Tax Free Scheme Robs Homeowners and Investors — Trillions Owed to IRS and State Tax Authorities

Hat tip to Summer Chic

There are many ways this fraudulent conduct can be stopped or modified. One of them is for taxing authorities to take notice that most of the money generated from the scheme was never reported as income resulting in astronomical underpyments of income tax, transfer taxes, recording fees, etc. Sales of securities were dressed up as IPOs resulting in reports of minor fee income to “underwriters” (i.e., securities brokerage firms calling themselves “investment banks.”).

I would point out that in 2008 I was lead consultant to the Arizona legislature on balancing their budget by levying on the so-called mortgages for unpaid taxes and providing substantial relief to homeowners. The committees and the executive branch accepted the plan and only disagreed with me as to the amount of relief that they could get. I said $10 Billion, but they computed it as “only” $3 Billion.  Poltics intervened at the last minute pressure from banks) and the plan was never enacted.

The “underwriters” were in fact issuers who sold “certificates” under the name of a trustee and trust which had nothing in it. The certificates were IOUs from the investment bank. That is not a taxable event. It’s just borrowing money. But the money does not get repaid to investors in full. And the sale of hedge products and derivatives is also not reported as income — because the investment banks lie about the transactions (all of them).

The money from investors was far more than the money paid to homeowners. The difference (which I have called a tier 2 yield spread premium) was parked in off shore accounts and then  repatriated as needed, with the banks reporting “trading profits” as the unowned “portfolios” were “sold” to the nonexistent trusts in nonexistent transctions. This is what enables them to report higher earnings per sahre as needed to support their stock price. But the rest of the money is never taxed and the ROI on those funds or investments offshore is never reported.

Add to that the unpaid transfer and recording taxes each time the “mortgage” was suppoosedly transferred for purposes of initiating foreclosures plus any income tax due ins tates that have income taxes, and you have a tidy sum due to each state and the federal government. Instead the IRS and other taxing authroities have so far looked the other way thus granting trillions of dollars in corpoate welfare to the banks while the rest of the economy (and government budgets) suffers. The capture of all unpaid tax revenue fromt the banks would in most cases completely balance the budget of every government authority and then some (surplus).

Then you have the foreclosures which are strictly unreported revenue. And you have homeowners making scheduled payments that are probably not due to anyone. That is also unreported income because the proceeds of such collection activity do not result in any reduction of any loan account receivable because there is no loan account receivable and there is no loss from any homeowner failing or refusing to make a scheduled payment. There is no loss becasue hte proceeds form the falsely reported “securitization” scheme has resulted in windfall profits, commissions, bonuses and other compensation to the securitization players and the foreclosure players. They all get paid all of the time — even the investors.

So the banks write off the payments to investors as an expense and they might even be writing off the payments made to homeowners as an expense resulting in a negative tax on the entire venture. Homeowners think they are getting a loan but in fact theya re getting a comission or license fee.

A very sizable (largest in world history) lawsuit is in the making here although I cannot guarantee it will happen. It is out for review at several large litigation firms.
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Defendants are all of the largest banks including investment banks (Stockbrokers) who were chartered as commercial depository institutions over a weekend during the 2008 crisis. Damages are in excess of $5 trillion. This includes foreign banks who are directly doing business here under one guise or another or through a legally established subsidiary or affiliate company.
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The premise is that they induced homeowners and prospective homeowners to accept money as part of what was presented as a loan agreement — one which ended with no lender, no loan account receivable on the ledger of any company, no risk of loss, and no compliance with lending statutes. In short, homeowners were seeking a loan and they were instead drafted into a concealed business scheme. And the money they were paid for their participation was subject to payback plus interest leaving them with (a) no or even negative consideration for their participation in the scheme and (b) an array of risks that were unknown to them and which caused an unrecognized loss as soon as they signed the paperwork for their “loan.”
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The business scheme was the issuance of securities which the banks called “securitization” although they never quite said they were securitizing the loans. That was implied because if they had said it they would have been lying. But some of them did anyway. In fact, no residential loan or the underlying obligation was ever sold to anyone who paid value in exchange for a conveyance of ownership. Foreclosures were expected and the banks were counting on it. The foreclosures were for fun and profit because there was no risk of loss, no loss, and no basis for asserting a claim.
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The securities that were issued were considered as being NOT securities under the legislation that repealed Glass-Steagall. But they were securities and should’ve been regulated as such. Instead, the SEC and even securities lawyers failed to treat the issuance of the securities aka mortgage-backed certificates aka mortgagee backed bonds as securities. The issuance of those securities was in the form of certificates (digital mostly) issued by the banks under the name of a REMIC trust that neither a REMIC nor a trust. No attributes of ownership were ever conveyed to investors who bought the certificates.
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This has been fully litigated as between investors and the named trustee of the fictitious trust. The issuance of the certificates served only one purpose — revenue to the issuing investment bank (disguised as loans from investors for reporting purposes but then reported as a sale of loan portfolios to investors). And it was the continuing sale of the certificates that was the only incentive for investment banks to make the discretionary payments that were offered to investors.
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All the certificates and all derivatives thereon were solely bets or hedges. Their perceived value was based solely on the discretionary reporting by the bookrunner investment bank which referred to data points on putative “loans” they did not own — but which they acted as though they did own the underlying obligation. The truth is that the investment bank never entered the funding of the homeowner transactions as a loan receivable on any accounting ledger and eliminated the entry altogether by the end of the “securitization” cycle (30 days). By not conveying the underlying obligation, the note, or the mortgage for payment of value, they are not selling any loans. Therefore selling securities could not be construed as selling the same asset over and over again.
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This allowed them to sell certificates, hedges, and derivatives on an infinite basis that resulted in sucking trillions of dollars out of the U.S, economy demonstrated by admitted investor losses and obvious homeowner losses. Most of that money was laundered through questionable tax havens like Bermuda which asserted tax jurisdiction and at the same time deferred any taxation on the hundreds of billions of dollars that was sent through their banks to offshore accounts in faraway places.
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Many investors have already sued and received settlements on condition that they do not challenge the issuance of the certificates as being fraudulent — even though they had AAA ratings from the rating agencies and apparently had insurance contracts on the certificates (but payable to the investment bank, not the investor). The investment banks had an incentive to make sure a high percentage of homeowners would refuse or fail to make scheduled payments in order to trigger insurance payments that each amounted to tens of billions of dollars (See AIG/Goldman Sachs -2008).
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I refer you to the TARP program. The regulators had no idea what the banks had done or were doing. So they started out proposing that TARP was to cover the obvious —defaults in home mortgages. But when it turned out that the banks did not own any of the mortgages or loans or underlying obligations, they changed the definition of TARP to be coverage for toxic mortgage-backed bonds. But that too failed because the certificates were not mortgage-backed, they were not bonds, and the banks were selling them, not buying them. In short, the banks had no loss. But the banks still wanted “relief” in the form of preserving the astronomical profits generated from sale of securities that were not shares of any asset.
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And of course, the banks wanted “relief” by cashing in on insurance contracts that resulted in insurance liability for payoffs on losses that only the banks knew were guaranteed to be reported even if they did not exist. The biggest gambit on that was Goldman Sachs receiving some $40 billion from AIG only after the U.S. government gave AIG the money to pay that out plus around $150 billion on other contracts.
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So they came up with the Maiden Lane entities that laundered the fictitious title to fictitious loans in such a way that it would support the myth that there were actual pools of loans owned by someone (they would never say who) thus supporting both the shadow banking infrastructure they had created and the pursuit of foreclosures which result in pure profit.
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For the most part (96%) homeowners believed from beginning to end that they had loan transactions and therefore allowed the foreclosures to proceed by default —creating the myth that most of the foreclosures were lawful, proper, ethical, etc. But all the documents used in foreclosures were fabricated, false, backdated, and robosigned because there was no loan. Intermediaries were hired by intermediaries to hire workers with no knowledge or authority to execute or stamp signatures onto documents that contained nothing but lies.
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I have directly and indirectly litigated thousands of cases to a successful conclusion for homeowners but the decisions were really based upon insufficiency of evidence that the loan account existed and that the named claimant owned the account and therefore had suffered any loss. These resulted in judgments of involuntary dismissal without prejudice because that is what state doctrine told the judges they must do even though they made findings of fact that the “trust” never could have owned the debt, note or mortgage.
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I think both investors (who have not already settled) and homeowners have solid claims that are easily proven through discovery. In thousands of cases, I have reviewed there is not one instance where the law firm representing the foreclosing party was able to produce proof payment of value for the underlying obligation — a condition precedent of 9-203 UCC adopted in all 50 states.
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This is not just about every homeowner. It is about a cancer on our economy and our society that is growing each day. Whatever hopes we have for economic recovery will be dashed in the rocks of foreclosure and eviction. There is an answer to this besides the apocalyptic threats issued by the investment banks. It is a fair equitable determination of the entirety of the transaction that homeowners were unknowingly lured into and a determination of who much they should have been paid for the immediate loss and risks of loss associated with doing business with a counterpart that was betting against him/her from the start.
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The first step is getting a court to recognize that there is no enforceable contract between the homeowner and anyone. Thus continuing attempts to foreclose for profit are unlawful and deserving of disgorgement, compensatory, and punitive damages. The second step is to have the court use its equitable powers to reform the total transaction (not just the visible one) using quantum meruit and quasi-contract theories. The “securitization infrastructure” can be preserved but only after the entire deal is disclosed and the homeowner is compensated for his/her role in launching the concealed business scheme.

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Neil F Garfield, MBA, JD, 73, is a Florida licensed trial and appellate 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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One Response

  1. This scheme not only robs homeowners and investors – this scheme is actively promoted by the Government even though States call themselves “bankrupt” and go to borrow money from Federal Reserve and raise property taxes on average people while let Big Banks to steal properties tax-free, and pass them without ANY transfer taxes.

    Chicago has probably highest tax rate in the Country and in last 20 years grew 116 % .

    All while all escrow money are pocketed by Big Banks as tax free revenue while property taxes are paid from investors’ money.

    In October 2019 Chicago had 679 REO reported (I think much more)

    If each property was about $100,000, then transfer tax must be $5.25 per $500, or $10.50 per $1,000.

    Thus, $100,000 house transfer tax for Jw Doe is $1050.00.

    Wall Street Banks transfer properties to fictitious entities for free.

    So, in October 2019 Chicago lost about $712, 950 in tax revenue due to Big Bank’s fraud. While Chicago has about $1.2 billion reported budget deficit.

    But don’t worry, this “bankrupt” city passed the burden on residents whose property taxes dramatically increased during pandemic

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