Fatal Flaws in the Origination of Loans and Assignments

Posted on April 22, 2014 by Neil Garfield
The secured party, the identified creditor, the payee on the note, the mortgagee on the mortgage, the beneficiary under the deed of trust should have been the investor(s) — not the originator, not the aggregator, not the servicer, not any REMIC Trust, not any Trustee of a REMIC Trust, and not any Trustee substituted by a false beneficiary on a deed of Trust, not the master servicer and not even the broker dealer. And certainly not whoever is pretending to be a legal party in interest who, without injury to themselves or anyone they represent, could or should force the forfeiture of property in which they have no interest — all to the detriment of the investor-lenders and the borrowers.
There are two fatal flaws in the origination of the loan and in the origination of the assignment of the loan.

As I see it …

The REAL Transaction is between the investors, as an unnamed group, and the borrower(s). This is taken from the single transaction rule and step transaction doctrine that is used extensively in Tax Law. Since the REMIC trust is a tax creature, it seems all the more appropriate to use existing federal tax law decisions to decide the substance of these transactions.

If the money from the investors was actually channeled through the REMIC trust, through a bank account over which the Trustee for the REMIC trust had control, and if the Trustee had issued payment for the loan, and if that happened within the cutoff period, then if the loan was assigned during the cutoff period, and if the delivery of the documents called for in the PSA occurred within the cutoff period, then the transaction would be real and the paperwork would be real EXCEPT THAT

Where the originator of the loan was neither legally the lender nor legally a representative of the source of funds for the transaction, then by simple rules of contract, the originator was incapable of executing any transfer documents for the note or mortgage (deed of trust in nonjudicial states).

If the originator of the loan was not the lender, not the creditor, not a party who could legally execute a satisfaction of the mortgage and a cancellation of the note then who was?

Our answer is nobody, which I know is “counter-intuitive” — a euphemism for crazy conspiracy theorist. But here is why I know that the REMIC trust was never involved in the transaction and that the originator was never the source of funds except in those cases where securitization was never involved (less than 2% of all loans made, whether still existing or “satisfied” or “foreclosed”).

The broker dealer never intended for the REMIC trust to actually own the mortgage loans and caused the REMIC trust to issue mortgage bonds containing an indenture for repayment and ownership of the underlying loans. But there were never any underlying loans (except for some trusts created in the 1990’s). The prospectus said plainly that the excel spreadsheet attached to the prospectus contained loan information that would be replaced by the real loans once they were acquired. This is a practice on Wall Street called selling forward. In all other marketplaces, it is called fraud. But like short-selling, it is permissible on Wall Street.

The broker dealer never intended the investors to actually own the bonds either. Those were issued in street name nominee, non objecting status/ The broker dealer could report to the investor that the investor was the actual or equitable owner of the bonds in an end of month statement when in fact the promises in the Pooling and Servicing Agreement as to insurance, credit default swaps, overcollateralization (a violation of the terms of the promissory note executed by residential borrowers), cross collateralization (also a violation of the borrower’s note), guarantees, servicer advances and trust or trustee advances would all be payable, at the discretion of the broker dealer, to the broker dealer and perhaps never reported or paid to the “trust beneficiaries” who were in fact merely defrauded investors. The only reason the servicer advances were paid to the investors was to lull them into a false sense of security and to encourage them to buy still more of these empty (less than junk) bonds.

By re-creating the notes signed by residential borrowers as various different instruments, and there being no limit on the number of times it could be insured or subject to receiving the proceeds of credit default swaps, (and with the broker dealer being the Master Servicer with SOLE discretion as to whether to declare a credit event that was binding on the insurer, counter-party etc), the broker dealers were able to sell the loans multiple times and sell the bonds multiple times. The leverage at Bear Stearns stacked up to 42 times the actual transaction — for which the return was infinite because the Bear used investor money to do the deal.

Hence we know from direct evidence in the public domain that this was the plan for the “claim” of securitization — which is to say that there never was any securitization of any of the loans. The REMIC Trust was ignored, thus the PSA, servicer rights, etc. were all nonbinding, making all of them volunteers earning considerable money, undisclosed to the investors who would have been furious to see how their money was being used and the borrowers who didn’t see the train wreck coming even from 24 inches from the closing documents.

Before the first loan application was received (and obviously before the first “closing” occurred) the money had been taken from investors for the expressed purpose of funding loans through the REMIC Trust. The originator in all cases was subject to an assignment and assumption agreement which made the loan the property and liability of the counter-party to the A&A BEFORE the money was given to the borrower or paid out on behalf of the borrower. Without the investor, there would have been no loan. without the borrower, there would have been no investment (but there would still be an investor left holding the bag having advanced money for mortgage bonds issued by a REMIC trust that had no assets, and no income to pay the bonds off).

The closing agent never “noticed” that the funds did not come from the actual originator. Since the amount was right, the money went into the closing agent’s escrow account and was then applied by the escrow agent to fund the loan to the borrower. But the rules were that the originator was not allowed to touch or handle or process the money or any overpayment.

Wire transfer instructions specified that any overage was to be returned to the sender who was neither the originator nor any party in privity with the originator. This was intended to prevent moral hazard (theft, of the same type the banks themselves were committing) and to create a layer of bankruptcy remote, liability remote originators whose sins could only be visited upon the aggregators, and CDO conduits constructed by CDO managers in the broker dealers IF the proponent of a claim could pierce a dozen fire walls of corporate veils.

NOW to answer your question, if the REMIC trust was ignored, and was a sham used to steal money from pension funds, but the money of the pension fund landed on the “closing table,” then who should have been named on the note and mortgage (deed of trust beneficiary in non-judicial states)? Obviously the investor(s) should have been protected with a note and mortgage made out in their name or in the name of their entity. It wasn’t.

And the originator was intentionally isolated from privity with the source of funds. That means to me, and I assume you agree, that the investor(s) should have been on the note as payee, the investor(s) should have been on the mortgage as mortgagees (or beneficiaries under the deed of trust) but INSTEAD a stranger to the transaction with no money in the deal allowed their name to be rented as though they were the actual lender.

In turn it was this third party stranger nominee straw-man who supposedly executed assignments, endorsements, and other instruments of power or transfer (sometimes long after they went out of business) on a note and mortgage over which they had no right to control and in which they had no interest and for which they could suffer no loss.

Thus the paperwork that should have been used was never created, executed or delivered. The paperwork that that was created referred to a transaction between the named parties that never occurred. No state allows equitable mortgages, nor should they. But even if that theory was somehow employed here, it would be in favor of the individual investors who actually suffered the loss rather than the foreclosing entity who bears no risk of loss on the loan given to the borrower at closing. They might have other claims against numerous parties including the borrower, but those claims are unliquidated and unsecured.

The secured party, the identified creditor, the payee on the note, the mortgagee on the mortgage, the beneficiary under the deed of trust should have been the investor(s) — not the originator, not the aggregator, not the servicer, not any REMIC Trust, not any Trustee of a REMIC Trust, and not any Trustee substituted by a false beneficiary on a deed of Trust, not the master servicer and not even the broker dealer. And certainly not whoever is pretending to be a legal party in interest who, without injury to themselves or anyone they represent, could or should force the forfeiture of property in which they have no interest — all to the detriment of the investor-lenders and the borrowers.

Why any court would allow the conduits and bookkeepers to take over the show to the obvious detriment and damage to the real parties in interest is a question that only legal historians will be able to answer.

Filed under: AMGAR, CDO, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Neil Garfield Show, originator, Pleading, securities fraud, Servicer, taxes, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , | 223 Comments »

Wells Fargo Manual Serves as Basis for Deeper Discovery

Posted on April 21, 2014 by Neil Garfield

Every lawyer defending Foreclosures has heard the same thing from the bench just before a ruling in favor of the pretender lender — the homeowner did not meet its burden of proof and therefore judgment is entered in favor of the “bank.” The fact that the pretender lender is a bank makes the judge more comfortable with his assumption that the loan is real, the default is real, the financial injury to the pretender lender is presumed, and that the family should be kicked out of their home me because they stopped paying on “the loan.”

More and more Judges are now questioning the assumption of viability of the forecloser’s position and are now entertaining the issue of whether the loan exists as an enforceable contract act and whether it has been already paid off or sold to third parties leaving the currently foreclosing party with a patently false claim.

Those of us who have been analyzing these “securitized” mortgages recognize the situation for what it is — a magic trick in a smoke and mirrors environment using the holographic image of an empty paper bag. The reasons Wells Fargo fought the introduction of its manual into Federal Court is simple — it is an open door in discovery that will most likely lead to definite proof that the money trail does not support the paper trail. That means the actual transactions were different than the events shown on the fabricated assignments, endorsements, allonges and other instruments of transfer.

But it also opens the door to the initial transaction in which “the loan” was created. It turns out that in most cases there were two transactions at the “origination” of each loan. One of those “transactions” is what we are all looking at — an apparently closed loop of offer, acceptance and consideration with most of the required disclosures under TILA.

So, as we shall see, there was a fake loan and a real loan. The fake one was fully and overly documented, whereas the real one is sparsely documented consisting of wire transfer receipt, wire transfer instructions and perhaps some correspondence. Neither was ever delivered to the fake lender or the real lender which is part of the problem that the Wells Fargo manual was intended to address. Discovery should proceed with the other banks where you find similar manuals.

This is the one everybody has their eye on, while the real transaction takes place right under the eye of the borrower who doesn’t catch the magic trick. So the fake transaction is the subject of a note where the lender is identified as such. Then the “lender” and perhaps some other strawman like MERS is also identified. MERS doesn’t make any claims to ownership of the loan (in fact it disclaims any such ownership on its website). The question is whether the “originator” was also a strawman, even if it was a commercial bank whose business included making loans.

Back to basics. The loan closing is described by most courts as a quasi contract because there is no written loan contract prior to the “closing.” But it must be interpreted under Federal and State lending and contract laws because there is no other viable classification for an alleged loan transaction.

The basics of a loan contract, like any other contract, are offer, acceptance and consideration. Federal and state law are also inserted into the inferred loan contract by operation of law. So the basic contractual question is whether there was an offer, whether there was acceptance and whether there was consideration. If any of those things are absent, there is no contract— or to be more specific there is no enforceable contract.

And that applies to mortgages more than anything because it is universally accepted that there is no such thing as an “equitable mortgage.” The short reason is that title and regular commerce would be forever undermined — no buyer would buy, except at a high discount, anything where it might turn out he wasn’t getting the title she or he expected.

So the loan contract must be real, and it must be in writing because the statute of frauds and other state laws require that any interest in land must be conveyed by a written instrument — and recorded in the Public Records (but the recording requirements are frequently a rabbit hole down which homeowners go at their peril).

This is where the magic trick begins and where Wells Fargo and the other major banks are holding their collective breath. The offer is communicated through a mortgage broker or”originator” and consists of the offer of the originator to loan a certain sum of money, in exchange for the promise by the borrower to repay it under certain terms.

It is inferred that the originator is making the offer on its own behalf but this is not the case. The truth is that investors have already advanced the money that will be used in the loan. So the offer is coming not from a “lender” but rather from a nominee or agent. The transaction at best is identified under RegZ and TILA as a table funded loan which is not only illegal, it is by definition “predatory.”

What is an”offer” to loan somebody else’s money? The answer is nothing unless the other party has consented to that loan or has executed a document that gives the “originator” a written authorization that is recordable and recorded. Where do we find such authorization? Theoretically one might refer to the Pooling and Servicing Agreement — but the problem is that any violation of the PSA results in a void transaction by operation of New York law, which is the governing law of most PSA’s.

Were the investors or the Trustee of the REMIC trust advised of the terms of the loan transaction proposed by the originator. No, and there is no way the originator can even fabricate that without disclosing the names of the investors, the trustee, and specific person at the “trustee” etc. So the question becomes whether the investors or trust beneficiaries conveyed written authority to enter into a transaction in which a loan was originated or acquired. In virtually all cases the answer is no.

One of the simpler reasons is that the investors money was never used to fund the trust, so the investors lost their tax benefit from using a REMIC trust in direct violation of their contract or quasi contract with the broker dealer who “sold mortgage bonds” allegedly issued by the empty, unfunded trust.

Another more complicated reason is that the loans probably do not and could never qualify as a minimum risk investment as the law requires for management of “Stable funds.” Those are fund units managed under strict restrictions because they hold pension money and other types of liabilities where capital preservation is far more important than growth or even income.

And the third aspect is the presence in virtually all cases of an Assignment and Assumption Agreement (see Neil Garfield on YouTube) BEFORE THE FIRST BOND IS SOLD AND BEFORE THE FIRST APPLICATION FOR LOAN IS RECEIVED.

Analysis of the loan transaction will show that for the fly-by-night originators who have long since vanished, they had no right or ability to even touch the money at closing, which was coming in reform a third party source with whom they had no relationship — which is why the Wall Street lawyers consider them both bankruptcy remote and liability remote (I.e., anything wrong at closing won’t be ascribed to either the broker dealer, or the investors (or their empty unfunded trust). Countrywide is a larger example of this.

All the sub entities of Countrywide and Lehman (Aurora, BNC etc.) are also examples despite their appearance as “institutions” they were merely sham entities operating as strawmen — nominees without authority to do anything and who never touched the closing money except for receipt of fees which in part were paid as set forth in the borrower’s closing documents, and in part paid without disclosure (another TILA violation) through a labyrinth of entities.

Thus the only reasonable conclusion is that there never was a complete offer with all material terms disclosed. No offer=no contract=no enforcement=no foreclosure is possible, although it is possible for a civil judgment to be obtained against the borrower if a real party in interest could allege and prove financial injury. It also means that the documents signed by the borrower neither disclosed the real terms or real parties, which means they were procured through false representations — the very same allegation the investors are making against the broker dealers (investment banks).

In the case of actual banks, like Wells Fargo, it is more counterintuitive than the fly by night “originators.” But discovery, deep inside the operations of the bank will show that the underwriting standards for portfolio loans in which the bank had a risk of loss were different than the underwriting standards for “securitized” loans. In fact they were run and processed on entirely different platforms. The repurchase agreement being discussed in the literature on structured finance actually results from the fictitious sale of the loan rather than the underwriting at origination.

When the borrower signed the closing document he or she was executing an acceptance of a deal that was only part of the complete offer, which contained numerous restrictions that would have insured to the benefit of both the borrower and the lender, which turns out to be the group of investors who gave their money to a broker dealer (investment bank). If you want to split hairs, it is possible that the “closing documents” were an offer from the borrower that was never accepted by anyone who could perform under the terms of the quasi contract.

So we clearly have a problem with the first two components of an enforceable contract — offer and acceptance.

The final component is consideration which is to say that someone actually parted with money to fund the loan. And low and behold this is the first time our boots fall on solid ground — albeit nowhere near the loan described in the loan documentation. There was indeed money sent to the closing agent. Who sent it? Not the originator, not the nominees, not the trust because it was never funded, and not the investors because they had already funded their “purchase” of the “mortgage bonds” by delivering money to the broker dealer. We can’t say nobody sent it, because that is plainly untrue. Where did the money come from? Did the closing agent err in applying money from an unknown party to the closing of the loan?

It came from a controlled account (superfund) spread out over multiple entities that were NOT identified by a particular REMIC Trust. There was a reason for that, but that is for another article. Whether it was American Broker’s Conduit, a fictitious name sometimes registered, sometimes not, or Wells Fargo itself, the name of the entity was being “rented” for purposes of closing just as it is being rented for purposes of foreclosure.

Therefore the consideration did not come from any party at closing and the inevitable conclusion is that no enforceable contract was created at closing. This does not mean the borrower doesn’t owe the money. It just means that nobody should be able to foreclose on a void mortgage and it is doubtful that anyone could obtain judgment on a promissory note with some many defects. But there are other actions, such as unjust enrichment, which have been discussed in recent cases. It is foreclosure that is legally impossible under the true scenario as I see it and as others see it now. My position has not changed in 7 years. The only thing that has changed is the way I say it.

So the issue of the Wells Fargo and its fabrication manual is that discovery will lead to deeper and deeper secrets that will undermine not only the entire foreclosure infrastructure, but also the financial statements that support ever growing stock prices for the major banks.

Filed under: AMGAR, CASES, CDO, CORRUPTION, discovery, escrow agent, evidence, expert witness, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Neil Garfield Show, originator, Pleading, securities fraud, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , | 75 Comments »

The Step Transaction and Single Transaction Doctrine

Posted on April 11, 2014 by Neil Garfield

Jim Macklin and Dan Edstrom did a great job of packing a great deal of information into 28 minutes of talk time on the Neil Garfield Show last night. I am taking a couple of weeks off the show to do some common follow-up procedures to my heart surgery two years ago. Jim Macklin stepped in and did a great job of getting information into the hands of lawyers and other listeners in what turned out to be a mini-seminar on how to apply Federal tax law to the issue of ownership of the the loan. It should be heard more than once to get all the nuances they presented.

Their point was that all the binding commitments were in place before the mortgage bonds were sold and before any loans were even considered for approval. The bottom line is that the customary practice in the finance industry was to sell forward — i.e., sell the bonds based upon loans that either did not exist or had not yet been acquired by the REMIC trusts. THEN they went out originating loans and acquiring loans.

As we have previously discussed here and elsewhere, the trusts and the trustee never even had a bank account through which the “pass through” assets and income would be funneled to investors. But that only adds fuel to the fire that Edstrom and Macklin were talking about. From a federal tax law perspective, which should pre-empt any state interpretation, the loans belonged to the investors from the start — not the trusts.

The trusts could only be used as a representative entity in litigation if they were funded with the investors’ money. Our research strongly supports the conclusion that no such funding took place. In fact, our research indicates the funding of the trust with the investors money was impossible because no trust accounts were ever created.

Thus you have the “straight line” that goes from the investors to the borrower. This goes directly to the issue of standing. Because once it is established that the consideration for the only real single transaction flowed from the investors to the borrower, no transaction between intermediaries were true.

They were false transactions supported by fabricated documents with no payment of consideration. Article 9 of the UCC completely supports this interpretation along with decisions interpreting federal tax law as to the real parties in interest. As a result the issue of standing is resolved — only the investors have standing to collect on the loans for which borrowers concede they received the money or the benefit.

The assignments shown in court are between intermediary parties who had no actual transaction with no actual payment or consideration because the payment or consideration had already passed through binding commitments set up by the so-called securitization scheme. By not funding the trusts, the broker dealers were free to use the money as they wished and they did.

They broke every rule in the underwriting book because they were traveling under a different set of rules than the investors or the borrowers thought. Because they had promised to make the payments due under the trust document — the pooling and servicing agreement — and because their binding commitments to make the payments for principal, interest, taxes and insurance already existed prior to the sale the mortgage bonds and prior to the loan to the borrower (see servicer advances, trust advances etc.).

As a result, the investors who should have been on the notes and mortgages were deprived of the documentation they were promised in the PSA. In plain language the mortgage documents and the bond documentation were pure fabrications without any underlying transaction between the parties to those transactions. No transaction between the investor and the trust. And no transaction between the “lender” on the note and mortgage and the borrower.

Hence the allegation of investors in their claims against the broker dealers that the note and mortgage is unenforceable to the detriment of the investors, who are left with common law claims for recovery of damages without any security instrument to protect them. hence the claim that borrowers are being sued by intermediaries who were strangers to the ACTUAL transaction with REAL consideration and terms to which both lender and borrower were bound. The terms agreed by the lenders were vastly different than the terms disclosed to borrowers. There was no meeting of the minds.

Filed under: AMGAR, CDO, CORRUPTION, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Neil Garfield Show, Pleading, securities fraud, Servicer, STATUTES, taxes, Title, TRUST BENEFICIARIES, trustee | 101 Comments »

GUEST HOST TONITE JAMES MACKLIN

Posted on April 10, 2014 by Neil Garfield

Click in tonite— tune in at The Neil Garfield Show

Or call in at (347) 850-1260, 6pm Thursdays

Guest Host Tonight is Jim Macklin, Managing Director, Secure Document Research located in Nevada. He has been a guest on the show before. A dynamic speaker and presenter, he has assisted me in presenting seminars for CLE credit for lawyers. His guest is Dan Edstrom, senior forensic analyst for the Livinglies Team.

His Topic today will be how tax law determines ownership interests in REMIC assets. For you newcomers, REMIC means Real Estate Mortgage Investment Conduit — it is the trust (usually under New York Law) that supposedly was funded by investors through the broker-dealer that sold the alleged mortgage bonds to pension funds and other stable managed funds.

For those of you who have pondered how a stable managed fund got involved despite restrictions as to what risks are acceptable in investment strategies the answer is simple — they had a guarantee from the servicer and/or the trust and/or the trustee that they would receive the money each month including principal, interest, taxes and insurance REGARDLESS OF WHETHER THE BORROWER PAID. Dan Edstrom and Jim Macklin were the first ones to bring this to my attention. It affects the alleged existence of a default when the creditor is getting paid, the terms of the alleged loan contract, and the alleged balance claimed as owed under the mortgage loan.

Filed under: CORRUPTION, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Neil Garfield Show, Pleading, securities fraud, Servicer, TRUST BENEFICIARIES, trustee | 6 Comments »

Servicer Advances, Modification of Loans and Sundry Matters

Posted on April 9, 2014 by Neil Garfield

I appear to have sparked some controversy over my comments that were directed at modifications and servicer advances — subjects that are not necessarily related. But they could be related — as where the homeowner seeks a modification on which there have been servicer advances.

So to answer some questions about Modifications, I will first state that no article on any subject on this blog is intended to be a complete exposition of an issue — if it was, each post would equivalent to a treatise several hundred pages long. That is why we say don’t use any one article as the authority for your situation and to get advice from competent licensed professionals who can service your needs based upon your information.

That said, there have been numerous comments about modifications, some of which have correct information in them. Like anything else found here, you should check with knowledgeable licensed professionals before you act on anything — especially the comments posted by people who have their own axe to grind. One thing is true — modification has a lot of moving parts and it isn’t as simple as anyone would like it to be. There are also tax issues that effect the calculations which I have not yet explored on these pages.

Modification is a sub-specialty of law in which I do not claim any rights. But that is the point. Most of the people who are giving opinions on modification are not lawyers, nor accountants, nor trained, licensed individuals in any area of any discipline. They have some experience, and that experience has molded their perceptions but they don’t know enough to conceive of solutions outside the box in which they operate. And some of them are on the payroll of banks who are waging a PR campaign in which they are spending billions, in one form or another, to make it look like the loans are real and the modification of them is the right way to go.

Modification IS a real option as long as you get something real. Qualifying for a modification takes time, expertise and the ability to present a credible threat in litigation, which is why I favor lawyers over anyone else doing modifications. The cost-benefit analysis should be done by someone who does this all day long and who is constantly researching options.

I write about bits and pieces. Attorneys who have well defined departments that handle modifications, short-sales, hardest hit programs, and other programs that offer assistance are miles ahead of me and any of the comments I have seen on my writing about modification.

As to servicer advances there is a small debate going on but I stick with my analysis. If the creditor has indeed received payment on the account of the loan that is being collected or foreclosed then there is either no default or the notice of default, notice of acceleration and/or the lawsuit itself and the evidence submitted are wrong as to amount.

The fact that there COULD be a claim against the borrower for unjust enrichment is irrelevant. First, even if the claim exists, it is not secured by the mortgage nor described by the note. Second, it is not likely that those claims will ever be brought.

And lastly — and I do mean lastly — thank you for your various invitations for a debate. My answer is no, I will save that for court or a seminar in which we cover the four corners of the issues. I will not “debate” issues of law with non-lawyers, or anyone else that lacks credentials to challenge anything I have said. And if you have reading this blog for years you can see how I have evolved in my own thinking and analysis causing me to reverse some prior strategies that I had suggested.

But the basic information about securitization presented here is, to the best of my knowledge and belief (see about Neil Garfield), still completely correct and facts and decisions on the ground have proven me right in each case. At first everyone scoffs, then  they end up arguing for it. They scoff because some of these things are counter-intuitive — i.e., they seem impossible. That doesn’t make them any less true. I was right about everything, factually in 2007, legally in 2008 and I believe I remain so. It is taking the judicial system a long time to catch up because of the intense complexity and opacity of the “securitization” game.

Filed under: AMGAR, CORRUPTION, evidence, expert witness, foreclosure, foreclosure defenses, GARFIELD KELLEY AND WHITE, GTC | Honor, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Pleading, securities fraud, Servicer, TRUST BENEFICIARIES | 67 Comments »

Modifications: Interest reduction, Principal reduction, Payment reduction, and Term increase

Posted on April 8, 2014 by Neil Garfield
In the financial world we don’t measure just the amount of principal. For example if I increased your mortgage principal by $100,000 and gave you 100 years to pay without interest it would be nearly equivalent to zero principal too (especially factoring in inflation). A reduction in the interest rate has an effect on the overall amount of money due from the borrower if (and this is an important if) the borrower is given 40 years to pay AND they intend to live in the house for that period of time. To the borrower the reduction in interest rate and the extension of the period in which it is due lowers the monthly payment which is all that he or she normally cares about.

Nonetheless you are generally correct. And THAT is because the average time anyone lives in a house is 5-7 years, during which an interest reduction would not equate to much of a principal reduction even with inflation factored in. Unsophisticated borrowers get caught in exactly that trap when they do a modification where the monthly payments decline. But when they want to refinance or sell the home they find themselves in a new bind — having to come to the table with cash to sell their home because the mortgage is upside down.

So the question that must be answered is what are the intentions of the homeowner. The only heuristic guide (rule of thumb) that seems to hold true is that if the house has been in the family for generations, it is indeed likely that they will continue to own the property. In that event calculations of interest and inflation, present value etc. make a big difference. But for most people, the only thing that cures their position of being upside down (ignoring the fact that they probably don’t owe the full amount demanded anyway) is by a direct principal reduction.

THAT is the reason why I push so hard on getting credit for receipt of insurance and other loss sharing arrangements, including FDIC, servicer advances etc. Get credit for those and you have a principal CORRECTION (i.e., you get to the truth) instead of a principal REDUCTION, which presumes the old balance was actually due. It isn’t due and it is probable that there is nothing due on the debt, in addition to the fact that it is not secured by the property because the mortgage and note do NOT describe any actual transaction that took place between the parties to the note and the mortgage.

Filed under: AMGAR, CORRUPTION, discovery, evidence, expert witness, foreclosure, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, inflation, interest rates, MODIFICATION, Mortgage, Motions, Servicer | Tagged: , , , , , , , , | 24 Comments »

Foreclosures on Nonexistent Mortgages

Posted on April 7, 2014 by Neil Garfield

I have frequently commented that one of the first things I learned on Wall Street was the maxim that the more complicated the “product” the more the buyer is forced to rely on the seller for information. Michael Lewis, in his new book, focuses on high frequency trading — a term that is not understood by most people, even if they work on Wall Street. The way it works is that the computers are able to sort out buy or sell orders, aggregate them and very accurately predict an uptick or down-tick in a stock or bond.

Then the same investment bank that is taking your order to buy or sell submits its own order ahead of yours. They are virtually guaranteed a profit, at your expense, although the impact on individual investors is small. Aggregating those profits amounts to a private tax on large and small investors amounting to billions of dollars, according to Lewis and I agree.

As Lewis points out, the trader knows nothing about what happens after they place an order. And it is the complexity of technology and practices that makes Wall Street behavior so opaque — clouded in a veil of secrecy that is virtually impenetrable to even the regulators. That opacity first showed up decades ago as Wall Street started promoting increasing complex investments. Eventually they evolved to collateralized debt obligations (CDO’s) and those evolved into what became known as the mortgage crisis.

in the case of mortgage CDO’s, once again the investors knew nothing about what happened after they placed their order and paid for it. Once again, the Wall Street firms were one step ahead of them, claiming ownership of (1) the money that investors paid, (2) the mortgage bonds the investors thought they were buying and (3) the loans the investors thought were being financed through REMIC trusts that issued the mortgage bonds.

Like high frequency trading, the investor receives a report that is devoid of any of the details of what the investment bank actually did with their money, when they bought or originated a mortgage, through what entity,  for how much and what terms. The blending of millions of mortgages enabled the investment banks to create reports that looked good but completely hid the vulnerability of the investors, who were continuing to buy mortgage bonds based upon those reports.

The truth is that in most cases the investment banks took the investors money and didn’t follow any of the rules set forth in the CDO documents — but used those documents when it suited them to make even more money, creating the illusion that loans had been securitized when in fact the securitization vehicle (REMIC Trust) had been completely ignored.

There were several scenarios under which property and homeowners were made vulnerable to foreclosure even if they had no mortgage on their property. A recent story about an elderly couple coming “home” to find their door padlocked, possessions removed and then the devastating news that their home had been sold at foreclosure auction is an example of the extreme risk of this system to ALL homeowners, whether they have or had a mortgage or not. This particular couple had paid off their mortgage 15 years ago. The bank who foreclosed on the nonexistent mortgage and the recovery company that invaded their home said it was a mistake. Their will be a confidential settlement where once again the veil of secrecy will be raised.

That type of “mistake” was a once in a million possibility before Wall Street directly entered the mortgage loan business. So why have we read so many stories about foreclosures where there was no mortgage, or was no default, or where the mortgage loan was with someone other than the party who foreclosed?

The answer lies in how these properties enter the system. When a bank sells its portfolio of loans into the system of aggregation of loans, they might accidentally or intentionally include loans for which they had already received full payment. Maybe they issued a satisfaction maybe they didn’t. It might also include loans where life insurance or PMI paid off the loan.

Or, as is frequently the case, the “loan” was sold after the homeowner was merely investigating the possibility of a mortgage or reverse mortgage. As soon as they made application, since approval was certain, the “originator” entered the data into a platform maintained by the aggregator, like Countrywide, where it was included in some “securitization package.

If the loan closed then it was frequently sold again with the new dates and data, so it would like like a different loan. Then the investment banks, posing as the lenders, obtained insurance, TARP, guarantee proceeds and other payments from “co-obligors” on each version of the loan that was sold, thus essentially creating the equivalent of new sales on loans that were guaranteed to be foreclosed either because there was no mortgage or because the terms were impossible for the borrower to satisfy.

The LPS roulette wheel in Jacksonville is the hub where it is decided WHO will be the foreclosing party and for HOW MUCH they will claim is owed, without any allowance for the multiple sales, proceeds of insurance, FDIC loss sharing, actual ownership of the loans or anything else. Despite numerous studies by those in charge of property records and academic studies, the beat goes on, foreclosing by entities who are “strangers to the transaction” (San Francisco study), on documents that were intentionally destroyed (Catherine Ann Porter study at University of Iowa), against homeowners who had no idea what was going on, using the money of investors who had no idea what was going on, and all based upon a triple tiered documentary system where the contractual meeting of the minds could never occur.

The first tier was the Prospectus and Pooling and Servicing Agreement that was used to obtain money from investors under false pretenses.

The second tier consisted of a whole subset of agreements, contracts, insurance, guarantees all payable to the investment banks instead of the investors.

And the third tier was the “closing documents” in which the borrower, contrary to Federal (TILA), state and common law was as clueless as the investors as to what was really happening, the compensation to intermediaries and the claims of ownership that would later be revealed despite the borrower’s receipt of “disclosure” of the identity of his lender and the terms of compensation by all people associated with the origination of the loan.

The beauty of this plan for Wall Street is that nobody from any of the tiers could make direct claims to the benefits of any of the contracts. It has also enabled then to foreclose more than once on the same home in the name of different creditors, making double claims for guarantee from Fannie Mae, Freddie Mac, FDIC loss sharing, insurance and credit default swaps.

The ugly side of the plan is still veiled, for the most part in secrecy. even when the homeowner gets close in court, there is a confidential settlement, sometimes for millions of dollars to keep the lawyer and the homeowner from disclosing the terms or the reasons why millions of dollars was paid to a homeowner to keep his mouth shut on a loan that was only $200,000 at origination.

This is exactly why I tell people that most of the time their case will be settled either in discovery where a Judge agrees you are entitled to peak behind the curtain, or at trial where it becomes apparent that the witness who is “familiar” with the corporate records really knows nothing and ahs nothing about the the real history of the loan transaction.

Filed under: AMGAR, CDO, CORRUPTION, discovery, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, originator, Pleading, securities fraud, Servicer, STATUTES, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , , , | 64 Comments »

Servicer Advances: More Smoke and Mirrors

Posted on April 4, 2014 by Neil Garfield

Several people are issuing statements about servicer advances, now that they are known. They fall into the category of payments made to the creditor-investors, which means that the creditor on the original loan, or its successor is getting paid regardless of whether the borrower has paid or not. The Steinberger decision in Arizona and other decisions around the country clearly state that if the creditor has been paid, the amount of the payment must be deducted from the amount allegedly owed by the “borrower” (even if the the borrower doesn’t know the identity of the creditor).

The significance of servicer advances has not escaped Judges and lawyers. If the payment has been made and continues to be made, how can anyone declare a default on the part of the creditor? They can’t. And if the payment has been made, then the notice of default, the end of month statements, the notice of acceleration and the amount demanded in foreclosure are all wrong by definition. The tricky part is that the banks are once again lying to everyone about this.

One writer opined either innocently or at the behest of the banks that the servicers were incentivized to modify the loans to get out of the requirement of making servicer advances. He ignores the fact that the provision in the pooling and servicing agreement is voluntary. And he ignores the fact that even if there is a claim for having made the payment instead of the borrower, it is the servicer’s claim not the lender’s claim. That means the servicer must bring a claim for contribution or unjust enrichment or some other legal theory in its own name. But they can’t because they didn’t really advance the money. Anyone who has experience with modification knows that the servicers make it very difficult even to apply for a modification.

Once again the propaganda is presumed to be true. What the author is missing is that there is no incentive for the Servicer to agree to make the payments in the first place. And they don’t. You can call them Servicer advances but that does not mean the money came from the Servicer. The prospectus clearly states that a reserve pool will be established. Usually they ignore the existence of the REMIC trust on this provision like they do with everything else. The broker dealer (investment banker) is always the one party who directly or indirectly is in complete control over the funds of investors.
Like the loan closing the source of funds is concealed. The Servicer issues a distribution report with disclaimers as to authenticity, accuracy etc. That report gets to the investor probably through an investment bank. The actual payment of money comes from the reserve pool made out of investor’s funds. The prospectus says that the investor can be paid out of his own funds. And that is exactly what they do. If the Servicer was actually taking its own money to make payments under the category of Servicer advances, the author would be correct.
The Servicer is incentivized by two factors — its allegiance to the broker dealer and the receipt of fees. They get paid for everything they do, including their role of deception as to Servicer advances.
When you are dealing with smoke and mirrors, look away from the mirror and walk through the smoke. There, in all its glory, is the truth. The only reason Servicer advances are phrased as voluntary is because the broker dealer wants to make the payments every month in order to convince the fund manager that they should buy more mortgage bonds. They want to be able to stop when the house of cards falls down.

Filed under: AMGAR, CORRUPTION, escrow agent, evidence, expert witness, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Servicer, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , | 86 Comments »

Florida Standard Jury Instructions as a Guide for Bench Trials

Posted on April 1, 2014 by Neil Garfield

Danielle Kelley, esq., my law partner frequently says she likes to start with the jury instructions because that is where everything is boiled down to their simplest components. I think it is wise to make references to the standard jury instructions (plus the fact that they were introduced as an amendment to the Florida rules of Civil Procedure — thus overriding anything the Judge thought he knew).

For example, on evidence for use in motions and at trial —

SC12-1931 Opinion

301.5 EVIDENCE ADMITTED FOR A LIMITED PURPOSE

The (describe item of evidence) has now been received into evidence. It has been admitted only [for the purpose of (describe purpose)] [as to (name party)]. You may consider it only [for that purpose] [as it might affect (name party)]. You may not consider that evidence [for any other purpose] [as to [any other party] [(name other party(s)].

That admonishment is not just for jurors — its also for jurists. There is not one set of laws that apply to juries and an entirely different set of substantive law if the case is heard by the Judge. Of course the recent case decided by Judge William Zloch in Fort Lauderdale Federal Court might make these jury instructions directly relevant.

Another example, this time on third party beneficiaries — careful that this double edged sword does not swing back at you and the need for consideration for there to be an enforceable contract—

SC12-1931 Opinion

416.2 THIRD-PARTY BENEFICIARY

(Claimant) is not a party to the contract. However, (claimant) may be entitled to damages for breach of the contract if [he] [she] [it] proves that (insert names of the contracting parties) intended that (claimant) benefit from their contract.

It is not necessary for (claimant) to have been named in the contract. In deciding what (insert names of the contracting parties) intended, you should consider the contract as a whole, the circumstances under which it was made, and the apparent purpose the parties were trying to accomplish.

SOURCES AND AUTHORITIES FOR 416.2

See RESTATEMENT (SECOND) OF CONTRACTS § 302 (1981):

[A] beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and … the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.

While the Supreme Court has not commented directly on the applicability of the Restatement (Second) of Contracts § 302 (1981) (but note Justice Shaw’s partial concurrence in Metropolitan Life Ins. Co. v. McCarson, 467 So.2d 277, 280-81 (Fla. 1985)), all five district courts of appeal have cited the Restatement (Second) of Contracts § 302 (1981). Civix Sunrise, GC, LLC v. Sunrise Road Maintenance Assn., Inc., 997 So.2d 433 (Fla. 2d DCA 2008); Technicable Video Systems, Inc. v. Americable of Greater Miami, Ltd., 479 So.2d 810 (Fla. 3d DCA 1985); Cigna Fire Underwriters Ins. Co. v. Leonard, 645 So.2d 28 (Fla. 4th DCA 1994); Warren v. Monahan Beaches Jewelry Center, Inc., 548 So.2d 870 (Fla. 1st DCA 1989); Publix Super Markets, Inc. v. Cheesbro Roofing, Inc., 502 So.2d 484 (Fla. 5th DCA 1987). See also A.R. Moyer, Inc. v. Graham, 285 So.2d 397, 402 (Fla. 1973), and Carvel v. Godley, 939 So.2d 204, 207-208 (Fla. 4th DCA 2006) (“The question of whether a contract was intended for the benefit of a third person is generally regarded as one of construction of the contract. The intention of the parties in this respect is determined by the terms of the contract as a whole, construed in the light of the circumstances under which it was made and the apparent purpose that the parties are trying to accomplish.”).

Thus servicer advances, FDIC loss mitigation payments, and insurance payments actually received by the creditor (presumed usually to be the trust beneficiaries in a REMIC New York Trust) decrease the amount due TO the creditor — which therefore means that the amount due FROM the borrower must be reduced by the same amount. The fact that out of all the parties to the contract requiring or providing for those payments to the creditor, directly or indirectly, none of them was thinking about a benefit to the homeowner borrowers does not mean it doesn’t count. The bank might not have thought about or even known you had an Aunt Tilly. But when she pays off your mortgage, it doesn’t matter where the money came from.

And as for the contract for loan that is sometimes referred to as a quasi contract, assuming the homeowner has defended by denying the existence of an enforceable contract, here we are —

SC12-1931 Opinion

416.3 CONTRACT FORMATION — ESSENTIAL FACTUAL ELEMENTS (Claimant) claims that the parties entered into a contract. To prove that a contract was

created, (claimant) must prove all of the following:
1. The essential contract terms were clear enough that the parties could understand

what each was required to do;

2. The parties agreed to give each other something of value. [A promise to do something or not to do something may have value]; and

3. The parties agreed to the essential terms of the contract. When you examine whether the parties agreed to the essential terms of the contract, ask yourself if, under the circumstances, a reasonable person would conclude, from the words and conduct of each party, that there was an agreement. The making of a contract depends only on what the parties said or did. You may not consider the parties’ thoughts or unspoken intentions.

Note: If neither offer nor acceptance is contested, then element #3 should not be given. If (Claimant) did not prove all of the above, then a contract was not created.

NOTE ON USE FOR 416.3

This instruction should be given only when the existence of a contract is contested. If both parties agree that they had a contract, then the instructions relating to whether a contract was actually formed would not need to be given. At other times, the parties may be contesting only a limited number of contract formation issues. Also, some of these issues may be decided by the judge as a matter of law. Users should omit elements in this instruction that are not contested so that the jury can focus on the contested issues. Read the bracketed language only if it is an issue in the case.

SOURCES AND AUTHORITIES FOR 416.3

1. The general rule of contract formation was enunciated by the Florida Supreme Court in St. Joe Corp. v. McIver, 875 So.2d 375, 381 (Fla. 2004) (“An oral contract … is subject to the basic requirements of contract law such as offer, acceptance, consideration and sufficient specification of essential terms.”).

2. The first element of the instruction refers to the definiteness of essential terms of the contract. “The definition of ‘essential term’ varies widely according to the nature and complexity of each transaction and is evaluated on a case-by-case basis.” Lanza v. Damian Carpentry, Inc., 6 So.3d 674, 676 (Fla. 1st DCA 2009). See also Leesburg Community Cancer Center v. Leesburg Regional Medical Center, 972 So.2d 203, 206 (Fla. 5th DCA 2007) (“We start with the basic premise that no person or entity is bound by a contract absent the essential elements of offer and acceptance (its agreement to be bound to the contract terms), supported by consideration.”).

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3. The second element of the instruction requires giving something of value. In Florida, to constitute valid consideration there must be either a benefit to the promisor or a detriment to the promisee. Mangus v. Present, 135 So.2d 417, 418 (Fla. 1961). The detriment necessary for consideration need not be an actual loss to the promisee, but it is sufficient if the promisee does something that he or she is not legally bound to do. Id.

4. The final element of this instruction requires an objective test. “[A]n objective test is used to determine whether a contract is enforceable.” Robbie v. City of Miami, 469 So.2d 1384, 1385 (Fla. 1985). The intention as expressed controls rather than the intention in the minds of the parties. “The making of a contract depends not on the agreement of two minds in one intention, but on the agreement of two sets of external signs-not on the parties having meant the same thing but on their having said the same thing.” Gendzier v. Bielecki, 97 So.2d 604, 608 (Fla. 1957).

And as to whether the Plaintiff must prove they have been damaged by the defendant’s breach of contract —

SC12-1931 Opinion

416.4 BREACH OF CONTRACT – ESSENTIAL FACTUAL ELEMENTS

To recover damages from (defendant) for breach of contract, (claimant) must prove all of the following:

  1. (Claimant) and (defendant) entered into a contract;
  2. (Claimant) did all, or substantially all, of the essential things which the contract

required [him] [her] [it] to do [or that [he] [she] [it] was excused from doing those things];

3. [All conditions required by the contract for (defendant’s) performance had occurred;]

4. [(Defendant) failed to do something essential which the contract required [him] [her] [it] to do] [(Defendant) did something which the contract prohibited [him] [her] [it] from doing and that prohibition was essential to the contract]; and

Note: If the allegation is that the defendant breached the contract by doing something that the contract prohibited, use the second option.

5. (Claimant) was harmed by that failure.

SC12-1931 Opinion

NOTE ON USE FOR 416.4

In many cases, some of the above elements may not be contested. In those cases, users should delete the elements that are not contested so that the jury can focus on the contested issues.

SOURCES AND AUTHORITIES FOR 416.4

1. An adequately pled breach of contract action requires three elements: (1) a valid contract; (2) a material breach; and (3) damages. Friedman v. New York Life Ins. Co., 985 So.2d 56, 58 (Fla. 4th DCA 2008). This general rule was enunciated by various Florida district courts of appeal. See Murciano v. Garcia, 958 So.2d 423, 423-24 (Fla. 3d DCA 2007); Abbott Laboratories, Inc. v. General Elec. Capital, 765 So.2d 737, 740 (Fla. 5th DCA 2000); Mettler, Inc. v. Ellen Tracy, Inc., 648 So.2d 253, 255 (Fla. 2d DCA 1994); Knowles v. C.I.T. Corp., 346 So.2d 1042, 1043 (Fla. 1st DCA 1977).

2. To maintain an action for breach of contract, a claimant must first establish performance on the claimant’s part of the contractual obligations imposed by the contract. Marshall Construction, Ltd. v. Coastal Sheet Metal & Roofing, Inc., 569 So.2d 845, 848 (Fla. 1st DCA 1990). A claimant is excused from establishing performance if the defendant anticipatorily repudiated the contract. Hosp. Mortg. Grp. v. First Prudential Dev. Corp., 411 So.2d 181, 182- 83 (Fla. 1982). Repudiation constituting a prospective breach of contract may be evidenced by words or voluntary acts but refusal must be distinct, unequivocal and absolute. Mori v. Matsushita Elec. Corp. of Am., 380 So.2d 461, 463 (Fla. 3d DCA 1980).

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3. “Substantial performance is performance ‘nearly equivalent to what was bargained for.’” Strategic Resources Grp., Inc. v. Knight-Ridder, Inc., 870 So.2d 846, 848 (Fla. 3d DCA 2003). “Substantial performance is that performance of a contract which, while not full performance, is so nearly equivalent to what was bargained for that it would be unreasonable to deny the promisee the full contract price subject to the promisor’s right to recover whatever damages may have been occasioned him by the promisee’s failure to render full performance.” Ocean Ridge Dev. Corp. v. Quality Plastering, Inc., 247 So.2d 72, 75 (Fla. 4th DCA 1971).

4. The doctrine of substantial performance applies when the variance from the contract specifications is inadvertent or unintentional and unimportant so that the work actually performed is substantially what was called for in the contract. Lockhart v. Worsham, 508 So.2d 411, 412 (Fla. 1st DCA 1987). “In the context of contracts for construction, the doctrine of substantial performance is applicable only where the contractor has not willfully or materially breached the terms of his contract or has not intentionally failed to comply with the specifications.” National Constructors, Inc. v. Ellenberg, 681 So.2d 791, 793 (Fla. 3d DCA 1996).

5. “There is almost always no such thing as ‘substantial performance’ of payment between commercial parties when the duty is simply the general one to pay.” Hufcor/Gulfstream, Inc. v. Homestead Concrete & Drainage, Inc., 831 So.2d 767, 769 (Fla. 4th DCA 2002).

 

So if you look at both the pleading and the proof from the pretender lenders, they never actually say they paid for anything and they never actually say they were harmed and therefore, the Judge surmises incorrectly, that they don’t have to prove financial injury because it is somehow presumed. That is wrong. And since these jury instructions are published by the Florida Supreme Court, I don’t think the Judge has very much discretion to go outside these instructions when he or she is making the decision himself or herself — without (as the instructions from the Supreme Court say) unequivocally stating the grounds upon which the Judge deviated from the standard jury instruction.
And as for the origination of the loan, which definitely starts as an oral contract —

SC12-1931 Opinion

416.5 ORAL OR WRITTEN CONTRACT TERMS [Contracts may be written or oral.]

[Contracts may be partly written and partly oral.] Oral contracts are just as valid as written contracts.

NOTE ON USE FOR 416.5

Give the bracketed alternative that is most applicable to the facts of the case. If the complete agreement is in writing, this instruction should not be given.

SOURCES AND AUTHORITIES FOR 416.5

1. An “agreement, partly written and partly oral, must be regarded as an oral contract, the liability arising under which is not founded upon an instrument of writing.” Johnson v. Harrison Hardware Furniture Co., 160 So. 878, 879 (Fla. 1935).

2. An oral contract is subject to the basic requirements of contract law such as offer, acceptance, consideration, and sufficient specification of essential terms. St. Joe Corp. v. McIver, 875 So.2d 375, 381 (Fla. 2004).

3. “The complaint alleged the execution of an oral contract, the obligation thereby assumed, and a breach. It therefore set forth sufficient facts which taken as true, would state a cause of action for breach of contract.” Perry v. Cosgrove, 464 So.2d 664, 667 (Fla. 2d DCA 1985).

4. As long as an essential ingredient is not missing from an agreement, courts have been reluctant to hold contracts unenforceable on grounds of uncertainty, especially where one party has benefited from the other’s reliance. Gulf Solar, Inc. v. Westfall, 447 So.2d 363 (Fla. 2d DCA 1984); Community Design Corp. v. Antonell, 459 So.2d 343 (Fla. 3d DCA 1984). When the existence of a contract is clear, the jury may properly determine the exact terms of an oral contract. Perry v. Cosgrove, 464 So.2d 664, 667 (Fla. 2d DCA 1985).

5. “To state a cause of action for breach of an oral contract, a plaintiff is required to allege facts that, if taken as true, demonstrate that the parties mutually assented to ‘a certain and definite proposition’ and left no essential terms open.” W.R. Townsend Contracting, Inc. v. Jensen Civil Construction, Inc., 728 So.2d 297 (Fla. 1st DCA 1999). See also Carole Korn Interiors, Inc. v. Goudie, 573 So.2d 923 (Fla. 3d DCA 1990) (company which provided interior design services sufficiently alleged cause of action for breach of oral contract, when company alleged that: it had entered into oral contract with defendants for interior design services; company had provided agreed services; defendants breached contract by refusing to remit payment; and company suffered damages); Rubenstein v. Primedica Healthcare, Inc., 755 So.2d 746, 748 (Fla. 4th DCA 2000) (“In this case, appellant sufficiently pled that Primedica, upon acquiring Shapiros’ assets, which included their oral agreement with appellant, mutually

– 50 –

assented to appellant’s continued employment under the same terms and conditions as with Shapiro. Further, he alleged that he suffered damages as a result of his termination.”).

So if the offer  to loan money came from a party who did not loan the money then there is no contract, oral or written, and no documents that could be used as evidence of an enforceable contract because the basic elements of contract are absent. The same would hold true for assignments. Thus the pile of “transfer documents” are all meaningless and worthless unless there was an original enforceable contract.

As for the duty to disclose all intermediary parties and their compensation and the rise of an implied contract —-
SC12-1931 Opinion

416.6 CONTRACT IMPLIED IN FACT

Contracts can be created by the conduct of the parties, without spoken or written words. Contracts created by conduct are just as valid as contracts formed with words.

Conduct will create a contract if the conduct of both parties is intentional and each knows, or under the circumstances should know, that the other party will understand the conduct as creating a contract.

In deciding whether a contract was created, you should consider the conduct and relationship of the parties as well as all of the circumstances.

NOTE ON USE FOR 416.6

Use this instruction where there is no express contract, oral or written, between the parties, and the jury is being asked to infer the existence of a contract from the facts and circumstances of the case.

SOURCES AND AUTHORITIES FOR 416.6

1. “[A]n implied contract is one in which some or all of the terms are inferred from the conduct of the parties and the circumstances of the case, though not expressed in words.” 17A AM. JUR. 2d Contracts § 12 (2009).

2. “In a contract implied in fact the assent of the parties is derived from other circumstances, including their course of dealing or usage of trade or course of performance.” Rabon v. Inn of Lake City, Inc., 693 So.2d 1126, 1131 (Fla. 1st DCA 1997); McMillan v. Shively, 23 So.3d 830, 831 (Fla. 1st DCA 2009).

3. In Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co., 695 So.2d 383, 387 (Fla. 4th DCA 1997), the Fourth District held:

A contract implied in fact is one form of an enforceable contract; it is based on a tacit promise, one that is inferred in whole or in part from the parties’ conduct, not solely from their words.” 17 AM. JUR. 2d Contracts § 3 (1964); Corbin, CORBIN ON CONTRACTS §§ 1.18-1.20 (Joseph M. Perillo ed. 1993). When an agreement is arrived at by words, oral or written, the contract is said to be “express.” 17 AM. JUR. 2d Contracts § 3. A contract implied in fact is not put into promissory words with sufficient clarity, so a fact finder must examine and interpret the parties’ conduct to give definition to their unspoken agreement. Id.; CORBIN ON CONTRACTS § 562 (1960). It is to this process of defining an enforceable agreement that Florida courts have referred when they have indicated that contracts implied in fact “rest upon the assent of the parties.” Policastro v. Myers, 420 So.2d 324, 326 (Fla. 4th DCA 1982); Tipper v. Great Lakes Chemical Co., 281 So.2d 10, 13 (Fla. 1973). The supreme court described the mechanics of this process in Bromer v. Florida Power & Light Co., 45 So.2d 658, 660 (Fla. 1950):

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[A] [c]ourt should determine and give to the alleged implied contract “the effect which the parties, as fair and reasonable men, presumably would have agreed upon if, having in mind the possibility of the situation which has arisen, they had contracted expressly thereto.” 12 AM. JUR. 2d 766.

See Mecier v. Broadfoot, 584 So.2d 159, 161 (Fla. 1st DCA 1991).

Common examples of contracts implied in fact are when a person performs services at another’s request, or “where services are rendered by one person for another without his expressed request, but with his knowledge, and under circumstances” fairly raising the presumption that the parties understood and intended that compensation was to be paid. Lewis v. Meginniss, 12 So. 19, 21 (Fla. 1892); Tipper, 281 So.2d at 13. In these circumstances, the law implies the promise to pay a reasonable amount for the services. Lewis, 12 So. at 21; Lamoureux v. Lamoureux, 59 So.2d 9, 12 (Fla. 1951); A.J. v. State, 677 So.2d 935, 937 (Fla. 4th DCA 1996); Dean v. Blank, 267 So.2d 670 (Fla. 4th DCA 1972); Solutec Corp. v. Young & Lawrence Associates, Inc., 243 So.2d 605, 606 (Fla. 4th DCA 1971).

….

For example, a common form of contract implied in fact is where one party has performed services at the request of another without discussion of compensation. These circumstances justify the inference of a promise to pay a reasonable amount for the service. The enforceability of this obligation turns on the implied promise, not on whether the defendant has received something of value. A contract implied in fact can be enforced even where a defendant has received nothing of value.

I think I made my point. Lawyers, follow Ms. Kelley’s suggestion. You might find your job in court a lot easier.

Florida jury instructions contract and third party beneficiary -sc12-1931

 

 

 

Filed under: CASES, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, forms, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Neil Garfield Show, Pleading, Servicer, STATUTES, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , | 27 Comments »

LOAN MODIFICATIONS

Posted on March 31, 2014 by Neil Garfield

Modifications are like a dirty word in the marketplace. Frustration, chicanery, luring borrowers into default, and crating modifications that are bound to fail so that the banks can get that ever precious foreclosure sale. But there is another side to it, as our guest writer David Abellard points out below.

And while I think the entire mortgage foreclosure thing is a complete sham, it is nonetheless true that homeowners want a a modification far more often than just getting a “free home.” Most of us understand that litigation is about preventing the banks from getting a “free home” — which is to say not just any home, but the home that a family resides in.

Litigation also provides the homeowner with presenting a credible threat, especially if they are after discovery on the money trail. So it is impossible to say how much litigation is necessary to get the best terms, or even if the homeowner SHOULD litigate, because much of that has more to do with personal decisions than the likelihood of success in litigation.

There is also a point I want to make to people who are not sophisticated in finance. An interest rate that is far under market rates IS the equivalent of a principal reduction. If you want to learn more about this, Google “present value” and “future value.” If you stay in the home for the duration of the loan, the impact gets larger and larger. But if you are staying in the home for only a short while then reducing the interest rate won’t do much without an actual principal reduction. As pointed out in prior broadcasts and articles here on livinglies, make sure whoever you are talking to about modification, short-sale or any other settlement is aware of two things:

  1. There are hidden programs throughout the country that provide direct financial assistance to those who want to bring their loan current or who need a reduction in principal. The “expert” you are hiring had better know about them or you might turn down a deal that would otherwise be acceptable.
  2. Get a court order approving the modification as a settlement. Submit an agreed order that expressly refers tot he legal description of the property, the fact that the homeowner is the owner in fee simple absolute — by name — and that the holder of the mortgage and note is identified by name. The order should approve the settlement even if the the settlement agreement is confidential and even if the settlement agreement is not attached to the order.
  3. Snatch and Grab: Many of the banks are still secretly scripting their customer service people to lure you into a default with the promise of a modification, even accepting trial payments, and then foreclosing anyway. The courts are not amused and they are getting banged by this practice — but only where the homeowner brings it up loudly.
  4. People ask me “should I stop paying?” The answer is universally that you don’t want to put yourself in a worse position than the one in which you are already stuck. Voluntary nonpayment is only for those who are pursuing strategies based upon strategic default. If the bank tells you to fall behind by 90 days, don’t believe it — it’s a trap. At best they are trying to steer you into an in house modification where the interest rates and payments are higher than in HAMP, HARP or other programs that do NOT require you to be i default for modification, no matter what anyone tells you.

But modifying the mortgage is a legitimate way of ending your problem as long as you take the necessary steps to protect your title. Thus I am inviting people to write in about modification. David Abellard sketches the modification process below:

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Loan Modification Information

Most homeowners have lost faith in loan modifications. Lenders have been alleged to routinely used the process to trick unsuspected homeowners into agreeing to consent judgment in pending foreclosure cases. The skepticism of some is understandable. However, the foreclosure landscape has shifted a bit in favor of the homeowners. The new Consumer Financial Protection Bureau recently promulgated rules that make loan modification more effective.

Lenders and their servicers could face serious penalty for not complying with the federal regulations that went into effect January 10, 2014. If a loan is modified, the new payment will be based on the household income; which is generally 31% of the household monthly gross income. Loans on a primary residence as well as non-owner residence can be modified.  There are several loan modification programs. The Home Affordable Modification Program (“HAMP”) is a government  program that has been extended until 12/31/15.  If a homeowner does not qualify for HAMP, or the investor doesn’t participate in the HAMP program, banks and servicers also offer internal private modification programs as an alternative.  Loan modifications are primarily designed to create an affordable payment plan for the homeowner based on their current income; it does not create equity by reducing the principle balance of a loan based on current property value.

There are mainly three ways a loan can be modified to create an affordable payment:
1) reduction of interest rate;
2) extension of loan term;
3) waiver or deferment of principle balance.

Regardless of what someone may tell you, applying for a loan modification does not guarantee that you will receive one, nor can anyone guarantee specific results.
Normally, the homeowner will have to complete a trial period which usually last 3 months before the modification becomes final.  Applying for a loan modification under certain circumstances may stop the court from entering a final judgment or selling the property while the modification application is being reviewed.  The application process can be daunting and intimidating. There are some law firms which concentrate on loan modification. They can become a very effective interface between the lender and the borrower and facilitate the process.

David Abellard at The Law Office of Paul A. Krasker, P.A.
Office: 561.328.2268,  or 877-332-1965 ext 194
Email: dabellard@kraskerlaw.com,

 

Filed under: CORRUPTION, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, Investor, MODIFICATION, Mortgage, Pleading, Servicer, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , | 101 Comments »

Who is the “lender” or “creditor”?

Posted on March 27, 2014 by Neil Garfield

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LET’S PROCEED STEP BY STEP. – Based upon actual documentation filed with the SEC

1. let’s assume that the mortgage is defective because it was not perfected. The note described a party who was not the creditor and gave no notice as to the actual identity of the creditor.
2. Let’s assume also that the note was paid in full from a variety of sources, which you know about ad nauseum.
3. Let’s further assume that the transfer documents are either non-existent or defective in that there was no actual transaction (they are false), there was no authority of the signatories etc.
4. Now let’s see what evidence I come up with to show that one or all of these things are true.

SUPPLEMENT TO PROSPECTUS:

We will issue and guarantee the certificates. Each certificate represents an undivided ownership interest in a pool of adjustable-rate residential mortgage loans. We offer each certificate by this prospectus supplement and the prospectus referenced in the pool statistics included herein.

Notice the reference to “pool statistics” and not the loans. There was a spreadsheet attached as though those were the loans, but it says later in the prospectus that those are not the real loans. So we have an offer, acceptance and consideration given by the investor to the broker dealer. If they had put the money in the trust, as they were required to do, then the Trust would have funded the transactions and received the necessary assignment through the Depositor. Discovery from hundreds of cases strongly suggests they never did that, because they were more interested in lining their own pockets (i.e., the broker dealers) than in giving the protection promised to the investors — which was an undivided ownership interest in the loans through a derivative security (mortgage bond). They got the mortgage bond but it was issued by a trust that in all probability never received the money and never engaged in any transaction.

What that means is that they (a) intend to do something in the future as of the date of this instrument, which appears to be some time in 2005 and (b) each certificate represents an undivided interest in the loans as a pool and do not represent direct ownership of the loans themselves (c) and it appears to indicate that that FNMA issues and guarantees the certificates, not the loans. Note that FNMA is not a lender but rather a guarantor although it is frequently referred to as a lender because it serves in the nominal position of “Master Trustee” for REMIC Trusts whose Trust Beneficiaries funded the loan, even if it wasn’t through the trust.

The certificates are issued under the terms of the ARM trust indenture dated as of July 1, 1984, as amended.

What that means is that the agreement and intentions of the parties were set long before the first contact or application was made by the borrower. This impacts the mortgage origination. TILA and RESPA require full disclosure of the identity of the lender because the very purpose of TILA was to make sure the borrower had enough information to make a choice between one lender or another. By depriving the borrower of this knowledge, the borrower was unaware that the purpose of his/her “loan” product was to sell securities and that the “securitization” parties had a greater incentive to sell the loan than make sure that the loan was viable — even if they had no intention of actually securitizing the loan in the manner set forth in the Prospectus and Pooling and Servicing Agreement.

The borrower is also not advised that his/her name and credit score would be used to sell those securities. Now this doesn’t mean the loan wasn’t real, but it does point to the fact that the actual identity of the funders of the loan was being kept secret and that the note was defective in failing to show that this was the intent of the parties sitting across the table from the borrower. By keeping this information from both the lender and the borrower, the “securitization” parties were obviously intending to use the identities of the lenders and use the identities of the borrowers to create actual or fictitious transactions to cover any excessive compensation or payoffs they were anticipating.

We have responsibility for the servicing of the mortgage loans in the pool. Every month we will pay to certificate holders scheduled installments of principal on the mortgage loans in the pool, together with one month’s accrued interest at the pool accrual rate. We guarantee to pay these amounts, whether or not the borrowers under the mortgage loans pay us. If we foreclose on a mortgage loan, we also must pay certificate holders the full principal balance of that loan even if we recover a lesser amount.

There are several possible interpretations here. And that is because “we” is not actually an identification of any party or parties. One is that FNMA was the creditor in fact the whole time. The fact that FNMA is not the creditor because it never loaned any money and never bought the loans (except possibly as Master Trustee for a REMIC Trust, which could only mean that the REMIC trust bought it acting through FNMA acting as a “manager”). Another is that the investors were the creditors, and still another is that the trust was the creditor. It’s really not that clear.

What IS clear is that the investors were paid no matter what, which means that from the investor point of view there could be no default — ever, unless FNMA defaulted. This is the quasi equivalent of servicer advances. In truth both servicer advances and the guarantee payments probably came from a reserve fund taken out of the investors’ pool of money sitting in the broker dealer’s account. The reason why the payments were made regardless of what the borrower did was that the broker dealers wanted to sell more bonds.

By creating the illusion that all is well with the loan pool, the investors continued to buy the mortgage bonds. The authority for paying the investors out of their own money is directly stated in language buried in the prospectus, at a point where most fund managers have stopped reading and are relying upon their trust of investment banks who have a reputation dating back as much as 150 years. This was a reputation they cashed. The only true securitization was that the reputation of the major banks was sold off multiple times in bogus instruments that do NOT qualify for security exemption and SHOULD be subject to SEC enforcement.

Hence the source of funding was paid and is being paid and is guaranteed to be paid in all events. So here is the problem: if the guarantee was of the certificate and not of the mortgage how exactly does FNMA claim direct ownership of the loan? You have a right to see those transactions and ascertain the true value of the mortgage and the true creditor. It is unlikely that there were two guarantees — one for the certificates and one for the loans. And the interesting part of that is my understanding of the process is that FNMA was to created to guarantee loans not certificates.

The point of this exercise is to emphasize the importance of actually reading the “securitization” documents and to compare the events set forth in the documents with the actual events. If the document says the loan was to be acquired through an assignment that is in recordable form and which is recorded, then there are several questions. Was the document of assignment prepared? Was it recorded? And most of all was there any transaction in which the Trust paid for the assignment?

And of course as almost everyone knows in foreclosure defense, when did this alleged transaction take place. The name of the trust usually has a year and sometimes a month in it and that gives the answer about when the transaction must have taken place in order to qualify for a valid acquisition of loan — i.e., the 90 day cutoff.

So we know by definition and from the facts of closing that if the closing took place on December 1, 2006 and the cutoff date for trust business was January 1, 2007, that the assignment was required during that period. But we also know from experience that these assignments appear out of thin air only for mortgages that are in litigation — leading to what some in foreclosure defense refer to as “ta da!” assignments — obviously fabricated minutes before they were used in court.

The last item is the most deadly for the banks. It is perfectly appropriate to ask for the transaction in which the transfer took place. The assignment, fabricated or not, says it took place on a certain date. The banking system is set up so that there are multiple sets of footprints for the movement of money. So your question is, show me the transaction where the Trust issued a check or wire transfer for this mortgage. Their answer is no. They will cite all sorts of reasons for this, but the real one is that the transaction does not exist.

It doesn’t exist now, it didn’t exist then and it never will exist because in most cases the money advanced by investors to the broker dealers was never used in the manner set forth in the prospectus. That is a subject for litigation between investors and broker dealers and there have been hundreds of such claims now that the truth is coming out. The only significance to you is that you now have actual knowledge that the investors directly and involuntarily funded the origination or acquisition of your loan, but failed to get the what they should have received — a note and mortgage payable to the investors.

Naming the mortgage broker or originator on the note and mortgage is pure fiction and in my opinion renders those instruments void. The alleged transaction at the closing with the borrower was a sham. He or she was induced to sign closing documents upon the mistaken belief that the originator or mortgage broker was actually lending the money to him or her. The moment the borrower signed the note and mortgage, and the moment the mortgage was recorded, there was a cloud on title because the mortgage was defective — a mortgage which the investors themselves allege was unenforceable for exactly the reason set forth in this article.

Analysis taken from

ADJUSTABLE RATE TRUST INDENTURE FOR ADJ RATE PRIOR TO 6-1-07.pdf;

SET 2 TEXT RECOGNIZABLE FM 000471 – MERS history of lender, investor, servicing.pdf;

FNMA LISTING OF ARM MBS SUBTYPES.pdf;

FORM 10-K ANNUAL REPORT FOR DECEMBER 2005.pdf;

LOAN LEVEL INFO.pdf;

monthly reporting.pdf;

NOTES WHILE REVIEWING SECURITIZATION DOCUMENT.wpd;

Prospectus July 1, 2004.pdf;

SECURITY SPECIFIC DETAILS FROM FNMA WEBSITE BASED ON POOL NUMBER PROVIDED IN DISCLOSURE.pdf;

Supplement to Prospectus.pdf

Filed under: CORRUPTION, discovery, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, Mortgage, Motions, Pleading, Servicer, TRUST BENEFICIARIES | Tagged: , , , , , , , , , , , | 97 Comments »

Judge Zloch Deals Blow to Wells Fargo and Ocwen on Trial by Jury

Posted on March 26, 2014 by Neil Garfield

In a short written opinion Judge William J Zloch, formerly of Notre Dame football fame (quarterback and wide receiver) dealt a huge blow to bankers pretending to be lenders and servicers pretending to be bankers. For him the issue was simple. And he is right. His opinion contains irrefutable logic. Ocwen wanted to escape trial by jury because the mortgage documents contained a waiver. Wells Fargo also wanted to escape trial by jury, but they were being sued vicariously through the actions of Ocwen.

Zloch said no to Ocwen and seems to be saying the same thing to Wells Fargo. His reasoning is simple and bulletproof — the borrower sued Ocwen stating that it had committed various wrongdoing. Ocwen by all accounts is only a servicer and never has been a lender notwithstanding its prior assertions in court, which many judges have rubber stamped and now wish they didn’t.

This decision appears to be important for at least three reasons:

1. The Judge accepts the notion that Ocwen is a controlled entity of Wells Fargo.

2. The Judge rejects the idea that a party other than the owner of the mortgage can rely on the mortgage terms for any reason (except to show that they were servicing and processing in compliance with the terms of the note and potentially the mortgage). Thus the Judge underscores a central point on this blog — that the servicers, aggregators and broker dealers and trusts and trust beneficiaries are all independent entities and the servicers, among others, have inescapable conflicts of interests that results in action contrary to the expectations of both real parties in interest — i.e., the investors as lenders and the homeowners as borrowers.

3. Trial by jury is available as to all damage claims against any party who is not party to the mortgage contract; and for those banks that are using the servicers as a shield, they may be subject to claims that will be heard by a jury as well.

So in the end he says that the jury will render a verdict as to the claims against Ocwen and render an advisory verdict as to the claims against Wells Fargo. This is a potential nightmare for the banks. It is about time. And now it is time to get your claims heard by a jury.

201403241440

 

 

Filed under: CASES, CORRUPTION, evidence, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, Investor, MBS TRUSTEE, Pleading, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , | 23 Comments »

The Banks: Consideration is Irrelevant, Really? Then so is payment!

Posted on March 24, 2014 by Neil Garfield
The issue is what are the elements of the loan contract? Who are the parties? And who can enforce it?

I would agree that an overpayment at closing from the source of funds is rare. What is not rare and in fact common is that the wire transfer instructions that accompany the wire transfer receipt often instructs the closing agent to refund any overpayment to the party who wired the money — not the originator. This leads to questions. If it is a true warehouse lender, such instructions could be explained without affecting the validity of the note or mortgage.

In truth, the procedures used usually prevent the originator from ever touching the flow of funds. Wall Street banks were afraid of fraud — that if the originators could touch the money, they might have faked a number of closings and taken the money. In short, the investment banks were afraid that the originators would not use the money the way it was intended. So instead of doing that, they created relationships by having the originators sign Assignment and Assumption agreements before they started lending. This agreement says the loan belongs to an “aggregator” that is merely a controlled entity of the broker dealer. But the money doesn’t come from either the originator or the aggregator. Thus they have an agreement that controls the loan closings but no consideration for that either.
But this is a lot like the insurance payments, proceeds of credit default swaps etc. The contracts almost always specifically waive subrogation or any other right of action against the borrowers or any other enforcement of the notes or mortgages. It has been presumed that these contracts were for the mitigation of losses and that is true. But they are payable to the broker dealers and not the trust or trust beneficiaries. The investment banks committed fraud when they represented to the insurers, FDIC, Fannie, Freddie and CDS counterparties that they had an insurable interest. Those parties presumed that the investment banks were creating these hedge products for the benefit of the owner of the mortgage bonds or the owner of the loans. But it was paid to the investment banks. That is why all those parties are claiming losses that resulted from fraud — all of which have resulted in settlements (except the Countrywide verdict for fraud).
The similarity is this: in both the closing with borrowers and the closings with investors the same fraud occurred. When dealing with the closing agent they interposed their nominee in the closing which resulted in no note and no mortgage in favor of the investors or the trust. Whether the closing agent is liable is another issue. The point is that the money came from a third party which was a controlled entity of the broker dealer. Thus the investor gets a promise from a trust that is not funded while their money is used to pay fees, create the illusion of trading profits for the broker dealer and funding mortgages.
The wire transfer is not a wire transfer from the originator, nor from the bank at which the originator maintains any account. The wire transfer instructions and the wire transfer receipt fail to identify the actual source of funds and fail to refer to the originator as a real party. If they did, there would not be a problem for the banks to enforce the note and mortgage. If they did, the banks would simply show the transaction record and there would be nothing to fight about.
The only occasion in which the banks appeared to be willing to provide adequate documentation for consideration appears to be in a merger or acquisition with the party that was named as the mortgagee in the mortgage document or the beneficiary in the deed of trust. And all the other transactions, the banks say that consideration is irrelevant or they quote the law that says that courts cannot question the adequacy of consideration. They are dodging the issue. We are not saying that consideration was not adequate; what we are saying is that there was no consideration at all. The banks are fighting this issue  because when it comes out that there really was no consideration the entire house of cards could fall.
 The issue is counterintuitive because everyone knows that there was money on the closing table. Unless the issue is argued and presented with clarity, it will appear to the judge that you are trying to say that there was no money on the closing table. And when a judge hears that, or thinks that he heard that, he or she will not take you seriously. There are three parts to every contract —  offer, acceptance, and consideration. A few courts have started to deal with this question. In the context of foreclosure litigation all three elements are in question. If the lenders are investors who believed that their money was being put into a trust that they were beneficiaries of a trust, they are unaware of the fact that their money is being offered to borrowers on terms that are contrary to their instructions. And the loan is not made on behalf of the investors or the trust. It is made on behalf of some sham entity controlled by the broker dealer. Sometimes the origination is made by an actual bank that is acting in the capacity of a sham lender. Either way the money came from the investors.
So the issue is not whether there was money on the table but rather whether there was a meeting of the minds between the investors and lenders in the homeowners as borrowers. The lender documents (trust documents) reveal far different terms of repayment than the borrower documents. Each of them signed on to a deal that actually didn’t exist because neither of them had agreed to the same terms.
 The fact that money was on the table at the time of the alleged closing of the loan can only mean that the homeowner owed money to repay the source of the money. This duty to repay arises by operation of law and extends from the homeowner to the investor despite the lack of any documentation that explicitly states that. The result is false documentation in which the homeowner was induced to sign under the mistaken belief that the payee on the note and the mortgagee on the mortgage was the source of funds.
If you receive funds from John Smith and the note and mortgage are drafted for the benefit of Nancy Jones as “lender” would that bother you? What would you do as closing agent? Why?

Filed under: CORRUPTION, evidence, expert witness, foreclosure, foreclosure defenses, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Pleading, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , , , | 67 Comments »

The Confusion Over Consideration: If they didn’t pay for it, they have nothing against the property

Posted on March 21, 2014 by Neil Garfield

There have been multiple questions directed at me over the issue of consideration arising from presumptions made about a note and mortgage that appear to be facially valid. Those presumptions are rebuttable and indeed in many cases would be rebutted by the actual facts. That is why asserting the right defenses is so important to set the foundation for discovery.

The cases thrown at me usually relate to adequacy of consideration. Some relate wrongly to Article 3 as to enforcement of the note. I agree that enforcement of the note is easier than enforcement of the mortgage. But that is the point. If they really want the property even a questionable holder of the note might be able to get a civil judgment and that judgment might result in a lien against the property and it might even be foreclosed if the property is not homestead. That is how we protect creditors and property owners. To enforce the mortgage, the claim must be much stronger — it must be filed by a party who actually has the risk of loss because they paid for it.

One case just sent to me is a 2000 case 4th DCA in Florida. Ahmad v Cobb. 762 So 2d 944. The quote I lifted out of that case which was presented to me as though it contradicted my position is the most revealing:

“First, there is no doubt that Ahmad, as the assignee of the Resolution Trust Corporation, owned the rights to the Cobb Corner, Inc. note and mortgage and to the guarantees securing those obligations. He obtained a partial

[762 So.2d 947]

summary judgment which fixed the validity, priority and extent of his debt. Any questions as to the adequacy of the consideration he paid were settled in that ruling.“

That is your answer. The time to contest consideration is best done before judgment when you don’t need to prove fraud by clear and convincing evidence. We are also not challenging adequacy of consideration — except that if it recites $10 and other value consideration for a $500,000 loan it casts doubt as to whether the third leg of the stool is actually present — offer, acceptance and consideration. People tend to forget that this is essentially contract law and the contract for loan is no exception to the laws of contract.

We are challenging whether there was any consideration at all because I already know there was none. There couldn’t be. The consideration flowed directly from the investors to the borrower. That is the line of sight of the debt, in most cases.

The closing agent mistakenly or intentionally applied funds from a third party who was not disclosed on the settlement documents. Without receiving any money from the “originator”, the closing agent proceeded to get the signature from the borrower promising to pay the originator when it was a third party who gave the closing agent the funds. If this was a “warehouse loan” in which the originator was borrowing the money with a risk of loss and the liability to pay it back then the originator is a proper party and any assignments from the originator would be valid — if they were supported by consideration. Some loans do fit that criteria but most do not.

I repeat that this is not an attempt to get out of the debt altogether. It is an attack on the note and mortgage because the actual terms of repayment were either never agreed between the investors and the borrowers or are as set forth in the PSA and NOT the note and mortgage.

If the third party (source of funds) is NOT in privity with the originator (which is the structure we are dealing with because the broker dealers wanted to shield themselves from liability for violating fair lending laws) then the closing agent should have obtained instructions from the source of funds as to the application of funds wired into escrow. Anyone who didn’t would be an idiot. But most of them, under that definition would qualify. The closing agent would also be wrong to have demanded the signature of the borrower on documents that (a) did not reveal the source of funds and (b) did not contain all the terms of repayment, as recited in the PSA.

The foreclosure crowd is saying the PSA is irrelevant — but only when it suits them. They are saying that the PSA gives them the authority to proceed with foreclosure but that the terms of the PSA are not relevant. That is crazy, but up until now judges have been buying it because they have not been presented with the fact pattern and legal argument that we are asserting.

In summary, we are saying there was NO CONSIDERATION. We are not attacking adequacy of consideration. I am saying there was no actual transaction between the originator and the borrower and there was no actual transaction between the assignor, indorsor, and the assignee or indorsee. Article 9 of the UCC is clear.

The terms of enforcement of a note govern a looser interpretation of when negotiable paper can be enforced. But the terms of a mortgage cannot be enforced by anyone unless they obtain it for value. Value is consideration. We are saying there wasn’t any consideration. Any decision to the contrary is wrong and can be contested with contrary decisions that are all correct and can be found not only in the public records but in treatises.

And this is absolutely necessary. In a mortgage foreclosure or even attachment, the party seeking the forfeiture must show that this forfeiture is necessary to secure repayment of a debt. It must also show that without this forfeiture, it will suffer a loss. In so doing they establish grounds not only for the foreclosure judgment but also for the foreclosure sale.

As pointed out in the above case, the creditor is the one who submits a creditor’s bid by definition. If the party bringing the action cannot satisfy the elements of a creditor in real money terms, then they are not permitted to bid anything other than cash. Allowing a party who did not acquire the mortgage rights for value would enable strangers to the transaction to acquire property for free, except the costs of litigation. Thus the “free house” argument is specious. It is a distraction from the real facts as to who is getting a free house.

Filed under: CASES, CORRUPTION, evidence, expert witness, foreclosure defenses, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , | 170 Comments »

BONY Objections to Discovery Rejected

Posted on March 20, 2014 by Neil Garfield

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It has been my contention all along that these cases ought to end in the discovery process with some sort of settlement — money damages, modification, short-sale, hardest hit fund programs etc. But the only way the homeowner can get honest terms is if they present a credible threat to the party seeking foreclosure. That threat is obvious when the Judge issues an order compelling discovery to proceed and rejecting arguments for protective orders, (over-burdensome, relevance etc.). It is a rare bird that a relevance objection to discovery will be sustained.

Once the order is entered and the homeowner is free to inquire about all the mechanics of transfer of her loan, the opposition is faced with revelations like those which have recently been discovered with the Wells Fargo manual that apparently is an instruction manual on how to commit document fraud — or the Urban Lending Solutions and Bank of America revelations about how banks have scripted and coerced their employees to guide homeowners into foreclosure so that questions of the real owner of the debt and the real balance of the debt never get to be scrutinized. Or, as we have seen repeatedly, what is revealed is that the party seeking a foreclosure sale as “creditor” or pretender lender is actually a complete stranger to the transaction — meaning they have no ties i to any transaction record, and no privity through any chain of documentation.

Attorneys and homeowners should take note that there are thousands upon thousands of cases being settled under seal of confidentiality. You don’t hear about those because of the confidentiality agreement. Thus what you DO hear about is the tangle of litigation as things heat up and probably the number of times the homeowner is mowed down on the rocket docket. This causes most people to conclude that what we hear about is the rule and that the settlements are the exception. I obviously do not have precise figures. But I do have comparisons from surveys I have taken periodically. I can say with certainty that the number of settlements, short-sales and modifications that are meaningful to the homeowner is rising fast.

In my opinion, the more aggressive the homeowner is in pursuing discovery, the higher the likelihood of winning the case or settling on terms that are truly satisfactory to the homeowner. Sitting back and waiting to see if the other side does something has been somewhat successful in the past but it results in a waiver of defenses that if vigorously pursued would or could result in showing the absence of a default, the presence of third party payments lowering the current payments due, the principal balance and the dollar amount of interest owed. If you don’t do that then your entire case rests upon the skill of the attorney in cross examining a witness and then disqualifying or challenging the testimony or documents submitted. Waiting to the last minute substantially diminishes the likelihood of a favorable outcome.

What is interesting in the case below is that the bank is opposing the notices of deposition based upon lack of personal knowledge. I would have pressed them to define what they mean by personal knowledge to use it against them later. But in any event, the Judge correctly stated that none of the objections raised by BONY were valid and that their claims regarding the proper procedure to set the depositions were also bogus.

tentative ruling 3-17-14

Filed under: CASES, CORRUPTION, evidence, foreclosure defenses, GARFIELD KELLEY AND WHITE, GTC | Honor, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, Pleading, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , , , | 13 Comments »

Hearsay on Hearsay: Bank Professional Witnesses Using Business Records Exception as Shield from Truth

Posted on March 19, 2014 by Neil Garfield

Wells Fargo Manual “Blueprint for Fraud”

Hat tip to my law partner, Danielle Kelley, Esq., for sending me the manual and the reports on it. Anyone desirous of a consultation on the application of what is on this blog, must either be a lawyer or have a lawyer who is licensed in the jurisdiction in which the property is located. For scheduling call 954-495-9867 (South Florida Office), 850-765-1236 (North Florida Office), and 520-405-1688 (Western United States). International callers: The same rules apply.

Well that didn’t take long. Like the revelations concerning Urban Lending Solutions and Bank of America, it is becoming increasingly apparent that the the intermediary banks were hell bent for foreclosure regardless of what was best for the investors or the borrowers. This included, fraud, fabrication, unauthorized documents and signatures, perjury and outright theft of money and identities. I understand the agreement between the Bush administration and the large banks. And I understand the reason why the Obama administration continued to honor the agreements reached between the Bush administration and the large banks. They didn’t have a clue. And they were relying on Wall Street to report on its own behavior. But I’m sure the agreement did not even contemplate the actual crimes committed. I think it is time for US attorneys and the Atty. Gen. of each state to revisit the issue of prosecution of the major Wall Street banks.

With the passage of time we have all had an opportunity to examine the theory of “too big to fail.” As applied, this theory has prevented prosecutions for criminal acts. But more importantly it is allowing and promoting those crimes to be covered up and new crimes to be committed in and out of the court system. A quick review of the current strategy utilized in foreclosure reveals that nearly all foreclosures are based on false assumptions, no facts,  and a blind desire for expediency that  sacrifices access to the courts and due process. The losers are the pension funds that mistakenly invested into this scheme and the borrowers who were used as pawns in a gargantuan Ponzi scheme that literally exceeded all the money in the world.

Let’s look at one of the fundamental strategies of the banks. Remember that the investment banks were merely intermediaries who were supposedly functioning as broker-dealers. As in any securities transaction, the investor places in order and is responsible for payment to the broker-dealer. The broker-dealer tenders payment to the seller. The seller either issues the securities (if it is an issuer) or delivers the securities. The bank takes the money from the investors and doesn’t deliver it to an issuer or seller, but instead uses the money for its own purposes, this is not merely breach of contract —  it is fraud.

And that is exactly what the investors, insurers, government guarantors and other parties have alleged in dozens of lawsuits and hundreds of claims. Large banks have avoided judgment based on these allegations by settling the cases and claims for hundreds of billions of dollars because that is only a fraction of the money they diverted from investors and continue to divert. This continued  diversion is accomplished, among other ways, through the process of foreclosure. I would argue that the lawsuits filed by government-sponsored entities are evidence of an administrative finding of fact that causes the burden of proof to be shifted to the cloud of participants who assert that they are part of a scheme of securitization when in fact they were part of a Ponzi scheme.

This cloud of participants is managed in part by LPS in Jacksonville. If you are really looking for the source of documentation and the choice of plaintiff or forecloser, this would be a good place to start. You will notice that in both judicial and non-judicial settings, there is a single party designated as the apparent creditor. But where the homeowner is proactive and brings suit against multiple entities each of whom have made a claim relating to the alleged loan, the banks stick with presenting a single witness who is “familiar with the business records.” That phrase has been specifically rejected in most jurisdictions as proving the personal knowledge necessary for a finding that the witness is competent to testify or to authenticate documents that will be introduced in evidence. Those records are hearsay and they lack the legal foundation for introduction and acceptance into evidence in the record.

So even where the lawsuit is initiated by “the cloud” and even where they allege that the plaintiff is the servicer and even where they allege that the plaintiff is a trust, the witness presented at trial is a professional witness hired by the servicer. Except for very recent cases, lawyers for the homeowner have ignored the issue of whether the professional witness is truly competent,  and especially why the court should even be listening to a professional witness from the servicer when it is hearing nothing from the creditor. The business records which are proffered to the court as being complete are nothing of the sort. They are documents prepared for trial which is specifically excluded from evidence under the hearsay rule and an exception to the business records exception. And the easy proof is that they are missing payments to the investor. That is why discovery should be aggressive.

Lately Chase has been dancing around these issues by first asserting that it is the owner of a loan by virtue of the merger with Washington Mutual. As the case progresses Chase admits that it is a servicer. Later they often state that the investor is Fannie Mae. This is an interesting assertion which depends upon complete ignorance by opposing counsel for the homeowner and the same ignorance on the part of the judge. Fannie Mae is not and never has been a lender. It is a guarantor, whose liability arises after the loss has been completely established following the foreclosure sale and liquidation to a third-party. It is also a master trustee for securitized trusts. To say that Fannie Mae is the owner of the alleged loan is most likely an admission that the originator never loaned any money and that therefore the note and mortgage are invalid. It is also intentional obfuscation of the rights of the investors and trusts.

The multiple positions of Chase is representative of most other cases regardless of the name used for the identification of the alleged plaintiff, who probably doesn’t even know the action exists. That is why I suggested some years ago that a challenge to the right to represent the alleged plaintiff would be both appropriate and desirable. The usual answer is that the attorney represents all interested parties. This cannot be true because there is an obvious conflict of interest between the servicer, the trust, the guarantor, the trustee, and the broker-dealer that so far has never been named. Lawsuits filed by trust beneficiaries, guarantors, FDIC and insurers demonstrate this conflict of interest with great clarity.

I wonder if you should point out that if Chase was the Servicer, how could they not know who they were paying? As Servicer their role was to collect payments and send them to the creditor. If the witness or nonexistent verifier was truly familiar with the records, the account would show a debit to the account for payment to Fannie Mae or the securitized trust that was the actual source of funds for either the origination or acquisition of loans. And why would they not have shown that?  The reason is that no such payment was made. If any payment was made it was to the investors in the trust that lies behind the Fannie Mae curtain.

And if the “investor” had in fact received loss sharing payment from the FDIC, insurance or other sources how would the witness have known about that? Of course they don’t know because they have nothing to do with observing the accounts of the actual creditor. And while I agree that only actual payments as opposed to hypothetical payments should be taken into account when computing the principal balance and applicable interest on the loan, the existence of terms and conditions that might allow or require those hypothetical payments are sufficient to guarantee the right to discovery as to whether or not they were paid or if the right to payment has already accrued.

I think the argument about personal knowledge of the witness can be strengthened. The witness is an employee of Chase — not WAMU and not Fannie Mae. The PAA is completely silent about  the loans. Most of the loans were subjected to securitization anyway so WAMU couldn’t have “owned” them at any point in the false trail of securitization. If Chase is alleging that Fannie Mae in the “investor” then you have a second reason to say that both the servicing rights and the right to payment of principal, interest or monthly payments in doubt as to the intermediary banks in the cloud. So her testimony was hearsay on hearsay without any recognizable exception. She didn’t say she was custodian of records for anyone. She didn’t say how she had personal knowledge of Chase records, and she made no effort to even suggest she had any personal knowledge of the records of Fannie and WAMU — which is exactly the point of your lawsuit or defense.

If the Defendant/Appellee’s argument were to be accepted, any one of several defendants could deny allegations made against all the defendants individually just by producing a professional witness who would submit self-serving sworn affidavits from only one of the defendants. The result would thus benefit some of the “represented parties” at the expense of others.

Their position is absurd and the court should not be used and abused in furtherance of what is at best a shady history of the loan. The homeowner challenges them to give her the accurate information concerning ownership and balance, failing which there was no basis for a claim of encumbrance against her property. The court, using improper reasoning and assumptions, essentially concludes that since someone was the “lender” the Plaintiff had no cause of action and could not prove her case even if she had a cause of action. If the trial court is affirmed, Pandora’s box will be opened using this pattern of court conduct and Judge rulings as precedent not only in foreclosure actions, disputes over all types of loans, but virtually all tort actions and most contract actions.

Specifically it will open up a new area of moral hazard that is already filled with debris, to wit: debt collectors will attempt to insert themselves in the collection of money that is actually due to an existing creditor who has not sold the debt to the collector. As long as the debt collector moves quickly, and the debtor is unsophisticated, the case with the debt collector will be settled at the expense of the actual creditor. This will lead to protracted litigation as to the authority of the debt collector and the liability of the debtor as well as the validity of any settlement.

Filed under: CASES, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Motions, originator, Pleading, securities fraud, Servicer, STATUTES, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , , , | 47 Comments »

Quite a Stew: Wells Fargo Pressure Cooker for Sales and Fabricated Documents

Posted on March 17, 2014 by Neil Garfield

Wells Fargo Investigated by 4 Agencies for Manual on Fabricating Foreclosure Documents

Wells Fargo is under investigation for a lot of things these days, just as we find in Bank of America and other major “institutions.” The bottom line is that they haven’t been acting very institutional and their culture is one that has led to fraud, identity theft and outright fabrication of accounts and documents.

There can be little doubt about it. Documents that a real bank acting like a bank would have in its possession appear to be completely absent in most if not all loans that are “performing” (i.e., the homeowner is paying, even if the party they are paying isn’t the right and even if the loan has already been paid off). But as soon as the file becomes subject to foreclosure proceedings, documents miraculously appear showing endorsements, allonges, powers of attorney and assignments. According to a report from The Real Deal (New York Real Estate News), these are frequently referred to as “ta-da endorsements” a reference from magic acts where rabbits are pulled from the hat.

Such endorsements and other fabricated documents have been taken at face value by many judges across the country, despite vigorous protests from homeowners who were complaining about everything from “they didn’t have the documents before, so where did they get them?” to luring homeowners into false modifications that were designed to trap homeowners into foreclosure.

After 7 years of my reporting on the fact that the documents do not exist, including a report from Katherine Anne Porter at what was then the University of Iowa that the documents were intentionally destroyed and “lost” it has finally dawned on regulators and law enforcement that something is wrong. They could have done the same thing that I did. I had inquiries from hundreds (back then, now thousands) of homeowners looking for help.

So the first thing I did was I  sent qualified written requests to the parties who were claiming to be the “lenders.” After sending out hundreds of these the conclusion was inescapable. Any loan where the homeowner was continuing to make their payments have no documentation. Any loan where the homeowner was in the process of foreclosure had documentation of appear piece by piece as it seemed to be needed in court. This pattern of fabrication of documents was pandemic by 2007 and 2008. They were making this stuff up as they went along.

It has taken seven years for mainstream media and regulators to ask the next obvious question, to wit: why would the participants in an industry based on trust and highly complex legal instruments created by them fall into patterns of conduct in which nobody trusted them and where the legal instruments were lost, destroyed and then fabricated? In my seminars I phrased the question differently. The question I posed is that if you had a $10 bill in your hand, why would you stick it in a shredder? The promissory note and the other documents from the alleged loan closings were the equivalent of cash, according to all legal and common sense standards. Why would you destroy it?

As I said in 2008 and continue saying in 2014, the only reason you would destroy the $10 bill is that you had told somebody you were holding something other than a $10 bill. Perhaps you told them it was a $100 bill. Now they want to see it. Better to “lose” the original bill then admit that you were lying in the first place. One is simple negligence (losing it) and the other is criminal fraud (lying about it). The banking industry practically invented all of the procedures and legal papers associated with virtually every type of loan. The processing of loans has been the backbone of the banking industry for hundreds of years. Did they forget how to do it?

The answers to these questions are both inconvenient and grotesque. I know from my past experience on Wall Street that bankers did not deserve the trust that everyone seemed to repose in them. But this conduct went far beyond anything I ever saw on Wall Street. The answer is simply that the bankers traded trust for money. They defrauded the investors, most of whom were stable managed funds guarding the pensions of millions of people. Then they defrauded homeowners creating a pressure cooker of sales culture in which banking evolved simply into marketing and sales. Risk analysis and risk control were lost in the chaos.

The very purpose for which banks came into existence was to have a place of safety in which you could deposit your money with the knowledge that it would still be there when you came back. Investors were lured into a scheme in which they thought their money was being used to fund trusts; those trusts issued mortgage bonds that in most cases were never certificated. In most cases the trust received no money, no assets and no income. The fund managers who were the investors  never had a chance.

The money from the investors was instead kept by the broker-dealers who then traded with it like drunken sailors. They pumped up real estate PRICES  far above real estate VALUES, based on any reasonable appraisal standards. The crash would come, and they knew it. So after lying to the investor lenders and lying to the homeowner borrowers they lied to the insurers, guarantors, co-obligors and counterparties to credit default swaps that had evolved from intelligent hedge products to high flying overly complicated contracts that spelled out “heads I win, tails you lose.”

In order to do all of that they needed to claim the loans and the bonds as though they were owned by the broker-dealers when in fact the broker-dealers were merely the investment banks that had taken the money from investors and instead of using it in the way that the investors were told, they created the illusion (by lying) of the scheme that was called securitization when in fact it was basically common fraud, identity theft of both the lenders and borrowers, in a Ponzi scheme. When Marc Dreier was convicted of similar behavior the amount was only $400 million but it was the larger scheme of its kind ever recorded.

When Bernard Madoff was convicted of similar behavior the amount was only $60 billion, but the general consensus was that this was the largest fraud in history and would maintain that status for generations. But when the Madoff scandal was revealed it was obvious that members of the banking industry had to be involved; what was not so obvious is that the banking industry itself had already committed a combination of identity theft, fraud and corruption that was probably 300 times the size of the Madoff scandal.

The assumption that these are just loans that were to be enforced just like any other loans is naïve. The lending process described in the paperwork at the closings of these loans was a complete lie. The actual lender did not know the closing had occurred, never received the note and mortgage, nor any other instrument that protected the investor lenders. The borrower did not know the actual lender existed. Closing agent was at best negligent and at worst part of the scheme. Closing agent applied money from the investors to the closing of the “loan” and gave the paperwork that should’ve gone to the investors to third parties who didn’t have a dime invested in the deal. Later the investment banks would claim that they were suffering losses, but it was a lie, this time to the taxpayers and the government.

The reason the investment banks need to fabricate documentation is simply because their scheme required multiple sales of the same loan to multiple parties. They had to wait until they couldn’t wait any longer in order to pick a plaintiff to file a foreclosure lawsuit or pick a beneficiary who would appear out of nowhere to start the nonjudicial sale of property in which they were a complete stranger to the transaction.

The reason that homeowners should win in any reasonable challenge to a foreclosure action is that neither the forecloser nor the balance has been correctly stated. In many cases the balance “owed” by the borrower is negative! Yes that means that money is owed back to the borrower even know they stopped making payments. This is so counter intuitive that it is virtually impossible for most people to wrap their brains around this concept and that is exactly what Wall Street banks have been counting on and using against us for years.

LA Times Report on Wells Fargo Sales Culture

Filed under: bubble, CORRUPTION, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Neil Garfield Show, originator, Pleading, securities fraud, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , | 43 Comments »

Is Donald Duck Your Lender?

Posted on March 14, 2014 by Neil Garfield

 

I was asked a question a few days ago that runs to the heart of the problem for the banks in enforcing false claims for foreclosure and false claims of losses that should really allocated to the investors so that the investor would get the benefits of those loss mitigation payments. This is the guts of the complaints by insurers, investors, guarantors et al against the investment banks — that there was fraud, not breach of contract, because the investment bank never intended to follow the plan of securitization set forth in the prospectus and pooling and servicing agreement. The question asked of me only reached the issue of whether borrowers could claim credit for third party payments to the creditor. But the answer, as you will see, branches much further out than the scope of the question.

If you look at Steinberger in Arizona and recent case decisions in other jurisdictions you will see that if third party payments are received by the creditor, they must be taken into account — meaning the account receivable on their books is reduced by the amount of the payment received. If the account receivable is reduced then it is axiomatic that the account payable from the borrower is correspondingly reduced. Each debt must be taken on its own terms. So if the reduction was caused by a payment from a third party, it is possible that the third party might have a claim against the borrower for having made the payment — but that doesn’t change the fact that the payment was made and received and that the debt to the trust or trust beneficiaries has been reduced or even eliminated.

The Court rejected the argument that the borrower was not an intended third party beneficiary in favor of finding that the creditor could only be paid once on the debt. I am finding that most trial judges agree that if loss-sharing payments were made, including servicer advances (which actually come from the broker dealer to cover up the poor condition of the portfolio), the account is reduced as to that creditor. The court further went on to agree that the “servicer” or whoever made the payment might have an action for unjust enrichment against the borrower — but that is a not a cause of action that is part of the foreclosure or the mortgage. The payment, whether considered volunteer or otherwise, is credited to the account receivable of the creditor and the borrower’s liability is corresponding reduced. In the case of servicer payments, if the creditor’s account is showing the account current because it received the payment that was due, then the creditor cannot claim a default.

A new “loan” is created when a volunteer or contractual payment is received by the creditor trust or trust beneficiaries. This loan arises by operation of law because it is presumed that the payment was not a gift. Thus the party who made that payment probably has a cause of action against the borrower for unjust enrichment, or perhaps contribution, but that claim is decidedly unsecured by a mortgage or deed of trust.

You have to think about the whole default thing the way the actual events played out. The creditor is the trust or the group of trust beneficiaries. They are owed payments as per the prospectus and pooling and servicing agreements. If those payments are current there is no default on the books of creditor. If the balance has been reduced by loss- sharing or insurance payment, the balance due and the accrued interest are correspondingly reduced. And THAT means the notice of default and notice of sale and acceleration are all wrong in terms of the figures they are using. The insurmountable problem that is slowly being recognized by the courts is that the default, from the perspective of the creditor trust or trust beneficiaries is a default under a contract between the trust beneficiaries and the trust.

This is the essential legal problem that the broker dealers (investment banks) caused when they interposed themselves as owners instead of what they were supposed to be — intermediaries, depositories, and agents of the investors (trust beneficiaries). The default of the borrower is irrelevant to whether the trust beneficiaries have suffered a loss due to default in payment from the trust. The borrower never promised that he or she or they would make payment to the trust or the trust beneficiaries — and that is the fundamental flaw in the actual mortgage process that prevailed for more than a dozen years. There would be no flaw if the investment banks had not committed fraud and instead of protecting investors, they diverted the money, ownership of the note and ownership of the mortgage or deed of trust to their own controlled vehicles. If the plan had been followed, the trusts and trust beneficiaries would have direct rights to collect from borrowers and foreclose on their property.

If the investment banks had not intended to divert the money, income, notes and mortgages or deeds of trust from the creditor trust or trust beneficiaries, then there would have no allegations of fraud from the investors, insurers and government guarantee agencies.

If the investment banks had done what was represented in the prospectus and pooling and servicing agreements, then the borrower would have known that the loan was being originated for or on behalf of the trust or beneficiaries and so would the rest of the world have known that. The note and mortgage would have shown, at origination, that the loan was payable to the trust and the mortgage or deed of trust was for the benefit of the trust or trust beneficiaries, as required by TILA and all the compensation earned by people associated with the origination of the loan would have had to have been disclosed (or returned to the borrower for failure to disclose). That would have connected the source of the loan — the trust or trust beneficiaries — to the receipt of the funds (the homeowner borrowers).

Instead, the investment banks hit on a nominee strawman plan where the disclosures were not made and where they could claim that (1) the investment bank was the owner of the debt and (2) the note and mortgage or deed of trust were executed for the benefit of a nominee strawman for the investment bank, who then claimed an insurable interest as owner of the debt. As owner of the debt, the investment banks received loss sharing payments from the FDIC. As agents for the investors those payments should have been applied to the balance owed the investors with a corresponding reduction in the balance due from the borrower —- if the payments were actually made and received and were not hypothetical or speculative. The investment banks did the same thing with the bonds, collecting payments from insurers, counterparties to credit default swaps, and guarantees from government sponsored entities.

When I say nominee or strawman I do not merely mean MERS which would have been entirely unnecessary unless the investment banks had intended to defraud the investors. What I am saying is that even the “lender” for whom MERS was the “nominee” falls into the same trapdoor. That lender was also merely a nominee which means that, as I said 7 years ago, they might just as well have made out the note and mortgage to Donald Duck, a fictitious character.

Since no actual lender was named in the note and mortgage and the terms of repayment were actually far different than what was stated on the borrower’s promissory note (i.e., the terms of the mortgage bond were the ONLY terms applicable to the plan of repayment to the creditor investors), the loan contract (or quasi loan contract, depending upon which jurisdiction you are in) was never completed. Hence the mortgage and note should never have been accepted into the file by the closing agent, much less recorded.

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Filed under: AMGAR, CASES, CORRUPTION, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Neil Garfield Show, Pleading, securities fraud, Servicer, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , | 61 Comments »

New Jersey Clears Docket: Dismisses 80,000+ cases

Posted on March 13, 2014 by Neil Garfield

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GUEST TONIGHT: KENNETH HANKS, ESQ. TITLE EXPERT

One might ask why a lender would delay the prosecution of their claim. The answer is that they wouldn’t delay if they thought they had a solid claim. I know. I have represented banks on loans, foreclosures, associations in foreclosures etc. And I have proposed that if the Courts were to order the alleged ‘holders” to show the actual money trail so we would all know what transactions actually took place, their dockets would be clear, because most of the transactions described on assignments and indorsements never took place.

We have seen cases dating back to the 1990’s that have not been prosecuted and judges in all states are dismissing for failure to prosecute, which in turn brings up the statute of limitations, which I warn you is applied very differently from state to state. But in many cases they cannot refile because the statute of limitations has run and they are out of luck. So why would a bank (who is representing to the court that it the loser in a transaction with the borrower ) allow so many cases to be dismissed? Is there reason for this madness?

I believe there is. But the reason probably varies from case to case. Suffice it to say that we will see what plays out in New Jersey. My guess is that many of the documents used by foreclosers represent transactions that were fictitious or duplications of other transactions and now they are picking which story to go with in court but he courts are getting annoyed with the actual complexity of what seems to be a “simple” claim. The borrower didn’t pay, isn’t that enough? Actually no.

The essential problem that is now bubbling to the surface after years of suppression is this: the lender is receiving payments based upon a different deal and computation than the deal and computation the borrower is required to pay. The lender’s right to repayment comes from the bond indenture on the mortgage bond issued by a REMIC trust that never had any money, assets, income or expenses.

That indenture doesn’t say the investor will be paid according to the homeowner notes on loans originated or acquired by the trust or with the money from the trust beneficiaries. It provides for a specific yield of interest and principal regardless of what the notes say and even regardless (many times) of whether the borrower pays or not. Those terms are different than the terms signed by the homeowner. And the note and mortgage, were mostly executed in favor of parties who did not make any loan, never received the delivery of the note and never had any interest in the transaction. So what good are assignments from parties with zero ownership interest to convey?

We have reached a turning point where courts and others are saying to the banks, “if your claims are real, why didn’t you prosecute them for years?”

http://www.wnyc.org/story/new-jersey-breaks-foreclosure-logjam-yields-flood-dismissals/

Filed under: CASES, evidence, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, Investor, MBS TRUSTEE, Neil Garfield Show, originator, Pleading, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , | 42 Comments »

Damages Rising: Wrongful Foreclosure Costs Wells Fargo $3.2 Million

Posted on March 12, 2014 by Neil Garfield

Damage awards for wrongful foreclosure are rising across the country. In New Mexico a judge issued a $3.2 million judgment (including $2.7 million in punitive damages) against Wells Fargo for foreclosing on a man’s home after his death even though he had an insurance policy through the bank that paid the remaining balance on his mortgage. The balance “owed” on the mortgage was $125,000. Despite the fact that the bank knew about the insurance (because it was purchased through the bank) Wells Fargo continued to pursue foreclosure, ignoring the claim for insurance. It is because of cases like this that people are asking “why would they do that?”

The answer is what I’ve been saying for years.  Where a loan is subject to claims of securitization, and the investment banks lied to insurers, investors, guarantors and other co-obligors, they most likely have been paid many times for the same loan and never gave credit to the investors. By not crediting the investors they created the illusion of a higher balance that was due on the loan. They also created the illusion of a default that probably never occurred. But by pursuing foreclosure and foreclosure sale, they compounded the illusion and avoided claims for refund and repayment received from third parties and created claims for recovery of servicer advances. In many foreclosures that I have  reviewed, payments received from the FDIC under loss-sharing were never taken into account. Thus the bank collects money repeatedly for a loss it never incurred.

This case is another example of why I insist on following the money. By following the money trail you will discover that the documents upon which the foreclosure relies referred to  fictitious transactions. The documents are worthless, but nevertheless accepted in court unless a proper objection is made based upon preserving issues for trial and appeal by proper pleading and discovery.

Lawyers should take note of this profit opportunity. Most homeowners are looking for attorneys to take cases on contingency. Typical contingency fee is 40%. If these lawyers were on a typical contingency fee arrangement, their payday would have been around $1.2 million.

I should add that for every one of these judgments that are reported, I hear about dozens of confidential settlements that are of similar nature, to wit: clear title on the house, damages and attorneys fees.

Wells Fargo Ordered to Pay $3.2 Million for “Shocking” Foreclosure

Filed under: AMGAR, CORRUPTION, escrow agent, evidence, expert witness, Fannie MAe, foreclosure, foreclosure defenses, foreclosure mill, GARFIELD KELLEY AND WHITE, GTC | Honor, investment banking, Investor, MBS TRUSTEE, MODIFICATION, Mortgage, Pleading, securities fraud, Servicer, Title, TRUST BENEFICIARIES, trustee | Tagged: , , , , , , , , , , , | 46 Comments »

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