State Programs with Real Money Going Unused

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Millions for Principal Reduction and Moving Expenses and No Applicants

Editor’s Comment: 

I had the pleasure of listening last night to Michael Trailor, the Director of the Arizona Department of Housing. It was like a breath of fresh air. He was a home builder for decades and when the market crashed he went into this obscure post of this obscure state agency that turns out to have its counterparts in many if not all states. Each of these agencies has received money and authority to help homeowners and they are willing to pay down principal reductions, buy the loans and then modify and pay for moving expenses in short sales and other events.

Trailor is a plain-speaking non-politician who tells it like it is. His agency has programs based upon the premise that principal reduction is the only thing that works and he has working relationships with some small banks where his agency literally pays the principal down while the Bank shares in that loss. The small banks see the sense in it. He can’t get cooperation from the big banks and servicers.

In the meeting at Darrell Blomberg’s Tuesday Strategist presentation (every week at Macayo’s restaurant in downtown Phoenix), we heard straight talk and we heard about a number of programs that I had advocated before Trailor became director. My suggestions fell on deaf ears. Trailor’s programs are of the same variety and creativity with the objective of saving the Arizona economy from destruction.

He reported that three states got together under the same program to make the offer of sharing the reduction of principal because the banks said that Arizona was not big enough on its own to motivate the banks to participate in the program. So he got three states — Arizona, California and Nevada. The banks did the old familiar two-step with him and his counterparts in the other states and essentially refused to pparticipate. Every borrower knows that two-step by heart.

I made some suggestions for programs that could be introduced in bankruptcy court, where the power of the Banks is much less. Right now if they don’t want to modify the loan, they can’t be forced. If they don’t want to SELL the loan and then modify it as the beneficiary or mortgagee, the mega bank can and does say no (while the small bank can and does say yes).

That’s right. His agency said they would buy the loan from the bank for 100 cents on the dollar, and then modify the loan the principal and payments to something the borrower could afford and that would not lead to future foreclosures (the fate of practically all modifications). The mega banks killed the idea. Don’t you wonder why banks would contrary to the interest of a ‘lender” who can minimize their losses with government money that has already been allocated but is not yet spent?

This is exactly what I predicted back in 2008. The small banks agree because it is the smart thing to do and THEY are actually owed the money. The mega banks refuse to go along with the deal because hanging on the now invisible and non-existent trunk of an existing debt-tree are hundreds of branches of swaps, insurance and credit enhancements upon which Wall Street has made and is continuing to make billions of dollars in “trading profits” at the expense of the investors and to the detriment of the homeowners.

In other words, they sold the loan multiple times — up to 40 times as I read the data. So hanging on your $200,000 loan could be as much as $8 MILLION in derivatives, swaps etc. That could mean $8 million in claims on the proceeds of sale of the obligation or note or satisfaction of the note or obligation.

Here is my suggestion for those homeowners’ attorneys that have started a bankruptcy proceeding. Where the so-called creditor has sent out a notice of sale and has filed a motion to lift the automatic stay, apply for assistance from the Arizona Department of Housing or whatever the equivalent is in your state. If the agency agrees to assist in refinancing or buying the loan so the homeowner can stay and pay, then the bank would need to explain the basis on which they are responding negatively. After all they are being offered 100 cents on the dollar — why isn’t that enough?

Make sure you notify the Trustee and Court of the pending application made to the agency and don’t use it in a silly fashion promising things that the agency will not corroborate.

I believe that Trailor’s agency and his counterparts would respond with some program that would essentially be an offer to the supposed creditor — provided that the true creditor steps forward and can prove that they are the actual party to whom the money from the homeowner’s obligation is owed. Darrell and I are starting talks with Trailor’s agency to get specific programs that will work in bankruptcy court and maybe other situations.

Once the Notice of Sale is sent,  the “creditor” has committed itself to selling. How can they turn around and say no when they are being offered the full amount? In that court, once the “lender” has committed to selling the property they can hardly say they don’t want to sell the loan — especially if they are receiving 100 cents on the dollar. The offer would be accepted by the Trustee, I am fairly certain, and the Judge since there really is no choice.

Now here is where the fun begins. The Judge would agree as would the U.S. Trustee that only the party to whom the money is owed can get the money. Some of you might recall my frequent diatribes about who can submit a credit bid — only the actual creditor to whom the original loan is now owed or an authorized representative who submits the bid on behalf of THAT creditor.

So assuming the Trustee and Judge agree that the “creditor” who filed the Motion to Lift Stay MUST sell the loan or release it upon receiving full payment, then they are stuck with coming up with the real creditor, which is going to be impossible in many cases, difficult in virtually all other cases. Trailor is sitting on hundreds of millions of dollars to help homeowners and he can’t use it because nobody will play ball under circumstances that he “naively” thought would be a no-brainer.

For those versed in bankruptcy you know the rest. The “lender” must admit that it is not the lender, that is has no authority to represent the creditor, that it doesn’t know who the creditor is or even if one still exists. The mortgage can be attacked as not being a perfected lien on the property and the obligation is wiped out or reduced by the  final order entered in the bankruptcy court.

Now the banks and servicers are going to fight this one tooth and nail because while the loan might be $200,000, there is an average of around $4 million in derivatives and exotic credit enhancements hanging on this loan. If it is paid off, then all accounts must settle. There are going to be gains and losses, but the net effect might well be that the bank “Sold” the loan 20 times. And the best part of it is that you don’t need t prove the theft. If will simply emerge from the failure of the “lender” to conform with the order of the court approving the deal. 

This is a classic case of the scam used in the “The Producers” which has been done on Broadway and movies. You sell 10,000% of a show you know MUST fail. They select “Springtime for Hitler” right after World War II and expect it to crash. After all it is musical comedy. But the show is a spectacular success. So whereas the news of the show’s closing would have sent investors to their accountants to write it off for tax purposes, now they were all clamoring for an accounting for their share of the profits. Since the producers had sold the show 100 times over it was impossible to pay the investors and they went to jail.

THAT is the problem here. It is only if the show closes with a foreclosure that the investors will not ask for the accounting. If the show succeeds (the loan is paid off) then all the investors will want their share of the payments that are due — unless they had the misfortune of taking the wrong side of a “bet” that the loan would fail. Not many investors did that. But the investment banks that sold the show (the loan) many times over used those bets as a way of selling the show over and over again.

If I’m lying I’m dying. That is what is happening and when people realize that as homeowners they are sitting on leverage worth 20 times their loan and they use it against the banks and servicers, they will get some very nice results. Agencies like Arizona’s Department of Housing can save the day like the cavalry just by making the offer and getting a judge to enforce it and watch in merriment how the “lenders” insist that they don’t want the payment and they can’t be forced to take it. That is what happens  when you turn the conventional and reasonable lending model on its head.

So now the banks and servicers must come up with a whole new set of fabricated, forged and fraudulent documents in which the investors assigned their interest in the obligation or note or mortgage to some other entity that is now the “creditor” — but the question that will be asked by every Trustee and Judge in bankruptcy court “who paid for this, how much did they pay, and how do we know a transaction actually happened.” That is the problem with a VIRTUAL TRANSACTION. At some point, like every PONZI scheme, the house of cards falls down.

Check with Arizona Department of Housing

Of course if you are not in Arizona check with the equivalent agency in your state. Chances are they have hundreds of millions of dollars and no place to spend it for homeowners because the banks won’t agree to no-brainer solutions that any bank can and does accept if they were playing the “Securitization game.” Don’t expect the agency to march into court and save the day. The agency is not going to litigate your case for you. But they probably will give you plenty of support and encouragement and offers of real money to end this nightmare of foreclosures. You must do the work, fill out applications and get the process underway before you can go to the court with a motion that says we have a settlement vehicle pending with a state agency and you can prove it is true.





36 Responses

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  4. @tnharry

    “…sue for everything under the sun. you’ll get a payoff, some damages and atty fees, etc.”

    Can you possibly list your ideas for “everything under the sun”? I am putting together my lawsuit against the servicer. Thanks.

  5. @ enraged and tnharry, if the homeowner starts preceedings they have the burden of proof. If the lender starts the preceeding, they have the burden of proof. They responded to the homeowners attorneys QWRs the same way they did with the homeowner with stalling for 3yrs total Althou the loan was recorded in MERS it was never registered with the SEC. Ooops…

  6. @tnharry…ty for replying…would your word of ” I am sure” hold up in a courtroom? we have plenty of evidence that these loans did not…do you have any evidence to the contrary???

  7. @hkcon – i guess i just missed that they weren’t rhetorical questions. i actually would not agree with your #1, and therefore #2 would not apply. i don’t agree that securitization was a criminal enterprise. i would agree that some played fast and loose with it and engaged in what may ultimately be determined to be criminal behavior, but i don’t think the system as a whole is criminal by default. several bad actors don’t bring the whole system down. I’m sure there are many trusts that did have the loans transferred properly and that those loans weren’t sold 18 times each. all we hear about and discuss are the bad ones, but that doesn’t mean it’s all wrong.

  8. @tnharry…I thought we were having a conversation, did you not reply because I said I would be away? I hope that is it and not that my questions are unanswerable. I for one value your commentary and would be very interested in your unbiased take on this solution to the crisis.

  9. @Kathy,

    You can’t look at it that way. You can’t take responsibility for actions committed by others and outside of your control. Otherwise, you cannot pretend to become “whole”. The idea is for you to get back some of what was stolen from you. Those who do fight will be made more whole than those who didn’t. And you have to believe that, ultimately, the culprits will be brought to justice.

    Think about this: your abandoning your rights does not restore anyone else’s. So, if you abandon them, this is it. It serves no one else, whereas if you fight and prevail, it shows that it can be done and it incites others to follow suit.

  10. @tnharry, you are absuletly right, I appericate the advise, I just have one problem with that. The lawsuits for damages are actually carryover losses to the investor(myself) and the taxpayer(myself).

  11. @ Jordana Lipscomb says

    “True, they hire counsel from the servicer to do the dirty work. But when push comes to shove they will negotiate and do a deal as the actual lender.”

    Here’s the problem, at least in Florida. Florida is a fact pleading State and the foreclosure complaints are required to be verified as accurate under penalty of perjury. A servicer holding itself out as the lender with possession of the genuine note with the right to enforce said note cannot be replaced at a whim by the “real lender” ; for the note, and all the lender’s rights in the note, have to be purposefully delivered to a successor. A person with possession of the note without rights in the note transfers nothing to a successor and so delivery from a mere servicer with the purpose of transfering debt owner’s rights and interests cannot occur.

    That is why a servicer should never, ever, fact plead it holds the note and mortgage because once its shown they are not the note owner, nobody else can purchase the note from them as there is nothing to sell or assign. Therefore, nobody else can take rights in the note from them via transfer.

    How would the “actual lender” be able to show it took possession of the genuine note via purposeful delivery? At that point, its clouded title in the county land records.

  12. i think we all agree (including MERS) that they have no authority to transfer a note in any state.

    there’s a remedy even for that situation though Kathy. send a QWR, wait, then sue for everything under the sun. you’ll get a payoff, some damages and atty fees, etc.

  13. @tnharry …. I could give you dozens of cases like this. Fortunatly our state is a lien theory state and the mortgage & the note go together and can not be severed. If the note and mortgage are severed the debt becomes unsecured. Also MERS has NO authority to transfer or assign a Note or file FC in our state. You must prove ownership of the Note and the Mortgage to file FC here. God help Arizona, you folks are in our Prayers.

  14. con’t….. Origional Lender is still in Business and wants to refi the loan but claims the origional principal is almost 2x the amount (they mean they want to refi it for what they sold it to the investor for)… hahaha Lender B is defunct and Lender C wants a loan mod with about 30 grand in fees it thinks it is entitled to….. hahaha …… What happened to the Investor who funded the loan (me)? Oh yeah … I do not get paid til they forclose the house, and eat up my investment in fees and I still get squat …..

  15. I will be “out of the office” LOL for awhile as the kids want to go swimming and I am the resident lifeguard….

  16. please edit all posts to read company’s (ownership) not companies (plural)…so I look like less of an idiot.

  17. @tnharry…So the attorney i used for my first BK7 who charged me $1,995.00 and then said hey we are going to do an adversary complaint and I need $18,000.00 to file and then $1,000.00 a month for the duration was robbing me. I felt he was and I ultimately declined to go that route. My experience is that $20,000.00 would be right in the ballpark if the endgame is getting the bank to negotiate either a principal reduction …or just walk away altogether, my definition of a settlement. Just so we are clear, 1. we believe that the whole securitization of the mortgages was a criminal enterprise, Y or N?
    2. Given that 1 is true, then discovery is not an option for the banks as that is where there whole enchilada falls apart. Y or N? i am not sure that “advertising” the name of the company in this venue is appropriate. I myself no longer have the resources to use this companies services, I wish I did so I could either recommend them or tell everybody to stay away. I will say this about the amount, it is far less than what I was willing to pay the “National Mass Joinder Lawsuit” that was killed by my state’s (CA) attorney general. tnharry, I am not trying to be obtuse about the companies name…if I was assured that it was ok, or if we were to speak in private (i..e.. e-mail etc…) I would readily do that. Heck I am not even sure if I am allowed to give out my e-mail address here.

  18. @hkcon – no way it should cost $20-25k to do what you described in a bankruptcy context, nor would the BK court approve such a fee. and I’d (and I would hope you and others) like to know a LOT more about #6 – settlement.

    as to getting to discovery being tantamount to winning, i don’t know if i’d agree with that either. i would certainly agree that you can’t win without discovery, but surviving the motion to dismiss and getting some discovery is a far cry from success. of course, it also depends on what your definition of success is. you reference settlement a couple of times there. i would suspect that not everyone would accept the same definition of success in this context.

    what’s the name of the company you reference?

  19. Purchase Nov 2007 ( Origional Lender still in Business/Mortgage recorded in MERS) in Judicial State who at the time had banned Countrywide from funding loans in this state pending AG settlement. Dec 2008, letter from Countrywide they bought the loan ….sent payments to Countrywide. Account goes into false (fraud) default and FC and Lis Pendens filed in Nov 2008 althou borrower denies the default and has proof of payments. Lawsuit dropped. May of 2009 a boa snake sneaks in and claims the account is now 12,0000 in default and sneaks into court (without notice to borrowers) and tries to FC under the CW case. Borrower found out incidently and made not so nice phone calls to snakes lawer and suit was dismissed, but there was still the lis pendens on title with no recording of ownership prior and no releases from lender A. Borrower does not know this ….. borrower is tired of playing games with the snake, hires attorney in 2010 after finding out about the title and gets discovery …. are you setting down? BOA claims the 1st mortgage payment in Jan 2008 was never recieved and there was an escrow shortage because the property taxes went up. Borrower was aware of the 2008 tax increase and when the bill came due in spring of 2009 borrower paid lender differance in one lump sum. BOA claims they are not responsible for CWs mistakes(fraud) and filed a 3rd lien in Sept 2011 after borrower hired attorney. Now the borrower has 3 liens on title. So borrower decides to payoff the morthage with BOA and be done with the snakes. Chicago Title says we must show proof LenderA/MERS and Lender B and now BOA are paid in full before they can get Legal Title. PAY ALL THREE OF THEM (3X THE AMOUNT OF PRINCIPAL LOAN) or provide proof they were paid ~~~~ Assignments of the Note and Mortgage together by MERS to Countrywide and then to BOA was filed in Sept 2011. ….. ~~~~ Trashed Title, Innocent Homeowners, False default and thousands in fees? BOA benifited from the Insurance when it took over CW. We are talking Millions in Insurance! They would have to pay back all the insurance if they did not foreclose on the house ….. this is why they are Fighting Like Hell to make sure the Foreclosure are pushed thru!

  20. @tnharry…you know as well as I that most pro se’s fail on a procedural level, regardless of the validity of their case. I have, over the course of my journey, spent well over $50,000.00 trying to defend my home using attorney’s (mostly worthless) and as pro se, slightly better if only because I was cheaper. The bill for this companies services will with monthly and upfront stuff is around $20,000.00 to $25,000.00 and you are done. My question still remains: If we, and I think we all do, believe that getting to discovery phase is tantamount to winning as a settlement soon follows, then isn’t this a pretty good way to go???

  21. i’ve loosely followed Lynn’s story and read the excerpt from the hearing. i suspect a lot of context was missing from that excerpt, but it was certainly strange. Lynn’s situation is quite different from 99.9% of the rest of borrowers’ situations though. there seemed to be additional discovery issues going on and i suspect that the bank’s counsel really needed to make sure all of the pending (including the hearing itself) legal fees were computed.

  22. @hkcon – but you can do that without tender and without requesting a payoff. the process for objecting to claims in bk court is right there in the BK code and procedures and doesn’t require a company or a “system” to do it. same with objecting to a motion for relief.

    what I’m not seeing is the discussion that borrowers can’t get payoffs. there’s an easy fix for that – sue them. pretty clear respa claim and breach of contract as well.

  23. @tnharry,

    Have you followed Lynn Szymoniak’s story? I posted an excerpt of the hearing where she was asking the bank for the pay off figure and the bank refused on the account of “future legal expenses”. Talk about insane…! It happens all the time. You want a number and the bank drags it on forever. Or is it the bank’s attorney…? Hmmm. Worth pondering over, isn’t? USA: Used and Screwed by Attorneys. Sorry tn but the mess we’re in nationally is definitely a lawyers’ concoction…

  24. @tnharry…It is not a matter of paying off your loan…it is a matter of putting them in the position of having to prove that you actually owe the entity that is trying to foreclose. Putting up a bond shows the court that you are not just a deadbeat homeowner and puts teeth in your adversary complaint (in BK) and gives the Judge a judicially allowable way to order discovery. Now, I do not know that this “system” actually works, but it sounds right, and what I am doing by putting this comment in here is saying “hey, what do you think, is this even worth looking at?” I really want to believe that offering tender is the way to go to keep from getting tossed out of the courtroom.

  25. I just can’t believe that Kathy. You’ve asked for a payoff (using whatever magic words and methods they require) and they haven’t provided you one?

    I’m not quite following the tie you make between title insurance and withholding payoff. You either have title insurance or you don’t, and you bought it at the purchase is so. It has nothing to do with payoff. The mortgage company isn’t certifying title at the time of payoff, that was done at the purchase.

  26. ~~Waves to tnharry~~ The answer to your question is yes. They refuse to provide the attorney payoff (no foreclosure). All they want to do is ignore the attorney and harass the homeowner (as if they did not have an attorney) by phone and mail. The only talk that comes from their mouth is a loan mod of origional loan first, WHY?…. borrowers do not want loan mod, borrowers have no hardship and borrowers want to pay off mortgage. Why are they doing this you ask? “THE TITLE”.! Homeowner can not get Homeowners Title Insurance to prove they have Legal Title. Should Homeowner pay off a home that will never be legally theirs? Or should they take their money and run, find a home with a Good Title?

  27. I’m sorry, but i think this is more crazy ranting. Have any of you participating in the comments actually been personally denied an opportunity to pay off your loan? I just don’t see that happening out there.

  28. @Javagold…There is a company that offers just this type of deal, part of their program is this: 1. Put home in a trust (business) and file bankruptcy. 2. Adversarial proceeding in the bk. 3. Come to court and offer up a bond to the clerk in the amount owed. 4. Challenge the validity of the “lender”. 5. Discovery ordered. 6. Settlement follows. 75 wins to date (claimed)

  29. @Vegas,

    Well now, wouldn’t you know? You just asked the 8 million dollar question!

  30. “In other words, they sold the loan multiple times — up to 40 times as I read the data. So hanging on your $200,000 loan could be as much as $8 MILLION in derivatives, swaps etc. That could mean $8 million in claims on the proceeds of sale of the obligation or note or satisfaction of the note or obligation.”

    How do I bring this up with my attorney without sounding like a lunatic?

  31. @Jordana,

    Have you been able to check the MERS history of your loan? You used to be able to track down most of the operations from one servicer to the other and, sometimes, from one “trustee” to the other. I don’t know it it is still possible.

    The never sold the loan to each other. They “transferred” it. They simply wrote a minus numbers on their respective account balance sheets to show a loss when necessary, in order to avoid paying taxes, for example, or pay dividents to the investors, or a plus number to show an asset, a profit, when time had come to collect their obscene bonuses. Actual money did not change hands after a certain point. The hardest thing to investigate is when the last time was, in the life of the loan, that money did change hands. Everything was done by way of “assignment” or “transfer” on paper, without the appropriate loan documents being amended accordingly. And each time, insane fees were being collected by the transferror and the transferee.

    Bill Black described many, many times how it was supposed to have been done but wasn’t and how those bankers robbed everyone, from the investors/pension funds/corporations to the homeowners/taxpayers/investors. Bigger whistleblower than Professor Bill Black, you can’t find. it is not a secret. it is well known. But it has gone so far that no one has the guts or the insight to figure out how to fix it and no one wants to resort to Bill Black’s solutions (which have proved to work in the S&L debacle, when he managed to gather a team of investoigators and thousand of people were jailed).

    Those Harvard boys are too proud to ask for help. And what start with Harvard stays with Harvard.

  32. I’m not so sure. If the loans have been sold multiple times, this is clearly criminal activity. There must be a whistle blower or two who will come forward to tell of this practice with the evidence of it, actual documentation. It’s not that I don’t believe the banks are capable of doing this,. I just don’t think they’re capable of doing it without leaving a trail of guilt. And in some cases the loan was sold to an investor who is the plaintiff and does the foreclosure itself. True, they hire counsel from the servicer to do the dirty work. But when push comes to shove they will negotiate and do a deal as the actual lender. The situations are many and varied and there is no one size fits all remedy.

  33. Off topic but pretty damn important. In fact, so important that foreclosures become a non-issue in comparison.

    Obama Trade Document Leaked, Revealing New Corporate Powers And Broken Campaign Promises

    I wonder who’s leaking left and right? The problem, though, is that there is a serious danger in leaking info: no one else is. China and Russia are keeping their cards very close to the vest. Can we, after having brought most of the world to its knees, afford to be transparent where no one else is?

    And… do we want to re-elect a president who so completely ignores this country but goes out and signs trade agreements behind our back, at the risk of finishing off a job well-done, started 40 years ago?

    And… does it really matter if countries simply bypass the dollar once and for all?

    I think we’re cooked for good.

  34. “Here is my suggestion for those homeowners’ attorneys that have started a bankruptcy proceeding. Where the so-called creditor has sent out a notice of sale and has filed a motion to lift the automatic stay, apply for assistance from the Arizona Department of Housing or whatever the equivalent is in your state. If the agency agrees to assist in refinancing or buying the loan so the homeowner can stay and pay, then the bank would need to explain the basis on which they are responding negatively. After all they are being offered 100 cents on the dollar — why isn’t that enough?”

    This is probably the smartest idea anyone has come up with. It accomplishes a few things: 1) it gets the case into court. 2) It officially puts the onus on the bank to explain why they so adamantly refuse to play by the rules.

    Give banks enough rope and they WILL hang themselves. it’s already happening.

  35. This is brilliant!

  36. That is the solution !……. Have every homeowner offer to payoff in full and the ponzi finally collapses…. Heck you could probably open up a company with $1million dollars and use the same $1million in every case as the banks will never accept the full payoff !!!

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