Innocence Project for Borrowers


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In a recent Gallup poll, more than a third of Americans oppose the death penalty — the highest number in more than forty years. And the number of people who still favor the death penalty is at the lowest point in a decade.  To me that means there is a growing awareness that our judicial system doesn’t work well enough to trust it. The innocence project led by Barry Sheck has proven in over 200 cases that death row inmates were not only improperly convicted, but that they were actually innocent.

The odds are against a defendant charged with a crime —- many times getting a bad result from bad lawyering or prosecutorial misconduct, along with a Judge who presumes that the investigation was complete and that the person charged wouldn’t be in court but for his inevitable guilt.

The question that arises is that with all the safe guards we supposedly have in place to protect the rights of the innocent man or woman, why should we trust the rest of the system? The answer is that we should not trust or expect justice unless we fight tooth and nail for it.

The assumption remains, whether you are charged with a crime or charged with defaulting on your mortgage, that you are guilty of something and that you should pay the price — even if the facts — completely revealed — would show that you are innocent of the charges and especially where the system allows the charges to be brought privately without a court ever getting involved unless you bring a lawsuit (Non-judicial states) over matters that are so complex, most economists cannot fully explain them.

I think we need something like an innocence project for borrowers and I don’t just mean homeowners. Practically all consumer debt was subject to a claim of securitization, which means that the parties in the securitization chain treated the flow of money as though the securitization documents had been followed. It means that the “lender” was not lending its own money and that the risk was apportioned in a way different from the conventional loan — because the money on the table came from investors whose remoteness created the opportunity for extreme moral hazard.

Of course that means that the risk in a mortgage transaction is not nearly as simple as the pretender lenders would have the courts believe. And that is why so many foreclosures and evictions have gone forward even though the obligation of the borrower no longer existed or the lien never attached to their land. The complete facts would show that the parties who advanced the money don’t believe they have any real options in pursuing the borrower and have chosen to pursue the investment bankers instead. Assuming they collect, why would we allow anyone to collect a second time by foreclosing a home and evicting the homeowner?

Here is another example. Student loans now crush the yourth of America to the tune of about $1 Trillion. They too were securitized which means that the “lending” bank elected a different path to deal with risk of loss than the one offered by the government. So they used investor money to fund the loan and split it into pieces just like the mortgage loans. They charged usurious rates to the student as soon as it was possible to do so, leaving the student in debt for the rest of his or her life with a non-dischargeable claim in bankruptcy court. But if the government guarantee was not used to underwrite the loan, then why should the loan be non-dischargeable? The answer is that the bank can’t have it both ways. It can’t do a loan that has NO RISK because it loaned no money and then claim the loan is non-dischargeable. Students petitioning for bankruptcy might want to consider this approach after consultation with their bankruptcy attorney.

The list goes on. Securitization is not a bad thing but it is different than the conventional loan model. The reality of those differences changes the risks and outcome of each loan.

A project that was designed to show those differences in court, one case at a time, like the innocence project, would show that the borrowers have done nothing wrong and should not pay any price even if they s topped making payments, because unless there is proof that a payment was due (instead of presuming it to be due) it must be assumed that the homeowner, or student is innocent. It is up to the pretender lenders to do what I think is the impossible — prove why they should get a payment on an obligation that is not owed to them, that they did not purchase and in which the creditor or its agents received payment already from third party sources.

The idea that there is some moral imperative for the borrower to make a second payment to the pretenders even though it isn’t owed to them is preposterous. In the business arena the idea would be laughed out of court.

Somehow when it comes to the lowly individual, the presumptions run the other way. If we take the cases in which the documents have been scrutinized and the it was found that the banks were fabricating and forging documents, offering them in court with perjured testimony, should alert us to the possibility that we are putting millions of our citizens on a financial death row when they should, in reality, be left alone.

25 Responses

  1. @ enraged….Ty for madelman link…..I love how mandelman gets it!!!

  2. I noticed he hasn’t been on for a few days. I wonder why… Must be busy demonstrating at OWS.

    Naw. He wouldn’t.

  3. and tnharry seems to conveniently disappear whenever I ask him about the ledgers…

  4. @Enraged—it’s not “my position”—it’s the TRUTH. The TRUTH is not just “my position”.

    This is why we have to demand the “ledgers”…because they don’t exist.

    As it says in the article: “…This failure to provide a complete mortgage to the secondary market is the real fraud that the financial institutions are trying to conceal.”

    We have to continue to reveal the truth until the courts wake up.

  5. You keep on doing the same thing: cut and paste long, long things from other people. Carie, I am not stupid and I UNDERSTAND what you’re saying.

    Show me one case, just one, where your position has prevailed and the homeowner was given a free house just on on the securitization basis (or lack thereof).

    I can see why Tnharry became so crochetty… I feel that i am simply hitting a brick wall.

  6. On behalf of previous blog.The AG’s in the states that don’t understand. I think they should be all sent a copy of Carries post because I don’t think they know what the whole scam was about or maybe they were in on it or maybe they walk around their office all day with a blind fold on or maybe they walk around with one on all day and night. Does any of these AG’s know the real story behind this scam and what problems it caused for these under knowledged courts/judges

  7. In regards to Carie’s post “Randall Wray”, thanks for pointing it out Carie. Go to this site to read letter by James McGuire to Judge Mary C. Jackobson on the very same subject matter, have fun

  8. Here you go Enraged:


    Here’s how it works:

    The homeowner expects to be a “Borrower” receiving a “Loan” from the bank. The bank then sells the loan to a Special Purpose Vehicle (a shell company) and gets paid in full without recourse, and also gets a commission as a finder’s fee, but the bank never funded the loan. The homeowner was tricked into believing the bank funded the loan, when the bank was just paid for finding a homeowner willing to sell the debt obligation. The bank’s commission was also for the bank to allow its name to be on the instrument, and often to act as Servicer to get monthly fees.

    The homeowner was never told truth about who funded the transaction, because a Deed of Trust would not normally be allowed for a Financial Asset purchased by a Securitization Trust (a Security covered by security laws), or a Commercial Paper which is covered by the Uniform Commercial Code Division (UCC) 8, whereas Securitized Transactions with a Deed of Trust are covered under UCC 9.

    The “Lender” named on the instrument did not fund the transaction, and therefore was not really the “Lender” at all. They acted only as a “Nominal Lender”, named on the debt instrument only to facilitate the creation of a Deed of Trust or Mortgage to secure the debt obligation as an alleged “Loan”, when it was not a “Loan”, but rather the receptacle for an Asset-Backed Investment Security. The “Pretender Lender” was paid in full, plus a commission, and lost interest in the debt obligation.

    Also, the Deed of Trust or Mortgage can’t secure an Asset-Backed Investment Security, and homeowners were tricked into thinking they were “Borrowers” of “Loans”,when they were actually SELLERS of a debt instrument to a Securitization Special Purpose Vehicle. An invalid Deed of Trust or Mortgage, was fraudulently procured under the guise of a “Loan”, when it wasn’t a Loan, but rather the “Purchase of a Note” into an Asset-Backed Investment Security.

  9. Did you all see this from last year:

    L. Randall WrayProfessor of Economics and Research Director of the Center for Full Employment and Price Stability, University of Missouri–Kansas City

    Posted: December 30, 2010 08:35 AM

    Why Mortgage-Backed Securities Aren’t (Backed by Securities): How MERS Toasted the Banks

    “…In a series of pieces I have argued that MERS, a creation of the mortgage banking industry, has effectively destroyed the institution of private property in America. Ironically, MERS was created to facilitate quick and easy and cheap securitization of mortgages — what are called mortgage-backed securities. In fact, what it did was to eliminate any backing of the securities by mortgages. Of the total securitized asset universe, something like $7 trillion are (supposedly) backed by residential mortgages. However, MERS helped to delink the securities from the mortgages. At best, they are unsecured debt — there is no property backing the securities. What this means is that foreclosure is not permitted. As I have said before, it is likely that most or even all foreclosures occurring in the US are illegal seizures of property — home thefts. We are talking about 100,000 completed home thefts per month, with another 250,000 new foreclosures started to steal homes every month. Projections are that 13 million homes will have been “foreclosed” (read: stolen) by 2012…”


  10. The kind of news we’re all waiting for. Slow process but…

  11. LPS & foreclosure attorneys for banks are what is driving the entire foreclosure problem.

  12. Servicing behavior is governed by rules; it’s called AB1122. File a complaint wtih the IRS for fraudulent reporting of REMIC proceeds. There’s a form for that. Clayton? Are you listening? What’s that form for reporting tax evasion?

  13. …unsecured false default debt dis-chargeable in bk…

    …file to dismiss for lack of subject matter jurisdiction…

    …debt collectors can’t enforce a deed on a charged off asset…

  14. They can’t come up with the “ledgers”…therein lies the truth…of what ANONYMOUS found out…

  15. So, Carie

    Money did change hands. The defense is: whose and is the person going after me the one having expended it? If not, why should he have any claim to my money and foreclose on my house?

    I don’t think we need to really track the money down, on the contrary. What we need is to obtain from judges that they order foreclosing servicers to prove it really is their money and they can foreclose. Blurring the issues doesn’t help at all. K.I.S.S. is the answer.

  16. And Carie, one more thing.

    You keep harping on money not having been paid. Do you really believe it?

    I can assure you that when I bought my house, money was paid to the seller. Not mine (I didn’t have any) but money was paid and the guy not only paid back his bank (although he didn’t get a satisfaction of mortgage… or, at least, none is recorded in my county) but he also walked away with over $50K representing the equity he had in his house. Did money change hands or not? How do i know? Well, if he had not gotten his money, i can assure you that the seller would have sued the hell out of me!!! Never happened. so, it is sfe to conclude that he got his $50K. Who paid?

  17. Carie,

    I know where you’re coming from and you know how I see things: a real estate property exists for sale, valued at let’s say $100K. A buyer wants it but doesn’t have any money. He contacts a lender and, even though money (green dollar bills) do not actually change hands, the buyer find himself in a position to compensate the seller for the 100K asking price.

    However you look at it, 100K were put to buyer’s disposition by someone, somewhere, to allow him to get the house.

    You can rehash empty trust, fraud, PSA, note, mortgage and the likes until the cows come home, the fact of the matter is that 100K were put to the buyer’s disposal. The new homeowner owes someone, somewhere, 100K. End of story.

    The crux is that everything was done electronically. Suppose I borrow $1000 from you. You don’t have it, so you ask three friends, Peter, Paul and Jack, to wire some money into your account so that you can then wire it into mine. Money has been paid to me, whether you like it or not, even though it is not yours and even though no green bill changed hands. Suppose I reimburse $400 of the $1000 you lent me. Whose $400 is it? Peter’s? Paul’s? Jack”s? Which one do you reimburse and based on what?

    And does that give either one of them the right to come after me for any of the $1000?

    This is what has been happening with mortgages. A relationship existed between you and me. Not between me and the three guys. A relationship existed between you and the three guys but I have nothing to do with any of them. The only entity able to ask me for payment is… you. Now, Suppose Peter sold his interest to Marty. Marty can now come after you for… well, how much? Since you already collected back $400, how much is Marty owed, if anything? because you collected before Peter sold/transferred to Marty.

    The problem is when Marty decides to go… after me for $1000. On what grounds would he?

    Now, imagine that you (who lent me the original $1000, of which I already reimbursed $400) transfer my debt to Helen without telling her that, of the $1000, i already paid back $400. Now, it becomes really, really complicated, doesn’t it?

    That’s what servicers have been doing.

    And Carie, do yourself and eveyone else a very, very big favor: stop sending everyone whatever anonymous writes. Put it in your own words because, quite frankly, I don’t get Anonymous’ writing style. He may be absolutely right but the way he expresses himself is confused and confusing to me. In order for me to understand any of it, I have to lay it out in a certain format and Anonymous doesn’t do it for me.

    I understand what you guys say but it is not yet an acceptable way of laying it out to a judge either and… until it makes sense to them, it remains “exotic” as a defense.

    Please keep in mind that any message is made of two things: the message itself and… the messenger. if the messenger cannot reach you, no matter how good the message, it won’t be heard. That’s what has been happening thus far with our justice system: the message has not reached the judges ‘cuz the messengers have not been able to lay it out in the proper format. However, one judge in Alabama got the securitization. Do you think it is because he was smarter than all the other judges or might it be because the defense attorney put the message in a palatable form?

    I think I might ask “crochetty old guy” about that… Thharry, what do you think? Have homeowners lost mostly because the form stunk or is the message itself faulty?

  18. @Enraged—(from ANONYMOUS)—:

    “…the “loan” refinances (subprime/alt-a), and jumbo new purchases were non-compliant and non-performing manufactured defaults, NO FUNDING at all was necessary (except for the cash-out for the loans). The warehouse lines of credit never actually transferred any actual cash for funding. These lines of credit were simply “credit lines” that the “Depositor” would provide to their correspondent lenders. Once the “loan” refinance origination was completed the Depositor would then reverse the “credit” owed by the correspondent (originator). This never involved any actual deposit of cash proceeds —- the “funding” payoff check is never “deposited” into any bank account. The check is routed to a security derivative clearing house — who then simply cancels the credit-line transaction…”

    “…Subprime refinance homeowners — you were put in false default before you ever even actually defaulted. “Mortgage” contract was not a valid contract — all securities and derivatives — a “sham” to start with. The only party still not being helped is the victim and “targeted” homeowners.”

    “The only way to prove not owned by any trust — is by production of the cash ledgers maintained by servicers and trustees. If servicer did not advance payments to trustees on behalf of “default” loan borrower, trust and trustee is entitled to nothing. Ledgers are the key. Unilaterally, servicers cease advancing payments before 180 days. At that time — swap out of “collection rights” occurs. No security transferred — the security is dead.
    Government decided to let victims fall — no concern for fraud upon courts. No concern for fraud in “mortgage” origination, no concern for unidentified current “creditors”, no concern that homeowners have been denied right to directly confront their current creditor, no concern to divulge derivative swap holders, no concern that victims may not be heard in court, no concern that deregulation has prevented constitutional right to be heard.
    And, the fraudsters know they have government backing. Congress granted that right by The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999, which was signed into law by President Bill Clinton and it repealed part of the Glass–Steagall Act of 1933. The Glass–Steagall Act prohibited any one institution from acting as any combination of an INVESTMENT bank, a COMMERCIAL bank, and an INSURANCE company. Congress said — “we do not care” — we repeal.
    Insurance, insurance, insurance — many avenues of fraud. And, why was this done??? Because Congress gave away US industrial manufacturing and needed to support the economy by SPENDING (and who went out to eat at restaurant franchise tonight??). Financial services provided that avenue. Fed. Res. further promoted by keeping interest rates low to provide a fertile ground for home equity extortion fraud — to keep consumption going — as that is all the US had left. Who influenced Congress to make these decisions??? CEO lobbyists — American HOMEOWNERS were their ticket to wealth.
    And, this is what protesters are protesting. Media clueless.”

  19. I think this is a fantastic idea ( innocence project). Student loans are really another wicked monster hiding beneath the surface. I know of two people who have been paying on student loans for 7 and 5 years respectively. They usually get their “interest paid” form for IRS returns each year. For 2010 none was received. Upon inquiring they were told that they have’nt started paying on their loans yet !!!!. In light of what we now know, could this be just coincidence???.

  20. That’s the thing: the burden of proof that it has standing has yet to be met by the entity trying to foreclose and, so far, it has been THE ongoing battle. In judges’ mind, up until recently, there was an automatic presumption of innocence/good faith in favor of the banks and the same automatic presumption of guilt on the part of the homeowner.

    I can see why: someone, somewhere, advanced funds for homeowners to move into their house. I don’t believe that any defaulting homeowner would argue the point. What they argue, though, is that whoever did, indeed, advance the funds, doesn’t necessarily know he did for any specific property while banks/servicers assume that their role is to recover money on behalf of that unknown entity who doesn’t know where its money went. What I have not yet figured out is this: if the servicer didn’t advance anything (and we know he hasn’t), why have judges allowed it to profit from the situation without demanding the proof that whatever money was recovered during a foreclosure was actually reimbursed to the entity having advanced the funds? I have not yet any judge ask the bank: ok, I’m going to allow you to take the house away and sell it. I want to see the proof that you reimbursed the sales price (minus expenses… but let’s not get there yet. We know they are grossly inflated anyway) to the proper party having advanced it in the first place.

    Until judges hold servicers to the standard of care owed by any fiduciary, the situation will continue to grossly favor banks and servicers. I find it remarkable that a standard of care exists for physicians, lawyers, grocery stores, pharmacies, etc. but none appears to exist and/or be enforced for what banks/servicers are concerned.

    The last 4 years should undeniably prove that, while attorneys, real estate brokers and other professional entrusted with clients’ funds lose their licenses when found guilty of misappropriation, banks are not subject to that same laws and the same penalties.

    No one, so far, seems interested in burden of proof where banks are concerned. Isn’t it time judges started looking into it?

  21. Well said Neil, and what a great idea! With the securitizations of mortgages nothing is like what it used to be, things have changed and the courts need to recognize that. We are not dealing with lender borrower any more, those days are over. I also think that judges need to rewire their train of thoughts on this subject, especially in the non-judicial states.

  22. Where do I sign up for the innocence project
    Neil. I am tired of watching the machine skip over the surface and ignore the underlying dirt! Presumtions and assumptions are leading to our ruin!

  23. I applaud the suggestion that an Innocence Project should be launched for consumers involved with bank/lender related crimes. There is plenty of DNA available for every loan, foreclosure, and other misconduct perpetrated by the banks and lenders of the late, great USA against homeowners, students, and all citizens who have fallen victim to these criminals. Where is our Barry Scheck? Is it Neil Garfield?

  24. Please sign me up so I can get your daily postings.

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