CA Trial Court Upholds Claims for Improper Assignment, Accounting, Unfair Practices

Editor’s Note: In an extremely well-written and well reasoned decision Federal District Court Judge M. James Lorenz denied the Motion to dismiss of US Bank on an alleged WAMU securitization that for the first time recognizes that the securitization scheme could be a sham, with no basis in fact.

Although the Plaintiff chose not to make allegations regarding false origination of loan documents, which I think is important, the rest of the decision breaks the illusion created by the banks and servicers through the use of documents that look good but do not meet the standards of proof required in a foreclosure.

  1. I would suggest that lawyers look at the claim and allegations that the origination documents were false and were procured by fraud.
  2. Since no such allegation was made, the court naturally assumed the loan was validly portrayed in the loan documents and that the note was evidence of the loan transaction, presuming that SBMC actually loaned the money to the Plaintiff, which does not appear to be the case.
  3. This Judge actually read everything and obvious questions in his mind led him to conclude that there were irregularities in the assignment process that could lead to a verdict in favor of the Plaintiff for quiet title, accounting, unfair practices and other claims.
  4. The court recites the fact that the loan was sold to “currently unknown entity or entities.” This implicitly raises the question of whether the loan was in fact actually sold more than once, and if so, to whom, for how much, and raises the issues of whom Plaintiff was to direct her payments and whether the actual creditor was receiving the money that Plaintiff paid.  — a point hammered on, among others, at the Garfield Seminars coming up in Emeryville (San Francisco), 8/25 and Anaheim, 8/29-30. If you really want to understand what went on in the mortgage meltdown and the tactics and strategies that are getting traction in the courts, you are invited to attend. Anaheim has a 1/2 day seminar for homeowners. Call customer service 520-405-1688 to attend.
  5. For the first time, this Court uses the words (attempt to securitize” a loan as opposed to assuming it was done just based upon the paperwork and the presence of the the parties claiming rights through the assignments and securitization.
  6. AFTER the Notice of Sale was recorded, the Plaintiff sent a RESPA 6 Qualified Written request. The defendants used the time-honored defense that this was not a real QWR, but eh court disagreed, stating that the Plaintiff not only requested information but gave her reasons in some details for thinking that something might be wrong.
  7. Plaintiff did not specifically mention that the information requested should come from BOTH the subservicer claiming rights to service the loan and the Master Servicer claiming rights to administer the payments from all parties and the disbursements to those investor lenders that had contributed the money that was used to fund the loan. I would suggest that attorneys be aware of this distinction inasmuch as the subservicer only has a small snapshot of transactions solely between the borrower and the subservicer whereas the the information from the Master Servicer would require a complete set of records on all financial transactions and all documents relating to their claims regarding the loan.
  8. The court carefully applied the law on Motions to Dismiss instead of inserting the opinion of the Judge as to whether the Plaintiff would win stating that “material allegations, even if doubtful in fact, are assumed to be true,” which is another point we have been pounding on since 2007. The court went on to say that it was obligated to accept any claim that was “plausible on its face.”
  9. The primary claim of Plaintiffs was that the Defendants were “not her true creditors and as such have no legal, equitable, or pecuniary right in this debt obligation in the loan,’ which we presume to mean that the court was recognizing the distinction, for the first time, between the legal obligation to pay and the loan documents.
  10. Plaintiff contended that there was not a proper assignment to anyone because the assignment took place after the cutoff date in 2006 (assignment in 2010) and that the person executing the documents, was not a duly constituted authorized signor. The Judge’s decision weighed more heavily that allegation that the assignment was not properly made according to the “trust Document,” thus taking Defendants word for it that a trust was created and existing at the time of the assignment, but also saying in effect that they can’t pick up one end of the stick without picking up the other. The assignment, after the Notice of Default, violated the terms of the trust document thus removing the authority of the trustee or the trust to accept it, which as any reasonable person would know, they wouldn’t want to accept — having been sold on the idea that they were buying performing loans. More on this can be read in “whose Lien Is It Anyway?, which I just published and is available on
  11. The Court states without any caveats that the failure to assign the loan in the manner and timing set forth in the “trust document” (presumably the Pooling and Servicing Agreement) that the note and Deed of trust are not part of the trust and that therefore the trustee had no basis for asserting ownership, much less the right to enforce.
  12. THEN this Judge uses simple logic and applies existing law: if the assignment was void, then the notices of default, sale, substitution of trustee and any foreclosure would have been totally void.
  13. I would add that lawyers should consider the allegation that none of the transfers were supported by any financial transaction or other consideration because consideration passed at origination from the investors directly tot he borrower, due to the defendants ignoring the provisions of the prospectus and PSA shown to the investor-lender. In discovery what you want is the identity of each entity that ever showed this loan is a loan receivable on any regular business or record or set of accounting forms. It might surprise you that NOBODY has the loan posted as loan receivable and as such, the argument can be made that NOBODY can submit a CREDIT BID at auction even if the auction was otherwise a valid auction.
  14. Next, the Court disagrees with the Defendants that they are not debt collectors and upholds the Plaintiff’s claim for violation of FDCPA. Since she explicitly alleges that US bank is a debt collector, and started collection efforts on 2010, the allegation that the one-year statute of limitation should be applied was rejected by the court. Thus Plaintiff’s claims for violations under FDCPA were upheld.
  15. Plaintiff also added a count under California’s Unfair Competition Law (UCL) which prohibits any unlawful, unfair or fraudulent business act or practice. Section 17200 of Cal. Bus. & Prof. Code. The Court rejected defendants’ arguments that FDCPA did not apply since “Plaintiff alleges that Defendants violated the UCL by collecting payments that they lacked the right to collect, and engaging in unlawful business practices by violating the FDCPA and RESPA.” And under the rules regarding motions to dismiss, her allegations must be taken as absolutely true unless the allegations are clearly frivolous or speculative on their face.
  16. Plaintiff alleged that the Defendants had created a cloud upon her title affecting her in numerous ways including her credit score, ability to refinance etc. Defendants countered that the allegation regarding a cloud on title was speculative. The Judge said this is not speculation, it is fact if other allegations are true regarding the false recording of unauthorized documents based upon an illegal or void assignment.
  17. And lastly, but very importantly, the Court recognizes for the first time, the right of a homeowner to demand an accounting if they can establish facts in their allegations that raise questions regarding the status of the loan, whether she was paying the right people and whether the true creditors were being paid. “Plaintiff alleges facts that allows the Court to draw a reasonable inference that Defendants may be liable for various misconduct alleged. See Iqbal, 129 S. Ct. at 1949.

Here are some significant quotes from the case. Naranjo v SBMC TILA- Accounting -Unfair practices- QWR- m/dismiss —

Judge Lorenzo Decision in Naranjo vs. SBMC Mortgage et al 7-24-12

No allegations regarding false origination of loan documents:

SBMC sold her loan to a currently unknown entity or entities. (FAC ¶ 15.) Plaintiff alleges that these unknown entities and Defendants were involved in an attempt to securitize the loan into the WAMU Mortgage Pass-through Certificates WMALT Series 2006-AR4 Trust (“WAMU Trust”). (Id. ¶ 17.) However, these entities involved in the attempted securitization of the loan “failed to adhere to the requirements of the Trust Agreement

In August 2009, Plaintiff was hospitalized, resulting in unforeseen financial hardship. (FAC ¶ 25.) As a result, she defaulted on her loan. (See id. ¶ 26.)
On May 26, 2010, Defendants recorded an Assignment of Deed of Trust, which states that MERS assigned and transferred to U.S. Bank as trustee for the WAMU Trust under the DOT. (RJN Ex. B.) Colleen Irby executed the Assignment as Officer for MERS. (Id.) On the same day, Defendants also recorded a Substitution of Trustee, which states that the U.S. Bank as trustee, by JP Morgan, as attorney-in-fact substituted its rights under the DOT to the California Reconveyance Company (“CRC”). (RJN Ex. C.) Colleen Irby also executed the Substitution as Officer of “U.S. Bank, National Association as trustee for the WAMU Trust.” (Id.) And again, on the same day, CRC, as trustee, recorded a Notice of Default and Election to Sell. (RJN Ex. D.)
A Notice of Trustee’s sale was recorded, stating that the estimated unpaid balance on the note was $989,468.00 on July 1, 2011. (RJN Ex. E.)
On August 8, 2011, Plaintiff sent JPMorgan a Qualified Written Request (“QWR”) letter in an effort to verify and validate her debt. (FAC ¶ 35 & Ex. C.) In the letter, she requested that JPMorgan provide, among other things, a true and correct copy of the original note and a complete life of the loan transactional history. (Id.) Although JPMorgan acknowledged the QWR within five days of receipt, Plaintiff alleges that it “failed to provide a substantive response.” (Id. ¶ 35.) Specifically, even though the QWR contained the borrow’s name, loan number, and property address, Plaintiff alleges that “JPMorgan’s substantive response concerned the same borrower, but instead supplied information regarding an entirely different loan and property.” (Id.)

The court must dismiss a cause of action for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The court must accept all allegations of material fact as true and construe them in light most favorable to the nonmoving party. Cedars-Sanai Med. Ctr. v. Nat’l League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007). Material allegations, even if doubtful in fact, are assumed to be true. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, the court need not “necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations.” Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (internal quotation marks omitted). In fact, the court does not need to accept any legal conclusions as true. Ashcroft v. Iqbal, 556 U.S. 662, ___, 129 S. Ct. 1937, 1949 (2009)

the allegations in the complaint “must be enough to raise a right to relief above the speculative level.” Id. Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'” Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a `probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. A complaint may be dismissed as a matter of law either for lack of a cognizable legal theory or for insufficient facts under a cognizable theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984).

Plaintiff’s primary contention here is that Defendants “are not her true creditors and as such have no legal, equitable, or pecuniary right in this debt obligation” in the loan. (Pl.’s Opp’n 1:5-11.) She contends that her promissory note and DOT were never properly assigned to the WAMU Trust because the entities involved in the attempted transfer failed to adhere to the requirements set forth in the Trust Agreement and thus the note and DOT are not a part of the trust res. (FAC ¶¶ 17, 20.) Defendants moves to dismiss the FAC in its entirety with prejudice.

The vital allegation in this case is the assignment of the loan into the WAMU Trust was not completed by May 30, 2006 as required by the Trust Agreement. This allegation gives rise to a plausible inference that the subsequent assignment, substitution, and notice of default and election to sell may also be improper. Defendants wholly fail to address that issue. (See Defs.’ Mot. 3:16-6:2; Defs.’ Reply 2:13-4:4.) This reason alone is sufficient to deny Defendants’ motion with respect to this issue. [plus the fact that no financial transaction occurred]

Moving on, Defendants’ reliance on Gomes is misguided. In Gomes, the California Court of Appeal held that a plaintiff does not have a right to bring an action to determine a nominee’s authorization to proceed with a nonjudicial foreclosure on behalf of a noteholder. 192 Cal. App. 4th at 1155. The nominee in Gomes was MERS. Id. at 1151. Here, Plaintiff is not seeking such a determination. The role of the nominee is not central to this action as it was in Gomes. Rather, Plaintiff alleges that the transfer of rights to the WAMU Trust is improper, thus Defendants consequently lack the legal right to either collect on the debt or enforce the underlying security interest.

Plaintiff requests that the Court “make a finding and issue appropriate orders stating that none of the named Defendants . . . have any right or interest in Plaintiff’s Note, Deed of Trust, or the Property which authorizes them . . . to collect Plaintiff’s mortgage payments or enforce the terms of the Note or Deed of Trust in any manner whatsoever.” (FAC ¶ 50.) Defendant simplifies this as a request for “a determination of the ownership of [the] Note and Deed of Trust,” which they argue is “addressed in her other causes of action.” (Defs.’ Mot. 6:16-20.) The Court disagrees with Defendants. As discussed above and below, there is an actual controversy that is not superfluous. Therefore, the Court DENIES Defendants’ motion as to Plaintiff’s claim for declaratory relief.

Defendants argue that they are not “debt collectors” within the meaning of the FDCPA. (Defs.’ Mot. 9:13-15.) That argument is predicated on the presumption that all of the legal rights attached to the loan were properly assigned. Plaintiff responds that Defendants are debt collectors because U.S. Bank’s principal purpose is to collect debt and it also attempted to collect payments. (Pl.’s Opp’n 19:23-27.) She explicitly alleges in the FAC that U.S. Bank has attempted to collect her debt obligation and that U.S. Bank is a debt collector. Consequently, Plaintiff sufficiently alleges a claim under the FDCPA.
Defendants also argue that the FDCPA claim is time barred. (Defs.’ Mot. 7:18-27.) A FDCPA claim must be brought “within one year from the date on which the violation occurs.” 15 U.S.C. § 1692k(d). Defendants contend that the violation occurred when the allegedly false assignment occurred on May 26, 2010. (Defs.’ Mot. 7:22-27.) However, Plaintiff alleges that U.S. Bank violated the FDCPA when it attempted to enforce Plaintiff’s debt obligation and collect mortgage payments when it allegedly had no legal authority to do so. (FAC ¶ 72.) Defendants wholly overlook those allegations in the FAC. Thus, Defendants fail to show that Plaintiff’s FDCPA claim is time barred.
Accordingly, the Court DENIES Defendants’ motion as to Plaintiff’s FDCPA claim.
Defendants argue that Plaintiff’s letter does not constitute a QWR because it requests a list of unsupported demands rather than specific particular errors or omissions in the account along with an explanation from the borrower why she believes an error exists. (Defs.’ Mot. 10:4-13.) However, the letter explains that it “concerns sales and transfers of mortgage servicing rights; deceptive and fraudulent servicing practices to enhance balance sheets; deceptive, abusive, and fraudulent accounting tricks and practices that may have also negatively affected any credit rating, mortgage account and/or the debt or payments that [Plaintiff] may be obligated to.” (FAC Ex. C.) The letter goes on to put JPMorgan on notice of
potential abuses of J.P. Morgan Chase or previous servicing companies or previous servicing companies [that] could have deceptively, wrongfully, unlawfully, and/or illegally: Increased the amounts of monthly payments; Increased the principal balance Ms. Naranjo owes; Increased the escrow payments; Increased the amounts applied and attributed toward interest on this account; Decreased the proper amounts applied and attributed toward the principal on this account; and/or[] Assessed, charged and/or collected fees, expenses and miscellaneous charges Ms. Naranjo is not legally obligated to pay under this mortgage, note and/or deed of trust.
(Id.) Based on the substance of letter, the Court cannot find as a matter of law that the letter is not a QWR.
California’s Unfair Competition Law (“UCL”) prohibits “any unlawful, unfair or fraudulent business act or practice. . . .” Cal. Bus. & Prof. Code § 17200. This cause of action is generally derivative of some other illegal conduct or fraud committed by a defendant. Khoury v. Maly’s of Cal., Inc., 14 Cal. App. 4th 612, 619 (1993). Plaintiff alleges that Defendants violated the UCL by collecting payments that they lacked the right to collect, and engaging in unlawful business practices by violating the FDCPA and RESPA.

Defendants argue that Plaintiff’s allegation regarding a cloud on her title does not constitute an allegation of loss of money or property, and even if Plaintiff were to lose her property, she cannot show it was a result of Defendants’ actions. (Defs.’ Mot. 12:22-13:4.) The Court disagrees. As discussed above, Plaintiff alleges damages resulting from Defendants’ collection of payments that they purportedly did not have the legal right to collect. These injuries are monetary, but also may result in the loss of Plaintiff’s property. Furthermore, these injuries are causally connected to Defendants’ conduct. Thus, Plaintiff has standing to pursue a UCL claim against Defendants.

Plaintiff alleges that Defendants owe a fiduciary duty in their capacities as creditor and mortgage servicer. (FAC ¶ 125.) She pursues this claim on the grounds that Defendants collected payments from her that they had no right to do. Defendants argue that various documents recorded in the Official Records of San Diego County from May 2010 show that Plaintiff fails to allege facts sufficient to state a claim for accounting. (Defs.’ Mot. 16:1-3.) Defendants are mistaken. As discussed above, a fundamental issue in this action is whether Defendants’ rights were properly assigned in accordance with the Trust Agreement in 2006. Plaintiff alleges facts that allows the Court to draw a reasonable inference that Defendants may be liable for various misconduct alleged. See Iqbal, 129 S. Ct. at 1949.

U.S. Starts Criminal Probe of Lender Processing Services Inc. Foreclosure-Data Provider

The case follows on the dismissal of numerous foreclosure cases in which judges across the U.S. have found that the materials banks had submitted to support their claims were wrong. Faulty bank paperwork has been an issue in foreclosure proceedings since the housing crisis took hold a few years ago. It is often difficult to pin down who the real owner of a mortgage is, thanks to the complexity of the mortgage market.

the majority of foreclosures go unchallenged, some homeowners have won the right to keep their homes by proving the bank couldn’t show, on paper, that it owned the mortgage.

[LPS a/k/a DOCX] produces documents needed by banks to prove they own the mortgages. LPS’s annual report said that the processes under review have been “terminated,” and that the company has expressed its willingness to cooperate. Ms. Kersch declined to comment further on the probe.

Editor’s Note: The executive branch is finally becoming involved. The foreclosure mills have been producing dubious and/or fraudulent, fabricated, forged documentation for 3 years or more. Some of these foreclosure mills are operating in the same office and owned by the law firms prosecuting foreclosures. Maybe sooner than later these unethical, illegal practices will stop and the people responsible will be prosecuted for criminal violations, civil fines, and administrative grievances in which their licenses will be revoked.

But in the end we still have millions of homes whose title is at least clouded, probably defective and will soon become unmarketable as title companies realize the issues presented by fraudulent foreclosures by entities other than the creditor.

Wall Street Journal

April 3, 2010

U.S. Probes Foreclosure-Data Provider

Lender Processing Services Unit Draws Inquiry Over the Steps That Led to Faulty Bank Paperwork


A subsidiary of a company that is a top provider of the documentation used by banks in the foreclosure process is under investigation by federal prosecutors.

The prosecutors are “reviewing the business processes” of the subsidiary of Lender Processing Services Inc., based in Jacksonville, Fla., according to the company’s annual securities filing released in February. People familiar with the matter say the probe is criminal in nature.

Michelle Kersch, an LPS spokeswoman, said the subsidiary being investigated is Docx LLC. Docx processes and sometimes produces documents needed by banks to prove they own the mortgages. LPS’s annual report said that the processes under review have been “terminated,” and that the company has expressed its willingness to cooperate. Ms. Kersch declined to comment further on the probe.

A spokesman for the U.S. attorney’s office for the middle district of Florida, which the annual report says is handling the matter, declined to comment.

The case follows on the dismissal of numerous foreclosure cases in which judges across the U.S. have found that the materials banks had submitted to support their claims were wrong. Faulty bank paperwork has been an issue in foreclosure proceedings since the housing crisis took hold a few years ago. It is often difficult to pin down who the real owner of a mortgage is, thanks to the complexity of the mortgage market.

During the housing boom, mortgages were originated by lenders, quickly sold to Wall Street firms that bundled them into debt pools and then sold to investors as securities. The loans were supposed to change hands but the documents and contracts between borrowers and lenders often weren’t altered to show changes in ownership, judges have ruled.

Related Documents

Documents processed by LPS that said an entity called “Bogus Assignee” owned the mortgage:

That has made it hard for banks, which act on behalf of mortgage-securities investors in most foreclosure cases, to prove they own the loans in some instances.

LPS has said its software is used by banks to track the majority of U.S. residential mortgages from the time they are originated until the debt is satisfied or a borrower defaults. When a borrower defaults and a bank needs to foreclose, LPS helps process paperwork the bank uses in court.

LPS was recently referenced in a bankruptcy case involving Sylvia Nuer, a Bronx, N.Y., homeowner who had filed for protection from creditors in 2008.

Diana Adams, a U.S. government lawyer who monitors bankruptcy courts, argued in a brief filed earlier this year in the Nuer case that an LPS employee signed a document that wrongly said J.P. Morgan Chase & Co. had owned Ms. Nuer’s loan.

Documents related to the loan were “patently false or misleading,” according to Ms. Adams’s court papers. J.P. Morgan Chase, which has withdrawn its request to foreclose, declined to comment.

Linda Tirelli, a lawyer for Ms. Nuer, declined to comment directly on the case.

Ms. Kersch said LPS didn’t actually create the document and that the company’s “sole connection to this case is that our technology and services were utilized by J.P. Morgan Chase and its counsel.”

While the majority of foreclosures go unchallenged, some homeowners have won the right to keep their homes by proving the bank couldn’t show, on paper, that it owned the mortgage.

Some lawyers representing homeowners have claimed that banks routinely file erroneous paperwork showing they have a right to foreclose when they don’t.

Firms that process the paperwork are either “producing so many documents per day that nobody is reviewing anything, even to make sure they have the names right, or you’ve got some massive software problem,” said O. Max Gardner, a consumer-bankruptcy attorney in Shelby N.C., who has defended clients against foreclosure actions.

The wave of foreclosures and housing crisis appears to have helped LPS. According to the annual securities filing, foreclosure-related revenue was $1.1 billion last year compared with $473 million in 2007.

LPS has acknowledged problems in its paperwork. In its annual securities filing, in which it disclosed the federal probe, the company said it had found “an error” in how Docx handled notarization of some documents. Docx also has processed documents used in courts that incorrectly claimed an entity called “Bogus Assignee” was the owner of the loan, according to documents reviewed by The Wall Street Journal.

Ms. Kersch said the “bogus” phrase was used as a placeholder. “Unfortunately, on a few occasions, the document was inadvertently recorded before the field was updated,” she said.

Write to Amir Efrati at and Carrick Mollenkamp at

“uncertain line between hope and despair”

The entities foreclosing don’t have ANYTHING at stake. They have no stake and yet they are still getting homes for nothing

Editor’s Note: The federal plan is good as to its intent but unnecessary if the law was applied. Sure the bailout SHOULD apply to anyone who got stuck with one of these securitized mortgages. it clouded their title and stuck them with loan products that were unworkable while they were told by the experts at the table that everything was fine.
People have the question wrong: If the reality of the situation is not addressed SOMEBODY is going to get a free house — either the homeowner or some corporation set up by Wall Street that never lent a dime. It isn’t about why should a reckless homeowner get a free house, it is about why should a player who gambled with other people’s money get a free house. At least the homeowner has something at stake even if they had no down payment.
The entities foreclosing don’t have ANYTHING at stake. They have no stake and yet they are still getting homes for nothing. People are mad about he federal bailout. Now the same players are getting a foreclosure bailout, or better stated, a gift courtesy of the taxpayer and a reluctant judicial system.
March 22, 2010

Microcosm of Housing Crisis on an Arizona Street


CAVE CREEK, Ariz. — The uncertain line between hope and despair divides this exurb of Phoenix, where the trim stucco houses used to sell so briskly.

It winds around the swimming pools and the pebbled yards of East Montgomery Road like a slow-burning fuse.

On one side are people like the Setbackens, Gary and Cissie, who moved here from Washington State and, with prudence, have managed to pay their mortgage bill month after month. On the other side are those like Kelley Carter, who never dreamed that home prices would fall so hard, and got in over their heads.

Two in five homeowners in this sprawling development 30 miles northeast of Phoenix are underwater on their mortgages. And that reality is wearing away household budgets and people’s patience.

Arizona is one of five states that, with money from Washington, hopes to help at least some of these people hold on to their homes. Under a new, federally financed pilot program for the hardest-hit housing markets, state officials will decide who will get a homeowner bailout, and who will not.

The idea is as controversial in Washington as it is here. Do the neighbors next door who lived beyond their means — the ones who, say, bought that house they could not afford, or who binged on home equity loans to buy new cars and flat-panel TVs — really deserve to be bailed out with taxpayer dollars? Do they deserve to have some of their debts forgiven? And is that fair to the cautious ones who paid their mortgages?

For the people of Cave Creek, the answers will fall to state officials like Michael Trailor, the director of the Arizona housing department.

A former real estate developer, Mr. Trailor knows firsthand about the perils of the property market.

“I feel for all of them,” Mr. Trailor said of the struggling homeowners. “But we do not have the funds to help all of them. If we can help 6,000 people, which ones should we help?”

The federal government will pay for pilot programs in Arizona, California, Florida, Michigan and Nevada with $1.5 billion from the federal banking rescue. That figure is a small fraction of the funds that would be needed to help all of the people at risk. Arizona, for instance, received $125 million. If it allocates $30,000 of aid for each residence, 4,166 homeowners would benefit. But the Phoenix area is bracing for as many as 50,000 foreclosures this year alone.

Mr. Trailor said he was reluctant to help homeowners with “self-inflicted wounds,” like those who overspent or cashed out the equity in their homes during the bubble years. He wants the banks to match the public money being used for debt forgiveness, and he is focusing on people whose incomes have fallen but who still hold jobs.

He is considering an approach known as “earned forgiveness,” where the state and the banks promise to forgive mortgage debt later on, but only if the homeowners stay in their homes and keep making their payments.

The question of who deserves help rouses neighbors here. Not long ago, home values seemed to reach relentlessly toward the bright blue sky.

Then the boom went bust. Home prices in the Phoenix area have collapsed by 50 percent since mid-2006, leaving many owners with mortgages that are higher than their property values. One in 10 homes in this development in Cave Creek have moved through foreclosure since 2008, according to Netvaluecentral, a real estate tracking company in Glendale, Ariz. Half of the homes here are owned by banks or are being sold for less than the value of their mortgages.

“Underwater homes make it highly likely people will walk away, and if they do, these foreclosures are going to push everyone’s prices down,” said Brett Barry, a real estate agent here. “People need to realize that we’re in this together.”

The new reality is evident on East Montgomery Road, where the bust is playing out in a variety of ways.

There are the Setbackens, at 4355, who arrived in 1993 and paid down their mortgage even as home prices skyrocketed.

Across the street are the Chatburns, Tim and Leslie. They also arrived in the 1990s, before prices exploded, but struggled recently to keep up with the bills after an injury kept Mr. Chatburn out of work.

Mr. Chatburn, an air-conditioning repairman, used to say that bailing out his neighbors would be unfair, but he changed his mind after watching news programs about the rescues of big financial companies like the American International Group.

“I started thinking about all this money we paid as taxpayers to the banks,” he said, “and I thought, ‘Why don’t we take care of our own a little bit?’ ”

Ms. Carter, at 4344, arrived in 2005, as the bubble was inflating. She took out tens of thousands of dollars in home equity for repairs and other items, and by this year, she was underwater on her mortgage by $86,000. A single mother, she moved out this month, days before her home was sold in a short sale, which meant her mortgage lender allowed her to sell for less than the value of her mortgage and the lender took the loss.

And then there is the young couple with a toddler, at 4343. They moved out on the same day as Ms. Carter, before a scheduled foreclosure of their home that was $115,000 underwater. The couple, who asked not to be named, also bought near the peak and took out a home equity loan to pay off their student loans and other debts. Then, a year ago, they stopped paying their mortgage, after both of them lost their jobs for a time. They now have office jobs again.

Mr. Setbacken, a salesman, said he had warned his neighbors not to get in over their heads but they did not listen. He and his wife might have stepped up to a bigger house if they, like so many of their neighbors, had gambled recklessly on the housing market, he said.

“Everybody that I know that got themselves in trouble was because of one word: greed,” said Mr. Setbacken, 63, a former Marine who remains in tip-top physical condition. “I have no sympathy for any of them, on the financial end. When I hear about dropping the amount you actually owe, I could stick my finger down my throat.”

Then the doorbell rang. It was a young girl bearing Girl Scout cookies. “My adopted granddaughter,” Mr. Setbacken announced.

The 8-year-old is Ms. Carter’s daughter, Ava. Across the street, Ms. Carter was packing up the house.

Ms. Carter said she felt guilty about leaving. With her short sale, the price of the home went down to the benefit of the new homeowner. But it dragged down prices in the neighborhood, she said.

Ms. Carter, a mother of two and a real estate agent who poses as an angel with wings on her Web site, has been through hard times before. Years ago, she considered filing for bankruptcy but then changed her mind. She said she was accountable for her actions and was making what amounted to a business decision to leave her home.

“I had to take emotion out of it,” said Ms. Carter, 36. “If I had a business, and every single month I was losing money, would I keep on paying? No, I wouldn’t.”

Sitting at her dining room table, before a large tank of fish, she recalled how she had made this a perfect home. It is one of the few on East Montgomery Road with grass in the yard, an expensive proposition in the desert. A Mercedes sits in the driveway.

She said she did not feel she deserved to have her debts forgiven, but added that if her mortgage had been lowered, she would have tried harder to stay. The worst part, she said, is that her decision will hurt Mr. Setbacken, who has watched out for her over the years. “For Gary, he’s going to have to deal with the ramifications of what I’m doing because I’m bringing his property value down,” she said. “I pray at church. I feel horrible for what I’m doing to my neighbors.”

Later, after Mr. Setbacken talked to Ms. Carter — she “cried and cried and cried,” he said — he had a change of heart. In an e-mail message, he said that perhaps wealthy Americans could donate money to aid homeowners. If he had more money himself, he might help some neighbors pay their mortgage bills.

“I have focused on the financial issues during these times and overlooked what was more important, the emotional stress that my neighbors are feeling,” Mr. Setbacken wrote. He walked down East Montgomery Road and gave a bottle of wine to the young couple facing foreclosure. It was, he said, “to help them pack.”

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, and 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
  • Slideshow: Housing Markets Most Likely to Have Hit Bottom

Questions? Comments?

How to Attack MERS and WIN!




This news is irresistible. MERS is all but dead with this single decision (see below). Here are the salient points:


  1. MERS is not a beneficiary even if the mortgage deed or deed of trust states otherwise.
  2. MERS lacks standing in bankruptcy to seek relief from stay.
  3. MERS lacks ANY financial interest in
    1. the obligation
    2. the note
    3. the mortgage
    4. any assignment, allonge (often misidentified as an assignment, indorsement etc.
  4. MERS cannot acquire rights to foreclose unless it acquires a REAL financial interest
    1. In a non-judicial state
    2. In a judicial state
  5. MERS’ Appearance on ANY instrument in the securitization chain clouds the homeowner’s title by extension of the reasoning set forth in the case decision reported below.
    1. MERS’ appearance on the deed of trust renders the mortgage deed or deed of trust invalid
    2. MERS’ appearance on the deed of trust renders the mortgage deed or deed of trust VOID
      1. This means there is no security instrument even if the obligation is still outstanding
      2. This means there is no security instrument even if the note is still outstanding
      3. This means the obligation arising from the funding of the “loan” or”security” to or for the benefit of the homeowner is UNSECURED.
      4. This means that there is no legal procedure to take property — real or personal, tangible or intangible — by virtue of using non-judicial procedure or judicial procedure — unless the creditor (i.e. — the one who advanced actual cash for the funding of the obligation) gets a money judgment against the homeowner — a process which by definition requires the creditor to use exclusively judicial procedures in which they must
        1. A Lawsuit properly served
        2. Allegations that if taken as true would entitle the creditor to a money judgment (e.g. “I gave money for the benefit of this homeowner and I never got the money back from anyone”). By the way this debt, even if they get ajudgment, is dischargeable in bankruptcy.
        3. Attachments to the lawsuit of ALL documents that conform to the allegations
        4. Your Defenses, affirmative Defenses and Counterclaims
        5. Discovery on both sides:
          1. Interrogatories — how they know, what they know, who they know, where did the person signing the interrogatories get their information — when were they hired, by whom, when did they work for MERS, how many paychecks did they get from MERS etc., what documents do they rely upon, what do THEY call those documents, where are those documents, who has them, what is the title of that person, by whom are they employed, what’s their telephone number address etc.
          2. Investigation: on any (AND ALL) signature follow the lead of one of our lead homeowners — find a mortgage or other document filed in the county recorders office and see if the signature matched the one in which they signed, notarized, or witnessed.
          3. Who prepared their website. Where is the source code? Who has the current source code, the prior source codes and any source codes or emails with meta data that will enable you to determine what parties were involved in the preparation of the website, where MERS, for example, advertises that you can use their name but they will never make a claim against the property or for the money.
          4. Request to produce using their answers to interrogatories
          5. Subpoena Third Parties for records with option to give you copies
          6. Request for admissions: VERY POWERFUL weapon when used properly
          7. Notice of deposition
          8. Request for access to their network servers and workstations for forensic examination
          9. Notice of deposition from the people identified in their answers to interrogatories
          10. Motions to compel
          11. Motions for Contempt
          12. Motions to Strike MERS pleadings
          13. Motions to Strike the pretender lender’s pleadings
          14. Motion to enter default after judge orders pleadings struck
          15. Motion to enter default final judgment
          16. Motion for Summary Judgment on your counterclaims including quiet title, money damages for violations of TILA, RESPA, SEC, etc.
          17. Recording final judgment in recorder’s office

Title Carriers Hit the Fan: Their Solvency in Question

One of the hidden issues in the mortgage meltdown is the issue of clouded title caused by non-disclosed table-funded loans that were “securitized.” The unquestionable presence of unknown parties, MERS (or MERS like pooling, service and assignment agreements) who at least COULD assert claims on the “borrower’s” obligation, note or mortgage, means that your loan closing created an immediate title question.

The question is who can prove that they are the proper party to file a satisfaction of mortgage, enter into a short-sale or modification of a loan, enforce the obligation, declare a default on the note and enforce it, or foreclose on the mortgage. Right now there is no answer. In fact, most loan servicers have taken to saying that the name and information concerning the “investor” is confidential!

This is good since they are confirming that the name of the true lender has been and is continuing ot be withheld from you. It’s good because it means that your THREE-DAY Right of Rescission can’t start running until you know who the lender is. How can you send a letter of rescission to the lender when they are withholding the name of the lender?

But for those that are relying upon title insurance to protect them consider the article which follows: the solvency of title insurance carriers is now in question — both because of liability on these title issues arising out of the mortgage meltdown and because the insurance carriers themselves bought mortgage-backed securities. Here is a story about one that went bankrupt which I lifted off of Mario Kenny’s comment.


LandAmerica Financial Group Seeks Bankruptcy Protection
November 26, 2008

Late the night of Nov. 25, LandAmerica Financial Group, Inc. and its subsidiary, LandAmerica 1031 Exchange Services, Inc., filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Eastern District of Virginia (”Bankruptcy Court”), seeking bankruptcy protection for both entities. The action does not cover Commonwealth Land Title Insurance Company or Lawyers Title Insurance Company, two LandAmerica subsidiaries that are each domiciled in the State of Nebraska. Under the federal Bankruptcy Code, these insurance company subsidiaries cannot be debtors in the federal bankruptcy proceeding. The LandAmerica subsidiaries together comprise the country’s third largest underwriter of title insurance.

By separate agreement, LandAmerica agreed to sell Commonwealth to Chicago Title Insurance Company as well as Lawyers and United Capital Title Insurance Company to Fidelity National Financial Inc. The proposed sales will require approval of the Bankruptcy Court and various state insurance regulators. LandAmerica filed a first day motion in the Chapter 11 proceeding seeking expedited approval of the sales, which could occur as early as late December. The motion to approve the sales is on the agenda of matters to be heard by the Bankruptcy Court beginning at 11 a.m. EST on Nov. 26.

The Nebraska Department of Insurance (”the Department”) issued a statement on Nov. 24 that, based on the latest statutory accounting reports received by the Department from the insurers, both Commonwealth and Lawyers are solvent and are continuing to write title insurance. However, while the sale agreement is pending, representatives of the Department have confirmed that the Department instituted proceedings the week of Nov. 24 to place both Commonwealth and Lawyers into rehabilitation under state insurance laws. A hearing is expected the afternoon of Nov. 26. A rehabilitation would allow both insurers to continue business as usual, but with enhanced oversight by the Department. At this time, the Department has indicated that it is not pursuing a liquidation of either insurer. Lawyers acquired Transnation Title Insurance Company earlier this year and assumed its obligations by merger. We will provide additional information on the implications of the Nebraska insurance regulatory issues once we confirm what level of oversight the Department obtains.

LandAmerica and its subsidiaries have reported a decline in financial position in recent weeks. The situation became more tenuous on Friday, Nov. 21, when Fidelity elected not to proceed with an acquisition of LandAmerica after completing its due diligence review. Shares of LandAmerica fell 88 percent in trading the Monday following Fidelity’s announcement. LandAmerica 1031 Exchange Services abruptly issued a press release announcing that it had ceased operations, citing investments in auction rate securities as a reason for being unable to meet all of its obligations as qualified intermediary to taxpayers under exchange agreements. LandAmerica also confirmed that it is not in compliance with loan covenants in its existing credit agreements with its lenders. Fitch Ratings downgraded LandAmerica’s insurance subsidiaries to a BB rating.

What Does this Mean for Real Estate Owners, Investors and Lenders?

We recommend that you complete a review of your property files to determine which properties may have title insurance through a LandAmerica insurer to (i) identify any existing cash escrows held by the LandAmerica insurers, (ii) identify any projects with construction funds being disbursed through a LandAmerica company, and (iii) determine any active claims pending against any of the LandAmerica insurers. Those projects with current cash escrows and ongoing needs to disburse funds through a LandAmerica insurer or prosecute claims against a LandAmerica insurer should be closely monitored as the proposed sales move forward. If you are currently a party to an exchange agreement with LandAmerica’s exchange subsidiary that is a debtor in the bankruptcy, we would be happy to discuss a course of action.

Assuming Commonwealth and Lawyers are placed into rehabilitation in Nebraska, both companies should be able to continue business as usual, subject to enhanced oversight by the Department of Insurance. No assets of the title insurance subsidiaries, including any escrows held by the subsidiaries in a fiduciary capacity, would be captured by the bankruptcy estate of LandAmerica. However, until the sales to Fidelity and Chicago are complete, we recommend that you monitor the progress of the sale agreement closely and carefully consider how funds are being handled in the course of transactions. If the sales do not occur and the title insurers are forced into a liquidation in Nebraska, then cash escrows and funds disbursed through a LandAmerica insurer could be captured through the Nebraska proceedings.

Even if you have no active projects with a LandAmerica insurer, if you hold a title policy written by a LandAmerica insurer, then you should still monitor the proposed sales. Acquisition of the LandAmerica title insurance obligations by rival Fidelity should alleviate concerns of insureds over a possible failure of the LandAmerica insurers and impact on the value of title policies issued by the LandAmerica companies.

As more information becomes available on the LandAmerica situation, we will provide updates and more detail on a recommended course of action to address the potential issues. In the meantime, please feel free to contact Jenny Marler ( 314.259.5874 or for transactional real estate and lender issues, Robert Millner ( 312.876.7994 or for bankruptcy issues, Corinne Carr ( 312.876.7477 or for insurance regulatory issues, or your regular Sonnenschein contact for additional information.



> Comment:
> Interesting idea, although flawed.
> Your title insurance company will only process a claim if there has been a loss (or an imminent danger of one. i.e., an attack on the title), and only then if it is not of the insured’s doing (or could have been prevented through action by the insured.)
> Since foreclosure is ostensibly always the insured’s fault (except of course in the rare case of forgery and intervening liens), you would be hard pressed to find any insurance company that would see it as an insurable loss or attack on title. The insured had an obligation to perform under the note they signed (ahem, which usually includes a “successors and/or assigns” clause), and failing to follow through on that creates an uninsurable loss – securitization or no.

ANSWER: My point, perhaps not articulate enough, is different from what you are addressing. If at the closing there was a pooling and service agreement already in existence and known to the title agent.

If at the item of the loan closing there was an assignment and assumption agreement already in place. If the investors had already purchased mortgage backed securities, that included a description of a “temporary” set of notes (See Lehman filings), that would be replaced by “real” notes and security instruments pledged as security to the holders of asset backed securities, and if the terms of the pledge within the SPV was an allocation of funds contrary to the terms of the note and mortgage, and if the title agent was aware of sufficient facts to put him on notice that (a) undisclosed third parties were involved in the transaction and (b) that undisclosed fees were being paid and (c) that this could create grounds for three-day rescission, but for the fact that the real “lender” has not been disclosed— assuming all of that, because that is actually what happened — does that not mean that there was actual knowledge by the title agent that there are dozens and perhaps hundreds of even thousands of people who have an equitable and legal interest in the security instrument encumbering the property.

I agree that the title policy does not require intervention of the carrier until there is a claim. But the errors and omissions carrier for the title agent when put on notice of the claim would have an immediate interest in mitigating the potential loss. It is not that there is a hypothetical cloud on title, it is real from the moment that the transaction was consummated.

Foreclosure Offense: Notice to Title Agent and Carrier

The title agent that performed your closing probably was aware that securitization of your loan was in process and therefore knew that the real parties in interest and the fees paid between undisclosed parties had not been disclosed to you and in fact were actively hidden, because you would have known that the nature of the transaction you thought you were doing (a mortgage loan) was in fact only part of a fraudulent scheme to issue unregulated securities under false pretenses. Now you are in a position to assert a claim against the title agent for malpractice, assuming the title agent was also the escrow agent, and a claim against the title carrier because they issued you a title policy and now you have a cloud on title. (if you paid for and received an owner’s policy).

If those assumptions are true then you should send the following letter addressed to the title agent and to the insurance company that issue your title insurance (For example, Chicago Title and Guaranty).

Re: Escrow settlement Number (NOTE: this can be found in your closing documents and if you can’t find it you can call the title agent and ask for the settlement number)
Names of Buyers:
Names of Sellers:
Date of Closing:
Address of property:
Title Policy Number:


Dear Sirs or Madames:

Please be advised that we are the buyers in the above referenced transaction. At that closing it was represented to us that the name of the mortgage lender(s) was/were __________________. The loan closing(s) took place, and the deed was transferred. A policy of title insurance was issued to us as owners of the property, as referred above.

Subsequently, we have learned that the loan was not funded by the nominal lender(s) on the loan documents, that undisclosed third parties were involved and that undisclosed fees were paid to undisclosed third parties and to disclosed third parties in connection with our closing. In fact, we have learned that our signature on the promssory note was used without our knowledge or consent as a negotiable isntrument whose terms were altered without our knowledged or consent ultimately ending up in the hands of third parties that were not disclosed and owned by investors who were also undisclosed third parties. All of these facts were either within your knowledge or were accessible to you through due diligence.

The existence of various agreements, including assignment and assumption, pooling and service, credit default swaps, insurance, and cross collateralizaation agreements, casuses the allocation of the payments made on the notes to be contractually altered from the terms of the original note. Second, the nominal lender was, as you know, paid in full, plus paid a fee of 2.5% for posing as the real lender when in fact it was not the real lender. Thus the rescission rights are obscured and indefinitely extended. Through other correspondence we have communicated our declaration of rescission of the loan(s).

Based upon the equitable and legal interests of dozens, if not hundreds of third parties, in our mortgage and note, a cloud on title has existed since the moment of closing. Now we are seeking to modify the loan documents, but we need a new policy of title insurance or an addendum continuing the old policy. We have consulted counsel and we have arrived at the opinion that a cloud on our title exists becuase of the misbehavior and neglience of all parties at the closing. Under the terms of the policy, it is your obligation to clear the cloud and issue confirmation that the title to the property and the encumbrances are as represented at closing.

Demand is herewith made that you either cure the deficiency in title or pay to the undersigned all sums paid before, during and after closing pursuant to the flawed closing, includling the loan balance(s).


Signature of both borrowers


There are a few things that have occurred to me with the evolution of this mortgage meltdown crisis and the entire improper process by which it is being handled. The foreclosures are of course improper and there are many offensive and defensive strategies that have been presented here in this blog.

The main issues are whether the “lender” or “trustee” has any authority to foreclose, agree to short sale, or modify the loan. The answer is no, they don’t. A secondary and more exotic issue is that (a) co-obligors were added as the loan documents moved up the chain of securitization and (b) the pooling and service agreement combined with the structural requirements of the SPV require a misapplication of payments.

Co-obligors are added by (a) the people who received fees to insure, guarantee or otherwise pay for the income stream or the principal (credit default swaps etc.) and (b) starting with the toxic waste z tranche of the SPV, each tranche is obligated to apply its payments upwards to the more senior tranches. The effect of this latter point is that even if the borrower pays his mortgage payment, it is applied to someone else’s mortgage payment. It also effectively splits the note from the mortgage. Thus, it is apparent that the pleadings of the “lender” in a judicial state or the assumptions of the trustee in getting instructions from the “lender” in a non-judicial state are wrong. They are only presenting a small part of the story. Requesting the Court to take Judicial notice of 8k and 10k filings which are sworn statements made to a Federal Agency (SEC) should get you over the hump of proving your point.

The single transaction scenario is easily proved. No Investor, No Note. No Note, No Investor. Thus everything in between is part of the same transaction, including the insurance, CDS, guarantees, and payment application agreements (between tranches) which of course the borrower never signed off on and never would.

Thus the investor is the only party who could claim to being a holder in due course because the investor is the only party that can claim ignorance of the predatory loan tactics, lack of disclosure of real parties, lack of disclosure of fees paid to undisclosed parties etc. Hence the issue is NOT whether the “lender” received payment, it is whether the holder of the note received payment, regardless of the source of that payment. If my aunt wishes to pay off my mortgage payment or the entire balance, she is perfectly within her rights to do so and and my obligation would be required to reduced accordingly.

The Trustee is breaching his fiduciary duties to the borrower by not requiring the “lender” to make representations that (a) disclose the holder in due course and (b) that the holder did not receive payment. There is also the issue as to whether the nominal trustee on the deed of trust was replaced by the trustee of the pooling and services agreement and thus whether the Trustee is misrepresenting itself as having continued authority to even communicate with the borrower regarding the collection of a debt, the foreclosure of the property or to pursue the eviction of the homeowner.

The bottom line of all this is that anyone who takes title following an auction sale is taking title subject to claims that have not been resolved. The title to the property, the title to the mortgage, and the title tot he note, a negotiable instrument is clearly not what is represented by the actions and statements of the “lender” and “Trustee.”

That is why the form used to communicate with the Trustee is so important. It requires a response from the Trustee as to the demand for a satisfaction of mortgage to be filed. And that response requires the Trustee to perform due diligence to determine the holder in due course. Due diligence further requires the Trustee to inquire as to all payments made by or on behalf of the borrowers. If the investor was paid out of some reserve within the SPV, or by insurance, CDS, or some other guarantee or contribution, there is no delinquency or default because the payment is made. A third party payment MIGHT give rise to a an unsecured claim by that third party against the borrower, but at that point the mortgage and note are severed and the borrower is entitled to a satisfaction of mortgage or quiet title.

Thus the option for people who have alrady “lost the their homes” is to regain them by filing quiet title actions. The option for investors who did not get paid is to file a claim against the borrower for both foreclosure and collection, thus creating an additional cloud on the title to the property, the mortgage and the note.



An analysis of the transfers of title to a piece of property over the years. IT IS THIS ANALYSIS THAT PRESENTS THE CONCLUSION OF A LEGAL EXPERT IN TITLE EXAMINATION AS TO WHETHER CLEAR TITLE IS BEING OFFERED OR PASSED. The significance of this in the context of the Mortgage Meltdown is that in most cases, a proper analysis of the title records and the transactions that are actually known by at least some of the parties would disclose a possible claim by third parties to the property, the mortgage or the note.
A title that is free of liens or legal questions as to ownership of the property. THIS IS AN IMPORTANT ISSUE IN ANY PROPOSED SALE OF RESIDENTIAL PROPERTY ENCUMBERED BY A SECURITIZED MORTGAGE. THE SALE OF THE PROPERTY IN A TRADITIONAL TRANSACTION OR BY SHORT-SALE OR FORECLOSURE AUCTION SALE PROBABLY INCLUDES A CLOUD ON TITLE. In fact, it is likely that if you sold property anytime in the past few years you paid off the old mortgage and received a Satisfaction of Mortgage from the “lender.” However, if the Lender does not have clear title to the mortgage instruments, the execution of the Satisfaction of Mortgage, and even the Recording, may have dubious or no meaning inasmuch as the loan was transmitted up line and pledged to Buyers of Derivative Securities. The various instruments of transmittal combined with the “security” pledged to those investors probably conveys an interest in the mortgage and note to the investor, the investment banking firm, the SPV, the SIV, the mortgage aggregator or some other third party(ies). Hence clear title could not be conveyed in any sale. If the “lender” accepted the full payment at a closing or partial payment (short-sale) and did not pass on the proceeds to the third parties that have an interest in the note and mortgage, the Buyer and the Seller of the property are exposed to potential litigation over title, liability on the note, and right to possession. See Cloud on Title.
This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands. It is important to distinguish between the two “closing” that occur at the time of each transaction in which real property is transferred from a Seller to a Buyer and money passes from the Buyer’s Lender to the Seller, the appraiser, the mortgage broker, the sales agents, the title company etc. Failure to make this distinction has resulted in confusion in understanding the consequences of rescission. Title to the property changed hands only in the closing between Buyer and Seller. Rescission of the loan closing does NOT mean return of the property. Only a rescission of the real estate property closing between the Buyer and the Seller would mean a return of the property.
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate (GFE) which they must issue to the borrower within three days of receiving a home loan application. IN THE CONTEXT OF THE THE MORTGAGE MELTDOWN, THE GFE IS EXTREMELY IMPORTANT. Under the Truth in Lending Act all parties to the loan closing must be disclosed along with their compensation. In virtually every closing, there is no disclosure of the premium (usually 2.5% of the loan) paid to the “lender” for posing as the lender in place of an unregulated lending source, the rebates, bonuses, yield spread premiums, commission and kickbacks on the loans.
closing statement. While the rescission remedy under TILA says it does not apply to residential mortgages, it DOES apply to HELOC’s and the right of rescission or cancellation resulting from fraud and non-disclosure is NOT limited to TILA and RESPA.
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust. The issue raised in this Treatise is whether a securitized loan can EVER be paid or repaid to the proper party and therefore whether the loan can EVER be satisfied and therefore whether ANY party has the right or authority to foreclose, give notice of default, post a notice of sale, get a judgment ordering the sale, conduct an auction sale, issue a certificate of title, or evict the homeowner based upon the “default” in a loan that has already been paid and repaid to the nominal lender at closing as well as to other parties upstream, some of whom added to the revenue stream and the payments on the same mortgage that is alleged to be in default. In fact, the issue is whether the “loan closing” was in substance a mortgage transaction at all but rather, an undisclosed deception to issue negotiable instruments that would be sold to investors under additional pretenses.
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property. The issue here of course is “who is the lender.” If the loan has been transmitted, transferred, assigned and or pledged to one or more parties, (or hundreds of parties in the case of securitized transactions) and if the obligation has been commingled with the obligations of other parties (which happens in the pooling of loans and the sale of ABSs), then it is highly probable that the loan servicer has no authority beyond accepting payments, and it is possible they do not actually have that authority inasmuch as they may  have received it from a party who had already sold the the loan to yet another party. In fact, collection by the mortgage servicer might have been improper especially if there was a failure to transmit the entire payment to the ultimate investor. Note that in TILA a mortgage servicer is expressly excluded from being considered a party in interest and is therefore NOT authorized to foreclose or in any way present itself as a creditor of the “borrower.” This is part of the reason this Treatise has repeatedly made the point that in any bankruptcy petition the alleged mortgage should be listed as a contingent liability with an unknown owner.
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.

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