Why Homeowners Should Win Foreclosure Cases:

“…the question becomes less about why the homeowner should get a free house and more about whether a free house is enough compensation for the unknown risks assumed by borrowers and for their role in starting each securitization process. 

I have a client who sent me a long copy of a report generated that supposedly recounted all data entries relative to her account, except one: the establishment of a loan account owned by anyone.

Here is how I responded:

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So I obviously don’t have the time to go over this in any detail. But skimming it, reveals a number of things. The first thing you should remember is that this is a report generated by a report program that accesses one or more databases that were not created, maintained or utilized for INPUT by anyone in Ocwen. If you pursue discovery (assuming you have that option or can create it) this fact could be revealed beyond any reasonable doubt — or raised by inference when they fail or refuse to respond. 


Once you do that a few things are true: 
(1) Ocwen records are no longer qualified as business records exceptions to the hearsay rule because the entries of data were not made at by Ocwen employees at or near the time of any transaction 

(a) Any claimed boarding process is charade. Since the records were always on the same server and “boarding” mere consisted of changing login name and password, there was no boarding process.
(2) The actual company that owns and operates the servicer(s) containing the data that was used to generate the report, must be named because 
(a) the actual relationship between the company claiming to be “servicer” and any “creditor” is unknown.

(b) Hence the authority of Ocwen is eliminated. It is not the records custodian for the XYZ Bank as trustee for the registered certificate holders of the ABS Trust pass through certificates. It is not a witness to any transaction and everything they have is generated through the report writing program which is neither owned nor operated by them.


All of that means that the lawyers don’t have a case. And they know that, which is the subject of another piece on why lawyers should not be able to do that. I have had more than one lawyer admit that there was no trust or that it was empty in private conversation. They can only justify their action by saying that even though the securitization scheme was seriously and obviously flawed they were merely enforcing the original intent of the parties. The question therefore is what if that is NOT what is happening?

Since we already know that they don’t have a creditor they won’t be able to produce one. And we know that because the loan account was extinguished or retired during the securitization process in which investment banks received money in exchange for securities that more than covered the debt from homeowners but was never credited to the loan account because the loan account did not exist. 

And perhaps more importantly from a proof perspective, the removal of the receivable suspense account arising from funding the origination or acquisition of a “loan” is an admission against interest that the loan account does not exist. So it’s matter of don’t take my word for it, ask the investment bank. They won’t answer — which any experienced trial lawyer will tell you is what turns an accusation into an inference that the accusation is true.


So then you must deal with the underlying theme in all foreclosure litigation — that the homeowner is going to get a free house and is getting away scot free. It’s not fair. 


Well here is the truth. It isn’t fair if you look at the entire transaction as only a loan transaction. But it is entirely fair if the benefit received by homeowners is less than the benefit they should have received and would have received had they known the facts and had an opportunity to bargain. And there would have been competition to offer higher incentives to homeowners to execute these weapons of mass financial destruction.


But when you have an announced “lender” go into the deal without any intention of establishing or maintaining a loan account, we have a doctrine called substance over form. Since there is no loan account the intention was obviously to generate profits through some other means. In this case the other means is the sale of securities to investors by misrepresenting their value, concealing the risks and betting on failure of the securities transaction — same as with loans.


So when you look at it from two steps back and are able to see the entire transaction you can easily see that the loan transaction was a ruse in which homeowners were lured into starting a securities scheme, the beginning of which was entirely dependent upon them executing the initial instruments that originated the securitization process — the note and mortgage. 

Considering average revenue to the bookrunner investment bank of $12 for each alleged loan, the question becomes less about why the homeowner should get a free house and more about whether a free house is enough compensation for the unknown risks assumed by borrowers and for their role in starting each securitization process. 


And before you think that might be overkill, consider this: the loans were not made by anyone who maintained a risk of loss. So the lending process was completely corrupted. the normal expectation of borrowers that they would only be offered a viable loan was blown out of the water. As a result homeowners were surreptitiously being drafted into assuming risks that were concealed and which produced the 2008 crash. 

There was no intent by either party in the documented “loan” agreement that had the intent to enter into a loan transaction containing those attributes. One side didn’t see it as loan transaction at all and the other side didn’t know the true terms and conditions.


And as for any windfall argument, consider this: it happens all the time that some litigant gets more than some people think they should. The point is not to base an opinion looking backward but rather to follow the rule of law. 

*Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.*

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2 Responses

  1. Wish I could post the MBA (Mortgage Bankers Association) letter to the Treasury & Federal Reserve from last March 2020. The letter was begging for a COVID bailout for the servicers – but when they realized the admissions in this priceless correspondence, it appears, they promptly took it off their website. But we have it – nothing is ever lost on the Internet… we have it all. Here’s the main gist from page 4 of 5:

    “One consequence of widespread borrower forbearance on a national scale, however, is the severe liquidity shortage that will befall the housing finance system. This liquidity shortage will most acutely affect mortgage servicers, who are contractually bound to continue to advance monthly payments to investors, insurers, and taxing authorities, regardless of whether the borrower actually made those payments. This advancing requirement can stretch from a few months for loans backing MBS guaranteed by the GSEs to many months – or potentially over a year – for loans backing MBS guaranteed by Ginnie Mae.
    Mortgage servicers maintain liquid reserves to cover these advances when borrowers miss their payments, but virtually no servicer, regardless of its business model or size, will be able to make sustained advances during a large-scale pandemic when a significant portion of borrowers could cease making their payments for an extended period of time. While a mortgage servicer might have some additional flexibility for loans held on its balance sheet, advancing is required for loans that back Fannie Mae, Freddie Mac, or Ginnie Mae MBS – which constitute over 60 percent of the mortgage market. In these instances, investors are guaranteed monthly payments, and while servicers are eventually reimbursed by the guarantor for advancing these payments, there is a timing mismatch.”

    BOTTOM-LINE: The Servicers are “contractually bound” to continue to advance payments to investors…and while the servicers are eventually reimbursed by the guarantor (GSE) for advancing these payments…”
    How can anybody be in default?

  2. Tis is kinda funny.

    “And there would have been competition to offer higher incentives to homeowners to execute these weapons of mass financial destruction”.

    Yeap, banks want homebuyers to be volunteer kamikazes (Japanese suicidal bombers) instead of paying them any money for all the risks.

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