive must be taken away.

  4. “Can anyone comment on how to seek justice under this set of circumstances?
    Virginia Court Shoots Down “Splitting the Note” and “Double Recovery” Theories
    April 15, 2010”

    Im not offering legal advice–dont know Va law —-but this is a key issue for academic discussion without regard to any specific case or entity.

    The concept of an automatic TKO because MERS was used is not helpful—-too large an impact and uncertain law. In many states there is a philosophy that the mortgage follows the note. If a mortgage was recorded, and the note was negotiated without attendant filing of an assignment-the county govts are deprived of revenue but the mortgage could be viewed as being subject to something akin to quiet title action. The “holder” of the note is the only party that can enforce that note. The note must be enforced to cause the mortgage to come alive and seize the property.

    Thus the holder of the note in effect could sue all claimants under the mortgage by public notice etc, to cut off their interests in that realproperty interest. In the courts the action on the note is collapsed into the action to cut off other potential claimants on the mortgage. The key is to compel the purported note-holder to present the note with a chain of custody tying back to the original custodian named in the trust securitizations—if the servicer reveals that purported identity. Do not assume that a purported original note is real—unless you are a forensic expert you are simply guessing-giving the benefit of doubt to the claimant who may as easily have paid a contractor in a basement to make a good quality copy. The note must be authenticated——–it is simply a piece of paper unless it is authenticated by either an unknowing maker-homeowner or the holder. Those supposedly endorsed in blank-to become “bearer paper” —-nevertheless questions remain; especially in wake of the sign anything rules in place in LPS and GMAC etc.

    Who endosed it in blank? did they have capacity-or more robo-signers?

    Is it the original or a clever copy?—either you have to drag up a forensic document examiner, or they have to prove where it has been——–what is the chain of custody? Is Jesse James entitled to enforce bearer paper?

    This last shifts towards the justice issue; look to insurance rules———if you have two health insurance policies, can you collect on both–for the full amount? Obviously not, but you have to read the fine print to see the prohibtions or look to special interest legislation that protects insurers from their own oversights in contract. Look to insurance common law re speculation; Only a person with an “insurable interest” can take out a life insurance policy on your life. Speculators cant—-they might try to tilt the table in their favor by pushing you in front of a truck. Specuation in MBS–CDOs etc has created turmoil and damage-speculators get paid if you default——–then collect from you anyway. This may fly in a law court -but supposedly not in a court of equity——where unjust enrichment is a continuing doctrine. But the court may demand to see unclean hands by the claimant to enforce the old doctrine ——unjust enrichment is not referring simply to double dipping-but to other evils associated with the transaction; Did the claimant do somthing bad ? This is the source of the holder in due course rule for paper——is the loan predatory? Did the claimant defraud the investors—-using your mortgage as a tool. Did the claimant or the MBS owners he claims to represent buy in the MBS at deep discounts based on knowledge of which tranches were valuable-which throways? See W.L. Ross comments to Bloomberg as to his buying of high quality MBS. Note Ross is Chairman of AHMSI–which controls allocation of proceeds among trusts and tranches within trusts. Query whether there is an inherent conflict of interest there-could there be unclean hands? What if W.L Ross & Company had an officer that was recommending to investment banks and others in 2003 how to profit from a future bust in the housing market? How deeply did this This is the area to look at. If someone helped setup the collapse, should he be able to double dip?

  5. State escheat laws: you don’t want these to govern. If u think u have problems now fighting the banks in court, just wait to you try and fight a state’s attorney general in court in a foreclosure action.

  6. pelucheven

    This post is a wide-ranging observation of “smoke”, as in “where there is smoke, there is fire”. I can see hot spots–but no real direction indicated. The take-away I think is there there must be some unified collected effort to focus on a couple cases from predatory loan origination and source funds to the securitization, and analysis of distribution of funds by the servicer. Fundamental focused issues include:
    –assuming the servicer handles numerous “trust” collections, and the servicer has numerous trusts as “clients” as to which the originator/securitizer represented the filing of loan lists with SEC setting out the loans included in the trusts—- but the filings were not made -no manually filed list with an attendant SEC docket designated entry “SE” for scanned exhibit in respect of the represented filed loan list—–with this factual background; How would a servicer know how to allocate the proceeds of foreclosure?

    This issue would be resolved by discovery focused upon the distribution practices of the servicer. Presumably the servicer is directing a document creation mill to create an assignment of mortgage that is the definitive step that the servicer must justify. A thorough inquiry into the allocation processes should identify any arbitrary determinations of the appropriate trust to which the proceeds are awarded.

    The inquiry should also be aimed at revealing the duration of time that the proceeds are held in suspense after the loan is liquidated. The other key question: How much is the total balance of all collections received by the servicer pending distribution to investors?

    In cases filed in the past couple years the servicers named trusts–including shams with unfiled loan lists–but the servicers also often attempted to file in their own names or MERS—never disclosing the party that the proceeds were destined to go—–

    This situation is ripe for abuse. The servicer is entitled to direct the proceeds held in the collection accounts, receive income on those investments–while sorting out the intended beneficiary trust. This provides a powerful incentive to the servicer to be confused and delay that allocation. The servicer “knows” that there is a default, pursues collection with created documents, and then someday distributes the proceeds.

    This course is obviously more useful to the servicer. Servicers like AHMSI are not subject to SEC filings where the balances would show up in the accounting filings. I am not aware and have been able to identify any agency that regulates entities like AHMSI. The closest is industry self-regulator Moody’s which theoretically could downgrade MBS issued by a trust that was not receiving distributions. But this review does not seem to be adequate to have prevented numerous past abuses and does not justify absolute reliance today.

    In a new regulatory world servicers like AHMSI MUST be regulated to prevent agressive collection for the purpose of padding suspense balances for the float [income thereon] or collection accounts with undistributed sub accounts.

    At this point, the only “check” is discovery by mortgagees trying to assure payment to the correct party-and investors seeking the same thing.

    An entity like AHMSI is a good starting point because of the close linkage to LPS that is now known to have widespread issues properly designating assignees of mortgage. The official position is that the clients–like AHMSI instructed LPS to create assignments with respect to loans in default, while the servicer determined to whom the award should be allocated. But as many have noted, how does it do this with certainty when the loan lists went missing? or the loans were sold out of the trust because of the flexibility afforded the servicer of missing loan lists?

    This is a fertile field to be plowed deeply–in the wake of the GMAC and LPS admitted “process defects”. Look to the independent servicers for real oppotunity to demionstrate mischief. Herein lies opportunity to expand upon the failures at LPS an GMAC, to demonstrate who benefits by monies flowing in abscence of certainty as to how the money is to be distributed. As a practical matter, the state escheat laws should kick in where the borrower does not know –and the claimants cannot prove where the money is supposed to be going.

  7. the banks with the aid of our governments Been awarded so much legal “rope” they may just end up hanging themselves with it. Law of karma

  8. Bob G.

    We need discovery. WF – as trustee must account for everything. See my post to Neil’s new post today.

  9. ANON –

    You said re WF:

    “only in capacity as “trustee” to dismantled trusts. WF is, of course, alive. But, pretend lenders try to cling to original trust – that is false.”

    How would you prove and use this in court?

  10. There is a God…and now I am sure these guys are F^&^K’d.

    Strength and Honor to all who read Neil’s website
    and to all who continue their comments.

  11. ANONYMOUS
    Please if possible call me 540-687-0004 so that I can share something nice about my hearing held yesterday.

    Thanks and Be Safe

  12. NEIL GARFIELD GET WITH THE PROGRAM A FACEBOOK PAGE.

  13. Bob G – only in capacity as “trustee” to dismantled trusts. WF is, of course, alive. But, pretend lenders try to cling to original trust – this is, false.

  14. What everybody here has been waiting for…

    http://www.nytimes.com/2010/09/21/business/21mortgage.html?_r=1&ref=business

    The GMAC story has now appeared in the NY Times. Ask your judges to take judicial notice. No judge can ignore this. If the pretenders don’t show up with the original note now, it should be over for them.

    When you told them about this it sounded like rap music to them…when the NY Times tells them, it sounds like Pachabel’s Canon.

  15. GMAC Mortgage, one of the nation’s largest servicers of home loans, said it is suspending sales of foreclosed homes and putting a moratorium on evictions of borrowers who have fallen behind on their mortgages in 23 states.

    The company, a unit of Ally Financial Inc., which is majority-owned by the U.S. government, said the suspensions are intended to give it time to review its foreclosure procedures. The actions come one week after several Florida law firms representing lenders in GMAC-related foreclosures withdrew their cases against borrowers, an indication that they believe the foreclosures were mishandled by GMAC.

    In states that have so-called judicial foreclosure laws, banks must file a summary judgment motion in order to take possession of a property where the owner is in default on the loan. These motions must be supported by a “witness” who has reviewed the file in question and made sure the lender actually owns the mortgage note in question, and that the loan is actually in default.

    According to a sworn deposition given in June, GMAC employee Jeffrey Stephan, who was described as a foreclosure specialist working in a GMAC office in Pennsylvania, said he signed off on hundreds of these legal documents per day without examining the documents associated with the case, which sometimes included loan documents and other verifications. In addition, in a number of cases these legal documents weren’t signed in the physical presence of a notary public.

    Gina Proia, an Ally spokeswoman, said an “internal review has revealed no evidence of any factual misstatements or inaccuracies” in the legal documents, such as related to the loan balance and its delinquency.

    One of the hallmarks of the foreclosure crisis has been the court’s inability to deal with the complex paperwork that comes with mortgages that have been packaged, sliced and diced and resold to investors as securities. The securitization process has made it difficult to identify who actually owns a mortgage. Some troubled borrowers have tried to use these quirks to argue that mortgage servicing companies don’t have standing to foreclose on them because they can’t prove that they actually own the mortgage.

    “This is a legal reaction [that] underlies a much bigger problem” facing GMAC and the mortgage-servicing industry, said Christopher Whalen, managing director for Institutional Risk Analytics. “Banks don’t know who owns the loan. That wasn’t ever an issue because collateral values kept going up.”

    “The whole property system depends on courts doing their job right. When you start cutting corners, you’re going to run into problems,” said Mr. Whalen.

    Mr. Whalen said lawyers who have provided misleading information to courts could face criminal charges, including jail time.

    The result of GMAC’s actions are likely to further slow down already exaggerated foreclosures timelines, he said, and they could prompt homeowners become more aggressive in taking legal action to stop foreclosures.

    Meanwhile, the office of Florida’s Attorney General has opened an investigation into at least four large law firms that process foreclosure actions, including Florida Default Law Group, a Tampa, Fla., firm that the attorney general said “appears to be fabricating and/or presenting false and misleading documents in foreclosure cases.”
    —Nick Timiraos
    contributed to this article.

    Write to Aparajita Saha-Bubna at Aparajita.Saha-Bubna@dowjones.comandRobbie Whelan at robbie.whelan@wsj.com

  16. Can anyone comment on how to seek justice under this set of circumstances?

    Virginia Court Shoots Down “Splitting the Note” and “Double Recovery” Theories

    April 15, 2010

    In Forez v. Goldman Sachs Mortgage, Lexis 35099 (E.D Va. 2010) plaintiffs asserted that Defendants lacked “authority” to foreclose under Virginia’s non-judicial foreclosure statutes. Second, Plaintiffs argued that loan securitization bars foreclosure because securitization “splits” the Note from the Deed of Trust or because “credit enhancements” related to securitized notes absolve borrowers of any liability under a mortgage loan as a “doub1e recovery.”

    The only problem was that there was no evidence the subject loan had been securitized. The loan had been originated by CTX Mortgage who had sold it to Goldman Sachs who subsequently sold it to Freddie Mac. The list of usual suspects included MERS as nominee for the lender and Litton as the servicer. Regardless, the court held that under Virginia law negotiation of a note or bond secured by a deed of trust or mortgage carries with it the security instrument without formal assignment or delivery. The court cited toStimpson 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.”). And in Williams v. Gifford, the Supreme Court of Virginia ruled:

    [I]n Virginia, as to common law securities, the law is that both deeds of trust and mortgages are regarded in equity as mere securities for the debt and whenever the debt is assigned the deed of trust or mortgage is assigned or transferred with it.

    139 Va. 779, 784, 124 S.E. 403 (1924).

    “Thus, even if, as Plaintiffs assert without any factual support, there has been a so-called “split” between the Note and the Deed, the purchaser of the First Note, in this case GSMC and then Freddie Mac, received the debt in equity as a secured party.”

    The court further noted “federal law explicitly allows for the creation of mortgage-related securities, such as the Securities Act of 1933 and the Secondary Mortgage Market Enhancement Act of 1984. Indeed, pursuant to 15 U.S.C. § 77r-1, “[a]ny person, trust, corporation, partnership, association, business trust, or business entity . . . shall be authorized to purchase, hold, and invest in securities that are . . . mortgage related securities.” Id. § 77r-1(a)(1)(B). Foreclosures are routinely and justifiably conducted by trustees of securitized mortgages. Therefore, the court held “Plaintiffs arguments for declaratory judgment and quiet title based on the so-called “splitting” theory fail as a matter of law.”

    According to Plaintiffs “any alleged obligation was satisfied, once the default was declared, because the various credit enhancement policies paid out making any injured party whole.” Plaintiffs averred that foreclosure on the Property to collect on payment owed under the First Note will result in a double recovery prohibited by Virginia statute and case law. However, the court went on to say that Plaintiffs’ double recovery argument against Defendants is based on false assumptions because neither MERS, Litton, nor Goldman own the Notes or securitized the Notes. Therefore, the court concluded, none of the named Defendants could receive a “double recovery,” assuming such claim existed.

    Judge Claude Hilton reminded the Plaintiffs “no provision in the U.S. or Virginia Codes supports [their] argument that credit enhancements or credit default swaps (“CDS”) are unlawful. No decision from any court in any jurisdiction supports such a claim.”

    Hilton further stated that “Plaintiffs’ double recovery theory ignores the fact that a CDS contract is a separate contract, distinct from Plaintiffs’ debt obligations under the reference credit (i.e. the Note). The CDS contract is a “bilateral financial contract” in which the protection buyer makes periodic payments to the protection seller. See Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 375 F.3d 168, 172 (2d Cir. 2004).”

    If the credit event occurs, noted Hilton, the CDS buyer recovers according to the terms of the CDS contract, not the reference credit. “Any CDS “payout” is bargained for and paid for by the CDS buyer under a separate contract. See In re Worldcom, Inc. Sec. Litig., 346 F. Supp. 2d 628, 651 n.29 (S.D.N.Y. 2004) (explaining that a premium is paid on a swap contract to the seller for credit default protection, and if the default event does not occur, payer has only lost the premium).”

    The court held that “CDS do not, as Plaintiffs suggest, indemnify the buyer of protection against loss, but merely allow parties to balance risk through separate third party contracts. Therefore, Plaintiffs’ “double recovery” argument fails as a matter of law.”
    0

  17. Anon

    Where I am in NY, WF is still initiating foreclosure actions. So how can they be “gone and kaput?”

  18. Bob G.

    Completely agree with your last post. Do not know what “word intended” means – but agree with what you state.

    As far as OCC – losing battle. Wells Fargo is just falsely named party – not that they were not sometime involved – they are just not involved anymore – they are gone – caput – over, vanished, – as to falsely securitized trust – and as trustee. As far as current involvement – WF has none.. And, OCC – well, that is why we need Consumer Protection Agency -OCC just did not do their job..

    Florida – may be source of much contention – and challenge – Alina – much thanks may go to you.

  19. Additional Comment on Banks Acting As Trustee and not as Banks…

    In their capacities as trustees, the banks have no risk of asset or loan loss, no branch offices in the state, they don’t offer checking accounts or make loans, they don’t offer CDs, personal loans, real estate loans; the banks’ assets are not exposed to interest, credit or liquidity risks; they don’t issue certified or teller’s checks to customers; they don’t effect wire transfers for customers; they don’t offer safe deposit boxes to customers; or offer the banks’ stocks or bonds for sale; they are not being regulated by either the O.C.C. or State Banking Commissioners or Secretaries of State. (Although they should be regulated by the latter and obtain authorization to do business as a foreign corporation or business entity.)

    In short, when they are acting solely in their capacities as trustees, they are nothing more than a common law or business trustee.

  20. O.C.C. Letter to Wells Fargo & Bank One

    Comptroller of the Currency
    Administrator of National Banks
    Washington, DC 20219

    Interpretive Letter #1016
    February 2005 VIA FIRST CLASS MAIL 12 CFR 34.4

    January 14, 2005
    Anthony J. Sylvester
    Riker, Danzig, Scherer, Hyland & Perretti, LLP
    Headquarters Plaza
    One Speedwell Avenue
    Morristown, NJ 07962-1981

    Madeline L. Houston
    Houston & Totaro
    56 Broad Street, Suite 1
    Bloomfield, N.J. 07003

    Subject: Wells Fargo Bank, Minnesota, N.A. v. Alberta Harris, et al.
    Docket No. ESX-L-4676-02

    and

    Bank One National Association v. Feinstein
    Docket No. F-11450-00

    Dear Mr. Sylvester and Ms. Houston:

    This letter is in response to your letter dated December 13, 2004, seeking the views of the Office of the Comptroller of the Currency (“OCC”) concerning preemption of certain state laws in connection with claims and defenses asserted by the parties in the above-named cases. You requested the OCC’s views at the direction of the Honorable Kenneth S. Levy, J.S.C., presiding judge in this litigation. For the reasons stated below, based on the facts presented in the materials provided to us, we believe that neither 12 C.F.R. § 34.4 nor the National Bank Act preempts application of the state laws at issue here to loans simply because they were purchased and held by national banks acting as trustees in connection with issuance of the mortgage-backed securities involved in this case.

    Background

    According to the materials provided with the December 13th letter addressed to me, Delta Funding made a mortgage loan to Alberta Harris in December 1999 (Wells Fargo Complaint,

    First Count ¶1), and subsequently assigned the mortgage to Wells Fargo “as Trustee for Delta Funding Home Equity Loan Trust 2000-1” (Wells Fargo Complaint,

    First Count ¶4). Delta Funding made a mortgage loan to Dequilla Robinson in November 1999 (Bank One Statement of Material Facts Not in Dispute ¶3), and subsequently assigned the mortgage to Bank One National Association “as Trustee in Trust for the Registered Holders of Delta Funding Home Equity Loan Asset-Backed Certificates Series 1999-3” (Certification of Harold L. Kofman, Esq. ¶¶1, 3). There is no indication that either Wells Fargo or Bank One made the original mortgage loans to Alberta Harris or Dequilla Robinson, nor does any party assert that Wells Fargo or Bank One has any other interest in these transactions except as trustees for investors in the mortgage-backed securities.

    As trustee acting on behalf of the investors in Home Equity Loan Trust 2000-1, Wells Fargo filed suit against Ms. Harris alleging that she had defaulted on the loan made by Delta and sought to foreclose on the real estate she had pledged as collateral for that loan (Wells Fargo Complaint, First Count ¶¶1-14). As trustee acting on behalf of the investors in Delta Asset-Backed Certificates Series 1999-3, Bank One filed suit against Jack Feinstein, as Administrator Ad Prosequendum for the estate of Ms. Robinson, seeking to foreclose on the real estate she had pledged as collateral for the loan made by Delta (Memorandum of Law in Support of Plaintiff Bank One National Association’s Motion for Summary Judgment at 3-4). Ms. Harris and Mr. Feinstein (“Defendants”), through counsel, opposed the foreclosure actions. They alleged in counterclaims against the Banks (and third-party claims against Delta and others) defenses based upon alleged violations of the New Jersey Consumer Fraud Act (“CFA”), N.J.S.A. 56.8-2, which, among other things, proscribes unconscionable practices in real estate transactions. N.J.S.A. 56.8-2. See Defendant’s Brief in Opposition to Plaintiff Wells Fargo’s Motion for Partial Summary Judgment at 3; Defendant’s Brief in Opposition to Plaintiff Bank One’s Motion for Summary Judgment at 4. Asserting that federal law authorizing national banks to make and purchase real estate loans preempted the Defendants’ state law defenses under the CFA, Wells Fargo and Bank One, as trustees acting on behalf of the investors, sought partial summary judgment on the cross-claims.

    Discussion

    Pursuant to 12 U.S.C. § 371, national banks may “make, arrange, purchase or sell loans or extensions of credit secured by liens on interests in real estate, subject to * * * such restrictions and requirements as the Comptroller of the Currency may prescribe by regulation or order.” The OCC’s real estate lending regulations provide that, “[e]xcept where made applicable by Federal law, state laws that obstruct, impair, or condition a national bank’s ability to fully exercise its Federally authorized real estate lending powers do not apply to national banks.” 12 C.F.R. § 34.4(a).

    The Banks assert that application of the CFA is preempted because it would interfere with their power as national banks to purchase loans as authorized under 12 U.S.C. § 371, and that holding them liable for violations of the CFA as loan purchasers would be contrary to 12 C.F.R. § 34.4(a), which preempts state laws that interfere with national bank real estate lending authority.

    – 2 –

    Section 34.4(a)(10) states that national banks “may make real estate loans under 12 U.S.C. § 371 without regard to state law limitations concerning * * * [p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages.” 12 C.F.R.§ 34.4(a)(10) (emphasis added). However, in no sense, under the facts presented, can the Banks be viewed as making a real estate loan under 12 U.S.C. § 371 and 12 C.F.R. § 34.4. The Banks did not originate the loans. They did not fund the loans at inception. Nor did they “purchase” the loans as part of any real estate lending program comprehended by the regulation. Here, the Banks act as trustees for the benefit of investors in the trusts. The substance of the transaction is that the investors, not the Banks, are purchasing the loans that have been made by Delta. The investors own the beneficial interest in the loans held by the Banks as trustees. And the effect of any liability for violation of the CFA ultimately falls on the investors. Nowhere do the Banks allege that they themselves, as opposed to the trusts they represent, are exposed to liability for any violation of the CFA. For all these reasons, 12 U.S.C. § 371 and 12 C.F.R. § 34.4(a) simply do not apply to the transactions by which the Banks acquired legal title to the loans in the circumstances at issue here.

    With respect to the activities of Wells Fargo and Bank One as trustees, the banks derive their power to act as trustees from 12 U.S.C. § 92a. When state law conflicts with national banks exercising powers granted to them by federal law, the Supremacy Clause of the United States Constitution requires that the state law yield to the paramount authority of federal law, with the result that application of the state law to national banks is preempted. The Supreme Court has explained this principle stating that it interprets “grants of both enumerated and incidental ‘powers’ to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law.” Barnett Bank of Marion County v. Nelson, 517 U.S. 25, 32 (1996).
    As the Supreme Court demonstrated in its review of preemption cases in the Barnett case, Supremacy Clause principles animating conflict preemption have been expressed in a wide variety of phrases that do not yield materially different meanings, including “stand as an obstacle to,” “impair the efficiency of,” “significantly interfere,” “interfere,” “infringe,” and “hamper.” See Barnett, 517 U.S. at 33. Thus, if application of the CFA to the loans held by the Banks as trustee were to obstruct, impair, condition, or otherwise interfere with the Banks’ exercise of fiduciary powers granted to them under federal law, the state statute would be preempted.

    Based on the facts presented, we do not believe that to be the case. The Banks have not claimed that application of the CFA would impair their ability to act as trustee in these circumstances or that the state law otherwise interferes with the performance of their legal obligations as trustee. Nor could they claim that having to respond to state law defenses to recovery on assets held in trust obstructs or impairs their power to act as trustee absent some indication that the state law infringes their authority, conditions their actions, or imposes a burden in a way prohibited by federal law. In short, the Banks’ authority to act as trustees under federal law does not insulate the assets the Banks hold in trust for the benefit of investors from state law requirements otherwise applicable to those assets.

    – 3 –

    We trust that the foregoing is responsive to your request.

    Sincerely,
    /s/ Daniel P. Stipano
    Daniel P. Stipano
    Acting Chief Counsel
    Cc: Hon. Kenneth S. Levy, J.S.C.
    212 Washington Street
    The Wilentz Justice Complex
    General Equity, 8th Floor
    Newark, New Jersey 07102

    – 4 –

  21. Anon – word intended.

  22. Here is some Hope.

    GMAC Halts All Foreclosures In 23 States On Heels Of Florida Judge Finding JPM Committed Court Fraud In Mortgage Misappropriation

    As we pointed out last week, a certain judge in Florida set quite a precedent when he found that JPM, as servicer for a Fannie mortgage, had committed court fraud by foreclosing while not in possession of the actual mortgage. We then concluded that “The implications for the REO and foreclosures track for banks could be dire as a result of this ruling, as this could severely impact the ongoing attempt by banks to hide as much excess inventory in their books in the quietest way possible.” Not a week has passed since, and we are already proven right. Today, Bloomberg discloses that GMAC Mortgage, a unit of the affectionately renamed Ally Bank, has halted all foreclosures in 23 states, including Florida, Connecticut and New York. Who would have thought that being caught with your pants down, doing something so blatantly illegal as collecting on something you do not own, would actually have adverse consequences. And GMAC is just the beginning – we expect many more mortgage servicers to scurry now that the light has been shone on their shell game. The silver lining – the permabull pundits will cheer this development now that foreclosures will plunge off a cliff as mortgage holders and servicers scramble to reconcile who owns what, and just on whose balance sheet the mortgage flows should show up.

  23. David C Breidenbach

    Will get to email you soon – but not yet. Indenture trustee is not, and never was, the real lender/creditor/mortgagee. All else you say is food for thought.

    Bob G – your most important word is “derivative.” Do not know if you intended this way – but that is what it is all about.

    Fraud is big time cover-up.

  24. angry and not taking it learn from this 70 year old man

    RICHARD FINE

    http://blog.fulldisclosure.net/2010/09/richard-i-fine-is-free-result-of.html

    BE STRONG AND COURAGEOUS

  25. 1/2009 Trial Mod no answer/lost paper work on and on re faxed in paper work
    Car wreck for me
    Started Company Stark Medical Supply/ DME Company and Cherish Foundation
    I also take care of two patients in my home disabled. These two patients are part of a Study with UCD and Cherish. The investigator examined these patients inside an hyperbaric chamber during their treatment and documented
    The improvement of motor power and spasticity. Stroke and Traumatic Brain Injury in combination with hyperbaric treatments. They came both in Wheelchairs and are now walking…

    Chase called 1-20 -2010 to raise my payment on the trial payments.
    I Asked when perment Mod. said any time.
    She said they still don’t have my bank statements. I would re faxed again.
    2-5-2010 chase sent letter to ask for verification of insurance. I faxed copy in
    3-5-10 Chase sent letter /stated of none compliance/no insurance
    I faxed insurance.
    4-15-2010 spoke with Chase to remind them to stop the trustee Sale. No problem she would fax over to with pull my house out of trustee Sale
    Guess what sale went through 4-21-2010
    I called Chase they said they would check into .2 weeks passed no one in that dept would speak to me.
    This is the best part REALTOR, REO Specialist called and said Quote” no record of a pending loan Modification..
    From: Griffin
    Sent: Friday, May 21, 2010 2:31 PM
    To: ‘sherry Anna
    Subject: Request for information & copies of tenant leases

    Hi Sherry,

    Per our conversation earlier today the bank has no record of a pending loan modification for the property located at: Could you please update me for the bank on the following: Please have all tenants completed attached “Tenant Contact Sheet”. Attached as a pdf and doc file. Copies of leases you have between you and occupants/tenants. Any additional pertinent documentationPlease contact our office if you have any questions.
    Thanks
    I called Chase / The Executive office/ May 21, 2010 I have first name and last and got a call back from her with her phone number Now Becky Howe will get back to me in 72 hours
    Let see.

    I told her my story.

  26. so lets see..
    1-wells F.. wont &[or] cant warranty title,
    2-chase is suspending foreclosures ..[my guess its in judicial states only ]
    http://mattweidnerlaw.com/blog/2010/09/bombshell-gmac-suspends-all-foreclosures/
    these dogs have fleas with tiny little banker heads.

  27. ALLY’S GMAC STOPS ALL FORECLOSURE AND FORECLOSURE SALES IN 23 STATES
    Conn,Fla,Hawaii,Illinois,Ind,Iowa,Kansas,kentucky,La,Maine,Nebraska,New Jersey,NM,NY,NC,ND,Ohio,OK,
    Penn,SC,SD,Vermont Wisconsin
    http://www.bloomberg.com
    They wouldn’t tell why!!! But we know why!! So things are shacking out. Hopefully they will all stop this insanity.
    Thanks Neil for your sight to FYI the public.
    Debbe

  28. Mike Maunu; you answered your own question. Call an attorney that has dealt with plenty of QT suits. Figure 5 grand or so? someone please update cost of QT by their state, this is an average in mine, not meant to be accurate

    and don’t be surprised of Ginnie or Freddie actually claim to own the loan. Bankruptcy of WAMU is not complete, and BK trustees are attacking it, investors are objecting and holding up the transfer it appears.

  29. pelucheven

    Here’s something to consider re WF warranting deeds. It is my understanding, that as a national bank, they are not permitted to issue a warranty deed. However, if they are acting solely in their capacity as a trustee of a business trust, and not as a national bank, they could warrant title.

    Now here is something else to cogitate: If a bank trustee is trying to hide behind the National Banking Act of 1864 in these proceedings, and if it is acting solely in its capacity as trustee, and not as a national bank, then it doesn’t get federal preemption protection and must comply with state laws. Also, as trustee, the bank didn’t make the loan. But in a foreclosure action, it acts as if it did. It typically obtains judgment and credit bids in at the referee’s sale, taking back a referee’s deed. But a national bank cannot own or invest in real estate other than for its banking and branch operations, and real estate that it takes back in foreclosure. But since it wasn’t the lender, but merely the trustee, it cannot legally buy the foreclosed property at the foreclosure sale because it’s not foreclosing on its own loan.

  30. What about a situation where the servicer, Chase, goes into bk court and argues that they received the note from wamu using strictly the FDIC letter of transfer of assets. The judge buys it and rules they have standing.

    However, we have the title and securitization report from Neal’s office complete with prospectus, PSA, other SEC filings and a recent Master Servicer report to investors after the foreclosure filing showing that the note is supposed to be in the trust.

    We also have an FDIC letter through FOIA that they never received any of the notes from wamu and therefore have no records showing note was transferred. This was Chase’s whole case which Judge allowed.

    Would it make sense to file for quiet title naming chase and trust as defendants?

    BTW – nothing showing transfer has been recorded except original loan and trustee sale notice.

  31. I guess we need to in addition to actions to quiet title, to challenge the sales at the court steps since most likely they are being performed in violation of state and federal laws. Many banks are using the credit bid process, even though they are not the actual holders in due course. In Virginia we have the Wet Settlement Act, if the so called lenders or creditors are in violation of this statutes the whole sale is void.

    It is considered to be a fraudulent transaction. I am very sure that there are statutes like this in all 50 states of the great but currently depressed nation.

  32. PULLED FROM market-ticker.org

    Here It Comes? (9/18 Real Estate Edition)

    Just a few days ago I wrote on this case:

    WaMu/JPM tried to evict someone (foreclose) when they not only didn’t own the mortgage at the time, they NEVER owned it!

    And the last paragraph was…..

    Have we had BANKS that have taken title to homes in this fashion when they never owned the note, and thus they now have literally stolen via fraudulent legal process property that actually belongs to someone else?

    NOW we have this from Naked Capitalism:

    In the event that the loan goes into foreclosure at a later date, the then-current owner of the loan files the foreclosure and sells the property to a new owner, often at auction. The land records would show a deed of transfer from the investment bank to the new owner. This creates a break in the chain of ownership of the mortgage rights. In many cases, the transfer of ownership of the mortgage loan has gone from the original lender, through several owners, and then to the foreclosing bank, none of which is recorded on the property title history. Technically, the foreclosing bank has no recorded title rights to foreclose in the first place…

    Oh, and the banks know it too. Here’s the cute part:

    With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada.

    Now I’m gonna lay forward something that’s very, very dark.

    And if it’s true, it both explains the “addendum” and how it is that we have had a property meltdown, yet at least in the conforming and ALT-A space the MBS holders have not been filing for acceleration, nor for fraud, nor have they been hosed, nor have the banks been forced to take the marks against the loans that have hard defaulted – that is, for which there is no possibility of cure as they have been foreclosed upon and resold!

    For a year now I’ve been trying to figure out how the flows work here, and locate them. I’ve been unsuccessful. But until the case I cited in the above Ticker, I couldn’t figure out what I was missing.

    Now please note folks:

    This is a theory, for which I cannot currently provide closure and certainty on. So don’t “take this to the bank” – but do take it as a possible explanation, and if it’s happening, the fraud being perpetrated is so dark, and so pervasive, as to literally blow all of the major institutions involved straight to Mars.

    When a loan was made during the “go-go” years it was typically funded via a warehouse line somewhere. Some lenders had their own, some funded via the FHLB banks (e.g. Countrywide), some funded via warehouse lines from the major banks such as WaMu, JPM, Citi and Bank of America.

    These loans were then bundled up. Some were sold to Fannie and Freddie, some (the non-conforming ones) were not. But all were then packaged into securities, tranched and sold off.

    So far we all “get it.”

    Well, someone has to service those loans. And here the major banks all got their fingers in the pie.

    A “servicer” is simply the guy who takes your payment every month and distributes it to the MBS holders as provided for in the master trust agreement that governs the MBS you bought. That agreement specifies who eats what if things don’t perform, how loans can be modified and if they can, and so on.

    Normally, when everything is going well, being a servicer is a license to print money, because the servicer gets to deduct a small piece (a few basis points) from every payment.

    But when things go poorly, the servicer can either make money or lose it – and the losses can be material.

    See, the servicer is supposed to advance the payments to the MBS holders. In order for him to not have that obligation he must declare a given loan as impaired and “doubtful.” As counterbalance to this potential millstone (he might be wrong about his declaration that the impairment is unlikely to be permanent) he gets to keep fees and costs (e.g. late fees, etc.)

    So now let’s presume that we have a bunch of people living in homes where they have not made payments for a long time – a year or more, sometimes two. And let’s further presume that these loans are not marked on the books at their recovery value, because doing so causes the trust to violate covenants and the losses then flow through to the MBS holders, or even worse, that event might trigger acceleration clauses and/or Credit Default Swaps (CDS) written against them – sometimes by the originating bank, as was the case with Wachovia’s “Pick-A-Pays” (said CDS are now at Wells and apparently hidden off balance sheet!)

    We know #1 is happening. We can presume #2 is happening because many of these people who have been living “rent and payment free” for a year or more have yet to have their loans reported as delinquent to the credit bureaus. There is no reason not to report a loan as delinquent that is in fact delinquent except to hide the true status from outside third parties.

    Ok, so if #1 and #2 are happening, where is the servicer getting the money to advance to the MBS holders from, if they’re not being paid?

    This should all be on someone’s balance sheet and cash flow statement. That is, I should be able to look at Fannie, Freddie, and the servicer’s 10Qs and 10Ks and find flows that (roughly) correspond to the delinquent loans out there, especially for those loans held by the GSEs, on which allegedly there has been no deficiency or default on any of the MBS payments.

    Well, if someone can show me those flows on a balance sheet I’d like to see a reasonably-full accounting of it, because I’ve not been able to find anything that approximates what has to match what we’ve all been told is going on in terms of who’s not paying and in what quantity and amount, especially when one takes into account the sale prices for actual resales in the bubble states where haircuts have often exceeded 50%.

    So let’s retreat into the dark a bit.

    Let’s say that Frobozz Bank is a servicer for Joe’s GSE and Massage Parlor. Let’s further presume that Frobozz was involved in making some of the loans that Joe’s GSE bought.

    Frobozz, as a servicer, comes into a courtroom and prosecutes a foreclosure against Jane and John Doe. Jane and John took out a $300,000 mortgage, haven’t been making their payments, and they know damn well they’re going to eventually get kicked out of their house. A year goes by and finally a Lis Pendens is filed and, ultimately, the case is heard.

    Sir Judge-A-Lot behind the bench is hearing 100 of these damn things a day. The “defendants” don’t show up, because they know they’re hosed anyway – they haven’t been paying. With nobody on the other side of the counsel table in the courtroom the judge looks at the filing, sees an affidavit that says that Frobozz owns the mortgage, rubber-stamps it and bangs his gavel – done.

    Ok, now Frobozz has title to a house!

    Or do they?

    Well, the judgment says they do even though the original loan either wasn’t theirs ever or they were paid in full when it was sold into the trust and thus have no standing.

    Nonetheless, they have a judgment and an alleged deed. So they go market it. The house gets listed with Jack’s Auctions, who promptly sells it for $150,000, plus a 5% buyer’s premium.

    Frobozz now has $150,000 but the MBS trust still has an open deed of trust or a lien on the old one, neither of which has been satisfied!

    Who gets the money from Frobozz’s “successful” auction?

    Well now that’s a good question, isn’t it? And it’s one that’s unresolved.

    We could resolve this if, in point of fact, Joe’s GSE files a release on the lien at the county and a transfer to Frobozz, in which case we have a complete chain of title and no problem.

    But see, there’s a problem here – if we were seeing that happen then there would be no reason for the “addendum” that is being proffered with these sales, nor would there be cases in which Frobozz is being slung against the wall for bringing a fraudulent foreclosure action without standing, as they would have come to court with a valid assignment in hand for which they paid good money, and there would be a recorded transfer and release from Joe’s GSE to that effect at the county! Nor would it make sense for a law firm to participate in bringing these cases and risking their law license for what amounts to filling in a few blanks and standing in a courtroom for 15 minutes – small-ball for them too in terms of the money made for the risk taken, even though the volume is good.

    Now I’m sure there will be those out there in the bankster community who will call all of this “highly speculative” or worse.

    Fine. Maybe they’re right and this is nothing other than sloppy procedure.

    Then show me the flows that explain how all of these GSE and non-agency MBSs that haven’t defaulted are being covered – where’s the money coming from and going to, including the impoundment for the eventual payment of principal on the MBS when it matures.

    Explain to me why we have people who haven’t made a payment for a year or more and yet their loan is not reported as delinquent with the credit bureaus and they’re still in “their” house.

    Explain to me why you’re coming into court to file foreclosure actions without a valid transfer of the interest in the property in hand, for which you can document consideration, and which was recorded at the county with documentation stamps paid.

    And finally, explain why Wells is proffering an addendum to the sale contract for these “foreclosure resales” in which the buyer is agreeing to release Wells if, in point of fact, they have no marketable title at the time they allegedly conveyed it! In other words, explain to me why a bank is putting in front of someone a paper that says that if they paid $100,000+ for an empty box that’s just tough bananas – for the buyer – and Wells gets to keep the $100k!

    Folks, if this what I sniffed out in the other Ticker is in fact what’s going on we are not talking about “small ball.”

    In August alone nearly 100,000 homes were repossessed. This is claimed to be up 25% since last year. Therefore, we are talking about over a million homes potentially involved here.

    If the average amount of money involved is $200,000 (a wild guess and probably low, given the mix of foreclosures by state and locale) then the amount of money involved in the last year alone is close to $200 billion.

    If – and I stress if – this is going on then by far this is the biggest rip-off during this entire sordid financial mess.

    With Treasury having allegedly “guaranteed” all GSE losses through the end of next year should this be discovered to be factual the taxpayer will have literally had roughly half a trillion dollars stolen from him and a couple million homes with questionable at best title work.

    Since there is no possible way the taxpayers will sit for all these new homeowners being evicted by the GSEs the taxpayers will be once again forced by what amounts to financial extortion-at-gunpoint to eat this abuse.

    Since it seems to be impossible to get an indictment sworn against a banker or bank itself no matter what they do, including being involved in ripping off taxpayers in Jefferson County, funneling money to drug dealers in Mexico or diverting funds to Iran these institutions are likely to – once again – walk off with at worst a hand-slap – and all the money.

    We deserve answers here folks. There is no reason for a bank handling a foreclosure resale demanding “at the last second” (literally, at the closing table) a release from title defects they in fact were responsible for causing through the processing and handling of the original loan that went into default and occasioned the foreclosure and resale. A claimed defense of “well the title might have been clouded before we got it” doesn’t wash as no MBS structure would knowingly take deeds and mortgages for which there was no adequate lender’s title insurance and a clean chain of assignment up to the point that the previous loan that went into default was made.

    This whole thing stinks like dead fish, and what’s worse is that despite a year’s worth of combing through various financial filings I can’t make the flows balance. Now maybe I’m missing something obvious, and I’ll freely admit that I’m no forensic accountant, but I’ve read a few balance sheets and cash flow statements in my years (comes with having run a company and being an active investor.)

    We, FAFSA, Congress and the GSEs need answers to these questions. And if a scam of this magnitude is being perpetrated we not only need answers, we need to know who’s involved in it, who was complicit in it, and who needs to be held to account – as far up the line as it goes.

    And this time, if there’s anything to this, we CANNOT accept ANYTHING LESS than full criminal prosecution on each and every count, along with revocation of corporate charters for the firms and hard prison time for the principals involved.

  33. The securitization process incidentally had the effect of creating a front separating the lender from the home-owner. The apparent or nominal lender–the AHM group or Option One etc—fly by nights or “burn companies” —marketed loan products to home-owners. These products were often predatory. The securitization process concealed the real lender from view. Today the borrower and others realize the loans were predatory. The securitization creates the appearance that the homeowner notes were negotiated to a trust in favor of innocent investors –the trust took the homeowner note without notice of the predation that was involved with the origination. In fact the trusts are shams, created to meet FAS 140 off balance sheet finance rules. There is a substantial liklihood that the Indenture trustee is in fact the real lender upon whose balance sheet the homeowner note is an asset and the investor IOU is a liability. If the banks had not used the FAS 140 subterfuge it would have been obvious that they were undercapitalized and the financial system strained. Homeowners need to look through the trusts to identify the true economic beneficiary of the securitization facade–the promoter–the filers–the ones on whom the burn company relied to gin up the incomprehensible trust waterfalls etc. The real promoter is subject to predatory loan defenses. The collection agencies–servicers like AHMSI and their partner collector LPS want to maintain the illusion in order to conceal the reality that big banks as custodian/trustee etc were the real lenders–and defenses should be raised against them.

    If they want to maintain the illusion that the trusts exist—then the custodian must authenticate the homeowner note. Nothing less than proof of note and how they got hold of it is adequate to assure that the note is not a fraud or forgery and that the holder has been revealed sufficiently well to raise the defenses of predatory lending, unjust enrichment–dirty hands, and the fact that the holder may not have paid value for the claim. Is it legal and proper for a claimant that paid 10cents on the dollar for a mortgage note to receive the face amount-including a deficiency?

    Maybe if UCC is in force, but if the lenderclaimant never bothered to follow the trust rules in respect of UCC filings then how can the same party later seek to claim application of UCC rules to gain an unwarranted windfall? Dirty hands comes into play in enforcement of a mortgage by a court of equity. If the whole deal from start to finish was a joint fraud on homeowners and investors, should the perp be allowed to come back later and enforce the illegal contract–the predatory note?

  34. Here is a possible legal argument to the claim that the homeowner is a deadbeat and is only trying to get the house “for free.”

    The homeowner getting the house for free may be the derivative result of successfully preventing a legal stranger (the pretender lender) from getting the house “for free.”

    The analogy to the court should be to imagine that you’re sitting in your (unmortgaged) home one day and a gang of hooligans bust down the door and claim their right to occupy your home, dispossess you of it, and sell it for their benefit., thereby stealing all your equity.

    The court would have no problem coming to your rescue, because the hooligans could not establish any legal right whatsoever to your home and its equity. Use the words to paint a picture that the judge can see in his own mind, and therefore relate to. The mental scene painted for the judge allows the court to consider your defenses and possible remedies in the light that you want them to be considered based on the applicable law.

    The key point is not to be appearing to be seeking to get your house for free, but to keep others from doing so without a basis in law. If the crooks fail, you win by default. But the thrust should always be to keep the financial hooligans from taking a house from you that they are not entitled to take from you. (“Somebody may be legally entitled to do so, your Honor, but it is not them.”)

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