TILA Statute of Limitations — No Limit

Editor’s Note: Judges are quick to jump on the TILA Statute of Limitations by imposing the one year rule for rescission and damages. But there is more to it than that.

First the statute does NOT cut off at one year except for items that are apparent on the face of the closing documentation; so for MOST claims arising under securitization where almost every real detail of the transaction was hidden and intentionally withheld, the one year rule does not apply.

Second, the statute of limitations does not BEGIN to run until the date that the violation is revealed. In most cases this will be when the homeowner knows or should have known that the loan was securitized. Since the pretender lenders are so strong on the point that securitization does not affect enforcement, the best point in time for the statute to run is when a forensic analyst or expert tells the homeowner that TILA violations exist.

And THEN, in those cases where the information was hidden, the statute of limitations is three years from the date the information was revealed.

So when you go after undisclosed fees, profits and other compensation of any kind, you are not cut off by one year because — by definition they were not disclosed. The only way the other side can get out of that is by admitting the existence of the fee, and then showing that it WAS disclosed — presumably through yet another fabricated document, signed by a non-existent person with non existent authroity with non- existent witnesses and notarized by someone three thousand miles away (whose notary stamp and forged signature was applied to hundreds of pages of blank documents for later use). [Brad Keiser was the one who discovered this tactic by doing what most forensic analysts don’t do — actually reading every piece of paper sent by the pretender lender and every piece of paper provided by the homeowner. Case law shows that where the notary was improperly applied — and there are many ways for it to be improperly applied, the notary is void. If the statute requires recording the document in the public records, then the document so notarized shall be considered as NOT being in the public records and is ordered expunged from those records].

This comment from Rob elaborates:

Regarding the TILA Statute of Limitations:

When a violation of TILA occurs, the one-year limitations period applicable to actions for statutory and actual damages begins to run. U.S.C. § 1641(e).
A TILA violation may occur at the consummation of the transaction between a creditor and its consumer if the transaction is made without the required disclosures.
A creditor may also violate TILA by engaging in fraudulent, misleading, and deceptive practices that conceal the TILA violation occurring at the time of closing. Often consumers do not discover any violation until after they have paid excessive charges imposed by their creditors. Consumers who later learn of the creditor’s TILA violations can allege an equitable tolling of the statute of limitations. When the consumer has an extended right to rescind or
pursue other statutory remedies because a violation occurs, the statute of limitations for all the damages the consumers seek extends to three years from the date the violation is revealed.
McIntosh v. Irwin Union Bank & Trust Co., 215 F.R.D. 26, 30 (D. Mass. 2003).

Why Show Me the Note Isn’t Enough

see no-silver-bullet

The reason lawyers should attend the forensics workshop is not so they can do forensic analysis (although they certainly would be in a better position to do so), but rather because they need to know what to do with the information once they get a report of results from a forensic review and analysis.

My observation is that many lawyers and pro se litigants are left with their mouths hanging open when the the other side (pretender lender) does in fact produce a note, copy of a note, assignment, separated allonge, indorsement or other document giving the appearance of propriety. You have to ask yourself what if I was physically holding that note, copy etc.? Would that mean I had the power to enforce it?

Those who have not studied securitization don’t know what to say because deep down inside they think the show is over — when in fact it has only just begun, which is the point of Brad’s Workshop on forensic analysis.

Lawyers have complained that we tried to pack too much information into one day in the our workshops we did over the last two years. They are right. The reason lawyers should attend the forensics workshop is not so they can do forensic analysis (although they certainly would be in a better position to do so), but rather because they need to know what to do with the information once they get a report of results from a forensic review and analysis.

That note or copy they produced is probably not the evidence that is required. It probably is a copy of the note as it existed at the closing, and does not contain the chain of custody, assignment, indorsements or other indicia of ownership.

There is no doubt that a workshop on motion practice and discovery for lawyers only needs to be done and I am working on that. My problem is the same as any trial judge would have. How can we go that level unless the lawyer knows what evidence exists, what evidence to ask for, and how to use that evidence? That is the purpose of the forensic workshop. Unless the lawyer or pro se litigant knows what to do and say about the information produced in a forensic analysis, it is of little use. Logically, they could not possibly know what to say or do with the information unless they understood the significance of the information when it is presented to them.

Brad’s forensic workshop, together with my participation and other guest speakers, weaves together the issues presented by the loan transaction itself, the securitization of the mortgage, the transfers and chain of title issues combined with what works and doesn’t work with Judges because it is seen as truly significant as opposed to merely technicalities designed to delay the proceedings. Indisputable evidence that raises questions of fact that helps the Judge “get it” is what is necessary to win.

How to Find “Who Owns The Note” – Who has an “Insurable Interest” !!!!

How to Find “Who Owns The Note” – Who has an “Insurable Interest” !!!!

It is basic insurance law that in order to become named as a loss payee – that is, to get an insurance policy issued to you to indemnify you against loss – you have to have an “insurable interest.” MERS doesn’t ( as far as I know). It is not a “loss payee”. Every assignment of a mortgage (when the mortgage is sold in the securitization process is insured:


(I think I posted this here before, because Eagle9 warns of a loss of assignment if the assignment or hypothecation (sale of chattel paper/mtg) is not recorded under state law AND there is an intervening BANKRUPTCY that supersedes UCC automatic perfection under UCC 9-301 – 304

(yes, I did:

http://livinglies.me/2008/05/23/foreclosure-defense-strategic-bankruptcy-options/ )

Follow the insured interest.

Then you will know who does or does not have an interest in your mortgage.

And thanks to Brad Keiser for reminding me of this again in our telephone conversation yesterday.

Steven K. Kop
Attorney at Law
(310) 721-8557


More and more authorities are holding that in order for a claimant to prove itself to be the real party in interest to support a proof of claim or motion for relief from stay in bankruptcy, as well as to prove itself to be a holder in due course, they have to prove the entire chain of “ownership” and “holdership” of the Note complete with proof of “value paid to purchase the note ownership.” —  Lane Houk

Thanks to Ron Ryan

Editor’s note: If you really think about it there is no reason for MERS to exist EXCEPT to hide transactions under a veil of a “private” association of members, sidestepping the recording statues of every state and fooling Judges, Lawyers and homeowners around the state. Ron came up with the suspicion that Wells Fargo, HSBC and others were posting false entries on ownership of the note so as to dissuade homeowners from a “real party in interest” challenge.

He’s right and the information is starting to pop up showing this pattern of deceit, as you can see from the exchange below and MERS report below. Finding the creditor is this vast array of players is a task that must not be overlooked.

It’s just another example of why “auditors” and “analysts” need to include a complete review and research of the chain before they come to any conclusions about the TILA Report. These factors have a deep impact on APR, undisclosed fees and parties, and a host of other issues that are missed by most TILA Audits.

Brad Keiser’s Forensic Analysis Workshop will show you how to perform this analysis and research. If you are not already well versed in the securitization process and its impact on the mortgage, note, obligation and closing documents, you need to attend this workshop before you send out any more reports without referencing these factors.


Ronald Ryan: [It is highly probable] that HSBC, Wells Fargo and some others have come up with an extra creative way to hide the fact that a Note has been pooled into a MBS Pool. As many know, if one is able to obtain the MERS Milestone History and MERS Min Summary there is a great wealth of useful information. These documents are available online, but not to the public. It is not always easy to obtain these. Also, the information that is even on this is not perfect. The information that is shown depends on the information provided by the MERS Membership. I think that HSBC, Wells and others routinely list loans in which they are the Servicer as showing they are both Servicer and Current Investor. In other words, they publish on these secret data bases that they actually own and hold the Note in their own right, when they are really only the Servicer and the Note is pooled just like in every other instance of a Note executed between 2001-early 2008. The idea is that they know that attorneys for borrowers may obtain these documents, and this may dissuade an attack on their “real party in interest” status.

(520)743‐1020 fax
MILESTONES for 1000302-0055800082-2
Description Date Initiating
Organization / User Milestone Information
Foreclosure Status
11/27/2007 1000115 CitiMortgage, Inc. MIN Status: Active (Registered)
Foreclosure Status: Foreclosure
Pending (option 2), retained on
Quality Review: Y
Transfer of Flow
Servicing Rights
10/17/2005 1000302 Cherry Creek Mortgage Company,
MIN Status: Active (Registered)
New Investor: 1000115
CitiMortgage, Inc.
Old Investor: 1000302 Cherry
Creek Mortgage Company, Inc.
Batch Number: 2785251
Transfer Date: 10/14/2005
Christy Martin
Transfer of Flow
Servicing Rights
10/17/2005 1000302 Cherry Creek Mortgage Company,
MIN Status: Active (Registered)
New Servicer: 1000115
CitiMortgage, Inc.
Old Servicer: 1000302 Cherry
Creek Mortgage Company, Inc.
Batch Number: 2785251
Sale Date: 10/14/2005
Transfer Date: 10/14/2005
Christy Martin
Release Interim
Funder Interests
10/14/2005 1000108 GMAC Bank (1) MIN Status: Active (Registered)
Old Interim Funder: 1000108
Batch GMAC Bank (1)
Registration 10/03/2005 1000302 Cherry Creek Mortgage Company,
MIN Status: Active (Registered)
Servicer: 1000302 Cherry Creek
Batch Mortgage Company, Inc.
Page 1 of 1
From: RONALD RYAN [ronryanlaw@cox.net]
Sent: Sunday, March 07, 2010 7:02 AM
To: ‘Lane Houk’
Attachments: image001.png; image002.gif
Thank you. That is very helpful. As to discovery on MERS, do you mean a subpoena or a request for production? I have
had them ignore subpoenas. Do you have a ruling on enforcement of a request for production against them, if they are not named? Also, see below. If you would like a copy of my latest briefing on the relevant issues, I would be happy to provide it to you for the assistance you provided. Thanks again.
(520)743‐1020 fax
From: Lane Houk [mailto:Lane@thePatriotsWar.com]
Sent: Sunday, March 07, 2010 6:19 AM
Your suspicions are correct. See attached milestone report… Citimortgage is listing itself as Servicer and Investor.
Citimortgage does not invest in the loans. At the very least, the owner is Citibank but more likely a private trust or public trust since the loan is a jumbo.
Also, another thing to note on this report is the 10/14/2005 milestone… “Release Interim Funder Interests” naming GMAC Bank as the Interim Funder. On this transaction, GMAC Bank was never named in any document, no disclosure,
nothing. Cherry Creek Mortgage Company was supposedly the “Lender” in this transaction and is listed on HUD‐1 as lender, was the entity which disclosed under the TILA.
The “Lender” on the Note and DOT is never the actual source of funds. Is it your position that TILA requires that the actual source of funding be disclosed?
When we got this milestone report, it prompted specific discovery for all bailee agreements subject to this transaction; still waiting on that. There will also be a break in chain of title since the only assignment they’ve ever produced/recorded is from MERS to Citimortgage.
When you say break in the chain of title, you mean break in the chain of ownership of the Note? More and more authorities are holding that in order for a claimant to prove itself to be the real party in interest to support a proof of claim or motion for relief from stay in bankruptcy, as well as to prove itself to be a holder in due course, they have to prove the entire chain of “ownership” and “holdership” of the Note complete with proof of “value paid to purchase the note ownership.”
Lastly, you can get these milestone reports through discovery served on MERS regardless if they are named.
Hope this helps,
Lane Houk, CLA
National Institute of Consumer Advocacy, LLC
Consumer Debt Analyst & Investigator

Keiser’s Forensic Analysis Workshop

You must remember the judiciary moves slowly is assimilating new facts or patterns in the marketplace. In order to break through a Judge’s preconception of the mortgage origination process, you need to have something that is clear in is presentation of facts, and obvious in its impact.

The reasons for having analysis performed by an independent third party is that it transforms empty argument into a question of fact. Anything that leads to a questions of fact gives you leverage in and out of court. In court, it allows you to credibly raise the issues so that discovery and an evidentiary hearing will allow your claims to be heard on the merits. No “audit” or analysis is PROOF or EVIDENCE unto itself. What it should do is give you something to hold in your had while talking to the Court, and which clearly contests the “facts” that the pretender lender is trying to have the Court assume (which is why objections, motion practice, discovery and evidentiary hearings are so important).

Lots of mistakes are being made on both sides of the mortgage crisis. Brad, in hosting this new forensic analysis workshop, seeks to help analysts avoid the usual pitfalls, recognize the issues that an expert or lawyer or homeowner may be required to present, and work toward providing the litigation support required to achieve a successful result.

There are a number of good workshops out there that can help forensic auditors, lawyers, experts and even lay people understand how to proceed when they wish to challenge some company that claims to be your lender or servicer. Max Gardner’s boot-camps are very good venues for understanding securitized loans, applying law and procedure to the challenge and coming out with good results. April Charney, who is giving a workshop soon in California is adding non-judicial states to the scope of her workshops for the first time. And Brad Keiser, who has been doing the survey workshops with me for a year and a half is now offering an important, even essential, workshop that drills down on forensic analysis of mortgages and foreclosure proceedings.

Brad, being a former banker himself with one of the nations largest banks, has performed virtually all of the research I use in connection with TILA, RESPA etc. A long-time friend, he has worked with me to bring LivingLies from two dimensional blog postings to three dimensional live presentations.

The output is what is important in any analysis of your mortgage or foreclosure situation. It doesn’t matter what work a company says they will do, even if they completed their engagement. The question is whether it is useful in producing an actual result. That is where the intersection of what is working in court and what is not comes into play. The issue here is knowing what you have, planning your strategy, and choosing the right procedures, lawyers, experts etc. in achieving a well-defined goal. Brad and I have carefully analyzed the forensic process and found a number of things that rise to the level of prime importance:

  1. Finding out whether there are patent violations of existing federal and state lending laws that can be identified for further action by the homeowner or their attorney. This among other things involves an examination of the Annual Percentage rate disclosed on the Good faith estimate, the timing of the good faith estimate, the presence of the traditional (but illegal) yield spread premium), affordability and other factors including discrepancies between the GFE and the HUD settlement statement. A key component of this part of the analysis often overlooked by “TILA Auditors” is an examination of the settlement transaction where the alleged loan was closed revealing discrepancies between the beneficiaries of the mortgage, the note, the title insurance, the mortgage insurance etc. and the use of “nominees” instead of naming the real parties in interest, which is evidence of a table-funded loan.
  2. Revealing the latent violations of lending laws and regulations caused by securitization of loans. Here is where the second and much larger yield spread premium appears and must be estimated by your expert or analyst using tables prepared by an expert. In addition. it reveals discrepancies in signatures, dates and parties in connection with fabricated or forged assignments used to justify the foreclosure by a party not named as lender or beneficiary.
  3. Determining whether there are refunds or rebates due back to the homeowner/borrower either from the original named lender or some other party in a securitization chain.
  4. Discovering facts that show a pattern of deceptive or predatory lending.
  5. Researching the loan to determine the record title chain, the probable securitization of your loan, and providing you with the right questions to ask as tot he identity of the creditor and demanding an accounting from the creditor, as opposed to simply a servicer that serves as a buffer between the debtor (homeowner) and the creditor (Investor owning mortgage backed securities).
  6. Providing adequate information and forms to the lawyer or client on sending out a Qualified Written Request, Debt Validation Letter or Demand Letter.
  7. Highlighting the most significant issues in your loan for the expert to use in preparing a declaration or the lawyer to use in filing a lawsuit, a petition for temporary injunction, or a bankruptcy petition.

As I have repeatedly stated on these pages, a TILA Audit is a start but it usually won’t produce the result of a modified loan that is acceptable tot he homeowner or the nullification of the obligation, note or mortgage.

Before securitization of mortgage loans, the process of examining loan transactions was fairly straight forward and fairly simple. With securitization the analysis requires a much higher level of sophistication that enables the lawyer or homeowner to present or proffer evidence of wrong-doing or improper procedures accounting or disclosure on the part of the securitization chain that produced your loan from the investment in mortgage backed bonds by investors.

Cramdown in Chapter 13!!

see Bradsher Cramdown in Chapter 13

This case is an example of why forensic audits need to go much further than they currently do. Brad Keiser’s Workshop on forensic analysis will focus on the important issues that are usually missed in TILA or other reviews.

As the case points out, the usual rule is that lien stripping and cram-down on residential loans in a Chapter 13 are not possible. BUT in this case they did exactly that. The astute lawyer read the documents. It turns out that the “security instrument” (mortgage or deed of trust, depending upon where you are) secured not only the payment of the note but also the payment of taxes, insurance and other things. Thus, the court reasoned that the debt COULD be bifurcated into secured and unsecured.

The debt was originally $65k, but it was reduced to $22k as against the property because that is all the property was worth. The rest was unsecured, subject to normal Chapter 13 plan and treatment. Thus the debtor/petitioner got to keep their home, make the payments on the new secured loan balance and treat the rest as unsecured debt.

Most mortgages seem to have similar provisions. Forensic analysts should look carefully at the wording, since a lawyer or expert evaluating the case would need to know if the mortgage is subject to cram-down in this fashion.

Big Banks Accused of Short Sale Fraud

Wall Street didn’t merely siphon off unearned money, wealth and guarantees from homeowners, bank depositors and taxpayers. They screwed up title on what appears to be more than 60 million transactions — so even refi’s might now have rendered the title to be uninsurable or unmarketable.

Big Banks Accused of Short Sale Fraud

No surprise here. Brad Keiser points out that many of the “intermediaries” or “pretender lenders” are actually owned by these big banks. So the servicers and others turn out to be owned and/or controlled by the big players. No surprise there either. But what is good about this article is that the noose is tightening around those necks that should be in a noose — extracting NEW fees and profits to the detriment of both homeowners and investors and to the detriment of the taxpayer.

The second point is that I don’t want to sound like a broken record but if you don’t get a satisfaction of the note and mortgage from the actual creditor what do you have? NOTHING except perhaps some equitable claim that the company executing the satisfaction was authorized by the creditors. The problem with that is that the creditors (investors, Uncle Sam or subsequent purchasers of mortgage backed securities don’t even KNOW the transaction occurred, much less see the proceeds.

So if your satisfaction of mortgage is invalid (for the same reason that the foreclosure was invalid, which might also include the mortgage or deed of trust being invalid) what is the result? I think the result is that the homeowner still owns the property, OR that the original mortgage is still an encumbrance, OR that the Note is not satisfied OR that the obligation still exists. Or all of those. If any one of those things are true then you have both a cloud on title and a defect in title rendering the title to the property unmarketable.

We’ve written in these pages about how this will end up. The “Toxic Title Problem” is highlighted in neon letters in these transactions. Down the road (and not so far in the future) the title insurers and potential buyers are not going to accept title without exceptions, which means at best that there will be a flood of quiet title suits filed (millions of them) and at worst, a complete standstill in the transfer of title on any house with a securitized note and encumbrance.

Wall Street didn’t merely siphon off unearned money, wealth and guarantees from homeowners, bank depositors and taxpayers. They screwed up title on what appears to be more than 60 million transactions — so even refi’s might now have rendered the title to be uninsurable or unmarketable.

Big Banks Accused of Short Sale Fraud


On Friday January 15, 2010, 12:55 pm EST

Just as regulators, lawmakers and all forms of financial oversight boards are talking about new regulations to guard against mortgage fraud and another mortgage meltdown, there appears to be yet a new mortgage fraud out there today, allegedly perpetuated by agents of, yes, the big banks.

I was first alerted to this by Jeremy Brandt, the CEO of several companies that bring short sale agents, investors and sellers together.

His companies include 1800CashOffer, HomeFlux.com and FastHomeOffer.com. Brandt has a huge network of short sale real estate agents, and over the past several months he’s been receiving all kinds of questions and complaints about trouble with second lien holders.

As we all know, during the housing boom, millions of Americans pulled cash out of their homes in the form of home equity loans and lines of credit. They also used “piggy back” loans in order to get even lower interest rates on their primary mortgages. Now, many of the borrowers in trouble, and many who are so far underwater on their loans that they don’t qualify for any refi or modification, are choosing short sales as a way out. (Short sales are when the lender allows the home to be sold for less than the value of the loan). About 12 percent of all home sales by the end of 2009 were short sales, according to the National Association of Realtors.

In order for a short sale with two loans to happen, the second lien holder has to drop the lien.

If they don’t, and there’s no short sale, the home goes to foreclosure and the first lien holder gets the house because second liens are subordinated debt to the primary loan.

In short, the second lien holder gets nothing. In order to get the second lien holder to drop the lien, the first lien holder generally negotiates some partial payment to the second lien holder. The second lien holder doesn’t have to agree, but more and more are doing so.

That’s all legal.

But here’s what’s not legal and what’s apparently happening quite often recently. Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale. When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.

“They are pretty clear and pretty upfront about the fact that if the first lender knows they are getting paid, the first lender will kill the short sale,” says Brandt. “So these second lenders are asking for the payments off the closing documents, off the HUD statement, usually in a cashiers check prior to closing. Once they receive that payment, they will allow the short sale to go through, which according to RESPA laws and the lawyers that we have spoken to on the topic is not legal.”

(RESPA is the Real Estate Settlement Procedures Act, the 2008 law requiring that consumers receive disclosures at various times in the transaction. It outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD. Read more about it here.).

I told RESPA specialist Brian Sullivan over at HUD about all this and he replied, “That’s a red flag!”

Clearly illegal.

Brandt told me he’s heard from at least 200 agents that they’ve had these requests made by representatives of Citi Mortgage (NYSE: c), JP Morgan Chase (NYSE: jpm), Bank of America (NYSE: bac) and other large banks.

Most agents wouldn’t go on the record with me, for fear of retribution by the banks with whom they have to work every day. But one agent, Kayte Gentry, of Keller Williams Integrity First Realty, was brave enough to blow the whistle.

“I think it’s wrong, and I think somebody needs to hold them accountable, and every time I lose a house in foreclosure because of this, it hurts my client,” says Gentry matter-of-factly. “Aside from being illegal and a violation of RESPA, it’s immoral and truly it’s just sad for the client that it’s hurting.”

Gentry says she has had the requests made three times and claims she lost one sale because of it.

“The big banks that have recently made this request, specifically payments outside of the closing statement have been Citi Mortgage and JP Morgan Chase.”

JP Morgan Chase simply answered, “No Comment,” when I relayed the charge to their media representative.

Bank of America denied the practice to CNBC in a written statement:

“Bank of America enforces a policy that all disbursements are documented on the settlement statement for short sales. When we are servicing a first mortgage with a second lien held by another investor, if the second lien holder asks for off-HUD payments, we will not approve the transaction (if we have knowledge of it). It is also against Bank of America’s policy to accept off-HUD payments on its second liens.”

Citi ‘s reply was a bit more complicated:

“We work very hard to help distressed homeowners find solutions for their financial challenges. In our attempt to amicably resolve the debt, we will generally negotiate a reduced settlement with the homeowner in order to release a second lien. Unlike some lenders who refuse to reduce the payoffs on second liens, we choose to reduce the payoff amounts in some situations to assist the borrower. We do not provide instructions to settlement agents on how to fill out the settlement statement or any other closing documents, and we certainly do not require settlement agents or any other parties to violate applicable laws.”

“When we confront the lenders and tell them that this request is illegal and a violation of RESPA, they tell us it’s been cleared through legal and they don’t care. Do it anyway,” charges Gentry.

I personally heard a recording of a phone conversation between a short sale real estate agent and a second lien lender, during which the second lien lender clearly asked for cash outside of the settlement and threatened to kill the deal without it.

The real estate agent was rightly concerned and reluctant (the recording was given to me by Brandt who got it from the agent. The agent would provide no information on the lender, for fear of retribution):

AGENT: Well yes, I don’t want to lose my license, go to jail, I mean, I have to sign…

LENDER: You’re not going to lose your license – we have plenty of realtors who do this, who actually understand how this whole process goes – and they realize that OK, if I want to get this done, this will take place.”

I contacted the Treasury Department, HUD, FINCEN (Financial Crimes Enforcement Network) and the Federal Trade Commission, and none of their representatives could tell me of any active investigation into this. The folks at HUD said they’d be very interested to see my story.

  • Read All My Stories on Realty Check
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Class Actions Being Investigated

People have been asking about class actions. With a little bit of help at http://www.classadvocate.com I have come up with the following list. The one to watch is in Reno Nevada filed by Hager and Hearne. It covers Arizona, Nevada, and California. It has not been certified yet as a class action. I am involved as an expert witness in those cases (Lopez v Executive Trustee Services et al) and some other ones as well. Keep in mind these are investigations and that so far there is something like “probable cause” but not proof these were systemic actions or part of an established pattern of conduct.

  1. Countrywide pressured borrowers into unsuitable home loans.
  2. Countrywide materially increased loan costs at closing and switched the promised fixed rate into a variable rate loans.
  3. Americanize engaged in deceptive and predatory lending practices
  4. Bank of America reneged on promise it made to some home buyers by failing to comply with the bank’s “No Fee Modification Plan.”
  5. Countrywide schemed with appraisers to artificially inflate home prices. [Editor’s Note: This is a big one. By artificially increasing liquidity (i.e.., available money) into targeted geographical areas the scope of the fraud expands from individual homes to entire markets. By creating a “fraud upon the market” they create “plausible deniability” in the inflated appraisals because the comparable data is actually present to “support” the inflated appraisal. But the comparable data was inflated by artificially pumping money into a system and making it available under terms that appeared affordable. People forget that prices go up for one of TWO reasons — increased demand for housing (which never happened) due to increases in population etc. and increased liquidity (easy money). Either one will make prices appear to rise. As it turns out, increased liquidity has a geometrically higher impact on apparent asset values than consumer demand. See the Schiller (not Case Schiller) index which removes inflation from hosing prices and views the last 120 years of prices. Until 2001 they were always within range or explainable by various real external events. Then the prices rose as though propelled by a rocket in a manner and scope never seen before on any graph or analysis.]
  6. Countrywide severely damaged appraisers by blackballing them unless those appraisers issued Countrywide friendly appraisals. [Editor’s Note: Until securitization of mortgages a lender wanted to make absolutely sure that the property was worth what the buyer/borrower was paying for it. When securitization of loans kicked in the paradigm was turned on its head. Since the “lender” was a pretender lender and not using their own money and not booking the transaction as a loan receivable where they were assuming any risk, they now wanted to make sure the transaction was completed so the “lender” would receive its fee for standing in on a table-funded loan. The big change was that they had absolutely no motivation to verify the appraisal — quite the reverse. In order to meet their promise of providing “inventory” to Wall Street they needed to expand the apparent value of the homes because the unit count or number of transactions was trailing off, as Brad Keiser points out in our CLE workshops. So during this wild period they didn’t actually care what the property was worth, since all they needed was an “appraisal” that made the property APPEAR to be worth a certain amount of money, thus defrauding both borrowers and the investors who put up the money.]
  7. Countrywide rigged home appraisal process to inflate price Washington state homeowners paid for an appraisal. [Editor’s Note: examine the settlement documents carefully. You will usually find that the appraisal fee was either split or entire swallowed by a subsidiary or affiliate controlled by the pretender lender]
  8. Wells Fargo might be requiring home purchasers or those consumers refinancing a home to use Wells Fargo’s appraisal subsidiary Rels Valuation, then Wells Fargo requires the homeowner to pay an inflated fee for the appraisal.
  9. Richmond American Homes and Countrywide may have engaged in a scheme to artificially inflate the appraised value of homes build by Richmond American Homes.
  10. KB Homes, Countrywide and Landsafe might have conspired to rig home appraisals in KB developments causing homeowners to pay upwards of $20,000 over the true value of the homes. [Editor’s Note: My observation, non-statistical, is that this pattern of conduct was the prevailing way business was done. The developer would raise prices, and then appraisers would use the asking prices of the developers as their “comparables.” This made the appraisal always fit. It would be interesting to note how often the appraisal verified the contract before securitization and what the rate appraisals were accepted after securitization.]
  11. Countrywide improperly charging prepayment fee when homeowner sells house to third party.
  12. Countrywide charging excessive and illegal fees during foreclosure process.
  13. Large Banks and MERSCORP charge excessive fees during foreclosure process.
  14. New Century engaged in fraudulent origination practices in the home loan market.
  15. Novastar tricked homeowners into paying excessive fees and purchasing risky loan products. [Editor’s Note: The use of the term “purchase” applies to the borrower as well as the investor. In fact, based upon my analysis, the borrower’s transaction had mroe characteristics of a securities transaction and a securities issuance scheme than it did a loan].
  16. Chase Manhattan Mortgage part of scheme to fraudulently sell overpriced homes to consumers in Poconos Mountains
  17. Chase Home Finance illegally failed to properly apply prepayments by homeowners to the outstanding loan balance.
  18. Chase failed to promptly credit homeowners for prepayments on the consumers home loan.
  19. Large mortgage lenders discriminated against African-Americans by charging them higher fees and interest rates than similarly situated Caucasians.
  20. Amerifirst might have made unlawful pre-recorded calls to residential phone lines without their prior consent
  21. JPMorgan Chase Bank may an illegal closing fee at the closing of a residential real estate sale.
  22. JPMorgan may have been involved in a conspiracy to sell homes in Pocono Mountain area at inflated values
  23. Litton Loan servicing might not properly service adjustable rate home loans causing borrowers to pay more than owed.
  24. American Home Mortgage Servicing might improperly service adjustable rate home loans which may have the affect of causing borrowers to pay more than is owed.
  25. EMC Mortgage Corporation might overcharge customers when servicing adjustable rate mortgages.
  26. Countrywide improperly used deceptive disclosures when selling Option ARM loans to borrowers.
  27. EMC Mortgage Corp. might unlawfully service home loans.
  28. Homecomings Financial when servicing home loans may be unlawfully charging unneeded and excessive fees to customers.
  29. National City may fail to properly credit mortgage payments which generates unwarranted late fees
  30. Litton Loan Servicing may be improperly servicing home loans.

Don’t Get “HAMP”ED Out Of Your Home!

By Walter Hackett, Esq.
The federal government has trumpeted its Home Affordable Modification Program or “HAMP” solution as THE solution to runaway foreclosures – few things could be further from the truth.  Under HAMP a homeowner will be offered a “workout” that can result in the homeowner being “worked out” of his or her home.  Here’s how it works.  A participating lender or servicer will send a distressed homeowner a HAMP workout agreement.  The agreement consists of an “offer” pursuant to which the homeowner is permitted to remit partial or half of their regular monthly payments for 3 or more months.  The required payments are NOT reduced, instead the partial payments are placed into a suspense account.  In many cases once enough is gathered to pay the oldest payment due the funds are removed from the suspense account and applied to the mortgage loan.  At the end of the trial period the homeowner will be further behind than when they started the “workout” plan.   

In California, the agreements clearly specify the acceptance of partial payments by the lender or servicer does NOT cure any default.  Further, the fact a homeowner is in the workout program does NOT require the lender or servicer to suspend or postpone any non-judicial foreclosure activity with the possible exception of an actual trustee’s sale.  A homeowner could complete the workout plan and be faced with an imminent trustee’s sale.  Worse, if a homeowner performs EXACTLY as required by the workout agreement, they are NOT assured a loan modification.  Instead the agreement will include vague statements that the homeowner MAY receive an offer to modify his or her loan however there is NO duty on the part of the servicer or lender to modify a loan regardless of the homeowner’s compliance with the agreement. 
A homeowner who fully performs under a HAMP workout is all but guaranteed to have given away thousands of dollars with NO assurance of keeping his or her home or ever seeing anything resembling an offer to modify a mortgage loan. 
While it may well be the case the government was making an honest effort to help, the reality is the HAMP program is only guaranteed to help those who need help least – lenders and servicers.  If you receive ANY written offer to modify your loan meet with a REAL licensed attorney and ask them to review the agreement to determine what you are REALLY agreeing to, the home you save might be your own.




The Elephant in the Room – Well One of Many…

By Brad Keiser

For those of you who have been to our seminars, (coming to Southern California next month) You have heard me ask about Hank Paulson and Ben Bernanke…”Are they stupid or were they lying when they said everything was OK through out all of 2007 and most of 2008?” You have seen and heard why Neil and I declare we are of the belief that there is simply “not enough money in the world to solve this problem.”

Fannie Mae’s (FNM) 8k has an interesting slide of their questionable assets in the supplement. It can be found below along with the complete 2009 Second Quarter filing. The report describes FNM’s exposure to problematic classes of mortgages on their book. That total comes to almost $1 Trillion. (that’s with a “T”) The total book of business is about $2.7 Trillion, at least 30% and more likely as high as 50% of their book is troubled. The report muddles with the actual holdings, as there are overlaps in the descriptions. The actual numbers they provide include:

  • Negative Amortization Loans: $15B
  • Interest Only: $196B
  • Low Fico: $357B
  •  LTV>90%: $265B
  • Low Fico AND > 90% LTV: $25B
  • Alt-A: $269B
  • Sub Prime: $8B

Those numbers add up to $1.13 trillion. They are troubled for multiple reasons. For example, $25 billion are loans that have BOTH  high LTV and a FICO score less than 620. While there are varying degrees of toxicity when it comes to “toxic” assets these would be considered highly toxic.

 What might all this mean? Some trends are emerging. Based on historical private sector experience with these types of troubled loans, particulary those 30 % of Alt A/No doc and Negative Am loans that are non-owner occupied properties, one could expect that 50% of these borrowers will go into default. On the defaulted loans the losses will be conservatively about 50% of the outstanding loan balances. In other words, losses of 25% on the troubled book are reasonable assumptions. That would imply a loss over time on these loans of $275-$300B. And that does not include losses on Prime loans. And that is JUST Fannie. The Obama Administration has an estimate of $250B over four years for the full cost of cleaning up the ALL the GSE Agencies. These numbers suggest it could be double that, triple that or more.


This is ONLY Fannie…not Freddie or Ginnie or Sallie, not Citi, not BoA, not Wells Fargo, not numerous community banks who owned preferred shares in Fannie or Freddie that had their capital severly eroded when those preferred shares were wiped out last fall. How about the dwindling balance of FDIC reserves? Ladies and Gents we have a veritable herd of these elephants lingering in the room.

Gee no wonder Mr. Lockhart decided now would be a good time to step down from running Fannie, Hank Paulson is getting a tan somewhere now that he has saved Goldman Sachs(for the moment)and something tells me Uncle Ben Bernanke would not be heartbroken if he was replaced by Summers or whomever this fall and could simply go back to pontificating at Princeton.

In the interest of full disclosure I hold no position in Fannie or any of the stocks mentioned….I am long 1200 shares of Smith & Wesson.

Fannie 8k August 2009

Double click chart below to enlarge

Fannie Mae 8k Sup August 09

KISS – Keep It Simple Stupid: Why Brad Conducts Part of the Workshops

See also provident-bank-v-silverman-super-duper-explanation-of-ucc-transferres-holders-and-holders-in-due-course-and-perfecting-title-to-note-or-mortgage

 KISS – Keep It Simple Stupid

Totaled Cars and Totaled Mortgages – Credit Default Swaps – CDS – 101

By Brad Keiser

OK this article is for those newer readers and tenured Livinglies devotees as well as those who have attended Al Pacino’s(oops I mean Neil Garfield’s ) workshops and are not quite yet fluent in Garfieldeese or Wall Street Pig Latin. You have  heard him rant about derivative securities, credit default swaps, insurance products and co-obligors, etc….and why/how they come into play with the securitization process with respect to the argument that the party bringing the foreclosure action against you has already been paid.  Trial lawyers who use expert witness testimony realize that the success of expert testimony often hinges less on impressing the jury with degrees or credentials of the expert witness than on the ability of the expert witness to effectively communicate with a jury or judge and often simplify complex subject matter and put them into the context of the case at hand. The same is true for lawyers or Pro Se litigants. Allow me to break down the credit default swap elephant into bite size pieces

First, a credit default swap(CDS) can be defined in layman’s terms as “an insurance policy.” The objective of my car insurance policy is to protect a physical asset I own or replace the vehicle if it is totaled without having to take the cash out of my pocket. In the case of my life insurance policy, the benefit is a lump sum of money that theoretically would replace the “income stream” my family depends on if I die. The rationale for insurance is that it is easier for me to budget $500 every six months for car insurance than suddenly have to come up with $30,000 at once to replace my wife’s totaled minivan. In both instances beside the financial benefit I also derive the additional benefit of peace of mind.

In the securitization process, typically the Special Purpose Entity (SPE) or Trust that issued the mortgage backed securities (MBS) purchased an insurance policy (CDS) on the assets they were holding for the same reasons. In the event the mortgage was “totaled” the insurance carrier (we’ll call them AIG in this instance) paid out on the policy and made the SPE or Trust whole so they could continue to pay the investors they sold the securities to their periodic return on investment(ROI). As with the car and life insurance above, there was a similar “non-financial benefit” called peace of mind. The presence of this “insurance” gave the investors in the securities peace of mind and no doubt contributed to the peace of mind of the ratings agencies (Moody’s, Fitch, S&P) who gave these securities AAA ratings. The triggering events in each of the above examples are respectively an accident, a death or a default.


Totaled Car, Totaled Mortgage Pretty Simple Judge

So when my wife totaled the minivan, a vehicle I might add that had a properly RECORDED lien noted on my vehicle title, the insurance carrier issued a check to the bank that held the lien and paid off the note on the car OR put another way satisfied the obligation. The check did not come from me, it came from the insurance company, the bank obviously did not care where the money came from, the obligation was satisfied and the lien on the minivan was released. So did the bank, after getting paid by the insurance company, get to keep the damaged minivan ALSO and take it to an auto auction (READ: foreclosure sale) and keep the proceeds of auctioning off the wrecked minivan?  Noooo… Did I, the owner, of the minivan get to keep the wrecked minivan and sell it for additional $$$ beyond the benefit of the proceeds of the insurance policy paying off the loan at the bank? Noooo…

Based on the terms of the typical auto insurance policy who ends up with the title on the totaled minivan? It sure isn’t the bank that got paid off by the insurance company. The point is that absent someone’s sworn testimony, who can attest to personal knowledge about your specific loan and/or irrefutable evidence that your mortgage was a) not sold or securitized or b) not subject to an “insurance policy” we cannot be sure that the parties in court today have any authority.

KISS – Just win the argument of the day. Judge we are not saying this closing never occurred, we are not saying that a note was never signed; we are not saying the note wasn’t funded. We are saying the  material dispute before the court today is whether or not the parties here today bringing this action have already been paid and/or whether or not they are even the right parties with authority to bring this action against my client… We simply want the case to be heard on the merits.

By the way my wife now drives a monster, gas guzzling Chevy Suburban ,not that I am anti-environment or anything, just protecting the most valuable cargo I have in this world …the Keiser kids.


by Brad Keiser

Now Comes The Finger Pointing

It was only a matter of time until we began to see the finger pointing with regard to our current mortgage crisis. This morning I am going to summarize an article I found in Fortune Magazine Online written by Peter Eavis. In this article Eavis attempts assign varying degrees of blame to 7 groups that have contributed to the mortgage crisis. This work is not original to me, as I am using information from the article with an attempt to summarize it. Eavis assigns blame using a scale of 1 – 5 “Fingers of Blame”. Reality as I see it is that it will get worse before it gets better, we will see 100 year old Wall Street firms go under. While we are dispensing blame at some point the only way for us to unwind this mess will be for a certain “measure of amnesty” to be granted to many of the same parties, unfortunately I fear the last ones that will get any amnesty are the homeowners and they will probably need it the most.

Borrowers (3 Fingers Of Blame)

Thanks to low interest rates, getting rich in real estate became a national pastime. As prices soared, the urge to get in on the boom became overpowering. Medical students, hairdressers and other amateurs made purchases planning to flip them for quick gains. People for whom home ownership once seemed out of reach took on far more debt than they could ever hope to repay. These buyers were naive and addicted to easy money. Teaser rates and complicated loan terms insured that homebuyers often had little sense of what they were getting into. Many will pay for their poor judgement. The author weighs belief in individual responsibility against the all-too-human failing of getting caught up in a national frenzy.

Mortgage Brokers (3.5 Fingers Of Blame)

Mortgage brokers were very good at enabling borderline borrowers to get their loans. “The brokers have always been a disproportionately large part of subprime origination, so they were well positioned to help fuel the boom in subprime lending.” says Guy Cecala, publisher of the newsletter Inside Mortgage Finance. Mortgage brokers made millions as pure middlemen, they will feel relatively little in the way of consequences.

Appraisers (2 Fingers of Blame)

Real estate appraisers often buckled under pressure from lenders to overvalue houses. There is no loan without an appraisal justifying the value of the property. In comparison with other participants, appraisers come across as bit players.

Mortgage Lenders (4 Fingers of Blame)

Once mortgage lenders made all the loans they could reasonably make to qualified borrowers, the banks began relaxing the rules and reaching further down the credit scale. Ever heard of the NINJA loan? (No Income, No Job, No Assets). Lenders are paying a large price for their past practices. Dozens of mortgage companies have gone bankrupt. Mortgage providers made billions from the boom. Judging risk is at the heart of what they are supposed to do.

Wall Street (4 Fingers of Blame)

If the banks and mortgage companies would have had to keep these loans on their books, they never would have made the loans. They did not have to thanks to the mortgage machine Wall Street’s investment banks and hedge funds developed. Wall Street profits fueled the situation we now face. For example, Bear Stearns, which recently suffered huge subprime losses in two of its hedge funds, earned $2 billion in 2006. It made $600 million in 2001. 

Rating Agencies (3.5 Fingers of Blame)

Wall Street needs the blessing of rating agencies like Standard & Poor’s and Moody’s. These agencies were often all to willing to comply. Typically, rating agencies react too slowly with regard to questionable trends and innovations. The subprime lending explosion offered far more risk than these agencies expressed.

The Federal Reserve (4.5 Fingers of Blame)

The Federal Reserve has the power to put a stop to the excesses we experienced during this market. The main charge against the Fed is that former chairman Alan Greenspan kept interest rates at very low level far longer than necessary, which in turned sparked the bubble in housing prices and mortgage lending. The rate decisions made, showed that Greenspan had chosen to use the housing market as his main instrument to prop up the economy after the 9/11 attacks. In 2005, Greenspan gave a speech that blessed the creation of new loan products, including subprime home loans.

Senator Christopher Dodd, chairman of the Senate Banking Committee, laid much of the blame for the current crisis at the feet of Greenspan’s Fed. Most believe that the Fed should have tightened earlier. So the Fed has to accept a large slab of blame for the current crunch. 

So it is obvious that there is plenty of blame to go around. The bottom line is that a “perfect storm” of financial conditions all had to come together at once to fuel this crisis. It will be interesting to see the responses of these agencies to the mess they have contributed to.

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