DARK POOLS OF SECURITIES AND MONEY FUNDED MORTGAGE LOANS

In answer to questions frequently asked of me, the term “dark pool” was not coined by me nor was it discovered by me as an instrumentality of obscuring financial transactions. I have understood the workings of dark pools since my Wall Street days. But back then, in the 1960’s and 1970’s they were not so common.

What I did discover was a dark pools were in widespread use in the era of false claims of securitization — a discovery provoked by reading the prospectuses and pooling and servicing agreements (Trust instruments) for the issuance of of “certificates” a/k/a “mortgage bonds.”  There, in black and white, was a “reserve fund” consisting of money from investors who bought the certificates from underwriters using the fictitious name of a Trust that never existed. And it was stated therein that investors could be paid from this reserve — i.e.,. paid using their own money.

There were virtually no restrictions on the use of the “reserve fund.” The more I read and the more I asked my tipsters, it became very apparent that the reserve funds were interconnected, that the Trusts did not exist and so the reserve fund was actually a dark pool — a trading ground for securities and money. It is also the locale where the the most gross violations of law occur because they are hidden from public view and often hidden even from the financial statements of the participants.

Let us help you plan your cross examination, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.
Purchase now Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar including 3.5 hours of lecture, questions and answers, plus course materials that include PowerPoint Presentations. Presenters: Attorney and Expert Neil Garfield, Forensic Auditor Dan Edstrom, Attorney Charles Marshall and and Private Investigator Bill Paatalo. The webinar and materials are all downloadable.
Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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see DARK POOLS DEFINED — https://ag.ny.gov/press-release/ag-schneiderman-announces-landmark-resolutions-barclays-and-credit-suisse-fraudulent

Securitization was at first disclaimed by all the banks and servicers 10-15 years ago. Most people don’t remember that. The defense was “What Trust?”

Forensic researchers then discovered that underwriters or others had uploaded “securitization” documents to the SEC website and later added mortgage loan schedules, (that trend out to be false and fabricated) in which certain “REMIC” trusts claimed ownership of the “mortgage loans.”

Going with the flow, the banks and servicers then filed foreclosures in the name of the nonexistent trusts — and they got away with it. Today we have a mixed blend of claims of trust ownership of loans (i.e., the underwriter using the fictitious name of the nonexistent trust) and claims of corporate ownership of loans where a major bank or “successor” trust initiates foreclosure.

But in the end what they filed in foreclosures was antithetical to the claim they were making. None of the Trusts ever acquired loans from a settlor or trustor. Nor did any trust receive the proceeds of investor capital. By definition, securitization never actually happened. Adam Levitin calls this “securitization fail.”

The true money trail starts with the dark pool consisting of all proceeds of the sale of certificates or bonds issued by the underwriter in the name of the nonexistent trust. Hence the money is not in the trust; it is in the dark pool where money and trading, deposits and withdrawals occur in great frequency. Hence the underwriter has performed a Texas two step — on the one hand it claims that ownership is in the name of the fictitious REMIC Trust while at the same time funding the origination and acquisition of loans from the dark pool.

This is critically relevant to the foreclosures. In virtually all cases, the money came from the dark pool (not a trust) to originate (not allowed under the prospectus) or acquire loans. Careful securities analysis reveals a simple fact, to wit: that there IS a money trail but it leads back to the dark pools. Hence the paper trail that leads to the successors and “trusts” are documenting transactions that never occurred between the parties named on the written instruments. This in turn means that the certificates and bonds issued in the name of the named trust were neither backed by notes or mortgages and were most certainly not backed by debts.

A careful reading of certificates indicates that most of them have a disclaimer of any interest in the underlying debts, notes and mortgages. The investors acknowledge that all they are receiving is a promise to pay issued by in the name of the trust (but not issued By the trust). The real party in interest is the underwriter who also poses as “Master Servicer” for assets owned by the named Trust. But there are no such assets; so in the end we should be dealing with, and litigating with the underwriter.

Investors gave money to the underwriter believing their money would be deposited into the “REMIC” Trust. It wasn’t. Instead their money ended up in a dark pool with no rules. The money in the dark pool should be considered as deposits by investors rather than investments since the certificates were bogus. To consider it otherwise would be to deprive investors of the last vestige of ownership of the debts, notes and mortgages that were to be conveyed into the trust in exchange for the money paid to the “trust” by investors and then paid out by the “Trustee.” No such thing ever happened.

So the answer to the frequently asked question of “then where did the money come from” is that it came from an unregulated, undisclosed dark pool invented for the purpose of defrauding investors and homeowners. And the answer to the the other frequently asked question of “how do I prove that” is you don’t prove it. You prove the inevitable gaps that show that no financial transaction occurred anywhere along the paper trail.

Remember: documenting a false transaction doesn’t make it real. The document (note, mortgage, assignment, etc.) is either tethered to a real transaction in the real world that can be disclosed or it is untethered to any real transaction. If there is no real transaction in the real world the document becomes only a piece of paper. If there is a real transaction in the real world that your opposition can prove resulted in the creation of the document, then they win — simple as that. If there is no such transaction then the claimed liability does not exist, hence there can be no default. You can’t default on a nonexistent obligation. But obviously the investors have an equitable right to the loans funded with their money.

 

When and What is Consummation of Contract?

Like many other “Black letter law” situations, when it comes to foreclosures the courts are ignoring all precedent, statutes, rules and regulations when they consider a loan contract consummated when one party signs documents — without the other side showing it signed documents and performed its obligations. Without consideration passing both ways, there is no contract to enforce.

The argument that there is nothing for the lender to sign is without merit. The further argument that therefore the only signature that counts in a written contract is the signature of one side is equally ridiculous. It is true that lenders don’t sign the notes and mortgages. But for lenders, their part of the contract only comes alive when they comply with TILA and perform — i.e., they give the loan of money.

To view it any other way would be saying that performance by the “lender” is optional. And that would by all accounts be an executory contract that would be unenforceable until the optional performance was completed. Hence consummation can only be (a) when the money appears (b) from the “lender” identified on the disclosure documents.

The banks craftily spotted the loophole that lenders don’t sign the actual instruments that provide evidence of a written loan contract. But those instruments may not be used to sidestep mutuality and reciprocity that MUST be present in every situation where a party is relying upon paper instruments instead of proving the loan from scratch. If a third party performs the duties promised by the originator there is no enforceable contract even if there is a separate remedy for recovery of money.

Consummation and consideration should be treated as fair game in discovery instead of annoying protests from the homeowner. The Courts have the power to make legal decisions — not political ones.

Let us help you plan your discovery requests: 202-838-6345. Ask for a Consult.
Register now for Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar.
Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).
https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

Hat tip to Greg (cement boots)

Consummation vs Closing

Seems like various state laws redefine “consummation” as not the actual consummation (the initial fulfillment of promises made by both parties to a contract – think marriage) but instead, make it apply to the moment that a written obligation of a debtor (the wife) is signed at a “closing” in a loan transaction… These definitions do not take into account the duty of the originator or alleged lender (the husband) to timely perform their duties, especially to provide a record of the funding in the purported debtor’s name toward the discharge of the contracted obligation. This occurs most often in “refinance” deals where there is no seller or buyer, simply a rearranging of computer entries between financial institutions. This leaves the alleged debtor (the wife) wanting for proof of fidelity, consideration and performance while operating under the presumed legal disability created by the state’s definition. As you can imagine, and we have seen, this can have a deleterious effect on a judge’s or debtor’s ability to accurately calculate the deadline to timely file a TILA rescission notice within the three year statute of repose.

I think this comment is correct. By defining consummation as the moment when one party signs documents without regard to when or even whether the other party signs and performs contractual duties, the courts are letting originators off the hook for fraud, TILA violations and more. Like the debt itself the obligation is not open ended to anyone who claims it. It is owed to the party that owns the debt or obligation.

In normal contract law there is some fuzziness about consummation and sometimes rules of estoppel apply. But the normal rule is simply that the transaction is consummated and the documents are effective when the documentation is completed and executed by both sides, and consideration has passed both ways.

By considering consummation to be when only one party signs the courts are ignoring a basic legal doctrine that has been solid for centuries — consideration must pass before the documents can be used for enforcement.

This is particularly important in the modern era where “lenders” have been replaced by “originators.” In many cases the originator is not the lender. Hence no enforceable contract can be said to exist unless there is proof that the originator was acting for a third party Lender.

If the third party was not disclosed they would be admitting to a TILA violation. If the third party is not a lender either but rather a conduit, then we have (a) no consideration and (b) nondisclosure at “closing” as to the identity of the lender.

By “no consideration” I don’t mean that the homeowner did not receive money or the benefits of a disbursement.  I mean that nobody in the chain starting with the originator has paid that consideration and thus nobody in that chain of command is party to an enforceable contract. Like the fabricated assignments, allonges and endorsements, the existence of a paper instrument even if signed does not mean that the provisions contained therein are enforceable. Under contract law it is the transaction that must have consummated between the parties to the written contract. THAT is something that does not occur, even in the c leanest of cases, until after the closing and sometimes months or even years after.

By revealing the absence of a payment by the originator, one accomplishes two things. (1) the written loan contract (note and mortgage or Deed of Trust) was never enforceable and thus cannot be enforced by successors. (2) clear violations of TILA disclosure requirements have been violated.

BUT none of this means that there is no debt — assuming that money appeared after closing. The debt exists. The homeowner does owe money. And while the homeowner does not owe just anyone, he/she owes money to the person or parties who are out of pocket for the loan. Their remedy is probably an action in equity seeking to claim the paperwork AFTER they have proven that they are the real parties in interest. Or, their remedy would be simply the equitable action for unjust enrichment. In the first case they MIGHT preserve the mortgage encumbrance. In the second, they have no collateral.

Banks Fighting Subpoenas From FHFA Over Access to Loan Files

Whilst researching something else I ran across the following article first published in 2010. Upon reading it, it bears repeating.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

WHAT IF THE LOANS WERE NOT ACTUALLY SECURITIZED?

In a nutshell this is it. The Banks are fighting the subpoenas because if there is actually an audit of the “content” of the pools, they are screwed across the board.

My analysis of dozens of pools has led me to several counter-intuitive but unavoidable factual conclusions. I am certain the following is correct as to all residential securitized loans with very few (2-4%) exceptions:

  1. Most of the pools no longer exist.
  2. The MBS sold to investors and insured by AIG and the purchase and sale of credit default swaps were all premised on a general description of the content of the pool rather than a detailed description with the individual loans attached on a list.
  3. Each Prospectus if it carried any spreadsheet listing loans, contained a caveat that the attached list was by example only and not the real loans.
  4. Each distribution report contained a caveat that the parties who created it and the parties who delivered it did not guarantee either authenticity or reliability of the report. They even had specific admonitions regarding the content of the distribution report.
  5. NO LOAN ACTUALLY MADE IT INTO ANY POOL. The evidence is clear: nothing was done to assign, indorse or deliver the note to the investors directly or indirectly until a case went into litigation AND a hearing was scheduled. By that time the cutoff date had been breached and the loan was non-performing by their own allegation and therefore was not acceptable into the pool.
  6. AT ALL TIMES LEGAL TITLE TO THE PROPERTY WAS MAINTAINED BY THE HOMEOWNER EVEN AFTER FORECLOSURE AND SALE. The actual creditor who submitted a credit bid was not the creditor. The sale is either void or voidable.
  7. AT ALL TIMES LEGAL TITLE TO THE LOAN WAS MAINTAINED BY THE ORIGINATING “LENDER”. Since there was no assignment, indorsement or delivery that could be recognized at law or in fact, the originating lender still owns the loan legally BUT….
  8. AT ALL TIMES THE OBLIGATION WAS BOTH CREATED AND EXTINGUISHED AT, OR CONTEMPORANEOUSLY WITH THE CLOSING OF THE LOAN. Since the originating lender was in fact not the source of funds, and did not book the transaction as a loan on their balance sheet (in most cases), the naming of the originating lender as the Lender and payee on the note, both created a LEGAL obligation from the borrower to the Lender and at the same time, the LEGAL obligation was extinguished because the LEGAL Lender of record was paid in full plus exorbitant fees for pretending to be an actual lender.
  9. Since the Legal obligation was both created and extinguished contemporaneously with each other, any remaining obligation to any OTHER party became unsecured since the security instrument (mortgage or deed of trust) refers only to the promissory note executed by the borrower.
  10. At the time of closing, the investor-lenders were the real parties in interest as lenders, but they were not disclosed nor were the fees of the various intermediaries who brought the investor-lender money and the borrower’s loan together.
  11. ALL INVESTOR-LENDERS RECEIVED THE EQUIVALENT OF A BOND — A PROMISE TO PAY ISSUED BY A PARTY OTHER THAN THE BORROWER, PREMISED UPON THE PAYMENT OR RECEIVABLES GENERATED FROM BORROWER PAYMENTS, CREDIT DEFAULT SWAPS, CREDIT ENHANCEMENTS, AND THIRD PARTY INSURANCE.
  12. Nearly ALL investor-lenders have been paid sums of money to satisfy the promise to pay contained in the bond. These payments always exceeded the borrowers payments and in many cases paid the obligation in full WITHOUT SUBROGATION.
  13. NO LOAN IS IN ACTUAL DEFAULT OR DELINQUENCY. Since payments must first be applied to outstanding payments due, payments received by investor-lenders or their agents from third party sources are allocable to each individual loan and therefore cure the alleged default. A Borrower’s Non-payment is not a default since no payment is due.
  14. ALL NOTICES OF DEFAULT ARE DEFECTIVE: The amount stated, the creditor, and other material misstatements invalidate the effectiveness of such a notice.
  15. NO CREDIT BID AT AUCTION WAS MADE BY A CREDITOR. Hence the sale is void or voidable.
  16. ANY BALANCE DUE FROM THE BORROWER IS SUBJECT TO DEDUCTIONS FOR THIRD PARTY PAYMENTS.
  17. ANY BALANCE DUE FROM THE BORROWER IS SUBJECT TO AN EQUITABLE CLAIM FOR UNJUST ENRICHMENT THAT IS UNSECURED.
  18. ANY BALANCE DUE FROM THE BORROWER IS SUBJECT TO AN EQUITABLE CLAIM FOR A LIEN TO REFLECT THE INTENTION OF THE INVESTOR-LENDER AND THE INTENTION OF THE BORROWER.  Both the investor-lender and the borrower intended to complete a loan transaction wherein the home was used to collateralize the amount due. The legal satisfaction of the originating lender is not a deduction from the equitable satisfaction of the investor-lender. THUS THE PARTIES SEEKING TO FORECLOSE ARE SUBJECT TO THE LEGAL DEFENSE OF PAYMENT AT CLOSING BUT THE INVESTOR-LENDERS ARE NOT SUBJECT TO THAT DEFENSE.
  19. The investor-lenders ALSO have a claim for damages against the investment banks and the string of intermediaries that caused loans to be originated that did not meet the description contained in the prospectus.
  20. Any claim by investor-lenders may be subject to legal and equitable defenses, offsets and counterclaims from the borrower.
  21. The current modification context in which the securitization intermediaries are involved in settlement of outstanding mortgages is allowing those intermediaries to make even more money at the expense of the investor-lenders.
  22. The failure of courts to recognize that they must apply the rule of law results not only in the foreclosure of the property, but the foreclosure of the borrower’s ability to negotiate a settlement with an undisclosed equitable creditor, or with the legal owner of the loan in the property records.

Loan File Issue Brought to Forefront By FHFA Subpoena
Posted on July 14, 2010 by Foreclosureblues
Wednesday, July 14, 2010

foreclosureblues.wordpress.com

Editor’s Note….Even  U.S. Government Agencies have difficulty getting
discovery, lol…This is another excellent post from attorney Isaac
Gradman, who has the blog here…http://subprimeshakeout.blogspot.com.
He has a real perspective on the legal aspect of the big picture, and
is willing to post publicly about it.  Although one may wonder how
these matters may effect them individually, my point is that every day
that goes by is another day working in favor of those who stick it out
and fight for what is right.

Loan File Issue Brought to Forefront By FHFA Subpoena

The battle being waged by bondholders over access to the loan files
underlying their investments was brought into the national spotlight
earlier this week, when the Federal Housing Finance Agency (FHFA), the
regulator in charge of overseeing Fannie Mae and Freddie Mac, issued
64 subpoenas seeking documents related to the mortgage-backed
securities (MBS) in which Freddie and Fannie had invested.
The FHFA
has been in charge of overseeing Freddie and Fannie since they were
placed into conservatorship in 2008.

Freddie and Fannie are two of the largest investors in privately
issued bonds–those secured by subprime and Alt-A loans that were often
originated by the mortgage arms of Wall St. firms and then packaged
and sold by those same firms to investors–and held nearly $255 billion
of these securities as of the end of May. The FHFA said Monday that it
is seeking to determine whether issuers of these so-called “private
label” MBS misled Freddie and Fannie into making the investments,
which have performed abysmally so far, and are expected to result in
another $46 billion in unrealized losses to the Government Sponsored
Entities (GSE).

Though the FHFA has not disclosed the targets of its subpoenas, the
top issuers of private label MBS include familiar names such as
Countrywide and Merrill Lynch (now part of BofA), Bear Stearns and
Washington Mutual (now part of JP Morgan Chase), Deutsche Bank and
Morgan Stanley. David Reilly of the Wall Street Journal has written an
article urging banks to come forward and disclose whether they have
received subpoenas from the FHFA, but I’m not holding my breath.

The FHFA issued a press release on Monday regarding the subpoenas
(available here). The statement I found most interesting in the
release discusses that, before and after conservatorship, the GSEs had
been attempting to acquire loan files to assess their rights and
determine whether there were misrepresentations and/or breaches of
representations and warranties by the issuers of the private label
MBS, but that, “difficulty in obtaining the loan documents has
presented a challenge to the [GSEs’] efforts. FHFA has therefore
issued these subpoenas for various loan files and transaction
documents pertaining to loans securing the [private label MBS] to
trustees and servicers controlling or holding that documentation.”

The FHFA’s Acting Director, Edward DeMarco, is then quoted as saying
““FHFA is taking this action consistent with our responsibilities as
Conservator of each Enterprise. By obtaining these documents we can
assess whether contractual violations or other breaches have taken
place leading to losses for the Enterprises and thus taxpayers. If so,
we will then make decisions regarding appropriate actions.” Sounds
like these subpoenas are just the precursor to additional legal
action.

The fact that servicers and trustees have been stonewalling even these

powerful agencies on loan files should come as no surprise based on

the legal battles private investors have had to wage thus far to force

banks to produce these documents. And yet, I’m still amazed by the

bald intransigence displayed by these financial institutions. After

all, they generally have clear contractual obligations requiring them

to give investors access to the files (which describe the very assets

backing the securities), not to mention the implicit discovery rights

these private institutions would have should the dispute wind up in

court, as it has in MBIA v. Countrywide and scores of other investor

suits.

At this point, it should be clear to everyone–servicers and investors
alike–that the loan files will have to be produced eventually, so the
only purpose I can fathom for the banks’ obduracy is delay. The loan
files should, as I’ve said in the past, reveal the depths of mortgage
originator depravity, demonstrating convincingly that the loans never
should have been issued in the first place. This, in turn, will force
banks to immediately reserve for potential losses associated with
buying back these defective mortgages. Perhaps banks are hoping that
they can ward off this inevitability long enough to spread their
losses out over several years, thereby weathering the storm caused (in
part) by their irresponsible lending practices. But certainly the
FHFA’s announcement will make that more difficult, as the FHFA’s
inherent authority to subpoena these documents (stemming from the
Housing and Economic Recovery Act of 2008) should compel disclosure
without the need for litigation, and potentially provide sufficient
evidence of repurchase obligations to compel the banks to reserve
right away. For more on this issue, see the fascinating recent guest
post by Manal Mehta on The Subprime Shakeout regarding the SEC’s
investigation into banks’ processes for allocating loss reserves.

Meanwhile, the investor lawsuits continue to rain down on banks, with
suits by the Charles Schwab Corp. against Merrill Lynch and UBS, by
the Oregon Public Employee Retirement Fund against Countrywide, and by
Cambridge Place Investment Management against Goldman Sachs, Citigroup
and dozens of other banks and brokerages being announced this week. If
the congealing investor syndicate was looking for political cover
before staging a full frontal attack on banks, this should provide
ample protection. Much more to follow on these and other developments
in the coming days…
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Posted by Isaac Gradman at 3:46 PM

Ally $52 Million settlement for “Deficient Securitization”

All of these adjectives describing securitization add up to one thing: the claims were false. For the most part none of the securitizations ever happened.

And that means that the REMIC trusts never purchased the debt, note or mortgage.

And THAT means the “servicer” claiming the right to administer a loan on behalf of the trust is false.

And THAT arguably means the business records of the servicer are not business records of the creditor.

And THAT my friends means what I have been saying for 10 years: virtually none of the foreclosures were legal, moral or justified. The real transaction was never revealed and never documented. The “closing” documents were fake, void and fraudulent. And THAT is grounds for cancellation of the note and mortgage.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

see http://www.nationalmortgagenews.com/news/compliance-regulation/ally-to-pay-52m-to-settle-subprime-rmbs-investigation-1091364-1.html

It is hard to imagine any scenario under which Government cannot know what I have been saying for years — that the claims of securitization are false and the documents for the loans were fraudulent. Government has decided to ignore the facts thus transforming a nation of laws into a nation of men.

In plain English the decision was made to let the chips fall on borrowers, who were victims of the double blind fraud, despite clear and irrefutable evidence that the banks malevolent behavior caused the 2008 meltdown. The choice was made: based upon information from the birthplace of securitization fraud, Government decided that it was better to artificially prop up the securities markets and TBTF banks than to preserve the purchasing power and household wealth of the ordinary man and woman. The economy — driven by consumer spending (70% of GDP) — had the rug pulled out from under it. And THAT is why the effects of rescission are still with us 8 years after the great meltdown.

The fact that there are 7,000 community banks, credit unions and savings banks using the exact same electronic payments platform as the TBTF banks was washed aside by the enormous influence exerted by a dozen banks who controlled Washington, DC, the state legislatures, and the executive branch in most of the states.

The American voter came to understand that they had been screwed by their representatives in Government. They voted for Sanders, they voted for Trump and they voted for anyone who was for busting up government. But they still face daunting challenges as they continue to crash into a rigged system that favors a handful of merciless bankers who have bought their way into the Federal and State Capitals.

Chipping away at the monolithic Government Financial complex individual homeowners are winning case after case in court without notice by the media. It isn’t noticed because in most instances the cases are settled, even after judgment, with a seal of confidentiality. Most people don’t fight it at all. They sweep up and leave the keys on the counter believing they have committed some wrong and now they must pay the price. THAT is because they have not received the necessary information to realize that they can and should fight back.

Goldman Sachs Fined $5 Billion for Violations Dating Back to 2008

…should anyone who owns a home that is subject to claims of securitization of their mortgage be at risk of losing their property?

…the government should stop the arrogant policy of letting most of the burden fall onto middle class property owners.

For a description of our services  click here: https://wordpress.com/post/livinglies.wordpress.com/32498

So we have another “settlement” with one of the major players in the greatest economic crime in human history. But the cover-up of the actual transgressions  emanating from corruption on Wall Street continues. Government investigators should have had a press conference in which they clearly stated the nature of the violations — all of them. People deserve to hear the truth; and the government should stop the arrogant policy of letting most of the burden fall onto the middle class property owners.

The defects in government intervention give rise the illusion that these settlements only have effect on the investors and other financial institutions who were defrauded. Both the charges and the settlements seem far away from the ground level loans and foreclosures. But that is only because of deals in which the government’s continued complicity in “protecting the banking system — a policy that has rewarded trillion dollar banks and given them unfair advantage over the 7,000 other banks and credit unions.

Government now knows the truth about what Wall Street did. But they are restricting their comments in the fear that maybe notes and mortgages would be obviously void, making the MBS bonds worthless causing some world-wide panic and even aggression against the United States for allowing these enormous crimes to occur and continue.

For example, if the government investigators actually said that the REMIC Trusts were never funded, then the cases pending in which the REMIC Trust is named as the initiator of the foreclosure would dissolve into nothing. There would be no Plaintiff in judicial states and there would be no beneficiary in non-judicial states. Thus the filing of a substitution of trustee on a deed of trust would be void. It would raise jurisdictional issues in addition to the absence of any foundation for the assertion of the right to foreclose.

If government investigators identified patterns of conduct in the fabrication, forgery and utterance of false instruments, recording false instruments, then presumptions of validity might not apply to documents presented in court as evidence. Instead of the note being all the evidence needed from a “holder”, the actual underlying transactions would need to be proven by parties seeking foreclosure. If those transactions don’t actually exist, then it follows that the note, mortgage and claim are worthless.

And a borrower could point to the finding by administrative agencies and law enforcement agencies that these practices constitute customary and usual practices in the industry — a statement that would go a long way to convincing a judge that he or she should not assume or presume anything without proof of payment (consideration) in the origination of the loan with whoever ended up as Payee on the note. The same analysis would apply for the alleged acquisition of the “loan.”

If the party on the note or the party claiming they acquired the loan was NOT a party to an actual transaction in which they made the loan or paid to acquire it, then the note is evidence of a transaction that does not exist. Instead government is continuing to cover-up the fact that a policy decision has been made in which borrowers can fend for themselves against perpetrators of financial violence.

The view from the bench still presumes that they would not have a case to decide if there wasn’t a valid loan transaction and a valid acquisition of the loan. They see defects in documentation as splitting hairs. And to make matters worse I have personally seen judges strike virtually all discovery requests that address the issue of whether real transactions took place. And I have seen lawyers retreat over the one issue that would mean success or failure for their client. The task of defending illegal foreclosures would be far easier if the consensus view from the bench was that all the loans are suspect and need to be proven as to ownership, balance and authority.

These issues are almost impossible to prove at trial because the parties with the actual information and proof are not even at the trial. But they can be reached in discovery where on a motion to compel answers and a hearing on the objections from the “bank” or “servicer” the homeowner presses his demand for data and documents that show the actual existence or nonexistence of these transactions.

It would seem that the U.S. Department of Justice is coming out of the shadows on this. They are looking back to 10 years ago when the violations were at their most extreme. We may yet see criminal prosecutions. But putting people in jail does not address the essential issue, to wit: should anyone who owns a home that is subject to claims of securitization of their mortgage be at risk of losing their property?

 

The Devil is in the Details — The Mortgage Cannot Be Enforced, Even If the Note Can Be Enforced

Cashmere v Department of Revenue

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Editor’s Introduction: The REAL truth behind securitization of so-called mortgage loans comes out in tax litigation. There a competent Judge who is familiar with the terms of art used in the world of finance makes judgements based upon real evidence and real comprehension of how each part affects another in the “securitization fail” (Adam Levitin) that took us by surprise. In the beginning (2007) I was saying the loans were securitized and the banks were saying there was no securitization and there was no trust.

Within a short period of time (2008) I deduced that there securitization had failed and that no Trust was getting the money from investors who thought they were buying mortgage backed securities and therefore the Trust could never be a holder in due course. I deduced this from the complete absence of claims that they were holders in due course. Whether they initiated foreclosure as servicer, trustee or trust there was no claim of holder in due course. This was peculiar because all the elements of a holder in due course appeared to be present because that is what was required in the securitization documents — at least in the Pooling and Servicing Agreement and prospectus.

If the foreclosing party was a holder in due course they would merely have to show what the securitization required — a purchase in good faith of the loan documents for value without knowledge of any of borrower’s defenses.  This would bar virtually any defense by the borrower and allow them to get a judgment on the note and a foreclosure based upon the auxiliary contract for collateral — the mortgage. But they didn’t allege that for reasons that I have described in recent articles — they could not, as part of their prima facie case, prove that any party in their “chain” had funded or paid any money for the loan.

After analyzing this case, consider the possibility that there is no party in existence who has the power to foreclose. The Trust beneficiaries clearly don’t have that right. The Trust doesn’t either because they didn’t pay anything for it. The Trustee doesn’t have that right because it can only assert the rights of the Trust and Trust beneficiaries. The servicer doesn’t have that right because it derives its authority from the Pooling and Servicing Agreement which does not apply because the loan never made it into the Trust. The originator doesn’t have the right both because they never loaned the money and now disclaim any interest in the mortgage.

Then consider the fact that it is ONLY the investors who have their money at risk but that they failed to get any documentation securing their “involuntary loans.” They might have actions to recover money from the borrower, but those actions are far from secured, and certainly subject to numerous defenses. The investors are barred from enforcing either the note or the mortgage by the terms of the instruments, the terms of the PSA and the rule of law. They are left with an unsecured common law right of action to get what they can from a claim for unjust enrichment or some other type of claim that actually reflects the true facts of the original transaction in which the borrower did receive a loan, but not from anyone represented at the loan closing.

Now we have the Cashmere case. The only assumption that the Court seems to get wrong is that the investors were trust beneficiaries because the court was assuming that the Trust received the proceeds of sale of the bonds. This does not appear to be the case. But the case also explains why the investors wanted to take the position that they were trust beneficiaries in order to get the tax treatment they thought they were getting. So here we have the victims and perpetrators of the fraud taking the same side because of potentially catastrophic results in tax treatment — potentially treating principal payments as ordinary income. That would reduce the return on investment below zero. They lost.

http://stopforeclosurefraud.com/wp-content/uploads/2014/09/Cashmere-v-Dept-of-Revenue.pdf

I have changed fonts to emphasize certain portion of the following excerpts from the Case decision:

“Cashmere’s investments merely gave Cashmere the right to receive specific cash flows generated by the assets of the trust at specific times. But if the REMIC trustee failed to pay Cashmere according to the terms of the investment, Cashmere had no right to sell the mortgage loans or the residential property or any other asset of the trust to satisfy this obligation. Cf. Dep’t of Revenue v. Sec. Pac. Bank of Wash. Nat’/ Ass’n, 109 Wn. App. 795, 808, 38 P.3d 354 (2002) (deduction allowed because mortgage companies transferred ownership of loans to taxpayer who could sell the oans in event of default). Cashmere’s only recourse would be to sue the trustee for performance of the obligation or attempt to replace the trustee. The trustee’s successor would then take legal title to the underlying securities or other assets of the related trust. At no time could Cashmere take control of trust assets and reduce them to cash to satisfy a debt obligation. Thus, we hold that under the plain language of the statute, Cashmere’s investments in REMICs are not primarily secured by mortgages or deeds of trust.
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“Cashmere argues that the investments are secure because the trustee is obligated to protect the investors’ interests and the trustee has the right to foreclose. But, this is not always the case. The underlying mortgages back all of the tranches, and a trustee must balance competing interests between investors of different tranches. Thus, a default in one tranche does not automatically give the holders of that tranche a right to force foreclosure. We hold that if the terms of the trust do not give beneficiaries an investment secured by trust assets, the trustee’s fiduciary obligations do not transform the investment into a secured investment.

“In a 1990 determination, DOR explained why interest earned from investments in REMICs does not qualify for the mortgage tax deduction. see Wash. Dep’t of Revenue, Determination No. 90-288, 10 Wash. Tax Dec. 314 (1990). A savings and loan association sought a refund of B&O taxes assessed on interest earned from investments in REMICs. The taxpayer argued that because interest received from investments in pass-through securities is deductible, interest received on REMICs
should be too. DOR rejected the deduction, explaining that with pass-through securities, the issuer holds the mortgages in trust for the investor. In the event of individual default, the issuer, as trustee, will foreclose on the property to satisfy the terms of the loan. In other words, the right to foreclose is directly related to homeowner defaults-in the event of default, the trustee can foreclose and the proceeds from foreclosure flow to investors who have a beneficial ownership interest in the underlying mortgage. Thus, investments in pass-through securities are “primarily secured by” first mortgages.

“By contrast, with REMICs, a trustee’s default may or may not coincide with an individual homeowner default. So, there may be no right of foreclosure in the event a trustee fails to make a payment. And if a trustee can and does foreclose, proceeds from the sale do not necessarily go to the investors. Foreclosure does not affect the trustee’s obligations vis-a-vis the investor. Indeed, the Washington Mutual REMIC here contains a commonly used form of guaranty: “For any month, if the master servicer receives a payment on a mortgage loan that is less than the full scheduled payment or if no payment is received at all, the master servicer will advance its own funds to cover the shortfall.” “The master servicer will not be required to make advances if it determines that those advances will not be recoverable” in the future. At foreclosure or liquidation, any proceeds will go “first to the servicer to pay back any advances it might have made in the past.” Similarly, agency REMICs, like the Fannie Mae REMIC Trust 2000-38, guarantee payments even if mortgage borrowers default, regardless of whether the issuer expects to recover those payments. Moreover, the assets held in a REMIC trust are often MBSs, not mortgages.

“So, if the trustee defaults, the investors may require the trustee to sell the MBS, but the investor cannot compel foreclosure of individual properties. DOR also noted that it has consistently allowed the owners of a qualifying mortgage to claim the deduction in RCW 82.04.4292. But the taxpayer who invests in REMICs does not have any ownership interest in the MBSs placed in trust as collateral, much less any ownership interest in the mortgage themselves. By contrast, a pass-through security represents a beneficial ownership of a fractional undivided interest in a pool of first lien residential mortgage loans. Thus, DOR concluded that while investments in pass-through securities qualify for the tax deduction, investments in REMICs do not. We should defer to DOR’s interpretation because it comports with the plain meaning of the statute.

“Moreover, this case is factually distinct. Borrowers making the payments that eventually end up in Cashmere’s REMIC investments do not pay Cashmere, nor do they borrow money from Cashmere. The borrowers do not owe Cashmere for use of borrowed money, and they do not have any existing contracts with Cashmere. Unlike HomeStreet, Cashmere did not have an ongoing and enforceable relationship with borrowers and security for payments did not rest directly on borrowers’ promises to repay the loans. Indeed, REMIC investors are far removed from the underlying mortgages. Interest received from investments in REMICs is often repackaged several times and no longer resembles payments that homeowners are making on their mortgages.

“We affirm the Court of Appeals and hold that Cashmere’s REMIC investments are not “primarily secured by” first mortgages or deeds of trust on nontransient residential real properties. Cashmere has not shown that REMICs are secured-only that the underlying loans are primarily secured by first mortgages or deeds of trust. Although these investments gave Cashmere the right to receive specific cash flows generated by first mortgage loans, the borrowers on the original loans had no obligation to pay Cashmere. Relatedly, Cashmere has no direct or indirect legal recourse to the underlying mortgages as security for the investment. The mere fact that the trustee may be able to foreclose on behalf of trust beneficiaries does not mean the investment is “primarily secured” by first mortgages or deeds of trust.

Editor’s Note: The one thing that makes this case even more problematic is that it does not appear that the Trust ever paid for the acquisition or origination of loans. THAT implies that the Trust didn’t have the money to do so. Because the business of the trust was the acquisition or origination of loans. If the Trust didn’t have the money, THAT implies the Trust didn’t receive the proceeds of sale from their issuance of MBS. And THAT implies that the investors are not Trust beneficiaries in any substantive sense because even though the bonds were issued in the name of the securities broker as street name nominee (non objecting status) for the benefit of the investors, the bonds were issued in a transaction that was never completed.

Thus the investors become simply involuntary direct lenders through a conduit system to which they never agreed. The broker dealer controls all aspects of the actual money transfers and claims the amounts left over as fees or profits from proprietary trading. And THAT means that there is no valid mortgage because the Trust got an assignment without consideration, the Trustee has no interest in the mortgage and the investors who WERE the original source of funds were never given the protection they thought they were getting when they advanced the money. So the “lenders” (investors) knew nothing about the loan closing and neither did the borrower. The mortgage is not enforceable by the named “originator” because they were not the lender and they did not close as representative of the lenders.

There is no party who can enforce an unenforceable contract, which is what the mortgage is here. And the note is similarly defective — although if the note gets into the hands of a party who DID PAY value in good faith without knowledge of the borrower’s defenses and DID GET DELIVERY and ACCEPT DELIVERY of the loans then the note would be enforceable even if the mortgage is not. The borrower’s remedy would be to sue the people who put him into those loans, not the holder who is suing on the note because the legislature adopted the UCC and Article 3 says the risk of loss falls on the borrower even if there were defenses to the loan. The lack of consideration might be problematic but the likelihood is that the legislative imperative would be followed — allowing the holder in due course to collect from the borrower even in the absence of a loan by the so-called “originator.”

Powers of Attorney — New Documents Magically Appear

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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BONY/Mellon is among those who are attempting to use a Power of Attorney (POA) that they say proves their ownership of the note and mortgage. In No way does it prove ownership. But it almost forces the reader to assume ownership. But it is not entitled to a presumption of any kind. This is a document prepared for use in litigation and in no way is part of normal business records. They should be required to prove every word and every exhibit. The ONLY thing that would prove ownership is proof of payment. If they owned it they would be claiming HDC status. Not only doesn’t it PROVE ownership, it doesn’t even recite or warrant ownership, indemnification etc. It is a crazy document in substance but facially appealing even though it doesn’t really say anything.

The entire POA is hearsay, lacks foundation, and is irrelevant without the proper foundation be laid by the proponent of the document. I do not think it can be introduced as a business records exception since such documents are not normally created in the ordinary course of business especially with such wide sweeping powers that make no sense — unless you recognize that they are dealing with worthless paper that they are trying desperately to make valuable.

They should have given you a copy of the settlement agreement referred to in the POA and they should have identified the original PSA that is referred to in the settlement agreement. Those are the foundation documents because the POA says that the terms used are defined in the PSA, Settlement agreement or both. I want all documents that are incorporated by reference in the POA.

If you have asked whether the Trust ever paid for your loan, I would like to see their answer.

If CWALT, Inc. or CWABS, Inc., or CWMBS, Inc is anywhere in your chain of title or anywhere else mentioned in any alleged origination or transfer of your loan, I assume you asked for those and I would like to see them too.

The PSA requires that the Trust pay for and receive the loan documents by way of the depositor and custodian. The Trustee never takes possession of the loan documents. But more than that it is important to distinguish between the loan documents and the debt. If there is no debt between you and the originator (which means that the originator named on the note and mortgage never advanced you any money for the loan) then note, which is only evidence of the debt and allegedly containing the terms of repayment is only evidence of the debt — which we know does not exist if they never answered your requests for proof of payment, wire transfer or canceled check.

If you have been reading my posts the last couple of weeks you will see what I am talking about.

The POA does not warrant or even recite that YOUR loan or anything resembling control or ownership of YOUR LOAN is or was ever owned by BONY/Mellon or the alleged trust. It is a classic case of misdirection. By executing a long and very important-looking document they want the judge to presume that the recitations are true and that the unrecited assumptions are also true. None of that is correct. The reference to the PSA only shows intent to acquire loans but has no reference or exhibit identifying your loan. And even if there was such a reference or exhibit it would be fabricated and false — there being obvious evidence that they did not pay for it or any other loan.

The evidence that they did not pay consists of a lot of things but once piece of logic is irrefutable — if they were a holder in due course you would be left with no defenses. If they are not a holder in due course then they had no right to collect money from you and you might sue to get your payments back with interest, attorney fees and possibly punitive damages unless they turned over all your money to the real creditors — but that would require them to identify your real creditors (the investors who thought they were buying mortgage bonds but whose money was never given to the Trust but was instead used privately by the securities broker that did the underwriting on the bond offering).

And the main logical point for an assumption is that if they were a holder in due course they would have said so and you would be fighting with an empty gun except for predatory and improper lending practices at the loan closing which cannot be brought against the Trust and must be directed at the mortgage broker and “originator.” They have not alleged they are a holder in course.

The elements of holder in dude course are purchase for value, delivery of the loan documents, in good faith without knowledge of the borrower’s defenses. If they had paid for the loan documents they would have been more than happy to show that they did and then claim holder in due course status. The fact that the documents were not delivered in the manner set forth in the PSA — tot he depositor and custodian — is important but not likely to swing the Judge your way. If they paid they are a holder in due course.

The trust could not possibly be attacked successfully as lacking good faith or knowing the borrower’s defenses, so two out of four elements of HDC they already have. Their claim of delivery might be dubious but is not likely to convince a judge to nullify the mortgage or prevent its enforcement. Delivery will be presumed if they show up with what appears to be the original note and mortgage. So that means 3 out of the four elements of HDC status are satisfied by the Trust. The only remaining question is whether they ever entered into a transaction in which they originated or acquired any loans and whether yours was one of them.

Since they have not alleged HDC status, they are admitting they never paid for it. That means the Trust is admitting there was no payment, which means they were not entitled to delivery or ownership of the note, mortgage, or debt.

So that means they NEVER OWNED THE DEBT OR THE LOAN DOCUMENTS. AS A HOLDER IN COURSE IT WOULD NOT MATTER IF THEY OWNED THE DEBT — THE LOAN DOCUMENTS ARE ENFORCEABLE BY A HOLDER IN DUE COURSE EVEN IF THERE IS NO DEBT. THE RISK OF LOSS TO ANY PERSON WHO SIGNS A NOTE AND MORTGAGE AND ALLOWS IT TO BE TAKEN OUT OF HIS OR HER POSSESSION IS ON THE PARTY WHO TOOK IT AND THE PARTY WHO SIGNED IT — IF THERE WAS NO CONSIDERATION, THE DOCUMENTS ARE ONLY SUCCESSFULLY ENFORCED WHERE AN INNOCENT PARTY PAYS REAL VALUE AND TAKES DELIVERY OF THE NOTE AND MORTGAGE IN GOOD FAITH WITHOUT KNOWLEDGE OF THE BORROWER’S DEFENSES.

So if they did not allege they are an HDC then they are admitting they don’t own the loan papers and admitting they don’t own the loan. Since the business of the trust was to pay for origination of loans and acquisition of loans there is only one reason they wouldn’t have paid for the loan — to wit: the trust didn’t have the money. There is only one reason the trust would not have the money — they didn’t get the proceeds of the sale of the bonds. If the trust did not get the proceeds of sale of the bonds, then the trust was completely ignored in actual conduct regardless of what the documents say. Which means that the documents are not relevant to the power or authority of the servicer, master servicer, trust, or even the investors as TRUST BENEFICIARIES.

It means that the investors’ money was used directly for fees of multiple people who were not disclosed in your loan closing, and some portion of which was used to fund your loan. THAT MEANS the investors have no claim as trust beneficiaries. Their only claim is as owner of the debt, not the loan documents which were made out in favor of people other than the investors. And that means that there is no basis to claim any power, authority or rights claimed through “Securitization” (dubbed “securitization fail” by Adam Levitin).

This in turn means that the investors are owners of the debt but lack any documentation with which to enforce the debt. That doesn’t mean they can’t enforce the debt, but it does mean they can’t use the loan documents. Once they prove or you admit that you did get the loan and that the money came from them, they are entitled to a money judgment on the debt — but there is no right to foreclose because the deed of trust, like a mortgage, is made out to another party and the investors were never included in the chain of title because the intermediaries were  making money keeping it from the investors. More importantly the “other party” had no risk, made no money advance and was otherwise simply providing an illegal service to disguise a table funded loan that is “predatory per se” as per REG Z.

And THAT is why the originator received no money from successors in most cases — they didn’t ask for any money because the loan had cost them nothing and they received a fee for their services.

Levitin and Yves Smith – TRUST=EMPTY PAPER BAG

Living Lies Narrative Corroborated by Increasing Number of Respected Economists

It has taken over 7 years, but finally my description of the securitization process has taken hold. Levitin calls it “securitization fail.” Yves Smith agrees.

Bottom line: there was no securitization, the trusts were merely empty sham nominees for the investment banks and the “assignments,” transfers, and endorsements of the fabricated paper from illegal closings were worthless, fraudulent and caused incomprehensible damage to everyone except the perpetrators of the crime. They call it “infinite rehypothecation” on Wall Street. That makes it seem infinitely complex. Call it what you want, it was civil and perhaps criminal theft. Courts enforcing this fraudulent worthless paper will be left with egg on their faces as the truth unravels now.

There cannot be a valid foreclosure because there is no valid mortgage. I know. This makes no sense when you approach it from a conventional point of view. But if you watch closely you can see that the “loan closing” was a shell game. Money from a non disclosed third party (the investors) was sent through conduits to hide the origination of the funds for the loan. The closing agent used that money not for the originator of the funds (the investors) but for a sham nominee entity with no rights to the loan — all as specified in the assignment and assumption agreement. The note and and mortgage were a sham. And the reason the foreclosing parties do not allege they are holders in due course, is that they must prove purchase and delivery for value, as set forth in the PSA within the 90 day period during which the Trust could operate. None of the loans made it.

But on Main street it was at its root a combination pyramid scheme and PONZI scheme. All branches of government are complicit in continuing the fraud and allowing these merchants of “death” to continue selling what they call bonds deriving their value from homeowner or student loans. Having made a “deal with the devil” both the Bush and Obama administrations conscripted themselves into the servitude of the banks and actively assisted in the coverup. — Neil F Garfield, livinglies.me

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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John Lindeman in Miami asked me years ago when he first starting out in foreclosure defense, how I would describe the REMIC Trust. My reply was “a holographic image of an empty paper bag.” Using that as the basis of his defense of homeowners, he went on to do very well in foreclosure defense. He did well because he kept asking questions in discovery about the actual transactions, he demanded the PSA, he cornered the opposition into admitting that their authority had to come from the PSA when they didn’t want to admit that. They didn’t want to admit it because they knew the Trust had no ownership interest in the loan and would never have it.

While the narrative regarding “securitization fail” (see Adam Levitin) seems esoteric and even pointless from the homeowner’s point of view, I assure you that it is the direct answer to the alleged complaint that the borrower breached a duty to the foreclosing party. That is because the foreclosing party has no interest in the loan and has no legal authority to even represent the owner of the debt.

And THAT is because the owner of the debt is a group of investors and NOT the REMIC Trust that funded the loan. Thus the Trust, unfunded had no resources to buy or fund the origination of loans. So they didn’t buy it and it wasn’t delivered. Hence they can’t claim Holder in Due Course status because “purchase for value” is one of the elements of the prima facie case for a Holder in Due Course. There was no purchase and there was no transaction. Hence the suing parties could not possibly be authorized to represent the owner of the debt unless they got it from the investors who do own it, not from the Trust that doesn’t own it.

This of course raises many questions about the sudden arrival of “assignments” when the wave of foreclosures began. If you asked for the assignment on any loan that was NOT in foreclosure you couldn’t get it because their fabrication system was not geared to produce it. Why would anyone assign a valuable loan with security to a trust or anyone else without getting paid for it? Only one answer is possible — the party making the assignment was acting out a part and made money in fees pretending to convey an interest the assignor did not have. And so it goes all the way down the chain. The emptiness of the REMIC Trust is merely a mirror reflection of the empty closing with homeowners. The investors and the homeowners were screwed the same way.

BOTTOM LINE: The investors are stuck with ownership of a debt or claim against the borrowers for what was loaned to the borrower (which is only a fraction of the money given to the broker for lending to homeowners). They also have claims against the brokers who took their money and instead of delivering the proceeds of the sale of bonds to the Trust, they used it for their own benefit. Those claims are unsecured and virtually undocumented (except for wire transfer receipts and wire transfer instructions). The closing agent was probably duped the same way as the borrower at the loan closing which was the same as the way the investors were duped in settlement of the IPO of RMBS from the Trust.

In short, neither the note nor the mortgage are valid documents even though they appear facially valid. They are not valid because they are subject to borrower’s defenses. And the main borrower defense is that (a) the originator did not loan them money and (b) all the parties that took payments from the homeowner owe that money back to the homeowner plus interest, attorney fees and perhaps punitive damages. Suing on a fictitious transaction can only be successful if the homeowner defaults (fails to defend) or the suing party is a holder in due course.

Trusts Are Empty Paper Bags — Naked Capitalism

student-loan-debt-home-buying

Just as with homeowner loans, student loans have a series of defenses created by the same chicanery as the false “securitization” of homeowner loans. LivingLies is opening a new division to assist people with student loan problems if they are prepared to fight the enforcement on the merits. Student loan debt, now over $1 Trillion is dragging down housing, and the economy. Call 520-405-1688 and 954-495-9867)

The Banks Are Leveraged: Too Big Not to Fail

When I was working with Brad Keiser (formerly a top executive at Fifth Third Bank), he formulated, based upon my narrative, a way to measure the risk of bank collapse. Using a “leverage” ration he and I were able to accurately define the exact order of the collapse of the investment banks before it happened. In September, 2008 based upon the leverage ratios we published our findings and used them at a seminar in California. The power Point presentation is still available for purchase. (Call 520-405-1688 or 954-495-9867). You can see it yourself. The only thing Brad got wrong was the timing. He said 6 months. It turned out to be 6 weeks.

First on his list was Bear Stearns with leverage at 42:1. With the “shadow banking market” sitting at close to $1 quadrillion (about 17 times the total amount of all money authorized by all governments of the world) it is easy to see how there are 5 major banks that are leveraged in excess of the ratio at Bear Stearns, Lehman, Merrill Lynch et al.

The point of the article that I don’t agree with at all is the presumption that if these banks fail the economy will collapse. There is no reason for it to collapse and the dependence the author cites is an illusion. The fall of these banks will be a psychological shock world wide, and I agree it will obviously happen soon. We have 7,000 community banks and credit unions that use the exact same electronic funds transfer backbone as the major banks. There are multiple regional associations of these institutions who can easily enter into the same agreements with government, giving access at the Fed window and other benefits given to the big 5, and who will purchase the bonds of government to keep federal and state governments running. Credit markets will momentarily freeze but then relax.

Broward County Court Delays Are Actually A PR Program to Assure Investors Buying RMBS

The truth is that the banks don’t want to manage the properties, they don’t need the house and in tens of thousands of cases (probably in the hundreds of thousands since the last report), they simply walk away from the house and let it be foreclosed for non payment of taxes, HOA assessments etc. In some of the largest cities in the nation, tens of thousands of abandoned homes (where the homeowner applied for modification and was denied because the servicer had no intention or authority to give it them) were BULL-DOZED  and the neighborhoods converted into parks.

The banks don’t want the money and they don’t want the house. If you offer them the money they back peddle and use every trick in the book to get to foreclosure. This is clearly not your usual loan situation. Why would anyone not accept payment in full?

What they DO want is a judgment that transfers ownership of the debt from the true owners (the investors) to the banks. This creates the illusion of ratification of prior transactions where the same loan was effectively sold for 100 cents on the dollar not by the investors who made the loan, but by the banks who sold the investors on the illusion that they were buying secured loans, Triple AAA rated, and insured. None of it was true because the intended beneficiary of the paper, the insurance money, the multiple sales, and proceeds of hedge products and guarantees were all pocketed by the banks who had sold worthless bogus mortgage bonds without expending a dime or assuming one cent of risk.

Delaying the prosecution of foreclosures is simply an opportunity to spread out the pain over time and thus keep investors buying these bonds. And they ARE buying the new bonds even though the people they are buying from already defrauded them by NOT delivering the proceeds fro the sale of the bonds to the Trust that issued them.

Why make “bad” loans? Because they make money for the bank especially when they fail

The brokers are back at it, as though they haven’t caused enough damage. The bigger the “risk” on the loan the higher the interest rate to compensate for that risk of loss. The higher interest rates result in less money being loaned out to achieve the dollar return promised to investors who think they are buying RMBS issued by a REMIC Trust. So the investor pays out $100 Million, expects $5 million per year return, and the broker sells them a complex multi-tranche web of worthless paper. In that basket of “loans” (that were never made by the originator) are 10% and higher loans being sold as though they were conventional 5% loans. So the actual loan is $50 Million, with the broker pocketing the difference. It is called a yield spread premium. It is achieved through identity theft of the borrower’s reputation and credit.

Banks don’t want the house or the money. They want the Foreclosure Judgment for “protection”

 

When an assignment of a mortgage is invalid, does it require a foreclosure case to be dismissed?

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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There seems to be confusion about what is necessary to file a foreclosure. To start with the basics, the debt is created when the borrower receives the funds or when the funds are disbursed for the benefit of the borrower. This requires no documentation. The receipt of funds presumptively implies a loan that is a demand loan. The source of funding is the creditor and the borrower is the debtor. The promissory note is EVIDENCE of the debt and contains the terms of repayment. In residential loan transactions it changes the terms from a demand loan to a term loan with periodic payments.

But without the debt, the note is worthless — unless the note gets into the hands of a party who claims status as a holder in due course. In that case the debt doesn’t exist but the liability to pay under the terms of the note can be enforced anyway. In foreclosure litigation based upon paper where there are claims or evidence of securitization, there are virtually all cases in which the “holder” of the note seeks enforcement, it does NOT allege the status of holder in due course. To the contrary, many cases contain an admission that the note doesn’t exist because it was lost or destroyed.

The lender is the party who loans the money to the borrower.  The lender can bring suit against the borrower for failure to pay and receive a money judgment that can be enforced against income or non-exempt property of the borrower by writ of garnishment or attachment. There is no limit to the borrower’s defenses and counterclaims against the lender, assuming they are based on facts that show improper conduct by the lender. The contest does NOT require anything in writing. If the party seeking to enforce the debt wishes to rely on a note as evidence of the debt, their claim about the validity of the note as evidence or as information containing the terms of repayment may be contested by the borrower.

If the note is transferred by endorsement and delivery, the transferee can enforce the note under most circumstances. But the transferee of the note takes the note subject to all defenses of the borrower. So if the borrower says that the loan never happened or denies it in his answer the lender and its successors must prove the loan actually took place. This is true in all cases EXCEPT situations where the transferee purchases the note for value, gets delivery and endorsement, and is acting in good faith without knowledge of the borrower’s defenses (UCC refers to this as a holder in due course). The borrower who signs a note without receiving the consideration of the loan is taking the risk that he or she has created a debt or liability if the eventual transferee claims to be a holder in due course. Further information on the creation and transfer of notes as negotiable paper is contained in Article 3 of the Uniform Commercial Code (UCC).

Thus the questions about enforceability of the note or recovery on the debt are fairly well settled. The question is what happens in the case where collateral for the loan secures the performance required under the note. This is done with a security instrument which in real property transactions is a mortgage or deed of trust. This is a separate contract between the lender and the borrower. It says that if the borrower does not pay or fails to pay taxes, maintain the property, insure the property etc., the lender may foreclose and the borrower will forfeit the collateral. This suit is an action to enforce the security instrument (mortgage, deed of trust etc.) seeking to foreclose all claims inferior to the rights of the lender established when the mortgage or deed of trust was recorded.

The mortgage is a contract that does not qualify as a negotiable instrument and so is not covered by Article 3 of the UCC. It is covered by Article 9 of the UCC (Secured Transactions). The general rule is that a party who purchases the mortgage instrument for value in good faith and without knowledge of the  borrower’s defenses may enforce the mortgage if the contract is breached by the borrower. This coincides with the requirement that the holder of the mortgage must also be a holder in due course of the note — if the breach consists of failure to pay under the terms of the note. Any party may assign their rights under a contract unless the contract itself says that it is not assignable or assignment is barred by statute or administrative rules.

The “assignment” of the mortgage or deed of trust is generally taken to be an instrument of conveyance. But forfeiture of collateral, particularly one’s home, is considered to be a much more severe remedy against the borrower than a money judgment for economic loss caused by breach of the borrower in making payments on a legitimate debt. So the statute (Article 9, UCC)  requires that the assignment be the result of an actual transaction in which the mortgage is purchased for value. The confusion that erupts here is that no reasonable person would merely purchase a mortgage which is not really an asset deriving its value from a borrower’s promise to pay. That asset is the note.

So if the note is purchased for value, and assuming the purchaser receives delivery and endorsement of the note, as a holder in due course there is no question that the mortgage assignment is valid and enforceable by the assignee. The problems that have emerged is when, if ever, any value was paid to anyone in the “chain” on either the note or the mortgage. If no value was paid then the note might be enforceable subject to borrower’s defenses but the mortgage cannot be enforced. Additional issues emerge where the “proof” (often fabricated robo-signed documents) imply through hearsay that the note was the subject of a transaction at a different time than the date on the assignment. Denial and/or discovery would reveal the fraud upon the Court here — assuming you can persuasively argue that the production of evidence is required.

Another interesting question comes up when you seen the language of endorsement on the mortgage. This might be seen as splitting hairs, but I think it is more than that. To assign a mortgage in form that would ordinarily be accepted in general commerce — and in particular by banks — the assignment would be in the form that recites the ownership of the mortgage and the intention to convey it and on what terms. Instead, many cases show that there is an additional page stapled to the mortgage which contains only the endorsement to a particular party or blank endorsement. The endorsement is not recordable whereas a facially valid assignment is recordable.

The attachment of the last page could mean nothing was conveyed or that it was accidentally done in addition to a proper assignment. But I have seen several cases where the only evidence of assignment was a stamped endorsement, undated, in which there was no assignment. This appears to be designed to confuse the Judge who might be encouraged to apply the rules of transfer of the note to the circumstances of transfer of the mortgage. This smoke and mirrors approach often results in a foreclosure judgment in favor of a party who has paid nothing for the debt, note or mortgage. It leaves the actual lender out in the cold without a note or mortgage which they should have received.

It is these and other factors which have resulted in trial and appellate decisions that appear to be in conflict with each other. Currently in Florida the Supreme Court is deciding whether to issue an opinion on whether the assignment after the lawsuit has begun cures jurisdictional standing. The standing rule in Florida is that if you don’t own the mortgage at the time you declare a default, acceleration and sue, then those actions are essentially void.

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Valid assignment is necessary for the plaintiff to have standing in a foreclosure case. (David E. Peterson, Cracking the Mortgage Assignment Shell Game, The Florida Bar Journal, Volume 85, No. 9, November, 2011, page 18).

In BAC Funding Consortium v. Jean-Jeans and US Bank National Association, the Second District of Florida reversed summary judgment for a foreclosure for bank because there was no evidence that the bank validly held the note and mortgage. BAC Funding Consortium Inc. ISAOA/ATIMA v. Jean-Jacques 28 So.2d, 936.

BAC has been negatively distinguished by two cases:

  • Riggs v. Aurora Loan Services, LLC, 36 So.3d 932, (Fla.App. 4 Dist.,2010) was distinguished from BAC, because in BAC the bank did not file an affidavits that the mortgage was properly assigned; in Riggs they did. The 4th District held that the “company’s possession of original note, indorsed in blank, established company’s status as lawful holder of note, entitled to enforce its terms.” [Editor’s note: The appellate court might have erred here. The enforcement of the note and the enforcement of the mortgage are two different things as described above].
  • Dage v. Deutsche Bank Nat. Trust Co., 95 So.3d 1021, (Fla.App. 2 Dist.,2012) was distinguished from BAC, because in Dage, the homeowners waited two years to challenge the foreclosure judgment on the grounds that the bank lacked standing due to invalid assignment of mortgage. The court held that a lack of standing is merely voidable, not void, and the homeowners had to challenge the ruling in a timely manner. [Editor’s note: Jurisdiction is normally construed as something that cannot be invoked at a later time. It can even be invoked for the first time on appeal.]

In his article, “Cracking the Mortgage Assignment Shell Game,” Peterson in on the side of the banks and plaintiffs in foreclosure cases, but his section “Who Has Standing to Foreclosure the Mortgage?” is full of valuable insights about when a case can be dismissed based on invalid assignment. Instead of reinventing the wheel, I’ve copied and pasted the section below:

It should come as no surprise that the holder of the promissory note has standing to maintain a foreclosure action.34 Further, an agent for the holder can sue to foreclose.35 The holder of a collateral assignment has sufficient standing to foreclose.36 [Editor’s note: Here again we see the leap of faith that just because someone might have standing to sue on the note, they automatically have standing to sue on the mortgage, even if no value was paid for either the note or the mortgage].

Failure to file the original promissory note or offer evidence of standing might preclude summary judgment.37 Even when the plaintiff files the original, it might be necessary to offer additional evidence to show that the plaintiff is the holder or has rights as a nonholder. In BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), for example, the court reversed a summary judgment of foreclosure, saying the plaintiff had not proven it held the note. The written assignment was incomplete and unsigned. The plaintiff filed the original note, which showed an indorsement to another person, but no indorsement to the plaintiff. The court found that was insufficient. Clearly, a party in possession of a note indorsed to another is not a “holder,” but recall that Johns v. Gillian holds that a written assignment is not needed to show standing when the transferee receives delivery of the note. The court’s ruling in BAC Funding Consortium was based on the heavy burden required for summary judgment. The court said the plaintiff did not offer an affidavit or deposition proving it held the note and suggested that “proof of purchase of the debt, or evidence of an effective transfer” might substitute for an assignment.38 [e.s.]

In Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA 1990), the court held that an assignment executed after the filing of the foreclosure case was not sufficient to show the plaintiff had standing at the time the complaint was filed. In WM Specialty Mortgage, LLC v. Salomon, 874 So. 2d 680 (Fla. 4th DCA 2004), however, the court distinguished Jeff-Ray Corp., stating that the execution date of the written assignment was less significant when the plaintiff could show that it acquired the mortgage before filing the foreclosure without a written assignment, as permitted by Johns v. Gilliam.39

When the note is lost, a document trail showing ownership is important. The burden in BAC Funding Consortium might be discharged by an affidavit confirming that the note was sold to the plaintiff prior to foreclosure. Corroboratory evidence of sale documents or payment of consideration is icing on the cake, but probably not needed absent doubt over the plaintiff’s rights. If doubt remains, indemnity can be required if needed to protect the mortgagor.40 [e.s.] 34  Philogene v. ABN AMRO Mortgage Group, Inc., 948 So. 2d 45 (Fla. 4th D.C.A. 2006); Fla. Stat. §673.3011(1) (2010).

35                  Juega v. Davidson, 8 So. 3d 488 (Fla. 3d D.C.A. 2009); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34, fn. 2 (Fla. 3d D.C.A. 2007) (stating that MERS was holder, but not owner and “We simply don’t think that this makes any difference. See Fla. R.Civ. P. 1.210(a) (action may be prosecuted in name of authorized person without joining party for whose benefit action is brought)”). [Editor’s note: This is an example of judicial ignorance of what is really happening. MERS is a conduit, a naked nominee, whose existence is meaningless, as is its records of transfer or ownership of the the debt, the note or the mortgage]

36                  Laing v. Gainey Builders, Inc., 184 So. 2d 897 (Fla. 5th D.C.A. 1966) (collateral assignee was a holder); Cullison v. Dees, 90 So. 2d 620 (Fla. 1956) (same, except involving validity of payments rather than standing to foreclose).

37                  See Fla. Stat. §673.3091(2) (2010); Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105 (Fla. 4th D.C.A. 2010).

38                  BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d at 938-939 (Fla. 2d D.C.A. 2010). See also Verizzo v. Bank of New York, 28 So. 3d 976 (Fla. 2d D.C.A. 2010) (Bank filed original note, but indorsement was to a different bank). But see Lizio v. McCullom, 36 So. 3d 927 (Fla. 4th D.C.A. 2010) (possession of note is prima facie evidence of ownership). [Editor’s note: this is the nub of the problems in foreclosure litigation. The law requires purchase for value for ownership, along with other criteria described above. This court’s conclusion places an unfair burden of proof on the borrower. The party with the sole care, custody and control of the actual evidence and information about the transfer or sale of the ndebt, note or mortgage is the Plaintiff. The plaintiff should therefore be required to show the details of the transaction in which the debt, note or mortgage was acquired. To me, that means showing a cancelled check or wire transfer receipt in which the reference was to the loan in dispute. Anything less than that raises questions about whether the loan implied by the note and mortgage ever existed. See my previous articles regarding securitization where the actual loan was actually applied from third party funds. hence the originator, who did not loan any money, was never paid for note or mortgage because consideration from a third party had already passed.]

39                  See also Glynn v. First Union Nat. Bank, 912 So. 2d 357 (Fla. 4th D.C.A. 2005), rev. den., 933 So. 2d 521 (Fla. 2006) (note transferred before lawsuit, even though assignment was after). [Editor’s note: if the note and mortgage were in fact transfered for actual value (with proof of payment) then a “late” assignment might properly be categorized as a clerical issue rather than a legal one — because the substance of the transaction actually took place long before the assignment was executed and recorded. But the cautionary remark here is that in all probability, nobody who relies upon the “Chain” ever paid anything but fees to their predecessor. Why would they? If the consideration already passed from third party — i.e., pension fund money — why would the originator or any successor be entitled to demand the value of the note and mortgage? The originator in that scenario is neither the lender nor the owner of the debt and therefore should be given no rights under the note and mortgage, where title was diverted from the third party who DID the the loan to the originator who did NOT fund the loan. 40 Fla. Stat. §673.3091(2) (2010); Fla. Stat. §69.061 (2010).-David E. Peterson, “Cracking the Mortgage Assignment Shell Game”, The Florida Bar Journal, Volume 85, No. 9, November, 2011.

I also came across a blog post from another attorney on how to argue Florida assignments of judges. I don’t know how reliable this is, but it does cite several cases, and may be a useful resource to you: http://discoverytactics.wordpress.com/tactics-strategies/how-to-argue-florida-assignments-to-judges/. Someone also posted the content of the above link verbatim in a comment on my blog at http://livinglies.me/foreclosure-defense-forms/people-players-and-resources/state-laws/florida-laws/.

 

A Foreclosure Judgment and Sale is a Forced Assignment Against the Interests of Investors and For the Interests of the Bank Intermediaries

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Successfully hoodwinking a Judge into entering a Judgment of Foreclosure and forcing the sale of a homeowner’s property has the effect of transferring the loss on that loan from the securities broker and its co-venturers to the Pension Fund that gave the money to the securities broker. Up until the moment of the foreclosure, the loss will fall on the securities brokers for damages, refunds etc. Once foreclosure is entered it sets in motion a legal cascade that protects the securities broker from further claims for fraud against the investors, insurers, and guarantors.

The securities broker was thought to be turning over the proceeds to the Trust which issued bonds in an IPO. Instead the securities broker used the money for purposes and in ways that were — according to the pleadings of the investors, the government, guarantors, and insurers — FRAUDULENT. Besides raising the issue of unclean hands, these facts eviscerate the legal enforcement of loan documents that were, according to those same parties, fraudulent, unenforceable and subject to claims for damages and punitive damages from borrowers.

There is a difference between documents that talk about a transaction and the transaction documents themselves. That is the essence of the fraud perpetrated by the banks in most of the foreclosure actions that I have reviewed. The documents that talk about a transaction are referring to a transaction that never existed. Documents that “talk about” a transaction include a note, mortgage, assignment, power of attorney etc. Documents that ARE the transaction documents include the actual evidence of actual payments like a wire transfer or canceled check and the actual evidence of delivery of the loan documents — like Fedex receipts or other form of correspondence showing that the recipient was (a) the right recipient and (b) actually received the documents.

The actual movement of the actual money and actual Transaction Documents has been shrouded in secrecy since this mortgage mess began. It is time to come clean.

THE REAL DEBT: The real debt does NOT arise unless someone gets something from someone else that is legally recognized as “value” or consideration. Upon receipt of that, the recipient now owes a duty to the party who gave that “something” to him or her. In this case, it is simple. If you give money to someone, it is presumed that a debt arises to pay it back — to the person who loaned it to you. What has happened here is that the real debt arose by operation of common law (and in some cases statutory law) when the borrower received the money or the money was used, with his consent, for his benefit. Now he owes the money back. And he owes it to the party whose money was used to fund the loan transaction — not the party on paperwork that “talks about” the transaction.

The implied ratification that is being used in the courts is wrong. The investors not only deny the validity of the loan transactions with homeowners, but they have sued the securities brokers for fraud (not just breach of contract) and they have received considerable sums of money in settlement of their claims. How those settlement effect the balance owed by the debtor is unclear — but it certainly introduces the concept that damages have been mitigated, and the predatory loan practices and appraisal fraud at closing might entitle the borrowers to a piece of those settlements — probably in the form of a credit against the amount owed.

Thus when demand is made to see the actual transaction documents, like a canceled check or wire transfer receipt, the banks fight it tooth and nail. When I represented banks and foreclosures, if the defendant challenged whether or not there was a transaction and if it was properly done, I would immediately submit the affidavits real witnesses with real knowledge of the transaction and absolute proof with a copy of a canceled check, wire transfer receipt or deposit into the borrowers account. The dispute would be over. There would be nothing to litigate.

There is no question in my mind that the banks are afraid of the question of payment and delivery. With increasing frequency, I am advised of confidential settlements where the homeowner’s attorney was relentless in pursuing the truth about the loan, the ownership (of the DEBT, not the “note” which is supposed to be ONLY evidence of the debt) and the balance. The problem is that none of the parties in the “chain” ever paid a dime (except in fees) and none of them ever received delivery of closing documents. This is corroborated by the absence of the Depositor and Custodian in the “chain”.

The plain truth is that the securities broker took money from the investor/lender and instead of of delivering the proceeds to the Trust (I.e, lending the money to the Trust), the securities broker set up an elaborate scheme of loaning the money directly to borrowers. So they diverted money from the Trust to the borrower’s closing table. Then they diverted title to the loan from the investor/lenders to a controlled entity of the securities broker.

The actual lender is left with virtually no proof of the loan. The note and mortgage is been made out in favor of an entity that was never disclosed to the investor and would never have been approved by the investor is the fund manager of the pension fund had been advised of the actual way in which the money of the pension fund had been channeled into mortgage originations and mortgage acquisitions.

Since the prospectus and the pooling and servicing agreement both rule out the right of the investors and the Trustee from inquiring into the status of the loans or the the “portfolio” (which is nonexistent),  it is a perfect storm for moral hazard.  The securities broker is left with unbridled ability to do anything it wants with the money received from the investor without the investor ever knowing what happened.

Hence the focal point for our purposes is the negligence or intentional act of the closing agent in receiving money from one actual lender who was undisclosed and then applying it to closing documents with a pretender lender who was a controlled entity of the securities broker.  So what you have here is an undisclosed lender who is involuntarily lending money directly a homeowner purchase or refinance a home. The trust is ignored  an obviously the terms of the trust are avoided and ignored. The REMIC Trust is unfunded and essentially without a trustee —  and none of the transactions contemplated in the prospectus and pooling and servicing agreement ever occurred.

The final judgment of foreclosure forces the “assignment” into a “trust” that was unfunded, didn’t have a Trustee with any real powers, and didn’t ever get delivery of the closing documents to the Depositor or Custodian. This results in forcing a bad loan into the trust, which presumably enables the broker to force the loss from the bad loans onto the investors. They also lose their REMIC status which means that the Trust is operating outside the 90 day cutoff period. So the Trust now has a taxable event instead of being treated as a conduit like a Subchapter S corporation. This creates double taxation for the investor/lenders.

The forced “purchase” of the REMIC Trust takes place without notice to the investors or the Trust as to the conflict of interest between the Servicers, securities brokers and other co-venturers. The foreclosure is pushed through even when there is a credible offer of modification from the borrower that would allow the investor to recover perhaps as much as 1000% of the amount reported as final proceeds on liquidation of the REO property.

So one of the big questions that goes unanswered as yet, is why are the investor/lenders not given notice and an opportunity to be heard when the real impact of the foreclosure only effects them and does not effect the intermediaries, whose interests are separate and apart from the debt that arose when the borrower received the money from the investor/lender?

The only parties that benefit from a foreclosure sale are the ones actively pursuing the foreclosure who of course receive fees that are disproportional to the effort, but more importantly the securities broker closes the door on potential liability for refunds, repurchases, damages to be paid from fraud claims from investors, guarantors and other parties and even punitive damages arising out of the multiple sales of the same asset to different parties.

If the current servicers were removed, since they have no actual authority anyway (The trust was ignored so the authority arising from the trust must be ignored), foreclosures would virtually end. Nearly all cases would be settled on one set of terms or another, enabling the investors to recover far more money (even though they are legally unsecured) than what the current “intermediaries” are giving them.

If this narrative gets out into the mainstream, the foreclosing parties would be screwed. It would show that they have no right to foreclosure based upon a voidable mortgage securing a void promissory note. I received many calls last week applauding the articles I wrote last week explaining the securitization process — in concept, as it was written and how it operated in the real world ignoring the REMIC Trust entity. This is an attack on any claim the forecloser makes to having the rights to enforce — which can only come from a party who does have the right to enforce.

see http://livinglies.me/2014/09/10/securitization-for-lawyers-conflicts-between-reality-the-documents-and-the-concept/

Securitization for Lawyers: Conflicts between reality, the documents and the concept.

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Editor’s Note: The solution is obvious. Remove the servicers, Trustees and other “collection” entities from the situation. Those entities have been working against investors, lenders, the Trusts, and borrowers from the start. They continue to obstruct settlements and modifications because they have substantial liability for performing loans.

Their best strategy is to create the illusion of defaults even when the creditor has been paid in full.

Our best strategy is to remove them from the mix. And then let the chips fall. Since they ignored the PSA they are not authorized to act anyway.

For those who are religious about free market forces, this should be appealing inasmuch as it lets the marketplace function without being hijacked by players who illegally cornered the marketplace in finance, currency and economic activity. — Neil Garfield, livinglies.me

Continuing with my article THE CONCEPT OF SECURITIZATION, and my subsequent article How Securitization Was Written by Wall Street, we continue now with the reality. What we find is predictable conflict arising out of the intentional ambiguity and vagueness of the securitization documents (Prospectus, Pooling and Servicing Agreement, Assignment and Assumption Agreement etc.). The conclusion I reach is that the Banks gambled on their ability to confuse lender/investors, borrowers, regulators, the rating agencies, the insurers, guarantors, counterparties to credit default swaps, the courts and the gamble has paid off, thus far.

THE ECONOMICS OF TOXIC WASTE MORTGAGE LOANS

It is easy to get lost in the maze of documents and transactional analysis. The simple fact is that the banks wanted to make more risky loans than the less risky loans that always worked but gave them only a sliver of the potential profit they would make if they threw their status and reputations to the wind. If they could cash in on the element of “trust” and that people would rather keep their money in a bank than under their mattress there was literally no end to the amount of money they could make. They could even use their hundred year old brand names to create the illusion that THEY would never do something as stupid as what I am about to show you:

  1. To make things simple assume that a pension fund has $1,000 that the fund manager wishes to invest in a low risk “investment.”
  2. Assume that the fund manager wants a 5% return on investment (ROI)
  3. That means of course that the fund manager expects to get his money back ($1,000) PLUS $50 per year (5% of $1,000 invested).
  4. So the fund manager calls one of his “trusted” brokers and tells the broker what the pension is looking for as a return.
  5. The broker tells the fund manager that there is an investment that qualifies.
  6. The fund manager sends the $1,000 from the pension fund to the broker.
  7. The broker lends 25% or $250 out of the $1,000, or so it seems, for interest at 5%, as demanded by the fund manager. It looks good enough that the fund manager wants to give the broker more money.
  8. The fund manager gets deposits of $50 per year and is quite happy.
  9. Skipping a few steps assume that the pension fund has been happily buying into this “investment” for a while.
  10. But the broker takes the next $1,000 and lends out only $500 at 10%, yielding a rate of return of 10% or $50. Oddly, the dollar return is exactly what the fund manager is expecting — $50 per year for each thousand invested.
  11. But the “investment” is only $500.
  12. So the broker forms a series of companies and has his “proprietary trading desk” execute a transaction in which the $500 loan is sold to the pension fund for $1,000. No money exchanges hands because the broker has already “invested” the money for his own purposes. Neither the pension fund nor the Trust gets anything from the broker-controlled entity that “sold” the loan that in many cases had not even been yet originated!
  13. The pension fund’s money is traveling a road very different than the one portrayed in the Prospectus and the Pooling and Servicing agreement. That pension money was used to originate most of the loans without even the originator knowing it. Unknown to the pension fund the pension money was sued to fund origination and acquisition of loans; this is opposite to the apparent IPO scenario where the Trust issued “mortgage-backed bonds” that the lender/investors thought they were buying. The transaction between the REMIC Trust and the pension fund was never completed. The REMIC Trust is left unfunded and the contract documents for the formation and operation of the REMIC Trust were completely ignored in reality, while the illusion was created that the REMIC Trusts (completely controlled by the broker who “sold” the “bonds”) were operating with the money from the pension fund.
  14. It is the money of the pension fund that appears at closing, having been sent there by the broker. The only lender is the pension fund and the only debt is between the homeowner and the pension fund. But that loan is never documented and that is how the brokers get to claim almost anything. They are quintessential pretender lenders operating through a veil of cloaks and curtains and peculiarly NOT branding the product because they knew it was beyond wrong. It was probably criminal.
  15. This evens things out — the fund manager sees his $1,000 “invested” and the return of $50 per year. So the fund manager is clueless as to what is happening. The fund manager does not realize that the pension fund is the direct creditor of the debtor/homeowner.
  16. Now assume that the “investment” is a bond issued by a trust that will loan money or acquire loans.
  17. That means the “sale” transaction is between the Trust created and controlled by the broker and the company that is created and controlled by the broker to loan the money. This trade occurs at the proprietary trading desk of the broker. It shows up as a sale between the Trust and, for example, Countrywide. Countrywide gets no money and delivers no documents. The Trust pays no money nor receives any documents (note or mortgage). The “depositor” for the Trust is left out of all transactions.
  18. And THAT means the broker can declare a “profit” from his proprietary trading desk of $500 — because he only loaned $500 and the pension fund gave him $1,000. That leaves $500 of uninvested capital that the broker converts to “profit” at the broker’s trading desk.
  19. The broker knows that the $500 loan is priced at 10% interest because there is a substantial likelihood that the borrower will default. The higher the risk, the higher the interest rate. Nobody would question that. This gives the broker a chance to “bet” on the failure of the loans and the consequent failure of “bonds” that derived their value from the nonexistent assets of the Trust. Frequently at “closing” the title and liability insurance names a payee other than the originator — maintaining the distance between the originator and the closing.
  20. Getting insurance and credit default swaps is difficult because of the higher risk. So the broker buys a credit default swap from another Trust he has created where the loans are conventional 5% loans. This is the conventional loan Trust, which is also probably mostly unfunded. The sale of the swap actually means that the conventional loan trust has agreed to buy the toxic loan Trust “assets” (which do not exist) if there are a sufficient number of defaults on loans on the list for that toxic waste Trust.
  21. This means that the Trust “selling” the credit default swap will make up for losses in the toxic waste trust containing loans at interest rates of 10% or higher.
  22. When the Trust with the 10% loans goes up in smoke because the loans fail at predictable rates, the conventional Trust is on the hook to bail out the toxic waste trust.
  23. The bailout virtually bankrupts the conventional trust. Both the toxic waste trust and the conventional trust have been essentially wiped out. But the pension fund continues to receive payments as long as the broker can maintain the illusion — a device created as “servicer advances” so that the pension fund will continue to buy more of these bonds which were sold as loans to the Trust.
  24. This causes a “credit event” which the broker declares and sends to the insurance company that insured the risk on the conventional loan trust. The insurer (AIG, AMBAC etc) pays the loss declared by the broker as “Master Servicer”. This further enhances the illusion that the Trust was funded and that the bonds were in fact sold and issued by the Trust in exchange for the investment by the pension fund.
  25. The losses in the toxic waste trust are covered by the credit default swap with the conventional loan trust, and the losses in the conventional loan trust are covered by insurance.
  26. When the borrower in the toxic waste trust finally stops paying, the broker orders the servicer to declare a default and foreclose. The “default” is declared based upon the provisions of the note executed at the borrower’s loan closing. But the note is evidence of a loan that does not exist — i.e., a loan by the originator to the borrower. And the mortgage therefore exists to provide security for a nonexistent debt based upon legal presumptions regarding the note, which in actuality is worthless and should be re turned to the borrower for destruction.
  27. Meanwhile the pension fund continues to get the $50 per year from the broker. So the fund manager is blissfully ignorant of the fact that the “investment” was a scam that has already blown up.
  28. Eventually the loan in “default” is sold at a foreclosure sale in the name of the broker-controlled Trust.
  29. The proceeds are not sent to the pension fund because that would alert the fund manager of the default. So the property is kept as “REO” property as long as possible. As long as the pension fund is buying bonds, the bank retains the property in REO status and keeps paying the pension fund $50 per year.
  30. CONCLUSION: The broker has created a $500 “profit” from the proprietary trading desk, the pension fund is going to get a loss from a loan that was not what they ordered, and the broker collects the proceeds of the credit default swap and the insurance without accounting to anyone. Altogether, the broker makes around $1500 on a $500 loan in which the broker received $1,000 from the pension fund. This is a general and oversimplified example of what happened in virtually all the REMIC trust financing.
  31. If the broker had put the money into the Trust and made the loans from the trust then the profit of $1500 disappears. Any profit becomes the profit of the Trust and the Trust beneficiaries. And the broker is left accepting only his typical sliver of the pie as a commission. Why accept the miniscule commission when you can claim it all and then some?
  32. When most loans are originated, they are funded by the pension fund without the pension knowing about it. In standard transactional analysis that makes the pension fund the creditor and the borrower the debtor.
  33. But the only way the broker could make his “proprietary trading profits” is by placing the name of a third party on the note and mortgage. This raises the prospect of “moral hazard” where originators claim loans as their own even though the money for the loan came from third parties. The originator thinks the money came from an aggregator. In  that scenario, the aggregator would be getting the money from the Trust but in fact, the aggregator gets no money which stays with the broker. The entire “chain” is an illusion culminating with the illusion that the Trust was an actual real party in interest. But in that case the Trust would be a holder in due course. That is the way it is supposed to be as per the Concept and the Securitization documents. Experience shows that no claims of any holder in due course are ever made.
  34. The broker’s position was protected by (a) the Assignment and Assumption Agreement with the originator and (b) control over the money going into each loan closing and coming out of it.
  35. The Assignment and Assumption Agreement is executed before the loan is originated and governs the transaction without disclosure to the borrower. It is the ONLY real assignment (sort of) in that it is the contract in which actual funds are sent to the closing table — albeit not from the originator.
  36. The originator does not get to touch the money and has no rights to the note and mortgage even if the originator’s name is on it. But to make sure, many loans were made using MERS as nominee which was also bank controlled, thus preventing the originator from “moral hazard” in claiming the loan as its own. The real purpose of MERS was not to sidestep recording fees (a perk of the plan) but rather to make sure originators had no legal or equitable claim to the fake mortgage paper that was executed by the borrower. This might constitute an admission in conduct that neither the note nor the mortgage should have been executed, much less delivered and recorded. This leads to the conclusion that none of the mortgages or notes are in actuality enforceable unless they end up in the hands of a holder in due course.
  37. To further protect the broker from the originator taking delivery of the note and doing something with it, the instructions were to destroy the note signed by the borrower which would be resurrected later through mechanical means as needed. (See Katherine Ann Porter study —2007 — when she was at University of Iowa).
  38. Control over the fictitious note and mortgage was thus secured to the broker.
  39. When and if the loan goes into foreclosure and it is contested, then the false paper is mechanically created and signed and then sent up a chain of companies none of which pays any money for the loan because none of their predecessors had anything to sell. Eventually when a loan goes into foreclosure, the paperwork appears and the assignment to the Trust is then created and executed by robo-signors etc.
  40. The only time an assignment appears is when the loan is sent into foreclosure. I have made hundreds of attempts to get the closing documents and assignments to the Trust where the loans were NOT in “default”. None of the banks had the documents. Creative discovery directed at the records custodian will confirm this basic fact.
  41. Loan are sent into foreclosure because the borrower stopped paying — even though the creditor has continued to receive all expected payments. Hence the real creditor, the pension fund, has not experienced a “Credit event” (i.e., a default). Legally no default exists unless the creditor fails to receive a required payment. In nearly all cases the creditor continued to get paid regardless of whether the payments were made by borrowers on the “faulty” notes and mortgages (see below). So the notice of default is merely the intermediaries covering their tracks as often as possible luring people into the illusion of a default or just declaring it even if the payments are current. And that is why modifications and settlements are kept to a minimum so that the government sees efforts being made to help borrowers when in fact the only real instruction is to foreclose because the $500 loan represents at least $1500 in liability to the broker and its co-venturers.
  42. In court, the broker-controlled foreclosing party asserts ownership over the debt, the note and the mortgage. The loans are “scrubbed” by LPS in Jacksonville or some other company or division (like Chase) so that only one party is selected to claim rights to enforce the false closing documents. Occasionally they still get it wrong and two parties sue for foreclosure each filing the “original” note.  In truth the debt is the property of the pension fund who will receive very little money even after the property is completely liquidated, because each of the participants in this scheme gets fees for the “work” they are doing.
  43. The REMIC Trust is left as an unfunded entity except for loans that are the subject of a final judgment of foreclosure in the name of the Trust, which is why they didn’t name the Trust as Plaintiff until recently when they couldn’t avoid it.
  44. The final judgment ends the potential liability to refund the $1500 in “profits” that the broker “made” because it is proof that the loan failed. Then the broker eventually collects the proceeds of liquidation of the property acquired in foreclosure. If such liquidation is not possible, then the broker abandons the property and it is demolished. (see Detroit, Cleveland and other cities where entire neighborhoods were demolished and parks put in their place).
  45. By adding a healthy scoop of toxic waste loans and nearly toxic waste loans to the mix, the broker makes far more money in fees, profits and commissions than the original principal of the loan. By adding multiple sales to the mix of the same loan or the same bond, they made even more. And each time a foreclosure judgment is entered, and each time a foreclosure sale is said to be completed, the brokers are laughing their heads off because they got away with it.

The gamble has worked very well for the brokers (investment banks) because even now, all these parties are assuming there is at least some truth in what the Banks are saying in Court. They are wrong. Most of the positions taken in court are directly in conflict with the actual facts, the actual transactions and the actual movement of money. These banks continue to profit from the confusion and the inability or unwillingness of all those parties to actually read the documents and then demand proof that the transactions were real.

The press has not done much good either. Take a look at virtually any article written by financial and other types reporters. They get close to the third rail of journalism but they fail or refuse to take it to the next step — a report or declaration that most of the mortgages are fatally defective, incapable of being legally enforced, and leaving the borrowers and lenders with nothing but their own wits to figure out what to do with the debt that was created. Such a paradigm shift would mirror the policy adopted in Iceland where household debt was reduced by more than 25% providing the earliest evidence of a stimulus to a failing economy — producing positive GDP growth and low unemployment far ahead of the gains reported in other economies, including the U.S. The fact remains that the debt is no longer as much as what was loaned, it is not owned by any of the strangers who are enforcing them, and the note and mortgage are fatally defective.

If I am a borrower and I receive a loan of money from one person and then I am tricked into signing a note and mortgage in favor of someone else, there are TWO potential liabilities created — in exchange for ONE loan of money. If the signed paperwork gets into the hands of someone who is a Holder in Due Course, the fact that the borrower was cheated is irrelevant. I will owe the entire loan to both the person who loaned me the money AND the person who paid for the fake paperwork in good faith without knowledge of my defenses. But if the end party with the paperwork does NOT claim Holder in Due Course status, then the borrower has a right to show the loan on THAT PAPERWORK never happened. So then I will owe only the person from whom I received the money — a loan that is undocumented (except for proof of payment) and thus unsecured. Thus borrowers should not be seen as seeking relief; they should be seen as seeking justice — one debt for one loan.

The fact is that the borrower is treated as the party with the burden of proving that no loan actually underlies the paperwork upon which the forecloser is placing reliance. It is unfair to place the burden on the borrower, and within the Judge’s discretion, based upon common law, the Judge has the power to require the foreclosing party to prove the underlying loan if it is merely denied (as opposed to appearing in the affirmative defenses).

Both the closing documents with the lender (pension fund) and the closing documents with the borrower (homeowner) should be considered void, in the nature of a wild deed. Hence there could be no foreclosure and any foreclosure that already happened would be wrongful. In a quiet title action the mortgage on record should be nullified first, and then the homeowner could move on to seeking a declaration of rights from the court in which his title is not impaired by the bogus mortgage based upon a bogus note which is evidence of a loan of money that does not exist.

If I am lender and I give a broker money to deliver to a trust that is the borrower in my transaction and then the broker gives my money to someone else as a loan, the same reasoning applies. The mistake made is calling these lenders “investors”. They are not. They think they are investors and everyone calls them that but they have not invested in any Trust because their money was never delivered to the intended borrower and was instead loaned to borrowers that the lender would never have approved in a manner that was specifically prohibited by the securitization documents (which were routinely ignored).

Like the borrower, the lenders are stuck with documentation for a loan that never happened. The loan was intended (concept and written documents) to be between themselves and a trust. But the REMIC Trust never got the money. The lender (pension fund) is left with an undocumented loan to an actual borrower without a note or mortgage made in favor of the lender or any agent of the lender. Neither the common law nor the securitization documents were followed — delivery of the loan documents simply never happened; nor did payment for those documents (except for exorbitant fees and “profits” declared by the participants in the scheme).

If you look at an article like Trustees Seek $4.5 Billion Settlement with JP Morgan, you see the usual code language. But like the court room, follow-up questions would be appropriate. “Mortgage-bond trustees including U.S. Bank N.A. and Bank of New York Mellon Corp. asked a New York state court judge to approve a $4.5 billion settlement with JPMorgan Chase & Co. (JPM) over investor claims of faulty home loans.”

US Bank is consolidating its position as the Trustee of multiple REMIC Trusts whose documents name other parties and conditions for replacement of Trustee that prohibit US Bank from becoming the “new Trustee.” This is like a stranger to the transaction in non-judicial states who declares that it the beneficiary without proving it and then names a “substitute trustee” on the deed of trust. This substitution is frequently bogus. But if it goes unchallenged, it becomes the law of that case. The “beneficiary” under the deed of trust is nothing of the kind and the substitution of trustee is just plain wrong.

Bank of New York Mellon is essentially clueless as to what actions are pending in its name and they never produce a witness even when they are the plaintiff in the judicial foreclosure states. The current common practice is to rotate “servicers” such that the witness at a foreclosure trial is a person employed by a servicer who is new to the transaction — long after the loan was claimed to be in default and long after the “assignment” appeared and long after even the foreclosure litigation commenced. There also exists a confused claim because of rotation of Plaintiffs without amendment to the pleadings.  Plaintiffs are rotated as though it were only a name change. At trial there exists an amorphous claim of being the owner of the debt which is more like an implication or presumption.

The broker (investment banks) never claim to be a holder in due course because THAT would require proof of payment, delivery of the documents, good faith and lack of knowledge of the borrower’s defenses. But worse, it would reveal that BONY/Mellon has no records, knowledge, possession or accounts relating to the trust, the pool or any individual loan — except those that have been foreclosed on false pretenses.

JP Morgan has been caught in flat out lies repeatedly as to “ownership” of loans allegedly obtained from Washington Mutual for a price of “ZERO” without any agreement or assignment even claiming that the loans were purchased by Chase. Many of their claims are based upon “loans” originated by non-existent entities like American Broker’s Conduit. We see the same entities or non entities used by Wells Fargo, Bank of America and CitiMortgage with great regularity.

“Faulty home loans” is a phrase frequently used in press releases and press reports. What does that mean? If they were faulty, in what way? If they were faulty how could they be enforceable? This goes back to what I said above. The real loan was never documented.  And what was documented was not a real loan. This enabled the banks to create the illusion of normal paperwork for “standard home loans” as they frequently claim through their attorneys in court. By trick and intentional confusion they often convince a Judge to treat them as though they were holders in due course even without the claim of HDC status thus defeating the borrower before the case ever gets to trial.

So why are they settling for $4.5 Billion on more than $75 Billion in “securitized” “mortgage backed” bonds? Notice that 5 of them won’t settle which is to say they won’t join the party. The rest are willing to continue playing games with these worthless bonds and worthless loan documents. By “settling” for $4.5 Billion, the Trustees are taking about 6 cents on the dollar. They are also pretending that they are the ultimate owners of the bonds and mortgages. And they are pretending that the bonds and mortgages are real, hoping that the courts will continue to treat them as such. Hence they maintain the illusion that securitization of home loans was real.

The real problem can be seen by reference to the shadow banking marketplace, where the nominal value of cash equivalent instruments are now estimated to be around 1 quadrillion dollars — which is around 12-14 times the actual amount of all the government fiat money issued in the current world. Nobody knows if there is any real value in those instruments but current estimates are that they might be worth as much as $27 Trillion which is still more than 1/3 of all government fiat money issued in the current world. Why so much?

The loans and the bonds were all sold multiple times under various disguises. The simple truth is that a final deed issued as a result of an “auction” from a foreclosure seals off much of the liability for returning the money that the banks received when they posed as lenders and sold, insured or hedged their interest in the bonds and mortgages, neither of which could they possibly own and neither of which had any value in the first place. The original debt between the lenders (pension funds etc) and the borrowers (homeowners) remains in place and is continued to be carried on the books of multiple institutions who think they own it.

The practical solution might be a court recognition of the banks as agents of the lenders, and allocating the multiple payments received by the lenders, the banks and all the other intermediaries. This will vastly reduce or even eliminate the debt from the homeowner leaving the defrauded lender/investors to sue the banks not for 6 cents on the dollar but for 100 cents on the dollar. Any other resolution leaves homeowners holding the bag on transactions they could not possibly have understood because the information — that would have alerted them to these issues — was intentionally withheld.

The behavior of the brokers (investment banks) lends considerable support to the defense of unclean hands. Even if they somehow validated or ratified the closing foreclosure procedures they should be left with an unenforceable mortgage and then a note on which they could sue — if they could prove that the loan of money came from someone in their alleged chain of title.

The solution is to recognize the obvious. This will restore household wealth and prevent further gains by the banks who created this mess.

 

 

Giunta Prevails on Wells Fargo Motion to Dismiss — Federal Court

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Patrick Giunta, Esq. the lead litigator for the livinglies team has done it again. He filed a lawsuit against Wells Fargo while the trial on a foreclosure was underway. Wells Fargo now faces a loss in the foreclosure where their witness admitted to being unable to explain the chain of ownership, the balance and the reason why Wells Fargo refused to cooperate in the sale of the property that would have paid them in full.

This corroborates my strategy that presumes that the foreclosers don’t want the house or the money. What the banks want is a foreclosure judgment that forces the loan onto an investor who does not even know of the existence of the proceedings. besides it being illegal and unfair, it raises questions of jurisdiction and standing, because the actual source of funds — the investors who in reality own the debt directly — receive no notice of the proceeding — and they think they barred by the terms of the Prospectus and Pooling and Servicing Agreement from even inquiring about the status of the “pool” (which is most likely non-existent except where foreclosure judgments have been entered).

Here Judge Dimitroleas, Federal Judge in the Southern District of Florida, ruled that the Homeowner has rights of action for money damages against dubious claims from “holders”, “servicers” and even “trustees.” Along with other claims, Giunta survived a motion to dismiss the homeowner’s claim for fraudulent misrepresentation — as to the status of the loan, the ownership and the balance.

The fact pattern of this case clearly corroborates the fact that “servicers” are claiming ownership or rights to enforce debts that they don’t own and don’t have any authority to represent the creditor because they are making false claims of securitization. Thus the banks cannot say they actually represent the investors who THOUGHT they were buying mortgage backed securities from a funded trust that was originating and acquiring loans. If they admit the facts in reality they are admitting to committing fraud on the investors, the insurers, the guarantors, and of course the borrowers. The presumption regarding ownership or rights to enforce is directly contrary to the actual facts. And the threshold for rebutting those presumptions is fast falling in Federal and State courts.

Patrick Giunta is located in Broward County Florida.

see Grave – (DE28) – Order on Motion to Dismiss

Securitization for Lawyers: How it was Written by Wall Street Banks

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Continuing with my article THE CONCEPT OF SECURITIZATION from yesterday, we have been looking at the CONCEPT of Securitization and determined there is nothing theoretically wrong with it. That alone accounts for tens of thousands of defenses” raised in foreclosure actions across the country where borrowers raised the “defense” securitization. No such thing exists. Foreclosure defense is contract defense — i.e., you need to prove that in your case the elements of contract are absent and THAT is why the note or the mortgage cannot be enforced. Keep in mind that it is entirely possible to prove that the mortgage is unenforceable even if the note remains enforceable. But as we have said in a hundred different ways, it does not appear to me that in most cases, the loan contract ever existed, or that the acquisition contract in which the loan was being “purchased” ever occurred. But much of THAT argument is left for tomorrow’s article on Securitization as it was practiced by Wall Street banks.

So we know that the concept of securitization is almost as old as commerce itself. The idea of reducing risk and increasing the opportunity for profits is an essential element of commerce and capitalism. Selling off pieces of a venture to accomplish a reduction of risk on one ship or one oil well or one loan has existed legally and properly for a long time without much problem except when a criminal used the system against us — like Ponzi, Madoff or Drier or others. And broadening the venture to include many ships, oil wells or loans makes sense to further reduce risk and increase the likelihood of a healthy profit through volume.

Syndication of loans has been around as long as banking has existed. Thus agreements to share risk and profit or actually selling “shares” of loans have been around, enabling banks to offer loans to governments, big corporations or even little ones. In the case of residential loans, few syndications are known to have been used. In 1983, syndications called securitizations appeared in residential loans, credit cards, student loans, auto loans and all types of other consumer loans where the issuance of IPO securities representing shares of bundles of debt.

For logistical and legal reasons these securitizations had to be structured to enable the flow of loans into “special purpose vehicles” (SPV) which were simply corporations, partnerships or Trusts that were formed for the sole purpose of taking ownership of loans that were originated or acquired with the money the SPV acquired from an offering of “bonds” or other “shares” representing an undivided fractional share of the entire portfolio of that particular SPV.

The structural documents presented to investors included the Prospectus, Subscription Agreement, and Pooling and Servicing Agreement (PSA). The prospectus is supposed to disclose the use of proceeds and the terms of the payback. Since the offering is in the form of a bond, it is actually a loan from the investor to the Trust, coupled with a fractional ownership interest in the alleged “pool of assets” that is going into the Trust by virtue of the Trustee’s acceptance of the assets. That acceptance executed by the Trustee is in the Pooling and Servicing Agreement, which is an exhibit to the Prospectus. In theory that is proper. The problem is that the assets don’t exist, can’t be put in the trust and the proceeds of sale of the Trust mortgage-backed bonds doesn’t go into the Trust or any account that is under the authority of the Trustee.

The writing of the securitization documents was done by a handful of law firms under the direction of a few individual lawyers, most of whom I have not been able to identify. One of them is located in Chicago. There are some reports that 9 lawyers from a New Jersey law firm resigned rather than participate in the drafting of the documents. The reports include emails from the 9 lawyers saying that they refused to be involved in the writing of a “criminal enterprise.”

I believe the report is true, after reading so many documents that purport to create a securitization scheme. The documents themselves start off with what one would and should expect in the terms and provisions of a Prospectus, Pooling and Servicing Agreement etc. But as you read through them, you see the initial terms and provisions eroded to the point of extinction. What is left is an amalgam of options for the broker dealers selling the mortgage backed bonds.

The options all lead down roads that are absolutely opposite to what any real party in interest would allow or give their consent or agreement. The lenders (investors) would never have agreed to what was allowed in the documents. The rating agencies and insurers and guarantors would never have gone along with the scheme if they had truly understood what was intended. And of course the “borrowers” (homeowners) had no idea that claims of securitization existed as to the origination or intended acquisition their loans. Allan Greenspan, former Federal Reserve Chairman, said he read the documents and couldn’t understand them. He also said that he had more than 100 PhD’s and lawyers who read them and couldn’t understand them either.

Greenspan believed that “market forces” would correct the ambiguities. That means he believed that people who were actually dealing with these securities as buyers, sellers, rating agencies, insurers and guarantors would reject them if the appropriate safety measures were not adopted. After he left the Federal Reserve he admitted he was wrong. Market forces did not and could not correct the deficiencies and defects in the entire process.

The REAL document is the Assignment and Assumption Agreement that is NOT usually disclosed or attached as an exhibit to the Prospectus. THAT is the agreement that controls everything that happens with the borrower at the time of the alleged “closing.” See me on YouTube to explain the Assignment and Assumption Agreement. Suffice it to say that contrary to the representations made in the sale of the bonds by the broker to the investor, the money from the investor goes into the control of the broker dealer and NOT the REMIC Trust. The Broker Dealer filters some of the money down to closings in the name of “originators” ranging from large (Wells Fargo, Countrywide) to small (First Magnus et al). I’ll tell you why tomorrow or the next day. The originators are essentially renting their names the same as the Trustees of the REMIC Trusts. It looks right but isn’t what it appears. Done properly, the lender on the note and mortgage would be the REMIC Trust or a common aggregator. But if the Banks did it properly they wouldn’t have had such a joyful time in the moral hazard zone.

The PSA turned out to be the primary document creating the Trusts that were creating primarily under the laws of the State of New York because New York and a few other states had a statute that said that any variance from the express terms of the Trust was VOID, not voidable. This gave an added measure of protection to the investors that the SPV would not be used for any purpose other than what was described, and eliminated the need for them to sue the Trustee or the Trust for misuse of their funds. What the investors did not understand was that there were provisions in the enabling documents that allowed the brokers and other intermediaries to ignore the Trust altogether, assert ownership in the name of a broker or broker-controlled entity and trade on both the loans and the bonds.

The Prospectus SHOULD have contained the full list of all loans that were being aggregated into the SPV or Trust. And the Trust instrument (PSA) should have shown that the investors were receiving not only a promise to repay them but also a share ownership in the pool of loans. One of the first signals that Wall Street was running an illegal scheme was that most prospectuses stated that the pool assets were disclosed in an attached spreadsheet, which contained the description of loans that were already in existence and were then accepted by the Trustee of the SPV (REMIC Trust) in the Pooling and Servicing Agreement. The problem was that the vast majority of Prospectuses and Pooling and Servicing agreements either omitted the exhibit showing the list of loans or stated outright that the attached list was not the real list and that the loans on the spreadsheet were by example only and not the real loans.

Most of the investors were “stable managed funds.” This is a term of art that applied to retirement, pension and similar type of managed funds that were under strict restrictions about the risk they could take, which is to say, the risk had to be as close to zero as possible. So in order to present a pool that the fund manager of a stable managed fund could invest fund assets the investment had to qualify under the rules and regulations restricting the activities of stable managed funds. The presence of stable managed funds buying the bonds or shares of the Trust also encouraged other types of investors to buy the bonds or shares.

But the number of loans (which were in the thousands) in each bundle made it impractical for the fund managers of stable managed funds to examine the portfolio. For the most part, if they done so they would not found one loan that was actually in existence and obviously would not have done the deal. But they didn’t do it. They left it on trust for the broker dealers to prove the quality of the investment in bonds or shares of the SPV or Trust.

So the broker dealers who were creating the SPVs (Trusts) and selling the bonds or shares, went to the rating agencies which are quasi governmental units that give a score not unlike the credit score given to individuals. Under pressure from the broker dealers, the rating agencies went from quality culture to a profit culture. The broker dealers were offering fees and even premium on fees for evaluation and rating of the bonds or shares they were offering. They HAD to have a rating that the bonds or shares were “investment grade,” which would enable the stable managed funds to buy the bonds or shares. The rating agencies were used because they had been independent sources of evaluation of risk and viability of an investment, especially bonds — even if the bonds were not treated as securities under a 1998 law signed into law by President Clinton at the behest of both republicans and Democrats.

Dozens of people in the rating agencies set off warning bells and red flags stating that these were not investment grade securities and that the entire SPV or Trust would fail because it had to fail.  The broker dealers who were the underwriters on nearly all the business done by the rating agencies used threats, intimidation and the carrot of greater profits to get the ratings they wanted. and responded to threats that the broker would get the rating they wanted from another rating agency and that they would not ever do business with the reluctant rating agency ever again — threatening to effectively put the rating agency out of business. At the rating agencies, the “objectors” were either terminated or reassigned. Reports in the Wal Street Journal show that it was custom and practice for the rating officers to be taken on fishing trips or other perks in order to get the required the ratings that made Wall Street scheme of “securitization” possible.

This threat was also used against real estate appraisers prompting them in 2005 to send a petition to Congress signed by 8,000 appraisers, in which they said that the instructions for appraisal had been changed from a fair market value appraisal to an appraisal that would make each deal work. the appraisers were told that if they didn’t “play ball” they would never be hired again to do another appraisal. Many left the industry, but the remaining ones, succumbed to the pressure and, like the rating agencies, they gave the broker dealers what they wanted. And insurers of the bonds or shares freely issued policies based upon the same premise — the rating from the respected rating agencies. And ultimate this also effected both guarantors of the loans and “guarantors” of the bonds or shares in the Trusts.

So the investors were now presented with an insured investment grade rating from a respected and trusted source. The interest rate return was attractive — i.e., the expected return was higher than any of the current alternatives that were available. Some fund managers still refused to participate and they are the only ones that didn’t lose money in the crisis caused by Wall Street — except for a period of time through the negative impact on the stock market and bond market when all securities became suspect.

In order for there to be a “bundle” of loans that would go into a pool owned by the Trust there had to be an aggregator. The aggregator was typically the CDO Manager (CDO= Collateralized Debt Obligation) or some entity controlled by the broker dealer who was selling the bonds or shares of the SPV or Trust. So regardless of whether the loan was originated with funds from the SPV or was originated by an actual lender who sold the loan to the trust, the debts had to be processed by the aggregator to decide who would own them.

In order to protect the Trust and the investors who became Trust beneficiaries, there was a structure created that made it look like everything was under control for their benefit. The Trust was purchasing the pool within the time period prescribed by the Internal Revenue Code. The IRC allowed the creation of entities that were essentially conduits in real estate mortgages — called Real Estate Mortgage Investment Conduits (REMICs). It allows for the conduit to be set up and to “do business” for 90 days during which it must acquire whatever assets are being acquired. The REMIC Trust then distributes the profits to the investors. In reality, the investors were getting worthless bonds issued by unfunded trusts for the acquisition of assets that were never purchased (because the trusts didn’t have the money to buy them).

The TRUSTEE of the REMIC Trust would be called a Trustee and should have had the powers and duties of a Trustee. But instead the written provisions not only narrowed the duties and obligations of the Trustee but actual prevented both the Trustee and the beneficiaries from even inquiring about the actual portfolio or the status of any loan or group of loans. The way it was written, the Trustee of the REMIC Trust was in actuality renting its name to appear as Trustee in order to give credence to the offering to investors.

There was also a Depositor whose purpose was to receive, process and store documents from the loan closings — except for the provisions that said, no, the custodian, would store the records. In either case it doesn’t appear that either the Depositor nor the “custodian” ever received the documents. In fact, it appears as though the documents were mostly purposely lost and destroyed, as per the Iowa University study conducted by Katherine Ann Porter in 2007. Like the others, the Depositor was renting its name as though ti was doing something when it was doing nothing.

And there was a servicer described as a Master Servicer who could delegate certain functions to subservicers. And buried in the maze of documents containing hundreds of pages of mind-numbing descriptions and representations, there was a provision that stated the servicer would pay the monthly payment to the investor regardless of whether the borrower made any payment or not. The servicer could stop making those payments if it determined, in its sole discretion, that it was not “recoverable.”

This was the hidden part of the scheme that might be a simple PONZI scheme. The servicers obviously could have no interest in making payments they were not receiving from borrowers. But they did have an interest in continuing payments as long as investors were buying bonds. THAT is because the Master Servicers were the broker dealers, who were selling the bonds or shares. Those same broker dealers designated their own departments as the “underwriter.” So the underwriters wrote into the prospectus the presence of a “reserve” account, the source of funding for which was never made clear. That was intentionally vague because while some of the “servicer advance” money might have come from the investors themselves, most of it came from external “profits” claimed by the broker dealers.

The presence of  servicer advances is problematic for those who are pursuing foreclosures. Besides the fact that they could not possibly own the loan, and that they couldn’t possibly be a proper representative of an owner of the loan or Holder in Due Course, the actual creditor (the group of investors or theoretically the REMIC Trust) never shows a default of any kind even when the servicers or sub-servicers declare a default, send a notice of default, send a notice of acceleration etc. What they are doing is escalating their volunteer payments to the creditor — made for their own reasons — to the status of a holder or even a holder in due course — despite the fact that they never acquired the loan, the debt, the note or the mortgage.

The essential fact here is that the only paperwork that shows actual transfer of money is that which contains a check or wire transfer from investor to the broker dealer — and then from the broker dealer to various entities including the CLOSING AGENT (not the originator) who applied the funds to a closing in which the originator was named as the Lender when they had never advanced any funds, were being paid as a vendor, and would sign anything, just to get another fee. The money received by the borrower or paid on behalf of the borrower was money from the investors, not the Trust.

So the note should have named the investors, not the Trust nor the originator. And the mortgage should have made the investors the mortgagee, not the Trust nor the originator. The actual note and mortgage signed in favor of the originator were both void documents because they failed to identify the parties to the loan contract. Another way of looking at the same thing is to say there was no loan contract because neither the investors nor the borrowers knew or understood what was happening at the closing, neither had an opportunity to accept or reject the loan, and neither got title to the loan nor clear title after the loan. The investors were left with a debt that could be recovered probably as a demand loan, but which was unsecured by any mortgage or security agreement.

To counter that argument these intermediaries are claiming possession of the note and mortgage (a dubious proposal considering the Porter study) and therefore successfully claiming, incorrectly, that the facts don’t matter, and they have the absolute right to prevail in a foreclosure on a home secured by a mortgage that names a non-creditor as mortgagee without disclosure of the true source of funds. By claiming legal presumptions, the foreclosers are in actuality claiming that form should prevail over substance.

Thus the broker-dealers created written instruments that are the opposite of the Concept of Securitization, turning complete transparency into a brick wall. Investor should have been receiving verifiable reports and access into the portfolio of assets, none of which in actuality were ever purchased by the Trust, because the pooling and servicing agreement is devoid of any representation that the loans have been purchased by the Trust or that the Trust paid for the pool of loans. Most of the actual transfers occurred after the cutoff date for REMIC status under the IRC, violating the provisions of the PSA/Trust document that states the transfer must be complete within the 90 day cutoff period. And it appears as though the only documents even attempted to be transferred into the pool are those that are in default or in foreclosure. The vast majority of the other loans are floating in cyberspace where anyone can grab them if they know where to look.

Securitization for Lawyers

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

The CONCEPT of securitization does not contemplate an increase in violations of lending laws passed by States or the Federal government. Far from it. The CONCEPT anticipated a decrease in risk, loss and liability for violations of TILA, RESPA or state deceptive lending laws. The assumption was that the strictly regulated stable managed funds (like pensions), insurers, and guarantors would ADD to the protections to investors as lenders and homeowners as borrowers. That it didn’t work that way is the elephant in the living room. It shows that the concept was not followed, the written instruments reveal a sneaky intent to undermine the concept. The practices of the industry violated everything — the lending laws, investment restrictions, and the securitization documents themselves. — Neil F Garfield, Livinglies.me

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“Securitization” is a word that provokes many emotional reactions ranging from hatred to frustration. Beliefs run the range from the idea that securitization is evil to the idea that it is irrelevant. Taking the “irrelevant” reaction first, I would say that comes from ignorance and frustration. To look at a stack of Documents, each executed with varying formalities, and each being facially valid and then call them all irrelevant is simply burying your head in the sand. On the other hand, calling securitization evil is equivalent to rejecting capitalism. So let’s look at securitization dispassionately.

First of all “securitization” merely refers to a concept that has been in operation for hundreds of years, perhaps thousands of years if you look into the details of commerce and investment. In our recent history it started with “joint stock companies” that financed sailing expeditions for goods and services. Instead of one person or one company taking all the risk that one ship might not come back, or come back with nothing, investors could spread their investment dollars by buying shares in a “joint stock company” that invested their money in multiple sailing ventures. So if some ship came in loaded with goods it would more than offset the ships that sunk, were pirated, or that lost their cargo. Diversifying risk produced more reliable profits and virtually eliminated the possibility of financial ruin because of the tragedies the befell a single cargo ship.

Every stock certificate or corporate or even government bond is the product of securitization. In our capitalist society, securitization is essential to attract investment capital and therefore growth. For investors it is a way of participating in the risk and rewards of companies run by officers and directors who present a believable vision of success. Investors can invest in one company alone, but most, thanks to capitalism and securitization, are able to invest in many companies and many government issued bonds. In all cases, each stock certificate or bond certificate is a “derivative” — i.e., it DERIVES ITS VALUE from the economic value of the company or government that issued that stock certificate or bond certificate.

In other words, securitization is a vehicle for diversification of investment. Instead of one “all or nothing” investment, the investors gets to spread the risk over multiple companies and governments. The investor can do this in one of two ways — either manage his own investments buying and selling stocks and bonds, or investing in one or more managed funds run by professional managers buying and selling stocks and bonds. Securitization of debt has all the elements of diversification and is essential to the free flow of commerce in a capitalistic economy.

Preview Questions:

  • What happens if the money from investors is NOT put in the company or given to the government?
  • What happens if the certificates are NOT delivered back to investors?
  • What happens if the company that issued the stock never existed or were not used as an investment vehicle as promised to investors?
  • What happens to “profits” that are reported by brokers who used investor money in ways never contemplated, expected or accepted by investors?
  • Who is accountable under laws governing the business of the IPO entity (i.e., the REMIC Trust in our context).
  • Who are the victims of misbehavior of intermediaries?
  • Who bears the risk of loss caused by misbehavior of intermediaries?
  • What are the legal questions and issues that arise when the joint stock company is essentially an instrument of fraud? (See Madoff, Drier etc. where the “business” was actually collecting money from lenders and investors which was used to pay prior investors the expected return).

In order to purchase a security deriving its value from mortgage loans, you could diversify by buying fractional shares of specific loans you like (a new and interesting business that is internet driven) or you could go the traditional route — buying fractional shares in multiple companies who are buying loans in bulk. The share certificates you get derive their value from the value of the IPO issuer of the shares (a REMIC Trust, usually). Like any company, the REMIC Trust derives its value from the value of its business. And the REMIC business derives its value from the quality of the loan originations and loan acquisitions. Fulfillment of the perceived value is derived from effective servicing and enforcement of the loans.

All investments in all companies and all government issued bonds or other securities are derivatives simply because they derive their value from something described on the certificate. With a stock certificate, the value is derived from a company whose name appears on the certificate. That tells you which company you invested your money. The number of shares tells you how many shares you get. The indenture to the stock certificate or bond certificate describes the voting rights, rights to  distributions of income, and rights to distribution of the company is sold or liquidated. But this assumes that the company or government entity actually exists and is actually doing business as described in the IPO prospectus and subscription agreement.

The basic element of value and legal rights in such instruments is that there must be a company doing business in the name of the company who is shown on the share certificates — i.e., there must be actual financial transactions by the named parties that produce value for shareholders in the IPO entity, and the holders of certificates must have a right to receive those benefits. The securitization of a company through an IPO that offers securities to investors offer one additional legal fiction that is universally enforced — limited liability. Limited liability refers to the fact that the investment is at risk (if the company or REMIC fails) but the investor can’t lose more than he or she invested.

Translated to securitization of debt, there must be a transaction that is an actual loan of money that is not merely presumed, but which is real. That loan, like a stock certificate, must describe the actual debtor and the actual creditor. An investor does not intentionally buy a share of loans that were purchased from people who did not make any loans or conduct any lending business in which they were the source of lending.

While there are provisions in the law that can make a promissory note payable to anyone who is holding it, there is no allowance for enforcing a non-existent loan except in the event that the purchaser is a “Holder in Due Course.” The HDC can enforce both the note and mortgage because he has satisfied both Article 3 and Article 9 of the Uniform Commercial Code. The Pooling and Servicing Agreements of REMIC Trusts require compliance with the UCC, and other state and federal laws regarding originating or acquiring residential mortgage loans.

In short, the PSA requires that the Trust become a Holder in Due Course in order for the Trustee of the Trust to accept the loan as part of the pool owned by the Trust on behalf of the Trust Beneficiaries who have received a “certificate” of fractional ownership in the Trust. Anything less than HDC status is unacceptable. And if you were the investor you would want nothing less. You would want loans that cannot be defended on the basis of violation of lending laws and practices.

The loan, as described in the origination documents, must actually exist. A stock certificate names the company that is doing business. The loan describes the debtor and creditor. Any failure to describe the the debtor or creditor with precision, results in a failure of the loan contract, and the documents emerging from such a “closing” are worthless. If you want to buy a share of IBM you don’t buy a share of Itty Bitty Machines, Inc., which was just recently incorporated with its assets consisting of a desk and a chair. The name on the certificate or other legal document is extremely important.

In loan documents, the only exception to the “value” proposition in the event of the absence of an actual loan is another legal fiction designed to promote the free flow of commerce. It is called “Holder in Due Course.” The loan IS enforceable in the absence of an actual loan between the parties on the loan documents, if a third party innocent purchases the loan documents for value in good faith and without knowledge of the borrower’s defense of failure of consideration (he didn’t get the loan from the creditor named on the note and mortgage).  This is a legislative decision made by virtually all states — if you sign papers, you are taking the risk that your promises will be enforced against you even if your counterpart breached the loan contract from the start. The risk falls on the maker of the note who can sue the loan originator for misusing his signature but cannot bring all potential defenses to enforcement by the Holder in Due Course.

Florida Example:

673.3021 Holder in due course.

(1) Subject to subsection (3) and s. 673.1061(4), the term “holder in due course” means the holder of an instrument if:

(a) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and
(b) The holder took the instrument:

1. For value;
2. In good faith;
3. Without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series;
4. Without notice that the instrument contains an unauthorized signature or has been altered;
5. Without notice of any claim to the instrument described in s. 673.3061; and
6. Without notice that any party has a defense or claim in recoupment described in s. 673.3051(1).
673.3061 Claims to an instrument.A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds, including a claim to rescind a negotiation and to recover the instrument or its proceeds. A person having rights of a holder in due course takes free of the claim to the instrument.
This means that Except for HDC status, the maker of the note has a right to reclaim possession of the note or to rescind the transaction against any party who has no rights to claim it is a creditor or has rights to represent a creditor. The absence of a claim of HDC status tells a long story of fraud and intrigue.
673.3051 Defenses and claims in recoupment.

(1) Except as stated in subsection (2), the right to enforce the obligation of a party to pay an instrument is subject to:

(a) A defense of the obligor based on:

1. Infancy of the obligor to the extent it is a defense to a simple contract;
2. Duress, lack of legal capacity, or illegality of the transaction which, under other law, nullifies the obligation of the obligor;
3. Fraud that induced the obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms;
This means that if the “originator” did not loan the money and/or failed to perform underwriting tests for the viability of the loan, and gave the borrower false impressions about the viability of the loan, there is a Florida statutory right of rescission as well as a claim to reclaim the closing documents before they get into the hands of an innocent purchaser for value in good faith with no knowledge of the borrower’s defenses.

 

In the securitization of loans, the object has been to create entities with preferred tax status that are remote from the origination or purchase of the loan transactions. In other words, the REMIC Trusts are intended to be Holders in Due Course. The business of the REMIC Trust is to originate or acquire loans by payment of value, in good faith and without knowledge of the borrower’s defenses. Done correctly, appropriate market forces will apply, risks are reduced for both borrower and lenders, and benefits emerge for both sides of the single transaction between the investors who put up the money and the homeowners who received the benefit of the loan.

It is referred to as a single transaction using doctrines developed in tax law and other commercial cases. Every transaction, when you think about it, is composed of numerous actions, reactions and documents. If we treated each part as a separate transaction with no relationship to the other transactions there would be no connection between even the original lender and the borrower, much less where multiple assignments were involved. In simple terms, the single transaction doctrine basically asks one essential question — if it wasn’t for the investors putting up the money (directly or through an entity that issued an IPO) would the transaction have occurred? And the corollary is but for the borrower, would the investors have been putting up that money?  The answer is obvious in connection with mortgage loans. No business would have been conducted but for the investors advancing money and the homeowners taking it.

So neither “derivative” nor “securitization” is a dirty word. Nor is it some nefarious scheme from people from the dark side — in theory. Every REMIC Trust is the issuer in an initial public offering known as an “IPO” in investment circles. A company can do an IPO on its own where it takes the money and issues the shares or it can go through a broker who solicits investors, takes the money, delivers the money to the REMIC Trust and then delivers the Trust certificates to the investors.

Done properly, there are great benefits to everyone involved — lenders, borrowers, brokers, mortgage brokers, etc. And if “securitization” of mortgage debt had been done as described above, there would not have been a flood of money that increased prices of real property to more than twice the value of the land and buildings. Securitization of debt is meant to provide greater liquidity and lower risk to lenders based upon appropriate underwriting of each loan. Much of the investment came from stable managed funds which are strictly regulated on the risks they are allowed in managing the funds of pensioners, retirement accounts, etc.

By reducing the risk, the cost of the loans could be reduced to borrowers and the profits in creating loans would be higher. If that was what had been written in the securitization plan written by the major brokers on Wall Street, the mortgage crisis could not have happened. And if the actual practices on Wall Street had conformed at least to what they had written, the impact would have been vastly reduced. Instead, in most cases, securitization was used as the sizzle on a steak that did not exist. Investors advanced money, rating companies offered Triple AAA ratings, insurers offered insurance, guarantors guarantees loans and shares in REMIC trusts that had no possibility of achieving any value.

Today’s article was about the way the IPO securitization of residential loans was conceived and should have worked. Tomorrow we will look at the way the REMIC IPO was actually written and how the concept of securitization necessarily included layers of different companies.

Holder in Due Course and Due Process

The first thing I want to do is add to my previous comments. I believe there is an implicit admission of failure of consideration in any case where a holder in due course is not identified. In addition, where a REMIC trust not alleged or asserted to be a holder in due course it means by definition that they did not purchase the loan for value in good faith without knowledge of the defense of the “borrower” (maker of the note).

 

I believe that what this means is that any court that enters an order or judgment against the homeowner, who was the maker of the note, is implicitly entering an order or judgment against the trust beneficiaries and the trust, resulting in a loss of favorable tax status and just as importantly an economic loss directly resulting from being forced to accept a loan that is presumed to be in default. The failure of the trust to pay for the loan and receive delivery of the loan documents to the depositor leaves one with the question of “what is the relationship of the Trust to the subject loan?”

 

The same logic would apply regardless of whether the citizens trust is in dispute or not. There is circular logic in the argument of the bank. On the one hand they want to be seen as a holder with rights to enforce but on the other hand they don’t want to disclose, alleged, assert, or prove the foundation or source of the right to enforce.

 

Based upon the provisions and restrictions of the pooling and servicing agreement, the investors who purchased mortgage backed securities issued by the Trust were intended to be the collective creditor for loans that were accepted into the Trust. The acceptance is stated in the pooling and servicing agreement and the exhibits to the pooling and servicing agreement should have the loans that were accepted. After the cutoff period, the only way a loan could be accepted was by acceptance by the Trustee. And the only way there could be acceptance by the trustee would be upon receipt of an opinion letter from counsel for the trust stating that they would be no adverse effect on the beneficiaries. The adverse effects are clear. One is the loss of advantageous tax treatment and the other is the economic loss from accepting a loan does not conform to the types of loans that are acceptable to the trust, as per the terms of the pooling and servicing agreement.

 

Pooling and servicing agreement is the trust instrument. Since the pooling and servicing agreement is governed under the laws of the state of New York, a violation of the restrictions and provisions of the trust is void, not voidable. The acceptance of a loan that is in default is not possible. The acceptance of any transaction that would violate the terms of the Internal Revenue Code sections on REMIC Trusts is not possible.

 

Thus the hidden issue here is that the real parties in interest who will be affected by the outcome of the litigation have not been given any notice of the pendency of the action. And the provisions of the pooling and servicing agreement prevent the trust beneficiaries from knowing or even inquiring about the status of any particular loan.

 

The confusion comes from the fact that the investors are indeed the creditors in practice. But because the trust was actually not utilized in the transaction they are direct creditors whose money was used to fund origination or acquisition of loans, contrary to the subscription agreement which promised that their money would be given to the issuer of the mortgage-backed securities that were being issued and purchased by the investors.

 

It seems obvious that the trust cannot be held to have acted in bad faith. It is equally obvious that the trust would have no knowledge of the borrower’s defenses. As the only element left for a holder in due course is the purchase for value. Since there is no allegation that the trust is a holder in due course, the bank is admitting that the trust never purchased the loan. It may be presumed that the trust might have originated or purchased the loan if it had received the proceeds of sale of the mortgage-backed securities issued by the trust. The logical assumption is that the trust never received those proceeds. The logical assumption is that the underwriter used the funds in ways that were never contemplated by the investors.

 

A further logical assumption would be that the underwriter kept the funds in its own name or in the accounts of entities controlled by the underwriter and is operating contrary to the interests of the investors.

 

The logical conclusion would be that the underwriter conducted a series of disguised sales of the same loan to multiple parties. Since the mortgage-backed securities were issued in the name of the underwriter as nominee (“street name”) they were able to trade on the loan and securities in their own name and receive the benefits without accounting to the investors or the borrower. The allocation of third-party funds (servicers, insurers, guarantors etc.) cannot be determined except by reference to books and records in the exclusive care, custody and control of the parties involved in the claims of securitization. It may be fairly concluded that such claims are false.

 

Now I will address the issues presented as to constitutional disposition of the case. It has long been judicial doctrine to avoid constitutional issues if the case can otherwise be decided on other grounds. It is also true that equal protection has proved more difficult than due process as the basis of any relief.

 

The problem in foreclosure litigation is that it must in my opinion include a claim for both due process and equal protection. The claim for lack of due process is not technically true. The true claim, in my opinion, would be lack of sufficient due process.

 

In actuality due process varies from state to state and even from county to county. If a party has been heard in court and presented arguments, then it may be fairly concluded that some due process was provided to that party. If presumptions arise against that party that give rise to orders and judgments that are contrary to the actual facts, a claim for denial of due process could be present. But the better claim, in my opinion, is to look at the state appellate decisions to show that more due process is allowed to debtors who are not involved in foreclosure litigation. I think this is a more accurate description of the actual situation.

 

The due process argument is simple: presumptions are used as shorthand for the facts. In this case the facts don’t match up with the presumptions. The only question is whose burden of proof is it. If the allegation was that a holder in due course was known and identified there is no doubt that anything the borrower had to say would be an affirmative defense, and thus after a prima facie case was made showing payment in good faith without knowledge of borrower’s defenses, the burden would shift to the alleged borrower who definitely was the maker of the note even if they were not the borrower in a loan transaction with the designated “lender.”

 

But, this is not the case at bar. The foreclosing party is asserting “holder” status, with dubious rights to enforce that are denied by the maker/homeowner. Absent is any allegation of status of a holder in due course, and of course noticeably absent is any allegation of the expenditure of funds or other consideration in exchange for delivery of the loan to the Depository designated in the PSA to receive the delivery. Thus neither the purchase nor the delivery are alleged. While being a holder might raise the presumption of being a holder with rights to enforce, it does not remove the burden of proving that said rights to enforce have been delivered from a party who definitely had the right to enforce — i.e., the holder in due course or “owner” of the loan.

 

The absence of the HDC allegation is an admission that the Trust did not buy the loan. The fact that the Trust did not buy the loan means that it is not and cannot be in the pool owned by the trust, with fractional shares owned by the investors who bought the MBS issued by the Trust. And that can ONLY mean that the right to enforce cannot be delivered or conveyed by the Trust because the Trust never received delivery and never had a right to receive delivery because they didn’t pay for the loan.

 

Thus on the face of the pleading it is up to the foreclosing party to prove its right to enforce the note by showing the identity of the party for whom the loan is being enforced, the fact that the party for whom it is being enforced owned the loan at the time the right to enforce was granted, the current balance ON THE BOOKS OF THE CREDITOR, the presence of a default ON THE BOOKS OF THE CREDITOR, and that the loan is still owned by the party who owns the loan (i.e., the HDC). Hence the burden is on the foreclosing party to reach the point where the borrower assumes the burden of refuting the case against him or her. The maker of the note is in an exclusive position of being shut out of the facts that would either corroborate or refute this narrative.

 

If the burden is placed on the borrower, it would be the equivalent of a murder on video in possession of the murderer but the State and the heirs of the victim are charged with proving the case without the video. The facts suggest here that the Trust paid nothing because it had no money to pay for a loan. The facts suggest that if it were otherwise, the Trust would have paid for the loan and be most anxious to plead HDC status. And thus the facts show that the foreclosing party cannot claim the right to enforce based upon a presumption without violating the due process rights of the homeowners here. Only the foreclosing party and its co-venturers have in their care, custody and control, the necessary information to refute or prove the facts behind the presumptions they are attempting to raise.

#foreclosureissues

 

#foreclosureguidance

 

#foreclosureoptions

 

#foreclosuresinflorida

 

#foreclosuresinunitedstates

 

#foreclosureblog

 

#foreclosureadvise

 

Pretender Mender: Foreclosure Crisis Continues to Rise Despite Obama Team Reports

Despite various “reports” from the Obama Administration and writers in the fields of real estate, mortgages and finance, the crisis is still looming as the main drag on the economy. Besides the fact that complete strangers are “getting the house” after multiple payments were received negating any claim of default, it is difficult to obtain financing for a new purchase for the millions of families who have been victims of the mortgage PONZI scheme. In addition, people are finding out that these intermediaries who received an improper stamp of approval from the courts are now pursuing deficiency judgments against people who cooperated or lost the foreclosure litigation. And now we have delinquency rates rising on mortgages that in all probability should never be enforced. And servicers are still pursuing strategies to lure or push homeowners into foreclosure.

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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Most people simply allowed the foreclosure to happen. Many even cleaned the home before leaving the keys on the kitchen counter. They never lifted a finger in defense. As predicted many times on this blog and in my appearances, it isn’t over. We are in the fifth inning of a nine inning game.

Losing homes that have sometimes been in the family for many generations results in a sharp decline in household wealth leaving the homeowner with virtually no offset to the household debt. Even if the family has recovered in terms of producing at least a meager income that would support a down-sized home, they cannot get a mortgage because of a policy of not allowing mortgage financing to anyone who has a foreclosure on their record within the past three years.

To add insult to injury, the banks posing as lenders in the 6 million+ foreclosures are now filing deficiency judgments to continue the illusion that the title is clear and the judgment of foreclosure was valid. People faced with these suits are now in the position of having failed to litigate the validity of the mortgage or foreclosure. But all is not lost. A deficiency judgment is presumptively valid, but in the litigation the former homeowners can send out discovery requests to determine ownership and balance of the alleged debt. Whether judges will allow that discovery is something yet to be seen. But the risk to those companies filing deficiency judgments is that the aggressive litigators defending the deficiency actions might well be able to peak under the hood of the steam roller that produced the foreclosure in the first instance.

What they will find is that there is an absence of actual transactions supporting the loans, assignments, endorsements etc. that were used to get the Court to presume that the documents were valid — i.e., that absent proof from the borrower, the rebuttable assumption of validity of the documents that refer to such transactions forces the homeowner to assume a burden of proof based upon facts that are in the sole care, custody and control of the pretender lender. If the former homeowner can do what they should have done in the first place, they will open up Pandora’s box. The loan on paper was not backed by a transaction where the “lender” loaned any money. The assignment was not backed by a purchase transaction of the loan. And even where there was a transfer for value, the “assignment turns out to be merely an offer that neither trust nor trustee of the REMIC trust was allowed to accept.

All evidence, despite narratives to the contrary, shows that not only have foreclosures not abated, they are rising. Delinquencies are rising, indicating a whole new wave of foreclosures on their way — probably after the November elections.

http://www.housingwire.com/blogs/1-rewired/post/31089-are-we-facing-yet-another-foreclosure-crisis

http://www.newrepublic.com/article/119187/mortgage-foreclosures-2015-why-crisis-will-flare-again

http://susiemadrak.com/2014/08/25/here-comes-that-deferred-mortgage-crisis/

“Teaser” Payments: Trick or Treat?

For more information on foreclosure offense, expert witness consultations and foreclosure defense please call 954-495-9867 or 520-405-1688. We offer litigation support in all 50 states to attorneys. We refer new clients without a referral fee or co-counsel fee unless we are retained for litigation support. Bankruptcy lawyers take note: Don’t be too quick admit the loan exists nor that a default occurred and especially don’t admit the loan is secured. FREE INFORMATION, ARTICLES AND FORMS CAN BE FOUND ON LEFT SIDE OF THE BLOG. Consultations available by appointment in person, by Skype and by phone.

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In the final analysis, I think a reverse amortization loan is a way of hiding the true amount of the debt. —- Neil F Garfield, livinglies.me

As an introduction, let me remind you that the viability and affordability of the loan, the loan to value ratios and all the other facts and ratios and computations are the responsibility of the lender, who must faithfully disclose the results to the borrower. It is a myth that these bad loans were in any way related to the bad intent of borrowers.

I have been examining and analyzing loans that are referred to as “reverse amortization loans”. They are, in every case, “teaser payments” that trap homeowners into a deal that guarantees they will not keep their home — even if it has been in their family for generations. And they are loans, in my opinion, that contain secret balloon payments. Nothing in this article should be construed as abandoning the fact that the “lender” never actually made the loan, nor that the actual lenders (investors) would never have approved the loan. The point of this article is that the borrower would not have approved the deal either if they had been informed of the real nature of the sham loan (even if it was real).

Teaser payments are neither illegal nor unfair (if they don’t involve reverse amortization). They have been used all over the world with great success. The deal is that they pay a lower payment before they get to the real payment. Nothing is owed on the lower interest or even lower escrow that results from such a loan product devised and prepared for signature by the Banks or agents for the Banks.

And remember again that when I refer to the Banks, I am talking about intermediary banks that in the “securitization” era were not making loans but were approving paperwork that nobody in their right might would have have approved under any interpretation of national underwriting standards. These banks diverted money and title from the actual transaction in which money from strangers and title of the homeowners was diverted from the real transaction — giving a problem to both. This left “investors” without an investment and the borrowers with corrupt title.

In my opinion the way the teaser payment option was handled in the era of securitization, the borrower ended up with an unaffordable loan with terms that he or she would not have approved and which no bank was permitted to approve under State and Federal lending laws. The result was a hidden balloon and hidden payments of principal and interest payments far higher than the apparent interest rate on the face of the note. In most cases, the requirement that the documents and good faith estimate were never provided to the borrower, to make sure that the sophisticated borrower would not have an opportunity to think about it.

In one case that is representative of many others I have seen, the interest rate was stated as 8.75%, but that was not true. The principal was fixed at $700,000, but that wasn’t true either. The principal was definitely going higher each month for about 26 months, at which point, the principal would have been 115% of the original principal on the note. THAT is because each teaser payment of a fraction of the amount due for interest alone, was being added to the principal due. That is reverse amortization. But that is only part of the story.

When the principal has risen to 115% of the stated principal due in the closing documents, the loan reverts from a teaser payment — promised for several years — to a full amortized payments. So the original teaser payments was $2300 per month, while the amount added to principal was around $3000 PER MONTH. Thus after her first payment, the borrower owed $703,000. While the note and disclosure documents referred to a teaser payment that would continue for five years, that was impossible — because deep in the riders to the note there was a provision that stated the teaser payment would stop when the accrued payment exceed 115% of the original principal stated on the promissory note.

With the original principal at $700,000, the interest due was around $5100 per month on the original principal. 115% of $700,000 is $805,000, which represents a hidden increase of principal built into the payment schedule. That is an increase of $105,000 for as long as it takes with the hidden accrued interest computed in the background and not disclosed to the borrower before, during or after the “loan closing.” For a loan requiring “20% down payment” this is lost money. The 20% vanishes at the loan closing while the borrower thinks they have equity in their property. They don’t — even if property prices had been maintained.

The hidden increase of $105,000 happens a lot sooner than you think. It is called “reverse amortization” for a reason. But the unsophisticated borrower, this computation is unknown and impossible to run. In the first month the interest rate of 8.875% is now applied against a “principal” due of $703,000. This raises the hidden interest due from around $3000 per month to $3025. Each month the hidden accrued interest being added to “principal” rises by $25 per month. At the end of the first year, the payment due and unpaid principal is rising by $3300 per month. At the end of the second year it is more than $3600 per month. And at the end of the third year, if you get that far the actual computation makes the accrued interest (and therefore the principal due) rise by over $4,000 per month.

Using the above figures which are rounded and “smoothed” for purposes of this article (they are actually higher), principal has gone up by around $20,000 in the first year, $56,000 in the second year, and $76,000 in the third year. So by the end of the third year, the principal due has changed from the original $700,000 to over $850,000. But this passes the threshold of $105,000 beyond which interest will no longer accrue and will be payable in full. And THAT means that during the third year, the payment changes from $2300 to the full interest payment of $5900 per month plus amortized principal plus taxes plus insurance. Hence the payment has changed to over $6500 per month plus taxes and insurance.

For a household that qualified for the $2300 payment, the rise in payment means a guaranteed loss of their home if the loan was real and the documents were enforceable. This is a hidden balloon. The company calling itself the “lender” or “servicer” is obviously not going to get many payments at the new rate. So you call up and they tell you that in order to get a loan modification, which was probably promised to you at your original “loan closing” you must be three months behind in your payments.

Relieved that you don’t need to pay an amount you can’t pay anyway, and afraid you are going to lose everything if you don’t follow the advice of the “customer service representative, you stop paying and find yourself looking at a notice of default. The company tells you don’t worry you are in process for modification when i fact they are preparing to foreclose. There are probably a few million families that have been through this process of “lost paperwork” redoing it several times, “incomplete” etc. only to be told that you don’t “qualify” or the “investor has turned down your offer (which is a lie because the investor has not even seen your file much less considered any offer for modification).

Next comes the notice of acceleration either in a letter or in a lawsuit for foreclosure and suddenly the borrower knows they are screwed but feels it is their own fault. They feel ashamed and they feel like a deadbeat but they really don’t understand how they got to this point. THAT is the hidden balloon — an acceleration in about 26 months that is virtually guaranteed. The entire balance becomes due which of course you cannot pay. If you could have paid the full balance you would not have have taken a loan. You never had a chance. But that is only the first balloon payment that is not revealed to the borrower at his or her “loan closing.”

The second one comes at the end of 36 months. And that is because the computation of the amortized payment has been based upon the original principal and the original interest rate, both of which has changed. So even if you made it to 36 months, you would be told that you will be in foreclosure unless you pay the unpaid principal balance as the “bank” has computed it, which will probably be around $50,000-$70,000.

Florida law requires balloon payments to be disclosed in very prominent fashion. In these cases it not only was not disclosed, it was hidden from the borrower.

It is unfair and illegal to force this idiotic loan upon either the investor whose money was used to fund it without their knowledge or consent, or the borrower who obviously would not have signed a loan that he or she had no chance of paying. This is why forensic reviewers are necessary and expert witnesses are necessary. But for those of you who are entering into trial without benefit of forensic reviews and experts, you can still do this computation yourself and see what happens. Or any accountant can compute the final figures for you.

It is simple and simply wrong. And while you are at it, ask any lender of any kind anywhere if they put THEIR OWN MONEY at risk making a loan like that. Notice that I have not even bothered to mentioned the inflated appraisal.

FYI. Failure to Disclose in capital letters with the statutory language in Florida extends the maturity date indefinitely untinl interest and principal are paid in full. For Florida law see

Florida Balloon Payments

But in addition, the failure to disclose this also violates the Federal Truth in Lending Act. And the failure to provide a good faith estimate three days prior to closing is also a violation — all leading to rescission. The 9th Circuit, which had said that rescission requires tender or ability to tender the money back, reversed itself and said that is no longer necessary. But there is a three day right of rescission and a three year statute of limitations on rescission. In my opinion, both time limits would probably be applied BUT I also think that the legislation can be used defensively as corroboration for your argument that the borrower had no way of knowing what he or she was signing. AND the hidden nature of the balloon payments can arguably be said to be a scheme to trick the borrower, which MIGHT extend the running of the statute.

See Reg Z in full, but here is the part that I think is important:

(e) Prohibition on steering.

Prohibits a loan originator from “steering” a consumer to a lender offering less favorable terms in order to increase the loan originator’s compensation.

Provides a safe harbor to facilitate compliance. The safe harbor is met if the consumer is presented with loan offers for each type of transaction in which the consumer expresses an interest (that is, a fixed rate loan, adjustable rate loan, or a reverse mortgage); and the loan options presented to the consumer include:

  • (A) the loan with the lowest interest rate for which the consumer qualifies;
  • (B) the loan with the lowest total dollar amount for origination points or fees, and discount points, and
  • (C) the loan with the lowest rate for which the consumer qualifies for a loan without negative amortization, a prepayment penalty, interest-only payments, a balloon payment in the first 7 years of the life of the loan, a demand feature, shared equity, or shared appreciation; or, in the case of a reverse mortgage, a loan without a prepayment penalty, or shared equity or shared appreciation.

To be within the safe harbor, the loan originator must obtain loan options from a significant number of the creditors with which the originator regularly does business. The loan originator can present fewer than three loans and satisfy the safe harbor, if the loan(s) presented to the consumer otherwise meet the criteria in the rule.

The loan originator must have a good faith belief that the options presented to the consumer are loans for which the consumer likely qualifies. For each type of transaction, if the originator presents to the consumer more than three loans, the originator must highlight the loans that satisfy the criteria specified in the rule.

< Back to Regulation Z

 

The Logic of Wall Street “Securitization:” The transaction that never existed

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The logic of Wall Street schemes is simple: Create the trusts but don’t use them. Lie to everyone and assure everyone that Trusts were used to “securitize” loans. The strategy is so successful and the lie is so big and has been going on for so long, that most people believe it.

You see it in the decisions of the appellate courts who render opinions like the recent 3rd district in California which expresses the premise that the borrower was loaned money by the originator. Once you start with THAT premise, the outcome is no surprise. But start with reverse premise — that the borrower was NOT loaned money BY THE ORIGINATOR and you end up with a very different result.

We could assume that Wall Street is reckless in lending money. They can afford to be reckless because they are using investor money. And, so the story goes, the boys on Wall Street got a little wild with loans that they would never have approved for themselves.

Without risk of any loss, Wall Street investment banks make money regardless of whether the loan succeeds or goes into default.

But Wall Street is not content with earning fees. The basic credo is a question: “How can we make YOUR money OUR money.” And they have successfully devised and followed that goal for many years. As one insider told me in an interview that must remain anonymous, “It is like a magic trick. You create a trust and everyone is looking at the trust and everyone is looking at transactions affecting the trust, when in fact all the action is occurring off record, off the books and away from scrutiny by investors, trustees, rating agencies, insurers, borrowers, and of course, the courts.” 

So the question becomes “what happens to investor money after it is received by the investment bank?” If the money passes from the bank account of the managed fund (pension) fund to the bank account of the investment bank that sold bonds issued by a Trust then the Trust would receive the money. It didn’t.

The Trust would then issue funds for the origination or acquisition of loans. In return it would get the loan documents and they would be placed with the Depositor or Depository — pretty much the way ordinary loans are done. It didn’t. Instead we had millions of loan documents lost or destroyed and then re-created for litigation purposes. Why would an entire industry have engaged in that behavior? Was it really a “volume” problem where there was too much paper or was it something more sinister?

The problem is that the investment bank that acts as broker in selling the bonds is in control of the loans and investments of the Trusts. Since the fees of the investment bank are based on the existence of transactions in which the Trust issues money in exchange for investment certificates, the Wall Street bank is incentivized to make that Trust money move regardless of the quality of the investment. And since the Trust has no say in the actual underwriting decision to originate or acquire the loan, the investment bank is the only one in charge. That leaves the fox guarding the hen house.

But that doesn’t satisfy Wall Street either. They realized that they can create “proprietary profits” for the investment banks by creating a yield spread premium. A yield spread premium is the difference in value between two different loans to the same party for the same transaction — one is the honest one and the other is fictitious.

At closing the borrower is steered into the fictitious one which is far more risky and expensive than the one the borrower is actually qualified to receive.

At the investor level the “trust” is ordered to take loans that are far less valuable than they appear. This means that the Trust buys the investment bonds or shares that the investment bank has created with nobody checking the quality or ownership of the investment. The Pooling and Servicing Agreement contains provisions that effectively bars the Trustee or the investors from knowing or even inquiring about these transactions. Look at any PSA and you will see it.

The bottom line is that the worse the loan terms for the borrower and the more likely it is that the loan will fail, the lower the value of the loan. But if it is sold as though it was an ordinary conventional loan at 5%, then the price, charged for a crappy loan is much higher than its true value. Same scenario as the inflated appraisals of real property and homes. 

So the investment bank inserts itself as the Seller of the loan to the trust. At their proprietary trading desk the investment bank sells its ownership interest in the loan to the trust for the higher “value” because the investment bank is making the decisions on what loans the trust will buy. Meanwhile they have created loans that are worth far less and even have principal due on the “notes” that is far less than what the trust is forced to “pay.”

Checking with informed sources, it is evident that those proprietary transactions were fictitious and allowed the investment banks to report huge “profits” while everyone else was losing their shirts trading bonds, equities and anything else. The transaction at the proprietary trading desk of the investment bank was fictitious because the trust did not issue any payment to the investment bank, who never formally owned the loan in the first place.

You don’t see investment banks anywhere in the chain of title whether you review public records or even MERS. So you have the investment bank selling a loan they don’t own to a trust that never paid for it. The entire transaction is recorded but does not exist.

In the case of a 15% $300,000 loan to a “borrower”, it is “SOLD” as a 5% conventional loan giving the investment bank a reason to declare that it made a profit on a “proprietary trade.” How much profit? Figure it out — on the back of a napkin you can see how the investment banks “sold” the $300,000 loan but “received” $900,000 from the Trust leaving the investors with an instant $600,000 loss and the probability of losing the rest of the $300,000 as well. This is exactly opposite to the provisions of the Prospectus and PSA.

Upon examination, my sources tell me, the money to cover that declared “trading” profit does exist at the investment bank. That is because the investment bank took the money from investors, never funded the trust, and pocketed the $600,000 in advance of the “proprietary trade, which they could cause to be recorded and reported at any time, since the investment bank was in total control.

Enter moral hazard.

The only incentive that the investment bank to stay honest is to report good results so the managed funds buy more bonds. But that does not protect investors. The investment bank creates a classic PONZI scheme in which it uses investor money to make the monthly payments on the bonds or shares and reports that “all is well.” The report disclaims reliability, credibility and authenticity. Wells Fargo has an especially strong disclaimer on the distribution report to investors. The disclaimers were ignored as “boiler plate” by fund managers who made the investment on behalf of the their pensioners or mutual fund shareholders.

All the fund managers needed to know was that they were getting paid — but they did not realize that a significant part of the payment came from their own investment dollars advanced to the investment bank, as broker for the purchase of trust bonds or shares.

So the investment bank makes much less money on good investments for the trust than on really bad investments. In fact they have the  incentive to make certain the loan fails. Not only do they get the yield spread premium described above, the investment bank, is trading on inside information in which only the investment bank knows the truth. It places bets against the viability of the loan and bets further against the value of the mortgage bonds, and buys contracts for insurance, betting that the value of the bond will fall in a “credit event” without the necessity of an actual default.

SO IF THE INVESTMENT BANK DID NOT GIVE THE TRUST THE MONEY FROM INVESTORS, WHERE DID THE INVESTORS’ MONEY GO?

That is the trillion dollar question. And THIS is where the Courts have it completely wrong. Either we are a nation of laws or a nation governed by the financial industry. The banks bet on themselves, and so far, they were right to do so.

The money given to the investment banks was spread out over a long list of intermediaries owned or controlled by the investment bank. AND then SOME of it was spread out funding loans to borrowers. But the investment bank obviously could not name itself on the note and mortgage. That would have revealed that the tax advantages of a REMIC trust were nonexistent because the trust was not involved in the transaction.

So an elaborate, complicated, circuitous route was chosen for the “approval” of loans for origination or acquisition. First you have a nominee, which is often MERS plus a “lender” who was also a nominee even though they were called lender. The “lender” was subject to an assignment and assumption agreement that prohibited the “lender” from exercising any control over the closing on the loan that was being “originated.” In short, they were being paid to pretend to be a lender — hence the term pretender lender. 

The closing agent, whose fee depends upon actually closing, and the mortgage broker, whose fee depends upon actually closing, and the title company, whose fee depends upon the actual closing, have no interest in protecting the borrower from what is about to transpire.

The closing agent gets money from any one of a variety of sources OTHER THAN THE “LENDER.” The closing agent applies those funds to the closing as though the “Lender” made the loan. As stated by one mortgage document specialist for a large “originator”, “We knew that table funded loans were predatory and illegal, but we didn’t take that seriously. And the borrowers didn’t know who the lender was — that was the point. We used table funded loans to conceal the actual lender.”

Those funds came from the investors, although the money did not come through the trust. It came from the investment bank which was acting in the capacity, as they tell it, as a depository bank — which is why the Federal government allowed them to become commercial banks able to act as depositories. And every effort was made to prevent any evidence as to whose money was actually involved in the loan. Since it was the investor money that was used to originate or acquire the loan, it should have been the investors who were named as owner of the loan and recorded as such in the public records.

If you look at the PSA, it requires funding of the trust, of course. But it also requires that its acquisition of loans contain all the elements of a holder in due course, thus barring any claims from borrowers about irregularities at the closing, violations of state and federal law, etc. In summary the only defenses a borrower could raise against a holder in due course is that they paid or that they never signed the note. So a person who pays money in good faith without knowledge of the borrower’s defenses is pretty well protected. In litigation with borrowers, borrowers would be told they must sue the intermediaries that caused the problems with their loans.

The fact that no foreclosure of a loan subject to “claims of securitization” alleges HDC (holder in due course) status is very substantial corroboration that the Trust did not pay for the loan in good faith without knowledge of the borrower’s defenses.

The banks have been betting on a lot of things and winning every bet. In court they are betting that they will be treated as holders in due course and not as simply holders either with or without any right to enforce where they might be required to prove the actual loan of money from the originator, or the payment of money for an assignment and endorsement. And THAT is why the appellate court is assuming that the loan actually occurred — you, know, the loan that is underlying the execution of the note and mortgage, because the borrower didn’t know the truth.

The factual problem is that the presumptions and assumptions relied upon by the courts are in direct conflict with the real facts. The legal problem is that starting with the original loan, many cases, and always with the assignment of loan, is that somewhere in the chain (and probably at more than one point in the “chain”) there is no underlying transaction for the paper upon which the bankers rely in foreclosure.

Some OTHER transaction occurred, which is why the note is evidence of a loan that does not exist between the “lender” and the “borrower” and why the assignment is evidence of a transaction that does not exist between the assignor and assignee. The mistake being made is basic law: the courts are confusing “evidence” of a transaction with the transaction itself. In so doing they are escalating the status of the forecloser from a mere holder to a holder in due course without any actual claim or allegation of HDC status. Once that is done, the borrower is doomed.

The doom should fall on the investment bank and all the intermediaries that participated in this scheme. They left the investors with no coverage — the investors money was used in ways that were expressly prohibited by the offering, the PSA, and even the rules governing investments by stable managed funds whose risk is required to be extremely low in any investment. The investors are the involuntary lenders with no note and no mortgage.

The good news is that nearly all borrowers would be happy to execute a note and mortgage to investors who actually funded their loan or even a trust that was identified by the investors to represent them. The terms would be based upon current economic reality and would thus mitigate the damages to both the investor lenders and the borrowers. The balance, as we have already seen, lies in lawsuits for damages against the investment banks and their intermediaries demanding refunds, damages and even punitive damages. Those lawsuits are being brought by investors, borrowers, insurers, and guarantors and in some cases by counterparties to credit default swaps.

Without the execution of a real note and real mortgage, the foreclosures are fatally defective. So the bad news is that as long as the courts assume and then presume and then enter judgment for the foreclosing party, the Judge is inadvertently sealing a greater loss applied against the investor lender, removing the tax advantages of a REMIC trust, and creating another bar to liability and accountability of the investment bank who effectively has been lying and cheating its way through the system — using legal “presumptions” that are directly contrary to the facts.

Why You Need an Expert Witness and Why You Should be Aggressive in Discovery

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There are three central strategies that need to be pursued with vigor. The Banks have once again moved the goal posts because they are starting to lose cases with increasing frequency when confronted with the requirement that they actually prove their case with facts instead of presumptions. They are attacking the need for discovery, the need for an expert witness, and the need for foundation of fabricated documents by leveraging certain legal presumptions to achieve results that were never intended to be used to win a case that they would lose if they had to prove their case with actual facts from a witness who has personal knowledge.
Yet that is exactly what is happening. It happens almost automatically in non-judicial foreclosures and it happens most of the time in judicial states. “Legal presumptions” are being manipulated to win an unwinnable case. Those presumptions are for expedience and not to slant cases in favor of a litigant who is wrong.
In Discovery it is important to set a hearing on the blanket objections that are commonly filed by the Banks without any obligation on their part to set those objections for hearing. So it is up to the borrower to set the objections for hearings. Lawyers are finding that they must also file a motion to compel and that without a compelling memorandum of law supporting discovery or supporting the need for an expert witness, the banks will control the narrative by maintaining the impression that laws and presumptions about negotiable instruments are the only issues.For the Judge, the real issues are hidden from view, so you must reveal them. The latest iteration the the Bank tactics is the “Self-authenticating” document which is the subject of another article.
The central theme is always the same. The Banks can’t win on the actual facts, so they are relying upon and leveraging certain rules of evidence that allow certain documents to be admitted into evidence, where the contents of those documents are taken as true (despite the fact that they are barred by the hearsay rule) and the Judges are treating the contents as true over the objection of counsel for the borrower. Like Judicial notice, such documents might be admissible for the limited purpose of acknowledging their existence, but their contents are very much in issue.
However, many judges disregard the notion that the contents are at issue unless the borrower produces compelling evidence that the facts in the document are false. In my opinion, it is wrong to require a defendant who has no access to the actual facts — the money trail — to bear the burden of proof and doubly wrong when the borrower has asked for exactly that information through statutory, formal, informal and discovery requests only to be met with stonewalling.
My thought is that this is an opportunity to educate the judge — against what he or she wants to hear. It is an opportunity to get him to hear YOUR narrative twice. Iadvise lawyers to file a memorandum in opposition to objections and file a motion to compel to make your record. Present a credible argument for the need for the borrower to get information that either lies solely in the hands of theforecloser or in the hands of others who are co-venturers with theforecloser.The need for an expert is evident from the section of the PSA which is entitled “Definitions” which uses words, concepts, business processes, lending and practices that are outside of the statutory scheme for the transfer of loans. The same arguments exist for enforcing discovery. Attach a copy of the PSA Definitions section to your memo. Despite the current trend of the Banks toward introducing the PSA as an exhibit at trial, they continue to argue that the borrower has no standing to contest whether the procedures and restrictions of the PSA are relevant in a foreclosure case. Many judges agree. I believe they are wrong and that this is an evasion of the truth with the help of the Court.

They may seem unrelated but they are identical — only the other side has or does not have the actual evidence of the transactions that are presumed to exist by virtue of some document they are producing like an assignment, a mortgage, a note, or a notice. To the extent that they are responsive to discovery, the need for an expert diminishes or is reduced.

The plaintiff is alleging that a trust owns the mortgage and that various parties have authority to service, receive documents and pay for the the origination of acquisition of loans. It is only the PSA that establishes the right of the Plaintiff forecloser or beneficiary under a deed of trust to pursue foreclosure.

The very essence of the defense is that the Plaintiff does not own the loan, is not a holder with rights to enforce and is not a holder in due course because the plan laid out by the PSA, was never followed. That starts with the conclusion that the trust was never funded and therefore could not have the resources to pay for the origination or acquisition of loans. The defense theory is that based upon the pleadings and proof of the Plaintiff, it is a stranger to the loan transaction despite a snow storm of paper creating appearances to the contrary.

The Plaintiff has not alleged it is a holder in due course. Thus by law they are subject toall of the potential defenses of the borrower starting with the processes that began in the application stage for the loan, the presence of an assignment and assumption agreement that governed theactual events that occurred at closing — includingthe fact that the named party identified as “lender” was not the source of the loan and had no rights under the agreement with third parties toperform any act with respect to the loan except topermit their name to be used as a nominee.This was a table funded loan in which an undisclosed third party funded the loan. The importance of that is that the third party should have been identified on the note and mortgage and the mortgage should not have been executed, delivered or recorded. It is ONLY with the help of an expert who understands the terms and processes that are outside the norm of conventional lending — which is already so complex that Federal law requires that summaries and good faith estimates and disclosure are required to be delivered to the borrower prior to closing.

The plaintiff is taking two opposite positions at the same time — first that they have a trust that exists, that has engaged in business pursuant to the requirements of the PSA and who has paid for the origination or acquisition of the loan. Second, that it doesn’t matter whether the trust exists or owns the loan because they are a holder, and they want this court to presume that being a holder creates a presumption under state law that as such, they have the rights to enforce. Hence they want presumption to triumph over fact.
Theirposition is that they can close the matter of refunds and repurchasing obligations with the creditors by foreclosing the mortgage and getting a judgment on the note. Both the investors and the borrowers think otherwise.The defense theory of the case is that the trust was never funded nor used in this transaction and thus should not be allowed to enforce a loan that it never owned, funded, originated or acquired. The initial proof lies in the pleading of the Plaintiff in judicial cases. They never assert that they are a holder in due course, the elements of which are payment of value for the loan, acting in good faith and without knowledge of the borrower’s defenses. Through aggressive and relentless pursuit of truth in discovery (which only requires the possibility that it might lead to admissible evidence) you can easily establish that they are not claiming that the Trust was acting in bad faith or with knwoeldge fo the borrower’s defenses (although in some situations that might also be in issue). That leaves the single element of payment for the loan.

Each PSA sets forth the elements of a holder in due course for the loan to be accepted by the trustee. If the allegation is onlythat that there is a holder, or even a holder with rights to enforce, the only conclusion, from their own pleadings is that the trust has not paid for this loan. If it has not paid for the origination or acquisition of the loan, the Trust has no reasonable basis for claiming any interest in it. Hence it shouldn’t be suing for collection or foreclosure. And the allegation that the Trust or representative is a holder is contrary to the presumption underlying court proceedings that the Trust has paid money and will lose money if the loan is not enforced. The truth is that the investors will lose money if the loan IS enforced.The defense theory of the case is that there is a direct debtor-creditor relationship between the investors, as creditors and who should have been on the note and mortgage but were not, in order to create the illusion of a veil in which the investors would not be liable for fraudulent, deceptive or shady lending practices.

And the defense theory of the case is that the securitization plan under which the investors were supposedly parties through the Trust and the PSA never occurred and that therefore the mortgage was defective on its face for naming the wrong lender and for not disclosing, as required by Federal and Florida law all the parties to the transaction and all the intermediaries were were receiving compensation and profits arising from the origination of the loan. — since it was the investor funds that were used in the origination or acquisition of the loan.

Since we can presume that the distance of the Trust from theactual origination eliminates any questionas to whether they were proceeding in good faith IF they accepted the note and mortgage, we must then presume that were acting in good faith and without notice of the borrower’s defenses. Those are two out of three of the elements for a holder in due course.By alleging that the Trust owns the loan, that would by definition mean that that if the PSA was followed the Trust was intended to be a holder in due course — having paid value for the loan in good faith and without knowledge of the borrower’s defenses.

That would mean that the PSA requires the Trust to be a holder in due course, because that would prevent the borrower from raising most defenses against the Trust when it seeks to enforce the loan. If it is not a holder in due course, the Trust provisions bar acceptance of the loan. Hence any allegation to the contrary is void under New York State law.

Thus the plaintiff is trying to slip by on two conflicting theories — that the trust owns the loan and that the trust can enforce it just by alleging it is a holder despite the fact that the trust is a stranger to the loan transaction and never transacted any business in which it acquired ownership of the loan. This leaves the actual creditor — a group of investors who were in the same darkness as the borrower — without having received the truth when the transaction was proposed to either of them.
What is interesting here is that the allegation is not that the trust is a holder in due course which can only mean that the Trust never paid consideration for the ownership of the loan. And the acceptance of the loan by the trustee has not been alleged because it most likely never happened because the transfer was outside of the cutoff period.The cutoff period exists for two reasons — to get certain tax advantages for the trust beneficiaries who are the real creditors and to prevent any defective loans from coming into the trust that would have an adverse consequence to the trust and its beneficiaries.

And the fact that the Trust is governed by New York State law means that any act that is expressly prohibited by the PSA is void not voidable. So the assignment is a cover-up for what really happened.

For the loan to be included in the pool of loans that form the res of the trust, the trustee must accept the loan. That acceptance is manifest after the cutoff period when the pool is closed. After that individual acceptances based upon opinions of counsel must be documented. None of that happened.

At best it is an offer that could never be accepted by the trust — because there was no acceptance by the trustee who could not accept because it would be a void act both because of the cutoff period and the fact that it produce adverse consequences in both tax treatment and actual money paid to them to allow the late deposit of a loan that has been declared in default). See the provisions for acceptance by the Trustee.

An expert witness steeped in the language and practice of investment banking and the securitization of loans is necessary to explain how this transaction must be interpreted and the conclusion that the investors are the direct creditors — not the trust — because their money was mismanaged, as the investors have alleged in their own complaints against the underwriters.

At worst, it is, as the investor suits and the suits by government and insurers allege outright fraud in which the money and the documents were intentionally managed in a way that was to the detriment of both the creditors and the debtor and ultimately the government and society.

The second point in the defense is that the documents submitted by the Plaintiff are not supported by anything because they have refused to provide appropriate responses to discovery that would show the actual authority to represent the actual creditors, based upon the actual creditors granting them that authority.At trial documents will be admitted for the forecloser if you have failed to enforce discovery. Admission into evidence is barred if they have failed to respond even after being ordered to do so by the court — but those cases don’t go to trial. They are settled. And that is the point.

It Makes No Sense

For further information and consultations please call 520-405-1688 or 954-495-9867. We offer litigation support to attorneys throughout the country. Consultations outside of Florida require an attorney to be on the line with you.

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We received so many calls from my post on Friday asking me to write more on the Burden of Proof that I decided to write a supplement. See The Burden of Proof Must be Changed: BofA Slammed Again

IT MAKES NO SENSE

“Your Honor this is a simple foreclosure on an ordinary mortgage.” Those words, uttered by most foreclosure attorneys are very misleading. Because the attorneys don’t have the information I have, the attorney might actually think the words he or she is speaking are true. But they are not true in most cases.

  • If this was an ordinary loan with an ordinary loan closing why did the banks engage in fraudulent behavior in foreclosure cases — robo-signing, forgery, fabrication and even foreclosing on loans that were neither delinquent nor properly declared in default?
  • If it was so ordinary why are the trial and appellate courts dealing with the issue of jurisdictional standing — because the owner of the loan is in doubt, to say the least?

As for securitization they are right — if it was done right. If you start with the proposition that the intent was for the brokers on Wall Street to create residential loans and give their clients a slightly higher yield from a portfolio of loans than the other bonds the investors were buying, and that ordinary underwriting practices had been employed in approving loans, then

  • why are the Banks so reluctant to allege and prove the identity of the lender?
  • Why have so many studies concluded that the foreclosers are mostly “strangers” to the transaction (San Francisco and Baltimore Study) or that at least half the loan documents were destroyed or lost?
  • Why would a lender or purchaser of loans destroy cash equivalent notes unless they had something to hide?
  • Why do they employ professional “testifiers” instead of actual employees or officers of the creditors?
  • Why are so many foreclosures failing because they failed to prove their case (a rising number with each passing month)?

None of it makes sense. These banks have been dealing with paper instruments for hundreds of years. The plan is laid out in the PSA.

  • Why were the loan settlement documents not delivered to the Depository for the alleged REMIC trust? Why is there no evidence of the Trust actually buying the loan within the cutoff period in the PSA?
  • What were the brokers doing with the investors money while the investors thought the money had gone to the trust in exchange for the mortgage bonds issued and sold by the trust?
  • What were the brokers doing with the closing paperwork after using the investor’s money, without disclosure to anyone, to either buy or originate loans without specifically and expressly protecting the bond buyers in written instruments that were properly and timely recorded?

I submit that there are no GOOD reasons or GOOD answers to those questions. I submit that if you start with the premise that the brokers started with the intent to steal the money and steal the loans, then everything DOES make sense.

  • It makes sense that the loans were nearly all table-funded which is predatory per se according to Reg Z. But it doesn’t make sense if the brokers wanted clean loans with total transparency as required by law. It makes sense that they were concealing the actual source of funds (the investors directly instead of through the REMIC trust). And it makes sense that the Wall Street brokers and the web they spun of multiple layers of multiple companies were collecting and keeping undisclosed compensation that was largely an instant loss to the investors.
  • It makes sense that the money was not deposited into a Trust account where a real trustee would have control over the funds and make sure that the terms of the trust were followed. If they had given the money to the trust, then the brokers would not have been able to play with that money as if it were their own.
  • It makes sense that the investors’ money was used directly, instead of the coming from the trust because if it came directly from a trustee for the trust, then the trust would have had to get the settlement documents deposited with the depository and the required documents for instant ownership of the loan for which the investors’ money was used. By using the investors money under the illusion of a REMIC trust it makes it appear as though a trust is involved when in fact it is the broker who is controlling the transaction, not disclosing to the investors the real nature of the loans that were being approved, and leaving the buyers of those bogus mortgage bonds either without any disclosure to alert them that something was wrong or barred from finding out because of restrictions on inquiries contained in the PSA.
  • And if makes sense that they used multiple layers of nominees without the slightest actual interest or risk in the loan to divert ownership of the loan away from the investors to the broker’s trading desk. By diverting the transaction away from the Trust and the Trust Beneficiaries they were able to create the illusion of a sale of the actual loan with an interest rate of 9% as though it was a 5% loan. That makes sense because the brokers were able to claim a “profit” on that Sale” — a 5% loan sells at twenty times earnings. So the broker sold the loan on its proprietary trading desk for nearly twice the loan amount — bequeathing an instant 50%-70% loss to the investors who thought their money was going through a carefully monitored trustee process and scrutiny.
  • And it makes sense that they kept paying the investors even though the loan portfolio was collapsing, reporting loans as performing when the borrowers were not paying. If they didn’t do that — with a reserve created out of the investors money — then bond buyers would stop buying.
  • And it makes sense that they would seek foreclosure as their first goal because that is the only way to create the illusion of clearing title. If they don’t foreclose as many loans as possible, the whole plan blows up because in a workout of the loan terms the brokers would be required to account for the profits and compensation and losses attributable to their plan. They would be required to refund or repurchase all the crazy loans they made that were made to fail.
  • It makes sense that the brokers, controlling the servicers, would engage in a policy of luring the borrowers into “default” by stating that that the borrower would get a modification only if they are at least 3 months behind on their payments. If they didn’t engage in policies and practices designed to cause foreclosures to be filed, then their story about the crisis being related to loan defaults,falls apart. It would become obvious that the crisis occurred because the brokers took 20%-120% out the money flow created by investments from bond buyers.
  • It makes sense that they don’t have a designated person at trial or can actually testify to each step in each transaction and whether the trust exists and what actual figures are shown on the books of account for the real creditors — the bond purchasers — as to the existence of a default and the principal balance due.

I guess I could go on forever. But you get the point. Start with the premise that the brokers set out on an illegal enterprise and everything falls into place. Start with premise that they were just doing their job according to law, and everything falls apart and MAKES NO SENSE.

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