The Truth Keeps Coming: When Will Courts Become Believers?

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Editor’s Comments and Practice Suggestions: On the heels of AG Eric Holder’s shocking admission that he withheld prosecution of the banks and their executives because of the perceived risk to the economy, we have confirmation and new data showing the incredible arrogance of the investment banks in breaking the law, deceiving clients and everyone around them, and covering it up with fabricated, forged paperwork. And they continue to do so because they perceive themselves as untouchable.

Practitioners should be wary of leading with defenses fueled by deceptions in the paperwork and instead rely first on the money trail. Once the money trail is established, each part of it can be described as part of a single transaction between the investors and the homeowners in which all other parties are intermediaries. Then and only then do you go to the documentation proffered by the opposition and show the obvious discrepancies between the named parties on the documents of record and the actual parties to the transaction, between the express repayment provisions of the promissory note and the express repayment provisions of the bond sold to investors.

Practitioners should make sure they are up to speed on the latest news in the public domain and the latest developments in lawsuits between the investment banks, investors and guarantors like the FHA who have rejected loans as not conforming to the requirements of the securitization documents and are demanding payment from Chase and others for lying about the loans in order to receive 100 cents on the dollar while the actual loss was incurred by the investors and the government sponsored guarantors.

Another case of the banks getting the money to cover losses they never had because at all times they were mostly dealing with third party money in funding or purchasing mortgages. It was never their own money at risk.

Three “deals” are now under close scrutiny by the government and by knowledgeable foreclosure defense lawyers. For years, Chase, OneWest and BofA have taken the position that they somehow became the owner of mortgage loans because they acquired a combo of WAMU and Bear Stearns (Chase), IndyMac (OneWest), and a combo of Countrywide and Merrill Lynch (BofA).

None of it was ever true. The deals are wrapped in secrecy and even sealed documents but the truth is coming out anyway and is plain to see on some records in the public domain as can be easily seen on the FDIC site under the Freedom of Information Act “library.”

The naked truth is that the “acquiring” firms have very complex deals on those mortgage loans that the acquiring firm chooses to assert ownership or authority. It is  a pick and choose type of scenario which is neither backed up by documentation nor consideration.

We have previously reported that the actual person who served as FDIC receiver in the WAMU case reported to me that there was no assignment of loans from WAMU, from the WAMU bankruptcy estate, or the FDIC. “if you are looking for an assignment of those loans, you are not going to find it because there was no assignment.” The same person had “accidentally” signed an affidavit that Chase used widely across the country stating that Chase was the owner of the loans by operation of law, which is the position that Chase took in litigation over wrongful foreclosures. Chase and the receiver now take the position that their prior position was unsupportable. So what happens to all those foreclosures where the assertions of Chase were presumed true?

Now Chase wants to disavow their assumption of all liabilities regarding WAMU and Bear Stearns because it sees what I see — huge liabilities emerging from those “portfolios” of foreclosed properties that were foreclosed and sold at auction to non-creditors who submitted credit bids.

You might also remember that we reported that in the Purchase and Assumption Agreement with the FDIC, wherein Chase was acquiring certain operations of WAMU, not including the loans, the consideration was expressly stated as zero and that the bid price from Chase happened to be a little lower than their share of the tax refund to WAMU, making the deal a “negative consideration” deal — i.e., Chase was being paid to acquire the depository assets of WAMU. Residential loans were not the only receivables on the books of WAMU and the FDIC receiver said that no accounting was ever done to figure out what was being sold to Chase.

Each of the deals above was complicated by the creation of entities (Maiden Lane LLCs) to create an “off balance sheet” liability for the toxic loans and bonds that had been traded around as if they were real.

Nobody ever thought to check whether the notes and mortgages recorded the correct facts in their content as to the cash transaction between the borrower and the originator. They didn’t, which is why the investors and the FDIC both now assert that not only were the loans not subject to underwriting rules compatible with industry standards, but that the documents themselves were not capable of enforcement because the wrong payee is named with different terms of repayment to the investors than what those lenders thought they were buying.

In other words, the investors and the the government sponsored guarantee organizations are both asserting the same theory, cause of action and facts that borrowers are asserting when they defend the foreclosure. This has been misinterpreted as an attempt by borrowers to get a free house. In point of fact, most borrowers simply don’t want to lose their homes and most of them are willing to enter into modifications and settlements with proceeds far superior to what the investor gets on foreclosure.

Borrowers admit receiving money, but not from the originator or any of the participants in what turned out to be a false chain of securitization which existed only on paper. The Borrowers had no knowledge nor even access to the knowledge that they were actually entering into a loan transaction with a stranger to the documents presented at the loan “closing.” This pattern of table funded loans is branded by the Truth in Lending Act and Reg Z as “predatory per se.” The coincidence of the money being received by the closing date was a reasonable basis for assuming that the originator was not play-acting, but rather actually acting as lender and underwriter of the loan, which they were certainly not.

The deals cut by Chase, OneWest and BofA are models of confusion and shared losses with the FDIC and other investors who participated in the Maiden Lane excursion. The actual creditor is definitely not Chase, OneWest nor BofA. Bank of America formed two corporations that merely served as distractions — Red Oak Merger Corp and BAC Home Loans and abandoned both after several foreclosures were successfully concluded by BAC, which owned nothing.

As we have previously shown, if the mortgage securitization scheme had been a real financial tool to reduce risk and increase lending, the REMIC trust would have ended up on the note and mortgage, on record in the office of the County Recorder. There would have been no need to establish MERS or any other private database in which trades were made and “trading profits” were booked in order to siphon off a large chunk of the money advanced by investors.

The transferring of paper does not create a transaction wherein a loan is proven or established in law or in fact. There must be an actual transaction in which money exchanged hands. In most cases (nearly all) the actual transaction in which money exchanged hands was between the borrower and an undisclosed third party entity.

This third party entity was inserted by the investment bankers so that the investment bank could claim ownership (when legally the loans already were owned by the investors) and an insurable interest in the loans and bonds that were supposedly backed by the loans. This way the banks could assert their right to proceeds of sale, insurance, and credit default swaps leaving their investor clients out in the cold and denying the borrowers the right to claim a reduction in the liability for their loan.

In litigation, every effort should be made to force the opposition to prove that the investor money was deposited into the a trust account for the REMIC trust and that the REMIC trust actually paid for the loans. Actually what you will be doing is forcing an accounting that shows that the REMIC was never funded and was never the buyer of the loans. Hence nobody in the false securitization chain had any ownership of the debt leading to the inevitable conclusion that for them the note was unenforceable and the mortgage was a nullity for lack of consideration and a lack of a meeting of the minds.

Once you get to the accounting from the Trustee of the Trust, the Master Servicer and the subservicer, you will uncover trades that involve representations of the investment bank that they owned the loans and in fact the mortgage bonds which were clearly pre-sold to investors before the first application for loan was ever received.

Thus persistent borrowers who litigate for the actual truth will track the money and then show that the cash transactions differ from the documented transactions and that the documented transactions lacked consideration. The only way out for the banks is to claim that they embraced this convoluted route as agents for the investors, but then that still means that money received in federal bailouts, insurance and credit default swaps would reduce the receivable of the actual creditors (investors) and thus reduce the amount payable by the actual borrowers (homeowners).

The unwillingness of the Department of Justice to enforce long standing laws regarding fraud and deceit, identity theft and other crimes, tends to create an atmosphere of impunity a round the banks and a presumption that the borrowers are merely technical objections of a certain number of documents not having all their T’s crossed and I’s dotted.

From a public policy perspective, one would have to concede that protecting the banks did nothing for liquidity in the marketplace and nothing for the credit markets in particular. Holder’s position, which I guess is also Obama’s position, is that it is better to allow average Americans to sink into poverty than to hold the banks and bankers accountable for their white collar crimes.

Legally, if the prosecutions ensued and the cases were proven, restitution would be ordered based not on some back-room deal but on approval of the Court. Restitution would clawback much of the capital of the mega banks who are holding that money by virtue of illegal transactions. And restitution would provide the only stimulus to the economy that would be fundamentally sound. Investors and borrowers would both share in the recovery of at least part of the wealth lost to the banks during the mortgage maelstrom.

I have no doubt that the same defects will appear in auto loans, student loans and other forms of consumer loans especially including credit card loans. The real objection of the banks is that after all this effort of stealing the money and the homes they might be forced to give it all back. The banks perceive that as a “loss.” I perceive it as simple justice applied every day in the courtrooms of America.

JPM: The Washington Mutual Story
http://www.ritholtz.com/blog/2013/03/jpm-wamu/

Bear Stearns, JPMorgan Chase, and Maiden Lane LLC
http://www.federalreserve.gov/newsevents/reform_bearstearns.htm

Mistakenly Released Documents Reveal Goldman Sachs Screwed IPO Clients
http://news.firedoglake.com/2013/03/12/mistakenly-released-documents-reveal-goldman-sachs-screwed-ipo-clients/

FLORIDA SUPREME COURT RIPS UP BANKS’ PLAYBOOK

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COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

EDITOR’S COMMENT: Here is the game:

A party comes into court filing a complaint against someone who is essentially unable to defend themselves. The suit is fake and uses fraudulent documents to support it. In the usual course of events the “defendant” defaults, judgment is entered and the faker gets to enforce the judgment, driving the hapless defenseless person who was sued into bankruptcy and depression, marriage breakups etc. You know the routine.

(By the way the North Caroline Court has stated that just because you failed to object doesn’t mean that the party trying to foreclose doesn’t need to prove its case, which is why I think the last couple of days have been the turning point where borrowers get their day in court and pretender lenders get their days or years in jail).

So back to our example. Enter the borrower, usually not represented by counsel because the legal profession is clueless for the most part on the dynamics of fraud in securitized loans. The borrower challenges the attempt at foreclosure (or any other type of lawsuit where this playbook can be used). The borrower shows the court that the suit is a fake and that the documents were fabricated, forged, false — a fraud upon the court. The trial court dismisses the fake action and agrees to hear a motion for contempt at which the faker will be punished for all its wrongdoing, right?

Not so fast. The Bank Playbook provides easy to understand instructions to lawyers representing the fakers. Force the issue as far as you can but dismiss the action before the motion for contempt can be heard. This will deprive the court of jurisdiction over the case and the Judge will be powerless to enter an order for sanctions. End of case, for now, and maybe we will file using other but better fabricated false documents another day. No risk to the lawyer, the Bank or servicer, or anyone else, leaving the hapless homeowner in the dust. This play has been working perfectly for years. Suddenly it ground to a halt yesterday in Florida, and will most likely spread the word like wildfire as Courts across the country realize they have been played for fools.

So the borrower in this case said “wait a minute!” The borrower/defendant filed an appeal that essentially said that the filing of a false lawsuit with false documents invokes the jurisdiction of the Court and that the Court decides when the case is over, not the litigants, if there are any other important issues to be decided — like committing fraud upon the Court.The borrower contends that the filing of the dismissal did not deprive the Court of jurisdiction, it merely rendered the legal issues presented by the lawsuit to be moot, which is the point that the Florida Supreme Court agreed with.

So the case goes up to the District Court of Appeal which says, well, we don’t know for sure, so we certify the question to the Supreme Court. The faker “settles” with (read that “Pays off”) the borrower under some agreement that is sealed under confidentiality. There are thousands of those confidential agreements now.

So the faker and the borrower sign the agreement and sign a notice to the Supreme Court that the case has been settled and that it is over, done, kaput! In the playbook of the Banks this deprives the Supreme Court of jurisdiction even in a case designated by the lower appellate court as being of great public importance and in which the appellate court below cites their own experience with many cases involving fake claims with fraudulent documents. Not so fast.

The Supreme Court of Florida said quite correctly that WE decide when the case is over, especially when it is of great public importance, and you, faker, don’t  dictate to us when we do or don’t have jurisdiction. If you filed a fake lawsuit with fraudulent documents, we want to consider the options of the trial judge and stop such practices from happening. The fact that the case is moot between you and the the victim of your little game does not mean we can’t hear the case. You can come to oral argument if you like, and you can submit a brief or not. But we ARE going to hear this case and we are going to issue an opinion. FINALLY A COURT WITH THE COURAGE OF ITS CONVICTIONS.

OOPS! BONY, US BANK, BOA, Wells Fargo, Ocwen, Deutsch, Countrywide, JP Morgan, et al now have a serious problem. In prior cases where a court levied sanctions against these fakers, the sanctions have been rather high, including one case in Massachusetts where an infuriated judge levied over $800,000 against the lawyers and the client, Wells Fargo.6 million foreclosures nationwide, most of which fall into the faker category.

What could the liability of the lawyers and the banks be? Well just for starters, you can bet that most of the lawyers are going to be referred to their bar associations for discipline which will result in either suspension or revocation of their license. But beside that here is what awaits the financial industry on 6 million foreclosures.

  • If the fine is $1,000, the total fines will be $6 Billion. But sorry boys, that size fine is less than a slap on the wrist these days so its doubtful that the judge upon learning that a fake suit had been filed with fraudulent documents will not fine the participants — lawyer and client—  far more than that. 
  • If the fine is $10,000, then the total fines will be $60 billion. Sorry again, considering the gravity of the situation, the corruption of title registries, the destructive impact on our society as a whole, most courts are going to go for more than that as well as referring for criminal prosecution and bar grievance procedure. 
  • If the fine is $100,000 each against the lawyers and the client, for each case, which is around what I think the fine is likely to be (at a Minimum), then the total exposure is $1.2 trillion, half against the banks and half against the lawyers.
  • And if they follow the model established in other courts, the fine could be $1 million each against the lawyers and the client, FOR EACH CASE, (if the motion for contempt is brought by the borrower) then the total exposure is around $12 trillion, $6 trillion against the banks and $6 trillion against the lawyers. Considering the most recent revelation of $29 trillion bailouts from the federal Reserve alone on false claims of losses, a fine of one-third that amount doesn’t seem out of line even if the dollar amount sounds high. Bankruptcy anyone?

MAYBE THAT BANK PLAYBOOK WAS NOT SO SMART AFTER ALL.

Settlement won’t prevent Fla. foreclosure hearing

By BILL KACZOR

Associated Press

TALLAHASSEE, Fla. — Parties in a Florida mortgage foreclosure lawsuit focusing on allegations of tainted documents will get their day in the Florida Supreme Court even though neither side wants it.

A sharply divided high court on Thursday refused a request by borrower and lender alike to dismiss the Palm Beach County case. They had sought the dismissal after agreeing to settle the case before the justices could hear it.

In a 4-3 opinion, the majority justices wrote that the borrower’s appeal was too important to dismiss, as it raises a question that “transcends the individual parties to this action because it has the potential to impact the mortgage foreclosure crisis throughout this state.”

That question is whether a trial judge can penalize a party for committing a “fraud on the court” if that party voluntarily dismisses the case before it’s resolved. Two lower courts said they cannot. The high court next will consider arguments on that issue.

The majority wrote that judges and litigants also need guidance from the Supreme Court and that the legal issue has implications beyond mortgage cases.

Florida’s collapsing real estate market has resulted in thousands of foreclosures, but officials have turned up many instances of fraudulent and erroneous filings.

They include documents bearing the signatures of so-called “robo-signers” – people hired to sign foreclosure papers in assembly line fashion without necessarily knowing what’s in them.

Those findings resulted in civil and criminal investigations, the collapse of two major foreclosure law firms and the temporary shutdown of foreclosure filings by many lenders.

The high court’s ruling came in a foreclosure filed by the Bank of New York Mellon. The defendant, Roman Pino, alleged the bank filed a forged document to deceive the court. He asked the judge to penalize the bank by denying it any right to foreclose on the mortgage.

The judge denied his request because the bank had voluntarily dismissed the complaint. The 4th District Court of Appeal affirmed that decision but asked the Supreme Court to rule on the issue, certifying it as a “question of great public importance.”

Pino appealed but then joined the bank in asking the Supreme Court to dismiss the case after they settled.

Chief Justice Charles Canady acknowledged in his dissent that the high court has on occasion rejected a stipulation for dismissal, but he argued that retaining jurisdiction before both sides have submitted written briefs is unprecedented.

The ruling will force the parties to argue a case that neither side wants to pursue, Canady noted.

“They should not be dragooned into litigating a matter that is no longer in controversy between them simply because this court determines that an issue needs to be decided,” Canady wrote.

Justices Ricky Polston and Peggy Quince concurred with Canady’s dissent.

The majority justices, though, wrote it’s Canady’s interpretation that goes against precedent. They said it would require the high court to recede from past decisions that denied dismissals in similar circumstances.

They also noted Pino filed an initial brief before the settlement although the bank had not.
Read more: http://www.miamiherald.com/2011/12/08/2537386/settlement-wont-prevent-fla-foreclosure.html#ixzz1g3eoiucH

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