LAWSUITS COMING TO A COURT NEAR YOU: MORTGAGES AS SECURITIES FRAUD‏

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

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Several law firms specializing in securities litigation are looking at the other end of the spectrum and finding gold. It looks like we are about to see a slew of class actions and individual lawsuits alleging securities fraud where the homeowner “borrower” are termed investors in the sale and offering of unregistered fraudulent securities. The required disclosure of risk factors would have alerted homeowners to the high probability that their property was not worth the amount set forth in the appraisal, could not be sustained based upon industry guidelines and recent price increases, and that appreciation, the cornerstone of the sale of these financial products (securities) was unlikely to be realized in any relevant time period.

One of the interesting thoughts I had while this was explained to me was what happens if the “loans” are re-characterized as securities. In Bankruptcy court the results might be very different than the current “appearance” of a secured loan. Even in civil court Judges might be more reluctant to enforce a deal that violates securities statutes prima facie. The security of the mortgage might well be swamped by the reality of securitization. The focus would shift from the mortgage or deed of trust to the sale of fraudulent unregistered securities.

The disclosure of risk factors would have had to state that given the inability of the investor (homeowner) to pay the “loan” from other resources, there was a substantial risk of a total loss of his investment PLUS his property. I wonder how many greedy homeowners would have gone for the deal anyway? I wonder why the SEC and Florida Financial Services Commission and Office of Financial Regulation have not investigated the securitized loans as fraudulent sale of unregistered securities by unregistered securities salespeople, none of which had even bothered to register as foreign corporations within the state. I mean the word is securitization isn’t it? And they certainly have prosecuted many similar schemes. Could it be that politics is holding them back? Or perhaps they are intimidated by the prospect of going to war against BOA, Wells Fargo, Chase, Goldman Sachs, Citi, et al. I don’t know what their reason is but whatever, they have opened the door to the largest securities fraud cases in history with a double jeopardy liability to the homeowner as investor and the professional investor (pension fund) as investor.

Unlike the lawyers representing individual homeowners in defense of foreclosures or bankruptcies, these securities firms are well financed and wil not be turned back by intimidation. Based upon the likely pleading of the case there is little doubt that they will survive a motion to dismiss which will take them right into discovery — the last place the pretender lender securities violators want to be.

AND the loans were sold to homeowners under the false pretense that it was passive investment that would create huge returns through fast appreciation in value. The loans certainly were NOT sold as financing the purchase or remodeling of homes and certainly NOT sold as loans that the investors (i.e, homeowners) could afford. As
buyers of these so-called loan products the homeowners were sold on the concept of using their property as leverage in an investment scheme. As everyone knows these were loans the borrowers knew they couldn’t afford, so why else did they buy these “loan” products except to earn a profit?

Granted some of the excesses that “personal responsibility” advocates talk about were bound to happen, but the main thrust of the sale was buy now and profit later. It was not about settling down in the old homestead. What they got was, as everyone now knows, was a security that was guaranteed to fail because the hype of appreciation was already false, just as the current appraisal was false.

I also wonder why securities lawyers across the country have not considered these facts. You can’t pick up one end of the stick without picking up the other. If we want to accuse the homeowners of knowingly buying homes with loans they couldn’t afford then the  sale of the those loan products was something more than a loan. It was a security. And securities issuance and security sales are regulated, with rights of action, rescission and damages all apart from the Federal and State lending laws.

So how would this apply? THAT has been established in countless securities fraud cases across Florida and across the country. If you dream up a scheme of selling securities to unsuspecting buyers and employ companies to go sell those securities who in turn hire people to do the selling, then you had better strictly conform to securities regulations on the State and Federal level. That business model was exactly what was followed in the “mortgage securitization” scheme as it was actually practiced. The documents are at considerable variance with what people were really doing to sell the promise of profits to homeowners who advanced their property and professional investors who advanced the funds to provide the meat and grease for the scheme.

It seems obvious that the so-called loan originators were neither lenders nor mortgage brokers. So what were they if not salesman using every boiler room trick in the book to con people into these deals. While the documents were called notes and mortgages or deed of trust. In reality they were a close cousin of the hybrid mortgage bond sold to the professional investors and pension funds based upon all the same false pretenses. Securitization is a process, not an event. Every part of the process of securitization involves the sale and offering of securities.

9 Responses

  1. Not only were the securities fraud, the people like myself who made large down payments on real estate for which the values were artificially inflated due to these securities (sub-prime,straw buyers, etc, etc) were also defrauded. Were not real estate values propped up by every heading you have listed above?

    People who had worked hard, saved a few hundred thousand dollars and invested in real estate for their retirement, their children, grandchildren, etc were et up. They were told by ll of the “professionals” in the field (realtors, mortgage brokers, appraisers, folks like Mr. Marzillo and Chuck Prince, real estate attorneys, etc that we should believe their fiduciary responsibilities to us. They lied.

    I seem to be the only voice in the nation questioning this fact. I want my down payment back and I want the bank to buy back my mortgage along with the securities they sold at the other end of the transaction. Then I want my credit score back. Interested? I too am in investor and I want my money back too!

  2. Dave,
    Can you post the actual case? I also am dealing with AWL and MERS.

    Obviously, I need to find out the differences on the state level.

    BTW, has anyone checked into this for CA yet?

  3. I used this theory to obtain a TRO against BOA, MERS, and Recontrust.

    In Utah, a note and trust deed must be sold as a unit, otherwise they are securities. If not sold as a unit, then the sale must be pursuant to a state or federal registration.

    Since rights were split in the trust deed between AWL and Mers, I argued that it was an unregistered security not sold pursuant to any registration.

    There are other technical defects in the foreclosure docs.

    Court issued TRO. BOA then removed to federal court. Remand motion pending.

    The penalty for selling an unregistered security under Utah law is that anyone that new of the violation may not enforce the contract. UCA 61-1-22(8).

    So, if the securitization was not accomplished exactly per the prospectus, and in my case it was not, then the note and trust are unenforceable.

  4. I used this theory to obtain a TRO against BOA, MERS, and Recontrust.

    In Utah, a note and trust deed must be sold as a unit, otherwise they are securities. If not sold as a unit, then the sale must be pursuant to a state or federal registration.

    Since rights were split in the trust deed between AWL and Mers, I argued that it was an unregistered security not sold pursuant to any registration.

    There are other technical defects in the foreclosure docs.

    Court issued TRO. BOA then removed to federal court. Remand motion pending.

  5. I’d like names of the securities law firms please–this sounds like a “smoking gun”

  6. MERS Whitewash bill. Yesterday’s news. Forget it. It’s not going to happen for reasons previously discussed in a prior Neil post.

  7. Get Ready for the Great MERS Whitewash Bill

    http://www.cnbc.com/id/40150186

  8. I second that, judges have been screaming through the uninterrupted direction of betrayal. Why would they stop now? And homeowners can honestly only be considered the true victims in all this not as ‘investors’, because they were given the least amount of information as well as the least amount of negotiability and didn’t have manpower, resources and network of business and political connections that all the REAL CROOKS did to set the country up for ultimate failure and profit from it.

    “the professional investor (pension fund) as investor.”
    Key word Neil “professional”, I’ve never heard of a professional homeowner, trustor, mortgagor, borrower etc.. They were the ones with the LEAST advantage/leverage and were/are the ones getting screwed the MOST.

  9. Neil I fail to see how such a legal theory will get any traction at all. I will bet u a Lost Note Affidavit that this litigation dies a quick death.

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