A Foreclosure Tightrope for Democrats

SEE homeowners-can-afford-those-homes-and-should-stay

October 11, 2010

A Foreclosure Tightrope for Democrats

Editor’s Note: They keep emphasizing sloppiness as the problem, cutting corners, as if the foreclosures were real, as if the defaults were real. Most are not. At the same time that the left hand of the of the financial services industry is declaring defaults and initiating foreclosures, they are paying off the creditors with the right hand with third party payments from re-securitizing packaged mortgage bonds, synthetic CDOs, insurance, credit default swaps and federal bailouts.

What they are saying is that the obligation is in default because the buyer missed a payment. But the reality is that the obligation is not in default because the creditor has been paid. Thus the “missed payment” represents a payment that is not due. If I owe you $100 and my cousin Robert pays you the money, the note I signed will still say the next payment is due — but it isn’t because the payment was made. The fact that I didn’t make the payment does not constitute a default. A default is ONLY a breach of the note if the creditor fails to receive payment directly or indirectly.

What the Democrats need to do, and what the Republicans need to do is to stop doing political calculations and start doing people calculations. They need to maintain the U.S. Constitution, the federal and state laws, rules and regulations governing property rights and contract rights. They need to stop playing favorites at the expense of betraying the middle class and the poor. Right now, the way the political game is being played the country is the loser along with ALL its citizens whether they realize it or not.

The dilution of our currency, the obvious movement toward a new reserve currency that will cost this nation trillions of dollars, the illusory economy that has been built for 4 decades, must all stop. In its place honesty must be our ideal and hard choices must be made. If we are to maintain a place at the world table, it had better be based upon something more than military might. That historical lesson has been taught dozens of times.


WASHINGTON — The swelling outcry over fast-and-loose foreclosures has thrust the Obama administration back into the uncomfortable position of sheltering the banking industry from the demands of an angry public.

While senior Congressional Democrats join the calls for a national moratorium on foreclosures, the White House once again is arguing against punishing the industry, just as it did in 2009 amid the outcry over the unbreakable habit of paying large bonuses.

“Irresponsible banks need to be held accountable, but if we have not found a problem with a bank’s process we do not believe that we should impose a moratorium where that can hurt the market and hurt individual buyers,” said Shaun Donovan, secretary of Housing and Urban Development.

The administration’s basic logic has not changed since it took office in the depths of the financial crisis: Hitting the financial industry, officials argue in private and in public, hurts the broader economy. A moratorium on foreclosures may provide short-term political satisfaction in an overheated election climate, but the administration fears it will only delay the inevitable and necessary process of forcing many Americans out of homes they cannot afford.

The intramural argument among Democrats also reflects the political divisions between an administration with two years to improve the economy, and members of Congress facing an angry electorate in less than a month.

The White House can focus on the eventual economic benefits of foreclosures. But Senator Harry Reid, the Nevada Democrat battling to salvage re-election in the state with the nation’s highest foreclosure rate, cannot. The result is that Mr. Reid favors a moratorium, and the White House finds itself in an uncomfortable moment of agreement with his Republican opponents.

The latest foreclosure firestorm flared in mid-September when GMAC, a major mortgage lender, announced that it was suspending home seizures in 23 states in light of revelations that the company had not been taking basic steps to double-check and demonstrate its right to seize particular homes.

Bank of America leapfrogged that position last week, announcing that it would stop pursuing foreclosures in all 50 states while reviewing its procedures.

That prompted calls from a wide range of politicians for a national moratorium on all foreclosures, including from Mr. Reid, who released a letter to other lenders urging the rest of the industry to follow Bank of America’s example.

The industry has argued in response that problems should be addressed without halting all foreclosures, because a moratorium would damage the economy. “It must be recognized that the mortgage market, investors and the health of the economy are all interrelated,” Tim Ryan, president of the Securities Industry and Financial Markets Association, said Monday.

The White House shares those concerns, and it has tried to defuse the issue by arguing that problems can be addressed without imposing a moratorium.

“There are, in fact, valid foreclosures that probably should go forward,” David Axelrod, a senior White House adviser, said Sunday on CBS.

Administration officials argue in part that the problems that have emerged in recent weeks do not change the fact that lenders are seeking to foreclose on people who borrowed and then failed to repay. Most of the identified problems are best described as technicalities, not miscarriages of justice.

Advocates for homeowners, however, say that the pattern of sloppiness allows and encourages more serious abuses. They point to a growing number of documented cases in which lenders mistakenly seized homes.

Bank of America apologized last month for foreclosing on a home in Fort Lauderdale, Fla. The homeowner didn’t even have a mortgage. The bank had failed to notice that the previous owner had repaid the mortgage loan.

Last year the company’s contractors entered the home of a Pittsburgh woman, changed the locks, cut off the utilities and seized her pet parrot. The bank later acknowledged that the woman had not missed any mortgage payments.

Other companies including Citigroup and JPMorgan Chase also have apologized for mistaken attempts to seize homes they didn’t own.

Dozens of people have sued lenders charging that their homes were foreclosed even after the lender agreed to a loan modification or repayment plan.

“We need to end the voluntary reliance on the industry to do the right thing with respect to homeowners,” said John Taylor, chief executive of the National Community Reinvestment Coalition.

Mr. Taylor noted that foreclosures also damaged the economy.

The administration’s defense of a process that is throwing many Americans out of their homes echoes its tightrope walk in the spring of 2009, when public anger over Wall Street pay was at a boiling point. The president excoriated the industry in public interviews, and met with executives to caution against large paydays and to press for increased lending. But the administration resisted legislation to force changes in either area.

President Obama told executives at the time that his administration was the bulwark between their industry and the public’s anger.

Now the administration is again seeking to demonstrate its concern over industry practices without taking steps that it fears will damage the economy.

Mr. Obama last week decided not to sign a bill requiring many states to lower their standards for verifying the legitimacy of notarized documents. Mr. Axelrod said that the legislation, which drew fire from state officials after sailing through Congress, would have “made it easier to make mistakes” in foreclosures.

Mr. Donovan said that the problems identified so far were serious and widespread, and that it was necessary for companies including GMAC and Bank of America to suspend foreclosures while they addressed those problems.

He said that his agency and other parts of the government, including banking regulators, were scrutinizing other mortgage companies for evidence of problems.

“We are doing everything we can through a range of enforcement powers to make sure that we find where there are problems,” he said. “We’re going to act very swiftly and very strongly to protect homeowners.”

But Mr. Donovan said it did not make sense to act against companies absent evidence of problems. He said such a step would hurt not just the companies, but also people waiting to buy the foreclosed homes.

12 Responses

  1. Appropriate responses?

    Judge: Did you agree to sign a loan and a promissory note?

    I did agree to sign what was purported to be a loan as defined in the traditional definition of a loan, where one party suffers a financial loss and credits the other party. This was not what actually happened at the signing table.

    Judge: Did you or did you not receive money from the loan?

    I believe an exchange occurred. The bank received my promissory note and deposited it as an asset, and converted it into a draft. The bank then “withdrew” that deposit and presented it to me as a loan. It was a zero sum exchange. The transaction was perfected. No further obligation is outstanding.

  2. Bob G.

    Let me also say – re your response to Karen – that this is a favorite of judges – “You owe the money – You did not pay.”

    Well, I do not owe Harry – if Harry sold it to Joe. And, because Harry has falsely presented himself as the creditor, this has directly violated my right to negotiate with Joe – the true creditor..

    The questions I would ask Joe is – 1) how much did you purchase the collection rights for – from Harry? 2) Do you participate in government mandated programs for loan modification – and, if so, why have you concealed your identity to me?? Was this to avoid a loan modification?

    As Judge Schack has so astutely pointed out – if you are going to take someone’s home – you better to it right.. This is the law. There is no justice in fraud.

    If you pay Harry – you still owe Joe. This is old and common law. There are no outs. You need to know the identity of your true creditor, and, given today’s government mandates, be given the right to negotiate with your true creditor. If this right has been denied to you – the foreclosure is fraudulent – and your rights to address the situation – have been denied. Simple.

  3. Bob G

    There is no discovery rule as to CDS – foreclosure mills will claim “privacy rights” due to deregulation. What you CAN request in discovery is “Remittance Ledgers” as mandated by PSA/Prospectus – that is – ledger for all payments sent to servicer – and advanced by servicer. Payments/advances – must be remitted to the trustee for the stated trust. If the trustee has no ledger – it cannot account for receipt of payments – or for its priority in collection of foreclosure proceeds.. The ledgers are critical.

    The notes were never actually conveyed to the security underwriters – who (falsely) purchased the whole loans/notes – and ASSIGNED THE RECEIVABLES to their off-balance sheet conduit. This was the process. Once the crisis hit – changes in accounting were finalized to mandate that the off-balance sheet conduits – which concealed removal of receivables from the security underwriter’s parent corp. balance sheet, be brought back onto the bank’s balance sheet. This is FASB 166 and 167. Nearly all banks have already complied. You will not find details in financial accounting statements – but you will find statements as to compliance with FASB 166 and 167. The SPV trusts – as concealed off-balance sheet conduits – are finished. There are no security investors in these trusts – other the US government – who, by the bailout – purchased both whole loans and related securities from the perpetrator banks.

    IT is about accounting. Ask yourself – who will account for the foreclosure proceed recovery should the foreclosure against your home be successful?? This means account to all corporate security investors (not just dissolved MBS security investors and derivative contract buyers) AND account to the IRS.

    Seems to simple to me – why are courts just still in Dorothy’s Wizard of OZ – KANSAS?? Home – being the cozy lobby of the so called bank??

  4. “But Mr. Donovan said it did not make sense to act against companies absent evidence of problems”

    With all that has come out, just exactly what will they accept as “evidence of problems?”

  5. Karen

    I always do. The judge tries to frame the argument around payment vs. no payment. I drag him back to title issues. When he asks why he should sign the order to show cause, I tell him so that the bank has an opportunity to provide clear and convincing evidence that they owned the note (not even copies have been included), and that they did not perp a fraud upon the court.

    Last week i sent a guy into chambers to get the OSC signed. Judge said “Mr. X, did u or did u not fail to pay on the note?” Ans. = I’m not here to prove the bank’s case for them your honor. I’m here to have them prove their case by the submission of evidence in admissible form. So far, they haven’t.”

    So then the judge says “Ok, but if you want me to stay the 12 noon sale, you’re gonna have to post a $2500 bond.” “Why is that,?” X, asks. Judge: “because that’s how much it is going to cost BofA to respond to your papers.” Now this is at 11:40 am.

    So X says: “well okay, judge, that will be fine…as long as the bank shows up in the next 20 mins with the original note.”

    Judge: “I’m getting the bank’s lawyers on the phone right now and I’m going to have them fax me a copy of the note and mortgage.” Judge picks up the phone and starts dialing.

    X: “Okay, judge. Just as long as the bank will accept a faxed copy of my personal check (promissory note) for $150,000 as payment in full.”

    Judge: “Mr. X, you’re trying my patience.”

    Bottom Line: Judge puts down the phone and signs the OSC.

    You can do this, people.

  6. @Bob G,
    If you are going in to Quiet Title, make sure the judge and the other side ONLY argue TITLE, not NOTE or AMOUNT OWING. It is the TITLE that’s been slandered. It’s the title that is unmarketable.

    Keep the argument TITLE, not NOTE. Argue title first, ask for damages due to slander of title, by the time you are done claiming damages to title, you may get enough damages out of them that the note becomes insignificant.

  7. We did it for HR 3808, let’s do this again.

    These are words from Bob G., they are so good, so right on, please pass them to the President and to all your legislators.

    I am writing to talk about the problem with the banks and foreclosures. I want you to think about this differently.

    Think of this securitized MBS thing as a huge boulder that these guys pushed up to the top of a mountain. The kinetic energy necessary to do this came in the form of trillions of dollars. Now the boulder is starting to come racing and crashing down the mountain. All the potential energy that was stored on the way up, is now going to be released on the way down (has to, laws of physics, dontchaknow). The released energy is also going to be in the form of trillions of dollars. Only this time it is going to be trillions of dollars in wreckage. Who are you going to allow to be in this path of that destruction?

    A real government would haul these banksters in and sit them down around a big conference table and play Prisoner’s Dilemma with them: The first guys to fess up get only two years in prison; the guys that don’t fess up are going to get the term of LIFE without the possibilty of parole upon their convictions.

    The Fed is never going to be able to fix this. The more money it throws at the problem, the more “energy” is going to be pushed into the system. Since energy and matter can neither be created or destroyed, something is going to have to give somewhere along the line. All this monetary energy is going to have to resurface somewhere sometime.

    Please, Mr. President, do the right thing in this equation…please allow it to be the bankers that are in the path of the destruction and not the American people. As, this situation has no happy ending.

    Thank you,
    Karen Pooley

  8. ANON – give me a Discovery Route re the CDS/Insurance. Judge’s will want to hear if the true lender/mortgagee has been paid off. Then the matter is one of subrogee rights. Will the real subrogee please come forward.

    How are the whole loans brought back onto the banks’ balance sheets without the original notes in their possession? Are you saying that the banks’ unilaterally are waiving the production of the original notes? Wouldn’t they want to avail themselves of that defense as well, if it’s available? (I know about FAS 140)

  9. Bob G.

    Due to deregulation, credit default swap insurance contracts are not publicly available. We know all occurred because of AIG and the bank bailout. After execution of the swaps – the off-balance sheet conduit SPV trusts failed to operate any longer by the intended waterfall structure. Technically, these SPV trusts were in “default” – and, the whole loans – that once backed the trust’s receivables – have likely been brought back onto investment/commercial bank’s balance sheet.

    Judges do not want to hear that “investors” have been paid – thus, borrower owes nothing. However, judges do not understand that these trust SPVs/trustees are not the creditor and that collection rights have likely been – or will be – sold for much less than the original stated value. And, that borrowers are still being held to the original stated (fraudulent) loan value – without consideration of a fair and valid mortgage loan modification. This does not make any sense – and is just absurd..

    At the very least, borrowers should be able to write off the overstated loan in bankruptcy . But, Congress voted bankruptcy reform down – TWICE.

  10. Dying Truth,

    Not sure what you’re saying.

    If I go into court seeking to quiet title, I need evidence in admissible form that shows how the real lender has been made whole by insurance vehicles. These judges are not the sharpest guys around. They don’t want to hear anything complicated like Glass Steagal, the Fed loans at x%, etc., etc.

    Not to put too fine a point on it, but they don’t want to hear that maybe this or maybe that or on info and belief this guy may have paid that guy, etc., etc. THEY WANT EVIDENCE OF PAYMENT FROM A THIRD PARTY IN ADMISSIBLE FORM…PERIOD. That’s what is needed here, nothing less.

    So c’mon Neil. Instead of all these new posts with new subjects, address the most critical issue for your members (especially those who have already bought $550 worth of your stuff).

  11. Bob G.,
    Those are just backups and extras, what is meant when people say ponzi scheme is a more sophisticated one. Because the Laws which kept investment and retail banking separate was repealed there was nothing stopping banks from collecting investment $$$, using it to pay off loan pools early that they got from the FED at 0.25% (so they don’t have to pay interest) and extended those loans to homeowners at an average of 10% all the wile making sure they were on terms that the homeowners could not afford (if the loans hadn’t been paid off in full early), then when investors (state and federal public pension funds) got mad about their cut they let loan “servicers” dispossess owners to make a profit.

  12. Neil – How about interacting with your members on occasion? Most people in your position do so. Would be most helpful.

    Specifically, please tell us how we can prove that a lender has been paid off by an unnamed third party, via insurance, credit default swaps, MBS purchases, etc.

    We need to provide to the courts evidence in admissible form in order to prevail upon such an affirmative defense. We cannot just state that upon information and belief the lender was paid by undisclosed third parties.

    We need to prove this !

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