Actual Fiction and Legal Fiction: Why the Big Settlements Are Not Reducing Borrower Debt

It’s complicated. Giving the investors money was a pay down of the obligation owed by the investment Banks, not the Borrowers. It didn’t change anything in the trust. But that begs the real question. The trust never owned anything to begin with.

The trust does not exist as a legal person under any law of any jurisdiction simply because there is absolutely nothing in it.

Therefore there is no law that could or would support any claim on behalf of a REMIC trust as a claimant in bankruptcy, a Plaintiff in judicial foreclosure or a beneficiary in nonjudicial foreclosure. Yes it is that simple. But getting there is difficult particularly when dealing with widely held misconceptions of the facts. And failure to raise the point might in effect give the lawyers for “the trust” judicial standing for the purpose of that action in court.

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The confusion is understandable. It was the investors who were the only ones who actually paid value from their own pockets. Since they did not get any instrument that conveyed any right, title or interest in any debt, note or mortgage they never became the owner of the debt.
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But most people look at the investors as though they were the owner of the debt. So when the investors get money, the common interpretation is that therefore the borrowers debt is decreased. It isn’t. People are upset about that and they should be.
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The most difficult aspect of this to wrap your mind around is the fact that the separation between payment of value and ownership of the debt occurred at the very beginning of the scheme. Legally, there is no owner of the debt. Securitization as practiced (see SAP in other articles) produced an extralegal result, which I think means an illegal result.
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The bottom line is that nobody who paid value never received an instrument that conveyed ownership of the debt AND nobody who received an instrument conveying ownership of the debt ever paid value.
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Legally, the only way anyone can foreclose on a mortgage if they are the owner of the mortgage. But any transfer that is documented in a paper instrument conveying an interest in the mortgage is a legal nullity unless the debt is also transferred contemporaneously with the document. There is no transfer of the debt without payment of value to a party who owns the debt. Therefore the seller must be someone who has paid value in exchange for an instrument conveying ownership of the debt.
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It is intricate. But it is also very logical. Constitutional Law requires that any party seeking a remedy in court must be claiming some injury. If you don’t own the debt you can’t claim that you’re being injured by non-payment.
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Therefore the multi-billion dollar settlements that have been announced either in favor of investors or Borrowers have not mentioned the trusts simply because the trust was never the owner of a debt and therefore could not have been the owner of the mortgage. No money was ever paid to any trust in any settlement.
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All of this leads to further anomalies. If there is a settlement in which the investors are paid that’s reducing the obligation from Investment Banks to the investors, the failure to allocate any part of that pay-off to the obligation of Borrowers leaves the investment Banks with a profit.
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By pretending that the obligation of the borrowers remains constant even though the investors have been paid off in whole or in part and even though the obligation of the investment bank has been reduced in whole or in part, the Investment Bank remains free to initiate collection, servicing and enforcement of loans seeking payment in full. It does so through intermediaries who never mention the Investment Bank.
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Although at first blush one might argue that this is proper, it isn’t. The payments to investors constituted damages resulting from fraudulent misrepresentation by the investment Banks. In addition, there is the legal problem in which the investment Banks have never received a document transferring an interest in any mortgage, deed of trust or encumbrance.
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This is another separation that occurred for the sole purpose hiding the Investment Bank, concealing its role, and making it difficult to pierce through corporate veils in order to enforce liability for violations of lending and servicing statutes. At all times the Investment Banks act through a series of sham conduit intermediaries wherein lawyers make false representations that are protected by something called litigation immunity. As long as they are in court they can’t be sued.
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I think that if there is one key error most people make it is when they equate investors with the trust.
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The sole purpose of the trust is to hold the assignment of mortgage, even though it is illegal nullity (absent transfer fo the debt), as agent for the Investment Bank. The investors are creditors of the investment bank doing business under the trust name. They are not beneficiaries.
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And the trust never owns any debt and therefore does not own any mortgage. So even the assertion that the trust is holding the mortgage and Trust for the Investment Bank is false, simply because the trust is not holding the debt. Therefore the one thing that is asserted to be “the thing” or Res of the trust, doesn’t really exist under law. With nothing held in trust, there is no trust. and with no registration of the trust in any jurisdiction, all references to the trust are actual fiction not just legal fiction.

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FORECLOSURE DEFENSE IS NOT SIMPLE. THERE IS NO GUARANTEE OF A FAVORABLE RESULT. IN FACT, STATISTICS SHOW THAT MOST HOMEOWNERS FAIL TO PRESENT THEIR DEFENSE PROPERLY. EVEN THOSE THAT PRESENT THE DEFENSES PROPERLY LOSE, AT LEAST AT THE TRIAL COURT LEVEL, AT LEAST 1/3 OF THE TIME. IN ADDITION IT IS NOT A SHORT PROCESS IF YOU PREVAIL. THE FORECLOSURE MILLS WILL DO EVERYTHING POSSIBLE TO WEAR YOU DOWN AND UNDERMINE YOUR CONFIDENCE. ALL EVIDENCE SHOWS THAT NO MEANINGFUL SETTLEMENT OCCURS UNTIL THE 11TH HOUR OF LITIGATION.
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One Response

  1. One exception – as to the investors. Did these investors really think that these people – low and middle income — would fund their investments by paying high rates? Did they, as sophisticated investors, actually think this is logical or reasonable?

    With all that is happening now, why didn’t anyone come to the defense of these homeowners back when all crashed. (Neil excluded).

    “Doesn’t affect me” – I was told. Now, when many more are, or will be, affected, maybe they will realize that they abandoned their neighbors.

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