Foreclosure Defense: The problem with explaining securitization

Winston Chuchill was fond of saying that we should walk our dog three times per day regardless of whether or not we had a dog. Some readers will remember that pursuant to that sage advice there appeared leashes in the marketplace that were rigid so as to simulate the appearance of walking an invisible dog. The dog though was not invisible. It obviously did not exist.
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The problem with explaining securitization of debt to anyone who does not already know how to do it, is that there is a serious risk of putting the listener Into a coma.
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And when you get around to the mythological securitization of mortgage debt, it only gets worse.
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At the moment, I have arrived at a possible analogy that might help some people. If you think about securitization as an animal that dies in the woods, you can probably understand at least some of what happens to the animal.
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Every bit of that animal is consumed by other animals and insects and by chemical reaction to its environment which produces further byproducts. The ecosystem makes various parts and attributes of the dead animal carcass attractive in different ways to different animals, insects, and chemical processes.
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In the process that is labeled “securitization of debt”, there is always someone out there who is referring to the animal as though it was alive and intact. They make money saying that the animal is alive and intact even though that is not true. But as long as people pay them to say it, they will keep saying it — regardless of whether or not the animal ever existed. It makes no difference to them, as long as they’re paid their speaking fee.
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In foreclosures, the people misrepresenting the status of the animal consist mostly of lawyers and companies that are masquerading as “servicers”. The servicers are pretending to feed the animal and producing various reports in court to prove that they are feeding the animal even though it has been dead for years or even nonexistent.
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But to the animals and insects that consumed the carcass, they make no bones about the fact that it is consumed; and they are perfectly willing to say that in every venue except foreclosure procedures, where they report implying that the animal is alive and well.
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It is in foreclosure procedures that you find piles of fabricated documents that appear to be facially valid because they have printing on the paper. Besides the ink and the paper, these “documents” are completely worthless. They do not memorialize any transaction that ever happened in the real world. Therefore they are for legal purposes a legal nullity. Yet in court, they are presumed valid.
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For any homeowner that wants to challenge the administration, collection, or enforcement of any alleged underlying obligation (the carcass), they need to attack the secondary corroborative evidence of the existence of the animal not as carcass but as a living breathing animal. And as we all know there is no secondary evidence that would corroborate the existence of the animal because it is — if you get to it soon enough — just a decayed carcass. If you wait long enough it disappears completely.
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Or perhaps there never was any animal. That would mean that all the paper that had ink on them describing the animal was just telling a story for profit. Explaining any of that to a judge is virtually impossible even for someone who knows what he or she is talking about.
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But there are ample procedures that may be used in court to force the claimant to either produce the animal or give up their claim. And that is what foreclosure defense is all about. It is not about proving a point or proving the evil intent and practices of others. It is about forcing them to give up their claim.
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Neil F Garfield, MBA, JD, 74, 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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5 Responses

  1. DON’T open my link — got bad things. It was just an image – from Beverly Hillbillies — saying “You stupid idiot” – meant for that professor. DON’T OPEN. Sorry.

  2. And, I am sorry Legi— I watched your video. To that professor — he does not account for his son’s income on any accounting balance sheet. Says right up front – originator owns the asset. What does he think he originated his sons – so that counts for his mental accounting for their income? He is talking about something else – venture capitalism — I know BIG people in this business. They take a share of business after they invest in them. Sort of like “Loan Shark.” It is NOT securitization. Originators owned nothing in financial crisis. I am surprised you posted this one. Not disputing your input — good input. But to that professor (and not to you):
    https://vlipsy.com/vlip/the-beverly-hillbillies-what-a-stupid-idiot-mFfu7Oj2

  3. Securitization is a simple process. It is the removable of on-balance asset receivables to off-balance sheet conduit. If the loan defaults – it is taken back onto balance sheet. The problem with the crisis loans is that they were never on anyone’s balance sheet, and, therefore, could not be moved to off-balance sheet conduit. The process was bad to begin with. And, the government could not force anyone to take back the loans because there was no one to take them back. So, they disposed of the invalid securities instead. No one should have any assignment to a trustee to a trust. The trustee never held the asset, never held the note, never held the mortgage, and could not assign anything. Nor, can the trustee give authority to anyone to hold the note – because they never had it begin with.

  4. If you want to know how securitization actually works, learn from a professor who teaches a course on it; not the tripe posted on this blog and others:

    https://analystprep.com/study-notes/frm/part-2/credit-risk-measurement-and-management/an-introduction-to-securitization/

  5. Securitization has nothing to do with foreclosure:

    MORTGAGE BORROWERS ATTEMPTING TO CHALLENGE THE ASSIGNMENT OF THEIR MORTGAGES IN CONNECTION WITH THE SECURITIZATION OF THOSE MORTGAGES DO NOT HAVE ARTICLE III OR PRUDENTIAL STANDING TO BRING SUCH CLAIMS. See Rajamin v. Deutsche Bank Nat. Trust Co., 757 F.3d 79, 86 (2d Cir. 2014) (“We conclude that plaintiffs failed to allege injuries sufficient to show constitutional standing to pursue their claims. . . . Plaintiffs have advanced several theories for prudential standing. Each fails.”); RODENHURST V. BANK OF AM., 773 F. Supp. 2d 886, 899 (D. Haw. 2011) (“The overwhelming authority does not support a [claim] based upon improper securitization.”) “[S]ince the securitization merely creates a separate contract, distinct from plaintiffs’ debt obligations under the Note and does not change the relationship of the parties in any way, plaintiffs’ claims arising out of securitization fail.” LAMB V. MERS, INC., 2011 WL 5827813, *6 (W.D. Wash. 2011) (citing cases); BHATTI, 2011 WL 6300229, *5 (citing cases); IN RE VEAL, 450 B.R. at 912 (“[Plaintiffs] should not care who actually owns the Note-and it is thus irrelevant whether the Note has been fractionalized or securitized-so long as they do know who they should pay.”); HORVATH V. BANK OF NY, N.A., 641 F.3d 617, 626 n.4 (4th Cir. 2011) (securitization irrelevant to debt); COMMONWEALTH PROP. ADVOCATES, LLC V. MERS, 263 P.3d 397, 401-02 (Utah Ct. App. 2011) (securitization has no effect on debt); HENKELS V. J.P. MORGAN CHASE, 2011 WL 2357874, at *7 (D.Ariz. June 14, 2011) (denying the plaintiff’s claim for unauthorized securitization of his loan because he “cited no authority for the assertion that securitization has had any impact on [his] obligations under the loan, and district courts in Arizona have rejected similar arguments”); JOHNSON V. HOMECOMINGS FINANCIAL, 2011 WL 4373975, at *7 (S.D.Cal. Sep.20, 2011) (refusing to recognize the “discredited theory” that a deed of trust ” ‘split’ from the note through securitization, render[s] the note unenforceable”); FRAME V. CAL-W. RECONVEYANCE CORP., 2011 WL 3876012, *10 (D. Ariz. 2011) (granting motion to dismiss: “Plaintiff’s allegations of promissory note destruction and securitization are speculative and unsupported. Plaintiff has cited no authority for his assertions that securitization has any impact on his obligations under the loan”).”The Court also rejects Plaintiffs’ contention that securitization in general somehow gives rise to a cause of action – Plaintiffs point to no law or provision in the mortgage preventing this practice, and cite to no law indicating that securitization can be the basis of a cause of action. Indeed, courts have uniformly rejected the argument that securitization of a mortgage loan provides the mortgagor a cause of action.” See JOYNER V. BANK OF AM. HOME LOANS, No. 2:09-CV-2406-RCJ-RJJ, 2010 WL 2953969, at *2 (D. Nev. July 26, 2010) (rejecting breach of contract claim based on securitization of loan); HASKINS V. MOYNIHAN, No. CV-10-1000-PHX-GMS, 2010 WL 2691562, at *2 (D. Ariz. July 6, 2010) (rejecting claims based on securitization because plaintiffs could point to no law indicating that securitization of a mortgage is unlawful, and “[p]laintiffs fail to set forth facts suggesting that Defendants ever indicated that they would
    not bundle or sell the note in conjunction with the sale of mortgage-backed securities”); LARIVIERE V. BANK OF N.Y. AS TR., Civ. No. 9-515-P-S, 2010 WL 2399583, at *4 (D. Me. May 7, 2010) (“Many people in this country are dissatisfied and upset by [the securitization] process, but it does not mean that the [plaintiffs] have stated legally cognizable claims agains\ these defendants in their amended complaint.”); UPPERMAN V.DEUTSCHE BANK NAT’L TRUST CO., No. 01:10-cv-149, 2010 WL 1610414, at *3 (E.D. Va. Apr. 16, 2010) (rejecting claims because they are based on an “erroneous legal theory that the securitization of a mortgage loan renders a note and corresponding security interest unenforceable and unsecured”) POWELL V. WELLS FARGO HOME MORTG., No. 14- CV-04248-MEJ, 2017 WL 840346, at *8 (N.D. Cal. Mar. 3, 2017) (contention that defendant lacked authority to make assignments because the note and deed of trust were split during the securitization process is not a viable theory of recovery under California law); SILVAS V. GMAC MORTG., LLC, No. CV-09-265-PHX-GMS, 2009 WL 4573234, at *5 (D. Ariz. Dec. 1, 2009) (rejecting a claim that a lending institution breached a loan agreement by securitizing and cross-collateralizing a borrower’s loan).
    The overwhelming authority does not support a cause of action based upon improper securitization. Accordingly, the Court concludes that Plaintiffs cannot maintain a claim that “improper restrictions resulting from securitization leaves the note and mortgage unenforceable); SUMMERS V. PENNYMAC CORP. (N.D.Tex. 11-28-2012) (any securitization of Plaintiffs’ Note did not affect their obligations under the Note or PennyMac’s authority as mortgagee to enforce the Note and foreclose on the property if Plaintiffs defaulted).; NGUYEN V. JP MORGAN CHASE BANk (N.D.Cal. 10-17-2012) (“Numerous courts have recognized that a defendant bank does not lose its ability to enforce the terms of its deed of trust simply because the loan is assigned to a trust pool. In fact, ‘securitization merely creates a separate contract, distinct from [p]laintiffs[‘] debt obligations under
    the note and does not change the relationship of the parties in any way.
    Therefore, such an argument would fail as a matter of law”); VANDERHOOF V. DEUTSCHE BANK NAT’L TRUST (E.D. Mich., 2013) (internal citations omitted) (“s]ecuritization” does not impact the foreclosure. This Court has previously rejected an attempt to assert a claim based upon the securitization of a mortgage loan. Further, MERS acts as nominee for both the originating lender and its successors and assigns. Therefore, the mortgage and note are not split when the note is sold.”); CHAN TANG V. BANK OF AMERICA, N.A. (C.D. Cal., 2012) (internal citations omitted) (“Plaintiffs’ contention that the securitization of their mortgage somehow affects Defendants’ rights to foreclose is likewise meritless. Plaintiffs have identified no authority supporting their position that securitization voids the power of sale contained in a deed of trust. Other courts have dismissed similar arguments. Thus, the claim that Defendants lack the authority to foreclose because the Tangs’ mortgage was pooled into a security instrument is Dismissed With Prejudice.); MAYNARD V. WELLS FARGO BANK, N.A. (S.D.Cal., 2013) (“Plaintiffs also allege that they conducted a Securitization Audit of Plaintiffs’ chain of title and Wachovia’s PSA, and as a result, determined
    that Plaintiffs’ Note and DOT were not properly conveyed into the Wells
    Fargo Trust on or before July 29, 2004, the closing date listed in the Trust Agreement. (Id. at ¶ 34.)…To the extent Plaintiffs challenge the validity of the securitization of the Loan because Wells Fargo and U.S. Bank failed to comply with the terms of the PSA or the Trust Agreement, Plaintiffs are not investors of the Loan, nor are Plaintiffs parties to the PSA or Trust Agreement. Therefore, as many courts have already held, Plaintiffs lack standing to challenge the validity of the securitization of the Loan…Furthermore, although Plaintiffs contend they have standing to challenge the validity of the Assignment because they were parties to the DOT with the original lender (Wells Fargo), this argument also fails. (Doc. No. 49 at 11-12.); JENKINS V. JP MORGAN CHASE BANK, N.A., 216 Cal. App. 4th 497, 511-13, 156 Cal. Rptr. 3d 912 (Cal. Ct. App. 2013) (“[E]ven if any subsequent transfers of the promissory note were invalid, [the borrower] is not the victim of such invalid transfers because her obligations under the note remained unchanged.”). As stated above, these exact arguments have been dismissed by countless other courts in this circuit. Accordingly, Plaintiffs’ contentions that the Assignment is void due to a failure in the securitization process fails.”); TAYLOR V. CITIMORTGAGE, INC., 2:10-CV-505 TS, 2010 WL 4683881, at *3 (D. Utah Nov. 10, 2010) (“[T]he separate contract that is the result of securitization does not free Plaintiffs from the terms agreed upon in the Deeds of Trust.”); MCGOUGH V. WELLS FARGO BANK, N.A., No. C12-0050, 2012 WL 2277931, at *4 (N.D. Cal. June 18, 2012) (“Theories that securitization undermines the lender’s ability have been rejected by the courts.”); VASQUEZ V. U.S. BANK, N.A., 2015 WL 5158538, at *3-6 (N.D. Cal. Sept. 2, 2015) (collecting cases)( “[b]orrowers commonly attack a lender’s standing to foreclose by challenging irregularities in the securitization process” but “[s]uch challenges are almost universally dismissed.”); LIAL V. BANK OF AM. CORP., No. 2:10-CV-02121-GMN, 2011 WL 5239242 (D. Nev.Nov. 1, 2011)(“[a]n alleged securitization of a loan does not invalidate the
    Deed of Trust . . . or prevent Defendants from being holders in due
    course.”); RHODES V. JPMORGAN CHASE BANK, N.A., No. 12-80368-CIV, 2012 WL 5411062, at *4 (S.D. Fla. Nov. 6, 2012) (stating that the subsequent securitization of a note did not deprive the defendant of any legal interest in the promissory note); CHAN & PAO TANG V. BANK OF AM., N.A., No. SACV 11-2048, 2012 WL 960373, at *7 (C.D. Cal. Nov. 30, 2012) (dismissing pro se plaintiffs’ claim that the securitization of their mortgage affected defendants’ power to foreclose).

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