Foreclosure Defense Revisited

Originally published in October, 2008 this is a revised version of an article that correctly articulated the main weak points in the cases being presented for enforcement of mortgages and deeds of trust. Back then I made a few errors as to the actual duties of the trustee. I found out later that there were no parties charged with the duties, rights, and obligations of a REMIC trustee because the REMIC existed in name only and did not own any assets. There was no settlor, there was no trustee, there was no trust and there were no assets owned in the name of a named trustee.


One new answer we are getting when we ask for the identity of the real holder in due course of the note is “that information is confidential. You are not entitled to that.” Of course this is ridiculous — if you signed a note and it has been indorsed or “assigned” to some third party, you have a right to know where to send your payments and to whom. You have a right to know whether the note was destroyed and whether it could have been delivered or was delivered.

There is no confidential status under any law or theory, legally, morally or ethically. And you have the right to know if the holder in due course is getting paid if there is a mortgage servicer involved. And if there is a mortgage servicer, you have a right to know whether they are indeed authorized to make collections — authorized by the real holder of the note, whoever that might be. And you have a right to know to whom the service did make payments when you were making payments. The answers would surprise you if you could get them. It would show that the REMIC trustee and the trust fund never received a penny. 

Why is that important? It shows that the REMIC is not the party with legal standing since it never received any payment and obviously doesn’t expect any — even from the proceeds of the foreclosure sale. THAT is information likely to lead to the discovery of admissible evidence which is the heart of the rules of discovery.

Lawsuits in Texas and other states indicate that the distribution reports to investors are vague at best and outright fabrications in other cases.

All of this brings us back to how they did it. How did they sell a $300,000 mortgage for $1 million and get away with it? And what happened to all that money? ANSWER: They sold the same mortgage over and over again. That is called fraud. They put the loan documents in pools that were described in tables that were impossible to decipher. See dsvrn.6m.d.htm .

They were able to do this and make it “work” because they wanted and pressured the lenders to give them (the investment banks) the worst loans possible carrying the highest interest rates possible with the most onerous terms for prepayment etc. that were possible to insert. That is because these loans were made with a note bearing an interest rate of 16% or more but they were put into pools of assets that contained a few real loans, thus bringing the average STATED return on investment to perhaps 6-8%. This was a fictitious return because none of the 16% loans were paying anything other than zero or teaser rates.

Even though the pool contained numerous loans on homes that were appraised at 50% over market, and terms wherein the “borrower” was paying nothing to nearly nothing on the loan for the first few months or years, the loan went into the pool as a “performing loan” (because nothing was expected from the borrower) and sold as though the 16% income ($48,000 on a $300,000 note) was being paid.

An unsuspecting investor would put up perhaps $750,000 to buy certificates for the $48,000 in income, especially if it was insured and carried a AAA rating. There is a $450,000 profit on a $300,000 loan — available to the investment banker only if the the loan was toxic waste (Z tranche) classified as such because there was no chance whatsoever that it could ever be repaid. The investor put that money up because in the mind of the pension fund manager he was buying 6% loans. If he had known that a significant portion of the investment went to buy 16% loans he wouldn’t have invested one penny. The difference in rates creates a huge yield spread premium (YSP)that is pocketed as trading profit by the investment bank. In this example the YSP is bigger than the loan.

But wait there’s more. If you assign the $48,000 fictitious income into multiple parts (say 8 parts of $6,000), you could assign the same note to eight different pools. In other words they were selling the same note multiple times. But they were not necessarily selling the debt. That came later. If you and I did that we have free room and board courtesy of the state or federal government in a prison of their choosing. But on this scale, despite the clear presence of two sets of victims that were coerced, deceived, cheated and misled (borrowers and investors) the bailout went to the thieves instead of the victims.

Concurrently with the origination of the mortgage loan and the sale to investors of certificates as outlined above, there are “contracts” that are disguised sales of the risk (i.e., the debt ). So the investment bank as (1) split the note up and (2) split up the debt to buyers (investors) who each signed contracts that they disclaim any right to enforce the debt, note or mortgage.

What this means to foreclosure defense is that your defense goes far beyond the “where’s the note” strategy. It goes to whether the note has been paid in full to the investment bank and whether there are multiple parties (investors) who are equity holders in the note and perhaps even the mortgage, all of whom have at least an arguable right to collection — totaling perhaps 300%-500% of your loan amount. It means that your payments probably went into the wrong pockets. It means that even if you made no payments, they probably paid the investor anyway out of reserves, overcollateralization, cross collateralization or one of several insurance products.

The reason the note is gone in most cases (destroyed in most cases) and lost in most other cases is that the terms of the note do not match up with the description that went up line in the securitization process. That leads to only two possible conclusions:

Either the note was separated from the mortgage making the secured obligation into an unsecured obligation thus voiding the power to foreclose OR the “assignments” were invalid because they were undated or otherwise defective leaving the mortgage and note intact — but PAID in full. Either there are assignees out there who have rights to the note obligation or there are not assignees with any rights.

If there are assignees with rights, you need to know who they are, how they got the loan, and whether they are proper holders and if they are still holders in due course and if the seller of your mortgage sold the same deal to other assignees.  Most of the sales to investors were not memorialized with recorded assignments of mortgage or even endorsements of the note.

The question is whether your payments or someone else’s payments were properly or improperly allocated to your account — not at the mortgage servicer level but much higher up at the level of the Trustee for asset backed securities series AAAA2007. You find that in the distribution reports. And if it isn’t there you find it through discovery asking for explanations of exactly where the payments went, who got them and why, along with proof of deposits and how they were entered on the books of the receiving party.

If there are no assignees with rights, then the case is simple it is defended by one word: PAYMENT. The current claimants were paid in full by a third party, plus an undisclosed fee (TILA violation) for “borrowing” the lender’s license in a “table funded loan” where the agent (mortgage aggregator) of the investment banker, directed by the CDO Manager (Collateralized debt obligation manager) reached around the apparent lender and placed the money on the table to fund your loan. The apparent lender’s name was put on the note and mortgage. Why? Because they wanted to qualify for all the exemptions that apply to banks and lending institutions even though those institutions were not making the loans.

The apparent lender was paid a fee for 2.5% for pretending to underwrite the loan, perform due diligence, confirm the appraisal, confirm the viability of the transaction, confirm the affordability and benefits etc. The lender did no such thing. Brown’s lawsuit brought by the Attorney general of California, shows that the people doing the underwriting were under quotas that amounted to approving 70-80 loans PER DAY. 10,000 convicted felons were recruited in Florida to become LICENSED mortgage brokers. A virtual army of people were given scripts and marching orders to get those loans signed no matter what they had to offer or what lie they had to tell.


Bottom Line: Go Get Them. They don’t have the goods and can’t produce them because if they do produce them it may be an admission of criminal fraud.

Check with local counsel before taking any action or deciding on any course of action in your particular case. This is general information only.

6 Responses

  1. Java — Obama controlled what was done when the “crisis” imploded.

    I see no one to even vote for – at any level. No one. Trump continuing the fraud. Made big errors in who he nominated when elected. But, geez Trump and Dems – forget “RUSSIA” — go after what was REALLY covered up. Is Russia just a diversion? Think so. Is the economy truly a “goldilocks” economy? Of course not.

    Mr. Trump, go after the real fraud. Don’t resurrect it. You will then win again. Dems — you expose what you failed to expose on your clock– you will win this time. The BIG scandal is waiting. Disclose it.

    And, Ted Cruz — really?? Want to abolish the CFPB? No — should be making stronger.

    Politically, it seems hopeless. But, reasonably, it will surface. Someone will get act together and fix it. It will happen. Truth always prevails. Keep plugging Neil and all. It will happen. We rely upon you, and others, who know the detailed fraud. Your mission is greatly respected. You will be a part of history.

    Thank you.

  2. Mine originated in 2007. So I can’t blame Obama. We can only for him for being a pussy and doing nothing once the banksters were caught red handed.

    Don’t see what’s so hard to defend against UNSECURED debt. But everyone needs to get behind a fraudclosure moratorium ASAP

  3. INVESTORS ARE NOT LENDERS. PERIOD. None of them. There should be NO “investor” in any foreclosure. Not a trust or trustee.

    All of these private loans with non bank originators are NOT valid.

    Problem is – Trump wants to go back to it. Dopey Trump wants to go back to what dopey Obama and friends did.


    Do we have ANY representatives who are not “dopey?”

    Thank you.

  4. Good luck on any of this. Bank of America’s “c0-conspirators” are great and having attorneys like Blank and Rome try to intimidate you, make statements and provide phony documents stating these were given to them by Bank of America. B of A intially took over Countrywide allegedly, and then became to so called “sesrvicer” and NOT the holder in due courese passing that off as Fannie Mae being the “investor” then changing that to “holder of debt”. Unless you have lots of money and patience to fight these crooks you are fighting a loosing battle and our very own government is involved!!! What a giant cess pool!!
    semper Fi.

  5. 1. What happened when Fannie admits they owned the since since origination ??
    2. And they admit they don’t hold the mortgage AND they dont even care about the mortgage (their exact words)
    3. How does a debt collector servicer get to become plaintiff in a fraudclosure complaint to steal the house ?? And Fannie name is nowhere on any of the paperwork at county clerk or in fraudclosure complaints,,,

  6. This was great then, Neil, and now. A few things overlooked.

    1) The Prospectus that investors should have read did show that loans were alternative loans and may or may not be Fannie/Freddie eligible. Thus, investors should have known exactly what they were investing in.

    2) Even though the loan may or may not have been Freddie/Fannie eligible, Freddie/Fannie were largest investors in the residential loan “pools” (you attach a commercial trust). F/F invested in the top RMBS tranches – the tranches given the highest ratings. Not all tranches were rated AAA. As one descended into lower tranches, the ratings got lower.

    3) Not all tranches were securitized. Bottom tranches – with names such as “P,” “CE,” and “R” were not securitized. Who retained those tranches is unknown. I suspect, that loans could be dumped into those tranches at any time, as distributions often show a large allocated amount – AFTER upper tranches were prematurely paid off.

    4) To be sold to multiple “pools,’ the loans must be liquidated (reported as not collectible) to some Trusts.

    5) Many people paid, and continue to pay, But, those loans are still classified as a “default” – even though never in default. Also, since the distributions show that the top (higher rated) tranches have all been prematurely paid off, the pass through waterfall structure is destroyed. The trusts are now closed for cash pass through, despite many people still paying.

    5) Most of these loans were refinances. Refinances that were previously Freddie/Fannie direct “investor” loans. Yet, it is highly questionable as to whether Freddie/Fannie was paid off by the borrower at refinance closing. There is a distinction between “paid off” by borrower, and “paid out” by another party. If not paid off by the borrower – this would make the refinance transaction void.

    Bottom line — securitization should NOT matter to the borrower. Security trusts are NEVER the lender. Title does not pass to security investors. Borrowers need to know their LENDER and successor LENDER, and CURRENT CREDITOR to whom the “debt” is claimed owed. They do not have one if rights are claimed to a bogus trust. . Which means — there was no valid loan. By refinance, the prior loan is supposed to be paid off BY THE BORROWER. If not, then no loan. This is difficult, but critical, to ascertain.

    Borrowers have a right to know.

    Thank you.

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