Livinglies's Weblog

homeowners who win foreclosures are not getting a free house. they are settling for less than the amount due to them.

Just so you know, there is actual and extensive case law on the constitutional requirement of actual damage to the party claiming any violation of law, contract or duty. In foreclosures the only damages that can be claimed by the claimant is economic damage in both nonjudicial and judicial states.

The lawyers for the sham conduits and intermediaries for the investment banks rely upon an implied damage. Pointing out that the borrower did not pay their named claimant they imply that their named claimant either has suffered economic damage from the borrower’s nonpayment or is the agent for a party who suffered economic damage from the borrower’s non-payment.

This representation or implication is wholly untrue in nearly all foreclosures, since all the participants (they should not be called “parties”) purport to derive authority through “securitization.” That authority is said to be either direct, as owner of the debt through purchase of it which is a complete lie, or indirect such as being an agent or false claim of being an attorney in fact for an entity that has never paid value in exchange for ownership of the debt nor represented anyone who has paid value in exchange for ownership of the debt.

The desire, intention and expectation of profit is not economic damage unless it represents an obligation of the party owned to the party suing (or claiming as in the case of nonjudicial foreclosure). Thus in all securitization foreclosures there is an absence of authority for the court to hear the case or for a non judicial power of sale to be invoked.

This results in an anomaly. And the trial courts are loathe to recognize it and the appellate courts are struggling with it. There is no doubt that a debt was created. No reasonable argument could credibly dispute that fact. But the way securitization was practiced (see SIT, SAW SAP) the investment banks intentionally split the debt from any written document that said anyone owned it.

So the  courts are baffled by a debt that legally may not be enforced. The current practice of designating a claimant is not recognized by the law of any jurisdiction although indirectly justified by courts who twist the law out of all recognition.

For those who are curious, I picked this quote from a case that discussed the issue of what constitutes actual financial damage:

To aid lower courts with determining whether a plaintiff has properly alleged an economic injury under Business and Professions Code section 17204, the Kwikset Corp. court listed four injuries that would certainly qualify under the statute: (1) the plaintiff surrendering more or acquiring less in a transaction than the plaintiff otherwise would have; (2) the plaintiff suffering the diminishment of a present or future property interest; (3) the plaintiff being deprived of money or property to which the plaintiff has a cognizable claim; or (4) the plaintiff being required to enter into a transaction, costing money or property, that would otherwise have been unnecessary. (Ibid.) These four injuries are not “an exhaustive list” of the injuries a plaintiff may allege to properly plead an economic injury under Business and Professions Code section 17204, and “the quantum of lost money or property necessary to show standing is only so much as would suffice to establish injury in fact.” (Kwikset Corp., supra,51 Cal.4th at pp. 323-324, 120 Cal.Rptr.3d 741, 246 P.3d 877.) [e.s.]

Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal.App.4th 497, 522 (Cal. Ct. App. 2013)

It doesn’t take much to see that two things are true here. First there is no legally recognizable claimant in foreclosure and second, that the original contract with the borrower required the borrower, unknowingly, to accept terms in which the borrower surrendered more than they thought and acquired less that they would have demanded and received had they known of the true value of their signature.

Judges still don’t like it even if they understand this.

But I would ask them to look deeply at this and be open to the possibility that in a truly free market where the originators obeyed the law and disclosed attributes of the “loan” transaction (including the fact that but for securitization the loan would never have occurred), two things could reasonably be expected: (a) borrowers would demand more for their signature and (b) competing originators would be offering more to borrowers to get their signature.

I don’t think those facts can be credibly disputed. So the question devolved to the question of how much the borrower would have received or should have received rather than if they are entitled to any set off.

My rule of thumb is that on average the gross revenue produced by each securitization scheme was $12 and $10 for each dollar invested. The difference lies in the second tier yield spread premium in which investors went in at one rate and the borrowers came out with a different rate.

So if borrowers knew that their $300,000 loan was going to produce about $3,600,000 in revenue, most of which would be entirely fees, commissions, bonuses and profits, what would be the commercial value of their signature in excess of the loan principal which after all is not really payment since it supposedly needs to be paid back?

This is akin to  royalty situation. So if we look at royalties we see a wide range. But if we look at investment banking we see that the mere placement of the name of an investment bank results in a premium fee of around 5%-10% of the offering.

[Of course in cases involving the underwriting of corruption the investment banks get much more for putting their names on their offering –a recent example being Goldman Sachs who received a premium equal to 100 times the normal underwriting fee for an offering of worthless securities out of Malaysia. But I digress]

So if we take the customary practice in investment banking and apply an average premium of 7.5% as the fee for signing the underwriting or loan and we assume that the underwriting is $3.6 million, then the borrower would be entitled to $270,000 due upon signing for the loan.

Adding an average prejudgement interest to that amount for a period of 10 years at a rate of 6%, the amount due to the borrower after ten years is $270,000 + $162,000= $432,000.

You may adjust up or down using different variables but it is easy to see that there is virtually no circumstances in which a loan from the early 2000’s could possible have a net amount due, once you factor in the rest of the securitization contract.

Hence homeowners who win such foreclosures are not getting a free house. they are settling for less than the amount due to them.

Filed under: foreclosure |