The Benefits and Limitations of Expert Declarations and Testimony in Foreclosure Actions

Homeowners and their lawyers have been misusing expert declarations since the mortgage meltdown began. A few like Ron Ryan out in Tuscon, did use it correctly but generally the judges back in 2007-2012 were not interested in anything other than getting the foreclosure sale done. Ron understands that the expert declaration is far more useful in motions and pursuing discovery than at trial. It is the expert himself/herself that must present live testimony in court if you want the results of forensic analysis to be taken into account in reaching the decision.

I can’t count the number of times that people and lawyers, despite my instructions, offered my expert report as evidence rather than persuasion and found out that the report was inadmissible because it was hearsay without me testifying there in court or over satellite or other video conference modes. Some of them came back to me saying the expert declaration was useless. When I pointed out that the instructions that went with the report specifically stated the hearsay and other problems and that the report should only be offered (a) in motions (b) in discovery and (c) at trial with my live testimony attesting to the contents of the report, they get angry at their own lack of knowledge and skill in court rooms.

I have a manual I wrote on the use of expert witnesses. Most people make the error of thinking that a report from an expert witness should “speak for itself.” it doesn’t speak for itself and in fact it doesn’t speak. It could be used with an affidavit to aggressively pursue discovery. It could be used as providing foundation for allegations in your complaint — but usually you are already on the wrong track if you need to point to an “expert” report to shore up the allegations in your complaint or counterclaim.  But at trial the written report is hearsay for the same reasons that we oppose the business records exception on the basis that the records come from an untrustworthy player, and derive from an untrustworthy process and probably are inconsistent with other versions of the same documents or related documents.

No court is going to replace its own conclusions with that of an expert. The expert should be involved to clarify, simplify and direct the narrative that provides the court with a reasonable foundation upon which the Court could provide relief to the homeowner or grant the claims of the homeowner.

An expert is a person who possesses superior knowledge to the Court — not conflicting opinions with the court. The expert must be able to clearly and convincingly show that the facts uncovered or that have been withheld specifically draw together some FACTUAL conclusions and why — along with corroboration in real life (an opinion is not corroboration).

And I would not necessarily rely on the expert’s “opinions.” You can refer to the FACTS contained in the report, but the opinions will hold very little weight. Referring to a third party as an expert and as a forensic analyst who came up with real facts is much stronger than referring to her as an expert.

Most designated experts, while accepted by the court as experts get virtually no traction in court because they do not gain the respect of the judge or jury without a display of “plumage” — i.e., educational degrees, licensing and experience. Experience here could mean having the experience of looking at hundreds or thousands of loans but it would mean a lot more to the Judge if experience was in the field of law, Government, accounting or document examination. Otherwise the court has no inclination to accept the opinions of the analyst or expert.

Yes there is a snobbery here but ignoring it will just lead you to righteous destruction. Only people who have degrees, certifications and licenses along with real world experience are going to be taken seriously by a Judge. Most of those are employed by banks, leaving slim pickings for the lowly homeowner.

The expert must be perceived as possessing real qualifications as an expert on their own. If the “expert” is an excellent presenter of work distilled from others but has no accounting, legal, or government credentials either by education or practice, THEN use the expert for presentation under the rubric or umbrella of being an expert who merely presents facts. One of the good things about expert testimony is that experts can rely upon hearsay in order to form opinions. It isn’t admitted as evidence without corroboration but it gets facts in front of the trier of fact that they might otherwise not hear.

An expert witness is BY DEFINITION a person who has superior knowledge to the trier of fact and who can explain to the Court the significance of certain facts leaving the court to draw its own conclusions. The expert is there to educate the judge — not argue with him/her. The opinion is about why certain facts are significant, factually, not legally. The expert’s legal conclusions are (a) irrelevant since the court makes that determination and (b) unsupported by any competent evidence, even if they are true. Having the expert in court to listen to the evidence and then being able to comment on the evidence is a dispassionate way could be very powerful.

The expert’s opinions must tie the significant facts together. The danger is that the expert’s “facts” and opinions might collectively be disregarded by the Court — if the opinion is not corroborated or substantiated by the facts presented in the report which is then presented in live testimony from an expert who holds up under cross examination. The expert opinion must state the specific facts upon which the expert relies for a specific opinion. The opinion must give the court a clear understanding of the facts and should not be written as an advocate for the homeowner. Only an expert with no dog in the race will be taken seriously. In addition the expert should state what questions were asked and how she answers them or if she can answer them and with what probability her answers are true.

4 Responses

  1. Opinion, the CFPB is not a personal attorney nor personal legal service. they are government oversight and they need the complaints in order to build the case that allows them to write the amicus or do the enforcement actions.

    if the people don’t use them, nothing would happen.
    Anyone not using them, may expect nothing because they do nothing.

    People that use them, see effect.
    If anyone took the time to see their enforcement, they would see businesses had to settle with them and pay back customers some of what was stolen, and some are halted from further activity.
    Yes, they did it as a cost of doing business, getting in, violating the law as much as they can for as long as they can to make as much money as they can before someone stops them and make them give some of it back…yes they are doing that, but at least someone is stopping them.

    Sure, another ant hill pops up a distance away, someone else is at the helm, same s different day, but the bureau does work, and people using it see it working.

    I can’t put my self out here and saw how they have made the business communicate with me and what has or hasn’t happened to my credit report, or any number of things from my complaints, but these bureaus make this info public, and I would guess some of the settlements and observations of violations of cease and desist orders are due to the people, stepping up to their government and using the tools given to them to make their grievance of what they do not like, and having that corrected since the laws are already on the books.

    Being robbed and not making a report because the cops don’t do anything, is the same scenario. If you aren’t going to officially report it, why tell other people you were robbed? It’s like a consensual act or something, let them rob you and you don’t give a report for them to build a profile; hopefully make them disclose certain aspects of their business based on the complaint and sting them with some penalty for wrongdoing.

    The Creator takes care of the karma cosmic stuff. the CFPB takes care of the corporate stuff.

    I have used them four times, and have access to the four cases created with them. Anything new to add, and it can be added to the cases. They are not my cases, but they are part of the collective evidence of wrongdoing.

    Doing nothing helps people get away with doing the something they do that they should not be able to do.

    Trespass Unwanted, Creator, Corporeal, Life, Free, People, Independent, State, In Jure Proprio, Jure Divino

  2. The Judge will want an expert , period. There are other ways to prove your point but…forget it, the Judge will want an expert, period.

  3. Does anyone have any ideas on how to track the money once you pay off one of these nonexistent loans? I paid one off to nasty old Shellpoint Mortgage to avoid foreclosure (got the home sold just in time and closed) and would like to know if there is any way possible to track where the money went? Thank you all and Semper Fi!!!

  4. EXHIBIT___






    5300 South 360 West, Suite 250

    Salt Lake City, Utah 84123

    Telephone (801) 264-1060

    February 20, 2009


    U. S. Securities and Exchange Commission

    Division of Corporation Finance

    100 F Street, N. E., Mail Stop 4561

    Washington, D. C. 20549

    Attn: Sharon M. Blume

    Assistant Chief Accountant

    Re: Security National Financial Corporation

    Form 10-K for the Fiscal Year Ended December 31, 2007

    Form 10-Q for Fiscal Quarter Ended June 30, 2008

    File No. 0-9341

    Dear Ms. Blume:

    Security National Financial Corporation (the “Company”) hereby supplements its responses to its previous response letters dated January 15, 2009, November 6, 2008 and October 9, 2008. These supplemental responses are provided as additional information concerning the Company’s mortgage loan operations and the appropriate accounting that the Company follows in connection with such operations.

    The Company operates its mortgage loan operations through its wholly owned subsidiary, Security National Mortgage Company (“SNMC”). SNMC currently has 29 branch offices across

    the continental United States and Hawaii. Each office has personnel who are qualified to solicit and underwrite loans that are submitted to SNMC by a network of mortgage brokers. Loan files submitted to SNMC are underwritten pursuant to third-party investor guidelines and are approved to fund after all documentation and other investor-established requirements are determined to meet the criteria for a saleable loans. Loan documents are prepared in the name of SNMC and then sent to the title company handling the loan transactions for signatures from the borrowers. Upon signing the documents, requests are then sent to the warehouse bank involved in the transaction to submit funds to the title company to pay for the settlement. All loans funded by warehouse banks are committed to be purchased (settled) by third-party investors under pre-established loan purchase commitments. The initial recordings of the deeds of trust (the mortgages) are made in the name of SNMC.

    Soon after the loan funding, the deeds of trust are assigned, using the Mortgage Electronic Registration System (“MERS”), which is the standard in the industry for recording subsequent transfers in title, and the promissory notes are endorsed in blank to the warehouse bank that funded the loan. The promissory notes and the deeds of trust are then forwarded to the warehouse bank. The warehouse bank funds approximately 96% of the mortgage loans to the title company and the remainder (known in the industry as the “haircut”) is funded by the Company. The Company records a receivable from the third-party investor for the portion of the mortgage loans the Company has funded and for mortgage fee income earned by SNMC. The receivable from the third-party investor is unsecured inasmuch as neither the Company nor its subsidiaries retain any interest in the mortgage loans.

    Conditions for Revenue Recognition

    Pursuant to paragraph 9 of SFAS 140, a transfer of financial assets (or a portion of a financial asset) in which the transferor surrenders control over those financial assets shall be accounted as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. The transferor has surrendered control over transferred assets if and only if all of the following conditions are met:


    (a) The transferred assets have been isolated from the transferor―placed presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership.

    SNMC endorses the promissory notes in blank, assigns the deeds of trust through MERS and forwards these documents to the warehouse bank that funded the loan. Therefore, the transferred mortgage loans are isolated from the Company. The Company’s management is confident that the transferred mortgage loans are beyond the reach of the Company and its creditors.

    (b) Each transferee (or, if the transferee is a qualified SPE, each holder of its beneficial interests) has the right to pledge or exchange the assets (or beneficial interests) it received, and no

    condition restricts the transferee (or holder) from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the transferor.

    The Company does not have any interest in the promissory notes or the underlying deeds of trust because of the steps taken in item (a) above. The Master Purchase and Repurchase Agreements (the “Purchase Agreements”) with the warehouse banks allow them to pledge the promissory notes as collateral for borrowings by them and their entities. Under the Purchase Agreements, the warehouse banks have agreed to sell the loans to the third-party investors; however, the warehouse banks hold title to the mortgage notes and can sell, exchange or pledge the mortgage loans as they choose. The Purchase Agreements clearly indicate that the purchaser, the warehouse bank, and seller confirm that the transactions contemplated herein are intended to be sales of the mortgage loans by seller to purchaser rather than borrowings secured by the mortgage loans. In the event that the third-party investors do not purchase or settle the loans from the warehouse banks, the warehouse banks have the right to sell or exchange the mortgage loans to the Company or to any other entity. Accordingly, the Company believes this requirement is met.

    (c) The transferor does not maintain effective control over the transferred asset through either an agreement that entitles both entities and obligates the transferor to repurchase or redeem them before their maturity or the ability to unilaterally cause the holder to return the specific assets, other than through a cleanup call.

    The Company maintains no control over the mortgage loans sold to the warehouse banks, and, as stated in the Purchase Agreements, the Company is not entitled to repurchase the mortgage loans. In addition, the Company cannot unilaterally cause a warehouse bank to return a specific loan. The warehouse bank can require the Company to repurchase mortgage loans not settled by the third-party investors, but this conditional obligation does not provide effective control over the mortgage loans sold. Should the Company want a warehouse bank to sell a mortgage loan to a different third-party investor, the warehouse bank would impose its own conditions prior to agreeing to the change, including, for instance, that the original intended third-party investor return the promissory note to the warehouse bank. Accordingly, the Company believes that it does not maintain effective control over the transferred mortgage loans and that it meets this transfer of control criteria.

    The warehouse bank and not the Company transfers the loan to the third-party investor at the date it is settled. The Company does not have an unconditional obligation to repurchase the loan from the warehouse bank nor does the Company have any rights to purchase the loan. Only in the situation where the third-party investor does not settle and purchase the loan from the warehouse bank does the Company have a conditional obligation to repurchase the loan. Accordingly, the Company believes that it meets the criteria for recognition of mortgage fee income under SFAS 140 when the loan is funded by the warehouse bank and, at that date, the Company records an unsecured receivable from the investor for the portion of the loan funded by the Company, which is typically 4% of the face amount of the loan, together with the broker and origination fee income.


    Loans Repurchased from Warehouse Banks

    Historically, 99% of all mortgage loans are settled with investors. In the process of settling a loan, the Company may take up to six months to pursue remediation of an unsettled loan. There are situations when the Company determines that it is unable to enforce the settlement of a loan by the third-party investor and that it is in the Company’s best interest to repurchase the loan from the warehouse bank. Any previously recorded mortgage fee income is reversed in the period the loan was repurchased.

    When the Company repurchases a loan, it is recorded at the lower of cost or market. Cost is equal to the amount paid to the warehouse bank and the amount originally funded by the Company. Market value is often difficult to determine for this type of loan and is estimated by the Company. The Company never estimates market value to exceed the unpaid principal balance on the loan. The market value is also supported by the initial loan underwriting documentation and collateral. The Company does not hold the loan as available for sale but as held to maturity and carries the loan at amortized cost. Any loan that subsequently becomes delinquent is evaluated by the Company at that time and any allowances for impairment are adjusted accordingly.

    This will supplement our earlier responses to clarify that the Company repurchased the $36,291,000 of loans during 2007 and 2008 from the warehouse banks and not from third-party investors. The amounts paid to the warehouse banks and the amounts originally funded by the Company, exclusive of the mortgage fee income that was reversed, were classified as the cost of the investment in the mortgage loans held for investment.

    The Company uses two allowance accounts to offset the reversal of mortgage fee income and for the impairment of loans. The allowance for reversal of mortgage fee income is carried on the balance sheet as a liability and the allowance for impairment of loans is carried as a contra account net of our investment in mortgage loans. Management believes the allowance for reversal of mortgage fee income is sufficient to absorb any losses of income from loans that are not settled by third-party investors. The Company is currently accruing 17.5 basis points of the principal amount of mortgage loans sold, which increased by 5.0 basis points during the latter part of 2007 and remained at that level during 2008.

    The Company reviewed its estimates of collectability of receivables from broker and origination fee income during the fourth quarter of 2007, in view of the market turmoil discussed in the following paragraph and the fact that several third-party investors were attempting to back out of their commitments to buy (settle) loans, and the Company determined that it could still reasonably estimate the collectability of the mortgage fee income. However, the Company determined that it needed to increase its allowance for reversal of mortgage fee income as stated in the preceding paragraph.

    Effect of Market Turmoil on Sales and Settlement of Mortgage Loans

    As explained in previous response letters, the Company and the warehouse banks typically settle mortgage loans with third-party investors within 16 days of the closing and funding of the loans. However, beginning in the first quarter of 2007, there was a lot of market turmoil for mortgage backed securities. Initially, the market turmoil was primarily isolated to sub-prime mortgage loan originations. The Company originated less than 0.5% of its mortgage loans using this product during 2006 and the associated market turmoil did not have a material effect on the Company.

    As 2007 progressed, however, the market turmoil began to expand into mortgage loans that were classified by the industry as Alt A and Expanded Criteria. The Company’s third-party investors, including Lehman Brothers (Aurora Loan Services) and Bear Stearns (EMC Mortgage Corp.), began to have difficulty marketing Alt A and Expanded Criteria loans to the secondary markets. Without notice, these investors changed their criteria for loan products and refused to settle loans underwritten by the Company that met these investor’s previous specifications. As stipulated in the agreements with the warehouse banks, the Company was conditionally required to repurchase loans from the warehouse banks that were not settled by the third-party investors.


    Beginning in early 2007, without prior notice, these investors discontinued purchasing Alt A and Expanded Criteria loans. Over the period from April 2007 through May 2008, the warehouse banks had purchased approximately $36.2 million of loans that had met the investor’s previous criteria but were rejected by the investor in complete disregard of their contractual commitments. Although the Company pursued its rights under the investor contracts, the Company was unsuccessful due to the investors’ financial problems and could not enforce the loan purchase contracts. As a result of its conditional repurchase obligation, the Company repurchased these loans from the warehouse banks and reversed the mortgage fee income associated with the loans on the date of repurchase from the warehouse banks. The loans were classified to the long-term mortgage loan portfolio beginning in the second quarter of 2008.

    Relationship with Warehouse Banks

    As previously stated, the Company is not unconditionally obligated to repurchase mortgage loans from the warehouse banks. The warehouse banks purchase the loans with the commitment from the third-party investors to settle the loans from the warehouse banks. Accordingly, the Company does not make an entry to reflect the amount paid by the warehouse bank when the mortgage loans are funded. Upon sale of the loans to the warehouse bank, the Company only records the receivables for the brokerage and origination fees and the amount the Company paid at the time of funding.

    Interest in Repurchased Loans

    Once a mortgage loan is repurchased, it is immediately transferred to mortgage loans held for investment (or should have been) as the Company makes no attempts to sell these loans

    to other investors at this time. Any efforts to find a replacement investor are made prior to repurchasing the loan from the warehouse bank. The Company makes no effort to remarket the loan after it is repurchased.


    In connection with the Company’s responses to the comments, the Company hereby acknowledges as follows:

    · The Company is responsible for the adequacy and accuracy of the disclosure in the filing;

    · The staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

    · The Company may not assert staff comments as defense in any proceeding initiated by the Commission or any person under the Federal Securities Laws of the United States.

    If you have any questions, please do not hesitate to call me at (801) 264-1060 or (801) 287-8171.

    Very truly yours,

    /s/ Stephen M. Sill

    Stephen M. Sill, CPA

    Vice President, Treasurer and

    Chief Financial Officer

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