Amongst the cases I review and manage, the question was raised by one of the homeowners as to why I insisted on holding both the originator and subsequent intermediaries in the alleged securitization chain and/or table-funded loan where both the party alleging having (1) the capacity to sue see SEC Corroborates Livinglies Position on Third Party Payment While Texas BKR Judge Disallows Assignments After Cut-Off Date, (2) the standing to sue and/or the authority to initiate foreclosures and (3) financial injury where they allege sale or assignment of the note. The reason is simple from a tactical and legal point of view. I wish to close out their options to keep moving the goal posts.

Here is the answer I wrote to the customer, whose property is located in a judicial state. This particular person is being pro-active — always a wise choice — in that he has been making his payments, was told to to stop making payments if he wanted a modification which he did initially and then changed his mind and reinstated, and remains convinced he was the victim of various forms of fraud and crimes including false Appraisals of the supposedly fair market value of the property at the time of the loan closing or the alleged loan closing. His goal is not a free house. His goal is to pursue any rights you might have for modification or settlement of his claims with respect to the illusion of a loan closing and the office of a closing agent. As any reader of this blog knows, it is my opinion that any such loan closing was in fact an illusion and that all the parties participating in that illusion were paid actors pretending to be something they were not —  less creating plausible deniability for any of the improper actions of the intermediaries at the “loan closing.”

There is a reason why I insist on continuing the joinder of those two defendants. Embrace wants to be dismissed out with prejudice because it says that sold the loan to Wells. I want to say that they didn’t sell the loan to Wells.  If I prevail on that point then Wells Fargo is out as a plaintiff in any foreclosure they might file, and potentially out as a servicer since they might not be able to show any authority.  If that is the case then they owe you an accounting for all of the money they collected from you and a statement of what they did with the money that they collected from you. You might well have a cause of action against Wells Fargo for taking money under false pretenses.

 If I don’t Prevail on that point and somehow they are able to show that Wells Fargo paid for the loan and owns the loan by virtue of that payment, then Embrace is still a proper party in the action because they are the owner of record of a mortgage based on a note that was never funded by Embrace.  The issue here is whether or not the mortgage was transferred with the debt and that issue is tied closely with the issue of securitization, which both of them deny. I believe that I will be able to show that the loan is subject to claims of securitization on behalf of a loan pool that may never have existed or which might not exist now.  and if I am able to show that the loan pool was never funded and therefore could never have paid for the loan then the apparent authority of both defendants is eviscerated.

  Either way, I don’t want to let either of them out of the litigation quite yet.  If we prevail on the question of whether or not there was an actual sale and the sale was authorized (see my blog article from yesterday) then Embrace is the only party left on record in the recording office. At that point I would drill down on them to see whether or not they can show that they fulfill their part of the bargain with you, to wit: that you sign a note and they give you adequate disclosure under the law and they fund a loan to you. It is my position that they did not give adequate disclosure and that they did not fund a loan to you even if the loan was not securitized. The best they can say is that this was a table funded loan which is according to Reg Z of the Federal Reserve a predatory loan  per se if it was part of a pattern of conduct.

 Given the statistics and information we have about both defendants it is my opinion that the chances are 96% that the loan was allegedly sold into the secondary market where it is the subject of a potential claim from an asset pool. The problem I wish to reveal here is that the entire chain of ownership collapses on itself. The other problem that I want to addressed is who actually received the money that you pay every month and what did they do with it (who did they pay).  the strategy here is to show that regardless of whether or not a claim of securitization exists, there were co-obligors (Wells Fargo),  insurance payments and proceeds of credit default swaps and multiple resales all of which should be applied against the amount owed to the real creditor, whoever that might be, thus reducing the loan receivable.

 If I can tie the loan receivable to one which derives its value from the alleged loan made to you, even if the originator paid for it, then there is a strong argument for agency and allocation of receipts under which the payment of monthly payments and the receipt of insurance proceeds and the proceeds from other obligors (including but not limited to counterparties on credit default swaps) were received and kept, like in the Credit Suisse case. 

From that point forward it is a simple accounting task to allocate third-party receipts of insurance and hedge money to the benefit of the investors whether they received it or not. The auditing standards under the rules of the financial accounting standards Board would require a further analysis and allocation of the money received —  specifically the reduction of the loan receivable or bond receivable held by the investors (directly if the REMIC trust was ignored or indirectly if the agents for the trust purchased insurance and hedge products, the proceeds of which should have been credited to the investors.

 If the investors are the real creditors than the amount that they are entitled to have repaid to them does not exceed the amount they advanced. It practically goes without saying that if the money advanced from investors was based on their reasonable belief that they were acquiring title to the loans funded by the money advanced by the investors, they should recover part or all of their investment to the extent that the other players (see the SEC order against Credit Suisse) paid for insurance and hedge products using the money of the investors and kept the proceeds for themselves —-  thus explaining rising reports of profits in the banks who are supposedly merely intermediaries in the conduct of commerce which was in sharp decline.

 In the end, under a series of unjust enrichment and other common-law actions, as well as the requirements of statute and the terms of the promissory note executed by the borrower, all money received in that manner should reduce the principal balance due from the borrower because the creditor has already been paid either directly or indirectly through its agents who were either authorized or possessed of apparent authority.

In fact , the great likelihood is that the banks received substantial overpayments amounting to multiples of the original principal amount of the loan.  According to both law and the terms of the proposed agreement between the borrower and the apparent lender, subject to the terms of the documents themselves as well as state and federal law, the borrower is entitled to recover all such undisclosed payments and receipts which are defined under the truth in lending act as “compensation.”

 Thus while the creditors not entitled to any more recovery than the amount advanced under an alleged loan, the borrower is entitled to full recovery of all money paid in connection with or related to the loan received by the borrower, regardless of the original source of the loan and any agreements between the intermediaries in the alleged securitization chain that do not have the signature of the borrower on them. The reason is public policy. While securitization was not considered in the original passage of laws  it was the overreaching by banks to the disadvantage of consumers and borrowers that was sought to be discouraged by penalties that would be so great as to prevent the practice altogether.

 Usually it is money that is taken under false pretenses and the illusion of securitization claims is no exception. But in the case of the borrower it is the signature of the borrower that was obtained under the false pretenses that  the party obtaining the borrower’s signature. The consideration was the money advanced by an unrelated party tot he transaction (investor) who thought their money was first going through a REMIC trust that would give them certain tax advantages.



 Garfield, Gwaltney, Kelley & White

4832 Kerry Forest Parkway, Suite B

Tallahassee, Florida 32309

(850) 765-1236

New Accounting Rules for Banks Could Break Them

The IASB and FASB have been working on accounting rules for the “losses” at the banks. Someone is either in for a surprise or somehow the banks will escape the rules. One thing is certain, that the accounting firms that provide the auditing services and certification of the statements of the mega banks are in bind. If they tell the truth, the bank may fail and the firm itself could be sued because it didn’t spot the problems before and report on them. If they lie, which everyone on Wall Street and maybe even in government wants them to do, they are not living up to the standards of their profession. As the truth is unraveled in courts where more and more borrowers are winning cases, both the bank and accounting firms are going to be caught red-faced.
I still want to know how these banks ended up booking unsold mortgage bonds as assets on their balance sheet. Do they expect us to believe that the investment bank actually advanced money for these bonds? The story being peddled on Wall Street and printed by mainstream media is wrong. When will we stop accepting the word of Wall Street leaders who got us into this mess? Remember these are the same bankers who lied to investors, lied to rating agencies, lied to insurers, lied to the their regulators, lied to the federal government and lied to borrowers. It seems to strain all bounds of reason to actually think that that they are suddenly telling the truth now.
Either investors bought mortgage backed certificates (bogus or not) or they did not. If they did, that money was used to fund mortgage closings downstream and it was used as the personal piggy bank of each investment firm. It follows inevitably to say that the banks were not funding the loans and hence had no risks of default. Yet they claimed the losses anyway.
They used investor money that was supposed to go to funding mortgages to gamble on the quality of the mortgage bonds hoping and making sure they could pull the rug out from under the same people they had sold the certificates. And they made sure that even the best tranche was saddled with making good on the worst tranche so that even those loans would be declared in default for purposes of collecting the insurance that should have gone to the investors, the credit default swap proceeds that should have gone to investors and the taxpayer and Federal reserve bailouts that should have gone to investors.
The creditors, i.e., the actual lenders in the loan transactions, were denied disclosure and payment of money received by their agents on Wall Street who “helped” them buy these bogus mortgage backed certificates. The banks claimed the losses that the investors eventually bore, when they knew they were getting the insurance and bailout money. They should have given the money to  investors and refunded the money that was based upon pure lies. The mortgage assets they carry on their balance sheets are also lies in large measure. You simply cannot convince me or any reasonable person that in the waning days of the mortgage meltdown, when everyone knew this scheme was crashing, that these very smart investment bankers starting buying the mortgage bonds themselves.
In this sense, the investment bankers and the investors must be considered as one entity or at least principal and agent. The money was received, it should have been booked as loss mitigation for the investors and that would have reduced the receivable on the books of the investors. Several investor groups have sued the banks saying as much. And those cases are being settled which means we know that the receivables of the lender-investors has been reduced or eliminated.
Once the receivable is reduced — for any reason relating to payment received in money — the payable must be correspondingly reduced, which means the homeowner doesn’t owe as much as he thinks nor as much as the parties claiming foreclosure. Remember, homeowners didn’t crate this false securitization scheme that covered up a simple PONZI scheme. It was the bankers who did this, seeking windfall. That part of the windfall will now start falling in the homeowners’ direction is simply turnabout is fair play.

This was all passed off as bad judgment — description that is insulting. This was intentional. Wall Street is all about making the money off of other people’s money. And that is exactly what they did. And now they are screwing the investors, screwing the taxpayers, screwing the borrowers and taking the homes too. This goes beyond unfair; it is theft.

New loan loss rules expected early next year

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