Five Bad Reasons to Avoid Principal Correction (Reduction)

5 years ago it was obvious to anyone with the facts that the entire system or mortgage origination and mortgage foreclosures had been turned on it’s head, starting with one huge lie: that the value of the property exceeded the amount of the loan. It was in 2005 when 8,000 appraisers warned congress that their industry had been poached by the banks — unless they came back with an “appraisal” that was $20,000 higher than the contract amount, they would never see another dime of business. This one fact was the keystone for the largest economic crime in human history.

The answer is obvious. If a borrower had bribed an appraiser to submit a fair Market value that they both knew could never be sustained — and the obvious purpose was to defraud a lending institution not underwriting a loan under the mistaken belief that the collateral was adequate to repay the loan, the borrower and the appraiser would be punished, disciplined and prosecuted and rightfully so. The outcome of such a case would have been that the perpetrators would lose any license they had for appraisals, that the property would be foreclosed, and that the perpetrators would be ordered to pay restitution for the loss incurred by the lending bank.

The law is pretty simple and there is no protection for anyone to lie for the purpose of defrauding another person. There are no federal or state exemptions, no complexities that make prosecution difficult, just plain facts in which the money of the lending bank was converted into the money of the borrower, the appraiser and maybe their co-conspirators — the mortgage broker, the real estate broker and others. Indeed a perusal of the newspapers across the countries reveals just such prosecutions against borrowers, mortgage brokers and others who conspired to defraud the system (albeit the actual victim being unknown but nonetheless named in each indictment or information prosecuting people “low on the food chain.”

The facts in the mortgage meltdown are equally simple and we call for the same remedies, prosecution, discipline and punishment of the perpetrators. But in this case the perpetrators are the banks. They needed to inflate the appraisals in order to accomplish their twin objectives — closing another loan and making certain that even the “good” loans would fail. Now they confused the issue of title to the property and loan ownership beyond recognition if you look at THEIR paperwork instead of the traditional way record title is kept as notice to the world — through public records title registries.

By blaming the homeowners for the mortgage mess and by sleight of hand tricks played with investors, the Banks managed to steal the homes, steal the money of the investors and steal the bailout. They now seek to steal the non-existent mortgage bonds to fill their balance sheets with non-existent assets. The simple remedies that apply against the. Borrower and the appraiser who lied about the property value are said to present system risks, thus making old fashioned restitution for fraud inapplicable.

So here are the five major reasons the media, the pundits, the government agencies and of course the all-powerful Banks say that the most obvious remedy doesn’t apply.

1. The Banks didn’t commit the crime. It was the originators, the borrowers, the mortgage brokers, the appraisers — anyone but them. Not true. In fact not even close to true. The Banks put the pressure on by setting quotas in dollar volume without regard to quality. There are only two ways of enlarging the dollar volume of loans funded — (1) increase the number of loans and (2) increase the dollar amount of the loans. Since we know that the number of loans was decreasing by 2004-5, the only option left was to artificially inflate the value of the collateral which would enable the originator to fund a larger loan.

2. It’s not fair to reduce principal. But of course it is fair that banks get paid 100 cents on the dollar based upon an initial value and loan they tricked the borrower into taking. And it is fair that the banks get paid by the investors, paid by the insurers and paid by taxpayers all for the same loans even if they were not in default. The debt has been paid in full several times over. Allowing correction to a value of the collateral and the principal on the loan where the banks or investors get paid all over again, but at a realistic level is better than what the banks deserve — I.e., nothing.

3. Reducing principal will cause secondary problems that will disrupt the markets. First this refers to something bad happening if HELOCs or other secondary financing get paid off or modified. It is at best a muddled argument that is both wrong and at variance with the main argument that the borrowers are dead beats that don’t want to pay anything to anyone.

4. Correcting principal will cause disruption of the credit markets. Right. So by this logic, the fruit of fraud should always be sustained and allowed to prosper no matter who gets hurt. This logic certainly undercuts the notion of creating confidence in the credit markets.

5. Correcting principal to the value that should have been used when the deal was made will encourage people in the future to take out loans they nave o intention of repaying. This theory is advanced over the proposition that if Banks get away with this chicanery they might do it again. Here the borrowers did nothing wrong except believe the value that was used in the appraisal. Itmis the banks with a history if wrongdoing, not the borrowers.

67 Responses

  1. @JG, thanks for the great read on assignments. One thing for sure, I fit the “empty mind — pure heart” side of the equation!

    I wrote you at whoam. Is that active?

  2. @e tolle – got it. I suspect your up to your eyeballs in alligators just now, but you might find time to read this piece. It contains what I call the granddaddy discussion of assgts (case law) for the purpose of litigation and or collection.
    As to enforcement of notes, the originally oft cited case was In re Hwang.
    Another is In re Wilhelm. These will both pop up with google or yahoo search.

  3. @ JG, thanks for the thoughts….I appreciate them. I wanted to reply with the entire low-down, but I don’t trust the situation, if you know what I mean. Evil lurks and all that. I’ve saved your thoughts and will pour over them, lots there. Thanks again.

  4. e tolle said:
    “I have a situation where B of A is stating that it’s the servicer, and yet has, obviously simply for foreclosing purposes, just self-dealt an assignment from MERS to itself – B of A as creditor. I understand the principal/agent snafu mentioned above. This now makes B of A both the servicer and the creditor of record. B of A is now attempting to ignore this assignment and fall back to a previous one that showed BAC Home Loans Servicing, LP as the assignee. They’re referring to the previous assignment in foreclosure notices, ignoring the latest assignment, which is an illegality as to notice law in my state.”

    I don’t know how an assgt of the dot from “MERS” (even if legit, which it isn’t) makes a servicer a creditor, since a servicer is just that and nothing-but in the absence of evidence that it has specific authority of its alleged principal. Where is this evidence noticed? Nowhere, no doubt.

    Not sure what you said on assgt. 1) assignment first from ? to B of A HLS? 2) assignment from MERS (read B of A’s own employee) to B of A? What was recorded? Both those assignments? An unrecorded assgt is binding on the parties thereto IF the assgt were executed by an officer of the assignor (mail-room clerk’s autograph not binding on corp). If the one to BAHLS, LP were first in time, there was nothing to convey in the second assgt. The second assgt should be handled somehow so that it is not of public record. But, the dble assgnmnts are evid of dbl- dealing, essentially, and we know it. Will a court? But that may not be the end of the querry. Assuming the first assgt were also executed by “MERS” (read member), on what authority? What basis? Who told MERS that an assgt should now be executed to anyone? A holder who does not own the note has no authority imo to command an assignment of the dot. The UCC is handy to hide behind (hence all the purposeful blank-endorsements) in many circumstances to enforce the note, but the UCC does not control collateral instruments. A holder does not have the ben of the collateral, if any, to the note, so who authorized the assgt of the coll instrument to a servicer? Rule 17 says an action must be prosecuted in the name of the real party in interest, which is not the servicer. A servicer with written auth may bring an action, but it must join/name the party to whom the debt is owed. We’re not just talking about enforcement of a note; we’re talking about a coll instrument, also, the goal being to take the collateral.
    A holder may enforce the note only. Only an owner or its authorized agent may command an assgt of the coll instrument to anyone, so again, I give, who authorized the assignment to the servicer? Pretend MERS may assign a dot. Pretend it isn’t really a self-assignment. Some note-owning principal would have had to have told MERS to execute an assgt of the coll instrument. Up against the wall, everyone would say they did anything as an agent or poa of the noteowner by prior agreement. Okay.
    Where is it evidenced in the record that the authority existed? Saying it’s so because one is the servicer is not evidence. It’s no more than hearsay.

  5. Patrick – good points and I’m pretty happy to see someone getting to such salient and actually dispositive questions. I don’t know too much about business bk, most specifically what chapters of bk are available to a business. If it’s seven they filed, it seems to me everything they own becomes the prop of the bk estate, and on limited info, those interests are sold by the trustee to some other business. But one way or another, it seems to me that without the approval of the bk court, a bk (7) business has no authority to assign anything. If the business files reorganization (11?) and they are a debtor in possession, maybe they could assign something in the ordinary course of business. I think, tho, that most of the businesses that filed bk filed chapter 7 and fall in the first group, making them unable to assign or sell anything, and that would include any alleged agent or nominee on their behalf.
    I don’t know about the membership agreement with the ‘gym’ or with MERS, but I do know someone to ask and will tomorrow if possible. (It prob is one answer if 7 and another if 11)
    Here’s the thing, tho. MERS isn’t really pretending imo to be acting on behalf of the orig payee or lender when a member is allowed to execute a self-assignment in its name. The (tacit) pretense is MERS is acting for the current note owner, not the orig payee. They have historically wanted to avoid disclosure of the name of that alleged current note owner, and they have been known to lose a case on the borrower’s ‘the orig lender is toast so MERS can’t be acting for it’ argument before they’ll tell a court they are allegedly acting for the current note owner, i.e., a successor or assign. I’m not sure why, honestly.
    I guess they don’t want to get into the chain of title for the note or the chain of custody for the note which would expose the ruse, the fact that things weren’t done which must have been done by times certain, etc. But you hit the nail on the head about when someone in the chain held the note (allegedly) and filed bk and I can only reiterate that in order for MERS to do jack (assgt of dot), it must be demonstrated that “it” acts for a MERS’ member and that the note has never departed the MERS gang by ownership somewhere, sometime by a non-member, in which case, MERS was toast one way or another. There’s no way that a court, when confronted with the note’s ownership issue in regard to MERS’ membership status of any owner in the chain, may make a legitimate decision regarding a “MERS” assignment of the dot. The authority to act,
    which is only in regard if ever to MERS’-members, must be demonstrated, and it never is. Purporting to assign a note in a “MERS” assgt of the dot is a RICO act imo. This would be true even if these assgts weren’t self-assignments, but given that they are, I think the crime is heightened. A false instrument has been recorded (this obviously violates recording statutes) and is being submitted to courts routinely. It’s fraud.
    MERS recently came out with some revised rules, I’m pretty sure, which I haven’t read. MERS original rules, the only ones I’m aware of, never, ever authorized member-to-member assgts of the dots. The only time a member was auth’d to assign a dot was to a non-member – because MERS was then of course toast – and to record that assgt to a non-member in the land records and deactivate the loan from the MERS’ database. According to Hultman’s testimony, as I recall, in In re Walker, an assgt was in fact executed and recorded in the land records “pursuant to the MERS membership agreement” because the loan had been sold to a trust, the beneficiaries of which are non-members. Apparently, they didn’t like that so much, so are now pretending the fact that the trust
    bens are not members is of no consequence to their actions.

  6. @ JG

    Great point. If any of the string of entities along the way filed for bankruptcy and are defunct, would there be an automatic dissolution of any membership agreement, even a gym membership? If MERS holds the lien as a constant placeholder for the lender and the universe of its possible successors, one bankruptcy of a MERS member could conceivably put into question if that particular member had the note at the time it filed. How many members are there? How do we know if that bankrupt member wasn’t the member in possession of the note at the time it filed? How could that entity legally transfer the note to the next MERS member if the bankruptcy trustee is in control of the assets on behalf of the creditors? How then can MERS claim to transfer a lien or continue to act as placeholder for and on behalf of the entire universe of potential successors if one member goes bankrupt?

    MERS records amount to hearsay as far as note ownership goes and the land records only show MERS as nominee for the original lender. There is no way to show one way or the other, especially if the defendent has a copy of its genuine note exhibiting a blank endorsement, which member had the note and when without the plaintiff doing some serious reverse engineering and fakery but the burden is on the plaintiff, not the defendant . This would present the defendant an opportunity to kill the plaintiff, death by a thousand cuts, by challenging everything and may present opportunites to uncover fraud by the plaintiff and its attorneys. I would think this argument may call into question the plaintiffs pleading as to who is the real party in interest and if the MERS lien assignment is legal nullity – possibly helping it survive motion for summary judgement.

    Once a note can be shown to potentially find itself with a non-member via its bankruptcy, has MERS lost its grant from the borrower to hold the lien for the benefit of that bankrupt enity and by extension all the other MERS members by its own design and obfuscation? What do ya think JG?

  7. thanks johngault,

    hopefully my attorney will be on the ball.

    seems like Florida is a stall game. you stall the banks out for a few years with a lawyer and drive their costs up until some computer alert blinks and they offer some kind of settlement.

    we will see. I have a friend in Miami with WAMU/Chase he has been there for 3.5 yrs no pay while Chase stumbles with its lack of ownership/paperwork. He has limited prepay attorney but has worked for him (I think mostly bec Chase so inept).

    I wish I were facing chase or countrywide.

    The crap is that homeowners get the bad rap for sitting in house but we have no one to negotiate with. No other choice but to stall.

  8. @chas404: Well, you can help them out by insisting they demonstrate their alleged principal is a MERS’ member, and for that matter, that so was everyone in the chain of ownership of the note.

  9. Thanks Patrick,

    I like the perspective on servicing rights.

    In my case like many it is obvious that to come along and finally record MERS as nominee of originator assignment to Servicer (acting on hidden behalf of FMae/investors) is a joke.

    Originator obviously sold on its interests in my case 6 plus yrs ago. Originator also while never went BK was folded into DBank and has not operated for years.

    They just show up now many yrs later skipping the entire title chain.

    The signatory for MERS is a known employee of Wells Fargo. So essentially the servicer is transferring mortgagee rights from itself to itself in order to sue me on behalf of Fannie.

    I have a lawyer. He uses FL statues to stall and beat the banks until they finally come up with some kind of reasonable solution.

    Would be fun to depose the WFargo lady signing on behalf of MERS as nominee for a long gone originator and hidden Fannie Mae.

    Also seems pretty obvious that the assignment now recorded is garbage bec MERS can only assign as nominee for originator or its assign. They should be required to show who the assign is!!!!!!!

  10. @ Chas

    First, understand the you own MERS, It is your bitch. You GRANTED that MERS holds the lien for the benefit of the lender and the successors to the lender. Whatever outside undisclosed agreement MERS has with its members cannot infringe upon your grant.

    In order to assign a lien to a member, the member must be the originating lender or the lender’s successor in rights and interests because thats what you granted.

    I have discussed this earlier but a servicer has taken the right to collect, which is a right of a lender, in a separate and distinct transaction. This can be shown in the notice of servicing transfer whereby it should state something to the effect of “servicing of your loan, that is, the right to collect from you, has been transferred to xxxx .” The right to collect is a right that belongs to a note owner and should be transferred with conveyance of the note. However, the right to collect has been transferred separate and independant from the note and you’ve been given notice. When taken separate and independant, it must be accounted for as a distinct asset on the servicer’s balance sheet according to asset reporting rules promulgated by FASB.

    A servicer has only the right to collect but no beneficial rights of debt ownership. Therefore, a servicer has limited rights under the note. This means the servicer falls short of full note ownership and is not the creditor. Whereby it is not the successor to the original lender’s full rights and interests.

    Does your servicer account for the “right to collect” as a distinct asset on its books? If its a sub-servicer, does its boss account for the “right to collect”? If its reported a distinct asset derived from the note, how can the note be accounted for as a full loan asset on the same set of books? That is an impossible accounting feat and it is balance sheet fraud.

    As an agent, the servicer is instructed to perform duties from and on behalf of its principal. Servicing duties aren’t rights. Only rights have intangible value and must be accounted for on the books. Thats why there is a multi-billion dollar marketplace for servicing rights bought and sold between servicing entities. There not purchasing duties, there purchasing rights – debt owner rights that derived from the note.

    Any transfer of a lien outside of MERS from MERS must be to the servicer’s principal because that what you granted. The principal must be the full note owner. Now because a servicer has taken the lender’s “right to collect” in a separtate and distinct transaction, there isn’t a full note owner to assign a lien to or give instructions to MERS. I’ve said before that an endorsement displayed on a note in favor of a servicer is bogus because all the full rights of note ownership can’t be conveyed from a predecessor if the lender’s “right to collect” has been transfered in a separate and independant transaction.

    The right to collect and the right to receive payment should belong to the lender but they don’t. And if they don’t there is no lender. If there is no lender, there is no lien to bind anybody. That role belongs to MERS. It holds the lien, it is a placeholder and thats the role you granted MERS. If it doesn’t want to hold the lien anymore, if must go back to the lender or the lender’s successor. Not being able to foreclose in MERS name really hurt the cause.

  11. @ Patrick, thanks for the reply. I’ve been too busy to repond but appreciate your thoughts and your time. Thank you.

  12. Please continue to elaborate on MERS as nominee for originator assigning mortgage to servicer. Servicer then files suit against homeowner.

    MERS agent and signer is a known Servicer employee in my case.

    Meanwhile Fannie Mae sits back as “investor”. No idea how this can stand up in court.

    I like principal/agent discussion because you can easily show that the loan was “Fannie Mae”.

    Seems like it is 2012 and banks are running their same modus operandi from 2006.

  13. Patrick,

    I am going to check that statute here in FL. In my case MERS transferred mortgage lien to WFargo. I am sure they paid $0.


  14. @ E Tolle

    Don’t know where you call home, but here in sunny Florida we have FL statute 201.8 and Somma vs. Metra Electronics Corp, 727 So.2d 302 (Fla 5th DCA 1999). The plaintiff is required to pay proper Documentary Stamp Taxes.

    It seems a court would lack jurisdiction to act in any matter if the requisite amount of DST has not been remitted by the plaintiff. The mortgage, trust deed, or any other instrument shall not be enforceable in any court in the State of Florida as to any such advance unless and until the tax due theron has upon each advance that may have been made there under has been paid. Fla Stat 201.081(1)

    Failure to pay DST is a valid defense here in Florida. If the lien was deemed uneforceable by the plaintiff at the time of filing the complaint, it seems to me that the entire complaint must be refiled only after paying the DST. If as you say B of A is the recorded lien holder in the land records, and B of A has also declared it’s merely the servicer in the complaint, I don’t see how a complaint can be refiled declaring BAC home loan servicing LP as the mortgagee without first getting the lien assigned from B of A. But as already declared, B of A is merely the servicier, so it could never assign the lien.

    Am I wrong here? Would the complaint need to be refiled? Would the previous lien assignment be declared a nullity and revert back to MERS if the DST wasn’t paid? If so, how does MERS go about assigning a lien to a declared servicer who also declared it holds the note. The mortgagee grants MERS only acts for the benefit of the lender or its successors. As noted, a declared servicer must have an active principal. MERS could never legitimately assign the lien to the declared servicer, only the servicer’s principal and only if that principal paid the DST and only if the principal could show it owns the note.

    Is this line of thinking correct?

  15. Folks, I’m coming to this party late, great conversation thread here. My question has to do with Patrick’s statement:

    As for the principal/agent thing, a servicer that declares its capacity as such in a complaint can never be the recorded mortgagee in the land records. As a declared servicer, to be recorded as the mortgagee would make it greater than its principal. I think we agree that a declared servicer must have an active principal and this would be made evident if it were compelled to cough up its servicing agreement. This would reveal the chain of title in the lands records is clouded and show the complaint is defective.

    I have a situation where B of A is stating that it’s the servicer, and yet has, obviously simply for foreclosing purposes, just self-dealt an assignment from MERS to itself – B of A as creditor. I understand the principal/agent snafu mentioned above. This now makes B of A both the servicer and the creditor of record. B of A is now attempting to ignore this assignment and fall back to a previous one that showed BAC Home Loans Servicing, LP as the assignee. They’re referring to the previous assignment in foreclosure notices, ignoring the latest assignment, which is an illegality as to notice law in my state.

    Any thoughts anyone? How best to snap this bear trap shut?


  17. Patrick- yours is the BEST, most succinct, most easily understood explanation of the relationship between all the parties to the transaction, and how they affect each other’s rights as far as accounting rules and legal standing go. Hey Neil- why can’t anyone else on any of the 20 other blogs I read daily for the last 4 years come up with an explanation like Patrick’s? I have seen 30 page briefs trying to explain this, and patricks 3 paragraphs do a better job.
    So the next question is, What line of work are you in? To have such a thorough understanding from both a legal and an accounting viewpoint, of where the entities stand. Yes, that was not a sentence, I know. I am going back to print your post out, see if I can do it without printing the entire site.

  18. @JG

    One party is nominated and entrusted with targeting borrowers on behalf of the sponsor’s capital investors. This party is the entrusted lender who is charged with retrieving cash flow from unsuspecting note maker’s. The promise to pay that normally adhere’s to the named lender was already sold to an investor before the note maker was a twinkle in lender’s eye. The borrower’s future debt obligation was an investment to be harvested, a bet that had to be covered by the sponsor because it sold forward a promise in cash flow that it didn’t possess. Thats why I refer to the loan as an capital investment because the note maker basically agreed to take on to itself the capital investment promise the sponsor sold to its constituants.

    When asking the servicer who the creditor is, how many have received a response that says ” the investor in your loan is xxxxx” If the promise to pay is an investment, how has anything been loaned? In order to have received a loan, there must be a creditor. Think of yourself as a walking business start up just waiting for an investment of capital and in return the investor gets equity shares in your promise to pay which makes it the cash flow beneficiary. Your promise to pay is the cash flow business that was invested in. This is not for a Judges consumption, but so that you can understand how you were targeted for investment.

    As we’ve touched on before, a creditor is defined as the entity that can report the note as a loan asset on its balance sheet. In order to report the loan asset on the left side, it must be counterbalanced by the loan liabilty on the right. Investors in cash flow control the liability and the liability only. And so there is no creditor that can report the note as a loan asset on its balance sheet. Hence, you were invested in.

    As for the principal/agent thing, a servicer that declares its capacity as such in a complaint can never be the recorded mortgagee in the land records. As a declared servicer, to be recorded as the mortgagee would make it greater than its principal. I think we agree that a declared servicer must have an active principal and this would be made evident if it were compelled to cough up its servicing agreement. This would reveal the chain of title in the lands records is clouded and show the complaint is defective.

    The note arguement is that separate and distinct parties have taken rights derived from owning one note. As such, each party has limited ownership rights, which falls short of full ownership. Nobody can claim ownership of the note, only partial interest in the note. Creditor = full ownership of the note = reporting the note as a loan asset on its balance sheet ledger. Without a loan asset, there cannot be a liability and vice versa. The note then is not evidence of a debt to the note holder if nobody can own the full note.

    A partially interested party does not benefit from the lien granted to a creditor by the borrower. Why? Because it doesn’t report the note as a loan asset and so it can’t then have an interest in the loan liability evidenced by the note. A taker of collection rights that derived from note owner cannot be a full note owner. Likewise, a taker of payment rights that derived from a note owner cannot be a full note owner. If one right is spoken for before sitting down at the closing table, the other right is the only thing leftover after the closing. The leftover can be retained or sold.

    You say an agreement would not have been effectuated until you own yourself what you have already sold. A person can sell its promise to deliver xxxx because it owns that promise. Investors have purchased the promise of delivery of xxxx in exchange for capital. The promisor of xxxx can target another promisee of xxxx (the note maker) and exchange promises. In that way the promisor has fullfilled its delivery obligation of cash flow to the investors and the note maker’s payments go to the benefit of investors instead of the note holder. The note maker is precluded from performing under the terms of its agreement because of a preexisting undisclosed agreement.that it wasn’t a party to.

    The note maker is paying for the benefit of an unsecured party that lacks contract privity. Clear as mud, right?

  19. I just want to thank you all for your intelligent dialogues. I have been following and reading this info as a personal education for over a year now and this site, and its comments, have been the most solid info I have found. THANKS!

  20. johngault- “there is a payee on the note”. is what you said in response to patrick’s post. I would say that there is an endorsement in blank, so there is no payee until f/c time. there may be an allonge, but that is separate from the note, in the event the proceedings are dismissed without prejudice, in which case the mill will dummy up another allonge, and have another go at the homeowner. By keeping the endorsement blank, and using allonges instead, the scammer can keep trying.

  21. @Patrick, who said:

    “You were targeted for investment, not loaned any money.” I like most of your argument, but this part is just not true and I sure would hate to see anyone try this argument in court. Funds changed hands and someone benefitted (disregarding here anon and carrie’s take on sub-prime refi’s, wherein this may not be true). My interest, as usual, is what a court can and will see. A borrower may certainly have been targeted to help fulfill a contract between parties outside the note, but that doesn’t mean there was not a loan made or I miss how you arrive at that conclusion. The ‘investment strategy’ and the loan are not mutually exclusive as far as I can tell.

    You also said:

    “A party that operates as an agent of its principal cannot be the mortgagee because that would confer a higher status to the agent than its principal possesses.” That is only true if the principal is not the mortgagee, and while it may well not be, there’s no support here from you for that proposition….unless your reader is to infer that one with only a right to payment – as opposed to true note ownership – will never be the beneficiary of a dot? It’s certainly true that generally one may not confer a higher interest than one has himself (altho I’d almost swear I have read it’s possible somewhere over the last few years, as illogical as that sounds). And in this regard, “MERS” assignment of the dot is an inappropirate document. A more appropriate document would be a quit claim of MERS’ nominee status in the dot, because as you say, one cannot confer a higher status than one has. But this last sentence is an incomplete argument without the other necessary and more involved one(s) about the language in the dot and the
    unconscionable-ness (therefore a scam) it was to make the borrower think that a shell company such as MERS was the nominal beneficiary or that a shell company was being granted any rights at all when it was known MERS is a shell company and would and had granted any right to act pursuant to that honky and legally-skewed dot to its members and that it would be the members who would factually have carte blanche to claim anything and everything they wanted in MERS’ name.

    At the risk of proving my ignorance: back to your note arguments. I think you’re saying the note is actually ‘bifurcated’ in that one party owns it and another has the right to payment, which is what I have thought but can’t support. But you say the reason this is so is because the collection rights to the note are already owned by a third party (the investor) and therefore when a note is ‘sold’ after origination to one in the path/chain to the bankruptcy-remote sec’n pool, it is actually sold / transferred without those rights? No, that can’t be, I’d say because 1) there is a payee on the note whose interest cannot be ignored without cause (and I haven’t seen that yet) and 2) while there is a pre-existing contract to be filled starting with all our autographs on notes, the investor imo has no interest in anything at all until the note makes it to the trust because the interest even if pre-sold to the investor by someone who is not the orig payee would not be effective until then. This might be a different dynamic had it been the original payee who sold the rights forward, but it wasn’t (that I know of, anyway). Even if the depositor has sold its own interest forward, the depositor has no interest until it owns the note. I’m certainly willing to be wrong or to have misconstrued any number of these note issues, but we need arguments that will survive facts. You can sell forward an interest, but such an agreement would not have been effectuated until you own yourself what you have already sold, and doesn’t this undermine the argument that at the moment the note is signed, the collection rights are owned by a fourth party, having been sold by a third party?

    Enraged just reminded me of my mantra: MERS has to go. I have reason to believe (hope?) the holdup on the settlement is in fact the “MERS” factor. What is the point of fining someone for illegal activity if you leave it in place? We won’t know the wheels of justice are turning at all let alone in the right direction until MERS is taken out. Anything else is surely pretense, but we have to acknowledge what a big deal that is.

  22. I found this:
    Consumer reConsumer relief requirements”: Servicer shall not, in the ordinary course, require a borrower to waive or release legal claims and defenses as a condition of approval for loss mitigation activities under these Consumer Relief Requirements……
    Homeowners have to move very CAREFULLY…because that is exactly what the Servicer is aiming for. Consumer relief….if the homeowner does forbearance, short sale, sends docs for faked modifications…the homeowner releases any foregoing legal pursuit against the servicer
    As Servicers act out…the cost to our life in their games so they can look like…they are in some formed cooperation….NOT….their backdoor agenda is foreclosure…no matter how they have to look like in all appearances like they are in cooperation with underwater mortgages…that they set anyway. We need to pray….Divine Justice prevails over, overall corruption and now, the new agenda…Independent foreclosure Review! Not what it’s made to appear as….as your house disappears if you give them, the comptroller.regulator? Not, for who…the info the servicers are looking for… you to provide for them….just hand it to them…you do all the work…and in the handing…’s over…we have just been set up.
    lief requirements”: Servicer shall not, in the ordinary course, require a borrower to waive or release legal claims and defenses as a condition of approval for loss mitigation activities under these Consumer Relief Requirements……
    Homeowners have to move very CAREFULLY…because that is exactly what the Servicer is aiming for. Consumer relief….if the homeowner does forbearance, short sale, sends docs for faked modifications…the homeowner releases any foregoing legal pursuit against the servicer
    As Servicers act out…the cost to our life in their games so they can look like…they are in some formed cooperation….NOT….their backdoor agenda is foreclosure…no matter how they have to look like in all appearances like they are in cooperation with underwater mortgages…that they set anyway. We need to pray….Divine Justice prevails over, overall corruption and now, the new agenda…Independent foreclosure Review! Not what it’s made to appear as….as your house disappears if you give them, the comptroller.regulator? Not, for who…the info the servicers are looking for… you to provide for them….just hand it to them…you do all the work…and in the handing…’s over…we have just been set up.

  23. Ed DeMarco, whats his inside investment in all this? Anyone have any thoughts? Is this man maintaining this stance for his own reasoning, or does he have a payoff in the wings somewhere?

  24. Action Item:

    Ed DeMarco, head of the Federal Housing Finance Agency — which oversees Fannie and Freddie — has stood in the way of (principal)reductions and he’s claimed the support of Fannie and Freddie. But that’s no longer the case. Even Fannie and Freddie now support principal reductions. It’s time for Ed DeMarco to step aside by signing this Whte House petition:!/petition/push-fannie-mae-and-freddie-mac-issue-principal-reductions-underwater-homeowners/qtS3crg7

  25. I believe that Political Correctness over- Rules on a Nation that was originally established on Truth, even the Word of God Foundational Truth. So, individuals, businesses, legislators….it appears an outdated thought to consider that Integrity that once had a place, doesn’t exist in this society. Even basic moral rightness….is a thing of another era, with everything else….What’s been….now even the comptroller and regulators are another instituiton instituting their own ‘Tower of Babel’

    The everyday person, homeowner, small business owner is held under rules and laws that ….has this oliography structure out grown….as if they are bigger than the God of the Universe. John Lenin was a great muscian but not so great a man….the moment that day he opened his mouth and DECLARED he was as big and as popular as God….Where is he now. Insittutionalizers, Government, regulators, the farce of the independent foreclosure review for example, an ACT of DECEIT….have enacted their own downfall, as they spoke, out of their own mouths.

    They THINK, arrogantly, THINK, they are too big. The bigger they are the harder they will fall.


  27. This is my contention and Case Exact! So the next step….

  28. @Enraged

    It’s “taking so long” because the “powers that be” and the media that is owned by them are squashing the truth at every turn. Every day I turn on the radio, tv, or e-news hoping to see a glimmer of truth about the biggest story/scandal this country has ever seen—and they are always talking about something else…”wag the dog” stories—meanwhile some dude who is holed up in his foreclosure with a rifle barely gets a whimper…

  29. @Patrick,

    That’s why the Huntington National Bank v. Brown case is so important and why foreclosures in Ohio have slowed so much. MERS has no say here. The courts ruled that MERS not being the payee to a note, it couldn’t legally transfer, assign or sell the note. Get MERS out of the equation and the whole shabang crumbles. I don’t know why it’s taking so long for the rest of the country to “get it” but until we do, nothing will improve.

  30. @JG

    The distinction is delivery of future cash flow rights has been pre sold, sold forward, promised, pledged whatever…to the capital pool investors in exchange for a deposit of capital into the sponsor’s account today.

    A specific note by a specific maker, or investment, hasn’t been pledged, or sold forward, because the note hasn’t been made and doesn’t exist yet and the note is not what has been promised, only the future cash flow derived from nebulous unspecified notemakers has been promised. The sponsor will seek out and target signatures to cover its bet that it can deliver what it promised.

    It is like any futures contract. The right to delivery is promised in the future if you buy the contract today. Put another way, Wimpy says I’ll gladly pay you Tuesday if you buy a hamburger today. If you buy a hamburger today, you’ve been promised delivery of payment on Tuesday. Wimpy better invest that money so he can deliver on the promise he made. Maybe he invests the money in a loan and generates enough return from that investment to pay you back with the interest he promised. Did Wimpy pay you back out of his own pocket or did his investment pay you back? Does Wimpy skim enough off the top make this worth his while? Absolutely

    UCC § 9-203(b)(1). UCC § 1-204 provides that giving “value” for rights includes not only acquiring them for consideration but also acquiring them in return for a binding commitment to extend credit, as security for or in complete or partial satisfaction of a preexisting claim, or by accepting delivery of them under a preexisting contract for their purchase.

    The investors are accepting delivery of the cash flow rights it purchased under its preexisting futures contract is has with the capital pool sponsor. This contract existed before anybody signed the note. You were targeted for investment, not loaned any money. The named lender was entrusted by the sponsor to retreive cash flow for the investors benefit and named lender’s future right to payment already belonged to the cash flow investors. The payee in reality only has the right to collect, or harvest, cash flow from the investment.because the beneficial interest was delivered to the investors as promised the moment you signed.

    The named payee has limited ownership rights in the note (the right to collect). The investors have limited ownership rights in the note (the right to payment). Having limited rights in the note means that you fall short of full ownership. Neither party has 100% of the risks and rewards of full ownership and so neither party has contract privity with the note maker

    The mortgage instrument grants that it binds and benefits who?

    For all you who are being sued by a servicer in the servicer’s own name and the servicer had declared itself in that capacity, understand that a servicer is operating under a separate and distinct servicing agreement with a principal. A party that operates as an agent of its principal cannot be the mortgagee because that would confer a higher status to the agent than its principal possesses. The servicer should attach the servicing agreement as an exhibit to its complaint upon which the complaint blows up in its face. Most likely you’ll find that title is clouded.and corrupt.

  31. Patrick,

    Great post on the Fannie Mae’s of the world. Very well put. Please please post again. I labored through the FM version of a PSA and they clearly clearly guarantee the FM certificates (or cash flow) to the investors (whether the borrower pays or not!).

    I am not a party to this FM/investor agreement as a borrower which is probably why I am never allowed access to FM by the servicer Wells Fargo, told FM is an ‘investor’, and never told the trust info and finally sued by the WF (and never by FM).

    So borrower stops paying because house is 50% underwater and there is fraud all over the settlement/origination and originator is gone. Title agent gone etc etc.

    FM is obligated to pay the investors for the FM certificates REGARDLESS of borrower. Says it clear as day. If the govt had not swooped in with $165 billion (and counting) HOW would that have affected my loan obligation??? The end investors would have been murdered and accepted probably 50 cents on the dollar and would possibly be open to negotiate with me and I would have gladly negotiated and probably paid.

    For now though Obama’s FHFA man says no principle deductions…. and silly Obama offers HARP 2.0 offering responsible investors low interest rates on now 50% underwater homes. Sorry but responsible borrowers don’t pay on 50% upside down fraud loans. 6% interest on a 50% bad deal is a bad deal. 2% interest on a 50% bad deal is still bad. Same with 0% interest.

    You see it is simple contract law in my non-lawyer’s eyes. Has to do with damages to WHO and contract privity. If I can’t sue investors for fraud made by the originator and title agents and title insurers then how can they sue me??? (please don’t mention equitable damages as I know local judges just go for that easy way out).

    See…. Patrick… I have muddled it all up.

    Your excellent post made it plain as day!

    Please please read the FM PSA agreement yet again and enlighten us some more. Keep it simple but add some terms from that agreement!!!

    I would buy my lawyer a steak dinner if he would read through your excellent post and the FM style PSA and then ask WF the servicer WHY ARE YOU SUING MY CLIENT FOR DAMAGES SUPPOSEDLY SUFFERED BY AN END INVESTOR PAID BY FM in a contract he is not privy too and FURTHER paid by $160 billion of govt funds????

    If FM bought back the loan out of the hidden trust then somehow assigned it to WF seeking damages then PLEASE show the paper trail and NOT the currently RECORDED recent bogus assignment from long dead originator and silly MERS back to WF (by a known WF employee acting as MERS no less!!!!)?????

    This above has to represent more than 50% of foreclosures and I do NOT know why we dont focus more on Fannie Mae.

    If silly quasi govt FM wants to sue me then they should have the balls to record their name in public and tarnish it as they have mine. I may be a ‘deadbeat’ but I don’t owe $165 billion!!! Haha.

    We drive a stake in FM and all the banks and brokerage houses will fall like dominos. Why else does the govt prop up FM? Everyone knows it.

    Thank you all for allowing me this diatribe. Feels good! C

  32. From Mandelman. The guy is a real riot!

    “You’ve got to give it up for the Spaniards… unless they’re bankers.

    Camping in Zuccotti Park? Bank Transfer Day? Occupy protesting evictions… singing in courtrooms to disrupt trustee sales… lawsuits heaped upon lawsuits… yawn.

    What has happened to us? We used to be creative in our protests. We dressed up as Native Americans and dumped tea in Boston Harbor, for heaven’s sake. What about the 1960s? We stopped the war, if you recall. And we were the grooviest! Our history is jam packed with interesting protestors. Rosa Parks. Dr. King. Abby Hoffman. The Bonus Army?

    We even burned our girlfriends’ bras for a while… that was fun to watch.

    But, the international news out today has understandably left many Americans feeling… well, inadequate isn’t quite the word I’m looking for… impotent, maybe? Flaccid, perhaps?

    You see, in Spain… as you may have heard… unemployment is north of 22 percent, there are mucho foreclosures, and the Spanish bankers have been getting the heat for it. Now, it seems they’ll be staying hot, unless they take matters into their own hands.

    Spain’s high-class escorts have announced that they will not be offering their services to the country’s bankers until they start fulfilling their responsibilities to their society. “Today, life in Spain really sucks,” one of the girls said. “So, we don’t have to.”

    According to RT… a news agency that I now hope to work for one day…

    “The largest trade association for luxury escorts in the Spanish capital has gone on a general and indefinite strike on sexual services for bankers until they go back to providing credits to Spanish families, small- and medium-size enterprises and companies.”

    The escorts are telling bankers that until they start closing more loans, they won’t be opening their… services… or accommodating any members of the financial services industry. A spokeswoman for the trade association praised the strike’s success by stressing that the government and the Bank of Spain have allowed the flow of credit to run dry.

    The spokeswoman told RT… “We are the only ones with a real ability to put pressure the sector, or take pressure off. We have been on strike for three days now and we don’t think they can withstand much more.”

    She also said that reports of bankers pretending to be deadbeat homeowners and bankrupt real estate developers in order to enter an escort’s place of business are pitiful. “Who else but a banker can afford the 300 euro an hour?” As soon as they pull out the cash the girls yell, “Métetelo por el culo!” As they laugh and walk away.

    Picket signs seen in downtown Madrid read:

    “Don’t come here too soon. No Loans, No Moans.”

    The bankers reportedly have become so desperate that they’ve tried to call on the government to mediate hoping the Escort Union would agree to a modification of their demands, but calls to officials were all placed on hold for over an hour before being disconnected inexplicably., the site that initially published the story, said the bankers continued to use political clout to lobby the government to stop the strike, but apparently Spain’s Minister of Economy and Competitiveness responded by explaining that just like los swaps de incumplimiento crediticio, the government does not sufficiently regulate the escort industry and since neither trades on an exchange, they could not intercede.

    “Escorts are choosing not to exercise their, um… I mean, they are making use of their right to deny admission or entry to… er… well, you know. So, it’s a very hard problem… oh dear, I mean… no one can negotiate,” the minister was quoted as saying as he blushed and hurried from the podium.

    Clearly, today’s news from Spain shows that when it comes to protesting, Americans have lost some of our creativity and are simply not up for it as often as we once were. Frankly, many have expressed concern about our staying power as well.

    One bright spot, however, is that we are starting to see more whistle-blowers coming out of U.S. banks, so perhaps it’s the jobs of the blowers that will get us excited about protesting again… and again.”

    Now, for my own comment: of course, something like that can’t work here. 40% of American men suffer from… ED. We’ll have to find something else, I guess. Anyone got an idea?

  33. @neidemeyer – and let’s not forget use of the of-late (last 10 years or so) *&!@*! condemnation process, such as the outrage in Vegas wherein an entire subdivision was condemned to make way for Walmart and Lowe’s (Lord knows they’re really important or this was the alleged highest and best use, some bull). As you probably know, there was a highly touted case a few years before that wherein the court upheld condemnation for private-use (forget where), so as far as I know, there was little argument in Vegas.

  34. @Patrick – the distinction I see in your comments is that while the note says it may be sold (which describes an event which may occur in the future, but has not occured as yet), you state that the fact is, it has already been sold or at least committed. Is the diff between sold or ‘merely’ commited one with a material distinction? Maybe – got me. All I think I know, disclaimer, on that score is that if I have paid you for a note, I am entitled to your endorsement (if negotiable instrument) and delivery (but I don’t have them til I have them). Seems to me that’s the first question – has note been sold or ‘just’ committed, and then what if anything is the ramification of the answer to that question to the borrower. Is ‘already sold’ material? It seems to me, the layperson, that if the note were in fact sold as opposed to committed, the note does not in fact describe the transaction for its recitation that it MAY be sold (because it HAS been sold and the payee knows it). Does this change anything? I would thiink one would have to support an argument of materiality. It’s said a lot here that the note did not really describe the transaction, but we know enough from a zillion decisions that many courts’ first reaction would be “So?” If we can’t come up with the ‘so’, I wouldn’t know the point of the exercise??

  35. And this is why Obama cannot, must not be reelected. Not a bad chap, from what I have seen. But so completely inadequate that, by the time he ends his second term, America will be a thing of the past and any hope of coming out on top will be permanently cruished.

    Or… we’ll have a revolution of such magnitude that overpopulation will no longer be a concern. We can’t afford Mr. Nice Guy. We can’t afford any of the other side’s clowns either. Someone strong will have to take over, and do it sooner than later. And because it’s a necessity, it will happen.

    Monday, March 26, 2012
    Bill Black: “The only winning move is not to play”—the insanity of the regulatory race to the bottom

    Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.

    The plot of the movie WarGames (1983) involves a slacker hacker (played by Matthew Broderick) who starts playing the game “Global Thermonuclear War” with Joshua, a Department of Defense (DoD) supercomputer that has been given partial control by DoD of our nuclear forces. The game prompts Joshua, who has been programmed to win games, to trick DoD into authorizing Joshua to launch an attack on the Soviet Union so that Joshua can win the game. The hacker and the professor that programmed Joshua realize that the only way to prevent Joshua from attacking is to teach “him” that no one can “win” global thermonuclear war. The insanity is that the people who created the game “Global Thermonuclear War” thought it could be won. Joshua races through thousands of scenarios and ends his plan to win the “Global Thermonuclear War” game by attacking the Soviet Union when he realizes that “the only winning move is not to play.”

    The JOBS Act is insane on many levels. It creates an extraordinarily criminogenic environment in which securities fraud will become even more out of control. One of the forms of insanity is the belief that one can “win” a regulatory “race to the bottom.” The only winning move is not to play in a regulatory race to the bottom. The primary rationale for the JOBS Act is the claim that we must win a regulatory race to the bottom with the City of London by adopting even weaker protections for investors from securities fraud than does the United Kingdom (UK).

    The second form of insanity is that the JOBS Act is being adopted without any consideration of the findings of the Financial Crisis Inquiry Commission (FCIC), the national commission to investigate the causes of the current crisis. I am not aware of any proponent or opponent of the JOBS Act (other than me) who has cited the findings of FCIC. Everyone involved has ignored the detailed finding of a huge investigative effort. The FCIC report explained repeatedly how the three “de’s” (deregulation, desupervision, and de facto decriminalization) had produced the criminogenic environment that drove the financial crisis. The FCIC report specifically condemned the “regulatory arbitrage” that the worst actors exploited by choosing to be (not very) regulated by the “winners” of the regulatory race to the bottom. The FCIC report shows repeatedly how damaging the anti-regulatory fervor in general and the race to the bottom in particular proved.

    The third form of insanity is that the JOBS Act was framed without any input from anti-fraud experts. Anti-fraud experts uniformly condemned the bill. We have ignored the experts.

    The fourth form of insanity is that we have ignored the people who got past crises correct. The people who were the first to identify prior crises, who designed and implemented successful means to limit the crises, who prevented problems through effective supervision from becoming crises, and who held the most elite fraudulent CEOs culpable for their frauds have all been excluded from the drafting of the JOBS Act.

    The fifth form of insanity is that the people who got everything wrong by designing the anti-regulatory policies that drove our prior crises have designed the JOBS Act. We are reinforcing failure and turning our back on what we know succeeds.

    The sixth form of insanity is a counterfactual. The unique aspect about this crisis is that it is the first one in modern U.S. history in which the CEOs directing the control frauds that caused the crisis have done so with complete impunity from the criminal laws and near impunity from civil suits and enforcement actions. The worst, most destructive fraudulent CEOs have been allowed to become and remain wealthy through their frauds even though several of them caused greater losses than the entire S&L debacle. The worst fraudulent CEOs who led the prior epidemics of accounting control fraud that drove the S&L debacle and the Enron-era crisis were prosecuted. Not a single elite CEO from Wall Street or the largest fraudulent lenders has even been charged with fraud arising from such loans even though they, collectively, made over two million fraudulent loans in 2006. Had the Bush and Obama administrations prosecuted and denounced these elite frauds it would have been politically impossible for an act as criminogenic and cynical as the JOBS Act to be promoted by the Obama administration and adopted by large Congressional minorities. We are seeing with the JOBS Act the sick face of crony capitalism.

    The seventh form of insanity is that there is no greater killer of jobs than elite financial fraud. Such fraud epidemics can hyper-inflate bubbles (as they did in the U.S. and several European nations) and cause severe financial crises and recessions. The resulting Great Recession has cost over 10 million Americans their existing or future jobs in this crisis. It has cost over another 15 million people their existing or future jobs in Europe. The JOBS Act is so fraud friendly that it will harm capital formation and produce additional job losses. It may appear to be an oxymoron designed by regular morons, but that underestimates the abilities of the lobbyists that drafted this bill. They are not morons. They are doing faithful, clever service to their fraudulent clients. That makes them more dangerous.

    The eighth form of insanity is that all of this is occurring weeks after the death of James Q. Wilson, a prominent political scientist who became most famous for co-developing a criminological theory – “broken windows.” The theory held that it was essential to elevate conduct in the public sphere by reorienting enforcement priorities to emphasize seemingly minor crimes and civil wrongs (e.g., cracking down on squeegee men). Wilson and “broken windows” are near universal favorites of conservatives. Wilson’s theories are controversial among criminologists in the blue collar sphere, but they are broadly accepted in the white-collar sphere. The JOBS Act, however, totally repudiates any “broken windows” approach to minimizing elite white-collar crimes. It encourages the kind of fraud-friendly conduct that has always proven severely criminogenic. Conservatives are the strongest supporters of the JOBS Act, which allegorically hands out buckets of rocks to the bottom feeders of the world of securities and encourages them to break every window in sight. Conservatives apply policies designed to prevent and repair immediately “broken windows” only to poor criminals, not the fraudulent CEOs who caused vastly greater financial losses that brought the global economy to its knees.

    The ninth form of insanity is that the JOBS Act is being adopted at the same time that the Federal Reserve Bank of Dallas – the most anti-regulatory bank in the entire Federal Reserve system (which is a very large statement) warned in its recently released annual report that the largest U.S. banks drove the ongoing crisis and posed “a clear and present danger to the U.S. economy.”

    The Dallas Fed used to object vociferously to all financial regulation because it claimed that markets were “self-correcting” absent regulation. It now warns that market “incentives often turn perverse, and self-interest can turn malevolent. That’s what happened in the years before the financial crisis.” Only effective regulatory “cops on the beat” can prevent frauds from creating a perverse “Gresham’s dynamic” (when frauds prosper, market forces become perverse and bad ethics drives good ethics out of the marketplace). Effective securities regulation has led to U.S. equities trading at a significant premium compared to other nations, which aids U.S. equity issuers. The JOBS Act threatens the continuation of that premium. Even the Dallas Fed’s most senior economist and President – and the Dallas Fed has been the leading opponent of financial regulation – now agrees that effective regulation is essential to strong financial markets. The Obama administration and Congress still worship at the temple of the faith-based economics that has caused our recurrent, intensifying financial crises. When the temple’s high priests (the Dallas Fed’s leadership) become apostate the politicians should shed their dogma.

    The tenth form of insanity is that the JOBS Act’s primary theme is dramatically reducing transparency in securities law. If there is any nearly universal principle that writers about the ongoing global crisis emphasized that we needed to learn it was the exceptional virtue of transparency. Greater transparency makes private market discipline possible, it greatly enhances regulatory effectiveness, it discourages fraud, and it aids investors in making decisions. The JOBS Act repeatedly embraces opaqueness. We have known for millennia that this increases fraud.

    For every one that doeth evil hateth the light, neither cometh to the light, lest his deeds should be reproved.

    John 3:20 – 1769 Oxford King James Bible ‘Authorized Version

  36. Just viewed the Rachel Maddow Video: Standing up to the banks, putting who-owns-what back in order. Check it out:
    A small town in North Carolina and how they are responding to mounting foreclosures.

  37. @ angry

    Let’s imagine you own a business looking for financing. You could get a loan from a bank. If you’re risky, the bank will tell you to pound sand. The alternative is to receive financing from a pool of capital controlled by a sponsor for high interest rate.. We’ll call that sponsor a venture capitalist.

    Investors have deposited their capital in an account controlled by the venture capitalist with the contractual promise of a return of principal plus interest. The venture capitalist has sold forward a promise to investors that it has to keep. It has a bet it must cover..

    The venture capitalist will seek out investments that will satisfy its contractual promise. If your business gets a loan funded by investor money, you are a beneficiary of the contract between the investor and the venture capitalist. The venture capitalist has paid forward its contractual promise to the investor by targeting your business for a loan, making you pay back the investor with interest instead of the venture capitalist.paying back the investor with interest out of its own pocket.

    Did your business benefit from the contractual promise made to investors? Absolutely. Are you a stranger to that contract? Yes Do the investors own your note? No. They merely invested the capital and are directly entitled to the cash flow. Does the payee own your note? No. It is not entitled to the cash flow by contractual design and has no beneficial interest.despite holding title for the investors.

    If your the business owner, do you care? Not until the title holder shows up and demands payment to a loan contract you thought was already paid to the benefit of the title holder. You were paying the investors to your loan contract the whole time. Investors lack contract privity with you but they are the beneficial party to your loan contract. Oops.

    Can the investors sue you for breach? no. Can you sue the investors? no. Do you benefit from the contractual promise made by the venture capitalist that its legally obligated to keep? Yes, because the venture capitalist stands beside you in your promise to pay. You cannot default on the investors and the venture capitalist will be forced to make up for the shortfall out of its own pocket. Can the venture capitalist sue you for breach? No because it is not an aggreived party as it was contractually obligated to pass thru cash flow to investors. The court would lack subject matter jurisdiction because there is no economic injury to the title holder.

    Extrapolate this long winded example the to GSE’s guaranteeing cash flow to its pass thru AAA loan investors. (I guess its the taxpayers on the hook now)

  38. University of Maryland Francis King Carey School of Law Legal Studies Research Paper Series
    Contact:Pamela Bluh

    Postal: Thurgood Marshall Law Library
    University of Maryland School of Law
    501 West Fayette Street
    Baltimore, MD 21201-1768 USA
    Fax :410-706-2372

    The One Hundred Billion Dollar Problem in Small Claims Court: Robo-Signing and Lack of Proof in Debt Buyer Cases

    Peter A. Holland

    University of Maryland Francis King Carey School of Law

    Journal of Business & Technology Law, Vol. 6, p. 259, 2011
    University of Maryland Legal Studies Research Paper No. 2011-32

    Recent years have seen the rise of a new industry which has clogged the dockets of small claims courts throughout the country. It is known as the “debt buyer” industry. Members of this $100 billion per year industry exist for no reason other than to purchase consumer debt which others have already deemed uncollectable, and then try to succeed in collecting where others have failed. Debt buyers pay pennies on the dollar for this charged off debt, and then seek to collect, through hundreds of thousands of lawsuits, the full face value of the debt. The emergence and vitality of this industry presents several legal, ethical and economic issues which merit exploration, study and scholarly debate.

    This article focuses on the problem of robo-signing and the lack of proof in debt buyer cases. Although this problem has received limited attention from the media AND FROM REGULATORS, there is a paucity of legal scholarship about debt buyers in general, and this problem in particular. This article demonstrates that robo-signing and fraud are rampant in this industry, and that the debt buyers who pursue these claims often lack proof necessary to show that they own the debt, and often lack proof even that a debt was ever owed in the first place. The fact that this lack of proof has led to consumers being sued twice on the same debt demonstrates the due process concerns which are implicated when courts enter judgments against consumers based on robo-signing and insufficient proof.

    This article calls on courts to hold plaintiffs in debt buyer cases to the same standards required of other litigants. Courts must require a demonstration of personal knowledge of the matter at issue before any affidavit is accepted, before any person testifies, and before any documents are admitted into evidence.
    Number of Pages in PDF File: 28
    Keywords: fraud, debt, consumer debt, small claims, small claims court, debt buyer, purchased debt, robo-signing, robosigning, credit card debt, pennies on the dollar, sued twice, proof, affidavit, self represented litigants, affidavit judgment, personal knowledge
    Accepted Paper Series
    Date posted: July 02, 2011 ; Last revised: September 29, 2011
    Suggested Citation
    Holland, Peter A., The One Hundred Billion Dollar Problem in Small Claims Court: Robo-Signing and Lack of Proof in Debt Buyer Cases (2011). Journal of Business & Technology Law, Vol. 6, p. 259, 2011; University of Maryland Legal Studies Research Paper No. 2011-32. Available at SSRN:

  39. Jeez. When you think that banks are getting paid by insurance companies based on their original inflated values for homes they do not even own……that is despicable!

    And now banks are bundling up the surplus homes in batches and re-selling them to more guinea pig investors for pennies on the dollar while you and I are out sitting under freeway overpasses wondering what hit us.

  40. There is a principle that always works: if you want something to happen, start declaring that it already has.

    As an example, if you want those resignations to mean something positive, such as governments regaining control of the money and banks being pushed aside, that’s the spin you must give to those resignations when you forward them to everyone you know.

    What is accomplished is that the word goes around: “Did you hear what’s going one? Bankers worldwide are jumping ship.” Keep in mind that hearing that the banking industry appears to be doing very poorly, more CEOs will start worrying that something is up and more will jump before it blows. Rumor is one of the most powerful forces on earth.

    How do you think our own government acts? Exactly like that! By repeating over and over that the economy is improving (even though economists have their doubts and one day of good news doesn’t mean a damn thing), what they hope is to comfort us in the idea that we ought to wait and not do anything since “It’s improving…!” As long as the media refuses to tell anything but what they’re spoonfed, we must give whatever news we get the spin we need to in order to obtain what we want. Everyone else does it. If 99% of us start reporting over and over that banks are about to collapse, they will.

  41. I kinda figured we were up there by now. Here is the last count, which doesn’t take into consideration the SEC records for the US.


    Again, i do realize that it comes from “fringe” websites. I keep monitoring the facebook list to make sure I don’t induce anyone into error or false hopes.

  42. carie, on March 26, 2012 at 9:59 am said:
    They DID destroy the Notes…they had to.

    THIS IS FALSE, I HAVE AN ORIGINAL ENDORSED from a previously satisfied loan sent back to me, mind you the single endorsement fails to convey the note directly to the MBS trust, but the note was NOT destroyed as you claim, and other have also in re; the note converted to a bond and claims the 2 can not coexist due to double sale potential.
    misinformation is as much OUR enemy as the banksters.

  43. patrick,
    if what you say is true “Paying it forward is a contract law concept whereby strangers (i.e. note makers) are made third party beneficiaries to the investor’s pre-existing contract with its guarantor. More specifically,”
    …then the perviously FAILING ARGUMENT of the borrower not having rights under the PSA could be upset & controverted,thus bringing legal authority for borrower to force enforcement or bring a tort claim of BREACH or ??, under the PSA.
    do you have any legal ref. for the quoted statement?

  44. @Shelley,

    Which is why no one in his right mind should agree to sign anything whatsoever with anyone if it doesn’t contain a solid hold harmlss/indemnification clause protecting him from any past, present, future, asserted or potential action in connection with the loan being modified.

    Further, that agreement should also contain a clause whereby the entity modifying the loan agrees to provide the county recorder with satisfactions for every single outstanding loan that may have been recorded and not extinguished (as is the case for me, since i have on my house an old one never satisfied, preexisting my purchase of the house and still active in MERS).

    Hence the need not to modify without an attorney looking over the paperwork. And since many people have no cash flow, it must be deducted from the outstanding loan as an expense to the bank. Inother words, the bank pays for your attorney reviewing the paperwork. Are they going to balk? You bet. But if you don’t stand firm, you risk to open another can of worm that will blow in your face in a few years. And if the bank refuses, see what you can do to simply sue or file bankruptcy. We all have to resort to drastic measures since our government consistently favors the banks.

    And, of course, put pressure on every state rep, every congressman, ever AG and even Obama. We have no choice.

  45. @Shelly

    They DID destroy the Notes…they had to.

  46. We have to educate ALL of our friends and neighbors—I printed out the L. Randall Wray explanation/article that Enraged posted recently (I think), and gave it to my nieghbors by the house that was stolen from me. At least we can try to educate people who don’t know anything about this—the people who are still “sleeping” need to WAKE UP…we have to help make that happen because unless they have gone through it they don’t REALLY know what’s going on. Nothing will change unless we all start fighting back—ALL of us…
    I sent the article in an email to the real estate investor who bought my (stolen) property at the trustee’s sale—and TOLD him he bought stolen property…he sent a return email saying “stop emailing me” and that he was forwarding all my emails to “Detective Sanchez” of the Long Beach police department. I said—no problem, give me his phone number—I would LOVE to show him all my paperwork proving that my property was sold illegally…

    The banksters KNEW we would be pitted against each other…these real estate people need to know they are buying STOLEN PROPERTY.

  47. I can see one big problem, with working a deal with a fraud lender. You are working a deal with a crook, whom does not own the property. Secondly you still owe the right guy or the one that is hidiing the wet note, if they did not destroy it.

  48. @Chris,

    It may very well be what’s needed to start a big blow up and speed up the intervention of government. Look at Tunisia: until someone died violently, they were all running around, bitching and moaning about the situation. Oftentimes, revolutions require a martyr. Banks are playing with fire.

    With that settlement based on absolutely egregious fraud spelled out and out in the open, the unjustice becomes so glaring that there will be deaths. All it takes is one. When one takes place, hundred will happen.

  49. FYI: To all here: my take on this is if they cannot get the house through the court, they will try the abandoned route…please keep a watchful eye out folks. This could be you.

    My $.02 here, someone is going to get seriously hurt if they keep this up, as not everyone will be as patient and tolerant as I am.

  50. @ Enraged

    The case in NC I do have counsel and they were warned. We have a TRO, injunction and Lis Pendens filed and they have been warned of the trespass. They do not care.

    This is very scary…if no one was home they would have broken in…

    The more we fight, the more brazen they are getting. I do have weapons in the house (very proficient, marksman) and frankly, had this happened at night, no ID…alone, this could have been a real problem!

  51. @Chris,

    Bruce is right. Even with two cases pending, you need to start looking at protecting yourself from those intrusions, short of getting a gun (which is bound to happen as banks become more and more brazen for want of decent punishment).

    I seem to remember you’re in N.C. I know Max gardner has a whole network of attorneys there. I’m sure he can refer you to someone to call, just in case. The investment is worth it, especially if you’re able to sue the intruders and you won’t know until you see an attorney. We all need to attack on all fronts and play the banks’ game. That’s what they did with dual tracking: attack on all front and wear homeowners out. Now, it has to be our turn. Guerilla tactics. That’s the only way. Otherwise, you may end up like a few here who didn’t get attorneys and lost in the end. The name of the game is to win at all cost. I’m seriously worried when i read posts like yours.

  52. In the Real Estate hay day, back when they weren’t making any more Real Estate, money started looking for people. To this day, some remain stubbornly reliant on an obtuse and incomplete interpretation of the “Community Reinvestment Act” as a convenient neon red-herring on which to affix blame.

    To suggest (over and over again) that any politician, regardless of spot or stripe, would give a fig, lift a finger, bat a lash, or make anything more affordable for anyone other than themselves is mere cacophony.

    Some will even put forth the equally absurd notion that lenders were strong-armed into making loans for fear of lawsuits from powerhouse organizations like ACORN. (Banks afraid of lawsuits…how cute)

    The money was looking for people for one reason and one reason only.

    I’ve said this before (aided by the clarity of hindsight) but the sociopaths had the vision to see this coming and acted accordingly.

    Presently, there really isn’t anything left to steal except debt.

    How do you steal money from those who don’t have any?

    Simple. Just give it to them.

    This seemingly chivalrous and selfless act of making the “American Dream” of home ownership more affordable to minorities or the otherwise disenfranchised was actually anything but chivalrous and selfless.

    It was the perfect crime.

    While keenly focusing on the fact that no one was making more Real Estate, it was “triple A safe” to assume the value of Real Estate would never do anything but go up. This “conventional wisdom”, often called “speculative”, “irresponsible” and “reckless” nowadays, was repeatedly and professionally affirmed by experts (lenders’ agents) in the form of property appraisals.

    The zenith of all this chivalry is the appraisal and exemplifies the brilliance of the perfect crime.

    Precisely at that moment, the vaporous, phantom, wealth of debt is born. Hold on to your hats all you disenfranchised minorities, you will soon be disemboweled. The money has found you and welcomes you aboard the “American Dream”.

    Fast forward…

    There is actually plenty of Real Estate and it never does anything but go down in value. In keeping with the state of affairs we find ourselves in; we are forced to re-examine the definition of “value”.

    Once upon a time, the value of something was a direct corollary to what someone would pay for it.

    Not anymore. Value is defined in a cell on a spreadsheet[s] and one that never budges.

    Enter the Credit Default Swap.

    As chivalrous as the lenders were, way back when they weren’t making any more Real Estate, they had a sneaky suspicion the disenfranchised minorities they tried to help were secretly chiseling deadbeats. They had to buy insurance in case they didn’t pay back the captured amount in all those spreadsheet cell[s].

    Buying and selling this insurance was especially lucrative and worked like a charm for a few, but was really bad for many. You see, there was never any intention by these insurance companies to actually pay, much less have the ability to pay any of these claims. The only logical and prudent thing to do, absent any other possible option, was to once again foist this on the sap of last resort, the taxpayer.

    Fortunately for TBTF, the taxpayers are busy pointing fingers at each other, exactly as planned. They are laughing at us. Oh, and as a bonus, all this chivalry has created clouds over millions and millions of titles and wild deeds as far as the eye can see.

  53. Definition: A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money
    Or the money paid by subsequent investors, rather than from profit earned by the individual OR REALLY IN THE BACK OFFICE RUNNING THE ORGANIZATION OR BUSINESS: MADE TO LOOK LIKE– RUNNING THE OPERATION. The Ponzi scheme usually entices new investors by offering higher returns (falsely in the END) than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money but unbeknownst by—from ongoing pursuit of new investors TO KEEP THE SCHEME ALIVE & GOING.
    The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities!. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

    the attention of authorities: KNOWN already: the banks OCC: Example INdependent Foreclosure review, faked

  54. In response to Chris, the Homeowner “wins” by engaging counsel who will treat the foreclosure complaint like litigation. Fight the bank on every aspect of the case, force the bank to produce discovery. The Banks are never going to enter into a National “principle correction” program, but on a case by case basis, the Bank will reduce whatever you want in order to avoid going to trial.

    There are attorneys out there who know how to litigate these issues, and who are willing to work with the Homeowner regarding fees. Homeowners must not be lead by the nose to a Legal Aid Attorney or a government sponsored organization that will assist the homeowner with a modification. Those professionals do not have the resources necessary to defend the foreclosure as though it was real litigation.

  55. Somebody point Ed DeMarco to living lies, perhaps he can revise his talking points.

  56. @ Enraged

    Many of us are out of time…I have some, but have sub-contractor inspectors, banging on the door on Sunday @ 9:00am EST wanting get in and “winterize” the place and change the locks (saying the place is abandoned) with pending court actions in two jurisdictions, WOW? As I shared with others off the blog, the servicers are getting very bold and this could get right ugly. FYI: they have been “legally and duly” notified!

  57. @chris,

    It is being worked on, slowly, one case at a time. It didn’t take place overnight. Actually, when you listen to the discussion between Mandelman, Nye Lavalle and Max Gardner, you realize that it was the culminating point of 40 years of intense fraud, made possible by electronics. S&L was only one incident in the whole sham and they got caught but… it hardly made a dent for the banks: the low-hanging fruit got caught. Banks didn’t. They kept their power over Congress, they kept their money and none of them really paid for it.

    We have 40 years of correction to bring. It will take time. The one thing we don’t have the luxury of is impatience. But make no mitakes: it is in the works.

  58. Patrick,
    Since i got in on the very end caboose of this run away train in July 2007, this sounds like word for word what BOA did to our mortgage…….even going as far as switching our account number about a year in … guess is they double pledged the note and i would love to find that information

  59. Well nice we can still chat about what happened…is there anyone out there who “really” knows how to repair it? We have talked about how this came to be, to exhaustion…there is not one single person here who has won and explained THAT process to the rest of us!

    My $.02

  60. @Wendell Fitxgerald ,

    Sorry to have to disagree with you but you are dead wrong about the supply of land being fixed ,,, the old lie “they’re not making it anymore” doesn’t fly here … Land itself becomes available for high dollar ventures such as subdivision development with the quick passing of a manila envelope full of cash at the land office where agricultural land magically transforms into mixed use , commercial or residential in the blink of an eye…

  61. Neil says: The banks put the pressure on by setting quotas in dollar volume without regard for quality.

    Thats because loans were sold forward to investors and the bets had to be covered by any means. The entrusted nominee bank was charged by the sponsor with retrieving the pooled capital sum with interest on the trustor’s behalf by collecting signatures on promissory the primary marketplace and assigning them into the secondary marketplace (aka retrieving cash flow on behalf of the pooled capital sponsor)

    Entrusted loan making is a form of agency business in which the fund capital provided by the trustor is loaned to a targeted borrower for specified uses (such as mortgage financing) in specified amounts, over specified maturity periods and at a specified interest rate as instructed by the trustor’s capital fund sponsor through the sponsor’s entrusted nominee loan maker (the agent bank), which helps retrieve the pooled capital sum with interest on the trustor’s behalf. The sponsor has sold forward, or promised, cash flow at a certain rate of return to a pool of capital investors (see the prospectus) and so it was important for the sponsor’s entrusted nominee loan maker to hunt down signatures on promissory notes. Borrowers with low credit quality, which can never or should never get bank credit, get levered through entrusted loans, which increase the overall leverage of the economy. The so-called entrusted loans are kept off the entrusted lender’s balance sheet because the entrusted lender acts as the middleman, or nominee of the capital pool sponsor, with no direct credit risk to the targeted borrower and no reward of loan ownership.

    Put another way, the note maker was being targeted and hunted by the sponsor’s entrusted nominee because certain cash flow was promised, guaranteed, and sold forward to the sponsor’s investors as the inducement to provide pooled capital funding even before the note maker inquired about a home loan. The sponsor paid its investor forward by exchanging its promise to pay with your promise to pay.

    Paying it forward is a contract law concept whereby strangers (i.e. note makers) are made third party beneficiaries to the investor’s pre-existing contract with its guarantor. More specifically, the investor offers its guarantor the option of paying its debt to the investor forward – by using an entrusted nominee to lend out the amount of invested capital to a complete stranger in order to retrieve the cash flow that was sold forward and promised to the investor instead of insisting the guarantor pay back or cover the promise it made to the investor out of its own pocket. Wereby the note maker is duped into thinking its named lender funded the loan under the terms of the note- but in reality the lender was an entrusted nominee of the guarantor and the loan was allowed to be funded under the terms of the pre-existing contract between the investor and its guarantor.
    The entrusted nominee bank may hold legal title to the note but the capital investors own the beneficial interest in the loan.

    The entrusted nominee, or agent bank, was in reality investing in cash flow for the benefit of the cash flow guarantor, or sponsor, under terms of a pre-existing agreement which wasn’t disclosed at the closing table. The entrusted nominee’s right to the cash flow was already promised to investors in a separate agreement before you sat down to close your loan. Did the named lender disclose that its beneficial rights and interests derived being the payee on subject NOTE were sold forward by the capital pool sponsor to its investors through a separate and distinct transaction?

    And yes, all that is leftover at the closing table is collection rights for the benefit of the capital investors which can be retained by the named lender or sold, assigned, and transferred for consideration. And yes, there was desperation in the air at the last to find signatures to cover the bets made and so you have instances of double and triple pledging of loans, inflated appraisals, securities fraud, and breach of reps and warranties.

  62. real estate/land speculation is another breed of criminals,here in ca the MLS & DRE control the absolute price[s] of EVERYTHING real estate/land sold here, going on now for 20+ years. So you know THEY were blowing the …. bubble hard!

  63. This is a correct analysis of what happened. The property market was criminally manipulated to be sure but the underlying game of real estate speculation is never called out for the get something for nothing game that it is. The underlying real estate speculation game is cyclical and was not invented by the banks. They and their confederates which include Congress which gives every sort of tax break to ownership and speculation in real estate merely made what was going to happen far worse by a factor of least ten or more than it had to be. Whether or not we punish banksters, mortgage brokers or corrupt/corrupted appraisers the game of real estate speculation is going to proceed full speed ahead as soon as it can.

    To be sure regulating banks, the mortgage industry and Wall Street’s use of derivatives is called for but the real solution that would get to the root cause of the whole affair would be to shift taxation onto land values so that values could not be driven up speculatively. Everyone in the know understands that houses do not go up in value in a housing bubble and only land value goes up. This is so in large part because in the context of a robust construction industry the supply of houses can be rapidly increased virtually overnight while the supply of land is fixed. Those who understand this are clear that it is the failure to tax land values heavily that is the root cause of this entire mess. No one likes to speak of it apparently because everyone is making too much money and home owners with no intent to speculate are nonetheless hoping to cash in as well. America has been corrupted by real estate/land speculation. It is our unexplored, unacknowledged very dark shadow side. Did we not kill off the natives in order to steal their land in order to play the real estate game? Sorry guys, suck it up. Your America is going on the rocks because of this. Deny it if you will. I am a speculator and exploiter because I played the game when I sold my home for top market dollar in 2004. I just no longer deny it. It was not my intent to speculate but it was as if you all dumped a wheelbarrow of undeserved cash on my door step. I use this money now to speak out about this corrupt game.

    Perhaps it is not possible to end the real estate speculation game via land value taxation any time soon but it is worth understanding the argument since failure to understand it leaves those who not understand nakedly vulnerable to the next round of this scam.

    Google “land value taxation and Henry George, the 19TH century American political economist and social philosopher, who first articulated this issue for further insights into why this makes sense.

  64. @BSE ,

    I want them to have a punishment worse than jail ,,, force them to live like “WE THE PEOPLE” for 2 decades… 10 year old 200,000 mile beaters , unable to make repairs , locked out of entire industries due to medical bills that forced a BK out of desperation and then finding the only jobs available to you after that pay $8/hr …

  65. Jail the Banksters !

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