“Refinancing” Usually Means “No Financing” (except for money paid to homeowner)

The general point of law here is that no amount of paperwork will make a transaction real if there was no money paid. And no amount of arguing to the contrary is legally recognizable or acceptable — unless one simply presumes the transaction was real regardless of whether it happened or not.

The corollary is that the transaction documents need to be reformed if the consideration is less than what was reported. Without reformation, they cannot be enforced. Nobody can enforce a “loan” for more than they loaned.

The consideration is less than the amount reported on closing statements when the transaction is labeled as a “refinancing” transaction.

Many or most of the existing transactions floating out there in the marketplace are designated as “refinancing.” In most such cases, there is a common underlying investment bank, and thus there is no consideration paid to pay off the “prior lender.”

And that in turn is because the investment bank retained control of the transactions but not any attribute of ownership of any unpaid loan account receivable.

This happens when a company that has been designated as a lender is supposedly lending money to the homeowner in a  refinancing wherein the homeowner is “cashing out” on equity (a practice I don’t recommend, as it interrupts both retirement plans and transfer of intergenerational wealth).

The money that is reportedly paid to the “prior lender” is never paid because none is due. And the money paid to the homeowner from his/her equity is the only real cash that flows from the transaction.

In plain language, the homeowner is agreeing to pay back a “loan” that does not exist — i.e., the part devoted to paying off the prior nonexistent lender. In truth, of course, these cash payments that actually are paid to the homeowner are merely incentives to execute new paperwork that enables the investment bank to start a new securitization structure based upon the new paperwork for the old transction.

Homeowners get easily confused by these shenanigans. They make references to more than one loan. I need to know that I am working on the correct transaction – which of course, is not a loan.

So I generally ask for title searches that go back at least two (2) owners and maybe four (4). What I am looking for are the transaction documents for the origination of both transactions (or multiple transactions). Some properties are “Refinanced” multiple times. The issue gets increasingly sophisticated for Wall Street because they are steering would-be borrowers in the direction of companies that serve as sham conduits to “feeders” or fronts for a common investment bank.
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Because of leverage options and multiple “refinancings”, I have analyzed cases in which more than $5 million in revenue was generated from a single $100,000 mortgage. Nobody wants to believe that they were hoodwinked on such an epic level. But then nobody wanted to believe a crash was coming in the timing and order that I predicted in September 2008 in first my public CLE lecture.
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The reason is simple:  and most cases, the homeowner is sold a financial product under false pretenses. One of those pretenses is the existence of a transaction that could legally be called “refinancing.”
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But if both transactions were under the control of a common investment bank (something I am fairly certain is true in most cases), then the plot thickens.
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If that is the case, there would be no payment to the prior “lender.” And that would mean there was no consideration for your execution of the “refinancing” documents. If you received money due to the “closing” of the refinancing transaction, that would’ve been the only consideration paid in connection with the “new” (“refinanced”) transaction. But you signed a note for much more than that, didn’t you? 
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 In such cases, the homeowner is merely cooperating with a Ponzi scheme. The transaction that is labeled as “refinancing” is merely an excuse for issuing a new series of unregulated securities. In effect, this multiplies the exorbitant revenues and profits earned by the investment bank by a factor of two. You might think of it as selling your transaction twice and still coming after you for a nonexistent “balance.” But it is more complex than that. 
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They have already received cash flow geometrically larger than any “balance due,” starting with the original transaction
falsely labeled as a “Mortgage Loan.”
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My general estimate is that they generate approximately 12 times the amount of the nominal transaction with the homeowner by the time the transaction cycle is complete. In the event of one additional transaction that is labeled as a “refinancing,” that figure becomes 24 times the amount of the nominal transaction.  
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The multiple of 12 is merely a heuristic (rule of thumb) number. I developed it after carefully analyzing the securities and financial statements of the actors in securitization. I am licensed, trained, and experienced in performing that type of analysis since 1968. The multiple of 12 is corroborated by the multiple used in calculating the size of the shadow banking market compared to the real amount of money or currency legally recognized in the world. 
[It is hard to remember that in 1983, the size of the “shadow banking market” was not $1.4  quadrillion dollars. By all accounts, it was zero. The estimates of the real currency in the world vary but are generally around $100 trillion, give or take 10%-15%. So the “shadow banking market has “nominal values” equal to more than 12x fiat money (i.e., all the money in the world)]
 
In any individual case, the true number for the multiple could be as low as 6 and as high as 40.  This might help you understand why it was only the top-tier investment banks that did not fail in the 2008 great recession. Only a handful of the top players survived not only without a loss, with huge gains – such as the Goldman Sachs bonus of $40 billion procured after the bailout of AIG.
 
 So when people retain us to perform a case analysis — preliminary or in depth — this is why I want the closing documents from both transactions — or more. I want to see if any references on the documents themselves could point me toward a common underlying investment banker. And this, in turn, is best done by an experienced private investigator with experience in such matters, like Bill Paatalo.
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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 COMMENTS ON THIS BLOG AND ELSEWHERE ARE BASED ON THE ABILITY OF A HOMEOWNER TO WIN THE CASE NOT MERELY SETTLE IT. OTHER LAWYERS HAVE STRATEGIES DIRECTED AT SETTLEMENT OR MODIFICATION. 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).

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

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One Response

  1. Don’t think you will find a common investment bank. Often multiple in private transactions. Must separate between private and GSE securitizations. There are no private securitizations today. They simply cannot meet Regulation AB.

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