The Queer World of Foreclosures Coupled with Fake claims of Servicing

Hat tip to Miles on this first one.

A 2020 Sarasota, Florida Judgment illustrates the deep gaps between reality and fantasy in today’s world of foreclosure. This one is about a claimant (Plaintiff) named the “LSF11 Master Participation Trust” (more on that later) which is no more real than the infamous LSF9 Master Participation Trust.

The decision was a final judgment in favor of a homeowner who had never missed a scheduled payment. It is not the first of its kind. I tried a similar case. But once tasked with pursuing foreclosure, the law firm continued without ever performing any due diligence as to whether there was even a theoretical claim. They just didn’t care.

The law firm did not care because they were being paid to obtain foreclosure judgments and forced sale of poverty regardless of the facts or the law. In that sense, they were exactly in the same position as the named “servicer” (Nationwide).

A lot could be said about the decision but I am focusing on two major aspects. For those who want to look it up, it is “U.S. Bank, as Trustee for the LSF11 Master Participation Trust v. Cheri Melchione, Case No. 2011 CA 5724 NC in the 12th Circuit Court in and for Sarasota County, Florida.”

The most important feature of this decision is the recitation by the judge who entered the final judgment. The Judge took considerable care in showing that the “payment “history” was at best highly suspect. The witness from the supposed “servicer” could not explain many things, first among them why payment entries had been reversed.

If the “Payment History” was a proper statement of account, the reason for any entry would be easily apparent even if it was coded. You would only need a witness to decipher the code. It was the inability of the robo witness or the lawyer to explain the lack of foundation for the Payment History to cause the Judge to enter judgment for the Homeowner.

So this case is another illustration of how companies can be named as “servicers” but are not permitted to perform any servicing duties as would normally expect, to wit: receipt, processing, and disbursement of payments. Nationwide could not explain the entries because they had no part in creating those entries nor did they know who did.

It also illustrates how the Payment History is merely an unfounded printout of a report prepared for litigation by third parties. And it illustrates how the robo witness comes from a company with a stake in the outcome of litigation.

If they are not receiving, processing, and disbursing payments from homeowners then their remaining function is as nominee for enforcement with no direct or even indirect knowledge of any case.

In other words, the “servicer” falls into the same fictional category as MERS, the “Trustee” (who is never assigned any trust duties, obligations, or even powers), and “new” trustees on the deed of trust appointed by disinterested third parties seeking fees instead of restitution of an unpaid debt.

The judge, in this case, didn’t go so far as to issue a declaratory statement which is what brings up the second interesting feature.

The second interesting feature is the question of “what happens now?”

We have a final judgment in favor of the homeowner. What does that mean? Can the lawyers or nationwide continue to make false claims to administer, collect or enforce what is almost certainly a nonexistent debt?

PRACTICE NOTE: Here is what would have happened without a homeowner challenge. Judgment would have been entered for the named Plaintiff LSF11, on a debt that did not exist based on payments that were never missed or withheld. 

The next issue is something that Bill Paatalo brought to my attention. A decision in bankruptcy court in which the judge capped the amount of any “credit bid.” This decision might be mirrored in many more decisions because it makes so much sense.

The purpose of foreclosure property auctions is to create the largest possible pool of proceeds to be distributed to creditors. This both benefits creditors, because they get the most money possible and the property owner because it limits the deficiency judgment to what was actually a financial loss instead of a stated one that can say anything.

Apparently, in this one case, the bankruptcy judge held that the credit bid could not exceed an amount higher than the highest fair market value.

Anything else would result in other credits getting less money, more liability for the “borrower” and a mockery of the auction process since the bid from a judgment holder would always greatly exceed the amount said to be due. This eliminates competitive bidding from third parties. The later liquidation of the property is never subject to scrutiny.

Additional research needs to be done on this topic. But anyone in bankruptcy would be wise to check it out. If the credit bid can be capped, then the options are enlarged as to how to retain control or at least limit liability. Of course, these options are most available in Chapter 11, but they might also be available in Chapter 13, or even Chapter 7.

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Neil F Garfield, MBA, JD, 75, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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FORECLOSURE DEFENSE IS NOT SIMPLE. THERE IS NO GUARANTEE OF A FAVORABLE RESULT. THE FORECLOSURE MILLS WILL DO EVERYTHING POSSIBLE TO WEAR YOU DOWN AND UNDERMINE YOUR CONFIDENCE. ALL EVIDENCE SHOWS THAT NO MEANINGFUL SETTLEMENT OCCURS UNTIL THE 11TH HOUR OF LITIGATION.

But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 12 years or more. In addition, although currently rare, it can also result in your homestead being free and clear of any mortgage lien that you contested. (No Guarantee).

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If you wish to retain me as a legal consultant please write to me at neilfgarfield@hotmail.com.

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