Deliberate Destruction Of Documents: Securitization Evolved into a Myth


“Then guy then laughed nervously and said, “Well, if you’re right, we’re ****ed. We never transferred the paper. No one in the industry transferred the paper.”

Editor’s Note: It is very rewarding to see the work of Karl Denninger and others who are taking  my work and not only moving it along, but advancing on it. LUMINAQ is now offering not only the title and securitization searches but actual accounting records showing that the loans were reported to the creditor as performing at the same time they were being declared in default, along with payment to the creditor. Is it a default if the creditor received payment? Obviously not. And THAT is why I keep saying that the non-payment by the borrower is NOT the same thing as a default. It is the non-receipt by the creditor of an expected payment that is a default.

I guess the lesson here is whatever you think is true isn’t. Whatever you think is impossible, is the rule. In EVERY CASE that I have reviewed, seen reviewed or reported to me the basic facts are the same: Except for a few loans from the 2001-2003 era, NONE of them were actually securitized, and from what I can see and what title experts are reporting under promise of anonymity, none of these loans are actually secured by the property. The lien wasn’t just subject to the old “failure to perfect the lien” doctrines, they were never secured to begin with.

The liability of the borrower inured directly to the benefit of an unnamed principal that was in turn the undisclosed agent of another unnamed principal, which was the account representative of undisclosed lenders who received a bond, not the note signed by the borrower. The parties named on the mortgage or deed of trust had nothing to do with the finances, payments or accounting for the amount advanced by the lender nor the proceeds of payments receivable by the lender. The lenders received promises to pay from people OTHER than the homeowner.

The note was payable to a party who did not loan the money and never touched the money and who is not due any money now. The same is true for the parties named as mortgagees, beneficiaries or lenders in the mortgage or deed of trust. And they were all different parties. So the obligation was payable to the lender, the note was payable to a disinterested intermediary, and the mortgage or deed of trust was in favor of still another disinterested party. There is no law I know of that would allow a disinterested party named in an encumbrance to foreclose or enforce a debt that is not due to THAT party. The encumbrance is a myth.

As the article below corroborates many statements  made on this blog — the FACTS are that that notwithstanding the contents of the securitization documentation, nothing ever happened. Nothing was transferred legally, equitably or any other way — the obligation was left undisturbed and exists only by operation of law to the party who advanced the funds. The note is NOT evidence of the obligation because it is a misrepresentation of the party to whom the obligation is owed. The mortgage or deed of trust, which is neither an obligation nor a note that could be used as evidence of the obligation, is incident to an obligation that does not exist — the one described on the note.

If I signed a warranty deed and mortgage conveying and encumbering your home, properly witnessed, notarized and recorded, it would look right but it wouldn’t be true. If I signed a letter stating that I had the original document in my hands, as it was duly recorded in the county records, the letter would be true statement of a false fact. The documentation that shows on, Bloomberg and other services showing loan specific data in alleged “pools” and “tranches” of loans is exactly like the letter — a self-serving statement that is documenting a fact that is untrue, to wit: that the loan was assigned into the pool and securitized into tranches and then sold off as mortgage bonds.


The unavoidable conclusion is that the loans are unsecured, a QUIET TITLE action would remove the appearance of the false encumbrance, and the homes that have already been “sold” pursuant to “foreclosure” in both non-judicial and judicial states are subject to wrongful foreclosure actions, as are the homes that are currently in some stage of the foreclosure process.

As for the unsecured obligations, they are owed — subject to offset and counterclaims — under TILA, RESPA, Consumer Fraud laws and common law fraud. If there is anything left after deduction for compensatory damages and punitive damages or treble damages, then the borrower still owes it to whoever is really the party who lost money on the transactions, assuming they have not already mitigated their damages by receipt of insurance, federal bailout, or counter-party contract payments.

See, I Told You So (Deliberate Destruction Of Documents)
The Market Ticker ® – Commentary on The Capital Markets
Posted 2010-09-27 08:35
by Karl Denninger
in Housing
See, I Told You So (Deliberate Destruction Of Documents)

Yves over at Naked Capitalism has dug up confirmation of what I’ve been saying now for more than two years and have had on “background” and could not “out” the sources of – the practice of not complying with both MBS securitization offering circulars and black-letter state law was both pervasive and intentional.

One of my colleagues had a long conversation with the CEO of a major subprime lender that was later acquired by a larger bank that was a major residential mortgage player. This buddy went through his explanation of why he thought mortgage trusts were in trouble if more people wised up to how they had messed up with making sure they got the note. The former CEO was initially resistant, arguing that they had gotten opinions from top law firms. My contact was very familiar with those opinions, and told him how qualified they were, and did not cover the little problem of not complying with the terms of the pooling and servicing agreement. He also rebutted other objections of the CEO. Then guy then laughed nervously and said, “Well, if you’re right, we’re ****ed. We never transferred the paper. No one in the industry transferred the paper.”


Got it folks?

This was not an accident and the dog didn’t eat anyone’s homework.


Even better – in 2009 The Florida Banker’s Association ADMITTED that they have been intentionally destroying the original “wet ink” signatures and documents:

The reason “many firms file lost note counts as a standard alternative pleading in the complaint” is because the physical document was deliberately eliminated to avoid confusion immediately upon its conversion to an electronic file. See State Street Bank and Trust Company v. Lord, 851 So. 2d 790 (Fla. 4th DCA 2003). Electronic storage is almost universally acknowledged as safer, more efficient and less expensive than maintaining the originals in hard copy, which bears the concomitant costs of physical indexing, archiving and maintaining security. It is a standard in the industry and becoming the benchmark of modern efficiency across the spectrum of commerce—including the court system.

I don’t care what’s a “standard” if it does not comport with the law!

This is like saying that “dealing crack is a standard in the gang industry, therefore, we can sell it even though Federal Law says that we should go to prison for doing so.”

Incidentally, for those who will chime in that “electronic copies are just as good”, no they’re not. They’re not secured, they’re not cryptographically signed and verified by the originator, and they are trivially easy to tamper with.

I’d accept that an electronic copy is ok provided that the original is scanned, encoded, and digitally signed by the consumer at the point of origination, and that consumer then takes the original and a copy of the electronic document with him, with all of this being disclosed and approved by the consumer. If I PGP-sign a document or file it is extremely difficult to tamper with it in a way that cannot be detected. But without that sort of signature and encoding in the presence of the consumer, along with the consumer being the one that gets the paper copy, it is essentially impossible to prove that the document was not tampered with. “Wet signatures” and originals are required for exactly this reason – it makes tampering dangerous as it can usually be detected quite easily.

This is massive, pernicious and OUTRAGEOUS fraud folks.

It is fraud upon the county governments who were deprived of their recording and transfer fees (e.g. “doc stamps.”)

It is fraud upon all of the MBS buyers, who purchased these securities with a representation and warranty that these notes WERE transferred and properly endorsed.

And it is fraud upon the courts when the “lost note” affidavits are filed asserting that the documents were LOST, when in fact THEY WERE INTENTIONALLY DESTROYED.

If you hold private-label MBS wake the hell up and get your lawsuits going, because these big banks that put this stuff together will not survive this and the only way you get anything back is to be first in line.

Folks, this is not small potatoes or something we can overlook.

We are talking about intentional, pernicious, industry-wide fraud perpetrated upon the public, upon the government, upon homeowners and upon investors to the tune of trillions of dollars.

We MUST NOT tolerate this.

Each and every institution involved must be held to criminal account for their willful and intentional acts in this regard.

Bail these people out? Hell no. They deserve a speedy and public trial, to be immediately followed by the proper sanction imposed for intentional acts taken to destroy this nation and it’s financial stability. This is terrorism, exactly as Bin Laden intended (destruction of our economy) and should be met with an identical punishment.

20 Responses

  1. HELOCs (Home Equity Line of Credit)

    Hello EULE : You made my day thanks. May I suggest that everyone with a HELOC contacts them! I have the impression that they are switched on, know what they are talking about – and hungry!

    I can imagine them telling the debt buyers: You got the (TARP & AMBAC) money; Your house is my house 🙂

  2. Yesterday, I went down the the “Chase Home Ownership Center” in my orange jumpsuit that says JP MORGAN CHASE on the front and back, camera’s rollling. I got them to admit ON CAMERA that they use these “modification documents” to replace the original signatures which have been “lost, mutilated or destroyed.”

    The art of surprise, it’s a beautiful thing.

  3. Hello CEA , I am in touch with :

    the still dont know the court day ,because the first
    round next month will be the CHASE Credit Cards ,
    where CHASE raised from 2% to 5 % pay off , what
    give some people a lot off trouble also.
    The Classaction in HELOC will be in Chicago ,that was ordered so far I know by a Judge, because of to
    many lawyers offices filed already.

  4. Pissing (Fraud) on the United States is a lot easier to get away with in the midst of a major Hurricane (Fraud Storm).

  5. Think – too focused on one issue. Posted a case here before – not exactly on point – but discusses note negotiability and “conditions” that render the note – not-negotiable – see below. No one responded to this case.

    But the question is more – than a “mutilated, destroyed or otherwise lost” note – as Karen points out. If the note is lost – you cannot demonstrate possession – you need possession to enforce the note (as judge in NJ points out). If note was never property conveyed to trust – or did not stay in trust (repurchases/removal of defaults) than the trustee cannot claim possession – even by claiming that the original note was lost/stolen or mutilated. Simple answer – they no longer have possession. Courts are just assuming loan went to trust – and stayed in trust. This is wrong.

    The only way to prove the note was not conveyed to Trust – or remained in trust (and therefore in possession) – is by examination of the trustee remittance/collection ledgers. The real problem is that judges will not grant discovery. And, no government agency is willing to stand up to the concealment/fraud.

    We should not be disputing that “nothing” is owed – we should be disputing to whom the debt is owed – and the current market value of the debt (this affects modification under government mandates).

    These are bottom-feeders that are really getting the foreclosure recovery – not the trustee – and not the security investors to the trust derivatives. And, they are making a nice profit. And, no one is forcing them to disclose themselves to you! – or to the court!!

    This is about fraud in debt collection. And, there is even a question whether any note – existent or not – is even – any longer – a secured debt. In practice, the note receivable is written-off – thus, now an unsecured debt.

    Possession is the key. If note is gone – then who possesses the right to enforce – it is not the trustee – or on behalf of trust – once in default – or if conveyed by misrepresentations. We have to recognize this. Again, see below case for conditions that render note – not negotiable.. Current repurchase demands – support those conditions.

    AMERITRUST COMPANY, N.A., a national banking association, Plaintiff-Counter Defendant-Appellant, Cross Appellee, v. C.K. WHITE, Defendant-Counterclaimant-Appellee, Cross Appellant.

    No. 94-8370


    73 F.3d 1553; 1996 U.S. App. LEXIS 1597; 28 U.C.C. Rep. Serv. 2d (Callaghan) 1277; 75 A.L.R.5th 725; 9 Fla. L. Weekly Fed. C 818

  6. This whole meltdown, all of it looks like a deliberate attack on the financial system. It looks like the aftermath of a nuclear war.
    And according to the Department of Defense, if we had been attacked by an enemy, the criteria for declaring who won the war is the, are you ready?

    The first nation to get it’s banking system back up and running!
    The loser is the one with the screwed up banking and financial system!

    But the bankers themselves are doing just fine, it’s everything else that is in shambles.

    Did we just lose an undeclared war to the Bankers?
    The Banks are the only ones not suffering and carrying on business as usual, lying, scamming and bilking investors out of their money right this very minute.
    The rest of the nation needs a new Marshall Plan to recover!

  7. EULE I am glad that you brought HELOCs up because Neil & Karl ought to be aware of the “next wave of scams” we all need clarity on:

    Predatory debt buyers buy closed HELOC accounts and then, probably in collusion with bank staff, file a “breach of contract” suit in the name of the original lender, which is fraud, but judges love it. These predators also claim the full face value of the revolving credit amount. All they need is “a piece of paper” (money judgment) which can then be sold for clean cash.

    We need a new section and debate on HELOCS, please Neil (& Karl)

  8. Karen – thats great news! Check with your atty but you are probably looking at an unconscionable unenforceable contract of adhesion. Did they sign it too? If not (99% the case), add the word ‘unilateral’ to ‘contract’.

  9. “Fraud vitiates even the most solemn promise to pay”

    Also you never signed any contract, where is the other party’s signature. It is a covenant.

  10. @Kickboxer,
    I was told by counsel that even if you sign a fraudulent document, you cannot be held to it. This “clause” is fraudulent. They HAVE to retain the documents… the point is mute, but still! I cannot believe they spelled out the crime right in the closing docs……still seems unbelieveable.


  11. Karen,

    Even if our docs say that, wouldn’t that just mean that the obligation still exists but the DOT or Mortgage is still unenforceable?

    I guess I’d better get my docs out and search for that clause.

  12. Bob G

    Great commentary !

  13. People, look right in your closing docs……mine say in black and white that I am held to this contract if the original documents were “mutilated, destroyed or otherwise lost”

    TOTALLY UNFUCKINGBELIEVABLE! I signed it too! If we only knew then what we know NOW!

    All I can say is, OMG!

  14. Oh what a tangled web we weave, When first we practice to deceive”–Sir Walter Scott

  15. I have a question related to HELOC accounts.

    Did somebody recognize any connection , that the
    Banks shout down the HELOC accounts only , when the find out , that no Original Promissory Note exist ?

  16. “…the originals were all trashed…”

    So, how do we tackle the flurry of ink “originals” being substituted with the laser “originals” filed earlier?

    Shouldn’t we focus on getting forensic evidence? Do “they” have a billion or two to spend on calligraphers to create ink “originals”?

    Think about it, unless this is stopped, our whole system based on signatures will fall apart because nothing is real anymore.

  17. Great analysis Mr. Garfield.

    I hope we can mow make inroads in Virginia, DC and Maryland.

    The judges here in all venues, BK, Federal and District are very pro lender. I hope this info comes into their court room soon!

  18. The Curtains Are Now On Fire (Mortgage/MBS Fraud)

    Well well well, it has made the mainstream news….

    A picture is emerging is of an industry – from loan officers in local offices in neighborhood strip malls to the financial titans of Wall Street – eager to purge bad mortgages from its books. To speed that process, documents and signatures were forged, notary witnesses were faked and those responsible for checking court filings never read the massive stacks that passed across their desks at a breakneck pace, attorneys and law enforcement officials say.

    Oh no, this isn’t that simple. In point of fact I believe it is nothing more or less than an attempt to cover up the previous offenses. After all, it’s nearly always the coverup that gets you in the real world, not the original offense.

    What am I talking about? Well The Washington Post gets close!

    But lawyers and law enforcement officials in a handful of states contend that they have found far more serious examples of fraud. These officials argue that the companies filing foreclosure claims often did not have legal standing to kick people out of their homes and used forged paperwork to cover their tracks.

    During the housing boom, investment banks and hedge funds constantly packaged and repackaged mortgages into massive securities that could be traded just like stocks. This mechanism, fueled by the tremendous appetite to make money off mortgages among Wall Street investors, ensured there would be enough financing available to offer a mortgage to almost anyone who wanted one.

    Except that the loans did not meet the standards put forward to the investors, and the banks knew it.

    They sold them anyway.

    The common word for intentionally misleading someone about what you’re selling them, when you know that if they knew they wouldn’t buy, is FRAUD.

    If Fernandez’s documents were forged, it is unclear who would have done so and for what purpose. Housing experts say in general, fabricated foreclosure documents often indicate that banks and document processors have lost track of the papers that prove who owns a loan.

    They didn’t lose the paper. They destroyed it. The original paperwork has been intentionally destroyed and the so-called “electronic replacement records” are often either missing as well or incomplete. That makes these “lost note” affidavits frauds upon the court as well.


    Well, you figure it out. But while you’re thinking about it consider that it’s damn hard to prove fraud when “the dog ate the evidence.” Or was that the big bonfire you held out behind the warehouse?

    Intentional destruction of evidence is usually called something too: Obstruction of justice.

    So where is justice folks?

    Where is justice for the MBS buyers who got ripped off to the tune of more than a trillion dollars? The banks kept their percentage, even though they knew full well – it has now been documented before the FCIC – that the loans did not meet the requirements put forward to the MBS buyers in the offering circulars?

    Where is justice for the homeowner who saw his property tax assessment rise by 200% during the 2000s as a direct consequence of the fraud in this market that allowed “values” to be pumped up to entirely unsupportable levels?

    Where is justice for the counties and states who were deceived about the “health” of the housing industry by these practices, and the testimony of people like Ben Bernanke, who had every ability to know about this (that is, if he didn’t it was willful blindness on his part) and yet testified under oath before Congress on multiple occasions as to the “general health” of the housing industry?

    Where is justice for the homeowner who was given funds to “buy” a house on false pretense, without which his loan would have never funded and thus he wouldn’t have been evicted from his home nor had his financial future and credit destroyed?

    Why do the banks get a pass on all this, when we now know for a fact that the scenario I put forward in April of 2007 is in fact true – that the banks willfully and intentionally sold loans to MBS buyers that were in direct violation of the representations and warranties in those offering circulars, and we also now know (through court filings) that the original paperwork was intentionally destroyed despite requirements in state law that original “wet ink signatures” and original documents be maintained. That, as well, is also a violation of the offering circulars, as all of them contained representations and warranties that the notes taken were in compliance with state law and in good recordable form.

    The scams must stop and those who committed them must be held to account.

  19. One more thing …

    The example of the $100 bill below also applies to any promissory note that you may issue, including your personal checks and mortgage notes. Without a valid note, there can be no valid securitization of that note.

  20. Let me add to this with an example.

    Consider a $100 bill. It is a promissory note of the Federal Reserve. It states a specific sum payable to bearer, with authorized signatures of the Sec of the Treasury and the Treasurer of the U.S. It is a Negotiable Instrument. This promissory note is an “original.” It can be used as currency (it IS currency).

    Now let’s say that you make a photocopy of this $100 bill, and then intentionally destroy the original. This is known as Spoiliation and the destroyer is the Spoiliator. (See Black’s law dictionary. See also the following cases on Google Scholar: State v. Langlet, Iowa, 283 N.W.2d, 330, 333; Application of Bodkin, D.C.N.Y., 165 F.Supp. 25, 30. THIS CONCEPT IS VERY IMPORTANT BECAUSE THE SPOILIATOR JUST DESTROYED EVIDENCE, AND SAID DESTRUCTION IS TO BE CONSTRUED AGAINST THE DESTROYER. THE DESTRUCTION MAY ALSO BE CONSIDERED AN OBSTRUCTION OF JUSTICE.)

    Back to the photocopied $100 bill. Is this now still a Negotiable Instrument? HELL NO! Try going to the bank and exchanging it for 5 $20 bills and see what happens. Can you send the photocopied bill to your mortgagee or loan servicer to be credited against your mortgage loan? Can you fax a copy of the $100 bill to your loan servicer (electronic e-note, as it were), and let him print out the bill from the electronic digitized source? How about sending your mortgage loan servicer an “Affidavit of Lost Federal Reserve Note?” Hmmm.

    Perhaps before you intentionally destroyed the $100 bill you recorded all the pertinent info of the bill such as denomination, signatories, SERIAL NUMBER, payor, etc. Could you then “assign” this digitized info and have it accepted by the assignee as a valid promissory note and a lawful negotiable instrument? Not likely.

    Also note that customary commercial practices, customs and industry standards do not trump the U.C.C. when the U.C.C. governs. United States of America v. Hibernia5, No. 86‐3774, United States Court of Appeals, Fifth Circuit, April 5, 1988.

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