It’s easy to get crazed and confused by all the questions revelations and news stories. Here is a summary of what I think it all means.

We all know that the investors were the source of all the funds that were used in loans where the receivables were cut up into pieces and then sold. This was done under a scheme that is commonly referred to as securitization. Supposedly investment pools were formed to purchase loans that were originated by third parties. When the foreclosures started the assumption was that the homeowner was obligated to make payments to the investors that purchased the pieces of the loans. This was to be accomplished by payments to servicers who in turn would make payments to trustees who in turn would distribute the money to the investors.

We all know that the highest probability is that the pools were empty and remain empty. We all know that the investors and even the federal government as an investor demand full repayment for the purchase of the defective mortgage bonds and synthetic derivatives that were used to construct a vast Ponzi scheme. The investors clearly have decided to make their claim against the investment banks and to avoid making any claim directly against the homeowners. So the source of funding is commanding the money back in full from the investment banks and not the homeowners.

Under the strategy being followed by the banks, the homeowners would be subject to foreclosure and even deficiency judgments even though the original source of funding has been paid in full. Under their strategy and theory the fact that the investors who were the source of funding are ignoring the existence of the trustee and the pool because the entire scheme was deceptive and fictitious, the homeowners would nonetheless be liable to any party designated by the investment banks. That liability would be represented by the promissory note executed by the homeowner and secured by the mortgage or deed of trust.

The problem with this strategy is that the banks are not the payee or the obligee under the promissory note nor are they the payee under the defective mortgage bonds. If the banks are liable to the investors and the homeowners are not liable to the investors the legal status of the obligation is in question. The best the banks could do would be to make a legal claim against the homeowners for unjust enrichment and to make a claim for an equitable lien against the homeowners property. This would be an entirely new transaction even if it were accepted by a court. In the meantime, it is obvious that the position of the investors corroborates the theory advanced by attorneys defending these fraudulent foreclosures. The obligation, note and mortgage were all split each from each other. The obligation is currently unsecured and cannot be secured without a new signature from the homeowner or a court order.

For this reason we have reported on this blog the growing strategy of showing the home as an asset with an unknown value in a bankruptcy petition. Creditors involved in the origination and securitization of the obligation would be shown as unsecured. The ability of a creditor to obtain relief from stay in order to pursue a judicial foreclosure or to proceed with a nonjudicial sale would be completely blocked, because on the petition they are either not shown at all, or shown as unsecured creditors with contested claims. The party claiming to be a creditor would have to show a colorable right to claim the status of a creditor and a colorable right to claim that the debt is in fact secured. No such colorable right exists without the note being payable to the alleged creditor. The only exception would be credible proof of an assignment and endorsement in which the note and mortgage was legally and actually transferred to the alleged creditor.

Since none of those transfers occurred at the time of origination of the loans nor did they occur while the loan was performing, the presentation of instruments purporting to transfer the loan must be accompanied by credible evidence showing that the alleged transfer of a nonperforming loan into an asset pool governed by a pooling and servicing agreement was valid. This is impossible. None of the asset pools (trusts) allowed for the transfer of nonperforming loans and the cut off date as required by the Internal Revenue Code and the securitization documents as in all cases long since expired. Thus the presentation of such documents without the supporting enabling documents is a direct attempt to commit a fraud upon the court. An increasing number of judges are warning that they will follow the example of other judges who have imposed fines on both the client and the attorney for this behavior.

The strategy of the banks is essentially political and not legal. They want the borrowers to take responsibility for the failure of the banks to properly disclose the nature of the transaction to the homeowners and the investors. If the investors have chosen their remedy against the banks than the obligation from the homeowner ceases to exist. As described above the homeowner may have a new obligation for unjust enrichment if a party comes forward and proves that they paid the homeowners obligation under the original loan. The burden of proof would be on the alleged creditor to establish itself as a party with standing and as a real party in interest. Since they are coming in under the laws of equity they would be required to show clean hands. This is also impossible since all of the loans were deceptive, fraudulent and lacked disclosure required under state and federal lending laws.

The banks that created this mess would therefore bear most of the responsibility for its consequences. It is highly improbable that under the best case scenarios there would be many investors or homeowners who would realize a windfall. But it is certain that the Wall Street intermediaries have already realized a windfall and would receive an additional windfall if they were able to pursue the borrowers and take the homes too. The banks are hoping that politics will triumph and that if they maintain control of the narrative they will be able to portray the homeowners as seeking a free house or a windfall, when in fact homeowners are merely defending themselves against a fraudulent transaction and a fraudulent attempt to use the courts as a vehicle to complete their deceptive scheme.


19 Responses

  1. DISCOVERY- Can anyone post a discovery/interrog request that follows this Garfiled’s post thinking? so we know what to ask. thanks

  2. To Neil Garfield- Neil, a heartfelt thanks to you and your staff for staying the course. You have made sense to me for the last several years. Can you please comment? I know that every assignment of mortgage into the trust attempting to foreclose is filed in the county courthouse just before, or sometime after, the serving of the notice of foreclosure to the borrower. 3 or 4 or 7 years after the closing or cutoff date of the trust, in violation of IRS rules. WHY, is this in and of itself not enough to stop a foreclosure in its tracks? And subject the pretender lender and their law firm to severe penalties? I don’t quite understand why we have to go above and beyond this simple, ironclad breach of the law? Even if every single one of these post-mortem assignments WASN’T fabricated, forged, and illegally notarized? What gives here? Why the need for all the extraneous case law and picayune details? Thanks again for your efforts, you are not toiling in obscurity. Regards, Ian Sopko


  4. Yes, all of the posts are well and good….however, I was at federal court today watching a friend attempt to defend herself pro se, when all of the sudden, the judge says,

    “How much do you owe the bank?”

    My friend stammered and tried to explain that that was irrelevant, that the issues were whether the bank actually owned……..she was quickly interupted by the judge.

    “When was your last payment?” the judge spoke again.

    The deadbeat mentality is alive and well in MN, I can tell you that.

    The foreclosing attorney simply had to state for his argument, “Thanks to our wonderful Supreme Court ruling granting MERS the ability to reach into any pocket of our choosing, her points are moot. We don’t have th show the note. MERS and our Supreme Court said so. Now do your sworn duty your honor!

    It was a travesty. It makes me fear for our nation. They were handed a home. a home filled with kids and homework and knick-knacks, simply because they asked for it. And the judicial system, believing as many of them do that the banks are the salt of the earth, will give them my friend’s home.

    It’s a tragedy, a travesty, and painful to watch. I object, your so-called honor!

  5. Don-CA “How can the borrower remain living for free?”

    That’s the deception!

    They don’t! Their children’s future tax base has already paid for it.

    We are confusing capital credit and cashflow (payments).

    Another simple answer: Borrowers ought to live for free for the same reason and for as long as banking intermediaries live for free (TARP etc money).

    We should stop talking about arguably bogus trusts, get the investors money back from where it is, back into the US economy. Let’s get back to productive work and generate the cashflow for the PRODUCTIVE part of the economy.

    We have economic (income/ job) problems. Foreclosures are a profitable sideshow designed to divert from the real scam.

    Economics 101

  6. A response to the headline. Why Not? If I can get away with it. That is the way a criminal thinks

  7. Moynihan of bank of america i suggest you start shoving things up your a–h–le so you can get used to taking a shower in jail.

  8. “The story reported that Deputy Inspector General Fred Gibson told the press this past Wednesday that the inspector general’s office at the Federal Deposit Insurance Corp. is working in conjunction with the FBI, and are looking into the role of these individuals in their banks failing.

    I can’t decide whether I’m happy about this or not. I mean, on one hand, of course I’m happy anytime a banker gets criminally prosecuted… hell, at this point I’d be happy to hear that a banker got a nasty hangnail.

    “But, you see, this is the problem with losing trust in one’s government. I can’t help thinking that they’re going to go after some poor schmuck from a bank in Nowheresville who forgot to staple paycheck stubs to some handful of loan docs all related to loans made to people who couldn’t afford them… just to make that example emblematic of the mortgage crisis…

    “People, I keep telling you to not give up the ship just yet, because although we’ve long since struck the iceberg, and help is not on the way, there’s always two wild cards out there: One is the increasing strength of the citizen revolt that grows stronger as each house hits foreclosure. And the other is that the banks are insolvent and Timmy and the Treasury Boys can’t keep this masquerade going forever, even with Ben Bernanke and his magic money printing presses.”


  9. the sticking point that they continue to use still remains:

    How can the borrower remain living for free?

  10. Important question:

    Who actually suffers a PROVEN loss or harm when a homeowner doesn’t pay?

    The money investors paid to the intermediaries probably went off-shore, the money received by the seller of a house came from Uncle Sam (fractional reserve system). Two different economies.

    That’s all there is to it.

    Spot the unjust enrichment.

  11. How Banks Bought Their Own MBSs During Housing Boom



    Last week’s Chapter 11 filing by Ambac Assurance, which provides insurance on billions of dollars of MBS held by corporate credit unions, is likely to add to the price tag of the federal bailout of these wholesale institutions.

    For the growing woes of Ambac – one of a half dozen troubled bond insurers that wrote insurance policies on private label MBS — means that the insurance coverage, known as a “wrap,” will not be available as a growing number of MBS held by the corporate CUs go into default, increasing the losses on those bonds.

    “What this means is the loss estimates they (Ambac) used to write these insurance policies were obviously way off the mark and they’re not going to be able to cover the losses,” said Charles Felker, managing director for credit union bond house First Empire Securities and a former corporate examiner at NCUA.

    The Ambac bankruptcy comes as the National Credit Union Administration is depositing some $50 billion of bonds held by five failed corporate CUs into trusts then using the cash flows on those bonds to create new securities known as NCUA Guaranteed Notes.

    But the financial woes at Ambac and the other major bond insurers, like MBIA, Syncora Guarantee, Financial Security Assurance and Financial Guaranty Insurance Co., means that there will be little or no insurance coverage even after the bonds have defaulted, according to Felker.

    In fact, Syncora and FGIC stopped paying all claims last year.



    The Department of Housing and Urban Development is looking at warehouse lending to see if such transactions are legitimate secondary market transactions under the Real Estate Settlement Procedures Act.

    This is the first time since the agency issued RESPA rules in 1992 and 1994 that it is examining this question, a notice from the agency said.

    Among the issues to be considered, K&L Gates attorney Phillip Schulman told this publication, is what constitutes a bona fide warehouse line.

    This question may be applied to the types of first lines of credit being granted to newly minted mortgage bankers who have moved up from mortgage brokers. Many of these originators have lines where the warehouse lender is underwriting loans and requiring the loan to be sold to it at, or soon after, closing. Schulman said such actions start to sound very similar to table funding.

    HUD is asking for comments from warehouse lenders, retail lenders, mortgage bankers, wholesale lenders, correspondent lenders, mortgage brokers, and others in the mortgage lending industry. The comment period ends 30 days after the notice is published in the Federal Register.

  15. http://www.scribd.com/doc/43374035/National-Mortgage-News-Mortgage-Servicer-Fees-Take-Big-Bite-of-Recoveries-on-Bad-Loans

    Ultimately these expenses are paid by investors — or by taxpayers through Fannie Mae and Freddie Mac, which reimburse servicers for all charges as long as they “are actual, reasonable and necessary,” according to the government-sponsored enterprises’ guidelines.

    Private investors in mortgage-backed securities complain that loan servicers’ incentives are not aligned with their own and that the servicers do not provide loan-level data or a breakdown of charges and fees that ultimately come out of bondholders’ cash flow.

    “Servicers generate significant servicing and late fees throughout the delinquency and foreclosure process,” said Chris Katopis, executive director of the Association of Mortgage Investors, a trade group that represents institutional investors that held a combined $300 billion of asset-backed securities at June 30.


    New York City Comptroller John C. Liu stated the following in response to questions about the Congressional hearing today on irregularities in the foreclosure process:

    “Mass foreclosures, due in part to widespread irregularities, have hurt homeowners, mortgage investors, and regional economies. Bank shareholders are also at risk.

    “Where are the bank directors in this enormous mess? Their silence is deafening, particularly when management continues to sweep the problem under the rug as mere ‘technical glitches.’

    “The Directors are ultimately responsible, not only for compliance, but for ensuring sound business practices. They must serve their shareholders and must fix the root problems, including managing perverse financial incentives in the current business model.

    “Since July, we have warned that flawed bank procedures are forcing New Yorkers from their homes and hurting our economy. It is now clear that foreclosure and mortgage irregularities expose shareholders to substantial liabilities and loss. This would hurt our retirees and taxpayers.”

    Earlier this week, Comptroller Liu, on behalf of the trustees of the New York City Pension Funds, called on directors at Bank of America Corporation (NYSE: BAC), Wells Fargo & Company (NYSE: WFC), JPMorgan Chase & Co. (NYSE: JPM) and Citigroup Inc. (NYSE: C) to conduct an independent audit of their banks’ mortgage and foreclosure practices in order to prevent a recurrence of such mass foreclosures. The four banks are the largest mortgage servicers in the country representing 56 percent of the nation’s $10.64 trillion mortgage industry

  17. NEIL GARFIELD rocks!!!

  18. Yes.

    We, the homeowners, are defending ourselves from the banks stealing our homes. (Multiple times?) And, we are denying consent to use our signatures to originate and to perpetuate crime, and then to profit from it repeatedly.

    Time to let us off the hook for the heinous crimes.

    Let’s make a fresh start. With the real equity in homes, we can make down payments for new homes or investment properties. That revenue stream will rebuild the banks, stimulate the economy, public confidence, and the ability to get ahead in these hard economic times.

    We just need those titles cleared.

  19. It never ceases to amaze me how much sense Neil makes out of all this mess, YOU ARE THE MAN NEIL!!!!! Everyday I’m thankful for your help. thanks Neil, keep up the good work. You are a GREAT part of the antidote to the financial disease we have fallen victims of, the Mortgage plague has met it’s match!!!! look out liars!!!!!

Contribute to the discussion!

%d bloggers like this: