Glossary & Guidelines

The Foreclosure Glossary

Wall Street Turned This Home
for Borrowers and Investors in Securitized Investments in “Asset” backed obligations.

Into This Family Tragedy


LivingLies Donations, Products and Services


Asset Securitization Comptroller’s Handbook

























Here the “borrower” filled out an application and then changed their mind.
No Closing, No Note. Note Mortgage. And yet there was an assignment and a note attached.
Even those with limited understanding of securitization understand that this is demonstrative proof that they were selling the loans “forward” (as the industry puts it) signing an assignment, and attaching a note in blank, with the signature of the “borrower” forged by a bank employee.
WELLS FARGO obviously did not book the loan on its balance sheet or anywhere on its bookkeeping system or financial system, because then there would have been tracks.
They proceeded to harass the “borrower” and then file suit in foreclosure, thus clouding the title of the real person who bought the subject house and the real mortgage lender who financed the purchase that actually occurred.
Why are the notes gone? Because they have to be gone. If they show up, then the people involved go to jail. Whether the closing occurred or did not occur, in at least 40% of all loan closings 2001-2008, the notes were forged in this manner, the assignments were fraudulent, but the “lender” got paid in full PLUS a fee of 2.5%.


Money and Debt








See accumulated benefit obligation.



The typical ABS in the mortgage meltdown process was composed of multiple “levels” called tranches. They have a special name rather than “tier” or “level” because they serve more specialized and complex purposes, sometimes taking on the qualities of separate legal entities. The congressional bill signed into law concerning REMIC legalized this process allegedly to avoid double taxation. In fact, it paved the way for fraud, non-disclosure and wholesale manipulation of the housing market and eventually the national economy which had far-reaching effects on virtually all economic activity, finance, currency and confidence across the globe. Each tranche served as a basis for payment of the others in much the same way as a Ponzi scheme operates. This structure enabled the issuers of an ABS to claim that securities (bonds) backed by the upper level tranches, were less risky than the the tranches below, when in fact they had no more value than the any of the tranches, Using plausible deniability, free fishing trips, possibly bribes, and hardball negotiation (give us the securities rating we want or we won’t do business with you anymore) the issuers of an ABS were able to receive AAA ratings (cash equivalent) for what was in essence “junk bonds.” Unfortunately the rating agencies are paid exclusively by the issuers of securities and have no watchdog regulation of any value to prevent this scenario. Thus the practice continues to this day. The issuers of an ABS are called Special Purpose Vehicles. They are corporations, trusts or other business entities organized to hold a portfolio of “assets.” The assets are said to be the actual mortgages and original notes of the borrowers. In truth, it appears that the SPV possesses no record title to the assignment of the mortgage or other security instrument, and does not physically possess the original note signed by the borrower. The SPV has been assigned rights to security that are generally described but where the specific mortgages and notes go without mention. The SPV has been assigned rights to revenue from a variety of sources which probably includes your original ”loan” security transaction, and which is guaranteed by third parties and assured with credit default swaps from other SPVs and other parties. The actual original note is usually lost or intentionally destroyed because of the legal problems associated with splitting the obligation to pay or receive money attendant to the note from possession of the note itself. WHEN A PARTY POSTS A NOTICE OF SALE OR FILES A FORECLOSURE SUIT OR SENDS A DEMAND OR DEFAULT LETTER, THE HIGHEST PROBABILITY IS THAT WHOEVER TAKES SUCH ACTION IS COMMITTING FRAUD IN REPRESENTING ITSELF AS THE LENDER OR AS AN AUTHORIZED REPRESENTATIVE OF THE LENDER. THE PARTY IN MOST CASES IS A NOMINEE OR TRUSTEE, OR A MORTGAGE SERVICE PROVIDER, NONE OF WHOM HAVE ANY INTEREST, OWNERSHIP OR CONTROL OVER THE SECURITY INSTRUMENTS OR THE PROMISSORY NOTE EXECUTED AT THE LOAN SECURITY CLOSING. IN FACT, ANY TRUSTEE OR ATTORNEY IS PROBABLY COMMITTING FRAUD OR MALPRACTICE BY REPRESENTING OTHERWISE AND ANY EVICTION, SALE OR FORECLOSURE SO DONE IS SUBJECT TO BEING SET ASIDE AS A FRAUD UPON THE COURT. FURTHER, THE LENDER NAMED AT CLOSING IS MOST ASSUREDLY NOT THE LENDER ANY MORE HAVING ASSIGNED ITS RIGHTS TO THE SECURITY AND ASSIGNED ITS RIGHTS TO THE REVENUE TO A MORTGAGE AGGREGATOR WHO IN TURN M,ADE ASSIGNMENTS TO AN INVESTMENT BANKER WHO IN TURN MADE ASSIGNMENTS TO AN SPV WHO IN TURN MADE CONDITIONAL ASSIGNMENTS, ALONG WITH OTHER GUARANTEES AND ASSURANCES TO THE INVESTORS IN THE ABS INVESTMENTS ISSUED BY THE SPV. It is the editorial opinion and consensus here that Wall Street was too cute by half — they performed a magical act that was intended to put money in their pockets. But what they achieved was far more than that — they separated the security from the security instrument and the revenue from the note. The obligation to pay, having been merged with various other borrowers without disclosure to the borrower, and other third parties who were supposed to “make good” on the revenue flow makes it impossible to determine whether any particular borrower’s note, if it exists, is actually in default. All that can be presented is that the borrower did not make a payment to a party that is frankly not entitled to receive it. In fact, the revenue stream can be allocated to allege payment by virtue of the merger of revenue streams and the actual payment to the assignors in the assignment instruments. Further, the ultimate recipient of the revenue flow may in fact have been paid, at least as far as the obligation on the original promissory note executed at the real estate closing. Thus the obligation becomes both contingent and unsecured and therefore dischargeable in bankruptcy, and NOT susceptible to lifting the automatic stay that results from a bankruptcy filing.

(2) The name for a convention used to express the rate of prepayments for an asset-backed security. ABS expresses principal prepayments as a percentage of the original number of loans or contracts in the pool of securitized loans that created the security. ABS is always expressed as a monthly rate. SEE QUIET TITLE


A term used by real estate lenders and developers to describe the process of renting up newly built or renovated office space or apartments. The term “absorption period” is often used to describe the period of time necessary for absorption.

abstract of title —see MISSING ASSIGNMENT

A written report summarizing the history of title transactions and conditions of title that affect a given piece of land covering the period from the present back to a date in the past. A comprehensive, but cumbersome, and somewhat obsolete, method of verifying the ownership and encumbrances of a parcel, or parcels, of real estate.

accelerated depreciation

A group of methods for achieving periodic reductions in the book value of fixed assets that make larger reductions in the early periods and progressively smaller reductions in later periods. The offsetting entry is the depreciation expense.


Making demand for payment in full for a debt that has not yet matured. Usually a remedy provided in a loan document for the lender to use in the event of default by the borrower.

acceleration clause

A provision in a loan document stating that the entire amount of unpaid indebtedness owed to the lender may become immediately due and payable if the borrower defaults. A provision that allows the lender to demand the entire balance of the mortgage loan when the borrower fails to make some installment payments. THIS DEMAND SHOULD BE MET WITH A TILA AUDIT AND A REPORT, TOGETHER WITH YOUR DEMAND THAT THEY WITHDRAW THE ACCELERATION LETTER BASED UPON FRAUD, MISREPRESENTATION, DECEPTIVE LENDING, NON-DISCLOSURE ETC. The other thing about acceleration is whether the sender of the letter had any authority to do so. See CDO below. It is highly likely that the loan was assigned to a mortgage aggregator who sold a portfolio of perhaps a thousand loans to an investment banking house, that converted the portfolio into an entity that issued securities, and that the securities were wholesaled out to a seller of such securities and that the securities were sold to dozens, hundreds or even thousands of investors. THESE INVESTORS PROBABLY DID GET PAID BY THE ISSUER OF THE SECURITIES, THE INVESTMENT BANKER, OR SOME INSURANCE COMPANY (although they were probably not paid in full). The indenture to most of these securities provides that the issuer can use the proceeds of sale of the securities to pay interest and principal back to the investor. A classic Ponzi scheme but perhaps legal under our convoluted laws. Even if they were not paid, the entity that sent the acceleration letter probably did not perform due diligence to know for sure that the obligation had not been paid by some third party. Thus the acceleration letter can be challenged and should be challenged. So we have a situation where even if the actual borrower did not make the payments to mortgage servicing company, the actual owner(s) of the the mortgage and note did get paid at least in part. The acceleration letter probably states the amount the borrower allegedly didn’t paid but does not give credit for the amounts actually paid to the investor who purchased the security that was backed by this mortgage and note. This vicarious payment might be a credit to the advantage of the borrower. SEE QUIET TITLE. SEE TEMPORARY INJUNCTION.


A time draft that has been accepted for payment. Seebanker’s acceptance.


Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost. An example is a new motor in a piece of equipment.

accommodation maker

Name used to refer to a co-maker who agrees to sign a note to induce the lender to make a loan, but who receives no direct benefit from the loan.

account analysis

An analysis performed to determine the profitability of each demand account to the bank. The analysis may also be used to determine the profitability of a group of demand accounts with the same owner. Account analysis is normally performed by the bank, but can be done by anyone in the depositor’s organization provided sufficient information is available. The analysis identifies the net earnings based on the average daily ledger balance less reserved requirements and float. The net earnings can then be compared with the various activity service charges based on the volume of transactions and the per item price of the services.

account control agreement

An agreement perfecting a creditor’s interest in a securities account while allowing the securities to remain registered in the name of the owner. An account control agreement is used to establish a security interest conforming to the requirements set forth in the UCC.

account debtor

An individual or business that is obligated to pay on an account, chattel paper, contract right, or general intangible.

account reconciliation services

A cash management service. One or more of a series of bank services designed to aid a deposit customer in the reconciliation of its bank account balance. A basic account reconciliation service may simply be a listing of paid checks in serial number order. More advanced account reconciliation services combine electronic data provided by the customer with the bank’s records to reconcile completely the account and list all outstanding items. Many variations exist. Also called account recs, ARPs, or recons.


A category of personal property defined by Article 9 of the UCC. Under the pre-2000 version of Article 9, an account is a right to receive payment for goods sold or leased, or for services rendered, where these rights are not evidenced by an instrument or by chattel paper. Under the revised Article 9, the definition of accounts is much broader. The revised definition covers a much wider variety of payment obligations, whether or not earned by performance, including license fees payable for the use of software, credit card receivables, and healthcare insurance receivables.

accounts payable

A category of liabilities that represents funds due to creditors. Usually, accounts payable is due to trade creditors who have supplied goods or services without requiring immediate payment. Accounts payable is sometimes simply called payables. Accounts payable to trade creditors are sometimes called accounts payable trade, due to trade, or trade payables.

accounts receivable

An asset account that reflects amounts due from private persons or organizations for goods and services furnished. For corporations, accounts receivable excludes funds due from departments, but may include funds due from affiliates. For governments and nonprofit organizations using fund accounting, it does not include funds due from other funds owned by the same entity. A category of personal property defined by Article 9 of the UCC. Accounts receivable is the right to receive payment for goods sold or leased or for services rendered where those rights are not evidenced by an instrument or by chattel paper.

accounts receivable – trade

Also called trade receivables. Amounts due from the credit sales of goods or services that are not evidenced by promissory notes.

accreting swap

An interest rate swap with an increasing notional amount.


The process of making incremental, periodic increases in the book or carrying value of an asset. For example, when a bond is purchased at a price below 100, the difference between the purchase price and the par value, the discount, is accreted. Discounts are usually accreted in roughly equal amounts that completely eliminate the discount by the time that the bond has matured, or by the call date, if applicable.

accretion bond

See Z tranche.

accrual basis

See accrual convention.

accrual bond

(1) Bonds that pay the investor an above-market coupon rate as long as a reference rate is between preset levels established at the time the security is issued. A type of structured note. Also called range bonds. (2) A type of CMO security that does not pay holders periodic interest in cash. Instead, periodic interest for these bonds is accrued. It is added to the principal amount due to the holder at a later date. See Z tranche.

accrual convention

Method used by investors for counting the number of days in each month and in the year. Also called accrual basis or day basis. The accrual convention is expressed in different ways. An accrual basis of 30/360 indicates that every month is treated as if it was 30 days long and a year is assumed to have 360 days. Accrual basis of actual/360 indicates that each month is treated using its actual number of days while a year is assumed to have 360 days. Day basis of actual/actual indicates that the true number of days for each month and year are used. The accrual convention is used in the calculation of the amount of interest payable on bonds, loans, deposits, and other financial instruments on the interest payment dates. This convention is also used for the purpose of calculating accrued interest due from a buyer to a seller of a security sold between interest payment dates.

accrued interest

Interest that has been earned but not yet paid. For example, the interest earned by a bondholder between semiannual coupon payments or the interest earned by a lender since the last monthly interest payment was collected from the borrower. Accrued interest for investment securities is calculated from the issue date or the last payment date up to but not including the settlement date. When a buyer purchases a bond, the buyer owes the seller the accrued interest in addition to the market price of the security purchased.

accumulated benefit obligation (ABO)

The actuarial present value of the pension benefits earned to date. Measurement of the accumulated benefit obligation uses the historical compensation rates for pay-related benefit plans. The ABO must be disclosed in a footnote to the financial statements.

accumulated depreciation

The total of the periodic reductions for depreciation in fixed assets. Also called allowance for depreciation.


See capital appreciation bond.


See automated clearinghouse.

acid test ratio

Another name for the quick ratio.

active tranche see semantics-what-a-difference-a-word-makes-creditor-trustee



One of two types of real estate appraisal reviews. Administrative reviews focus primarily on the underwriting issues addressed in the appraisal. These reviews, usually performed by the loan officer, approach the appraisal from a loan underwriting point of view. Typical issues addressed in an administrative review include: How comparable are the comparable properties used in the appraisal? How reasonable are income and expense projections? Is the capitalization rate appropriate? See technical review. SEE APPRAISAL.

adjustable-rate mortgage (ARM)

A loan for which the interest rate (coupon rate) is adjusted periodically to reflect changes in a previously selected index rate. ARMs may have caps and floors that limit the annual and/or the lifetime change in the coupon rate.

adjusted duration

See option-adjusted duration.

adjusted trading

A practice used to sell securities without recognizing any or all of the true loss from that sale. To hide the loss, the investor agrees to overpay for a newly purchased security in exchange for the broker/dealer’s agreement to overpay for the security that the investor wants to sell. The broker/dealer incurs a loss by purchasing the investor’s underwater bond at an above-market price. At the same time, the broker/dealer offsets that loss by selling the investor a new bond at an above-market price. Thus the transactions are completely neutral from the broker/dealer’s perspective. However, from the investor’s perspective, the transactions effectively defer the recognition of losses on the security sold by establishing an excessively high book value for the security purchased. These transactions are specifically prohibited for federally insured financial institutions. They may also be illegal. Sometimes called fee trading.

administered rates

Interest rates that the bank or other payer is contractually permitted to change at any time and by any amount. For example, the rates paid on savings accounts. All interest rates can be categorized as either fixed, administered, or floating. Rates that may change at the payer’s discretion are sometimes called variable rates, easily confused with floating rates, which change at contractually specified times by contractually specified amounts – a very different arrangement.

administrative float

Float resulting from the time it takes to administratively process checks or other related paperwork. Total elapsed time for processing checks can range from less than a day to more than a week. Note that its basic elements are present whether the work is done by the owner of the funds or the work is done by a bank or other lockbox vendor. Sometimes referred to as payment processing float or internal float, but since some of the sources of the float delay are not necessarily internal, the term internal float is not a completely accurate synonym.

administrative review

One of two types of real estate appraisal reviews. Administrative reviews focus primarily on the underwriting issues addressed in the appraisal. These reviews, usually performed by the loan officer, approach the appraisal from a loan underwriting point of view. Typical issues addressed in an administrative review include: How comparable are the comparable properties used in the appraisal? How reasonable are income and expense projections? Is the capitalization rate appropriate? See technical review. WHILE THIS HAD BEEN NORMAL AND CUSTOMARY PROCEDURE IN THE LENDING INDUSTRY AND THEREFORE SET THE STANDARD OF PERFORMANCE FOR ANY LENDER, IT WAS SKIPPED DURING THE MORTGAGE MELTDOWN PERIOD OF 2001-2008 BECAUSE THE LENDER KNEW IT WAS SELLING OR ASSIGNING THE LOAN TO THIRD PARTIES AND THEREFORE DID CONSIDER THE RISK FACTORS OF THE LOAN BEFORE GRANTING IT. IT WAS HERE THAT THE TRADITIONAL RELATIONSHIP OF BORROWER AND LENDER, EACH HAVING A STAKE IN THE OUTCOME OF THE LOAN, WAS INTERRUPTED WITHOUT DISCLOSURE TO THE BORROWER WHICH IS A VIOLATION OF THE DISCLOSURE RULES UNDER TILA AND OTHER APPLICABLE STANDARDS.


See American depository receipt.

advance formula

A provision sometimes used in lines of credit as a sublimit on the maximum amount that can be borrowed. Typically, an advance formula limits the amount that can be borrowed under a line of credit to the lesser of the amount of the line or some percent of accounts receivable collateral.

Advanced Measurement Approaches (AMA)

One of three methods for quantifying capital required for operational risk under proposed Basel II capital rules. Banks using the Advanced Measurement Approaches must hold capital for operational risk based on a risk quantity generated by the bank’s internal measurement procedures. The most common internal methods are self-assessments. See also self-assessment, , basic indicator approach and operations risk.

advances see semantics-what-a-difference-a-word-makes-creditor-trustee

Funds received for goods or services prior to the delivery of the goods or services. Typically, the funds must be returned if the transaction is canceled or if the recipient of the advance fails to provide the goods or services. Seeprogress payments.

adverse opinion


AGENCY PROBLEM: see semantics-what-a-difference-a-word-makes-creditor-trustee

The problem that results when deposits and loans are left to channels that serve as brokers or “bird-dogs” to offer bank services. This “problem” was a tool of lenders and investment bankers to maintain plausible deniability as to representations made before or at the loan closing and to cover misrepresentations, failure to disclose parties, remuneration and terms on the good faith estimate, misrepresentations of borrower’s income, misrepresentation of underwriting standards showing borrower’s ability to pay, etc. “Agency Problem” is not a meritorious defense of the lender, the mortgage broker, the appraiser, the investment banker, the mortgage aggregator, the special purpose vehicle/entity or the sellers of asset backed securities.


A written statement, usually given while under oath or in the presence of a notary. THESE CAN BE CHALLENGED WHEN SUBMITTED AS PROOF OR AS INSTRUCTIONS REGARDING PAYMENTS ON THE MORTGAGE NOTE OR EVEN THE EXISTENCE OF THE MORTGAGE NOTE. YOU SHOULD ALWAYS DEMAND THE ORIGINAL NOTE AND MORTGAGE. IT PROBABLY EITHER DOESN’T EXIST OR HAS BEEN LOST. THE PERSON SIGNING THE AFFIDAVIT FROM THE LENDING INSTITUTION PROBABLY DIDN’T EVEN WORK THERE WHEN THE TRANSACTION WAS COMPLETED AND THEREFORE HAS NO PERSONAL KNOWLEDGE AND THEREFORE IS INCOMPETENT TO ATTEST THE TRUTH OF THE FACTS IN THE AFFIDAVIT. A TERM USED BY INSIDERS IN THE BANKING INDUSTRY TO DESCRIBE HOW HIDING THE ALLOCATION OF RISK INCREASES THE PROBABILITY OF DEFAULT. When loan originators (whether they are in act mortgage brokers or are perceived as “lenders” by the borrower because of lack of disclosure as required under TILA) have the perception that they are at no risk in on the loan, they have no stake in the outcome of the loan. The Agency problem is shorthand for describing what happens when the originator has no stake in a borrower’s continued solvency, to wit: all that is left is competing for fees, discontinuing industry standards like escrow accounts for taxes and insurance, scheming to increase the fees and hide them on the back end of loans, and inevitably degrade the average quality of all loans. The annual interest rate covering the interest and other costs. The Truth in Lending Act requires announcement of APR by lenders. FREQUENTLY COMPUTED INCORRECTLY LEADING TO TILA CLAIMS. A business organization that shares some aspect of common ownership or control with another business organization.


In the parsing of words to avoid liability for fraud,, non-disclosure, misrepresentations and the remedies of refunds, rebates, damages and rescission, the Defendants will resort to the “AGENCY PROBLEM” (see this Glossary). One of the ways to do that is to distance themselves from the key transactions which serve as book-ends of the SINGLE TRANSACTION that was fraudulent scheme that came to be known as the Mortgage Meltdown. One of the ways to distance themselves is to convince a Judge or Jury to consider all the other players as essentially unrelated to them. And one of the terms used to do this is to call their co-conspirators affiliates, if other terms have already been unsuccessful in the proceedings. The fact remained that every player in the line of the mortgage meltdown transaction knew (or should have known) exactly what was going on — inflated housing prices, inflated incomes, hidden terms (where the borrower would not qualify for the loan at the first reset in an adjustable rate mortgage), inflated and fraudulent securities ratings, misrepresentations of security (using the “revenue” of tranches of lower quality to make a tranche of “higher” quality look safer than it was, etc.) It was all part of the same transaction and everyone had to play their part in creating the appearance of legitimate transactions where there was only fraud, non-disclosure and an intent to intentionally mislead the bororwer/investor and the capital investor. You can use the term affiliate or co-conspirator interchangeably.

affinity card

A card that is offered jointly by two organizations. One is a credit card issuer and the other is a professional association, special interest group or other non-bank company. For example, Citibank and American Airlines sponsor the Citibank AAdvantage card.

affirmative covenant

A provision in the lender’s documents that requires the borrower to do something in the future. For example, a requirement for the borrower to provide annual audited financial statements to the bank during the term of the loan.

affordable growth rate

The maximum rate at which a firm’s sales can grow without straining the capacity of the firm’s capital or other financial resources. This term is closely associated with a formula of the same name.


Asset Forfeiture and Money Laundering Section, U.S. Department of Justice.


See available-for-sale.

after-acquired property clause

A provision in a bank’s documents, the purpose of which is to extend the bank’s interest in the debtor’s property to property not owned by the debtor at the time of the transaction but subsequently acquired by the debtor.


Informal name used to refer to securities issued by agencies of the United States government and by U.S. government sponsored enterprises.

agency fund

A fund normally used to account for assets held by a government as an agent for individuals, private organizations or other governments, and/or other funds. The agency fund also is used to report the assets and liabilities of Internal Revenue Code, Section 457, deferred compensation plans.


A report or schedule of all outstanding accounts payable or accounts receivable that lists all account debtors or creditors by name, shows the total amount due to each debtor, and shows how much of the amount due to each debtor is due within specific time periods.


An acronym for affordable housing program.


See American Institute of Certified Public Accountants.


Initials for “also known as”. A designation used to denote an alternative name for a person, business or organization.


See asset/liability management committee.


An acronym for allowance for loan and lease losses.

allonge see semantics-what-a-difference-a-word-makes-creditor-trustee

A paper attached to negotiable instruments for signatures when there isn’t enough room on the instruments themselves for the signatures.

allowance for depreciation

See accumulated depreciation.

allowance for doubtful accounts

A reserve for accounts receivable that may not be collectable. The allowance is always shown as a reduction from gross receivables used to calculate net receivables. An example of a contra-asset account.


Reductions to gross sales that occur when customers are given partial credit for sold goods that the buyer is not satisfied with. An accounting term usually used together with returns.


See asset/liability management.

alternative minimum tax (AMT)

A federal income tax applied to individuals and corporations that take advantage of tax benefits in amounts that are large relative to their incomes. Investors subject to AMT lose the benefits of the tax exemption for interest paid on otherwise tax-exempt securities.


See Advanced Measurement Approaches.

AMBAC: Insures payments on upper tranches of SPVs If someone is claiming default in payments, and the payments were made to the holder in due course by an insurer of those payments, then it is the insurer that might have a claim against the borrower but it is probably unsecured — and still subject to borrowers defenses and claims up to the amount that the insuror claims.


A revision to a document. A UCC financing statement can be amended by filing a designated amendment form, usually UCC-3.

American depository receipt (ADR)

Trust receipts equal to a specific number of shares of corporate stock issued in a foreign country. ADRs are sold and traded in the United States.

American Institute of Certified Public Accountants (AICPA)

The national association that represents certified public accountants in business and industry, public practice, government, and education.

American option or American-style option

An option that the holder can exercise any time prior to and including the expiration date. See European option,Bermuda option and Asian option.


(1) The process of making regular, periodic decreases in the book or carrying value of an asset. For example, when a bond is purchased at a price above 100, the difference between the purchase price and the par value, the premium, is amortized. Premiums are usually amortized in roughly equal amounts that completely eliminate the premium by the time that the bond has matured or by the call date, if applicable.

(2) Liquidation of a loan or security by means of periodic reductions. The principal amount of loans is amortized by the periodic, usually monthly, payment of a fraction of the principal calculated to repay the entire amount of principal due by the date of the last scheduled periodic payment. Amortization methods differ based upon the type of loan. Mortgage loans and securities usually have level payments of principal and interest. For such amortizations, the interest consumes most of the early payments and, therefore, principal amortization increases as the loan ages. Many business loans use a level amortization with roughly equal principal reductions from each periodic payment. The calculation of amortization, including rounding errors, or intentional manipulation of the numbers on a rate adjustment is ripe fruit for the litigation attorney: it spells relief for the borrower under TILA, RESPA and possibly RICO, common law fraud, breach of contract, and state unfair and deceptive practice statutes.When “lenders” (loan originators) ran out of qualified people to loan money to in 2003, they were under pressure to move the “inventory” of cash being generated by the sale of asset back securities. NEGATIVE AMORTIZATION BECAME THE RULE RATHER THAN THE EXCEPTION. NAD PEOPLE, SOME WITH PERFECT CREDIT SCROES, WERE CONVINCED TO TAKE NEW MORTGAGES UNDER FALSE PRETENSES AS TO COST AND AFFORDABILITY. UNDER NEGATIVE AMORTIZATION, PAYMENTS WERE SET AT LEVELS THAT APPEARED TO SAVE THE BORROWER MONEY, BUT WHICH DID NOT COVER ALL THE INTEREST OWED, NOR THE ANY PRINCIPAL, NOR THE INSURANCE, NOR THE TAXES. GROSS OVERCHARGES FOR FEES TO THE MORTGAGE BROKER WERE BURIED IN THE BACK END OF THE LOAN BUT PAID UP FRONT BY THE “LENDER.” IN ADDITION, UNDISCLOSED YIELD-SPREAD PREMIUMS WERE ALSO PAID UP FRONT TO THE MORTGAGE BROKER IN EXCHANGE FOR GUIDING THE BORROWER INTO LOANS THAT WERE LESS FAVORABLE THAN WHAT THEY COULD HAVE RECEIVED THROUGH HONEST BROKERS AND LENDERS. Thus people who either already had their homes paid off or almost paid off were placed in positions where the payments due, after adjustments, quickly moved beyond their TOTAL INCOME. Underwriting standards of the most basic nature were ignored in favor of electronic scoring and plausible deniability. See NINJA Loans

amortization period

For financial instruments, the time from the inception of a loan or investment instrument with scheduled principal repayments to the due date of the final contractually obligated principal repayment. For fixed assets, the period from the acquisition of a fixed asset to the date of the last periodic reduction (made to reflect depreciation) of the book value of that asset. (Assets may be depreciated until the book value is zero, but sometimes are only depreciated until the book value is reduced to an assumed salvage value.)

amortizing swap

An interest rate swap with a declining notional principal.


See alternative minimum tax.

analytical solution

See closed form solution.

analytical VAR

See correlation VAR.

annual percentage rate (APR)

The total financing costs associated with a loan on an annualized basis, divided by the amount borrowed. As defined by Federal Reserve Regulation Z and the Truth-in-Lending Act, this is a precisely calculated measure of the cost of a loan. The Truth-in-Lending Act and Regulation Z have specific requirements covering both how to calculate and how to disclose APRs.

The inflated appraisals that run at the core of the mortgage meltdown context and crisis results in a number of claims against the lender, the appraiser, the mortgage broker, the real estate broker, the developer, and entities upline in the securitization process, plus the insurance companies carrying errors and omissions and other assurance on those participants.

Salient among these is the effect that the appraisal, known by those participants to have been inflated. Thus the borrower was taking a loss at closing without knowing it. This loss, while also considered damages if one is pleading fraud, produces a distortion of the annual percentage rate (APR) disclosure in the good faith estimate. Thus if the GFE states the APR at 6%, and the buyer loses $100,000 like a new car buyer driving off the lot, the interest rate on a 30 year mortgage would be at least 3% at variance with the disclosed APR.

annual percentage yield (APY)

A precisely calculated measure of yield paid on a bank deposit account.


Contracts that guarantee income, often for an individual’s lifetime, in exchange for a lump sum or periodic payment. Annuity contracts have a number of standard variants, including deferred, fixed, immediate, or variable.

anticipated income doctrine of liquidity

An explanation of bank liquidity developed by Herbert Prochnow, in which the net cash flow of bank borrowers, rather than subsequent new borrowings, is seen as the true source of loan repayments. Accordingly, to the extent that loans are written with payment terms and maturities that reflect the borrower’s cash flow stream, the cash flow to the bank from loan principal payments is the source of bank liquidity. See commercial loan theory of liquidity andshiftability theory of liquidity. IN LITIGATION, OR EVEN ON DEMAND, THE ATTORNEY SHOULD REQUIRE COPIES OF ALL MEMORANDA, AGENDAS AND NOTICES OF MEETING BY ANY PERSONNEL OF THE LENDER WITH ANY THIRD PARTY OR ANY PARTY OR EXECUTIVE WITHIN THE FINANCIAL INSTITUTION. SOME OF THE THESE MEETINGS ARE RECORDED.

anticipatory hedge

A hedge of a yet-to-be-acquired asset or liability.

appraisal appraisal-fraud-charges-not-investigated

CNN 2005 Reports Pressure on Appaisers — “A train wreck waiting to happen.”

A statement or estimate of the market value of tangible personal property or real estate. Under the federal appraisal regulations for real estate pledged to secure loans, the term “appraisal” refers to a statement of market value that meets the five specific standards. See complete appraisal,evaluation, and limited appraisal. APPRAISAL IS A PROCESS RATHER AN EVENT: The process by which a licensed person gives an estimate of property value. Appraiser’s usually have Errors and Omissions Insurance policies. It is highly likely that if you have been defrauded by inflated appraisals of “fair market value” you may have a claim against the appraiser as well as the lender who hired the appraiser. In most cases during the Mortgage Meltdown period, the appraiser is given the information ahead of time, so he/she knows what the purchase price is and what the loan amount is. If the appraiser wants continued employment, he/she has economic incentive/coercion to come up with a rationalization for stating the value of the property at an inflated amount in order for the loan to close and borrower to sign the papers at a closing, which is the condition precedent for many of the intermediaries to get paid. Improper behavior by an appraiser could mean civil, criminal and/or administrative sanctions (by filing a complaint with the state licensing board).APPRAISAL FIRMS ARE LICENSED, USUALLY INSURED OR BONDED OR OTHERWISE HAVE FINANCIAL SECURITY. IF THEY FAIL TO USE DUE DILIGENCE IN REPORTING THE FAIR MARKET VALUE OF REAL PROPERTY, AS MOST DID DURING THE MORTGAGE MELTDOWN PERIOD OF 2001-2008, THEY MAYBE DISCIPLINED BY THEIR LICENSING BOARD, SUED FOR CIVIL LIABILITY, OR EVEN CRIMINALLY PROSECUTED IF A CRIME HAS OCCURRED.

The inflated appraisals that run at the core of the mortgage meltdown context and crisis results in a number of claims against the lender, the appraiser, the mortgage broker, the real estate broker, the developer, and entities upline in the securitization process, plus the insurance companies carrying errors and omissions and other assurance on those participants.

Salient among these is the effect that the appraisal, known by those participants to have been inflated. Thus the borrower was taking a loss at closing without knowing it. This loss, while also considered damages if one is pleading fraud, produces a distortion of the annual percentage rate (APR) disclosure in the good faith estimate. Thus if the GFE states the APR at 6%, and the buyer loses $100,000 like a new car buyer driving off the lot, the interest rate on a 30 year mortgage would be at least 3% at variance with the disclosed APR.

APPRAISAL REDUCTION EVENT: SEE REMIC appraisal-fraud-description-and-new-rules

The Appraisal Reduction Event that appears in virtually all securitization events at some point is for the benefit of the CDO manager (Investment Banker). They make the announcement in accordance with their interpretation of FASB accounting rules that the security is being written down because of appraisal reductions. No such new appraisals have occurred. The announcement is made anyway because the indenture to the bond or certificate held by the investor says they can and they do — because any money collected over that amount is “required” to be distributed under REMIC and since the Appraisal Reduction Event, the extra money can only go one place — the investment bank (who has profited from its own order to issue a declaration of an appraisal reduction event). Thus REMIC provides that the certificate holder is to be treated as the real party in interest for purposes holding the note, someone else is apparently in charge of holding the mortgage but has no access to revenue flow or the note, and reductions in payments result from non-payment by all of the people downstream (not just the borrower), diversions, and Appraisal Reduction Events. A “default” by the borrower is thus insufficient to declare the loan in default because it is either being paid by third parties, as above or the borrower’s payments have been incorrectly applied, along with others, to create the appearance of a default.

appraisal surplus

The difference between the historical cost and the appraised value of fixed assets.


See annual percentage rate.


See annual percentage yield.


The difference between the increased value of the property and the original value.


(1) In theory, arbitrage is the simultaneous purchase and sale of two identical commodities or instruments to take advantage of price variations in different markets. For example, the purchase of gold in London and the simultaneous sale of gold in New York.(2) In practice, the term is used to refer to the simultaneous purchase and sale of any two contracts or commodities with largely offsetting risks. For example, the purchase of two-year Treasuries and the sale of futures contracts for an equivalent amount.(3) In municipal finance, the specific practice of investing funds obtained at a tax-preferred low rate of interest in higher-yielding investments until the funds are needed for the purpose intended.

arbitrage CDO see semantics-what-a-difference-a-word-makes-creditor-trustee

A CDO whose purpose is to allow a money manager to expand assets under management and equity investors to achieve non-recourse leverage to CDO assets. There is no “arbitrage” in the classic sense of the word. Rather, equity holders hope to capture the difference between the after-default yield on the assets and the financing cost due debt tranches. See collateralized debt obligation (CDO).

arbitrage free

A type of financial model that generates market scenarios excluding scenarios that provide arbitrage opportunities.


An individual or broker who engages in arbitrage.


See adjustable-rate mortgage.


See account reconciliation services


Unpaid dividends or bond interest that a corporation owes its stockholders or bond holders after the payable or due date on which the dividends or interest should have been paid.

Article 2A

Portion of the UCC covering leases. See Uniform Commercial Code.

Article 8

Portion of the UCC covering collateral interests in both physical (certificated) and book-entry (uncertificated) securities. See Uniform Commercial Code.

Article 9

Portion of the UCC covering security interest in most personal property other than securities. See Uniform Commercial Code.

article of agreement

Contractual arrangement used in some states under which a buyer purchases real estate from a seller over a period of time, usually by making periodic installment payments. Title is not conveyed to the buyer until the final payment is made. Also called land contract.

Asian option

An option whose payoff is based upon the average value of an underlying over a specified period of time. Seeunderlying. Also see American option, European option and Bermuda option.

as-extracted collateral

Oil, gas, or other minerals that are subject to a security interest that is created by a debtor having an interest in the minerals either before or after extraction. A security interest can also include accounts arising out of the sale at the wellhead or minehead of oil, gas, or other minerals in which the debtor had an interest before extraction. A category of personal property collateral defined by the 2000 revisions to Article 9 of the UCC.

ascending rate bonds

Securities with a coupon rate that increases in previously defined increments at scheduled intervals.

asked or asking price

The trading price proposed by the prospective seller of securities. Also called the offer or offered price.

asset-backed security (ABS) see semantics-what-a-difference-a-word-makes-creditor-trustee

A debt security collateralized by assets. Created from the securitization of any loans other than mortgage loans. (Securitized mortgage loans are called mortgage backed securities or collateralized mortgage obligations.) Typically, asset backed securities area created from consumer installment or credit card loans. Securitized commercial (non-consumer) obligations are typically called collateralized debt obligations or CDOs. CDOs are sometimes defined to be a subset of ABSs. ABSs may be structured in a variety of ways including simple “pass through” structures and complex, “multi-tranche” structures. The value that ABSs provide to investors is comprised of the cash flows due to the ABS holders from the underlying loans. ABS issues are typically structured so that the bankruptcy or insolvency of an underlying borrower does not impact the cash flow received by the security owner. See special purpose vehicleand waterfall.

asset sensitive

Describes an entity’s position when an increase in interest rates will help the entity and a decrease in interest rates will hurt the entity. An entity is asset sensitive when the impact of the change in its assets is larger than the impact of the change in its liabilities after a change in prevailing interest rates. This occurs when either the timing or the amount of the rate changes for liabilities causes interest expense to change by more than the change in interest income. The impact of a change in prevailing interest rates may be measured in terms of the change in the value of assets and liabilities. In that case, an asset-sensitive entity’s economic value of equity increases when prevailing rates rise or declines when prevailing rates fall. Alternatively, the impact of a change in prevailing rates may be measured in terms of the change in the interest income and expense for assets and liabilities. In that case, an asset-sensitive entity’s earnings or net income increases when prevailing rates rise and declines when prevailing rates fall.

asset/liability management committee (ALCO)

A committee, usually comprising senior managers, responsible for managing assets and liabilities to maximize income and safety over the long run. In a financial institution, the ALCO is usually responsible for asset and liability distribution, asset and liability pricing, balance sheet size, funding, spread management, and interest rate sensitivity management. Usually used somewhat redundantly, as in ALCO committee.

asset/liability management (ALM)

Coordinated management of all of the financial risks inherent in the business conducted by a financial institution. The process of balancing the management of separate types of financial risk to achieve desired objectives while operating within predetermined, prudent risk limits. Accomplishing that task requires coordinated management of assets, liabilities, capital, and off-balance sheet positions. Therefore, in the broadest sense of the term, ALM is simply the harmonious management of cash, loans, investments, fixed assets, deposits, short-term borrowings, long-term borrowings, capital, and off-balance sheet commitments. However, in practice, the term is often used to refer to segments of that broader definition such as only interest rate risk management or only interest rate and liquidity risk management. See earnings at risk, market value at risk and market value of portfolio equity.

assets repriced before liabilities

A measure of the gap between the quantity of assets repricing and the quantity of liabilities repricing within a given period of time. A simple measure of a financial institution’s exposure to beneficial or adverse consequences from changes in prevailing interest rates.

assignee see semantics-what-a-difference-a-word-makes-creditor-trustee

The party to whom an assignment is made.



assignment of buyer’s interest in land contract

A document used when a borrower is purchasing real estate over time under an article of agreement or land contract. The document assigns the lender all of the borrower’s personal property, real property, and contractual rights under the land contract.

assignment of lease and rentals

A document used in real estate loans when the mortgaged property is leased to third-party tenants. If the borrower defaults, the assignment of lease and rentals gives the lender the right to receive rents from the tenants and to transfer the leases to a subsequent purchaser of the property.

assignment of seller’s interest in land contract

A document used in real estate loans when the mortgaged property is subject to a land contract or article of agreement under which it is being sold over time to a third party. If the borrower defaults, the assignment of the land contract gives the lender the right to receive payments from the buyer and to transfer the land contract to another buyer.

Association of Financial Professionals

A national organization for finance professionals that provides educational, and certifications programs, research programs, standards development, and government relations activities.


As applied to mortgage loans, assumable means that a borrower who sells his or her home may transfer the outstanding mortgage loan secured by that dwelling to the new buyers. The new buyers are said to assume the loan.

assumed name

Name used by a proprietorship, partnership, or corporation to conduct business that is different from the legal name of the proprietorship, partnership or corporation. Sometimes an assumed name is prefaced by the initials “t/a” for “trading as” or “d.b.a.” for “doing business as “.

asymmetric behavior asymmetric information

Unbalanced behavior exhibited by financial instruments, the rates or values of which do not change in proportion to changes in market rates. For example, increases in the prime rate quickly reflect most or all of increases in prevailing interest rates, while decreases in the prime rate are slow to reflect decreases in prevailing interest rates. The insider’s way of saying “we know and you don’t.” TILA, Common law and state unfair an deceptive practice laws are designed to minimize the effect of this practice. As between financial institutions a certain amount of asymmetric information is tolerated. At the closing between a lender and a borrower, however, the laws are specifically designed to force disclosure of all relevant facts. The relevance of this term in foreclosure defense is simple: if the borrower actually knew that he/she/they could not place reliance on the lender to review the value of the property, review the underwriting standards, perform due diligence and evaluate the likely outcome of the loan was misplaced because the lender was in fact already in the practice of assigning or selling the loan before the first payment was due, the borrower would be put on notice that the lender had no stake in the outcome and that the appraiser sent in by the lender might also have compromised his/her objectivity. If the borrower knew that the “lender” was actually acting acting as conduit or in substance as a mortgage broker seeking fees and only had an interest in getting his/her/their signature, the borrower would be more likely to seek other assistance or ask more probing questions. Predatory lending is fundamentally based upon asymmetric information and particularly effective when dealing with INTER-TEMPORAL TRANSACTIONS where the real information comes out months or years after the transaction is executed by the borrower with ARM resets, negative amortization, and outsize fees that were tacked on to the back of the loan. When the lenders ran out of regular people to loan money to they came under intense pressure from the investment banking arm of their business or the investment banking house with which they had formed an alliance, to move the “inventory” of cash generated by the Ponzi scheme selling of ASB’s. They thus needed a target audience that was either undereducated and thus unsophisticated in finance or, even better, people that didn’t speak English or read English. Afro-Americans and poor white Americans fit the bill for under-educated and unsophisticated and the burgeoning latin population fit the bill for non-English fluency.


See Automated Teller Machine.

at the money

The situation in which the current market price, the spot price, of an underlying instrument is equal to the strike or exercise price of an option to buy or sell that instrument.


A procedure established by Article 9 of the UCC. Creditors must comply with this procedure in order to obtain a security interest in property owned by a debtor. Alternatively or in addition, the process may be used to give the creditor a security interest in property owned by a guarantor or by another third party. Often, attachment alone is not sufficient to establish the priority of the creditor’s interest relative to the interests of other creditors. See financing statementsand perfection.

attorney’s certificate of title

See title opinion.

attrition analysis

Evaluation of the reduction in the amount of an asset or liability held. For example, an analysis of the reduction in savings account balances caused by withdrawals over time.

audited statements

The most reliable type of financial statements. The audit is based on information submitted by the client, and the CPA does not verify all of the information. Limits on the scope of the audit and on the CPA’s responsibility are described in the opinion letter that accompanies the audited statements. However, the value of an audited statement is that the independent CPA is responsible for testing and verifying any numbers that seem questionable or unusual as well as the most material financial information. For example, if a firm has a material amount of accounts receivable, the auditor will typically confirm at least a sample of those accounts. If a firm has a material amount of inventory, the auditor will typically perform a physical verification of that inventory.

authenticated security agreement

A electronic security agreement between the debtor and the bank that is accepted by the borrower either by downloading the agreement into a personal database or by printing a copy. As an alternative to a security agreement physically signed by the debtor, the 2000 amendments to the UCC provide for an authenticated security agreement.


A government or public agency created to perform a single function or a restricted group of related activities. Usually, such units are financed from service charges, fees, and tolls, but in some instances they also have taxing powers. An authority may be completely independent of or partially dependent upon other governments for its financing or the exercise of certain powers.

automated clearinghouse (ACH)

The ACH network is a nationwide electronic funds transfer system for participating depository financial institutions. The American Clearing House Association, Electronic Payments Network, Federal Reserve and Visa act as ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH debits and credits. The ACH network serves 20,000 financial institutions, 3 million businesses, and 100 million individuals. The ACH Network is commonly used for direct deposit of payroll and government benefits such as Social Security, direct payment of consumer bills, business-to-business payments, federal tax payments, and, increasingly, e-commerce payments. In 2000 there were 6.9 billion ACH payments made worth more than $20 trillion.

Automated Teller Machine (ATM)

A computer terminal for user initiated banking transactions.

automatic stay

An injunction that automatically becomes effective upon the filing of any bankruptcy proceeding. The stay precludes creditors from taking action against the debtor or the debtor’s property. In Chapter 12 or 13 bankruptcy proceedings, the automatic stay also applies to co-obligors and guarantors. In the context of the Mortgage Meltdown, most schedules are probably being filed improperly, virtually admitting the validity of debts that are invalid and admitting that those debts are secured with alien against the home when the lien has been extinguished by operation of law. It is the opinion of the author that the house and auto(s) should be shown as an asset of undetermined value, that all creditors relating to the house and auto should be shown (a) disputed (b) unsecured (c) unliquidated. This prevents a creditor from “automatically” getting the automatic stay lifted.


The condition in which deposited funds are available for use by the depositor. The time lag between the date of a deposit and the date it is credited to the collected balance.

availability schedule

A schedule that determines when each bank in the check-clearing process will receive credit and when the depositor of checks will be able to withdraw or invest the funds. The schedule sets a standard time period since each check cannot be individually traced through the check-clearing process. Every major bank publishes its availability schedule based on its location and on the location of the bank on which the check is drawn.

available balance

The balance in an account that can be invested or withdrawn. Available balance refers to the bank ledger balances less checks in the process of collection. Also called collected balances, good funds, or usable funds.

available-for-sale (AFS)

One of three defined categories established in FAS 115 for the classification of financial instruments held as assets on the books of an investor. Available-for-sale, or AFS, securities are securities that the investor is unable or unwilling to commit to hold to maturity. Designation of a security as AFS does not mean that the investor plans to sell it prior to maturity. FAS 115 requires investors to report unrealized gains or losses in AFS securities as changes in reported equity. See FAS 115, held-to-maturity, and trading.


A guaranty.

back-end load

A form of sales charge imposed on investors by some mutual funds. These charges may be called back-end loads, deferred loads, deferred sales charges, contingent deferred sales charge (CDSC), or redemption fees. Regardless of the name, funds with deferred sales charges are simply one form of load funds. These funds offer investors the opportunity of paying a sales charge later rather than paying one at the time of purchase. The main advantage is that earnings from the investment in a deferred charge fund are paid on the full amount of the investor’s principal. In contrast, earnings in a fund with an front-end load are only paid on the net amount of the investor’s principal after the front-end charge is deducted. A second, potentially significant, advantage, is that deferred sales charges often decrease as the investor’s holding period lengthens. In Foreclosure defense and offense, the significance is that there probably were fees generated that were either paid up front or which would be generated at a later time by virtue of the passage of time or the termination of the investment by reducing the asset value to zero or below zero. If the mortgage loan is a security under the rules of state and federal agencies (which we contend it is by virtue of its conversion from a straight contact loan deal to a security deal based upon the promise of a passive return) then the existence of any fees that were not disclosed at closing with either the “borrower” (the people who signed the mortgage and note) or the “investor” (the people who supplied the capital for the transaction) then the fair market value of the real property on one end of the scale, and the the ABS security on the other end of the scale were both negative, despite assurances to the contrary from the “lender”, the appraiser, the mortgage broker, the real estate broker, the rating agency, and the investment banking firm that created the SPV that issued the securities to the “investors.” In the case of the security aspect of the “loan” transaction with the “borrower” the individuals involved were NOT qualified investors, DID involve crossing state lines (sometimes without bothering to qualify to do business in the state where the loan originated, and therefore required to be offered a right to rescind in a proper REGISTERED prospectus that disclosed all the risks, in addition to the disclosures required under TILA and rights to rescission under TILA and RESPA procedures.

bad delivery

A delivery of securities that does not fulfill the requirements for good delivery. In the logistics of the foreclosure litigation, the questions are where is the mortgage, where is the note NOW?, Who NOW owns the security interest by assignment or otherwise? Who NOW owns the note signed by the borrower? Who is NOW entitled to payments from that note? Who else owes payments on that note because of a subsequent agreement with the real party in interest (probably the holder of the ABS, the investor)? Were the transfers of the note and mortgage and the parsing of the various provisions of the note and mortgage on or off record? Who has these documents? Here is the original note? It is our theme that the holder of the security instrument was dispossessed by his own agreement and for consideration of the right to enforce the security instrument and that right exists in a collection of investors or the SPV, which is not qualified to do business as a lender and not qualified to do business in the state of origination of the loan. Likewise it is our theme that the holder of the note, if there is a holder of the note and it wasn’t lost or destroyed, was dispossessed of any right to payment on that note through the same procedure. Thus the way the transaction was handled, the obligation to pay by the “borrower” was amended to compensate for the greater assumption of risk of inflated appraisals and overrated securities. This was not disclosed to the borrower who was intentionally misled into reasonably believing that he was entering into a standard loan transaction where the usual fiduciary duties, due diligence, underwriting standards and appraisals would be applied. Hence delivery of the required documents, constituting the ENTIRE transactions starting withe the source of capital from the “investor” and the source of the legal signature on the “loan” papers, was never completed. The transaction, having never been completed, is void. Hence rescission would be redundant. Quiet Title (See Quiet Title in this Glossary and in Blog entries on front page), would appear to be the simplest remedy to rid the property of the note and the mortgage and provide a clear path for the “investor” and the “borrower” to recover refunds, rebates and damages, including punitive damages, attorney fees and costs, plus interest from the parties who participated in this feeding frenzy (directly or indirectly) and the insurance carriers for each of the parties (errors and omissions, malpractice etc.) See Bond Anticipation Note (BAN).

bailment for hire

A safekeeping agreement between a safekeeping institution and its customer. A contract whereby a third-party bank or other financial institution, for a fee, agrees to exercise ordinary care in protecting the securities held in safekeeping for its customers. See Bad Delivery. It appears as though physical control of tangible papers and documents were transferred, destroyed or lost, despite their value to the borrowers and investors.

BAILOUT citigroup-et-al-bailouts-present-additional-defenses-againsts-collection-of-virtually-any-debt

The process by which participants in the financial system receive direct aid, forgiveness, loans, and grants from a third party (usually the national government, an agency of the government or a government sponsored entity [GSE, like FNMA and Freddie Mac had been). This process  has been ongoing for several months as of the writing of this entry (11/24/08). In the context of foreclosure defense, and credit enforcement defense what it means is that the debt is assumed worthless by both the assuming party (government) and the producing party (bank, investment bank, insurer etc.). The original obligation from the borrower and the associated security instrument have been extinguished with the bailout of those holding the only potential claim to being a holder in due course, at least with regard to the obligation if not the note and security instrument. Since the original contractual parties have been eliminated from the transactions involving sale of securities to investors, and using those proceeds to fund enormous fees and “expenses” including the funding of “loans” to borrowers under circumstances where the “lending” parties knew or should have known that the loans would never be repaid, the obligation has vanished along with the unprecedented fees and profits earned by misrepresenting the value of the securities sold to the investors.

balance sheet matching

The (discredited) process of “assigning” groups or quantities of liabilities to groups or quantities of assets. Sometimes described as the identification of “mini-banks” within the bank.

balloon loan

A loan for which the final payment, larger than all of the previous, regularly scheduled payments, is due in a lump sum before the loan is fully amortized. The final payment is called a balloon payment.

balloon mortgage

A mortgage loan with a balloon payment. Typically, the balloon payment is due 10 or 15 years after the loan is made.

balloon payment

A contractually required loan payment, almost always the final payment, that is larger than the other contractually required, periodic loan payments. Results from the fact that required, periodic loan payments are too small to fully amortize the loan balance by the maturity date.


See bond anticipation note.


The PSA range within which certain performance measures such as yield and average life are set for a CMO tranche. This range is expressed in terms of PSA speeds. Differences between predicted speeds and the actual speeds subsequently experienced can cause bracket creep.

band of investment

A method of determining a cap rate that blends the return or cash flow required by an equity investor with the return or interest rate required by the debt lender. Also called cash flow method.

bank-specific liquidity risk

One of three main types of liquidity need environments. The risk that a bank might experience a funding crisis resulting when one or more events or problems applicable just to the bank cause funds providers to lose confidence in the bank. Also know as internal liquidity risk or bank name risk. See liquidity in the ordinary course of business and systemic liquidity risk.


A maturity pattern within a portfolio in which maturities of the portfolio assets are concentrated in both the short and long ends of the maturity spectrum with substantially smaller holdings of assets with intermediate-term maturities.

Basel II

The common name for capital guidelines issued by the Bank for International Settlements (BIS) located in Basel, Switzerland. The Basel II capital guidelines replace previous, much simpler, BIS guidelines. The guidelines are developed by an international committee of banking regulators and implemented by rules issued by the national regulators.

Risks, under Basel II, are regulated in three general ways called “pillars”. Pillar I calls for explicit capital allocations. Credit risk and operations risk fall under pillar I. Pillar II calls for supervisory review of capital adequacy. Interest rate risk and liquidity risk fall under pillar II. Pillar III calls for public disclosure. All risks fall under pillar III.

basic indicator approach

One of three methods for quantifying capital required for operational risk under proposed Basel II capital rules. Banks using the basic indicator approach must hold capital for operational risk equal to the average over the previous three years of a fixed percentage of positive annual gross income. Based on the questionable assumptions that losses from operational risk are closely proportionate to gross income. See also Standardized Approach, Advanced Measurement Approaches and operations risk.


(1) The difference between rates or prices of assets that are related but not identical. For example, the difference between the cash price and the futures price of a security. Sometimes called spread.

(2) The difference between the price of a futures contract and the price of the underlying.

(3) The number of days in a bond coupon period. See day basis.

basis point

A unit of measurement for interest rates or yields that is expressed as a percentage. One-hundredth of one percent. One hundred basis points equal one percent.

basis risk

The risk to a holder of financial instruments that a change in prevailing interest rates will not affect the prices of or yields on similar instruments in exactly equal amounts. For example, an increase in prevailing interest rates might raise 3-month U.S. Treasury yields by 100 basis points while 3-month certificate of deposit yields go up by only 85 basis points. One of the four primary components of interest rate risk. Sometimes called spread risk.

basis swap

A type of interest rate swap in which the net cash flows that the parties agree to exchange are based upon the differences between two different interest rate indexes. Banks use basis swaps to hedge basis risk by locking in a net interest rate spread between a variable rate cost of funds tied to one index and a variable rate asset tied to a different index. See interest rate swap and swap.

bearer see semantics-what-a-difference-a-word-makes-creditor-trustee

The holder of an instrument.

beneficial owner see semantics-what-a-difference-a-word-makes-creditor-trustee

The party that receives all of the benefits or rights of an owner of a security even though the legal ownership of the security is recorded in the name of a broker or a bank in street name.

The amount for a foreclosed property for sale at auction.

bilateral netting

A legally enforceable arrangement between two parties to two or more swaps that creates a single legal obligation covering all of the individual swap contracts. This means that the size of the risk that one party is exposed to for the default or insolvency of the counterparty is net of all of the positive and negative values of the contracts included in the bilateral netting arrangements. Parties that engage in numerous swap contracts may use bilateral netting agreements to be able to recognize only the net sum of their obligations rather than the gross total of the individual swap contracts. Bilateral netting is also used by a party that wishes to cancel a swap contract, in which case the party can enter into a new swap that is an equal but offsetting swap with the same counter-party. The two parties can then enter into a bilateral netting agreement under which the two equal but offsetting swap contracts net to zero. You will find that many SPV engaged in this practice and that the loans, the obligations ot pay on those loans, the security instruments, the ability to enforce those security instruments were split up and merged into tranches or actual entities; further you will find that SPV’s of the same or different investment banker entered into these swaps presumably “at arm’s length” in order to present the appearance of plausible deniability.

Black Scholes model

A model used to value options. This model was developed in 1973 by Fischer Black and Myron Scholes. While not the only sophisticated, mathematically derived model for valuing options, it was the first, and it remains the best known.

blanket lien

An informal term meaning a lien on all of the debtor’s current and subsequently acquired personal property assets.

bond anticipation note (BAN)

A short-term note sold by a public entity that will be repaid from the proceeds of an anticipated bond issue. See Bad Delivery. The “loan” executed by the borrower was a security. Thus on the one hand a BAN was sold to the borrower and an ABS was sold to the investor.

bond indenture see semantics-what-a-difference-a-word-makes-creditor-trustee

A document that sets forth the terms of a bond issue, the obligations of a bond issuer, and the rights of the bond holders. The bond indenture is a contract between the company that issued the bonds and the bond trustee acting on behalf of the bond holders. Bond indentures may include a variety of provisions and thus define and create the differences in term and risk.

bond insurance

Credit support for a bond or a tranche in a multi-tranche debt security. The credit support is provided by an external, third party – usually an insurance company that specializes in financial guarantees.

Bond Market Association (BMA)

An industry trade organization for U.S. broker/dealers. Among other things, the BMA has developed standard documentation for repurchase agreement transactions and for describing prepayments received from MBSs. Formerly known as the Public Securities Association (PSA).

bond swap

The simultaneous, or nearly simultaneous, purchase of one debt security with the proceeds from the sale of another debt security. The swap is done after the investor has conducted an analysis showing that the debt security being purchased has more desirable characteristics than the debt security being sold.


(1) Either the process of obtaining or the state of having a fidelity, indemnity, performance, payment, or similar bond. In commercial construction financing, bonding usually refers to a contractor’s performance bond. For employees of financial institutions, bonding usually refers to fidelity bonds. See fidelity bond, payment bond and performance bond.

(2) Refinancing short-term debt with long-term debt is sometimes called bonding out.

book entry

The nonphysical record of ownership, custody, and transfer of securities through electronic means. The system for settlement, delivery, and custody of uncertificated securities.

book entry securities

Stocks, bonds, other securities, and some certificates of deposit that are purchased, sold, and held with only manual or computer accounting entries rather than transfers of physical certificates to evidence the transfer. Typically, instead of a physical certificate or instrument, buyers only receive receipts or confirmations as evidence of their ownership.


A party who brings buyers and sellers together. Brokers do not take ownership of the property being traded, but rather they are compensated by commissions. Brokers are not the same as dealers; however, the same individuals and firms who act as brokers in some transactions may act as dealers in other transactions.

brokered deposits

Bank deposits solicited by a third-party broker. Usually but not always deposits for some amount slightly below $100,000 so that all interest as well as principal is covered by deposit insurance. Brokers are typically paid a fee by the depository bank.


In gap reports, the predefined time interval groups are often called buckets. The buckets can be defined to represent whatever time units a bank wants to see in its gap reports. The time intervals can be single months or years. Smaller buckets, such as one-month buckets, give more detail, which in turn can provide a more accurate measure of interest rate risk. On the other hand, smaller buckets can require a greater number of buckets to show the interest rate risk far enough into the future for prudent analysis. Often, one-month buckets are used for the first six or twelve months with larger time intervals used as buckets for later periods.

busted PAC

Planned amortization class tranches in collateralized mortgage obligations for which the companion or support tranche has been completely retired by larger than expected prepayments from the underlying mortgage loans. Because the companion or support tranche is no longer outstanding and can therefore no longer absorb future prepayments, the maturity of the PAC tranche(s) may be shorter than expected. See stressed PAC.

butterfly call spread

One of the more well known option trading strategies. A complex option trading strategy using puts and calls with different maturity dates and different strike prices. An option strategy designed to profit from stable or decreasing volatility.


A form of secured, short-term investment in which a security is purchased with a simultaneous agreement to sell it back to the seller at a future date. The purchase and sales agreements are simultaneous but the settlement dates for the transactions are not. The purchase is a cash transaction while the return sale is a forward transaction since it occurs at a future date. A buy/sellback is very similar to a reverse repurchase agreement, except that in a buy/sellback the investor is compensated by the difference between the purchase price and sales price rather than by interest. Unlike a reverse repurchase agreement, a buy/sellback probably does not include a haircut or collateral margin. Furthermore, the buy/sellback may be treated differently in the event of the buyer’s bankruptcy. Every transaction that is a buy/sellback from the buyer/lender’s point of view is, by definition, a sell/buyback from the seller/borrower’s point of view.

buyer in the ordinary course of business

A purchaser who buys inventory from a seller who is in the business of selling that type of inventory.

CMO: see semantics-what-a-difference-a-word-makes-creditor-trustee Collateralized Mortgage Obligation. This is a DERIVATIVE security which is normally purchased outside of normal regulatory rules to “qualified” investors consisting of high net worth individuals, corporations, government agencies and money management funds. It promises a return based upon a pool of hundreds of thousands of different mortgages and notes, spreading the risk of loss on defaults over a “diversified” portfolio. Frequently the terms of the security allow the seller of the security to use the proceeds to pay the interest or dividend on the investment. Typically the terms of the security provide for foreclosure of the underlying property in the event of default. The lender or mortgage servicing entity therefore has little or no authority to negotiate a “workout” on the default. The owner of the security is legally a necessary and indispensable party to any action on foreclosure or action contesting the sale, but must usually be named as “John Doe” because the actual owner of the security which is backed by a particular mortgage on a specific piece of property is unknown to the borrower and frequently unknown to the lender or mortgage servicer. Unlike the entities or persons who participated at the loan closing, “lender liability” for refunds of points, closing costs and interest paid and damages is unlikely to be awarded against the security owner who is more than likely a victim of the mortgage meltdown scheme, which was based upon false appraisals of value, safety and security from rating agencies and false assurances of insurance against losses. A CLAIM AGAINST THE TRUSTEE WHO POSTS NOTICE OF SALE OR “LENDER” WHO FILES FOR JUDICIAL FORECLOSURE COULD INCLUDE THE ALLEGATION THAT THE TRUSTEE OR LENDER (A) HAS NO INTEREST LEFT IN THE PROPERTY AND THEREFORE LACKS LEGAL STANDING AND (B) HAS NO INDEPENDENT INFORMATION ON PAYMENTS, NOR DID THE PERSON WHO SIGNED THE NON-PAYMENT AFFIDAVIT OR CORRESPONDENCE HAVE ACTUAL KNOWLEDGE OF THE BORROWER’S PAYMENT HISTORY. CDO’S (collateralized debt obligations) and CLO’s (collateralized loan obligations) are terms sometimes used interchangeable but actually refer to larger categories of securities whose value derived from underlying credit card debt, school loans, auto loans etc.


An acronym for the institution composite rating system used by the federal regulators during a regulatory examination. The evaluation is based on Capital, Asset Quality, Management, Earnings and Liquidity. The significance of this to foreclosure defense and offensive claims for lender liability is that the CAMEL rating and report can be obtained through demand or discovery. In addition, the submissions by the financial institutions which understated liabilities and over-stated assets or the quality of loans may be further evidence of a continuous policy of fraud by the bank.


An upper limit for a variable, such as the upper limit on the interest rate paid or received in a transaction. For example, an adjustable-rate mortgage may have a cap of 10 percent. In this case, the rate can adjust however the loan terms provide, without exceeding 10 percent. Also called a ceiling. Cap is often used with its converse, a floor. A cap may be an embedded option, such as the cap on the rate for a floating rate loan, or a stand-alone option contract.

cap rate

An interest rate used in the process of capitalization.


A lending and credit analysis term that describes a borrower’s or applicant’s ability to meet debt service obligations. See debt service coverage. This is a basic, if not THE basic foundation for underwriting a loan. During the mortgage meltdown period of 2001-2008 it became customary practice in the lending industry to disregard this issue entirely or partially. In many cases, the capacity of the borrower was dubious at best. In many cases the capacity of the borrower to service the loan was NEGATIVE either at the moment the loan was closed or shortly thereafter. Because of the agency problem (see AGENCY), the lender didn’t care whether the loan could be serviced. They were only competing for collecting their fees as a conduit or in effect an unlicensed mortgage broker, which is a crime and violation of civil law in itself.


(1) Usually refers to the total of the equity accounts in a firm. For a bank, the equity accounts are common and preferred stock, surplus, and undivided profits. For other corporations, equity accounts are common and preferred stock, surplus, and retained earnings. For bank capital, seetier 1 capital and tier 2 capital. In discovery, getting the notes and memoranda of internal accounting and finance people and outside auditors will reveal the lack of due diligence or the intentional disregard of negative information. (2) Sometimes used as a synonym for common stock, as in capital stock.

Certificate of Sale
A document issued to the winning bidder at a foreclosure sale stating their rights to the property once the borrowers redemption period has expired. See Clear Title and Chain of Title.

An analysis of the transfers of title to a piece of property over the years. IT IS THIS ANALYSIS THAT PRESENTS THE CONCLUSION OF A LEGAL EXPERT IN TITLE EXAMINATION AS TO WHETHER CLEAR TITLE IS BEING OFFERED OR PASSED. The significance of this in the context of the Mortgage Meltdown is that in most cases, a proper analysis of the title records and the transactions that are actually known by at least some of the parties would disclose a possible claim by third parties to the property, the mortgage or the note.


An old legal doctrine which until the Mortgage Meltdown was largely irrelevant and unused. It is the act of a person or party without an interest in the subject matter that causes or supports litigation to be commenced and maintained. It includes payments of money. In the Mortgage Meltdown, it is being used to invalidate several transfers in anticipation of mortgage foreclosures, thus invalidating the foreclosure itself.

A title that is free of liens or legal questions as to ownership of the property. THIS IS AN IMPORTANT ISSUE IN ANY PROPOSED SALE OF RESIDENTIAL PROPERTY ENCUMBERED BY A SECURITIZED MORTGAGE. THE SALE OF THE PROPERTY IN A TRADITIONAL TRANSACTION OR BY SHORT-SALE OR FORECLOSURE AUCTION SALE PROBABLY INCLUDES A CLOUD ON TITLE. In fact, it is likely that if you sold property anytime in the past few years you paid off the old mortgage and received a Satisfaction of Mortgage from the “lender.” However, if the Lender does not have clear title to the mortgage instruments, the execution of the Satisfaction of Mortgage, and even the Recording, may have dubious or no meaning inasmuch as the loan was transmitted up line and pledged to Buyers of Derivative Securities. The various instruments of transmittal combined with the “security” pledged to those investors probably conveys an interest in the mortgage and note to the investor, the investment banking firm, the SPV, the SIV, the mortgage aggregator or some other third party(ies). Hence clear title could not be conveyed in any sale. If the “lender” accepted the full payment at a closing or partial payment (short-sale) and did not pass on the proceeds to the third parties that have an interest in the note and mortgage, the Buyer and the Seller of the property are exposed to potential litigation over title, liability on the note, and right to possession. See Cloud on Title.

CLEARINGHOUSE: A company or government sponsored entity that either takes physical possession of transactional documents and records them on its own books. An accepted clearinghouse’s records is used as business records to prove ownership of a particular security or other transactional document. Cede and Company and others are the clearinghouse for quadrillions of dollars of transactions. It is unclear and indeed doubtful that the unregulated mortgage backed certificates sold investors are registered with any conventional clearinghouse, despite the fact that these certificates did have a secondary market in which the trading volume of these certificates was traded in low volume. Structured Investment Vehicles (SIV) created by investment bankers as part of the scheme to issue mortgage backed securities and other asset backed securities are a hybrid between a trustee and a clearinghouse. These companies, mostly offshore, were used as the “repository” for the alleged notes and mortgages and deeds of trust, assignments, assumptions and allonges in many transactions. It is believed that SIV’s may no longer be in use. However, those documents that were allegedly sent to SIV Trustees fall into the following categories according to SIV records (a) lost, never reached their destination (b) were intentionally destroyed at the request of the party transmitting the documents to the SIV Trustee or (c) were lost after reaching their destination. Virtually no documents are recorded as in “safe keeping” of the SIV Trustee in any SIV. The reason for this is presumed to be (a) plausible deniability and (b) direct coverup of the actual terms of the the notes. The true character of most of the loans (i.e., that they were doomed to go into default and that the nominal interest rate would never be reached) was hidden by a a multilevel pooling system creating obfisucation and confusion to all but persons with very sophisticated knowledge and understanding of deriviate securities projects to wit: By pooling the notes with a loan wholsesaler (aggregagtor), establishing a new Trustee over the pool (presumably superceding the SIV Trustee and the Trustee on the Deed of Trust), and then repooling the pools into tranches within a special purpose vehicle that issued certificates of asset backed securities, and appointing a Trustee to represent the owners of the certficates (note that it is unclear if this “trust arrnagement arose at the time of the transaction or was fabricated for litigation). Lastly MERS is an intended clearinghouse that appears to violate the state recording laws  of every state in the union. The purpose of MERS was to establish a recording system for assignments and transfers of various notes, allonges, and related documents parallel to the recording system in place in each of the states. State law in most if not all cases requires the transfer of an interest in real property to be recorded. MERS was used to avoid disclosure, payment of taxes, fees and stamps that were due to States and counties and to add to the obfuscation of ownership of the note or mortgage. The use of MERS in lieu of recording assignments split the note and the mortgage under the UCC, thus separating the security instrument from evidence of the obligation — because the only legal act MERS could perform would have been transfer of the note. The Mortgage, which is an interest in real property could not be transferred without compliance with the state’s recording laws, requiring the recordation and payment of fees and taxes. MERS has since been suspended from operating in California and many states are looking at the possibility of either suspending MERS or demanding that MERS and its constituent customers (banks, wholesalers, investment banks, SIVs, Trustees, SPVs, Investors) pay the recording fees and taxes, along with interest, and penalties and perhaps a fine.

This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands. It is important to distinguish between the two “closing” that occur at the time of each transaction in which real property is transferred from a Seller to a Buyer and money passes from the Buyer’s Lender to the Seller, the appraiser, the mortgage broker, the sales agents, the title company etc. Failure to make this distinction has resulted in confusion in understanding the consequences of rescission. Title to the property changed hands only in the closing between Buyer and Seller. Rescission of the loan closing does NOT mean return of the property. Only a rescission of the real estate property closing between the Buyer and the Seller would mean a return of the property.
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate (GFE) which they must issue to the borrower within three days of receiving a home loan application. IN THE CONTEXT OF THE THE MORTGAGE MELTDOWN, THE GFE IS EXTREMELY IMPORTANT. Under the Truth in Lending Act all parties to the loan closing must be disclosed along with their compensation. In virtually every closing, there is no disclosure of the premium (usually 2.5% of the loan) paid to the “lender” for posing as the lender in place of an unregulated lending source, the rebates, bonuses, yield spread premiums, commission and kickbacks on the loans.
closing statement. While the rescission remedy under TILA says it does not apply to residential mortgages, it DOES apply to HELOC’s and the right of rescission or cancellation resulting from fraud and non-disclosure is NOT limited to TILA and RESPA.
CLOUD ON TITLE see semantics-what-a-difference-a-word-makes-creditor-trustee

In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust. The issue raised in this Treatise is whether a securitized loan can EVER be paid or repaid to the proper party and therefore whether the loan can EVER be satisfied and therefore whether ANY party has the right or authority to foreclose, give notice of default, post a notice of sale, get a judgment ordering the sale, conduct an auction sale, issue a certificate of title, or evict the homeowner based upon the “default” in a loan that has already been paid and repaid to the nominal lender at closing as well as to other parties upstream, some of whom added to the revenue stream and the payments on the same mortgage that is alleged to be in default. In fact, the issue is whether the “loan closing” was in substance a mortgage transaction at all but rather, an undisclosed deception to issue negotiable instruments that would be sold to investors under additional pretenses.

collateralized debt obligation (CDO) – see Embedded Security for CDO1, CDO2, CDO3 etc. see semantics-what-a-difference-a-word-makes-creditor-trustee

(1) A multi-tranche security with credit risk exposure to corporations. A securitization of corporate obligations. CDOs can be securitizations or re-securitizations of commercial loans, corporate bonds, other types of ABSs, residential MBSs, commercial MBSs, and emerging market debt. CDOs may even be backed by other CDOs. Securitizations of corporate bonds are a type of CDO called a collateralized bond obligation or CBO. A synthetic CDO uses credit default swaps rather than actual corporate obligations to create a pool of credit exposure. Similar to the more familiar CMO, except that in a CDO the tiers or tranches are created with differing levels of credit quality. A CBO divides the credit risk of a pool of high yield bonds into different classes that appeal to investors with different credit risk tolerances. The CDO structure creates at least one tier of investment-grade bonds. The contractual rules for the cash flow distributions in a CDO structure enable the senior tranches to receive high credit ratings by shifting risk to the equity tranche. See equity tranche, special purpose vehicle, and waterfall.(2) The term “CDO” may be used to refer to the special purpose entity, SPV, that holds the securitized assets.

CDOs vary in structure and underlying assets, but the basic principle is the same. Essentially a CDO is a corporate entity constructed to hold assets as collateral and to sell packages of cash flows to investors. A CDO is constructed as follows:

• A Special Purpose Vehicle (SPV) acquires a portfolio of credits. Common assets held include mortgage-backed securities, Commercial Real Estate (CRE) debt, and high-yield corporate loans.

• The SPV issues different classes of bonds and equity and the proceeds are used to purchase the portfolio of credits. The bonds and equity are entitled to the cash flows from the portfolio of credits, in accordance with the Priority of Payments set forth in the transaction documents. The senior notes are paid from the cash flows before the junior notes and equity notes. In this way, losses are first borne by the equity notes, next by the junior notes, and finally by the senior notes. In this way, the senior notes, junior notes, and equity notes offer distinctly different combinations of risk and return, while each reference the same portfolio of debt securities.

collateralized loan obligation (CLO) see semantics-what-a-difference-a-word-makes-creditor-trustee

A multi-tranche security secured by a pool of corporate loans. Similar to the more familiar CMO, except that in a CBO the tiers or tranches are created with differing levels of credit quality. The CBO structure creates at least one tier of investment-grade bonds, thus providing liquidity to a portfolio of junk bonds.

collateralized mortgage obligation (CMO) see semantics-what-a-difference-a-word-makes-creditor-trustee

A type of MBS created by dividing the rights to receive the principal and interest cash flows from an underlying pool of mortgages into separate classes or tiers. The tiers or classes are usually called tranches. In other words, it is a multiclass bond backed or collateralized by mortgage loans or mortgage pass-through securities. A given tranche is typically not redeemed until all bonds with earlier priority have been redeemed. By dividing the cash flows into one or more tranches with shorter terms, the risk resulting from the potential volatility from future changes in prevailing rates is shifted away from the shorter-term tranche or tranches and onto the longer-term tranches and the residual tranche.

When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property. The issue here of course is “who is the lender.” If the loan has been transmitted, transferred, assigned and or pledged to one or more parties, (or hundreds of parties in the case of securitized transactions) and if the obligation has been commingled with the obligations of other parties (which happens in the pooling of loans and the sale of ABSs), then it is highly probable that the loan servicer has no authority beyond accepting payments, and it is possible they do not actually have that authority inasmuch as they may have received it from a party who had already sold the the loan to yet another party. In fact, collection by the mortgage servicer might have been improper especially if there was a failure to transmit the entire payment to the ultimate investor. Note that in TILA a mortgage servicer is expressly excluded from being considered a party in interest and is therefore NOT authorized to foreclose or in any way present itself as a creditor of the “borrower.” This is part of the reason this Treatise has repeatedly made the point that in any bankruptcy petition the alleged mortgage should be listed as a contingent liability with an unknown owner.

commingled funds

Money pooled for a common purpose. Often funds pooled for investments. See Quiet Title, Temporary Injunction.

commitment letter

A legally binding letter in which a lender documents the terms, prerequisites and conditions under which it agrees to provide financing to an applicant. Commitment letters may be used in almost any lending transaction but are most common in commercial real estate transactions.

Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.

Commodity Futures Trading Commission (CFTC)

The Federal agency that is responsible for regulating futures trading in the United States.

Common-law lien

Created by a sworn affidavit, and filed for a few dollars at the recording office where your property is located, it is a lien under common law giving a creditor (You, as a bailee) in possession of property the right to retain possession until payment of the amount due. In the context of the mortgage meltdown, this device might be available in certain states, but you need to follow the rules for filing liens very carefully. In this case, the foreclosure sale would have already occurred (although there might be a case for pushing this device to ANYTIME including before the sale). You would state all your claims for fraud, appraisal fraud, TILA violations, usury etc. against anyone and everyone who had anything to do with your loan that you uncovered through research. It forces ALL the parties to go to court to get rid of your lien and it forces the party who allegedly foreclosed on your property to bring the lawsuit against you, thus enabling you to file an answer, affirmative defenses and counterclaim — or, in other words, converting the non-judicial sale to a judicial sale.
common stock

A type of equity or capital representing shares of ownership in a corporation. May or may not receive distributions of corporate income in the form of dividends. Receives the lowest priority for repayment in the event of a corporate liquidation. As opposed to preferred stock, which has a slightly higher claim to corporate funds.

Community Reinvestment Act

A federal statute enacted to require banks and savings and loan associations to meet the credit needs of their communities, including low- and moderate-income neighborhoods.

companion tranche

A specific tier or segment of REMIC security. A REMIC tranche that is structured to absorb a disproportionate amount of the volatility caused by variations in the prepayments of the underlying collateral. Companion tranches are created to be more volatile so that other tranches in the same REMIC, called PAC or TAC tranches, may have more stable cash flows. Hence the name companion. Also called support tranches. The significance in Foreclosure defense is that this is one of the devices used in the covenants or indentures of ASBs that assures payment to the holder of the security. Since the holder of the security is the “owner” of the mortgage and note, it is reasonable to assume that either the holder of the mortgage has been paid by a third party or that a third party assumed the liability.

compensating balance

A method of paying the bank for providing services.(1) In lending, compensating balances are minimum balances that the bank requires a borrower to maintain with the bank as partial compensation to the bank for the credit facility.(2) The amount of deposit balances necessary to offset the cost of deposit, cash management, or other bank services. Each period, usually monthly, the actual bank service charges applicable for the services used by the depositor are used to determine the level of balances to be left with the bank. Adjustments are made to reduce the deposit total for reserve requirements and float.

compilation statement

Financial statement put together for the client firm by a CPA that is entirely based upon data submitted to the CPA by the firm with no review, no testing, and no opinion expressed by the CPA.


A term used in the Uniform Standards of Professional Appraisal Practice (USPAP) requirements for real estate appraisals. Synonymous with an appraisal as defined by the Federal appraisal regulations for real estate pledged to secure loans. A complete appraisal is a statement of market value that meets the five specific standards. A complete appraisal is conducted in conformity with USPAP rules and without invoking the departure provision in those rules. See appraisal, evaluation, and limited appraisal.

compliance risk

One of nine risks defined by the Office of the Comptroller of the Currency (OCC). The risk to earnings or capital arising from violations of or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards. This risk is incorporated in the Federal Reserve definition of legal risk. Participants in the Mortgage Meltdown of 2001-2008 were virtually all out of compliance and upon filing of an administrative complaint to the OCC, could be prosecuted for violations.

compound interest

Interest computed by applying the simple rate of interest to calculate interest on principal plus interest on successive increments of interest earned in prior periods.


Most states have adopted the Uniform Commercial Code without making any revisions. The UCC is an outgrowth of the Uniform Code arising from the Hague conventions. Thus the laws concerning indorsement, transfer, accommodation and assignment date back hundreds of years from common law from over 30 countries. Variance in application of these laws carries with it the probability of undermining the confidence that people will have in knowing that contractual obligations will be enforced and that they are protected by legal conventions that are accepted all over the world. In the context of the mortgage meltdown, the ONLY defensive positions that can be taken by those who would enforce securitized notes and mortgages, given the predatory practices employed and the failure to disclose the inflated pricing and valuation on both sides of the transaction — the investor who put up the money for the loan, and the borrower who signed the papers — is to run contrary to established law. An indorsement in blank generally means nothing without more. It does not convert the instrument to a bearer instrument. An accommodation indorsement fails to provide “cover” which is necessary for one to claim being a holder in due course. The following is an old treatise comparing laws from various jurisdictions. The inescapable conclusions are that the laws that were taught in law schools 100 years ago, 50 years ago and even 25 years ago are all the same. The only party capable of claiming the status of holder in due course is the investor who purchased certificates that gave him/her/it a share of a pool of assets which consisted of, in its purest form, a pool of notes and mortgages that were corrupted by the promise (unknown to the borrower or the investor) to apply payments to parties OTHER THAN the holder in due course. This has the obvious effect of separating the stream of revenue from the original obligor (and co-obligors acquired along the way) from the security instrument (the mortgage) which is a recorded document, as should be any assignment thereof. The parties holding the mortgage and the parties to whom the revenue stream is pledged are different, diverse, and in most cases unknown as they are dependent upon conditions subsequent that were undisclosed to either the borrower or the investor (overcollateralization of the asset backed securities, cross guarantees between tranches, insurance against loss, credit default swaps etc.). Hence the obligation was converted from a secured credit transaction to an unsecured unliquidated contingent contract obligation, subject to affirmative defenses and counterclaims, including the quieting of title, from the borrower. Conflict of Laws as to Bills and Notes

conventional mortgage

A mortgage loan based solely upon the value of the mortgaged real estate and the creditworthiness of the borrower. A mortgage loan without insurance or guarantees from a government agency. The significance is that with securitization of the loans there is (a) insurance to the holder of the CLO (b) guarantees of payment from third parties and (c) in practice, guarantees from the Federal Government (witness the Federal Reserve bailout of Bear Stearns and the Federal Reserve policy of allowing investment bankers who are holding CLOs to use those CLOs for loans at the Fed window). The securitized transactions thus converted the original transaction from a conventional loan to a complex consumer credit, insured, guaranteed, pooled security transaction falling far outside of the TILA exemption regarding residential home mortgages eligibility for rescission.

CO-OBLIGORS: SEE ABS, INDORSEMENT, CREDIT DEFAULT SWAPS, INSURANCE, TRANCHES see semantics-what-a-difference-a-word-makes-creditor-trustee

One of the anomalous results produced by the manner of execution of the securitization of residential mortgage notes, was that co-obligors were added as the note moved “upstream.” Insurance (AMBAC et al), Credit Default Swaps, Buyback agreements, cross guarantees, Tranche overcollateralization, all virtually guaranteed the existence of undisclosed parties, undisclosed fees, and improper allocation of payments made, and improper accounting for payments received from teh original borrower and third party co-obligors. Starting with the original transmission of the loan documents either by forgery, assignment, or indorsement, the primary obligation of the original debtor was either paid in full, plus a fee of around 2.5% or it was transferred in whole or in part (mostly in parts) to assignees or indorsees. either way, the party foreclosing in nearly all foreclosure cases in all jurisdictions, judicial and non-judicial, has no right under state or federal law to represent itself as the proper party toe nforce, much less foreclose.


(1) The Committee of Sponsoring Organizations of the Treadway Commission. Formed in 1985 by five U.S. professional organizations to sponsor the National Commission on Fraudulent Financial Reporting. This was an independent, private sector initiative. The committee developed recommendations used by financial auditors, the SEC and regulators.(2) The name most commonly used to refer to guidelines for enterprise-wide risk management (ERM) called “Internal Control – Integrated Framework”. These COSO guidelines now serve two purposes.

1. They are used by internal and external auditors to implement and evaluate a firm’s financial controls. The 2002 Sarbanes-Oxley Act and similar legislation is a primary driver of this application.

2. Financial institutions are also using COSO guidelines for ERM in general but primarily for the identification and control of operations risk. The Basel II capital requirements and related rules issued by national banking regulators are a primary driver of this application.


Restrictions on the activities of a debtor written into bank loan agreements or bond indenture agreements. Also called indenture covenants or protective covenants. Contractual terms of the loan or indenture agreement that prohibit the debtor from taking actions that might hurt the interests of the lenders or bondholders. Designed to protect the interests of creditors — often (but not limited to) unsecured creditors. Four common examples of covenants are prohibitions against: issuing new debt, paying dividends if certain minimum financial standards are not maintained, merging with another company, and selling corporate assets. You will find the covenants on the the sale of asset backed securities very interesting. For example, Countrywide has sold ABS instruments providing for an 8% return when the underlying assets were only producing half of that revenue. But the covenants allowed CW to use the proceeds from the sale of the ABS to pay the investor literally from the investor’s own money. The rationale was the anticipation of ARM resets. But undisclosed was the fact that CW and its progeny and affiliates knew that many or most of the ARM resets would produce defaults. See SEC filing of Countrywide, Wells Fargo etc and read it all the way through on the annual report and other filings. You will find these offerings and the terms are startling once you unravel their meaning.

covered calls

A call option for which the owner of a security grants the buyer of the call option the right to purchase a security owned by the option seller. The opposite of naked calls. In theory, selling covered calls can be a hedging strategy. If investment prices fall, the investor’s loss will be offset by the income from the covered call. (When prices fall, the call option is likely to expire unexercised because the call buyer can buy the security on the open market at a lower price.) On the other hand, if prices rise, the seller’s gain is limited to the difference between the seller’s book value and the option strike price (which in this case is probably less than the market price), but the seller also retains the proceeds of the option sale. For banks, regulatory restrictions as well as practical difficulties may restrict the suitability of covered calls as hedging tools. why is this here/ Because covered calls are part of the covenants of virtually every asset backed security, even if they are not specifically identified as such. And if all phases of the transaction starting with the origination of the loan through the sale of the asset backed security are considered as part of a single project, sale or transaction, then the impact on whether the obligation on the note shifted (along with the risk allocation) attached to the mortgage that was used at closing could be significant. It would create a class of debtors that are in effect co-borrowers. It also creates along with other covenants the logistics by which the owners of asset backed securities could be paid by means other than the payment on the note by the borrower. Thus the question becomes totally different in litigation: if the actual owner of the mortgage and note has been paid (or the person or entity to whom the payment was to be presented) then is the mortgage and note in default? If so, how? If the person or entity that is to receive payment is different than the person or entity that owns the title to the mortgage lien, then on what terms may the owner of the mortgage lien foreclose, post notice of sale (in non-judicial sale states). Has the debt thus been converted from secured to unsecured? Has the debt been converted to something which is dischargeable in bankruptcy?

covered put

The sale of a put option while holding sufficient cash to buy the underlying.


Acronym for current portion of long-term debt.


See constant percent prepayment.


See constant prepayment rate.


See Community Reinvestment Act.

cram down

An informal name for a settlement or terms that a debtor forces creditors to accept. For example, a debtor in Chapter 11 bankruptcy proceedings can, subject to some restrictions, have a plan to resolve the bankruptcy approved by the court even though a creditor or a class of creditors objects.

credit default swaps

See credit swap.

credit derivative

Contractual arrangements that allow one party to transfer credit risk of a reference asset, which it may or may not own, to one or more counterparties. The first party may be called the “protection buyer”, the “beneficiary” or the “originator”. The counterparty or counterparties may be called the “protection seller” or the “guarantor”. Credit derivatives are contracts for transferring risk – just like foreign exchange, commodity and interest rate risk derivatives. The only difference is the type of risk transferred. See total return swaps, credit default swaps,credit linked note and credit options for definitions of specific types of credit derivative instruments. Also seereference asset.

credit enhancement

A measure that alters the structure of a security in a way that reduces its credit risk. Credit enhancement may take the form of a letter of credit issued to back securities. For mortgage-backed and asset-backed securities, credit enhancement may take the form of arrangements to over-collateralize the security.

credit event

A term used in credit swap and some other credit related contracts. The specified credit event in each contract is defined by the parties to suit their particular needs. Typical specified credit events are bankruptcy, insolvency, credit rating downgrade or failure to make a required scheduled payment. Note that for a credit swap transaction, these events do not refer to occurrences or change impacting one of the contract counter parties. Instead they refer to events applicable to the underlying reference asset. The defined events must be well-defined and unambiguous.

credit history

A record of how a person has borrowed and repaid debts.

credit linked note

credit linked security

A type of credit derivative instrument. Credit linked notes are a securitized form of credit derivatives. The protection buyer issues notes. If a specified credit event occurs, the investor who buys the notes has to suffer either a delay in repayment or has to forego interest. (The specified credit event is pre-defined can be any one of a number of alternatives.) Also known as credit linked security.

Credit Bid
A bid on behalf of the lender at a foreclosure sale. The bid amount must be less than or equal to the balance of the loan in default.

credit options

A type of credit derivative instrument. Options on a credit spread take the form of credit-spread put options. The put-buyer pays an upfront fee to the put-seller in exchange for a contingent payment in the event that the credit spread for an asset rises beyond a pre-agreed upon threshold. This is a put option where the underlying is the spread on a third party security. For example, if you were holding a bond issued by a third party and the bond’s spread over the comparable Treasury rate were 200 basis points, you might purchase an option that pays off if the spread widens to 300 basis points. (Although that example uses the Treasury rate as a basis for comparison, it is becoming more common to use swap rates.) In other words, the widening of the credit spread to a defined size gives the protection buyer the right to demand a payment from the protection seller. Unlike a total return or default swap, the parties in a credit spread option do not have to agree upon any specific credit events. The fact that the market spread for the underlying rises compared to the reference index rate is, in effect, a proxy for a deterioration in the credit quality. Also known as credit spread options and credit spread put options.

credit risk

The risk to earnings or capital from the potential that a borrower or counterparty will fail to perform on an obligation. Usually, but not always, the obligation in question is a requirement to make interest or principal payments. Sometimes called default risk, the failure to make required payments reduces the value of equity securities, debt securities, and loans. In the extreme, credit defaults eliminate all or almost all of the value in loans or securities. Adverse consequences from credit risk are not restricted to default, the ultimate manifestation of credit risk. In addition, asset owners can suffer from reductions in value resulting from either real or perceived declines in the obligor’s financial strength.

Both the Office of the Comptroller of the Currency (OCC) and the Federal Reserve list credit risk as one of their defined risk types for risk-based examinations. Credit risk exposure is found in all activities in which success depends on the performance of a counterparty, issuer, or borrower. Credit risk arises any time a financial institution extends, commits, invests, or otherwise exposes its funds through actual or implied contractual agreements, whether reflected on or off the balance sheet.

credit scoring system

A statistical system used to determine whether or not to grant credit by assigning numerical scores to various characteristics related to creditworthiness.

credit spread options

See credit options.

credit swap

A type of credit derivative instrument. Swap contracts in which one party makes payments only if a specified credit event occurs. In a credit default swap, the protection seller agrees, for an upfront or periodic fee, to compensate the protection buyer upon the happening of the specified credit event. Credit default swaps are similar to a traditional financial guarantees but more flexible. It is more flexible because a credit swap need not be limited to compensation upon an actual default. The specified credit event in each swap is defined by the parties to suit their particular needs. Variations of the basic structure outlined in this definition are also used. Also known as default swaps or credit default swaps. See credit derivative, credit event and reference asset. The significance of this is that when investment banking firms created their SPV’s they would create the illusion of assurance through purchasing a guarantee (credit default swap/derivative) against reductions, delinquency and defaults of the cash flow promised to investors who purchased the mortgage backed security (CMO/CDO/ABS). It was illusory becaucse the “guarantee” (CDW) was purchased from another SPV from the same investment banker or the SPV of another investment banker, thus marrying two or more portfolios, each with slightly different terms, some of which conflicted with the terms of the other portfolio or tranches within the other portfolio. One of the reasons for the current crisis where much of the financial world is teetering on panic over a complete collapse, is that when push came to shove, firms like Bear Stearns, sold their guarantee in a CDW on over $750 billion worth of deals, thus inextricably tying itself to the obviously poor quality of the over-rated loans on over-appraised homes to sell over-rated securities, to unwary investors who trusted the basic systems of independent evaluations, derivatives, hedge products and guarantees and assurance. I would estimate that the amount of CDW and other derivatives (securities deriving their value from some other derivative that derived its value from the predatory loan scheme of 2001-2008 to be in excess of $20 trillion, which is around 20 times the the public estimates of potential losses on Wall Street. Small wonder for the panic, the secrecy, the midnight meetings, and the tacit and direct agreements to prop up the securities markets so it looks like business as usual, while all these “smart” people try to figure a way out of the unprecedented mess they created. The indentures or terms of the CDW will refer to other agreements, securities and possibly insurance policies, ratings and appraisals that could be helpful in the discovery process of litigation against the “lender” to which I collectively refer as consisting of everyone except the borrower starting with the loan originator, the trustee is non-judicial sale states (who is usually covered by E&O insurance) through the mortgage aggregation system, the investment bankers, SPV’s, CDW brokers, rating agencies etc.

credit watch

A warning issued by a credit rating agency alerting investors that the current rating is under review and may be upgraded or downgraded.

creditor see semantics-what-a-difference-a-word-makes-creditor-trustee

A party who is owed money by another party.


A creditor’s measure of a consumer’s past and future ability and willingness to repay debts.

critical path

A sequence of those tasks (e.g., in payment processing) which must be completed before the next task can be started. Anything not on the critical path is something that can be done later without delaying an important step.

cross collateralization

Extension of the creditor’s interest in property of the debtor so that collateral for one debt also serves as collateral for one or more other debts. In the world of the mortgage meltdown of 2001-2008, cross collateralization of derivative securities and underlying transactions from they derived their values became so complex as to be incapable of verification of value or risk by human hands or mind. This is why the transaction starting with the loan origination and ending with the sale of asset backed securities should be taken as a single transaction.


Unsecured, long-term corporate bonds. Even though debenture holders are not protected by collateral, they still have a legal right to repayment. In the event of default, debenture holders are treated like other unsecured creditors. In addition, debenture holders may benefit from indenture restrictions. The original “loan” transaction was converted into a debenture without disclosure to many parties by the process of securitization as it was applied in the mortgage meltdown context. Whether the owner of an ABS bond is holding a debenture or a secured debt is debatable. He either is holding a debenture, in which case someone else owns the the rights and obligations arising out of the original promissory note and security instrument, or he owns a bond that is secured. It is doubtful that he owns a bond because the assignments going up the line from the “lender” through the SPV and the credit default swaps bought and sold would be violated or voided. Thus it is probably safe to assume that the ABS investor is the holder of a debenture with a much higher risk than the rating attached by the rating agencies. The significance of the fraud against the investor — being misled into believing that the asset was a bond rather than a debenture is a mirror image of the fraud committed on the the borrower. Both sets of fraudulent acts had to be completed in order for the entire transaction to be complete. Neither the borrower nor the investor understood what kind of security they were “buying.” Neither the borrower nor the investor would have closed their part of the transaction if they had known the true nature of the role of the parties, the actual transaction details, or the “values” that were inflated on both ends by fraudulent means.

debt — see CDO, ABS

Funds owed by a debtor to a creditor. Outstanding debt obligations are assets for creditors and liabilities for debtors. May or may not be covered by written agreements. See Asset Backed Security. The significance of the definition of a debt, being an asset on one balance sheet and a liability on another, is that the securitization process parsed the standard debtor-creditor relationship and its terms. These rights in turn were re-assigned to multiple third parties as described in the securitization process defined and explained in Garfield’s Glossary. In the Mortgage Meltdown environment, the “debt” of the borrower in the refinance or purchase or real estate was parsed into multiple streams of revenue, each with a different obligor, guarantor, insurer, assurer, and subject to cross collateralized hedge products. The “asset” allegedly represented by the note and mortgage were parsed in similar fashion; in fact, these transactions came to be known as “off-balance sheet transactions” wherein the fees were recorded as income but the potential exposure to loss was not reported. Since the “lender” named at closing was (a) frequently not known until the day of closing and (b) never had its own resources at risk because of the presale or expectation of sale to a mortgage aggregator, it never reported the loan on its balance sheet — because PAYMENT (see PAYMENT) was received by the “lender” from a third party before or contemporaneously with the loan transaction. Hence the actual mortgage loan was satisfied and paid in full, albeit not by the original borrower. The Payor received an assignment, which according to our investigation was restricted to the stream of revenue. No assignment appears in the County property records, hence neither the note nor the mortgage were legally assigned. With no proper assignment of the instruments, the “lender” was left with a right to enforce the note and mortgage, but no financial interest in teh mortgage or note. Thus the “lender” is left with empty paper. The “assignee” receives nothing but a promise of revenue FROM THE “LENDER.” The Mortgage secures the debt from the borrower, which is no longer due or payable. Hence the mortgage is unenforceable.

debt coverage

See debt service coverage.

debt security

Any financial instrument representing a creditor relationship between the issuer (the debtor) and the holder of the instrument (the creditor). This generally includes all U.S. Treasury securities, municipal securities, corporate bonds, convertible debt, commercial paper, and securitized debt instruments such as CMOs and REMICs. Debt securities are usually not defined to include option contracts, futures contracts, forward contracts, lease contracts, or nonsecuritized loans.

debt service

A term used to refer to the amount of principal and interest payments required by a borrower’s loans or securities issued. Also used as a verb to describe making such payments.

debt service coverage ratio

A simple comparison of the cash available to make principal and interest payments to the bank or to bond holders with the amount of those required principal and interest payments. Debt service coverage is expressed as a ratio with the annual net income divided by the annual debt service requirement.

debt service coverage (DSC)

The margin by which all of a borrower’s or bond issuer’s required principal payments (not just those for the loan under consideration or just those for loans to one bank) are exceeded by the sum of the firm’s cash flow plus all of the principal repayments and interest expense deducted in the process of calculating that cash flow.

debt sinking fund

See sinking fund. The fund created by over-collateralization in an SPV is in the nature of a sinking fund. The payments from the lower tranches in the SPV that “assure” payment also produce a fund, whether called “sinking” or not from which payments are made in the total transaction commencing with the contemporaneous closing with the borrower/investor and funds investor.

debt tranche

Tranches in a multi-class security that have seniority ranking, for repayment, ahead of equity trances. See collateralized debt obligation (CDO), equity tranche and waterfall.

debt-to-worth ratio

The simplest way to measure leverage. Calculated by dividing total liabilities by total equity.


(1) A party who owes money or other performance to another party. Under the UCC, debtor includes the seller of accounts or chattel paper.

For the purposes of UCC provisions dealing with collateral, debtor also applies to the owner of collateral given as security for the debt of another.

For Purposes of the mortgage meltdown, ALL the participants in the chain of securitization and mortgage lending are co-debtors with the original buyers, together with other borrowers and third parties who have engaged in selling or buying credit default swaps involving portfolios in which some portion of the security instrument or promissory note executed by the borrower in a specific transaction which is the subject of a notice of sale or foreclosure action.

A judicial decision.

A signed document that shows ownership in property and allows the transfer ownership of property from one party to another.

Deed-in-lieu of Foreclosure
A voluntary transfer of title by the borrower to the mortgage company to avoid foreclosure action.

Deed of Trust
An instrument signed by a borrower, lender and trustee that conveys the legal title to real property as security for the repayment of a loan. The written instrument in place of mortgage in some states.





In a conventional mortgage transaction, a mortgage is in default when any of its terms are breached. While there are cases where the default consists of compromising the security (e.g. failure to insure — favorite among predatory lenders who “force place” insurance at exorbitant rates without just cause), the most common default claimed is in the event that the borrower fails to make the payments as agreed to in the original promissory note.

In the Mortgage Meltdown context, the entire concept of default has been redefined by

(1) disengagement of the borrower’s obligations from the security instrument and note

(2) substitution (novation) of parties with respect to all or part of the risk of default

(3) substitution (novation) of parties with respect to the obligations and provisions of the security instrument (mortgage) and promise to pay (promissory note)

(4) merger of mortgage obligations with other borrowers

(5) addition of third parties responsibility to comply with mortgage terms, especially payment of revenue initiated in multiple mortgage notes and

(6) a convex interrelationship between

(a) the stated payee of the note who no longer has any interest in it

(b) the possessor of the note who is most frequently unknown and cannot be found and therefore poses a threat of double liability for the obligations under the note and

(c) cross guarantees and credit default swaps, synthetic collateralized asset obligations and other exotic equity and debt instruments, each of which promises the holder an incomplete interest in the original security instrument and the revenue flow starting with the alleged borrower and ending with various parties who receive said revenue, including but not limited to parties who are obligated to make payments for shortfalls of revenues.

It may fairly be argued that there is no claim for default without (1) ALL the real parties in interest being present to assert their claims, (2) a complete accounting for revenue flows related to a particular mortgage and note including payments from third parties, sinking funds, reserve funds from proceeds of sale of multiple ABS instruments referencing multiple portfolios of assets in which your particular mortgage and note may or may not be affiliated and (3) production of the ORIGINAL NOTE (probably intentionally destroyed because of markings on it or other tactical reasons or in the possession of an SIV in the Cayman Islands or other safe haven.

In ALL cases, including recent ones in Ohio, New York, Maryland and others, it is apparent that the “lender” is either not the lender or upon challenge, cannot prove it is or ever was the lender. Wells Fargo definitely engaged in the practice of pre-selling loans upon execution of loan applications rather than assignment AFTER a loan had actually been created. In nearly all cases the Trustee or MERS or mortgage service operation has no knowledge of where the original note is, has no interest in the note or mortgage, and has no knowledge of the identity, location or even a contact person who could provide information on the real parties in interest in a particular mortgage note.

The “clearing and settlement” of “sale” or “assignments’ of mortgages, notes, ABS instruments and collateral exotic derivatives whose value is derived from the original ABS of the SPV which received representations from an unidentified SIV (probably off-shore).

The abyss created in terms of identifying the actual owner of the mortgage and note was intentionally created to avoid liability for fraudulent representations on the sale of the derivative securities to investors. The borrower’s signature on an application or closing documents was part of the single transaction process of the sale of ABS unregulated security instruments to qualified investors based upon fraudulent appraisals of (1) the underlying real property, (2) the financial condition of the “borrower” and (3) the securities offered to investors.



Deficiency Judgment
A judgment against the borrower for the balance remaining after the property is sold at auction or foreclosure sale.


A security which has no intrinsic value of its own, deriving its value instead by reference to an index (futures market), asset (assigned pool of loans, mortgages, notes etc.), or another derivative security. Derivative securities can be either simple or highly complex, with various levels of risk included at multiple levels, all of which are included in the total “value” or “price” of the security. In one case the number of levels (tranches, as they are called in the finance world) was 125. It took a modern computer with high capacity and memory, running for a full weekend to compute a price for that derivative security. Since a computer performed the work, and the computer operated according to algorythms programmed by technical programmers, many times, without documentation in the source code, and many times without the source code being available there is no method by which the resulting “value” or “price” can be verified or audited. Notwithstanding the impossibility of verification or auditing, Moody’s, Fitch and other rating agencies pretended to perform due diligence and rate the securities, regardless of their complexity. Analysis and due diligence was replaced by negotiations, and fishing junkets where the analysts were treated to vacations and other perks from the “client” (the issuer of the security), while at the same time being pressured by management from the top to satisfy the needs of the “client” in order to build “market share” for the rating agency and thus increase profits for the rating agency. See Wall Street Journal and Bloomberg for details. Derivative securities directly affect the actual supply of “money” in the marketplace and therefore are a principal source of money supply. To date the amount of “money” represented by derivative securities exceeds five hundred ($500,000,000,000) trillion dollars which is more than all government (fiat) currencies printed by all of the governments of the world. Thus the ability of central bankers has therefore been diminished to the point of being virtually irrelevant., as can be seen when the federal reserve decreases the over night ending rate between banks and interest rates in the marketplace go up. This unprecedented scenario is directly tied to the fact that the Federal reserve, The U.S. treasury and the Bureau of Engraving and Printing have only a minority share of the money supply in the country since the introduction of derivatives in 1983, and that minority share is decreasing each month.


The process of asking for and forcing the production of documentation, testimony, sworn answers to interrogatories, and access to physical space, computers, computer files (including meta-data), etc. In the Mortgage Meltdown context, the challenge is to prove the point that this was a fraudulent scheme, a Ponzi arrangement that was a financial pandemic. You get that information through discovery, but unless you know what you are looking for, you will merely come up with volumes of paper that do not, in and of themselves reveal all the points you need to make — but they WILL lead to the discovery of admissible evidence (the gold standard of what is permitted in discovery) if you understand the scheme.

The nucleus of the scheme is the virtually unregulated creation of the Special Purpose Vehicle (SPV), which is a corporation formed by the investment banker to “own” certain rights to the loans and mortgages and perhaps other assets that were packaged for insertion into the SPV. The SPV issues securities and those securities are sold to investors with fake ratings and “assurances” and insurance that is falsely procured, but where the insurers or assurers were under common law, state law and/or federal law, required to perform their own due diligence, which they did not (in the mortgage meltdown). The proceeds of the sale of ABSs (CDO/CMO) go into the SPV.

The directors and officers of the SPV entity order the disbursement of those proceeds. (see INSURANCE in GARFIELD’s GLOSSARY).

The recipients are a large undisclosed pack of feeding sharks all claiming plausible deniability as to inflated appraisals of the residential dwelling, the borrower’s ability and willingness to pay, the underwriting standards applied (suspended because the lender was selling the risk rather than assuming it), and the inflated appraisal of the ABS (CDO/CMO) for all the same reasons — direct financial incentives, coercion (give us the appraisal we want or we will never do business with you against and neither will anyone else) or even direct threats of challenges to professional licenses.

In order to get this information, you must find the name of the SPV, which is probably disclosed in filings with the SEC along with the auditor’s opinion letter (see INSURANCE in GARFIELD’s GLOSSARY). You might get lucky and find it just by asking. Then demand production of the articles of incorporation and the minutes, agreements, signed and correspondence between the SPV and third parties and between officers and directors of the SPV. The entire plan will be laid out for you as to that SPV and it might reveal, when you look at the actual insurance contracts, cross collateralization or guarantees between SPV’s. Those cross agreements could be as simple as direct guarantees but will more likely take the form of hedge products like credit default swaps (You by mine and I’ll by yours — by express agreement, tacit agreement or collusion).

You will most likely find that once you perform a thorough analysis of the break-up (“Spreading”) of the risk of loss, the actual cash income stream, the ownership of the note, the ownership of the security instrument (mortgage) and the ownership and source of payment for insurance and other contracts, that all roads converge on a single premise: this was a deal between the borrowers (collectively as co-borrowers) and the investors (collectively as co-investors). Everyone else was a middle man pretending to be NOT part of the transaction while they were collecting most of the proceeds, leaving the investor and the borrower hanging.

The simple mortgage on a home had been broken into many pieces (tranches — See Special Purpose Vehicle (SPV)) each having characteristics of entities unto themselves. The term “borrower” was severed from the the obligation to pay. The term “lender” was severed from the risk of loss and the right to payment from the borrower. The term “investor” was severed from the actual ownership of any asset, except one deriving its value from conditions existing between a myriad of third parties, but which nonetheless carried with it a right to receive payments from many different entities and people, the “borrower” being just one of many.

And there is no better place to start than with the insurance underwriting process — getting copies of applications, investigations, analysis, correspondence etc. Combined with the filings with the SEC you are likely to find virtual admissions of the entire premise and theme of this entire blog. I WOULD APPRECIATE YOU SENDING ME THE RESULTS OF YOUR ENDEAVORS.

Discovery: See Interrogatories, Request to Produce, Request for Admissions, Motion to Compel, Depositions

The process in litigation wherein one party obtains admissions and answers from the other party, copies of documents, media files, etc.


The DISTRIBUTION REPORT requires by REMIC provides the information and filing data required to prove that the REMIC tranche is operating as a tranche and not as a business vehicle for additional profit. This document, once obtained, will show whether your mortgage should have been covered, whether you paid it or not, by payments to inferior tranches, whether from borrowers, the reserve pool, the over-collateralized pool from which pieces were sliced out for tranche funding, supplementation or substitution, or some third party. The Appraisal Reduction Event that appears in virtually all securitization events at some point is for the benefit of the CDO manager (Investment Banker). They make the announcement in accordance with their interpretation of FASB accounting rules that the security is being written down because of appraisal reductions. No such new appraisals have occurred. The announcement is made anyway because the indenture to the bond or certificate held by the investor says they can and they do — because any money collected over that amount is “required” to be distributed under REMIC and since the Appraisal Reduction Event, the extra money can only go one place — the investment bank (who has profited from its own order to issue a declaration of an appraisal reduction event). Thus REMIC provides that the certificate holder is to be treated as the real party in interest for purposes holding the note, someone else is apparently in charge of holding the mortgage but has no access to revenue flow or the note, and reductions in payments result from non-payment by all of the people downstream (not just the borrower), diversions, and Appraisal Reduction Events. A “default” by the borrower is thus insufficient to declare the loan in default because it is either being paid by third parties, as above or the borrower’s payments have been incorrectly applied, along with others, to create the appearance of a default.

Early Amortization Event (EAE) — SEE LOST OR DESTROYED NOTE

A type of credit “enhancement” used in asset backed securities. One or more triggers, defined in the asset backed security’s documentation require the termination of revolving periods, controlled amortization periods and/or accumulation periods. Once triggered, the early amortization provision requires that the monthly principal payments be distributed to investors as they are received. This “enhancement” was in actuality a massive risk factor and contributed greatly to the Mortgage Meltdown period of 2001-2008. It also may have caused certain parties to be motivated to “lose” or “destroy” the original note. The most common trigger is a measure of how the portfolio yield net of charge-offs exceeds the base rate of servicing plus the investor coupon rate. Also called a pay-out event. Another event potentially within this category is the actual payoff of the mortgage. An analysis of the the concept of an EAE demonstrates several peculiarities and a possible explanation of the promissory note being lost or destroyed:

Given that an ABS is a derivative instrument and that traders in derivatives are comfortable with the value of these securities being “derived” by “reference” to something else, the traders are accustomed to examining not the actual “asset” or evidence of the asset (e.g. the note and mortgage) but rather a narrative describing the note and mortgage (which from 2003-2008 was, for the most part, at variance with the actual terms expressed in the note — the existence of the original physical note put the CDO a manager at risk of discovery of having misled, lied or withheld vital information (like actual cash flow based upon negative amortization versus the stated rate on the note or the elimination of escrow for taxes and insurance which degrades the safety of the an investment based upon that mortgage and note).
Hence, the traders in derivatives relied upon summaries or narratives that were not scrutinized by any securities agencies for compliance with disclosure requirements, the most important of which were the risks of the investment in an ABS. THEY RELIED INSTEAD ON THE RATING “AGENCIES” (ACTUALLY PRIVATE COMPANIES THAT WERE THEMSELVES UNREGULATED BUT ASSUMING THE MANTLE OF PSEUDO-GOVERNMENTAL OBJECTIVITY). And of course the rating agencies, by relying upon narratives prepared by CDO managers rather than examining the underlying documentation (the notes and mortgages) didn’t see the original note or mortgage either, much less analyze, examine or otherwise perform the due diligence that constituted the condition precedent to issuing a rating of “investment grade” on any security. This failure was prompted by monetary incentives and negotiation between the “client” (the issuer of the securities being rated and the rating company (Moody’s, Fitch etc.)
The actual projected charge-off rate was known to anyone who actually saw the loan application of the borrower, and the original note and mortgage. The narrated charge-off rate upon which the ABS derived its value was based upon the opinion of the CDO manager at the investment banking firm who had no expertise in appraising or underwriting loans. Nonetheless it is certainly an arguable position that the CDO manager knew or should have known that underwriting standards at the level of the nominal lender at closing had collapsed into a rubber stamp, since the nominal lender was in actuality playing the role of a conduit or mortgage broker. See Nominal Lender.
The structure of the SPV (see Special Purpose Vehicle) was a more formal replay of the pattern of misrepresenting the terms, risks and attributes of the note and mortgage. “Tranches” (see TRANCHE) were created within each SPV, wherein each tranche behaved more or less as separate entities providing protection to the tranche above and moving the brunt of the risk of total loss down lower and lower to the lowest tranche which in the parlance of the finance world is called “toxic waste.” (see Toxic Waste). ABS instruments were issued not on the entire SPV “portfolio” but on selected groupings of tranches within the SPV and further complicated by the trading of credit default swaps, the cross guarantees, assurances and liability of other SPVs, other individual SPV tranches, and other third parties, insurers and assurers.
Thus the EAE represented in reality an astonishing array and number of variables that could not be quantified or analyzed by purchasers of ABS instruments except on faith and confidence of the issuers, rating agencies and other parties or by performing their own due diligence (which is now proposed under new SEC rules as of the the date of this entry, June 24, 2008).
At the root of the EAE phenomenon was the conflict between the truth of what was actually presented to the borrower at closing of the loan transaction and what was represented up-line (in the securitization process) eventually to the purchasers of the ABS instruments that provided the capital to fund the alleged “loans” which are editorialized in these pages as securities in actuality that were issued by the nominal lender under false pretenses and without compliance with banking and securities laws, rules and regulations that applied.

EMBEDDED LEVERAGE:Essentially a lie that lay at the core of every ABS issued between 2003-2008, and probably most of the ABS instruments issued before that. It is the ultimate example in our financial history that if you start with an assumption you know is wrong, but will be hidden or accepted through specious argument, the rest of the logic proves the validity of what you are trying to sell. In the context of the mortgage meltdown and frankly most other derivative securities, the assumption that was employed was a permanent state of low defaults despite contrary evidence in plain sight. For a while the Federal Reserve was complicitous in this false assumption by covering up the impending defaults through various moves that increased “liquidity” meaning in this context enabling people to borrow their way out of anything. See Post on January 16, 2008: Mortgage Meltdown: Fed knew and Told Lenders 4-5 Years Ago.

Encumbrance: see gator-recording-duty-and-the-effect-on-agents-of-securitization

Mortgage, lien, tax, or any restriction on the use of land.

ENDORSEMENT (INDORSEMENT) See Also Assignment (not synonymous), Holder, Holder in Due Course, Person Who can Enforce, Early Amortization Event, Overcollateralization



  • (a) Indorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser’s liability on the instrument, but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.
  •  (b) Indorser” means a person who makes an indorsement.
  • (c) For the purpose of determining whether the transferee of an instrument is a holder, an indorsement that transfers a security interest in the instrument is effective as an unqualified indorsement of the instrument.
  • (d) If an instrument is payable to a holder under a name that is not the name of the holder, indorsement may be made by the holder in the name stated in the instrument or in the holder’s name or both, but signature in both names may be required by a person paying or taking the instrument for value or collection.
  • In the context of the mortgage meltdown and securitization of mortgages, an indorsement can be without an assignment and an assignment can be without an indorsement. An endorsement in blank may intend to create a “bearer” instrument but without notice to the debtor it might mean nothing (except for creating an ambiguity as to who is entitled to installment payment, interest, principal or fees), and an undated indorsement might be questionable because if it is after default, it probably is invalid in most jurisdictions. An assignment might be an allonge and it might convey possession without rights to enforce. Even if the right to enforce is theoretically present, the indorsement might or might not refer back to the recorded mortgage depending upon the restrictive covenants and promises made in the assignment, the allonge, or the indorsement. An assignment or indorsement with knowledge of defects, fraud or defenses, even if valid as a transfer of all rights to the note, is subject to those defenses. If fraud is involved in the execution or inducement of the note or instrument, then the ensuing holder cannot claim to be a holder in due course. In some jurisdictions, an assignment for accommodation might be accompanied by an indorsement, and might be allowed for enforcement — but only if there are no necessary and indispensable parties other than the debtor and assignor. In the mortgage meltdown environment, the assignment to MERS or some other servicing entity, is generally superceded by the subsequent assignment to a trustee of a pool of mortgages and subsequent sale to investors through an SPV vehicle. SEE CONFLICT OF LAWS


  • (a) If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable, it is a special indorsement.” When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. The principles stated in Section 3-110 apply to special indorsements.
  • (b) If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a blank indorsement.” When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.
  • (c) The holder may convert a blank indorsement that consists only of a signature into a special indorsement by writing, above the signature of the indorser, words identifying the person to whom the instrument is made payable.
  • (d) Anomalous indorsement” means an indorsement made by a person who is not the holder of the instrument. An anomalous indorsement does not affect the manner in which the instrument may be negotiated.


  • (a) An indorsement limiting payment to a particular person or otherwise prohibiting further transfer or negotiation of the instrument is not effective to prevent further transfer or negotiation of the instrument.
  • (b) An indorsement stating a condition to the right of the indorsee to receive payment does not affect the right of the indorsee to enforce the instrument. A person paying the instrument or taking it for value or collection may disregard the condition, and the rights and liabilities of that person are not affected by whether the condition has been fulfilled.
  • (c) If an instrument bears an indorsement (i) described in Section 4-201(b), or (ii) in blank or to a particular bank using the words “for deposit,” “for collection,” or other words indicating a purpose of having the instrument collected by a bank for the indorser or for a particular account, the following rules apply:
    • (1) A person, other than a bank, who purchases the instrument when so indorsed converts the instrument unless the amount paid for the instrument is received by the indorser or applied consistently with the indorsement.
    • (2) A depositary bank that purchases the instrument or takes it for collection when so indorsed converts the instrument unless the amount paid by the bank with respect to the instrument is received by the indorser or applied consistently with the indorsement.
    • (3) A payor bank that is also the depositary bank or that takes the instrument for immediate payment over the counter from a person other than a collecting bank converts the instrument unless the proceeds of the instrument are received by the indorser or applied consistently with the indorsement.
    • (4) Except as otherwise provided in paragraph (3), a payor bank or intermediary bank may disregard the indorsement and is not liable if the proceeds of the instrument are not received by the indorser or applied consistently with the indorsement.
  • (d) Except for an indorsement covered by subsection (c), if an instrument bears an indorsement using words to the effect that payment is to be made to the indorsee as agent, trustee, or other fiduciary for the benefit of the indorser or another person, the following rules apply:
    • (1) Unless there is notice of breach of fiduciary duty as provided in Section 3-307, a person who purchases the instrument from the indorsee or takes the instrument from the indorsee for collection or payment may pay the proceeds of payment or the value given for the instrument to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser.
    • (2) A subsequent transferee of the instrument or person who pays the instrument is neither given notice nor otherwise affected by the restriction in the indorsement unless the transferee or payor knows that the fiduciary dealt with the instrument or its proceeds in breach of fiduciary duty.
  • (e) The presence on an instrument of an indorsement to which this section applies does not prevent a purchaser of the instrument from becoming a holder in due course of the instrument unless the purchaser is a converter under subsection (c) or has notice or knowledge of breach of fiduciary duty as stated in subsection (d).
  • (f) In an action to enforce the obligation of a party to pay the instrument, the obligor has a defense if payment would violate an indorsement to which this section applies and the payment is not permitted by this section.
  • § 3-207. REACQUISITION.

  • Reacquisition of an instrument occurs if it is transferred to a former holder, by negotiation or otherwise. A former holder who reacquires the instrument may cancel indorsements made after the reacquirer first became a holder of the instrument. If the cancellation causes the instrument to be payable to the reacquirer or to bearer, the reacquirer may negotiate the instrument. An indorser whose indorsement is canceled is discharged, and the discharge is effective against any subsequent holder.

Equitable Title:

The present right to possession with the right to acquire legal title once a preceding condition has been met.

The value of real estate less the outstanding mortgages and debts pledged against the property.

EVIDENCE: evidence

Any matter of fact that a party to a lawsuit offers to prove or disprove an issue in the case. A system of rules and standards that is used to determine which facts may be admitted, and to what extent a judge or jury may consider those facts, as proof of a particular issue in a lawsuit.



Fair Market Value
The price a property would sell for on the open market.

Fee Simple
Common term used to indicate complete legal ownership of a property.

Federal Housing Administration under U.S. Department of Housing and Urban Development (HUD).

The forced sale of property pledged as security for a debt that is in default.

Forgery: See Missing Note, Assignment, SEE IDENTITY THEFT

In the mortgage meltdown context, forgery means many things. First, there is the actual signing of documents by a person who is not the designated signatory. For example, when a mortgage broker signs the borrowers name or inserts or changes on the mortgage application as though the Borrower had done it. Second, there is the signing of the borrower’s name with a “squiggle” on a blank promissory note by an agent or employee, which is very common. Third, as in the King’s County Case in New York, there is the actual hiring of a person or entity to create ficitious or forged assignment and other documents. These intermediaries actually fraudulently present themselves as employees of multiple large lenders in order to provide a layer of plausible deniability to the people pulling strings. The signature is a “squiggle” so that nobody can tell at a glance who actually signed it. The printed name underneath can later disclaim any knowledge if the document is caught as a forgery. All of these relate to TILA claims, holder in due course etc. In point of fact, there are multiple parties clouding the title of the negotiable instruments used in the securitization process. This is part of the argument against the “fairness” position asserted by lenders in a court of equity. They will try to characterize your position as attempting to obtain a windfall. Your position, in actuality, is that you are protecting yourself or client against multiple unknown parties who are known to exist and who have better claims to ownership of the note and mortgage because they paid the money that funded the loan and received some sort of assignment, even if the assignment was bogus. comment-foreclosure-defense-production-of-note-does-not-mean-you-lose


Fraud in the inducement n.

  • the use of deceit or trick to cause someone to act to his/her disadvantage, such as signing an agreement or deeding away real property. The heart of this type of fraud is misleading the other party as to the facts upon which he/she will base his/her decision to act. Example: “there will be tax advantages to you if you let me take title to your property,” or “you don’t have to read the rest of the contract–it is just routine legal language” but actually includes a balloon payment. (See: fraud, extrinsic fraud)

Free & Clear
Ownership of property free of all indebtedness.


See generally accepted accounting principles.

gains trading

The practice of purchasing securities and then selling those that subsequently appreciate in value while retaining as investment portfolio assets those that cannot be sold at a profit. Accounting and banking regulators have repeatedly and strongly criticized this practice. Rules related to the transfer of securities from trading portfolios to available-for-sale (AFS) or held-to-maturity (HTM) portfolios are specifically designed to prohibit gains trading.


(1) As a measurement of exposure to interest rate risk, the amount of mismatch or imbalance between the quantity of an entity’s assets and the quantity of its liabilities that reprice in a defined or selected time period. In a single time period, the net mismatch or imbalance may be called the interval gap. Over a series of consecutive time periods or buckets, the total net imbalance or mismatch may be called the cumulative gap. See rate-sensitive assets and rate-sensitive liabilities.

(2) One of the four components of interest rate risk. The component of interest rate risk arising from the mismatch defined above. Also called mismatch or repricing risk.

(3) As a measurement of liquidity risk, the amount of mismatch between the quantities of cash provided from decreases in liabilities and increases in assets and the quantities of cash used by increases in assets and decreases in liabilities in a defined or selected time period.

gap analysis

A technique or process for quantifying exposure to adverse consequences from changes in interest rates. A comparison of the total quantity of a financial institution’s rate-sensitive assets (RSAs) and rate-sensitive liabilities (RSLs) for each of a number of different future time periods or buckets. Gap analysis is used to evaluate the potential effect of rate shocks on income over these time periods. See gap, rate-sensitive assets and rate-sensitive liabilities.


Mismatching assets and liabilities, usually by borrowing short and lending long.


See Government Accounting Standards Board.

generally accepted accounting principles (GAAP)

Accounting treatments that fully conform to established rules from the American Institute of Certified Public Accountants (AICPA). For all nongovernmental entities in the United States, GAAP is primarily determined by the Financial Accounting Standards Board (FASB). For state and local government entities in the United States, GAAP is primarily determined by the Government Accounting Standards Board (GASB). Both FASB and GASB function under the auspices of the Financial Accounting Foundation (FAF), an independent, nonprofit foundation.


FHLMC MBSs created when older pools that have been reduced to small outstanding balances (i.e., low current face) as a result of cumulative prepayments are combined to create new securities with larger remaining balances. Giants may be either fixed- or adjustable-rate securities.

Ginnie Mae

An informal name for the Government National Mortgage Association (GNMA) or for securities issued by it.


See Gramm-Leach Bliley Act of 1999.


See Government National Mortgage Association.


Fifteen-year FHLMC MBS pool that is issued under the FHLMC fifteen-year Cash Program. See nongnome.

good delivery

(1) Delivery of a security, from a seller to a buyer, that complies with all terms of the contract of sale.
(2) For a new, to-be-announced MBS, good delivery is delivery by the seller that conforms to rules published by the Bond Market Association (BMA).

good faith estimate (GFE)

A document that lenders are required by regulation to provide all applicants for covered real estate loans. This document discloses the anticipated expenses that the applicant(s) will have to pay if the covered transaction is approved and closed. It also discloses the participants in the loan transaction, their compensation and role. No GFE in a securitized “loan” transaction that we have seen has ever complied with the TILA requirements.

Government National Mortgage Association (GNMA)

A government-owned corporation that is part of the U.S. Department of Housing and Urban Development. GNMA provides its guarantee, backed by the full faith and credit of the United States Government, to certain mortgage-related securities. Informally but widely known as Ginnie Mae.

grace period

A time period, usually one or more months, during which the debtor may delay principal repayment without incurring a penalty.


See graduated payment mortgage.

graduated payment mortgage (GPM)

A mortgage in which the monthly payment of principal and interest begins at a low amount and progressively increases to a predetermined higher amount. Thereafter, the amount of the monthly payment remains constant for the remaining life of the loan. The interest rate is fixed for the entire period.

Gramm-Leach Bliley Act of 1999 (GLBA)

Major banking legislation designed to significantly enhance the powers and authority of financial institutions by allowing the formation of new financial holding companies. Financial holding companies are authorized to engage in: underwriting and selling insurance and securities, conducting both commercial and merchant banking, investing in and developing real estate and other “complimentary activities.” The statute also restricts the disclosure of nonpublic customer information by financial institutions and provides the major financial regulators with increased authority.


A person, partnership or corporation that gives or conveys an interest in property. Often used to identify the creator of a trust.

guaranteed bonds

A type of corporate bond for which a corporation other than the issuing corporation guarantees the repayment of a bond issue. Usually, the guarantee is provided by the parent firm of the issuing corporation. In the mortgage meltdown context, the promissory note issued by the borrower AND the ABS bond issued by the SPV are guaranteed bonds, which is why we editorialize here that the “lender” is incapable of alleging legal standing, incapable of reporting a default, and that in most cases the ultimate recipient of the revenue flow received payment of all or part of the obligation reported in the notice of sale or the judicial foreclosure. The obligation to pay commences from multiple parties at the moment the transaction is closed on both ends (borrower and investor). See PAYMENT. Defense of Payment.


An agreement by a person, partnership, or corporation (other than the borrower) to repay a bank loan if the borrower does not pay.

guidance line of credit

A line of credit approved by the bank, but not disclosed to the borrower until some specific event, usually a request for funding from the borrower. Also called an unadvised line.


Hazard Insurance
Insurance against the destruction of the property.

Holder in due course: See UCC Article 3 provident-bank-v-silverman-super-duper-explanation-of-ucc-transferres-holders-and-holders-in-due-course-and-perfecting-title-to-note-or-mortgage



See question below for context. Much of this was written in response to blog comment/question. Over-appraisal and other fraudulent practices taints the note throughout the chain. So does non-disclosure of the real parties and the fees they were feeding on.

A term used by the Uniform Commercial Code (UCC) adopted by nearly all the states. The holder is just what it says — the party that is holding the note physically. The holder is not necessarily the owner which is where holder in due course comes in. A holder is due course is a party who is holding the note without any taint of illegality, fraud, or conditions close to fraud.

The ONLY party who could possibly have an argument that they were holders in due course without notice are the owners of the ABS certificates. That of course presumes that some kind of effort at transfer was actually made. All filings with the SEC indicate that this is so and would be taken as the court under judicial notice as true. That being the case, if the holders in due course were paid, is there a default? The answer is no.

However the question you address is interesting because it goes straight to the heart of the matter. Is there any way in which we can determine whether the Certificate holders were paid. You posit an answer but we would need to dig pretty deep and take a lot of time unless we can move the burden of showing non-payment onto the Plaintiff. If the note is still outstanding there is a rebuttable presumption that is is unpaid. But here we have a note that isn’t due in its entirety until 25+ years from now. And the only thing ‘due’ is monthly payments.

The contest becomes one of single transaction versus multiple transactions. Borrower wins if the securitization process is a single transaction with many subparts. ‘Lender’ wins if it is a series of independent (or not related enough) transactions. I believe we have the upper and because the money came from the investor, was paid to the Seller of the home and the borrower was supposed to pay the money back ultimately to the investor — or the investor and other entities that joined in the party because the investor was charged 150% of the loan to buy it. This of course leads to questions like who is the real victim or whether there are multiple victims. The other question is who was victimized more and did either victim bear any responsibility. In a court of equity, which this might come down to in state courts, the issues of unclean hands and fraudulent practices at the loan closing will bite everyone in the line and taint the title throughout the chain. Such a showing by the borrower would eliminate everyone as holders in due course.

The problem deepens when you examine the way the loan deals were parsed and included in multiple tranches, breaking apart the risk, and thus breaking part the note and mortgage rights into many pieces. The likelihood, as you correctly point out, is that SOME of the pieces were paid and some were not. Some of the investors were paid off completely and most were not. But which investors are related to what tranche in what SPV? And how many of them received payments and if so, how much?

These are questions that could be asked in discovery but the main thrust of my strategy is to use the presumptions extant in the Uniform Commercial Code and rules of evidence. Basically it all amounts to this: if you allege dirty hands and fraudulent practices at the loan closing or before it, which is often the case, in some states that is enough to force the Plaintiff to show he is a holder in due course. In order to satisfy that burden he would have to present documents and testimony showing that he is a holder in due course before the burden of proof would shift to the borrower to prove his defenses of fraud etc.

Other states allow for the pleading but also require citing some evidence (probably rising tot he level of ‘probable cause’) that there was fraud. In this case, where the source of funds substituted multiple parties in between himself and the borrower, it is presumed the other way — that there was fraud and that he must prove that he is a holder in due course. This is precisely why the MERS cases were thrown out, why similar mortgage servicer cases were thrown out, and why more will be thrown out. These intermediaries are accommodation parties and there is a whole history going back over a hundred yeayrs about what to do when these situations arise.

The Trust of securitized mortgages must qualify as a holder in due course or qualify as having the rights of a holder-in-due-course. In order to prove that they are the holder-in -due-course they must physically possess the note (a custodian could be used to hold note). To be holder in due course, there must be proper endorsement to the trust. This mean that there must be proper endorsement from the originating lender to the wholesale lender to the issuer, and finally from issuer to the trust. However, the Trust may not be able to produce the note and thus will show some paper (usually a forgeries) in order to claim to be holder-in-due-course. Another claim they may raise is that trust have the “rights” of a holder-in-due-course. I think that a good line of defense against claims of having the “rights” of a holder-in-due-course can be that a party cannot acquire rights if it engaged in fraud or illegality affecting the instrument. Example, issuer cannot acquire “rights” of a holder from wholesale lender if issuer engaged in fraud (U.C.C.§ 3-203 (b)).

There was Fraud in the Factum since securitizations often are involved. The truth is that there was fraud in the factum. The Defendants filings with the Securities and Exchange Commission (SEC) shows interconnected and affiliated parties that aided and abetted a pattern of fraud by the originating lender and, thus, trust cannot acquire the rights of a holder-in-due-course per U.C.C.§ 3-203 (b). To use participation theories, we must show that financial institutions providing lending capital for a predatory lending scheme are dictating loan terms or, at least, are aware of the predatory characteristics of the loans (England v. MG Investments, Inc., 93 F. Supp. 2d 718 (S.D. W.Va 2000)).

Such information may be found in the 8K and 10K filings with the SEC. For example, a federal district Court held that the Wall Street underwriters (Lehman Bros.) for a predatory lender could be liable to injured consumers on an aiding and abetting theory where consumer allege that the underwriter knew of the lenderʼs fraud and provided substantial assistance to the lenderʼs scheme (Aiello v. Chisik, 2002 U.S. Dist. Lexis 5858 (C.D. Cal. Jan. 10, 2002) ). Proving such a fraud can be a good defense to fight a trust’s claims to be holder-in-due-course or claims of having the “rights” of holder-in-due-course.

> Comment:
> Have you considered the ramifications of AMBAC , MBI and others who pay the regular monthly interest payments on the highest rated tranches for CDO’s and other derivatives. I think an argument could be made once you find the CDO(Trust) Citicorp 8K Filing — A Wealth of Material
> you can then check and see where your loan fits in the tranches…..if AMBAC makes your monthly payment to the holder of the tranche you are in then do you still owe for the month you did not pay? Interesting question…….any takers?

IDENTITY THEFT: See forged instruments, holder in due course


The act of obtaining the personal information of a real person under false pretenses or otherwise using illegal means for the purpose of utilizing that information for the perpetrator’s own personal gain. In the context of the Mortgage Meltdown, virtually every one of the loan closings conducted between 2001-2008 and many of the loan closing predating the Mortgage Meltdown were conducted under the general heading of identity theft. identity-theft


The practices of the indsutry that set the standard for legal, proper and prudent underwriting, processing and closing of loans. see appraisal-fraud-and-industry-standards-described-in-2003-official-white-paper-red-flags-described-in-detail-with-excellent-diagrams-explanations-and-descriptions-of-best-practices


A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual,company or other entity in the case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the terms of an insurance policycreates a contract between the insured and the insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and the insurer pays the rest. IN FORECLOSURE OFFENSE AND DEFENSE, YOU WILL FIND ERRORS AND OMISSIONS POLICIES COVERING THE OFFICERS AND DIRECTORS OF THE INVESTMENT BANKING FIRM, THE SPV THAT ISSUED THE ASBs, THE RATING AGENCY FOR THE ABS (CMO/CDO), THE LENDER, THE MORTGAGE BROKER, THE REAL ESTATE AGENT, ETC. YOU WILL FIND MALPRACTICE INSURANCE FOR THE AUDITORS OF THE SAME ENTITIES WHICH RESULTED IN FALSE REPRESENTATIONS CONCERNING THE FINANCIAL CONDITION OF THE ENTITY. YOU WILL FIND LOSS COVERAGE FOR DELINQUENCY, DEFAULT OR NON-PAYMENT THAT MAY INURE TO THE BENEFIT OF THE BORROWER. By joining the borrower and the investor as victims in the fraudulent Ponzi scheme creating money supply with smoke and mirrors, it may be argued that the insurance premiums were paid by and equitably owned by the borrower and/or the investor.


Transactions in which the commencement of the terms at the execution of the deal contains terms, risks or provisions that differ from a later time. The significance of this insider term in the MORTGAGE MELTDOWN is a classic real story: the victim is a black man with a perfect (800) FICO score has lived in his house many years and has only 5% left to pay off on his mortgage. He is approached by carefully trained predatory salesman for subprime lender — a lender that the victim had no need for because his credit, finances and personal reputation were excellent. Victim could therefore have qualified for any conventional loan on conventional terms. Victim does not know because it is not disclosed to him that he is being approached with a subprime lending program and that he qualifies for much better terms that are being offered to him — nor that he would be better off NOT refinancing since he is so close to paying off his house. He is convinced to get a new mortgage for interest only payments set at 1% while another 9% accrues. $20,000 in mortgage broker and yield spread premium rebates (kickbacks) are paid up front along with the mortgage proceeds. Within a few months he starts getting notices of increases in his payments which eventually are larger than his entire income. Qualification of the loan by the “lender” was at the payment rate at 1% interest, not at the future rates that would be applied, for which his income would NOT qualify. Victim ends up with risk of foreclosure and blemished credit score. Happy ending. Legal aid stepped in and unwrapped the deal. Many borrowers are seduced into accepting these deals believing that the extra money they are getting out of the mortgage proceeds will help them indefinitely to make future payments. It is the lender’s obligation to disclose that this is not the case, that the borrower’s income does not cover the amount of future payments which the lender understands and the borrower does not (see asymmetric information).

INVESTOR: SEE LENDER, REAL PARTY IN INTEREST, HOLDER IN DUE COURSE, SOURCE OF FUNDS see also cyruswellstexascase-excellent-verbiage-on-securitization-conspiracy-with-charts-and-causes-of-action

In the mortgage meltdown context the investor is the actual source of funding on all residential mortgages. Investors include but are not limited to “qualified” investors possessing sufficient net worth under SEC rules, or the status of being a financial institution themselves, which includes pension funds, mutual funds, hedge funds, city operating funds, county operating funds, national operating funds from many countries, and corporate operating funds. ABS certificates were sold as “cash equivalent” many of the investors being led to believe that they were weekly auction market interest rate securities that would not and could not vary in value — until one day in March, 2008, when Lehman Brothers sent out an innocuous memo to all investors in ABS certificates that the auction market had convened but that there were no buyers. Many thousands of “investors” most of whom representing tens of millions of individual people found out the certificates were essentially worthless. These worthless securities (having no value because of the reasons stated in this blog) are in the process of being publicly and privately re-purchased at face value, despite the fact that they have a negative fair market value. The purchasers are the investment banking firms that created and sold them in the first place. But the source of money is the Federal Reserve which in this “special circumstance” has opened its discount lending window to investment bank for the first time history. The FED is accepting the worthless ABS certificates or evidence of them at face nominal value and “lending” the investment bank the money using as collateral the worthless ABS certificates. Thus the FED, creates funds to soak up the losses across the board. The significance of all this is that the debt originated by the borrower has been paid multiple times and the right to foreclose the mortgage or enforce the note has been extinguished by alteration of terms and actual payment. In short, the Federal Reserve is becoming the real party in interest or the POSSIBLE real party in interest in virtually ALL loan transactions originated from 2001-2008, the holder in due course, and has no intention or desire to become involved in foreclosures. The parties who are “exercising their right” to enforce the note and mortgage do not have such a right because they are not who they say they are, because they have already been paid, and even the people who paid them have been paid. The anture of the secure transaction (mortgage) has been eviscerated and the note has been satisfied by the taxpayer bailout of the investment banking comabines.

Judicial Foreclosure
A foreclosure that is processed by a court action. Non_judicial sale is probably not the proper procedure where there are equitable and constructive holders in due course. Only Judicial Foreclosure would be available. Motions should be filed appropriately. This will force the “lender” to disclose and plead standing which can be easily challenged. california-statutes non-judicial-as-private-contract-opening-the-door-to-homeowners-for-self-help

LENDER: testimony-before-sub-committee-lays-the-story-out-short-and-sweet-tax-evasion-liability-shell-game

READ THIS: A lender is not just the entity that actually “appeared” at closing. The true lender for the mortgage meltdown period is usually some larger investment banking firm or large bank that used a small “front” organization that essentially acted as a mortgage broker and mortgage aggregator before selling or assigning the mortgage before even the first payment was due. If that is the case, there were undisclosed parties to the “loan” transaction and undisclosed fees paid, all of which are TILA violations.

ATTORNEYS AND BORROWERS TAKE NOTE: DON’T TAKE THE BASICS FOR GRANTED. EXAMPLE: WASHINGTON MUTUAL IS REPORTED TO HAVE NOT QUALIFIED TO DO BUSINESS IN THE STATE OF CALIFORNIA AND MAY HAVE REPEATED THAT MISTAKE IN OTHER STATES AS WELL. If they were not authorized to do business a the time of the transaction, it means that they had not registered with the secretary of state and paid their fees as a state corporation or other entity, or as a foreign corporation or other entity. In ALL states we have researched, the law is the same: The mortgage (or any other) transaction is unenforceable and the claims against the party transacting business without qualification MAY NOT BE DEFENDED. A simply quiet title action might end the entire affair. Likewise, the true lender might be the investment banker, the investor in a securitized asset backed security or the entity that was created by the investment banker in which bonds or shares of asset backed securities were sold. The “lender” would thus be defined by “substance over form” and probably doesn’t qualify under the laws of the state in which the mortgage loan was originated, does not qualify as a securities transaction under the laws of the state in which the mortgage loan was originated, and probably doesn’t qualify as a lender under the banking and finance laws of the state in which the mortgage loan was originated. In all of these cases the transaction is void or voidable. The lender may also have avoided “intangible taxes” in states like Florida, subjecting itself to multiple counts of criminal and civil liability, interest and penalties in addition to the taxes due.

Legal Description A formal description of real property so that one can locate it by reference to government surveys or approved recorded maps.

A person who lends money for temporary use on condition of repayment with interest (i.e., the bank, mortgage company, etc.).

A charge upon real or personal property for the satisfaction of a debt.

LIS PENDENS — see usury, Temporary Restraining Order, Lawsuit, Burden of Proof

(1) Latin for “a suit pending.” The term may refer to any pending lawsuit. (2) A written notice that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is usually filed in the county land records office. Recording a lis pendens against a piece of property alerts a potential purchaser or lender that the property’s title is in question, which makes the property less attractive to a buyer or lender. After the notice is filed, anyone who nevertheless purchases the land or property described in the notice takes subject to the ultimate decision of the lawsuit. IN THE CONTEXT OF FORECLOSURE OFFENSE AND DEFENSE, the significance of this filing is profound and potentially complex. The filing of the Notice of Sale by the Trustee in non-judicial states is the equivalent of a lis pendens in is effect. All judicial states (states where the filing of a foreclosure lawsuit is required before the property can be scheduled for sale) require a lis pendens to be filed by the lender along with the suit. However, in ALL cases, non-judicial or judicial, where the defensive and offensive strategies promoted by this blog are involved, it probably would be a good idea to file a lis pendens along with any suit or emergency petition for temporary restraining order (TRO). It is possible that the lis pendens, especially where a TRO is sought, will be met with a demand for bond. However, the bond requirement should be nominal since the property is already in existence and presumably will be maintained. No lis pendens can be filed unless there is a “suit pending” — but once there is a pleading from the borrower seeking affirmative relief from a court of competent jurisdiction, the filing of a lis pendens cannot be stopped. The foreclosing party must step forward and request that the lis pendens be removed. They will do that because any bid at the foreclosure sale will be subject to your claims in the suit you filed against the “lender” at al. This is another opportunity to “win at the beginning” since the “lender” is now required to justify the its authority to have given notice of delinquency, notice of acceleration, notice of default and notice of sale. In order to do that they must file a petition or motion with the court which will be gingerly and creatively written if they understand the stakes or taken from some form if they do not understand the issues. They will plead (make allegations) that can now be denied. You have effectively converted the non-judicial sale to a judicial proceeding and forced the burden of proof onto the alleged foreclosing party. Take nothing for granted, and assume nothing. The attorneys for the foreclosing party probably have very little information — less than you have — and if you hit the hard enough right at the beginning, you might, like thousands of other cases across the United States, find yourself walking out with an order that cancels the sale, dismisses the claims of the “lender” and perhaps the Judge’s order will even be “with prejudice, which would be the equivalent of a quiet title action, which you might pursue immediately after receiving a favorable ruling with or without prejudice. REMEMBER, AS IN USURY, CONTRARY TO THE IMPRESSION CREATED BY THE TRUSTEE OR THE ‘LENDER’ YOUR OBJECTIVE IS TO SMOKE OUT THE FACT THAT THE ORIGINAL LOAN TRANSACTION IN WHICH THE BORROWER SIGNED THE PAPERS WAS A SMOKE SCREEN FOR A REAL “LENDER” THAT WAS NOT REGISTERED TO DO BUSINESS IN THE STATE, THAT WAS NOT CHARTERED OR AUTHORIZED AS A BANK OR LENDING INSTITUTION AND THAT THEREFORE WAS A PRIVATE LENDER, THUS FORTIFYING YOUR CLAIM FOR USURY, VIOLATION OF THE DISCLOSURE REQUIREMENTS FOR TILA, FRAUD, BREACH OF FIDUCIARY DUTY ETC. IT IS THIS STRATEGY THAT COULD ENABLE YOU TO CLAIM USURY BASED UPON INFLATED APPRAISAL OF THE PROPERTY — EVEN IN STATES LIKE CALIFORNIA WHERE THE CONVENTIONAL WISDOM IS THAT USURY DOES NOT APPLY BECAUSE BANKS ARE EXCLUDED. YOUR ARGUMENT IS THAT THE BANK WAS MERELY A STAND-IN, CONDUIT OR MORTGAGE BROKER, NONE OF WHICH BRINGS THEM WITHIN THE EXEMPTIONS FOR USURY. THE REAL LENDER WAS NOT A BANK AND WAS HIDING BEHIND A FINANCIAL INSTITUTION TO CREATE THE APPEARANCE OF BANK INVOLVEMENT. BY NOT RECORDING PROPER ASSIGNMENTS, STATE LAW REGARDING TRANSFER OF INTERESTS IN REAL PROPERTY WERE VIOLATED, STATE LAWS REQUIRING THE PAYMENT OF FEES AND TAXES FOR RECORDING INSTRUMENTS ON REAL PROPERTY WERE VIOLATED, AND STATE LAWS REQUIRING REGISTRATION AND CHARTERS TO DO BUSINESS WERE VIOLATED WITH THE WILLING COMPLICITY OF THE “LENDER”. THUS A COMPLAINT WITH THE STATE BANKING COMMISSION AGAINST THE “LENDER” WOULD BE APPROPRIATE FOR FRAUDULENTLY REPRESENTING ITSELF TO BE THE REAL LENDER AND BEING A CONSPIRATOR IN AN ILLEGAL SCHEME TO ISSUE UNREGULATED SECURITIES. NOTE: Most of what is said here assumes that securitization was involved. In situations where the “lender” retained the loan, only some of these strategies apply.  


In prior times, the possibility of a note being accidentally lost or destroyed was protected by statutes providing for proving the note and mortgage without the original. These statutes and rules of procedure are now being invoked by nominal lenders and assignees of nominal lenders to escape or navigate around a much deeper problem for them. It is the opinion of this editor that the original notes were not accidentally destroyed or lost. There either intentionally destroyed or hidden in some trustee’s vault in an off shore structured investment vehicle. The reason is simple: the terms of the note and mortgage do not match the narrative or representations of the parties in the securitization process culminating in the sale of ABS instruments. The nominal lender or assignee will claim that they did not lose or destroy the note and that might be true. That is why the SINGLE TRANSACTION theory must be invoked in foreclosure defense. Someone in the securitization process was responsible for the fact that between 40%-90% of the notes have vanished, whereas prior to the Mortgage Meltdown era the percentage of lost notes was less than 1/2 of one percent. Since the promissory note is a thing of value and in fact is considered “money” in many economic models, it is a challenge to come up with reasons why anyone would “rip up a ten dollar bill.” The only reasonable answer is that if someone actually saw the $10 bill they would know it wasn’t a $100 bill, which is what they thought it was when they bought a piece of paper that referred back to the fictional “$100” bill. The effect of this destruction and the reasons for it add considerable weight to the argument that there is no longer any enforceable mortgage, that the rescission rights of the borrower have been deflected into an abyss for lack of a real party in interest, and that the SINGLE TRANSACTION theory is the only one that accounts for everything that went bad in the Mortgage Meltdown era. In the context of multiple assignments and parsing of the notes and mortgage in the securitization, the lost or destroyed note takes on a whole new meaning.

SEE NewTrak: technology-and-professional-responsibility-newtrak-and-required-due-diligence-plausiable-deniability-collides-with-reality

SEE mers-info-excellent-submission-and-discovery

See Nominee Trust this Glossary (below) testimony-before-sub-committee-lays-the-story-out-short-and-sweet-tax-evasion-liability-shell-game

* mers-fundamentals-and-absence-of-note-violation-of-recording-statute



A private intermediary service for lenders which is expanding its services. It is usually involved in now in foreclosures and creates the impression of a fool-proof system whose information cannot be questioned. The answer is “Garbage in, Garbage out.” Entries are made by hand or imported from databases whose entries were done by hand. The brain behind the hands that entered the data knew nothing about the data. It is just another layer of disinformation spread by the mortgage lenders — like the arbitration provision contained in credit cards that directs you, as a cardholder, to EXCLUSIVELY litigate your complaint by arbitration ONLY with en entity that is wholly owned and operated by the credit card companies. MERS does not qualify the transaction (loan closing) under state law, does not remove the requirements of TILA, RESPA< RCIO, common law fraud, securities violations etc.





see bully-bonus-11-7-billion-jpm

The Missing Assignment Dilemma
It is an all too familiar story. Lender A originates a note secured by a mortgage or deed of trust and sells it on the secondary market to Lender B. Lender B then sells the mortgage to Lender C who sells it to Lender D. In each case, the seller endorses the note, reflecting the transfer to the new buyer. However, while Lender A recorded an assignment to Lender B, and Lender C recorded an assignment to Lender D, Lender B failed to record an assignment to Lender C. When the note goes into default, Lender D sends the loan to its foreclosure attorney, a title check is made, and Lender D is advised that there is a problem. It is known as the “missing assignment” problem.

In the Mortgage Meltdown context, the problem goes much deeper inasmuch there was usually no endorsement of the note, and the instrument transmitted was a substitute or gorged document. This leads to the inevitable conclusion that the “lender” was paid in full by a third party who may now have some equitable or legal rights against the original borrower, subject to the borrower’s right of rescission, claims for refunds, rebates, damages, attorneys fees, costs and potentially punitive damages, as well as cancellation for usury.

In all but a handful of states, Lender B’s failure to record the assignment causes havoc in the disposition of the mortgage. The failure to record places the interest claimed by Lender D as outside the chain of title; a legal nullity in most states. Lender D cannot sell, encumber, release or foreclose on the mortgage. In short,
it is as if Lender D held no interest in the mortgage.

At first blush, it might seem that the missing assignment problem is an investor problem. Borrower’s are successfully seizing on this mess and many are walking away with their homes free and clear of the mortgage encumbrance with at least one Judge in New York ordering the removal of all traces of the loan transaction from the public records.

The ownership of the loan rests with the investor, not the servicer. Unfortunately, Fannie, Freddie and nearly all major conduit servicing guidelines place responsibility for the proper assignment of mortgages on the servicer. Thus, by undertaking the servicing of a loan, the servicer is representing and warranting that the investor has proper title to the mortgage.

It is a large responsibility, made more overwhelming by the frenzy in the transfer of mortgage ownership and servicing rights. Caught in the rush, due diligence teams often overlook the very practical need to have a properly recorded chain of title. Moreover, title endorsements, which are available to protect lenders from
just such occurrences, are seldom obtained.

The significance of this is that the “foreclosing party” is unable to answer one simple question: If you executed a satisfaction of mortgage upon payment in full of the mortgage note, would there still be third party claims out there that could be pressed for either foreclosure or collection on the note? If the answer is yes, then the results are simple — no foreclosure is possible nor can they be allowed to pursue any collection without joining indispensable parties. Beyond that, if the answer is yes, the offensive maneuver of a Quiet Title action is likely to succeed.

MERS, the Mortgage Electronic Registration System, was in part created to solve this very problem. Under the MERS system, MERS becomes the mortgagee of record with one recorded assignment from the lender to MERS after the loan is originated and recorded in the public land records. From that time forward, all transfers of ownership or servicing rights are recorded by the MERS computer system (known as a boentry system) eliminating the need to record in the land records subsequent mortgage assignments.


MERS became operational ten years ago and it was thought that those lenders which properly use MERS would eliminate the missing assignment problem for new loans entering the MERS system. The Courts however have taken a simple approach which is that if the substance of the transaction was that MERS had no actual interest in the mortgage and no purchase or assignment took place, that the assignment or transmittal to MERS conveyed no rights of ownership nor any rights to foreclose or collect. Further, Courts have held that the re-assignment back to the lender might constitute champerty and maintenance if it is done purely for the purpose of foreclosing.

Generally, a servicer will discover a missing assignment problem at one of three stages: when a loan is sold, released or foreclosed. Servicers tackle missing assignment problems through a variety of means. Most often, the Lender which failed to record an assignment of the mortgage is located and the assignment is obtained. Sometimes, a lawsuit is filed to obtain a judicial determination that the investor indeed owns the mortgage. Occasionally, a title company can be convinced to write around the problem if the title company is provided a copy of the endorsed note.

While there are a variety of avenues to resolve missing assignments, all take time, lots of time.

Freddie Mac has estimated that the third leading cause of delay in foreclosure is delay resulting from missing assignments. In an effort to minimize losses, both Fannie and Freddie have tightened foreclosure time frames to the point where any delay is too much delay. Moreover, these major investors have made it
very clear that penalties will be assessed for foreclosures outside the time frames. Because the resolution of the missing assignment problem is so time intensive, the missing assignment problem rose to a new level of concern for servicers and lenders.

To ensure timely foreclosures and avoid the delays inherent in missing assignments, Freddie Mac described the following best practice:
“When acquiring new servicing portfolios, address missing mortgage assignment problems and other loan documentation deficiencies through due diligence reviews. Maintain a database of information (contact names and telephone numbers) to help you locate representatives of prior servicers who may need to sign missing assignments. Have a dedicated staff member aggressively work missing assignments, payment disputes and other problems that may result in lengthy delays. Ask the title company if it will accept evidence of the original note endorsed to Freddie Mac instead of attempting to cure missing assignments.”

In discovery during a lawsuit, you would want to ask if the party had any information regarding compliance with these guidelines and whether the guidelines were followed, thus tracking down people with real personal knowledge. In all probability the issue will never be resolved in discovery or at trial. Thus it is up to the attorney to argue that in the absence of such key information, an admission is created contrary to the interests of the lender, against whom the documents should be construed in all events (as the drafter).

Today, most major services have developed lists of contact persons if they locate a lender which has failed to record an assignment. Generally, these lists are maintained by a member of the foreclosure department.

The lists are seldom placed onto computer databases, and little is done to ensure the integrity of the lists. It is generally a hodgepodge of information passed down from clerk to clerk. The new foreclosure time frames and threat of penalties for failure to meet the time frames, requires a more industrious approach to missing assignments. Due diligence teams should be focused on the problem and

proper title company endorsements should be considered. In existing portfolios, notification of a missing assignment problem should trigger immediate action by the servicer; the problem must be corrected quickly or significant damages could accrue. Databases should be developed identifying the individuals who have
the ability to execute assignments on behalf of seller. In the Mortgage Meltdown context no such databases were created and most of the people involved have been fired with whereabouts unknown presenting another opportunity to the borrower to claim foul, and that no payments can be due if the parties to whom those payments are due are unknown.

But all of this is still not enough. As is so often the case, the missing assignment needs to be signed by a party who the servicer does not know. Thus, in the example above, Lender D has no relationship with Lender B. In order to avoid penalties and ensure the timely foreclosure of the loan, Lender D must find
Lender B as soon as possible.

To aid lenders in resolving this problem, there are various efforts within the industry to have created what is known as the Missing Assignment database; a web based database accessible from any web browser. The first efforts aimed at creating a database comprised of two separate databases; the Existing
Company database and the Company No Longer In Existence database. The Existing Company databases holds the names and addresses of over 15 million U.S. businesses. By typing in the name of Lender B, a servicer can obtain Lender B’s address and telephone number.

This assumes, of course, that Lender B still exists. If Lender B changed its name, was bought out or was taken over by the FDIC/RTC or some court, it would not be an existing company and thus would not show up on the database. Therefore, a second database was developed for lenders which are no longer in existence
called the “Company No Longer In Existence” database. Searching this database returns the name of the company or entity now responsible for the defunct entity. Thus, if a servicer enters Directors Mortgage, the database returns Norwest Mortgage. Similarly, if a servicer enters the name of a defunct bank or savings
and loan, the database returns the FDIC office now responsible for that entity.

What eventually occurred was an intentional obfuscation of the foot prints in the sand because (1) TILA violations known by all parties to have existed at closing particularly non-disclosure of parties and fees, (2) “assignments” improperly executed or even forged, (3) notes improperly transmitted for value to a third party who most of the time was the undisclosed true lender and was not licensed or otherwise authorized to act as a lender, (4) use of forged notes and other instruments in blank or otherwise partially filled out, recorded some of the time in property records by attaching the fraudulent document to a document without meaning but which conforms to the requirements of recordation in the specific jurisdiction, (5) intentional misrepresentation by everyone to each other to create “plausible deniability” with only the borrower and the investor left out of the information loop, in which the terms of the notes and mortgages, the value of the property and the value of the securities was intentionally overstated and supported by fraudulent ratings and appraisals secured by improper and undisclosed payments and other financial incentives and coercion and other matters generally constituting a fairly simply simple model to defraud investors and borrowers, using a pattern of making the transactions increasingly obtuse and complex.

MODIFICATION, SHORT SALES AND SETTLEMENTS: see bully-bonus-11-7-billion-jpm It is fair to say that NONE of the intermediaries in securitized transactions have any authority, right or title to the modify, reduce, transfer or otherwise settle the loans. That right rests with the investor or the successor to the investor (US Treasury, Federal Reserve, Insurer, Counterparty to Swap, transferee etc.). In fact, from what we have seen so far, the paperwork on the payments to (or on behalf of) the investor do NOT contain subrogation. In the absence of subrogation, the obligation is paid in full. There might be some equitable claim for resulting or constructive trust or even unjust enrichment as to the homeowner, but that would be unsecured, contingent, unliquidated, with a highly dubious outcome considering the claims, defenses, counterclaims, and affirmative defenses of the ‘borrower.” Remember that the “borrower” might well be construed to be an “issuer” under a securities transaction having been duped by the sales deceptive and fraudulent tactics that resulted in investments by the hedge funds, pension funds, sovereign wealth funds, etc. These tactics are the subject of numerous lawsuits, SEC investigations and actions by attorneys general of many states. SEE modifications-no-way-out AND settlements-modifications-short-sales

A written pledge of property that is used as security for the repayment of a loan.

MORTGAGE MELTDOWN: see bully-bonus-11-7-billion-jpm

An series of events (stemming from the 1983 introduction of derivative securities) created by a tacit cartel of investment bankers and other financial institutions in which borrowers were (approved) “loaned” money on purchase money mortgages based upon false appraisals in the context of contemporaneous securitized transactions where the investment capital was procured by fraud in unregulated security offerings to “qualified” investors, based upon false assurance, false ratings, false insurance backing, and false appraisals of underlying property, income of borrowers and many other factors. The logistics of this scam were revealed in pieces and have threatened the very existence of many financial institutions and the financial markets themselves. Indexes, such as LIBOR, were indirectly manipulated by U.S. financial institutions to hide the true facts. Despite a brief period in which certain arcane “auction markets” froze up (in places and events unknown to the public, business has resumed as usual. The lack of regulation from a responsible, accountable agency or group of agencies has spawned hundreds of lawsuits and millions of foreclosures, many producing counterclaims for far more than the original mortgage and note. No immediate fundamental change is in process in the regulatory scheme, hence it may be expected that the mortgage meltdown will replay in one form or another shortly.

Mortgage Servicing: There is a big difference between the “lender” and the “servicer” see bully-bonus-11-7-billion-jpm

  • In the context of the mortgage meltdown and securitization, mortgage servicing is separate and distinct of the mortgage lender, the mortgage broker, the mortgage originator and the mortgage aggregator.
  • It is also separate and distinct from the holder of the note, the holder in due course and the owner of the rights to enforce the obligation, the note (evidence of the obligation), assignment (which the mortgage servicer might not have any knowledge) or the mortgage.
  • And it is separate and distinct from the stream of payments, payoffs, bailouts or insurance payments derived from such entities as AIG or AMBAC or from credit default swaps, overcollateralization or cross collateralization.

Mortgage servicing refers to only part of the administration of a mortgage loan, including collecting monthly payments and penalties on late payments from the borrower, keeping track of the amount of principal and interest that has been paid by the borrower at any particular time, acting as escrow agent for funds from the borrower to cover taxes and insurance, and, if necessary, and if authorized to do so making arrangements to cure defaults or modifying the loan when the legality of the loan, enforceability of the loan or holder of the note is in doubt or when a homeowner is seriously delinquent.

For mortgage loans that are sold in the secondary market and packaged into a Mortgage-Backed Certificate the local bank or savings and loan that originated the mortgage typically continues servicing the mortgages for a fee. This fee often increases when the loan is declared in default by the servicer (even if the loan has been paid off by a third party, or payments have been made by a third party). It is not uncommon to hear reports of mortgage servicers who seduce borrowers into withholding payments (thus creating the appearance of a default) on the promise of modification which the servicer has no authority to offer.


(Mortgage Electronic Registration Systems, MERSCORP):

A technology platform in which “members” gain access through password and user ID. Estimated number of employees is 17. Estimated number of “officers” self appointed is in the thousands. The platform is devoted to “servicing” participants in the securitization chain of mortgages. The platform allows members to enter data without any verification for authenticity or veracity and is frequently changed to reflect a member’s needs in litigation, foreclosure or other matters. Members also are allowed to appoint themselves as executives or employees of MERS for the purpose of executing assignments and other documents relating to mortgages, investor distributions etc.  The sole purpose of MERS is to circumvent the recording statutes in states, tax evasion, evasion of RICO enforcement, and to create a veil preventing the borrower from discovering the identity of creditors and to prevent a complete accounting for the securitized transaction. MERS is often named on Deeds of Trust as the beneficiary despite the fact that it has no financial interest in the obligation, note or mortgage and promises not to assert any such claim as part of its contract with members. MERS is also named as Mortgagee in Mortgages. In all cases, MERS is named as “nominee” allowing members to privately record transfers of notes and other indicia of ownership of the loan, despite the fact that the creditors are neither the members nor MERS. MERS is also used after the closing documents are executed by “assignment.” Verification of the above definition can be found on the MERS website at See also mers-admits-no-interest-in-mortgage-and-no-loss-on-default


Parties without whose presence there can be proper adjudication of rights. In the Mortgage Meltdown context this would include all the participants in the chain of securitization up to and especially including the holders of certificates on asset backed securities. necessary-and-indispensable-parties

NEWTRAK: an automation system which allows lenders and attorneys to communicate with each other. The lender uploads its information onto the system which then generates a referral to an attorney on the approved list. The attorney receives the information and generates the proof of claim, motion for relief from automatic stay or other pleading. The system also allows the attorney to request information from the client by opening an issue on the system. Another system called the mortgage servicing platform handles routine mortgage servicing. According to LPS, it was used by 39 of the 50 largest banks in 2007 and processed approximately 50% of the loans in the United States.

SEE technology-and-professional-responsibility-newtrak-and-required-due-diligence-plausiable-deniability-collides-with-reality




  • see semantics-what-a-difference-a-word-makes-creditor-trustee
  • See Nominee Trust Below see bully-bonus-11-7-billion-jpm
  • good-question-on-who-do-you-owe-money-to
  • mers-beneficial-interest-to-sue-cannot-exist-separately-from-other-beneficial-interests-in-the-note
  • A conduit or party acting as Mortgage Broker under false pretenses to the borrower giving the impression that it is has performed ordinary due diligence and applied ordinary underwriting standards to the approval of the loan, the appraisal, the borrower’s qualifications and ability to pay and the fees at closing. The Nominal Lender is the party named on the mortgage as the mortgagee and named on the note secured by the mortgage as the payee. It is usually a front for some larger entity or financial institution. In virtually all cases from 2001-2008 the party so named on the closing documents was a Nominal Lender. The nominal lender abandoned virtually all underwriting standards and assessment of risk of loss or default because the nominal lender was not assuming those risks. In all cases, the nominal lender had already pre-sold the or assigned rights under the mortgage and note before execution of the underlying documents (mortgage and note) or immediately after under the expectation and agreement, tacit or written, that the nominal lender would receive a fee or profit from closing the loan and that the actual funds would come from third parties involved in the securitization process eventually culminating in the issuance of ABS instruments. Thus the nominal lender lacks legal standing to pursue enforcement of the note or mortgage because the nominal lender has no financial interest in the note or the mortgage. It is equally true, however, that the claim under TILA, RESPA, RICO etc. might not be addressed to the correct party when the mortgage audit is completed and rendered with a proper request under RESPA for resolution. The nominal lender lacks legal authority to settle anything since it is no longer a holder in due course of the note or mortgage. In addition, the removal of the nominal lender from the actual underwriting and funding process probably extends the time for rescission indefinitely because the real parties in interest are never disclosed to the borrower. similarly it is unlikely that the nominal lender has the authority to negotiate a settlement or even execute a satisfaction of mortgage, since it cannot return the original note (see Lost, Destroyed Note).

Nominee Trust: See MERS see bully-bonus-11-7-billion-jpm


A nominee trust (see semantics-what-a-difference-a-word-makes-creditor-trustee ) is generally described as being an instrument

  • (a) in writing,
  • (b) has one or more persons or corporations named as trustees,
  • (c) has an identified corpus, (“Corpus” means the asset or group of assets that are subject to the terms of the trust. In the mortgage meltdown context the Corpus is one or more (probably all) of the following:
  • (i) a particular mortgage, note or obligation related to a particular borrower and possibly a particular piece of property, generally a residential primary residence, generally but not always applicable in a non-judicial state where deeds of trust are employed in lieu of mortgages, (ii) a group of obligations (commonly referred to as a “pool” subject to a pooling and service agreement) relating to relating to but not necessarily derived from a specific group of borrowers, mortgages, notes, obligations and specific real estate, (iii) a group of obligations relating to commitments from specific borrowers, additional co-obligors arising from insurance, derivative indentures, credit default swaps, cross collateralization, overcollateralization and resulting reserves, statutory duties, and common law duties, (iv) a group of certificates issued to convey the ownership interest in the corpus to the owners of the certificates of mortgage-backed securities and (v) a resulting or constructive trust of all of the above wherein by operation of law and the employment of the single transaction doctrine and step transaction doctrine the entire trust includes as beneficiaries both the investors [current and past owners of certificates of mortgage backed securities] and “borrowers” (issuers and past issuers of mortgages, notes and obligations arising out of the securitization process, whether such issuance preceded the investment in certificates of mortgage backed securities or occurred afterward,

(d) has beneficiaries identified on a written schedule held by the trustees but not disclosed to the public, [in the mortgage meltdown context this would mean (i) the source of funds for the transaction {in the mortgage meltdown context, the source would be (as intended) a stacked successive group of individuals, trustees, investment banks, special purpose vehicles and investors as later changed, amended, altered or modified by insurance, collateralization, Federal Bailout and open or closed market trading on regulated or unregulated exchanges or shadow facilities}, and (ii) the source would be the issuer of the originating security (by operation of law) which would be the “borrowers” as identified in the originating “loan” documents. (SEE TILA, DISCLOSURE, RESPA: Borrower has a right to know the name and contact information of the lender, as well as all parties to the transaction and all fees and profits generated and/or received by all participants in order to assess the true value and cost of the “deal” the “borrower” was intended to execute at closing. It is a violation of TILA and other legal authority to hide and withhold this information. The creation of a scheme in which instruments are used as a pattern of conduct to hide and withheld the information from the borrower is by definition an intention to operate outside the requirements of laws governing mortgage lending and other forms of lending. It is partially for this reason that the right to rescind continues to run, the character of the transaction changes from issuing a negotiable instrument to a non-negotiable instrument, the defense of PAYMENT arises and that the transaction becomes, by operation of law a securities transaction involving a non-qualified issuer (the “borrower”) and a qualified investor neither of whom receives full disclosure.]

(e) contains various trustee powers as to corpus dispositions that can only be exercised when authorized by the beneficiaries. [Thus if U.S. Bank or Wells Fargo, for example, initiate foreclosure proceedings they must present a complete chain of authorization. This chain might include the unintended beneficiaries (borrowers et al) by operation of law].

The beneficiaries are the owners of the corpus for all purposes, including income, gift and estate taxation, except being the owners of record of the corpus. There is a Principal/Agent relationship between the Trustees and the Beneficiaries, and it is somewhat the reverse where usually in a Grantor Trust, the Trustee instructs the Beneficiaries on what he will/is allowed to do for them, but in a Nominee Trust the Beneficiaries direct the Trustee.

The nominee trust was conceived as an estate-planning vehicle to allow a decedent’s real estate to pass to beneficiaries without the necessity of it being probated, e.g., the undisclosed beneficiaries would be also be the trustees of the Nominee trust.

The trustees have liability in tort but not in contract if the trust has appropriate language stating that those dealing with the trust may look only to trust property when a dispute arises with the trustee and giving the trustee ostensible authority to deal with the trustee.

The reasons for holding title in such a trust are:

  • Anonymity of ownership, [TILA and other violations]
  • Ease of title transferability: you do not need to re-record a deed every time you want to change the percentage of interest in a property held by the trust, [See MERS]
  • Avoidance of state recording fees for deeds and a transfer tax (formerly known as tax stamps). Regarding new deeds (you can allocate and change a percentage of ownership in Realty merely be amending the percentage of ownership in the Schedule of beneficiaries) [In the mortgage meltdown context one of the many errors made by the participants in the securitization schemes is that they applied estate planning techniques and instrument to mortgage loans. No such application was ever intended by any legislature and no such application exists, legally, under any doctrine of law. ]

Non-judicial Foreclosure: procedure-from-non-judicial-to-judicial-and-removal-of-trustee
Non-judicial foreclosure is when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of their default. non-judicial-as-private-contract-opening-the-door-to-homeowners-for-self-help

A public officer licensed by the state to attest to and certify the validity of signatures of others. A notary is often referred to as a notary public.


The note is merely evidence of the obligation. It is not the obligation itself. The obligation to repay exists with or without the note. But having possession of the note and proving one is the proper and legal owner of the note makes it far easier to prove the obligation and the right to seek payment on the note. In all judicial foreclosures the original note must be presented as evidence of the obligation and a copy of the original must be attached to the complaint for the complaint to withstand a motion to dismiss. In non-judicial foreclosures, the government is technically not involved in the foreclosure process. The sale of the borrower’s property occurs under private contract, which is why it is said to be within the bounds of due process. Nonetheless, the Trustee and those who instruct the Trustee to pursue sale through Notice of Sale and eviction through Unlawful detainer, are under the same obligation as any party in a judicial foreclosure. However, the burden is on the borrower to bring this to the Court’s attention and convert the non-judicial proceeding to a judicial proceeding where the case can be heard on the merits. In the context of the Mortgage Meltdown, it is fairly clear that even the best claims of ownership of the note are tainted: good-question-on-who-do-you-owe-money-to

Notice of Sale: procedure-from-non-judicial-to-judicial-and-removal-of-trustee
A notice giving specific information about the loan in default and the proceedings about to take place. This notice must be recorded with the county where property is located and advertised as stated in the security document or as dictated by state law. In the context of the mortgage meltdown, it is highly probable that any notice received by the borrower as to delinquency, deficiency, default or sale can be challenged and should be challenged aggressively on the basis of challenging the authority and knowledge of the issuer of the notice. It is extremely unlikely that the issuer of the notice of acceleration, default, etc., has any knowledge as to whether the holder in due course upstream from the original loan has any information at all as to whether the investor (holder in due course) has been paid, and whether such party issuing the notice knows anything directly about the subject loan transaction, or all of the payments, guarantees, etc. made by third parties. No obligation is in defult if it has been paid. The mere fact that the borower did not make the payment is insufficent both as allegation and as proof that the obligation is truly in default — where it can be shown that securitization was invovlved and that application of payments were contractually diverted without notice to the borrower or consent of the borrower.

Ownership Interest: FROM FANNIE MAE: For mortgages we hold in our portfolio, our ownership interest is either 100 percent (called a whole mortgage) or a lesser percentage (called a participation pool mortgage). We generally do not distinguish between whole mortgages and participation interests when we discuss our requirements. On occasion, we may specify that a remittance to Fannie Mae or our reimbursement for a certain expense relates to “our share,” meaning our percentage ownership (applied to the amount of the remittance or expense) for participation interests in mortgages. In other instances, when we state that a requirement applies to whole mortgages or participation pool mortgages, we are addressing only those mortgages held in our portfolio, unless we indicate that we also are addressing mortgages in MBS pools.


In the context of the mortgage meltdown experience, payment was converted from one source to many. See SPV (Structured Purpose Vehicle). This was necessary because of the the purpose of the SPV and the collateralized securities issued from it to investors — the spreading of risk. It is therefore possible for an investor owning an ABS (Asset Backed Security) issued from an SPV to be paid in full without a single payment from any particular borrower. Thus the payment obligation on the note and mortgage at the loan closing was one of many options by which the obligation could be met. There is no doubt that efforts were made to make payments from the funds created in SPV’s through sale of their CDO/CMOs, and that contribution from third parties in the securitized chain starting with the “lender” all the way through guarantees, buy-back obligations and cross collateralization and credit swap vehicles. It is for this reason, among others, that the loan closing was itself the sale of a security based upon an inflated asset appraisal to support an inflated security rating, in which the borrower and the investor in the ABS were “assured” of a passive return on their investment through ever-increasing housing prices. Thus the securitized chain consists of two securities at its base — the “loan” and the ABS — and a myriad of other derivative securities and hedge products together with insurance policies that guaranteed the quality of the underwriting process at the lender level and at the investment banking level.

Whether those who paid have any claims against any other obligors — including but not limited to the borrower — is unknown. But it is highly probable that those claims are unsecured and therefore dischargeable in bankruptcy. And it is highly probable that such claims are subject to offset, counterclaims and affirmative defenses based upon violations of TILA, RESPA, RICO, common law fraud and state unfair and deceptive business or lending practices together with state and federal securities regulation at the lender underwriting level and at the investment banking underwriting level.

PERSON AUTHORIZED TO ENFORCE CLAIM ON NEGOTIABLE INSTRUMENT see semantics-what-a-difference-a-word-makes-creditor-trustee



A temporary order made by a court at the request of one party that prevents the other party from pursuing a particular course of conduct until the conclusion of a trial on the merits.

A preliminary injunction is regarded as extraordinary relief. The party against whom it is sought must receive notice and an opportunity to appear at a hearing to argue that the injunction should not be granted. A preliminary injunction should be granted only when the requesting party is highly likely to be successful in a trial on the merits and there is a substantial likelihood of irreparable harm unless the injunction is granted. If a party has shown only a limited probability of success, but has raised substantial and difficult questions worthy of additional inquiry, a court will grant a preliminary injunction only if the harm to him or her outweighs the injury to others if the injunction is denied.

PROCURATION – See Letter of Tacit Procuration: Letter of Tacit Procuration

The act by which one person gives power to another to act in his place, as he could do himself. A letter of attorney. 2. Procurations are either express or implied; an express procuration is one made by the express consent of the parties; the implied or tacit takes place when an individual sees another managing his affairs, and does not interfere to prevent it. [The significance of this in the mortgage meltdown is the tacit agreement between the title company/trustee, the mortgage broker, appraiser, “lender”, mortgage originator, mortgage aggregator, CDO Manager, SPV and Investment bank in committing fraud, violating TILA, violating usury laws, etc.]

  • Procurations are also divided into those which contain absolute power, or a general authority, and those which give only a limited power. The procurations are ended in three ways first, by the revocation of the authority; secondly, by the death of one of the parties; thirdly, by the renunciation of the mandatory, when it is made in proper time and place, and it can be done without injury to the person who gave it. [In the mortgage meltdown environment, no party has ever rescinded or denounced the behavior of any of the other parties because they have sought to vainly to claim plausible deniability. If they renounce or claim an end to the procurations, they are admitting to the existence of the tacit agreements which gave rise to the fraud on borrowers and fraud on investors.]


Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

In the case of securitization, every indorser, every party who accepts the indorser’s transfer or attempted transfer of all or part of the note or all or part of the mortgage (DEED of Trust) acquires rights and obligations through operation of UCC law, and common law as they have potential or actual rights to the proceeds of the note and potential rights to enforcement of all or part of the mortgage. In addition, amongst the parties added to the chain of securitization are those identified as trustees, in addition to “depositors” and “servicers.” The additional trustee on is face brings into question whether a substitution of trustee was intended on the note if not the mortgage. But the UCC says the mortgage follows the note. Thus if a new Trustee was intended by the party as to part or all of the loan transaction, the authority of the named Trustee on the Deed of Trust is diminished, especially where, as in this case, the Trustee knew of the existence of these transactions and at least was informed as to their content. By failing to inform the borrower, who is the Trustor, the named or nominal Trustee breached both his fiduciary duty to the borrower and his contractual duty to the borrower and the lender.

Personal Property
Property other than real property consisting of things temporary or movable.

To publish, announce or advertise by physically attaching a notice to an object.

Postponement means to put off to a later time. In the case of a foreclosure sale, this is generally done by announcement at the original sale or by posting notices establishing the new date and time the foreclosure sale will take place.


In essence the reverse of a traditional foreclosure where the owner of the property forecloses the claim of the people against whom he he has filed suit claiming the property free and clear of all encumbrances. The significance in foreclosure OFFENSE is that the loan has been assigned, sold and transferred multiple times and broken up into thousands of pieces along with many others that were intermingled in portfolios, sometimes with cross guarantees from one portfolio to another. This process started before the first payment was due on the mortgage loan and before the victim/borrower came to know the real facts of the loan withheld from him in an asymmetric information environment (see asymmetric information) in an inter-temporal transaction (see inter-temporal transaction). Thus the true owner, against whom rescission could be claimed became unknown to the victim/borrower. The quiet title action sues “John Doe” identified as all persons having an ownership interest in the mortgage lien on the subject property. The allegation is made that while the victim/borrower has been notified of a transaction, the victim/borrower, petitioner has not been advised of who the entities or people are who own this interest. And since there are TILA and other fraudulent violations, the victim/ borrower/petitioner wishes to rescind. Efforts to determine the true owners have led the Petitioner to determine that there may be thousands of entities or owners, none of whom have been disclosed to Petitioner despite attempts to secure said information (contained in the TILA report and demand). SERVICE OF PROCESS IS BY PUBLICATION. If the court demands that the mortgage servicing company be named as nominal Defendant or Respondent, the mortgage servicing company has only one job: to produce information and proof of ownership of the loan. It is doubtful that anyone, least of all the mortgage servicing entity will be able to fulfill this condition. Thus the default judgment will be entered, the victim stops paying the mortgage, and has a recorded judgment relieving his property of any mortgage lien and offsetting the note with the refunds and damages payable to the victim, thus satisfying the entire principal of the note and awarding attorney fees to the victim/petitioner.


(1) A steady, noninstantaneous change in rates. Usually a projected change in rates with small, equal, incremental changes in each time period over a series of time periods until the full amount of the projected change is achieved.

A term used in residential lending and in the analysis of mortgage backed securities to describe projections of monthly prepayment speeds which increase from a low initial rate over a series of time periods until the full amount of the expected, final prepayment speed is reached. See PSA model for an example.


The cost of debt service paid by a borrower or issuer to a lender or investor. The rate is expressed as an annual percentage of the amount borrowed. For some notes and bonds that pay interest semiannually, the semiannual interest due to the investor used to be evidenced by a coupon that could be detached and sent for collection. Thus the cost to the issuer for notes and bonds paying semiannual interest is often called the coupon rate. Lenders or investors may receive a yield that is higher or lower than the rate.

rate covenant

A provision in the bond agreement or resolution that addresses the rate or method used to establish the fee(s) charged to users of the facility financed by the securities. Typically, a rate covenant promises that the fees will be adjusted when necessary to support the timely payment of interest and principal on the bonds.

rate risk

The risk that the entity’s earnings and/or its capital may be reduced by an adverse change in prevailing interest rates.

rate sensitive
rate-sensitive assets (RSA)

The quantity of assets subject to repricing within a defined time period. Usually related to rate-sensitive liabilities in the ratio: RSA divided by RSL.

rate-sensitive liabilities (RSL)

The quantity of liabilities subject to repricing within a defined time period. Usually related to rate-sensitive assets in the ratio: RSA divided by RSL.

rate shock – see payment shock

An arbitrarily selected change in prevailing interest rates used to quantify either a change in profits or a change in capital associated with that size of a rate change.

The exposure of either the bank’s earnings or its market value to fluctuations caused by changes in prevailing interest rates.

RATING AGENCY: rating-agency-rule-and-pactices-review-by-sec <— Manipulation of Appraisal

A Nationally Recognized Statistical Rating Organization (or “NRSRO”) is a credit rating agency which issues credit ratings that the U.S. Securities and Exchange Commission (SEC) permits other financial firms to use for certain regulatory purposes.

The nine organizations currently designated as NRSROs are:

• Moody’s Investor Service

• Standard & Poor’s

• Fitch Ratings

• A. M. Best Company

• Dominion Bond Rating Service, Ltd

• Japan Credit Rating Agency, Ltd

• R&I, Inc.

• Egan-Jones Ratings Company

• LACE Financial

Ratings by NRSRO are used for a variety of regulatory purposes in the United States. In addition to net capital requirements (described in more detail below), the SEC permits certain bond issuers to use a shorter prospectus form when issuing bonds if the issuer is older, has issued bonds before, and has a credit rating above a certain level. SEC regulations also require that money market funds (mutual funds that mimick the safety and liquidity of a bank savings deposit, but without FDIC insurance) comprise only securities with a very high rating from an NRSRO. Likewise, insurance regulators use credit ratings from NRSROs to ascertain the strength of the reserves held by insurance companies.

real estate investment trust (REIT)

A trust used to hold ownership of real property for investors. The trust structure is used to benefit from tax code provisions.

real estate mortgage investment conduit (REMIC)

The name of a type of mortgage-backed pass-through security. REMICs can take many forms. REMICs are typically multiclass securities. Unlike simple, non-REMIC CMOs, REMICs can separate mortgage pools into different risk classes as well as different maturity classes. Some of the most common forms of REMICs are sequential pay CMOs, planned amortization class (PAC) tranches, targeted amortization class (TAC) tranches, and companion tranches. REMICs may also have interest-only tranches, principal-only tranches, and residual tranches. Today almost all CMOs are issued in REMIC form to take advantage of provisions in the Tax Reform Act of 1986. However, even though REMICs are overwhelmingly dominant in the CMO market, the term “REMIC” is used far less often than the term “CMO.” CMO is used to refer to all forms of MBSs other than simple pass-through MBS pools.

Real Estate Settlement Procedures Act (RESPA)

A Federal statute that requires lenders and persons who conduct real estate loan closings (settlements) to make certain disclosures. The law also prohibits certain practices such as kickbacks. The Department of Housing and Urban Development (HUD) has adopted Regulation X to implement this statute.

real property

Informally used to refer to land or buildings. As defined by Federal banking regulations governing appraisals, real property is: an identified parcel or tract of land including improvements, easements, rights of way, undivided or future interests, and similar rights but excluding mineral rights, timber rights, or growing crops. Note that under state law in many states, growing crops, timber, and minerals that have not been separated from the land are also included in the definition of real property.


Paying off one mortgage loan by obtaining a new mortgage loan.

REMIC -REAL ESTATE MORTGAGE INVESTMENT CONDUIT see semantics-what-a-difference-a-word-makes-creditor-trustee

Created by Congress to Facilitate the securitization of home loan mortgages, it allows the Special Purpose Vehicle to be treated transparently for tax purposes under very discrete rules, violation of which results in 100% taxation. It is legal basis for asserting that the mortgage or note traveled upstream which can be proven by asking for the transmittal document, sending an interrogatory asking where such reports are kept, who has it and how do you describe it for the purpose of a Request for Production. The DISTRIBUTION REPORT requires by REMIC provides the information and filing data required to prove that the REMIC tranche is operating as a tranche and not as a business vehicle for additional profit. This document, once obtained, will show whether your mortgage should have been covered, whether you paid it or not, by payments to inferior tranches, whether from borrowers, the reserve pool, the over-collateralized pool from which pieces were sliced out for tranche funding, supplementation or substitution, or some third party. The Appraisal Reduction Event that appears in virtually all securitization events at some point is for the benefit of the CDO manager (Investment Banker). They make the announcement in accordance with their interpretation of FASB accounting rules that the security is being written down because of appraisal reductions. No such new appraisals have occurred. The announcement is made anyway because the indenture to the bond or certificate held by the investor says they can and they do — because any money collected over that amount is “required” to be distributed under REMIC and since the Appraisal Reduction Event, the extra money can only go one place — the investment bank (who has profited from its own order to issue a declaration of an appraisal reduction event). Thus REMIC provides that the certificate holder is to be treated as the real party in interest for purposes holding the note, someone else is apparently in charge of holding the mortgage but has no access to revenue flow or the note, and reductions in payments result from non-payment by all of the people downstream (not just the borrower), diversions, and Appraisal Reduction Events. A “default” by the borrower is thus insufficient to declare the loan in default because it is either being paid by third parties, as above or the borrower’s payments have been incorrectly applied, along with others, to create the appearance of a default.

re-CMOs or re-REMICs

REMICs are created when tranches of existing CMO REMICs are combined and used to collateralize new securities. When this is done, the new securities are called re-REMICs, re-CMOs, or structured collateral. These may be more or less risky than the underlying tranches. See kitchen sink bonds.

The right to seek repayment of debt. Usually used to describe the right to seek repayment from an originator or prior endorser who sold or assigned debt to another party.

red lining

Term used to describe the illegal practice of refusing to lend to borrowers located in a defined geographic area.

reference asset

A term used in credit swap transactions to identify the underlying instrument. In the most simple structure, cash flow from the reference asset is paid by the asset owner called a protection buyer to a counter-party known as a protection seller. The reference asset is often a marketable, corporate bond rather than a corporate loan from the same obligor because the bonds provide price information than loans which are less homogenous and less marketable. See credit derivative and credit swap.

reference rate

An interest rate used as an index rate. For example, if a loan pays interest at a rate of 50 basis points above the 6-month LIBOR, the reference rate is the 6-month LIBOR.


The replacement of existing securities using funds obtained from the issuance of new securities.

refunding bonds

Bonds issued to replace outstanding bond issues. Usually used to replace callable bonds when interest rates drop.
Regulation AA

Federal Reserve Regulation titled Unfair or Deceptive Acts or Practices. Provides for consumer complaints against banks and prohibits certain practices. See cascading late charges and late charges.

Regulation B

See Equal Credit Opportunity Act.

Regulation C

See Home Mortgage Disclosure Act.

Regulation CC

A Federal Reserve Board regulation governing the availability of funds and collection of checks. The regulation sets legal limits on the time banks can take before making deposited funds available for withdrawal.

Regulation M

See Consumer Leasing Act.

Regulation P

A Federal Reserve Board regulation covering privacy of consumer financial Information. Regulation P governs the treatment of nonpublic personal information about consumers by financial institutions. The regulation also requires financial institutions to provide notice to customers about privacy policies and practices and the right of a consumer to prevent a financial institution from disclosing nonpublic personal information about him or her to nonaffiliated third parties by “opting out” of that disclosure.

Regulation T

Federal Reserve Regulation entitled Credit by Brokers and Dealers. Provides limits on the amount of credit that can be extended for the purpose of purchasing or carrying certain stocks and a few bonds. See margin stock.

Regulation U

Federal Reserve Regulation entitled Credits by Banks For the Purpose of Purchasing or Carrying Margin Stock. Provides limits on the amount of credit that can be extended for the purpose of purchasing or carrying certain stocks and a few bonds. See margin stock.

Regulation X

See Real Estate Settlement and Procedures Act.

Regulation Z

See annual percentage rate, rescission and Truth-in-Lending Act.


A document or a process in which a secured party gives up its collateral interest in the property of the debtor. Releases may be for all of the property of the debtor or may be partial. For example, if a real estate developer has pledged 10 lots as collateral for a loan, a partial release may be used for each lot as it is sold. For personal property collateral, a release may be entered into the public record by using a standard form called UCC-3.

release price

The predetermined amount of loan reduction that will be required by the bank before the developer can obtain a partial release of the bank’s lien that covers the portion of the collateral that is being sold.

REMIC see semantics-what-a-difference-a-word-makes-creditor-trustee

See real estate mortgage investment conduit.

remittance float

Float due to the time a payment is in transit. This is often called mail float since its major component is the time it takes a remittance to move from the remitter to the recipient through the mail.
replicating portfolio(s)

A portfolio of instruments with known rates and maturities that tends to closely duplicate the changes in a portfolio of instruments with administered rates and/or indeterminate maturities. Sometimes referred to as the “Rod Jacobs” method for the probable developer of this approach.


An informal name for a repurchase agreement.

repositioning repurchase agreement

A funding technique often used by dealers who encourage speculation through the use of gains trading, pair-off, when-issued, and extended settlement ploys. When an investor agrees to purchase a security with the intent of quickly selling it for a profit, price movements do not always favor these speculations. The repositioning repurchase agreement is service offered by dealers to enable buyers to hold onto such speculative positions until prices change and the position can be closed out at a profit. In a repositioning repurchase agreement, the buyer pays the dealer a small margin that approximates the actual loss in the security. The dealer then agrees to fund the purchase of the security by entering into a repurchase/reverse repurchase agreement with the buyer. (The transaction is a borrowing called a repurchase agreement for the buyer. It is a loan called a reverse repurchase agreement for the dealer.) These transactions are deemed to be inherently speculative.

repurchase agreement (RP)

A form of secured, short-term borrowing in which a security is sold with a simultaneous agreement to buy it back from the purchaser at a future date. The purchase and sales agreements are simultaneous but the transactions are not. The sale is a cash transaction while the return purchase is a forward transaction since it occurs at a future date. The seller/borrower pays interest to the buyer at a rate negotiated between the parties. Rates paid on repos are short-term money market interest rates and are completely unrelated to the coupon rate paid on the instrument being purchased. Informally known as repos. Sometimes called a classic repo to distinguish between these transactions and sell/buybacks. Every transaction where a security is sold under an agreement to be repurchased is a repo from the seller/borrower’s point of view and a reverse from the buyer/lender’s point of view. Repos and reverses are often used to finance investment purchases, especially by traders.
RESCISSION: See TILA, RESPA, fraud, usury, etc. see


The right to reverse the transaction. Ordinarily rescission involves giving back everything you received in exchange for getting back everything you gave. In this setting it means the right to get back ALL the interest, points, closing costs and attorney fees and other costs at or after closing that you incurred as a result of the transaction. Rescission rights exist under Federal Statutory Law (Truth in Lending Act – TILA, State Deceptive Business practice Acts, and at common law. Remember that rescission doesn’t mean you give back the house. It doesn’t even mean you have to give back the money to the lender against whom you are rescinding — THAT obligation commences AFTER the lender admits to the rescission or it is otherwise decreed and then it is reduced by the refunds of points, interest, closing costs you paid plus damages and attorney fees you suffered as a result of the issues raised in this post. Rescission might not even mean you owe any money at all to the lender. It could mean that the mortgage lien is extinguished and so is the note. It could convert a secured debt, non-dischargeable in bankruptcy to an unsecured debt wholly dischargeable in bankruptcy. And unless the party coming into court or the auction as a “representative” of the lender can prove that they have received their instructions and authorization from a party who is authorized to give those instructions, then they lack authorization, they lack legal standing and they are probably committing a fraud on you, the court and everyone else.

It is the process of reversing a transaction in which each party gives back what it received to the extent possible. This does not mean the house goes to the lender. Rescission in a loan transaction does not directly involve the house. The direct transaction with the house is between buyer and seller. Rescission in a loan transaction involves giving back the money and cancellation of the mortgage note. Under TILA, rescission first cancels the note and mortgage, which makes the loan unsecured, and then requires the borrower to give back what he/she/they received, less refunds, rebates, damages, attorney fees etc.

The issue with rescission under TILA is that even if you exercise it perfectly to the letter of the law, you must do so to the wrong party — i.e., the party who is not the holder in due course of the loan. And the true holder in due course is not disclosed or known. We can guess from researching, but we can’t actually know. Thus the rescission letter one sends to a servicer or even “lender” is either completely ineffective or there is some theory that the “lender” would adopt that would make it effective and travel upstream to the undisclosed true lender. The ONLY way I know to make that happen is through some equitable application of agency; however no matter how creative the “lender(s)” get, the problem with rescission is the same as the problem with a foreclosure judgment, and subsequent sale, short sale, and satisfactions of mortgage. It is the problem of clear and marketable title, which cannot exist under the scenario applied by lenders since 2001. The fact remains that securitization created multiple parties all the way up to the the investors in mortgage backed securities and possibly beyond (equity or debt holders in the entities that made the investment in derivative mortgage backed securities). ALL of these people have some potential claim in equity to the security in the mortgage indenture. ALL of these people have some potential claim to the proceeds of the note. ANY one of these people could sue the borrower on either the note or mortgage. In fact, they could sue so in succession creating hundreds of lawsuits, all on the same note. And the mortgage aggregator, the CDO manager and investment banking firm along with its special purpose vehicle corporations might have claims. Thus clear title cannot be conveyed. Even the person who buys at auction sale may not be protected because of the break in chain of title. It is unavoidable: the indispensable parties were not there. If the lender joins them it must do so as Defendants because the only way the lender could convey clear title in a foreclosure judgment or sale, or even the execution of a satisfaction of mortgage, is by suing all the parties upline in the securitization process. To do so, would breach the agreements whereby they made their purported assignments in the first place, which is aggravated in the extreme by the fact that only hand-written spotty records were kept in the securitization process, and substitute or forged documentation was used, sometimes before the loan was closed. Thus even finding the people to sue upstream is difficult if not impossible and the lender would not be given the John Doe option in my opinion, because they were the ones who directly participated in the securitization process. This is why I do not see a way out for the lender. It is why I believe that every mortgage executed starting in 2001 through the present, can be nullified. And there are other avenues to rescission, cancellation and treble damages.

Cancellation of a contract without penalty. Regulation Z provides circumstances under which a borrower may cancel loan transactions involving nonpurchase money liens on the borrower’s principal place of residence. The regulation permits such rescissions during a three day period after the loan closing. Specific requirements apply to bank disclosures of the borrower’s right to rescind.

reserve account

A type of credit enhancement used in some asset backed securities. The reserve account may be created by an initial deposit from the seller and may be augmented over time by the application of funds from excess servicing income. Credit is enhanced because withdrawals from the reserve account are made to reimburse investors when excess servicing is insufficient to cover charge -offs. Until needed, funds in a reserve account are invested.

reserve requirements

The percentages of different types of deposits that banks are required to hold on deposit at the Federal Reserve or as cash in their vaults. These requirements are determined by the Federal Reserve Board and function as a tool to control monetary policy.

reset cap

The maximum amount by which an adjustable-rate security’s coupon rate can change in any given period of time. Also called the periodic cap. For most ARMs and floaters, the maximum periodic or reset change is defined as an amount of change in each, consecutive 12-month period over the life of the security. Thus the term “annual” cap is also used to describe most periodic caps.

reset date

The point in time when the coupon rate for a variable rate or floating rate financial instrument is re-established to reflect changes in a benchmark index. Reset dates are typically monthly, quarterly, semi-annually or annually. See index.


(1) For sequential-pay CMO structures, a residual tranche is the CMO tranche that receives the excess cash flow that remains after all of the payments due to the holders of other tranches and all of the administrative expenses have been met. When the residual is an accrual bond, it is often called a Z tranche or a Z bond.

(2) In REMIC CMO structures, one class of each issue must be designated as the residual for tax purposes. Some REMIC residuals do not meet the traditional definition of a residual as the last tranche to be retired.

residual value

Term used to describe the market or sale value of leased equipment (net of removal or disposal costs) at the end of the lease term. In most cases, it is projected or estimated. Sometimes called salvage value. With some exceptions, national bank lessors are subject to a rule that limits the residual value assumption made at the time the lease is created to 25 percent of the equipment’s cost. Bank holding company leasing subsidiaries are subject to a 20 percent limit on the residual assumption.

reshaping duration

See key rate duration.


See Real Estate Settlement Procedures Act.

restricted appraisal reports -see Appraisal Fraud and Usury

One of three types of real estate appraisal reports defined under Uniform Standards of Professional Appraisal Practice (USPAP) rules. A restricted appraisal report is the least detailed of the three report formats. Given a bank’s need to meet both regulatory requirements and the needs of prudent loan underwriting, more detailed reports are almost always preferable.

reverse TAC tranche: Note: This changes the note terms without the borrower’s knowledge or permission. Payments from others can be credited to his note and his payments can be credited o the notes of other people whom he has not met and has no agreement.

The opposite of a TAC tranche. Bonds created in scheduled-pay CMO structures. A reverse TAC tranche is structured to avoid prepayment volatility. Each TAC has a designated target speed. When prepayments fall below the targeted speed, excess cash flow is diverted to the reverse TAC tranche. Unlike a PAC, a TAC tranche is not protected from call risk if prepayments are faster than expected. For this reason, TACs can be viewed as half PACs. Reverse TACs offer investors protection (but not immunity) from extension risk but no protection from call risk. Sometimes called contraction bonds because of their call risk.

Request for Notice
A recorded document requiring a trustee send a copy of a Notice of Default or Notice of Sale concerning a specific deed of trust in foreclosure to the person who filed the document.

Request to Produce: CIVIL PROCEDURE

A demand by one party in litigation that the other produce documents or things that are likely to result in the discovery of admissable evidence. SEE RESPA FORMS

RESPA: Real Estate Settlement Procedures Act: Federal Law


As explained on this blog TILA and RESPA go hand in hand, but they are not exclusive remedies. Violations by lender give you automatic choice to choose Federal Court venue. respa_request_-_mike1-rev-1-neil

review statements

Financial statements prepared by an independent CPA that have been subject to some examination but have not been audited. The CPA is required to consider the reasonableness of the information. If any number appears questionable, the CPA must make inquiries, apply analytical procedures or take other appropriate actions to provide the CPA with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the statements in order for them to be in conformity with GAAP. Any departure from GAAP in reviewed statements should be noted in the transmittal letter and detailed in a footnote.
Right of Redemption
A borrower’s right to reacquire property lost due to a foreclosure. This right allows the owner to recover property lost to a foreclosure judgment, or sold after a foreclosure sale, within a certain period of time. The redemption period varies among the states.

risk management

Controlling the probability, and/or the severity, of a potential adverse event so that the consequences of that event are within acceptable limits. Since all risks have, by definition, the potential to generate losses, and since capital is the ultimate protection against failure resulting from losses, the underlying basis of risk management is equivalent to managing solvency risk.

risk measurement unit (RMU)

A defined quantity or unit of risk. Quantities of risk may be defined for the purposes of setting risk exposure limits or for the purposes of allocating capital to measure risk-adjusted returns on capital. RMUs are often defined in terms of the amount of change or volatility that is equal to one standard deviation of the volatility.
ROOKER FELDMAN DOCTRINE: lance-v-dennis-on-rooker-feldman-doctrine


The Rooker-Feldman doctrine prevents the lower federal courts from exercising jurisdiction over cases brought by “state-court losers” challenging “state-court judgments rendered before the district court proceedings commenced.” Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U. S. 280, 284 (2005). In this case, the District Court dismissed plaintiffs’ suit on the ground that they were in privity with a state-court loser.


When the borrower pays off the amount due on the note to the stated lender and the lender accepts it as full payment, the borrower is entitled to the recording of a satisfaction of mortgage, thus freeing his/her property from the encumbrance of the mortgage. When the Judgment of Foreclosure is entered or the Sale is held and title is transferred, the borrower would ordinarily assume the case is over. But that isn’t the case in the mortgage meltdown environment:

(1) nobody who is bringing a foreclosure action could execute a satisfaction of mortgage. No judgment in foreclosure can be entered. Because they cannot assure the court or the borrower that some third party won’t make the same claims on the same note and mortgage down the line claiming they are the holders in due course. They are called indispensable parties. And they are probably right. If the foreclosing party gets its way it is getting the money (from a third party) AND the property (from the homeowner) and a deficiency judgment against the borrower this leaves the borrower and the person who paid paid them for the mortgage with nothing and a windfall for people on the lender side even though the loan “failed.” They are continuing their scheme to defraud arrogantly and out in the open. All they can do is OFFER (as Taylor Bean did in Florida in the allegations of their complaint) a settlement in which they indemnify the borrower against third party claims). The lenders know about the problem and it is what is keeping them up at night. I can’t see any way out for them.

(2) because of the peculiar ways in which they handled the paperwork and using substitute forged documents in the conveyances with unauthorized signatures, the note has been paid in full and there is no liability owed from the borrower to the entity bringing the foreclosure action. The mystery third party mentioned above might have some claim, but hey would also be admitting that they were the true and undisclosed lender, that they paid undisclosed fees, and basically committed fraud in the transaction entitling the Borrower to (a) rescind and release the mortgage anyway and (b) set off any borrower liability on the notes for claims against lenders for refunds, rebate. interest, points, expenses, and damages and attorney fees not only in the third party action but for whatever was not recovered in the first foreclosure action which needed up (we hope) being dismissed with prejudice.

SECURITIZED TRANSACTION AND SECURITIZATION see semantics-what-a-difference-a-word-makes-creditor-trustee

The process of creating a financial instrument by combining other financial assets and then marketing them to investors. SEE MBS-MORTGAGE BACKED SECURITIES. May also be spelled as “securitisation.”

See also: Mortgage Backed Security, Structured Finance articles-dating-back-as-far-as-the-year-2002-where-critics-contended-that-mortgage-securitization-facilitates-%E2%80%9Cpredatory%E2%80%9D-lending-and-misleading-disclosures

Securitization – This process has produced much of the growth in the bond market over the past ten years. In securitizations, assets such as mortgages and student loans are pooled together in Special Purpose Entities (SPEs) that are bankruptcy-remote and stripped of much of the credit and legal risk associated with the assets. These entities issue securities to investors, who then receive monthly payments from the assets in the pool. Investment banks play a key role in these securitizations, structuring them, performing due diligence on the underlying assets, and selling them to investors.


see example of detailed filing on sPV, tranches, risks and underwriting standards and exceptions d12atd.z3uf.htm#6eks

See structured purpose vehicle, CDO, CMO, ABS see bully-bonus-11-7-billion-jpm

Definition 1

An investment instrument, other than an insurance policy orfixed annuity, issued by a corporation, government, or otherorganization which offers evidence of debt or equity. Theofficial definition, from the Securities Exchange Act of 1934, is: “Any note, stock, treasury stock, bond, debenture,certificate of interest or participation in any profit-sharingagreement or in any oil, gas, or other mineral royalty orlease, any collateral trust certificate, preorganization certificate or subscription, transferable share, investmentcontract, voting-trust certificate, certificate of deposit, for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities(including any interest therein or based on the valuethereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a ‘security’; or any certificate of interest or participation in, temporary or interim certificate for, receiptfor, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft,bill of exchange, or banker’s acceptance which has amaturity at the time of issuance of not exceeding ninemonths, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.”

Definition 2

Property which is pledged as collateral for a loan.
Related Terms

cabinet security, convertible security, derivative security,droplock security, exchangeable security, graduated security, letter security, mortgage pass-through security,mortgage-backed security, negotiable security, registered security, stamped security, agency security, asset-backed security, CUSIP, digested security, distressed security

SELF-HELP: non-judicial-as-private-contract-opening-the-door-to-homeowners-for-self-help

Self-help is a term in the law that describes corrective or preventive measures taken by a private citizen. Common examples of self-help include action taken by landlords against tenants, such as eviction and removal of property from the premises, and repossession of leased or mortgaged goods, such as automobiles, watercraft, and expensive equipment. Persons may use self-help remedies only where they are permitted by law. State and local laws permit self-help in commercial transactions, tort and Nuisance situations, and Landlord and Tenant relationships.

Self-help is permissible where it is allowed by law and can be accomplished without committing a breach of the peace. A breach of the peace refers to violence or threats of violence. For example, if a person buys a ship financed by a mortgage, the mortgage company may repossess the ship if the buyer fails to make the mortgage payments. If the buyer is present when the ship is being taken away and the buyer objects to the repossession, the mortgage company breaches the peace if it can repossess the ship only through violence or the threat of violence. In such a case, the mortgage company would be forced to file suit in court to repossess the ship. Repossessors attempt to circumvent objections by distracting or deceiving the defaulting party during the repossession.

A majority of states have banned self-help by landlords in the eviction of delinquent tenants. These legislatures have determined that the interests of the landlord in operating a profitable business must be balanced against a tenant’s need for shelter. In place of the self-help remedy, states have devised expedited judicial proceedings for evictions. These proceedings make it possible for a landlord to evict a tenant without unacceptable delays while giving the tenant an opportunity to present to a court arguments against eviction.

In states that give landlords the right of self-help, landlords may evict a tenant on their own only if they can do so in a peaceful manner. The precise definition of peaceful varies from state to state. In some states any entry by a landlord that does not involve violence or a breach of the peace is acceptable. In other states any entry that is conducted without the tenant’s consent is illegal.

In any case, if a landlord evicts a tenant through self-help, the eviction must be performed reasonably. For example, a landlord may not nail plywood across the entrance to a tenant’s second-story apartment while the tenant is inside and then remove the steps leading up to the apartment. One landlord who performed such self-help faced criminal penalties after the trapped tenant and her two-year-old daughter needed the help of the local fire department to escape the apartment. A landlord who violates laws on self-help may face criminal charges and a civil suit for damages filed by the tenant.

Self-help measures are controversial because they amount to taking the law into one’s own hands. Opponents of self-help laws argue that they encourage unethical and sometimes illegal practices by creditors and that they diminish public respect for the law. Proponents counter that self-help, if performed peaceably, is a valuable feature of the justice system because it gives creditors an opportunity to alleviate losses and keeps small, simple disputes from glutting the court system.

Short Sale
A sale where the lender will agree to accept less than the full amount of the mortgage. This allows you to sell the house to an investor or other buyer for a good price, while the lender recovers the bulk of the amount due without having to pursue foreclosure proceedings.

SPECIAL PURPOSE VEHICLE (SPV) see semantics-what-a-difference-a-word-makes-creditor-trustee

THE “ENTITY” CREATED BY THE INVESTMENT BANKING FIRM TO HOLD AN INTEREST IN THE CASH FLOW AND/OR OWNERSHIP OF THE NOTE AND/OR OWNERSHIP OF THE SECURITY INSTRUMENTS (BY ASSIGNMENT, WHICH ARE RARELY RECORDED IN PROPERTY RECORDS) AND/OR OWNERSHIP OF THE RISK OF LOSS. Also called Special Purpose Entity, because it could be a trust or any form of business organization. It is the SPV that is the “company” which “issues” securities for the purpose of selling those securities (stock, bonds etc.) to qualified investors. The typical “security” that has been issued during the mortgage meltdown is the mortgage backed security (MBS) and more specifically, the collateralized debt obligation (CDO) and more specifically the collateralized mortgage obligation. The terms CDO and CMO are frequently used interchangeably but CDO connotes a larger class of securities that CMO.

CMO/CDOs vary in structure and underlying assets, but the basic principle is the same. Essentially a CDO is a corporate or other legal entity (LLC, LLP, Trust etc.) constructed to hold assets as collateral and to sell packages of cash flows to investors. A CDO is constructed as follows:

• A Special Purpose Vehicle (SPV) acquires a portfolio of credits. Common assets held include mortgage-backed securities, Commercial Real Estate (CRE) debt, and high-yield corporate loans. trustee-lacks-power-to-act-without-express-written-permission-from-certificate-holders

• The SPV issues different classes of bonds and equity and the proceeds are used to purchase the portfolio of credits. The bonds and equity are entitled to the cash flows from the portfolio of credits, in accordance with the Priority of Payments set forth in the transaction documents. The senior notes are paid from the cash flows before the junior notes and equity notes. In this way, losses are first borne by the equity notes, next by the junior notes, and finally by the senior notes. In this way, the senior notes, junior notes, and equity notes offer distinctly different combinations of risk and return, while each reference the same portfolio of debt securities. These levels of risk are called “tranches”. A TYPICAL PROVISION OF THE CMO/CDO ISSUED BY THE SPV IS THAT THE PROCEEDS OF SALE CAN BE USED FOR PAYMENT OF THE PROMISED RETURN. THE SIGNIFICANCE OF THIS IN FORECLOSURE DEFENSE IS THAT THE PARTY TO WHOM PAYMENT IS TO BE MADE IS RECEIVING FUNDS FROM AN INTERMINGLING OF (A) THE FUND CREATED FROM THE SALE OF THE SPV SECURITIES (B) INCOME FROM THE LOWER TRANCHES (C) GUARANTEES OF THE SELLER OF THE SECURITIES, THE ORIGINATING LENDER (D) CLAIMS AGAINST THE SECURITY RATING AGENCY WHICH OFTEN RATED THE CMO/CDO ONLY IN ACCORDANCE WITH THE TOP TRANCHE WHICH MISSTATED THE RISK ASSOCIATED WITH THE ENTIRE SECURITY. THIS OVERSTATEMENT OF THE VALUE OF THE SECURITY IS IDENTICAL TO THE APPRAISER’S OVERSTATEMENT OF THE VALUE OF THE PROPERTY AND THE LENDER’S OVERSTATEMENT OF THE RISKS AND THEREFORE THE VALUE OF THE LOAN.

• In both cases (rating agency and appraiser) the public was deceived by intentional inflation of value. In both cases, there were specific financial incentives for the rating agency to overrate the security and for the appraiser to overvalue the property an for the lender to overrate the borrower’s financial ability or willingness to pay in accordance with the terms of the note and mortgage. In neither case was the potential liability and the potential litigation over these inherently bad practices ever disclosed to either the borrower or the investor.


An S-curved mark purporting to be a signature.

Structured finance – This definition varies somewhat, but it typically refers to a set of complex bonds backed by payments from pooled assets, such as credit card debt and student loans, but most often mortgages (products of the securitization process described above). Investment banks slice and dice these securities offerings into segments called “tranches” that carry varying levels of risk based on the nature of the underlying asset or security, and are intended to appeal to different types of investors (ranging from hedge funds to pension funds). A full review of the various kinds of structured financial products is beyond the scope of this report, though collateralized debt obligations (CDOs) are the most widespread products.


[Latin, The existing state of things at any given date.] Status quo ante bellum means the state of things before the war. The status quo to be preserved by a preliminary injunction is the last actual, peaceable, uncontested status which preceded the pending controversy.

STRUCTURED INVESTMENT VEHICLE (SIV) see bully-bonus-11-7-billion-jpm

A pool of investment assets that attempts to profit from credit spreads between short-term debt and long-term structured finance products such as asset-backed securities (ABS). FREQUENTLY HELD OFF-SHORE IN THE CAYMAN ISLANDS OR OTHER “SAFE” HAVEN. Funding for SIVs comes from the issuance of commercial paper that is continuously renewed or rolled over; the proceeds are then invested in longer maturity assets that have less liquidity but pay higher yields. The SIV earns profits on the spread between incoming cash flows (principal and interest payments on ABS) and the high-rated commercial paper that it issues. SIVs often employ great amounts of leverage to generate returns.

Also known as “conduits”.

SIVs are less regulated than other investment pools, and are typically held off the balance sheet by large financial institutions such as commercial banks and investment houses. They gained much attention during the housing and subprime fallout of 2007; tens of billions in the value of off-balance sheet SIVs was written down as investors fled from subprime mortgage related assets.

Many investors were caught off guard by the losses because little is publicly known about the specifics of SIVs, including such basics as what assets are held and what regulations determine their actions. SIVs essentially allow their managing financial institutions to employ leverage in a way that the parent company would be unable to due to capital requirement regulations.

The legal issue in foreclosure defense is what rights these vehicles have to revenue flow from the notes issued in real estate loan transactions? They might share or actually replace the investor in ABS products. This puts in doubt whether there is any one party who has the knowledge and authority to enforce the note since the revenue sources are pooled and merged with multiple independent third parties including the borrower, whose obligation to pay may have been subject to novation or substitute of one or more third parties, co-borrowers, insurers, or assurers.

Subject To
The purchase of a property with an existing lien against the title without assuming any personal liability for the liens payment.

Synthetic Collateralized Debt Obligation: Who Paid for it and Who Benefits?

A form of collateralized debt obligation (CDO) that invests in credit default swaps (CDSs) or other non-cash assets to gain exposure to a portfolio of fixed income assets. Synthetic CDOs are typically divided into credit tranches based on the level of credit risk assumed. Initial investments into the CDO are made by the lower tranches, while the senior tranches may not have to make an initial investment. In foreclosure defense the issue might be that the collective “lender” (loan originator, mortgage broker, loan underwriter, loan aggregator, investment banker, SPV and their auditors, public and private) might have been too cute by half: these “synthetic” devices which are in essence derivatives on top of derivatives but with a personality of their own, may protect the borrower from losses occasioned by market conditions, in the same broad brush as they leverage and protect the investor positions in the loans. Thus the payment, it may be argued, was insured and assured. This would be particularly true if the borrower and the investor are joined in interest — as having both been defrauded by the same apparatus using the same methods —and where consideration from both of them paid for the synthetic collateralized security.

All tranches will receive periodic payments based on the cash flows from the credit default swaps. If a credit event occurs in the fixed income portfolio, the synthetic CDO and its investors become responsible for the losses, starting from the lowest rated tranches and working its way up.

Synthetic CDOs are a modern advance in structured finance that can offer extremely high yields to investors. However, investors can be on the hook for much more than their initial investments if several credit events occur in the reference portfolio.

Synthetic CDOs were first created in the late 1990s as a way for large holders of commercial loans to protect their balance sheets without actually selling the loans and potentially harming client relationships. They have become increasingly popular because they tend to have shorter life spans than cash flow CDOs and there is no extended ramp-up period for earnings investment. Synthetic CDOs are also highly customizable between the underwriter and investors.

Subprime Mortgage Originator/Lender – Typically an independent (and largely unregulated) lender that does not take deposits, but rather raises money through the secondary market in order to make subprime loans (see above). These lenders pay mortgage brokers fees for the loans that they sign up homeowners for.


Bonds created in scheduled-pay CMO structures. A TAC tranche is structured to avoid prepayment volatility. Each TAC has a designated target speed. When prepayments exceed the targeted speed, the excess cash flow is diverted to other tranches in the CMO. Unlike a planned amortization class (PAC) tranche, a TAC tranche is not protected from extension risk if prepayments are slower than expected. For this reason, TACs can be viewed as half PACs. TACs offer investors protection (but not immunity) from call risk but no protection from extension risk. THE MAKERS OF THE DERIVATIVE SECURITIES THAT WERE THE BACKBONE OF THE MORTGAGE MELTDOWN IS THAT THEY WERE TOO CUTE BY HALF: THEY INADVERTENTLY MADE IT IMPOSSIBLE TO DETERMINE WITH CERTAINTY WHETHER SOME PORTION OF YOUR MORTGAGE WAS PAID BY A THIRD PARTY WHICH MIGHT INCLUDE ANOTHER BORROWER, THE “RETAILER” WHO SOLD THE SECURITY, AN INSURER OF THE BOND, AN INSURER OF THE RATING AGENCY, THE RATING AGENCY, THE INVESTMENT BANKER, THE INSURER OF THE INVESTMENT BANKER, THE MORTGAGE AGGREGATOR, THE LENDER OR THE MORTGAGE BROKER. THE NUMBER OF POSSIBLE PAYERS IS INFINITE AS THE BEAR STEARNS COLLAPSE ILLUSTRATES — I.E. IT COULD INCLUDE FINANCIAL INSTITUTIONS THAT AHD NOTHING TO DO WITHT HE LOAN OR THE SALE OF THOSE PARTICULAR ASSET-BACKED SECURITIES AND EVEN THE UNITED STATES FEDERAL RESERVE OR THE UNITED STATES TREASURY DEPARTMENT. The significance of the various tranches is that there are a variety of means by which the holders of the securities get paid, only one of which is from the borrower of a particular amount of money under the terms of a particular mortgage lien on a particular piece of property securing a particular note. THUS IT MAYBE ARGUED, QUITE SUCCESSFULLY, THAT EVEN IF THE BORROWER DID NOT DIRECTLY PAY ON THE MORTGAGE, SOMEONE ELSE DID — AND THEY PAID IT TO AT LEAST AN AUTHORIZED OR SOMEONE WITH APPARENT AUTHORITY TO ACCEPT THE PAYMENT THAT “DERIVED FROM” THE BORROWER’S SIGNATURE.


One of two types of real estate appraisal reviews. A technical review is a review performed by another appraiser. The primary purpose of the technical review is to determine whether or not the appraisal meets Uniform Standards of Professional Appraisal Practice requirements and whether the opinions and conclusions in the report are reasonable. Technical reviews ordinarily do not challenge the original appraiser’s choice of comparables unless there is an obvious problem. See administrative review.


An order signed by a Judge based upon the filing of a petition stating grounds for an emergency or stating grounds why the status quo should be preserved or both. The granting of a TI or TRO (Temporary Restraining Order) is a step in the direction of winning. Combined with a quiet title action (see Quiet Title) it could be an effective tool to stop foreclosure, sale or even eviction.


tier 1 capital

A regulatory definition of bank capital. Tier 1 capital consists of common shareholders’ equity, perpetual preferred shareholders’ equity with noncumulative dividends, retained earnings, and minority interests in the equity accounts of consolidated subsidiaries.

tier 2 capital


THIRD PARTY PAYMENT: (Foreclosure Defense: “PAYMENT”)

A basic defense to any foreclosure action or any action on a debt, whether evidenced by a note, security agreement or otherwise is PAYMENT. It is entirely possible and in fact probable that the ultimate party to whom payment was to be made actually received the payment from a third party, or a portion of the payment, or has a claim for the payment from a third party. This third party obligation, taking the entire transaction as one single transaction arises from the sale, assignment, aggregating, re-assignment, sale, or transfer to an investment banker or entity created by an investment banker and in turn sold to an investor in pieces as an asset backed security (ABS). Presumably the investor who purchased an asset backed security which was backed in small part by YOUR mortgage and note and the balance backed by (a) other mortgages and notes, and possibly other portfolios of obligations which may or may not have been mortgages and notes, (b) insurance from the rating agency, (c) insurance from an insurer against the risk of default, (d) insurance from the investment banker, (e) insurance from the mortgage broker, (f) insurance from the appraiser of the house, (g) insurance from the “lender”, (h) lender liability for buy back or guarantee of payment and potentially other third party entities who did make payment or who will make payment curing the borrower’s alleged default or nullifying the alleged default altogether. The transfer of risk allocation sought by securitization, cross indemnity agreements, guarantees, ratings, insurance and “buy-back arrangements, convert the payment allegedly due from borrower as part of a larger option Ponzi scheme. Using the Countrywide model which can be seen buried deep within their filings with the SEC, one can see that the proceeds of the sale of the ABS can be used to make the payments. Thus the fund is present for payment and controlled by the combined entities of the entire single transaction. A default by the borrower is actually therefore impossible under the scheme of securitization as it was implemented. The reality is that the underwriting standards for loaning money were dropped, along with even the escrow account for insurance and taxes in some cases, so that the loan would qualify for for closing at closing, even if it would later NOT qualify knowing the inflated value of the home, and the likelihood of increases in payments beyond the financial capacity of the borrower. The gap created between what the borrower could actually pay and what the loan terms demanded was made up by the “option” quality referred to above through insurance and other terms between the multiple players in the chain of title for the mortgage, note, risk of loss and right to payment (all of which was separated out into different entities, none of whom qualified as a lender or as an entity with a right to do business in the state where the property was situated or the state where the loan was originated (see LENDER).

TILA: Truth in Lending Act:

Federal Statutes providing for disclosure requirements identifying the parties, fees paid, terms of loan etc. Note that TILA specifically provides that servicer is NOT considered as owner of the obligation. Significance in foreclosure is that in virtually all cases the real parties in interest were not disclosed, the premium fees and rebates were not disclosed in the securitization process, and the ability of the borrower to gain access to information identifying such parties was restricted. Thus a rescission letter sent to the “lender” could arguably be said to be directed to the wrong party. Further a satisfaction of mortgage based upon payment, short-sale etc., or even a judgment or sale in foreclosure could be nothing more than a cloud on title. The only cure to title defect appears to be the filing of a quiet title action. tila-snipets

The instrument that is evidence of a person’s right in real property (i.e., a deed).



The lower tranche levels of an SPV (see Special Purpose Vehicle) whose main characteristic is to take whatever revenue or principal is paid on the high-risk debt obligations contained within that tranche and pay for any short-fall in higher tranches within the same SPV or through credit default swaps effecting other SPVs. It is difficult if not impossible to trace any specific mortgage or note to any specific one or more SPVs, tranches or other cross collateralization agreements and other instruments that distributed and parsed interests in individual loans in multiple parts to multiple parties and joined c-obligors at various levels before and during the securitization process (based upon the clearance procedures and record keeping of those involved in the SINGLE TRANSACTION).

TRUST:see semantics-what-a-difference-a-word-makes-creditor-trustee

A trust is an entity that possesses many of the same characteristics of a corporation, partnership, limited partnership, limited liability corporation and other such entities. Legally it is treated as a “person” if created properly. In the context of the Mortgage Meltdown there are at least three and possibly four or more such entities. (1) The legal trust (in non-judicial states where a deed of trust is utilized) or the constructive fiduciary trust wherein the lender and closing agent are “trustees” by operation of law — both of which (legal and constructive) include obligations to the borrower/homeowner regardless of wording to the contrary (2) the pooling and services legal (and possibly constructive trust for borrowers and investors) trust wherein the revenue from the notes of several “borrowers” are combined and pledged in ways that contradict the terms of the original mortgage terms contained in the mortgage or deed of trust (3) the phantom trust appearing after the creation of a special purpose vehicle (issuer of certificates of asset-backed securities) naming an agent to act as Trustee for the holders of certificates of mortgage backed securities and (4) the phantom trust created off-shore in a structured investment vehicle where the original note and other loan documents are sent and often destroyed.

In foreclosure proceedings or in any effort to collect on a note executed or allegedly executed by a “borrower” the Trust of securitized mortgages must qualify as a holder in due course or qualify as having the rights of a holder-in-due-course. In order to prove that they are the holder-in -due-course they must physically possess the note (a custodian could be used to hold note). To be holder in due course, there must be proper endorsement to the trust. This mean that there must be proper endorsement from the originating lender to the wholesale lender to the issuer, and finally from issuer to the trust. However, the Trust may not be able to produce the note and thus will show some paper (usually a forgeries) in order to claim to be holder-in-due-course. Another claim they may raise is that trust have the “rights” of a holder-in-due-course. I think that a good line of defense against claims of having the “rights” of a holder-in-due-course can be that a party cannot acquire rights if it engaged in fraud or illegality affecting the instrument. Example, issuer cannot acquire “rights” of a holder from wholesale lender if issuer engaged in fraud (U.C.C.§ 3-203 (b)). trustee-lacks-power-to-act-without-express-written-permission-from-certificate-holders

There was Fraud in the Factum since securitizations often are involved. The truth is that there was fraud in the factum. The Defendants filings with the Securities and Exchange Commission (SEC) shows interconnected and affiliated parties that aided and abetted a pattern of fraud by the originating lender and, thus, trust cannot acquire the rights of a holder-in-due-course per U.C.C.§ 3-203 (b). To use participation theories, we must show that financial institutions providing lending capital for a predatory lending scheme are dictating loan terms or, at least, are aware of the predatory characteristics of the loans (England v. MG Investments, Inc., 93 F. Supp. 2d 718 (S.D. W.Va 2000)).

Such information may be found in the 8K and 10K filings with the SEC. For example, a federal district Court held that the Wall Street underwriters (Lehman Bros.) for a predatory lender could be liable to injured consumers on an aiding and abetting theory where consumer allege that the underwriter knew of the lenderʼs fraud and provided substantial assistance to the lenderʼs scheme (Aiello v. Chisik, 2002 U.S. Dist. Lexis 5858 (C.D. Cal. Jan. 10, 2002) ). Proving such a fraud can be a good defense to fight a trust’s claims to be holder-in-due-course or claims of having the “rights” of holder-in-due-course.Trustee
A neutral party who advertises the foreclosure property for sale and conducts the auction to sell said property to the highest bidder. In non-judicial sale state, the Trustee is a “nominee” of the Lender who may post a Notice of Non- judicial Sale, thus placing the burden on the borrower to sue the Trustee as a nominal party and the “lender” which as discussed elsewhere in this Glossary (See SPV and CDW/CDS). The Trustee has no interest in the mortgage, no interest in the Note and no knowledge as to whether payments were made to the mortgage servicing company or the current holder of the note which changed within days after the loan closing with the borrower. The Trustee and the Loan Servicing Entity should be put on notice that you are pleading PAYMENT (see PAYMENT), you want the original note produced along with the register showing the payments made, and for them to produce authority with a valid assignment recorded in the property records or otherwise through competent evidence that the actual ultimate recipient of payments derived from this mortgage note, together with many others (i.e., the investor in the Asset backed security -ABS) showing ownership of the note, the original note, non-receipt of payments from borrower and/or third parties (including the mortgage service provider, the SPV pool reserve against shortfalls of income that were built into the structure of the SPV) and joining of the parties holding title to the security instrument (mortgage). Countrywide may NOT instruct the Trustee to sell the property because neither CW nor the Trustee has the note, the mortgage, or all the facts involving payment and potentially CW itself did not pay the people or entities that are now the actual possessors of the right to payment. In Discovery, one would want copies of instructions and affidavits provided to the Trustee, along with the name of the Trustee’s E&O carrier. In many cases, particularly with Washington Mutual and other name brands, Countrywide is NOT and never was the lender. It is the loan servicer and has no authority to represent itself as the lender since it is not the lender. If you see WM Specialty as the party to whom the loan was assigned after closing from an apparent lender that was fronting the transaction for Washington Mutual, the “WM” is their way of indexing the aggregators which function they kept in house before selling it off to Wall Street. If the SPV is a trust, a trustee directs its affairs and the same guidelines apply. By the time you get to confrontation over the loan, neither the Trustee, the loan servicing entity, nor the aggregator who received an assignment has any interest, ownership, control or authority over the note and mortgage, which is why it is so important that you demand proof of the original note and proof of ownership, control and authority.

TRUSTEE: see trustees-deed-pool-certificate-holders-substitutions-and-beneficiaries


A person or legal entity charged with owning, controlling and/or managing assets for another person or legal entity (beneficiary). Legal Trustees are created by a Trust Agreement or Trust Document which names the Trustee, described the duties of the Trustee and names the beneficiary(ies). Constructive or resulting trustees arise by operation of common law, statutory law or both. For example, the Trustee on a Deed of Trust is named as having certain powers and duties on behalf of a named beneficiary. However, under common law, and in certain states, statutory law, the same Trustee owes a fiduciary duty to not only the named beneficiary, but to the homeowner (Grantor) as well, thus requiring the Trustee to function in a transparent fashion to both the legal and constructive or resulting beneficiaries. Such a Trustee is under a duty to verify that the beneficiary has not transferred or otherwise disposed of the beneficial interest, or encumbered it under some agreement, hypothecation or guarantee. In non-judicial states there are four successive Trustees —- the Trustee on the Deed of Trust, the Trustee of the SIV, the Trustee of the Pooled Assets and the Trustee for the owners of the certificates of asset backed securities. It is unclear to what extent the original Trustee on the Deed of Trust is completely or partially replaced by the successive Trustees in the securitization process. Documents vary. However the boilerplate language we have seen from Deutsch Bank and other institutions utilize the standard language from form books that lawyers use in the creation of documents to protect the Trustee from being required to perform duties at the Trustee’s expense instead of being able to charge expenses to the corpus of the Trust or from the beneficiaries, to wit: in the case of Trustees for owners of certificates the Trustee is empowered to take legal action on their behalf ONLY if the investors agree to such action and agree to pay for it. The Corpus of the Trust is the certificates and not the “loans” that were allegedly pooled and re-pooled, thus there is no corpus  or res to charge. Hence, where one sees “U.S. Bank, as Trustee for holders of Asset Backed Securities Series 2007A-01”, one should seek proof of authority to represent from both the lawyer allegedly representing these certificate holders and allegedly representing the Trustee and perhaps others.Other Trustees arise in litigation as where a petitioner files for bankruptcy protection and the U.S. Trustee’s office gets involved or where a receiveer is appointed to conserve the bankruptcy estate and collect rents.

Trustee Sale (Sheriff Sale) letter-of-objection-to-trustee-in-non-judicial-sale-states
An auction of real property conducted by a trustee. Also known as a Sheriff’s Sale. trustee-lacks-power-to-act-without-express-written-permission-from-certificate-holders


A federal law which provides for closing procedures in every loan transaction and which provides for methods by which the borrower can obtain remedies to save the borrower’s home from foreclosure, to recover points, interest and closing costs and to even rescind the loan transaction which would automatically extinguish the mortgage lien and eliminate liability on the mortgage note. Fist mortgage loans on residential property are stated as an exemption from rescission (see RESCISSION), but there are many ways in which this exemption is avoided, particularly in refinancing, or other situations where things were included in the mortgage loan amount that were in actuality NOT real estate but rather part of a consumer transaction. For example if landscaping by a third party or other items that were not appurtenances tot he house in the purchase from the reseller or developer, this is a consumer transaction and the right of rescission would apply. In addition rights of rescission under state law and common law are not effected by the stated residential home mortgage exemption for first mortgages. TILA is normally enforced under the Real estate Settlement Procedures ACT (RESPA).

UCC – See Uniform Commercial Code.

UCC – 1 – See financing statements.

UCC – 3 See amendment, assignment, continuation, partial release, release and termination.

UCC – 4 – See lien search.

unadvised line

A line of credit that is approved by the bank but not disclosed to the borrower until some specific event, usually a request for funding from the borrower.


Legal term used (especially in UCC Article 8) as an adjective to describe stocks, bonds, other investments, and certificates of deposit held in nonmaterial form as electronic computer entries. Ownership of these instruments is usually evidenced by a receipt or confirmation.

uncovered – See naked.

underlying or underlier

An option or a future is a right or a commitment to buy or sell something at a future date. The underlying is the financial instrument that may or must be bought or sold in each option or futures contract. FAS 133, as amended by FAS 149, defines an underlying to be a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, or other variable (including the occurrence or nonoccurrence of a specified event such as a scheduled payment under a contract). An underlying may be a price or rate of an asset or liability but not the asset or liability itself.


The investment bank, commercial bank, or brokerage firm that works with an issuer to sell a new issue. Issuers may select underwriters by obtaining bids or on a negotiated basis. Potential underwriters may form groups called underwriting syndicates to bid collectively.



The name used to describe the process of analyzing and structuring a proposed loan. Good underwriting is the most important aspect of secured lending. Outside of banking, the term primarily refers to the purchase of risk.

Uniform Commercial Code (UCC)

A compilation of laws relating to commercial contracts involving personal property. The code does not address real property. In addition, a few types of personal property are also excluded. While the UCC has been adopted by all 50 states, there are differences among the versions adopted in each state. Secured lenders tend to focus on UCC Article 2A covering leases, Article 8 covering securities, and Article 9 covering all other personal property collateral.

Uniform Standards of Professional Appraisal Practice (USPAP)

Appraisal requirements published by the Appraisal Foundation. Prior to 1994, USPAP rules were included as an appendix to the Uniform Real Estate Appraisal Rule published by the four federal financial institution regulators. Since 1994, USPAP rules are referenced in the bank regulations but not provided in any form. Comments published with the 1994 amendments to the bank regulations indicate that readers are expected to assume that all references to USPAP in the regulations are references to the most current version of USPAP then available.

unlimited guaranty

A guaranty agreement that does not include any provisions restricting the amount of debt guaranteed.
USPAP – See Uniform Standards of Professional Appraisal Practice.

Upset Bid
A recorded bid placed after a foreclosure sale has ended that is higher than the highest bid received at the actual foreclosure sale.

usury laws — See LIS PENDENS usury1

  • florida-lending-laws
  • ILLEGAL CONTRACTS VOID AB INITIO: buckeye_reply_8-11-03-1
  • State and Federal laws establishing maximum allowable interest rates that may be charged on specified types of credit extensions to specified types of borrowers. The significance of usury cannot be overstated in foreclosure offense and defense for mortgages originated during the 2001-2008 period. It is highly likely that the appraisal on the property was falsely inflated with the full knowledge and intent of the “lender” and all other fellow conspirators. Appraisers were paid higher fees than normal for the over appraisal, and they were given specific instructions from the lender and mortgage broker as to the amount that the appraisal had to be stated as fair market value. Chevy Chase bank and probably other banks actually published a schedule showing that the higher the appraisal, the more the appraiser would be paid as fees. In 2005 8,000 honest appraisers signed a petition demanding enforcement of laws against the dishonest appraisers because the honest appraisers who refused to engage in the “made as instructed” appraisals were not being hired to perform appraisals. The inflated appraisal represents an additional cost of the loan that was undisclosed to the borrower at the time of the transaction. In fact, it serves as the basis for an action for fraud, because the borrower can be alleged to have been tricked, reasonably relying on the appraisal and underwriting of the “lender” in accepting the loan terms. The additional cost of the loan represented by the apprisal fraud, will bring virtually any loan into violation of the state’s usury laws. And don’t be dissuaded by attorneys who tell you that “banks” are exempted from the state’s usuary laws (like California). It wasn’t a bank that was the real lender if securitization was involved.

VOID, VOIDABLE AND INVALID: DIFFERENCES ARISE AS TO WHETHER A TRANSACTION IS VOID, VOIDABLE OR INVALID, THUS INVOKING DIFFERENT PROCEDURES TO SET IT ASIDE AS A FRAUD UPON THE COURT OR OTHERWISE.  In voidable transactions there might be conditions precedent such as tendering the amount of the mortgage note. In void transactions this obviously would not apply. See devil-in-the-details-void-voidable-and-invalidWILD DEED complaint-re-wild-deed-of-trust

An instrument purporting to be a deed conveying an interest in real property in which the grantor of the deed has no actual interest and in which the grantee receives no title, equitable or legal. In the context of the mortgage meltdown, many “assignments” may have resulted in the conversion of the original deed of trust or the original mortgage into a wild deed or wild mortgage. Writ
An order or mandatory process in writing issued in the name of a court or judicial officer commanding the person to whom it is directed to perform or refrain from performing a specified act.

Z tranche:

A CMO tranche. With the exception of jump Z tranches, owners of the Z tranche receive no cash flow from underlying mortgage collateral until the other tranches are retired. During the period when other tranches are still outstanding, the owners of the Z tranche receive credit for periodic interest. Those credits increase the face value of the tranche but are not paid to the owners. The Z bond may be, but does not have to be, the last tranche in a CMO structure that is retired. Sometimes called an accretion bond or an accrual bond.

  • Equitable Title

38 Responses

  1. They believe that there is never something for nothing and so hesitate in using the Card, fearful
    they will owe something later. Aber beim Darlehenen ist der Vorteil faktisch die umgehende Erfllung eines Traums ohne zu guter Letzthrelanges Sparen.
    Immer noch viel wird ihm Generalisierung, die gemacht werden kann und Autodarlehen betrifft, gesichert Zinss.

  2. Awesome blog you have here but I was curious if you knew of any
    user discussion forums that cover the same topics talked about here?
    I’d really love to be a part of online community where I can get feed-back from other knowledgeable individuals that share the same interest. If you have any suggestions, please let me know. Appreciate it!

  3. That is a great tip especially to those fresh to the blogosphere.
    Simple but very precise information… Thank you for sharing
    this one. A must read post!

  4. Financial and Crisis Management, Insurance Claims, Society, Law, Social Justice,

    Legal Aid, Finance and Claims Consultant

    “Don’t let opinions of others consume you”

    tornado insurance claimhouston family law attorneyhouston juvenile attorney

  5. I would like to join in suing Bank of America concerning my mortgage but don’t know how or what to do. I had one attorney contact me saying he would represent me along with thousand of other people just like me but it would cost me $5,000 up front. I thought a class action settlement was FREE. Can anyone help me and answer my questions.

  6. […] GARFIELD’S Glossary AND TACTICAL GUIDELINES FOR LAWYERS: Mortgage Meltdown and Foreclosure DEF… […]

  7. It is impossible for that which does not exist to tell you the truth about anything. It is only in your mind that actors and roll players known as attorneys, agencies, bankers etc., who write words on paper, can only speak to the name on your birth certificate.

    Big daddy needs to borrow your personal credit – they just can’t ask you nice, they know you would not agree with their purposes – so they need to trick you into doing it .

    You are the creditor of this nation – ask yourself the question – why is it that you are made to need good credit?

    One must understand that there can be no meeting of the minds if the TINMAN has a mind and a brain and the STRAWMAN is both brainless and mindless and needs the TINMAN to do its thinking for a mindless and brainless FICTION. The TINMAN gave the STRAWMAN IT’S life. Thus, the STRAWMAN can do nothing without you.

  8. Neil,
    I was forced into foreclosure on my property in Kingman,Az. two years ago by Chase Bank, because they refused to Appraise two different qualified buyers willing to buy it,at what I paid for it,and later what I owed on it. Is there a chance of getting it back from the bank now? If so, who do you recommend in Az. who has your knowledge,and been trained by you that would help me,and work with me on the costs of doing so?
    I never signed off on the foreclosure.




    The desperate group of a church in

  10. sirus says that in recient times the judgement of some has us to believe that unconscionable conduct by R.E .
    folks & other llc types are bring the original contract ( Uniter States Constitution ) with Bill of Rights under world scrutinie. I would like to suggest that unconsionable treatment of any part to any agreement should place a heave yoke on the perpetator. It is my theses that if we are to have a contract at all, then one that inters into a contract with a willful mark of unconscionable act should be held accountable both physically and ethically………….. thank you, h.d.l.

  11. If Im still in my home after 1 year of the bank reposessing it and was never personally notified of the sale, do I have any recourse of action at this time? Suntrust was the servicer and was in forbararence when I found a notice to quit the premises taped to front door , Fanne Mae had purchased the property at a trustee’s sale. PLEASE HELP, DO I GIVE UP????

  12. This website has been a blessing to me. What a wealth of information. I have two homes that are in danger of foreclosure but need some direction on where to begin using this website in order to get educated. What should I read first and in what order. My plan is to to defend both of my homes from foreclosure. I’m not an attorney and live in Phoenix.

  13. […] GARFIELD’S Glossary AND TACTICAL GUIDELINES FOR LAWYERS: Mortgage Meltdown and Foreclosure DEFENSE… […]

  14. Hello Neil,

    I am a real estate broker, mortgage broker, paralegal, and soon to be law student. I am actively educating the public on rules of the court as well as the banking laws of this nation dating back to 13 Stat. 99.

    As you highly recommend reading April Charney’s Amicus Brief I would appreciate your directing so I may obtain a copy of her brief.

    I remain.


  15. John Krondes- EMC mortgage is the Bear Stearns entity, long since defunct, which is listed as the beneficiary on my title insurance policy. I never heard of them until I saw them on the lender’s policy. I am wondering if you have any information which may be informative in my case. I am not in foreclosure or default, I am looking to address past illegatities on the part of my “lenders”.

  16. I would like the mailing address for Neil Garfield please. I have a very interesting Foreclosure Defense against Law Offices Of David J Stern in Florida and EMC Mortgage. I want to include you in my certification of service list for upcoming motions and discovery I am filing, which is interesting but also may help others.

    I have already overturned their bogus Judgment a Year Ago, and since they have not responded to my two Requests For Production. Hence, my next legal bomb is coming soon.

    I enjoy your site very much, keep up the good work.


    John J. Krondes

  17. I have a state wide preliminary injunction against Recontrust and B of A. I need some guidance and assitance with maintaining it ASAP.

  18. An NOD was filed by the wrong entity on my home. Multimillion dollar mortgage involved. We are not upside down but were forced to file chapter 11 due to a Madoff type scandal.

    We need a cutting edge attorney in So. Cal. with successful rulings. I am having a difficult time accessing your list of attorneys.

    Neil Garfield, can you email me a few superior attorneys please?

  19. Hey

  20. Mr. Garfield,
    I need urgent assistance with my DC property. Can you advise me, please?

  21. […] Glossary & Guidelines […]

  22. need a referral for a good northern california lawyer to fight Countrywide/ BAC with a huge mess of a situation.


    I have a 1st and 2nd with Countrywide/ BOA Pay Option. Filed 7 and discharged both have already done audit and sent 3 QWR to both lenders because major violations found including no 3 day right of recission on 2nd (closed Dec 2005)

    No response from CW or B Of A, they offered a mod but wanted me to sign reaffirm before giving me anything in writing, said no.

    No mod, no response to QWR and will foreclose soon Im sure, what can I do?
    CA property purchased in Dec 2005 2.5 million purchase price, put 500K down and another 700,000 into property. I stopped making payments in 2008 because the payments I was making (huge principal reductions) were not being posted, forced place insurance, payment changes every 90 days increasing payment $2000.00 per quarter, no annual escrow statements, just a mess of issues with CW.

    Note: Ive been in the Mortgage Industry for 23 years, most recently as a COO and National Operations Manager and I’ve been dupped, this is not an industry I want to work in anymore, I need help because I dont know what to do with this mess.

  23. This is an incredible tool, “handbook” for dealing with and pro se prosecuting a subprime lender/servicer…Kudos to the author who provided this.

  24. I think Florida Bar and the banksters will come heavy on this attorney for getting out of the reservation. I wish more attorney will have the same gut as he. He needs our moral support.
    Florida Attorney Offers Foreclosure Advice
    Tampa Bay foreclosure defense attorney Mark Stopa is blunt in his advice to home owners facing imminent foreclosure:

    * Stop making payments.
    * Hire a lawyer to frustrate the bank.
    * Use the yearlong delay to build a savings account with unpaid house payments.
    * Enjoy living mortgage-payment free.

    Stopa’s technique for stalling foreclosure involves asking a judge to dismiss a case because the originating lender isn’t the same one initiating the foreclosure. It takes a bank about six months to avoid that legal tactic. After that delay, banks are more likely to cooperate with the homeowner, Stopa says. He charges a flat fee of $1,300 to initiate this stalling technique.

    Any chance his advice will backfire?

    A foreclosure task force commissioned by the Florida Supreme Court concluded in August that only a few law firms, known as “foreclosure mills” by detractors, handle most of the cases for banks, and their expedited processes sometimes result in errors. At the same time, the task force said foreclosure defense attorneys often file “boilerplate motions to dismiss” that only delay rather than resolve the issue.

    Source: St. Petersburg Times, James Thorner (10/16/2009)

  25. Banks accused of slowing foreclosure sales to keep home prices aloft

    By The Miami Herald

    MIAMI – July 24, 2009 – On the surface, South Florida’s home prices appear to be bottoming out, but a dip in the number of bank-owned properties for sale is leading analysts to conclude that lenders may be slowing the flow of foreclosures to the market as a way of stanching further price declines.

    Monthly numbers from the Florida Association of Realtors show that South Florida existing-home sales continued to rise in June, as bank-owned homes and short-sales attracted bargain hunters from across the country. Figures released Thursday showed single-family home sales were up by 54 percent in Miami-Dade and 35 percent in Broward, compared to last year.

    Median single-family home prices were down again since June of last year, falling 28 percent in Miami-Dade and 33 percent in Broward. But they have strengthened from April prices. The median price is the point at which half the homes sold for more and half for less.

    The apparent leveling out of prices is being attributed to two things: a shrinking number of distressed homes entering the market and a larger share of high-priced homes changing hands, according to real-estate analysts and brokers.

    Condo sales were up in both counties, too – by 19 percent in Miami-Dade and 58 percent in Broward. Median condo prices, however, fell by 49 percent in Miami-Dade to $141,000 from $275,600 the previous year and by 46 percent in Broward to $83,900 from $156,200 a year ago.

    Over the past six months, however, intriguing trends have begun to emerge in the month-to-month numbers.

    The median single-family home price in Miami-Dade has, in fact, risen for the past three months, climbing from $177,000 in April to $194,700 in May and $211,400 in June. In Broward, the median in April was $191,300, followed by $190,000 in May and $204,800 in June.

    Beneath the surface

    On the condo front, the median price in Broward has bounced between $85,000 and $80,000 since January and between $149,000 and $140,000 in Miami-Dade, a trend that would appear to suggest prices may be hitting a bottom.

    However, listings of bank-owned homes and short-sales – in which a home is sold for less than the mortgage owed – fell from 44 percent in May to 39 percent in June, according to Ron Shuffield, a Coral Gables-based real-estate analyst and president of Esslinger Wooten Maxwell Realtors.

    And sales of these so-called distressed properties dropped from roughly 60 percent in May to 54 percent in June.

    Brokers say fewer well-priced foreclosures on the market are now routinely sparking bidding wars. Bank-owned homes in hot condos and neighborhoods are going under contract within days.

    Anthony Askowitz, a real-estate broker in Kendall, said his bank-owned listings had fallen from about 150 last June to just 37 today.

    “I am getting less foreclosure listings, but, at the same, time, I am selling them so much faster. I can’t replace them as fast as I am selling them,” said Askowitz, adding that he had listed a unit in the Club at Brickell Bay at $174,900 on Thursday and received an all-cash offer the same day.

    Lenders, some real-estate lawyers and analysts believe, may be behind the trend as they either inadvertently drag out the foreclosure process or hold back the release of foreclosures for sale to the public.

    Either way, the smaller numbers could be curbing further price declines, since analysts say home prices will not recover until the high numbers of distressed properties are cleared from the market.

    Lenders repossessed 756 homes in Miami-Dade in June, up from 434 in May, according to foreclosure tracking firm RealtyTrac. In Broward, they took back 1,365 homes last month and 738 in May. But properties don’t necessarily hit the market immediately.

    “There is less distressed inventory being distributed to brokers for sale,” said Doug DeWitt, a Miami-based real-estate broker. “I think they are trying to establish a bottom by not flooding the market, which seems to have worked a little bit.”

    Julian Dominguez, owner of Foreclosure Information Systems, a company that publishes reports about foreclosure auction sales in Miami-Dade, said he is seeing the hold-back firsthand.

    “They are canceling a lot of sales at the auction. That’s mainly because they don’t want to take title,” said Dominguez, who has been attending the now thrice-weekly auction sales.

    Ross Toyne, a Miami-based lawyer who represents condo associations in disputes with lenders, said he thinks lenders are deliberately dragging their feet – both in the foreclosure process and in bringing the properties to market for resale.

    “They are doing themselves a favor. They’re afraid they would have to drop the price not enormously, but ginormously to get the market to clear,” Toyne said.

    Condo associations have alleged that the feet-dragging is a ruse to avoid having to assume the maintenance cost of properties – including association fees.


    Ken Thomas, a Miami-based banking analyst, said it all makes sense. Once a bank takes back a home at the end of the foreclosure process, it has to value the property at its current market value – and take a hit to its bottom line. Some banks, he said, may be holding off that day of reckoning.

    “Some of them simply can’t afford to recognize the loss,” Thomas said. He also said there was no rule or law requiring banks to immediately sell a property once it had been taken back through foreclosure.

    Not everyone is convinced that’s the case.

    Mark King, an attorney with the Miami office of Jones Walker who represents banks in commercial foreclosures, attributed any decrease in bank-owned inventory more to the inability of lenders to effectively manage the huge volume of homes being reclaimed through foreclosure. They don’t have the manpower or know-how to handle the volume.

    “To say banks have a devious, brilliant strategy for controlling the market is probably giving them more credit than they deserve,” King said, adding that it may differ from lender to lender. “Maybe some are doing it for strategic reasons. When you digest so many of these assets so quickly, inevitably there will be some indigestion and you may not want to continue consuming at the same pace.”

    But foreclosures certainly haven’t been worked out of the system. Rising unemployment will only exacerbate the trend, analysts predict.

    There are more than 750 auction sales scheduled for the first two weeks in August.

    “We just put out our [foreclosure listing] book for August and it has 216 pages; normally, it’s 170 pages long,” Dominguez said.

    Copyright © 2009 The Miami Herald. Distributed by McClatchy-Tribune Information Services.

  26. Bank of America Corp. is mailing letters to borrowers who may be eligible for a foreclosure relief.

    The program is part of an agreement the bank made with state attorneys general in October.

    BofA has allocated up to $150 million nationwide to assist certain borrowers who experienced a foreclosure, short sale or deed in lieu of foreclosure on mortgages originated by Countrywide Financial Corp. BofA bought Countrywide in July 2008 for $2.5 billion.

    Forty states are participating in the program. Borrowers will be notified by letter if they are eligible for a settlement payment. Payment amounts will vary.

    Inquiries concerning the foreclosure-relief program should be directed to Rust Consulting at (866) 411-6987 or

    The foreclosure-relief effort is one of three components of BofA’s agreement with the state attorneys general.

    The second component, the National Homeownership Retention Program, is designed to achieve affordable and sustainable mortgage payments for up to 400,000 borrowers who financed their homes with subprime or payment-option, adjustable-rate mortgages serviced by Countrywide.

    The third component provides relocation assistance to borrowers who experience a foreclosure sale and agree to leave the property voluntarily. They are eligible to receive a cash payment to ease their transition to a new place of residence.

  27. loan mod: BKR is looking better and better especially with the prospect of cram-down being granted by this congress to bankruptcy judges in Chapter 13

  28. What are you thoughts about loan mods being moved into the hands of the bankruptcy courts?

  29. I had a mortgage company cotact me and they are telling me that they can get my mortgage company to lower my interest rate to really low for 5-10 years because we are going to financial hardship right now. Now keep in mind we dop not have any late payments> What has happened is I was layedoff in September and in December my husbands work hours were reduced by 6 hours each week. When I did our debt ratio over the intetnet came out to 42%. So can we really get our mortage company to lower our rate on financial hardship like the broker company is promising me. I am not sure and do not want to pay them and then nothing happens and now we are out that money also

  30. I reside in Fairfield, CA and would like to know if there is anyone you recommend to perform a forensic loan examaination?

  31. Hello – I’m doing my research in advance and hope to begin working with Dawn & Mario in the very near future. I’d like to know where I could obtain a copy of th document entitled; wallstreetandthemakingofthesubprimedisaster
    the link posted above was not working. Thank you for being such a true PATRIOT!!!

  32. Was foreclosed on last month and evicted. Do I have any recourse?

  33. […] GARFIELD’S Glossary AND TACTICAL GUIDELINES FOR LAWYERS: Mortgage Meltdown and Foreclosure DEF… […]

  34. hey, it really sounds like you guys know your stuff. I really appreciate all the help.

  35. I had offered to pay my mortgage in full within the redemption period through an investor but , as the property was listed on the internet as bank owned asked for a quit claim or other such reassurance that on the receipt of funds the bank would quit any claim to the property and the investor gain the deed in his name. The bank refused and wants to evict. I was not upside down on my loan with approx. 100,000 equity. Please help.

  36. Please contact me to discuss a few things. Enjoyed the website and would like to speak with you! Thanks!

  37. […] GARFIELD’S Glossary AND TACTICAL GUIDELINES FOR LAWYERS: Mortgage Meltdown and Foreclosure DEF… […]

  38. A question on TILA and Non-judicial Foreclosure for anyone who knows the answer; Does a rescission letter that is timely and certifiably mailed to all appropriate parties (lender, assignee, servicer, trustee) prevent/nullify a pending non-judicial foreclosure sale? Would appreciate any information that may help find that answer.

Contribute to the discussion!

%d bloggers like this: