What is Fair?

The question should not be the bipolar question of who gets a “free house,” with the answer being the borrower or a party claiming entitlement to enforce. The question should be how to create a new equitable and legal infrastructure to clean up the mess that the banks created without unnecessarily penalizing either the investors who put up the money in the first place and the borrowers who put up their lives.

This is a question that BOTH the courts and the legislatures must face for failure to do so compounds the already compounding chaos and tragedy that befell our nation when the scheme initially collapsed in 2008.

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The borrower was lured into a loan contract in which she thought that the named lender had a financial interest in the outcome of the contract. The actual lender was a remote investment bank about whom she had received no disclosure and, as an average person of ordinary knowledge and means, had no access to information that would revealed the true nature of the contract.
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Rather than seeking to conform to law in selling such loan products the real lender sought to avoid the law.
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Rather than making money through the receipt of interest payments, the real lender intended and quickly divested itself of any interest or expectation of receiving interest or principal payments. The real lender also divested itself all of all risk of loss associated with payments. In short, the real purpose of the loan was to create multiple vehicles that could be sold as private contracts, resulting in the receipt of money that far exceeded the principal amount of the loan made to the borrower.
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While ordinary residential homeowners normally rely on the premise that the loan’s purpose was to generate revenue and profit for the lender through the receipt of interest payments, her named lender would not and did not receive interest payments and had no profit except from fees paid by the remote investment bank through conduits.
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Thus the actual lender entered into a loan arrangement without contract for the sole purpose of selling various attributes of the loan to as many investors as possible using as many complex financial instruments as they could conjure. The borrower had entered the arrangement believing that the named lender was the actual lender and that all compensation arising from the consummation of the loan was disclosed.
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The actual lender retained no direct interest in the performance or outcome of the loan. The borrower was unaware that they had signed up for an arrangement in which the other side of the equation would create millions of dollars in “trading profits” arising from the declared existence of the loan, along with her name, reputation, signature and the collateral of her home.
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Hence the goal of the lender was to create such loans regardless of quality. In fact, the lower the quality the more profit they made. And foreclosures became the vehicle by which the actual lender (investment bank) covered up the violation of federal and state lending statutes and common law doctrines of fair dealing and public policy.
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Since judges thought that the proceeds of a foreclosure sale would go to the owner of the debt, and thus pay down the debt, they thought that there was little harm in granting foreclosures even if the paperwork was somewhat “dodgy.” But an increasing number of judges are questioning two main issues.
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The first issue, which has been repeatedly voiced by hundreds of judges since 2008, is why there have been so many changes in the name of the servicer who supposedly was authorized to administer the loan and whether the servicer was actually administering the loan for or on behalf of an owner of the debt as required by law. Because without that its records would not  be allowed in as an exception to the hearsay rule. (The claimed “servicer” would just be a company that had intervened for its own financial interest which included fees for enabling a successful foreclosure. Hence their records would not have intrinsic credibility of a third party who had no interest in the outcome of litigation).
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The second issue which is being raised with increasing frequency is why it was necessary to create documents of dubious origin and authenticity? In an industry that created virtually all the paperwork required for closing loan transactions, and created the industry standards for maintenance of such documents how and why did they manage to lose or destroy the original promissory note so often? (And why was it necessary to fabricate any documents?)
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And a third issue which is only now being discussed with some earnest, is whether the right to resell the loan automatically includes the the right to use the personal data of the borrower for many sales of many of the loan attributes that were not contemplated by the borrower because they were hidden from the borrower.
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Europe is ahead of the U.S. in understanding that personal data is a property right. But laws in the U.S. do answer the question. Where the contract in known by only one side to have attributes that are withheld from the other side it is subject to the doctrine of implied contract (assumpsit) in which the party discovering the true nature of the contract may enforce a right to receive compensation for the attributes that were previously unknown.
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There can be little doubt that nearly all loan arrangements for residential property as collateral since 1996 have all the elements of an implied contract that is far beyond the scope of the written contract. Hence there can be no doubt that the borrowers are entitled to some form of compensation or damages arising from the implied contract and/or the violation of disclosure requirements in the Truth in Lending Act and state lending laws.
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The scope of this issue is a fact. In 1983 there was zero in nominal or actual value of instruments deriving their value from debt. Today there is over 1 quadrillion ($1,000,000,000,000,000) dollars in the shadow banking market. The total amount of fiat (actual) currency in the world is only 85 trillion ($85,000,000,000,000) dollars.
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The meaning is clear: for every dollar ($1.00) in real transactions of fiat currency there is, on average, $11.75 in trading profits for the banks and investors who trade in that market. That means that for the average of loan of $200,000 it is almost certain that the profits generated from the origination or acquisitions that loans was on average $2,352,941. In other words, payoff on the loan was incidental to the loan transaction — not the point of the loan arrangement.
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The current claim by the banks is that this enormous profit from lending is the result of separate contracts and transactions that should not be included as part of the original contract with borrowers.
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The claim by borrowers, while phrased in different ways, is that somehow the borrowers should be receiving some compensation or allowance as part of the package since the base transactions from which all value was derived for further instruments or agreements was their own signature, name, reputation and home as at least apparent collateral. Borrowers consider the non disclosure of the actual intention of the actual lender to be base violations of TILA and state lending laws.
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In addition, with the proceeds of foreclosure sale being distributed as revenue rather than the payoff of a loan receivable, existing law is insufficient to deal with the crisis of nonpayment by borrowers most of whom have been paying servicers who have been feeding such payments into large pools of cash from which payments are made to the holders of “certificates” who only have a right to receive payments from the investment banker who was doing  business under the name of a nonexistent trust.
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In some sense the holders of such certificates are the ones most likely to be considered owners of the debt. But the certificates themselves and the accompanying contracts (prospectus) clearly state that the certificates convey no right, title or interest in the borrower’s debt, note or mortgage.
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There is no right of investors to enforce the certificates against borrowers and the certificates are not “mortgage backed” despite claims to the contrary. This has already been decided in several tax cases. Their exemption from securities regulation is therefore unfounded.
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This has resulted in various parties posing as authorized enforcers of the debt and the security instrument ( mortgage or deed of trust). Regardless of their claimed title or status, all such entities share one controlling characteristic: they all initially or eventually claim to be acting in a representative capacity even when they present themselves as the “holder” of the note or any other claim to rights to enforce the note or mortgage.
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The evolution of such claims lends some perspective. Initially foreclosures were brought in the name of “servicers” and when challenged the servicing claims were then accompanied by an denial of securitization or the existence of any trust that owned the debt, note or mortgage. As it turned out the lawyers for such entities were telling the truth — there was no such trust nor would it have been the owner of the debt, note or mortgage even it had existed.
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In addition foreclosures were brought in the name of Mortgage Electronic Registration Systems, Inc. (MERS).
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Neither the servicers nor MERS ever could assert or allege that they had any right, title or interest in debt, note or mortgage. In the case of MERS it could not even alleged possession of the note or mortgage and had handled no money whatsoever in relation to any loan.
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And in all cases the proceeds of foreclosure sales permitted by the courts were distributed as revenue to several participant claiming authority to act, including the lawyers, servicers, master servicers, and the investment bank. In no case were such proceeds distributed to the owners of certificates issued in the name of a “trust.” Several forensic analysts tracked the “credit bids” and quickly discovered that those bids were not submitted by a creditor.
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The existence of the actual debt from the borrower has been converted from actual to theoretical; this explains the lack of any identified party who is the owner of the debt. This is not a problem created by borrowers who knew nothing of this scheme nor do they now understand it.
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This all results in the posing of three issues that need to be addressed head on if this crisis is to end.
  • The first which everyone has voiced since the beginning of the crisis is whether the homeowner should get a “free house” merely because the paperwork is now out of order.
  • The second is whether the current parties receiving revenue from the sale of foreclosed homes should be allowed to receive a “free house.”
  • The third is whether the borrowers have always been entitled to receive compensation for the larger implied contract in which compensation and revenue was generated from the origination or acquisition of their loan.
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Since this is a pervasive issue occurring through tens of millions of loan contracts, the best possible vehicle for addressing a remedy is through government action that goes far beyond the nominal settlements that have been announced thus far.
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All stakeholders should be given a voice at this table. Any approach that is punitive only to one particular class of stakeholders should be rejected. Laws need to be changed to reflect the modernization of financial instruments, only after consideration of the effects of such changes. Any law that simply makes it easier to foreclose or to merely cover up the title and legal errors that have been occurring for 20 years should also be rejected.
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If we are to make sense out of this chaos that was in fact conjured and created by investment banks, then we need changes in our property laws, contract laws, securities laws, lending laws, laws of civil procedure and due process, and laws of evidence. If the banks have put themselves in a position where they cannot foreclose on mortgages, that should not be the end of the inquiry.
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The question should not be the bipolar question of who gets a “free house,” with the answer being the borrower or a party claiming entitlement to enforce. The question should be how to create a new equitable and legal infrastructure to clean up the mess that the banks created without unnecessarily penalizing either the investors who put up the money in the first place and the borrowers who put up their lives. 

7 Responses

  1. And this MERS thing, and it is a thing. Had the loans been properly transferred to the Trust, MERS wouldn’t be assigning anything. This is like the deed office clerk saying, well, BOA wants to buy this house, let me assign the deed. A recording and storage facility is not a party to your contract. Jeez…at this point, I am even saying to the court, when there is no secured interest in the “debt”, it is not a home loan and I have not been properly served, which are reasons to reverse an order, because the proper parties are not before the court and collection of a debt is not a home loan. Sick of this double talk.

    Everything coming out of these people’s mouths are lies.

  2. Neil — thank you for the article.

    Java — YOU are CORRECT. Unsecured. This is the issue not addressed by our government. We can plead until the cows come home, but until the government steps up to the plate – we will lose.

    Democrats – where are you? Where were you then? Republicans? Where are you? The Forgotten Man? What did you do?

    Debt collection – the biggest business in the entire world. Corrupt as a 7 dollar bill. Money shifting – to whom and where?

    We are headed for recession. It will happen – sooner rather than later. And how will our representatives fix it then? Where the heck is the government???? No one worthy of a vote.

    Massive fraud. This not about a “free house.” This is about massive fraud. All covered up.

    Thank you.

  3. Excellent article Neil! Thanks for the keen perspective and intellect!!

  4. Look folks… the Laws are and were at the time of these loan creations on the books! In a equal justice, United States of America democracy, the answer has always and will always be… follow the Law. Anything… and I do mean ANYTHING less than that is to succumb to the very specific element of tyranny that our Laws are designed specifically to fight against… doubt. Because the law was not followed we doubt our Govt., we doubt our Courts, we doubt the entire system of our own Governance. The Law is the Law BECAUSE it removes, as best as it can… DOUBT. Our Forefathers realized that no man can live constantly in doubt and prosper. And no changing realities with word smithing is going to change a damn thing. The only answer to our current situation has been right in front of everyone since the very beginning. Follow the Law. And it is a National Shame hat no only our Govt. and the very Agencies designated to protect “we the people” have so pitifully failed in doing their duty but also that last bastion of American Law & Justice, our Courts and their respective Judges have gone to such great prejudicial lengths to sublimate OUR Laws with their own 1. wanton disregard for the written law 2. obvious and obnoxious belief in their own and their colleagues own godlike superior ability to be the only true interpretors of the Law and 3. repulsive & prejudicial treatment of American’s Nationwide as they have continually reacted to and treated pro se litigants. As an American… I am ashamed to be associated with them,

  5. Banks in last 20 years destroyed everything they can – centuries-long property rights, all applicable laws, including contract laws, integrity of the public offices, particularly Courts who know very well about this scheme; millions broken families, the entire country on antidepressants; enormous homelessness, Medieval deceases like Typhus and Bubonic Plague, ect., ect .

    I only partially agree with Neil – borrowers must be compensated for all damages they sustained due to banks fraud. Treble damages are appropriate.

    When I signed this loan, it was a scam from the beginning. Can we legalize scams for banks? Should it be lawful for everyone else?.

    I approached a lender who agreed to lend me lets say $100,000 for a house. I filled out an application where I put all my personal information.

    The lender was actually working for a Gambino family-like organization, under the leadership of a large investment banks (“IB”).

    The lender gave my information to their Boss – IB- and told him that I want to buy a loan and the lender need money to fund it.

    IB called certain gamblers (aka “speculators-investors”) and asked if they want to bet $100.00 on that I will sign the loan. Based on my credentials, here are about 95% chance that I will sign this loan. .

    In return for $100.00 bet IB promised speculators $150.00 in one months after the closing, with a very little risk because I will likely sign the loan and IB was going to package my loan into a Trust and sell certificates to a group of other investors.

    Which is a clear Ponzi scheme and identity theft because neither I or other investors never knew about this group of speculators who were betting on my intention to sign a loan.

    1000 speculators bet $100.00 which amassed $100,000 needed for financing ; and I did sign the loan.

    Thus, my loan was funded by 1000 people who invested $100.00 – without ANY obligations, any disclosures, minimal risks (5% I will not sign the loan) or any involvement in the actual contract because it was not even completed yet – – and instantly made as much as 50% of substantial profits by my signature on the loan.

    I got the loan, but here was NO creditor at all since it was funded by a group of speculators who purchased derivatives -a thin air expectation that I will sign the loan.

    If I would change my mind and do not sign the loan, all these speculators would lose $100.00 and move to another prey because they were buying the risk. I did not know that I was buying,

    Which fairness Neil is talking about?

    Speculators got their money which were used to fund my loan, plus profits, I got the house. This was fair, if disclosed to me.

    But the Contract to purchase the house was breached by the Lender whom I approached for the loan because the Lender knew that he was not the lender but impersonator; passed my identity to third parties who were not related to this contract; without any disclosures to me or my consent ; and IB got massive profits before they actually funded my loan with other people money. Fair? I don’t think so.

    Thus, it was an invalid contract procured by fraud and not enforceable because it was breached by the Lender who was not the Lender.

    But banks greed did not stop here and they purportedly packaged my loan into a Trust (which they likely did not) and started to sell it as securities and as derivatives backed by securities – which is a huge bundle of different contracts where I am a party without my knowledge.

    Investors, unlike borrowers, have huge departments who can evaluate their risks in investing in the Ponzi scheme. They all KNOW these risks and intentionally take them.

    Why should I feel sorry for investors? They know that they buy a fraud yet continue to buy it because this fraud is supported by the Government and covered by Judges who also invest in this Ponzi scheme.

    The only party who is not aware about this scheme and whose signature makes this fraud operated – are borrowers.

    When more borrowers will be aware and ask more questions – this entire bubble will explode as a huge volcano and destroy everything.

    Here are NO property Titles in America anymore – for any borrowers because this scheme requires a breach in title.

    Borrowers.taxpayers bailed out banks AND Investors with $31 Trillion and much more on top of it. Which is about $400,000 per family of 4.

    I don’t feel sorry for investors because they knew that they are doing when they purchased thin-air derivatives not backed by any value.

    But borrowers , who created this windfall, never been compensated .

    Thus, here are no such thing as a “free house”, we all paid for it, many times.

    Investors should start banks questions how they can generate 50% profits by selling them thin-air. But as long as they agree to buy this air, investors cannot blame anyone except themselves.

    Derivatives do not produce ANY legit income, because they have NO value, its a Ponzi scheme and legalization of the Ponzi scheme is a very questionable decision.

  6. Here are my 5 cents

    Banks in last 20 years destroyed everything they can – centuries-long property rights, all applicable laws, including contract laws, integrity of the public offices, particularly Courts who know very well about this scheme; millions broken families, the entire country on antidepressants; enormous homelessness, Medieval deceases like Typhus and Bubonic Plague, ect., ect .

    I only partially agree with Neil – borrowers must be compensated for all damages they sustained due to banks fraud. Treble damages are appropriate.

    When I signed this loan, it was a scam from the beginning. Can we legalize scams for banks? Should it be lawful for everyone else?.

    I approached a lender who agreed to lend me lets say $100,000 for a house. I filled out an application where I put all my personal information.

    The lender was actually working for a Gambino family-like organization, under the leadership of a large investment banks (“IB”).

    The lender gave my information to their Boss – IB- and told him that I want to buy a loan and the lender need money to fund it.

    IB called certain gamblers (aka “speculators-investors”) and asked if they want to bet $100.00 on that I will sign the loan. Based on my credentials, here are about 95% chance that I will sign this loan. .

    In return for $100.00 bet IB promised speculators $150.00 in one months after the closing, with a very little risk because I will likely sign the loan and IB was going to package my loan into a Trust and sell certificates to a group of other investors.

    Which is a clear Ponzi scheme and identity theft because neither I or other investors never knew about this group of speculators who were betting on my intention to sign a loan.

    1000 speculators bet $100.00 which amassed $100,000 needed for financing ; and I did sign the loan.

    Thus, my loan was funded by 1000 people who invested $100.00 – without ANY obligations, any disclosures, minimal risks (5% I will not sign the loan) or any involvement in the actual contract because it was not even completed yet – – and instantly made as much as 50% of substantial profits by my signature on the loan.

    I got the loan, but here was NO creditor at all since it was funded by a group of speculators who purchased derivatives -a thin air expectation that I will sign the loan.

    If I would change my mind and do not sign the loan, all these speculators would lose $100.00 and move to another prey because they were buying the risk. I did not know that I was buying,

    Which fairness Neil is talking about?

    Speculators got their money which were used to fund my loan, plus profits, I got the house. This was fair, if disclosed to me.

    But the Contract to purchase the house was breached by the Lender whom I approached for the loan because the Lender knew that he was not the lender but impersonator; passed my identity to third parties who were not related to this contract; without any disclosures to me or my consent ; and IB got massive profits before they actually funded my loan with other people money. Fair? I don’t think so.

    Thus, it was an invalid contract procured by fraud and not enforceable because it was breached by the Lender who was not the Lender.

    But banks greed did not stop here and they purportedly packaged my loan into a Trust (which they likely did not) and started to sell it as securities and as derivatives backed by securities – which is a huge bundle of different contracts where I am a party without my knowledge.

    Investors, unlike borrowers, have huge departments who can evaluate their risks in investing in the Ponzi scheme. They all KNOW these risks and intentionally take them.

    Why should I feel sorry for investors? They know that they buy a fraud yet continue to buy it because this fraud is supported by the Government and covered by Judges who also invest in this Ponzi scheme.

    The only party who is not aware about this scheme and whose signature makes this fraud operated – are borrowers.

    When more borrowers will be aware and ask more questions – this entire bubble will explode as a huge volcano and destroy everything.

    Here are NO property Titles in America anymore – for any borrowers because this scheme requires a breach in title.

    Borrowers.taxpayers bailed out banks AND Investors with $31 Trillion and much more on top of it. Which is about $400,000 per family of 4.

    I don’t feel sorry for investors because they knew that they are doing when they purchased thin-air derivatives not backed by any value.

    But borrowers , who created this windfall, never been compensated .

    Thus, here are no such thing as a “free house”, we all paid for it, many times.

    Investors should start banks questions how they can generate 50% profits by selling them thin-air. But as long as they agree to buy this air, investors cannot blame anyone except themselves.

    Derivatives do not produce ANY legit income, because they have NO value, its a Ponzi scheme and legalization of the Ponzi scheme is a very questionable decision.

  7. I think there should be a fraudclosure Moratorium at once. With that said that still doesn’t fix the fraud of the investment banks. So I’ve always said. It UNSECURED debt AND if we are going to fraudclose as the “only option” or “national security” then the person signature who made the money appear out of thin air deserves their share of the windfall.

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