“It Must Be a Loan”: Don’t Pretend You Read and Understand the Documents

“Because corporations and their lawyers know most consumers don’t have the time or wherewithal to study their new terms, which can stretch to 20,000 words — about the length of Shakespeare’s “Julius Caesar” — they stuff them with opaque provisions and lengthy legalistic explanations meant to confuse or obfuscate. Understanding a typical company’s terms, according to one study, requires 14 years of education, which is beyond the level most Americans attain.” NY Times Editorial

Most homeowners sign documents at closing (or modification) because they believe their intentions are properly presented in those documents. They are wrong and they don’t like admitting that. We have accepted a world in which lay people are told that lawyers revewing contracts are pointless. And even where lawyers are employed, they rarely possess the skill set necessary to understand what is really happening. Everyone sees the deal through filters that require the reader to think of the deal as a loan — without any critical thinking or knowledge. — Neil F Garfield, April 6, 2006

Anyone who thinks that stockbrokers have an interest other than a profit from the sale of securities does not understand centuries of marketplace transactions, laws, rules, customs, and practices. Banks make loans. Private lenders make loans. Brokers don’t; by definition, they are supposed to be intermediaries. Periodically these brokers on Wall Street have tried to pull the wool over the eyes of regulators and investors so that they still appear to be intermediaries when in fact they are the only principal. The result has always been, without exception, catastrophic for everyone except the brokers who use a common theme: “You can’t punish us with producing apocalyptic results for finance, and your society.” As a society, we are still buying into that threat. It isn’t true and never was true. And so it goes.

The Times’ editorial points out that tech companies are using and abusing “shrink-wrapped” agreements and policies that the consumer must click “Agree” in order to gain access — often to their own information. This is not a new concept. I remember when I was on Wall Street and we were drafting prospectuses and agreements for Initial Public Offerings, one of our guiding principles was to bury anything negative under an avalanche of words. And because nobody wants to admit they did anything stupid or foolish, investors tend to think and insist they knew what they were doing. And that is why those of us who are insiders in securities brokerage privately refer to the New York Stock Exchange as the world’s largest dry-cleaning establishment.

[Hat Tip to Bill Paatalo] And that is the essence of successful con jobs. As a lawyer, I have represented some highly successful con men. And they all told me the same thing. the con only works if the “mark” (i.e., sucker) adopts it as their own. People con themselves. Take Charles C Parker for example:

George C. Parker (March 16, 1860[1] – 1936) was an American con man and prophet best known for his surprisingly successful attempts to “sell” the Brooklyn Bridge…Parker used various names as a con man, including James J. O’Brien, Warden Kennedy, Mr. Roberts and Mr. Taylor.[4]

In addition to his Brooklyn Bridge scam, other public landmarks he incorporated into his scams included the original Madison Square Garden, the Metropolitan Museum of ArtGrant’s Tomb and the Statue of Liberty.[5] Parker had multiple methods for making his sales. When he sold Grant’s Tomb, he would often pose as the general’s grandson, and he set up a fake office to handle his real estate swindles. He produced convincing forged documents as evidence to suggest that he was the legal owner of whatever property he was selling. He also sold several successful shows and plays, of which he had no legal ownership.[2] 

Like the mortgage meltdown (which continues through the writing of this article), in many (but not all) cases, Parker targeted people fresh off the boat who understood little English or American Culture. So they relied upon what he told them and then they imagined the rest. Some people were forced off the Brooklyn Bridge when they started erecting toll booths, as the new owners.

In every con job the paperwork generally has the look and feel of real documents and says, in the beginning, what you expect it to say. So people who do not have 12 weeks to parse thought the language of everything said and not said, simply assume the rest. They are conning themselves. And the perpetrators will often point to the content of what was signed by the layman as providing that the very thing that punished the consumer was disclosed in some fine print wording buried deep within all of the documents that were signed. And I can tell you from personal experience that the art of writing such documents on Wall Street relies heavily on implying something without saying it.

For example, a loan in 1980 would always refer to the loan and would recite that the Lender was Lender who was giving a loan of money to the borrower who was a borrower, receipt of which loan was acknowledged. That is and was the basic language for any loan for centuries — until around 1998. That is when the reference to a loan was dropped and the documents signed by the homeowners started to change —merely referred to the execution of a note and the execution and recording of a mortgage. The loan was implied because what else could it be? The success of this sleight of hand is well-known. Trillions of dollars poured through the hands of securities brokers who prospered during the worst crash since the Great Depression — plus receiving trillions of dollars in “bailouts” and “bond purchases.” Everything else was reduced to rubble.

But consumers and their lawyers have still failed to appreciate the significance of this paradigm shift. Under the new framework, any payment could be dressed up as a loan and therefore a legal demand for its return would be legal, proper, ethical, and moral because it was a loan.

The way this works to the extreme disadvantage of homeowners as consumers and the extreme advantage of Wall Street “banks” is this: First the con (hook): “We are lenders and you’re making applications for a loan. Therefore any transaction we do is a loan.” Then the consequences in which “We never said that we were giving you a loan. We only said we would call it that.” And the “borrower” is left without any responsible party being a lender, no loan account receivable, no creditor, no compliance with lending laws, and that means there is nobody with authority to do anything about your loan like administration, collection, modification, or enforcement. Is that a loan?

Let’s go back to the beginning. The expectation of the homeowner was that he/she was a borrower in a loan transaction. He/she thought that the application for a loan was submitted to a lender and was underwritten by someone with a risk of loss — i.e. a stake in the success of the transaction as a loan. He/she had a reasonable belief that as a loan transaction the party receiving the loan application and the party underwriting the transaction were both governed by Federal and State lending laws. As such, the responsibility for the viability of the loan, accuracy of the loan appraisal, and risk of loss was squarely on the “lender.”

Wall Street banks did what they do — the separated out functions so that only the part that looked like a loan was shown to the homeowner. For the most part, applications for loans were submitted through intermediaries who presented themselves as loan brokers and sometimes misrepresented themselves as lenders (simply because they had a license to act as a lender). In some cases, the parties accepting the applications did not legally exist. They were just names — but that did not matter to Wall Street brokers because they were not really making loans.

The underwriters were aggregators of data providing a service (e.g. Countrywide)— i.e. laundering data to make it look like a pool of loans was being created for “tranches” (layers) of fictitious entities. This service was provided to the brokers through entities totally under the control of the brokers  — for purposes of their real business — selling securities to investors. (Does anyone really think that Wall Street banks ever had any interest in lending money?)

The “aggregators” arranged the data in reports that gave information on thousands of transactions. They never said they were loans and they never said they owned them. But that is what everyone assumes. We are conning ourselves because we can’t imagine what else it could be.

The Wall Street stock brokerage firm calling itself an “investment bank” borrows $1 Billion on short-term credit for example using expected sales of securities as collateral. The broker then sells the securities to investors and repays the loans. In the interim, the money from the loan is used to fund, on average, around $700 million in transactions with homeowners.

The other $300 million is concealed “trading profit”. These fictitious profits occur when the broker shows a sale (only on its own books) of $700 million face value of notes for $1 billion. That false “sale” occurs between a “depositor” who does not own the debt, note, or security agreement and a “trust” that legally does not exist because it has nothing in trust that was entrusted to the named “trustee”. the “trustee” has no right, title or interest in the transactions, nor any right or obligation to seek or receive any information about the nonexistent contents of the”trust” or any activities undertaken in the name of the “trust.” (In other words, it is not a trustee).

All entities are owned or controlled 100% by the broker. This is the holy grail of investment banking. Selling securities without being required to turn the proceeds of the sale (money) over to any issuing entity because in substance the issuing entity is the broker. The extra $300 million trading profit is usually performed in a transaction that is both offshore and off-balance sheet so there is no report of it — until the broker wants to show an increase in profits to bolster the apparent value of its own common stock trading in the marketplace. Recent reports from the big “banks” that are in reality failing, indicate significant “trading profits” that are simply repatriating the money they stole from investors.

Investors were never told all of their money would be used for the origination or acquisition of loans. They just assumed it despite concealed language in the prospectus that did not quite promise anything other than a potential, discretionary revenue stream from the broker that was often disclosed as unsecured and expressly unrelated to any obligation owed by any homeowner. Investors made this assumption because after all the brokerage firm was a broker, not a principal. They were conning themselves. Investors were NOT beneficiaries of any trust, real or imagined but they thought they were because they assumed they were.

It was later when investors (e.g. pension funds) discovered that the broker had no interest in underwriting loans, no interest or intent of having a risk of loss or no intent for complying with any lending statutes, rules, or even custom and practice in the lending industry; investors were rudely awakened to the fact that they had no legal interest in enforcing anything against anyone. They had, as in every con, conned themselves with an assist from the con men — Wall Street brokers.

Investors were left with a “Security” that was virtually worthless because it was discretionary, unsecured, and based upon reports that the payor (broker) could issue in its sole discretion. But if they admitted all of that, they would be required to show the loss of value of the “certificates” (securities) that they had purchased which would result in devaluing the entire pension fund, which in turn would probably lead to dismissal of the fund manager.

So they sued the depositors or “sellers” for bad underwriting even though there was virtually no underwriting involved. The more savvy investors with more savvy lawyers received larger settlements without ever saying the whole thing as a scam — because they were being paid to keep silent about the true nature of this scheme. The smaller, more unsophisticated investors with lawyers who were not well versed in investment banking and securities brokerage received as little as 20-30 cents for each dollar they invested. That is what caused small banks to fail. They were trapped by the con. They too had been investors seeking a “higher return.”

The truth is that most pension funds are over-reporting the value of their assets. That means that at some time in the future, the ability to fulfill pension payments will be correspondingly reduced. Only by that time, it is highly likely that nobody will make the connection to “securitization debt” that never occurred. Even worse, the beneficiaries of pension funds and other stable managed funds still won’t realize that if they are faced with foreclosure, and they all away, they are not just giving up the largest investment of their life; they are also undermining the value of the fund that feeds them.

All of that leads to the question of what can homeowners do about this?

The answer is simple and reduced to three elements — existence, ownership, and authority. In the 1980 loan, the Lender had an entry on its ledger that was a reduction of cash to pay for the loan. In double-entry bookkeeping, this was followed by an increase in loan receivables by the exact same amount. And that is how the loan account receivable is created. It serves as the legal basis for asserting the existence of the loan and the account history for debits and credits throughout the life of the loan.

As some readers have divined from what I have written above (and elsewhere), no such account was ever created. If those ledger entries had been made, then the brokers would have actually securitized loans by selling off pieces of each loan to multiple investors. But that would have limited the brokers to selling the loans only once. If they sold loans more than once it would have been a fraudulent scheme bearing criminal accountability. So they didn’t sell them and that means they didn’t securitize homeowner transactions, which were not loans in the first place.

The brokers paid homeowners money. That much is generally true (although questionable in refis). But the brokers wanted no part of losing money if the homeowner failed or refused to make a scheduled payment. They had no risk of loss. They had no loan account. But by concealing the true nature of the business scheme — i.e. the creation, issuance, sale, and trading of securities — and using the homeowner’s knowledge against him/her, they convinced everyone that the execution of the promissory note was one exchange for the nonexistent loan. The securities were based upon the illusion of a loan transaction but certainly not the reality of a loan transaction.

Adding insult to injury then, the homeowner having played a crucial role in the illusion of a loan is then tricked into giving back the only reason why he/she entered the transaction in the first place— the receipt of money. In short, that is a return of the only consideration for involuntary participation in a securities scheme about which the homeowner knew absolutely nothing. Worse yet, the homeowner believed it was a loan and so agreed to pay “interest” and “fees” on top of returning the only consideration for the deal. This left the homeowner with negative consideration for the deal, plus concealed risks in the form of unmarketable loans, inflated appraisals, and the complete inability to reach anyone with ownership or authority of the transaction to work out arrangements that were necessary to correct the situation.

With no loan account that could be presented without committing perjury and fraud, the brokers hit upon the scheme of using still more intermediaries who were called servicers. The servicers did virtually nothing. All receipts are collected via third-party vendors who are completely controlled by the brokers. The servicers are hired to interface with homeowners, reassure them that their loan is under management, and present a “payment history” about which they know nothing because they never collected a dime from the homeowner.

Servicers are always thinly capitalized entities that can be thrown under the bus for accounting or servicing or collection irregularities. They hire employees or contract employees who know less than the servicer. these people are presented as “witnesses” in foreclosure proceedings. Such people are the only “witnesses” at trial in foreclosure cases. They’re not legally competent and travel along a very thin line between deception and perjury.

The payment history is actually printout from a data record prepared for enforcement only by third-party vendors who process payments from homeowners. Those payments are scheduled, but not due since they are paying off a loan account that does not exist. You will never find any payment history that purports to be the ledger of any creditor — i.e., the party who is named as claimant, beneficiary, or plaintiff in foreclosure. That is because no such ledger exists.

On some level, there are dozens of foreclosure defense lawyers who have realized that the documents used for foreclosure are all fabricated with false information. But only those who have persisted have either won the case or settled in extremely favorable terms to their clients as homeowners.

The time to correct this was 20 years ago when the Federal Reserve skipped regulation in the mistaken belief that market forces would make any needed corrections. Alan Greenspan who was head of the Fed has admitted that was a mistake. It is now up to homeowners and their attorneys to fight these foreclosures at every turn and win. This task will be made far easier if changes in the administration in Washington DC result in an acknowledgment of the obvious facts: the money paid to homeowners was not a loan. It was compensation for involuntary participation in a business scheme. Market forces dictated the amount of that payment. Brokers have no right to recover it.

As I have stated for a decade and a half, investors and homeowners are in the same boat. They should join forces and fight the same battle. the intention of both was a lending transaction. Neither one of them got what they intended. Current brokers and “servicers” should be forced out of the picture and regulators should stop pretending that REMICs exist or that the securities issued were unregulated mortgage-backed bonds or certificates. They were never mortgage-backed. There were no mortgage loans. Those mortgages secured a promissory note that was issued without the homeowner receiving consideration.

The only deal that was completed was the business scheme of creation, issuance, selling, and trading securities. Homeowners were already paid for that. Nobody was ever legally entitled to seek or receive payments that returned that compensation. If that compensation is too high, then let the brokers come to court and file a reformation action.



Nobody paid me to write this. I am self-funded, supported only by donations. My mission is to stop foreclosures and other collection efforts against homeowners and consumers without proof of loss. If you want to support this effort please click on this link and donate as much as you feel you can afford. 

Please Donate to Support Neil Garfield’s Efforts to Stop Foreclosure Fraud.


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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3 Responses

  1. Summer — I agree — As, I write, a foreclosure and new owners’ policy can only “fix” to an extent. Title is NOT cured. The defects remain. Marketable title is clear of defects that would prevent valid sale. Insurable title is when title will insure despite defects, but if anything happens to challenge, you are correct, the insurer will not defend as the current mortgage is excluded. And owners’ policy has many exceptions and exclusions. So, end result of a foreclosure purchase (or any purchase where there may have been some prior owner default) is – “Buyer Beware.” But imagine this situation — you purchase house without knowing there was any default by prior owner. That carries forward to you. Immediately, your loan is placed with default servicing – and you don’t know why. You don’t know how it got there, or how sold to who. Anyone who purchased a house, especially during and before crisis, with odd or quick terms, and then got a non-friendly debt collector servicer, is in this terrible position. And, you will not fix by either limiting to looking at your own “contract” in court, or by lack of consideration — because title is not clear and is ridden with defects that can never be “cured” because goes back. Any foreclosure against you will never show the true parties because you don’t have the full history. Your contract was fraudulent. And, there was no consideration, because it was only a transfer of default debt from one party to another. This hinders foreclosure victims in court. As I have said many times – you need to go back as far as you can. And, it is not just against “buyers” of foreclosed homes – it is against SELLERS of foreclosed homes — which would be the “bank” – not the owner.

  2. Re prior reply. Title is so messed up it cannot be cured until a foreclosure occurs and a new owners’ policy is issued.

    This is not correct since it was messed up during foreclosure even worse than it was from the beginning.

    It is NOT an insurable Title. Every Title Insurance policy has a provision that your mortgage with Bla-Bla Lender is excluded from Coverage.

    Opps, it turned to be not a loan and with a totally different party – not Bla-Bla company who was merely a wire transmission vehicle for Black Kight.

    Now it leaves Title Insurance company (most of which are owned by Fidelity aka owner of Black Knight ) in the boiling water.

    My friend recently lost his home in a totally fraudulent foreclosure where US Bank acted as Agent for HUD (no single judge asked which part of HUD US bank represents, I guess HUD at large; no question about agency relationship for MERS or US Bank with HUD; and no single defense lawyer asked the same question. )

    My friend went ProSe and for the first time invoked the issue that the actual parties behind the case are JP Morgan and Black Knight.

    But it was too late because Judge Lyle whom my friend asked to reverse his care refused to provide him services. She said she will not touch his case with a 9-feet pole.

    JP Morgan managed to extort the house and since they were unable to sell it quick, they demolished it and DONATED land to The Nature Conservatory.

    We contacted the Conservatory and demanded to return stolen property. My friend is preparing a law suit against them to demand return at least land which was stolen and illegally donated.

    We need more cases against BUYERS of foreclosures. When it will be mass movement, Big Banks will not be so willing to resell stolen properties

    In fact, they pass them to sham conduits like fake “debt buyers” who convert them into rents.

  3. Thanks for the Brooklyn Bridge story. I often use that and never knew the story — so point made. One college professor told me – read everything – footnotes and all — three times!!!! But we live in fast society (until pandemic), and no one has time to read. And even if they do – it is so complex they often don’t understand. So rely upon attorneys – who also don’t read. Deep within the financial crisis loan is massive title defects. These defects carry forward — and policies cannot be altered for anything AGREED UPON – it is called EXCEPTIONS. Repeating my previous comment here:

    Title is so messed up it cannot be cured until a foreclosure occurs and a new owners’ policy is issued. But even then, it is not cured. Title is very complex and there is a difference between insurable and marketable title. By purchase of foreclosed homes one will likely only get insurable title, but not marketable title. This is why foreclosures are set at discounts. Title insurers will simply not take the liability. There will be multiple exceptions to insurance. So – for purchasers of foreclosed homes – beware. These title issues are part of the problem that caused the crisis. What you think you got is not what you get. To cure title is an extremely complex process, and it is not cured by simply beating a foreclosure judgment. Further, any “deficiency” ever recorded will carry forward forever leaving any loan, even if a refinance or sale is achieved, in a chronic state of default with the ability to always manipulate escrow and payments – and charge fees. Will be forever beholden to a non-friendly debt collector servicer.

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