Who is the Creditor? NY Appellate Decision Might Provide the Knife to Cut Through the Bogus Claim of Privilege

The crux of this fight is that if the foreclosing parties are forced to identify the creditors they will only have two options, in my opinion: (a) commit perjury or (b) admit that they have no knowledge or access to the identity of the creditor

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://4closurefraud.org/2016/06/10/opinion-here-ny-court-says-bank-of-america-must-disclose-communications-with-countrywide-in-ambac-suit/

We have all seen it a million times — the “Trustees”, the “servicers” and their agents and attorneys all beg the question of identifying the names and contact information of the creditors in foreclosure actions. The reason is simple — in order to answer that question truthfully they would be required to admit that there is no party that could properly be defined as a creditor in relation to the homeowner.

They have successfully pushed the point beyond the point of return — they are alleging that the homeowner is a debtor but they refuse to identify a creditor; this means they are being allowed to treat the homeowner as a debtor while at the same time leaving the identity of the creditor unknown. The reason for this ambiguity is that the banks, from the beginning, were running a scheme that converted the money paid by investors for alleged “mortgage backed securities”; the conversion was simple — “let’s make their money our money.”

When inquiry is made to determine the identity of the creditor the only thing anyone gets is some gibberish about the documents PLUS the assertion that the information is private, proprietary and privileged.  The case in the above link is from an court of appeals in New York. But it could have profound persuasive effect on all foreclosure litigation.

Reciting the tension between liberal discovery and privilege, the court tackles the confusion in the lower courts. The court concludes that privilege is a very narrow shield in specific situations. It concludes that even the attorney-client privilege is a shield only between the client and the attorney and that adding a third party generally waives that privilege. The third party privilege is only extended in narrow circumstances where the parties are seeking a common goal. So in order to prevent the homeowner from getting the information on his alleged creditor, the foreclosing parties would need to show that there is a common goal between the creditor(s) and the debtor.

Their problem is that they can’t do that without showing, at least in camera, that the identity of the creditor is known and that somehow the beneficiaries of an empty trust have a common goal (hard to prove since the trust is empty contrary to the terms of the “investment”). Or, they might try to identify a creditor who is neither the trust nor the investors, which brings us back to perjury.

Quiet Title Revisited: Not Quite a Dead End

Void means that the instrument meant nothing when it was filed, not that it is unenforceable now.

 

I know how hard it is to let go of something that you really want to believe in. But for practical reasons I consider it unwise to continue on the QT path until we can find a way to get rid of the void assignment. That unto itself might a form of quiet title action and it is far easier to do. The allegation need only be that neither the assignor nor the assignee (a) had any right, justification or excuse to claim an interest in the recorded mortgage and (b) neither one was ever party to a completed transaction in which either of them had paid value for any interest in the recorded mortgage. Hence the assignment is void and should be removed from the chain of title reflected in the county records. So that takes care of one of several problems and the attack does not seek to remove the mortgage — yet.

 

Quiet title is a very limited remedy. In nearly all cases if the facts are contested it almost automatically means that there is no quiet tile relief available. It is meant to remove wild deeds or any other void (not voidable) instrument. Void means that the instrument meant nothing when it was filed, not that it is unenforceable now.

I contributed to the mystery of quiet title because it was apparent that the mortgage was void because it never named the true lender. In fact the existence and identity of the true source of funds for the transaction was intentionally withheld from the borrower leaving the mortgage with only one party instead of two.

 

The problem many courts are having with this is that the mortgage might still be subject to reformation that would insert the correct name of the actual lender (theoretically, potentially reformation). The fact that there is no such creditor whose name can be inserted does not make the mortgage void. It makes it voidable. Actually proving that there is no such creditor won’t be easy since only the banks have the information that shows that.

 

If there are any future events that could revive the mortgage deed, then quiet title can’t work. Add to that the fact that judges are not treating these attacks seriously and routinely ruling for the banks and you have a what appears to be a dead end.

 

All that said, there ARE causes of action that could attack the void assignment and the voidable mortgage in which the court could theoretically declare that in the absence of information sought from the defendants, who appear to be the only potential claimants, the mortgage is THEN declared void by court order, THEN a second count in quiet title would be in order. I cannot emphasize enough the fact that Judges are going to be very resistant to this but I think that appellate courts are starting to understand what happened with false claims of securitization.

 

Essentially, the Court must state that:

  1. The mortgage failed to name the correct party as lender.
  2. That failure makes the mortgage voidable.
  3. Despite publication and notice, there are no parties who could answer to the description of the creditor whose name should have been on the mortgage.
  4. The mortgage is therefore void
  5. Court declares title to be vested in the name of Smith and Jones without any encumbrance arising out of the mortgage recorded at Page 123 Book 456 of the public records of XXXX County, Florida.
 This of course directly challenges the judicial notion that once the homeowner receives money, it is a loan, it is enforceable and it doesn’t matter who comes into court to enforce it. To say that this judicial “law” opened the door to mayhem and moral hazard would be an understatement. Using the opinions written by trial judges, appellate judges and even Supreme Court justices, people who like to “leverage the system” have seized on this obvious opening to steal receivables from the rightful recipient — with no negative consequences. They write a letter that appears on its face to be correct and valid. According to current practices this raises the presumption that the contents of the letter are true.
 Hence the self-serving letter creates the legal presumption that the writer is authorized to tell the debtor that the writer is now the owner of the debt and to direct payments to the “new owner.” This isn’t speculation. Starting in California this business plan is spreading across the country. By the time the rightful owner of the debt wakes up the Newco Debt Servicing company has collected or settled the account.
Since the presumption is raised that the thief writing the letter is authorized, the real party in interest cannot beat the defense of payment by a debtor who thought they were doing the right thing. Reasonable reliance by the borrower is presumed since the authority and the validity of the letter was presumed. And that is not just a description of some dirty rag tag gangsters; it is a verifiable description of what the banks have been doing for years with mortgage debt, credit card debt, student loan debt and every other kind of debt imaginable.
By the time the investors wake up and find out their money was not used to fund a trust or real business entity, their money is gone and they are at the mercy of the big time banks who will offer settlements of claims that should have resulted in jail time for the bankers. Instead we have literally authorized small time crooks to emulate the behavior of the banks thus throwing the marketplace into further chaos.
So if you start off knowing that the banks can never come up with the name and contact information of a creditor, then you begin to see how there are some attacks on the position of banks that could have enormous traction even though on their face those strategies look like losers.

One Step Closer:It’s Impossible to Tie Any Investors to Any Loan

The current talking points used by the Banks is that somehow the Trust can enforce the alleged loan even though it is the “investors” who own the loan. But that can only be true if the Trust owns the loan which it doesn’t. And naming the “investors” as the creditor does nothing to clarify the situation — especially when the “investors” cannot be identified.

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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see http://4closurefraud.org/2016/06/07/unsealed-doj-confirms-holders-of-securitized-loans-cannot-be-traced/

I know of a case pending now where US Bank allegedly sued as Trustee of what appears to be named Trust. In Court the corporate representative of the servicer admitted that the creditor was a group of investors that he declined to name. I knew that meant two things: (1) neither he nor anyone else knew which investor was tied to the subject loan and (2) the “Plaintiff” Trust had never acquired the loan and therefore had no business being in court.

The article in the above link demonstrates that not even the FBI could figure out the identity of the investors. And as we have seen across the country whenever the homeowner asks for discovery of the identity of the creditor it is met with multiple objections and claims that the information about the identity of the debtor’s credit is proprietary. This is an absurd claim and it seeks to have the court rubber stamp a blatant violation of Federal and State lending laws which require the disclosure of the identity of the “lender.”

The only thing the article gets wrong is the statement that the loans were sold into a trust. That is obviously false. If the investors are the creditors, then their money was used to fund the origination or acquisition of the loan — without the Trust. Otherwise the Trust would be the creditor. And if the Trust is not the owner of the loan as specified by the Prospectus and Pooling and Servicing Agreement, then it follows that it has no status at all, which means that neither the Trustee nor the servicer have any authority to manage, service or otherwise enforce the alleged loan. The entire strategy of asserting the Trust is a holder of the note is thus unhinged when it is confronted with reality. The whole “standing” argument revolves around this point — that no loan actually made it into any Trust. Many cases have been won by borrowers on that point without the extra step of saying that the creditor is completely unknown.

So the upshot is that there is no known, presumed or identified creditor. Although that seems implausible and counter-intuitive, it is nonetheless true. That doesn’t mean that theoretically there couldn’t be an unsecured claim from the investors to collect from the homeowner under a theory of unjust enrichment, but it does mean that the investors are neither named on the note and mortgage nor are they the current owners of any paper instruments that purport to be evidence of the “debt” — i.e., the note and mortgage. If they are not the current owners of the “debt” originated at closing nor the owners of the paper instruments signed at the alleged closing, then there is no evidence of any contract or privity between the investors and the Trustee or servicer at all. The PSA was ignored which means the entity of the Trust was ignored.  And THAT means lack of standing and lack of any ability to cure it.

Which brings me to one of my earliest articles for this Blog that announced “You Don’t Owe the Money.” Using the step transaction doctrine and single transaction doctrines arising mostly out of tax courts, it was plain as day to me back in 2007 and 2008 that there was no “debt.” And until someone stepped up with an equitable unsecured claim against the homeowner, there wasn’t even a liability. But nobody ever steps up. The banks tell us that is because the whole securitization scheme is to prevent and even prohibit the investors from even making an inquiry into any specific “loans.”

But the real reason is simple and basic — the Trusts were ignored, which means that investor money was deposited with investment banks under false pretenses — the falsehood being that the investors were buying into a specific Trust (which never received any proceeds of sale of the Trust securities) with a specific Mortgage Loan Schedule. The Mortgage Loan Schedule was therefore a complete illusion as an attachment to the Trust because the Trust never had the money to pay for the “pool” of loans. That is why the Mortgage Loan Schedule shows up mainly in litigation in order to confuse the Judge into thinking that somehow it is “facially valid” instead of being the self-serving fabrication of a stranger to the transaction who is engaged in stealing the loans after they already stole the money from investors.

In fact, the “pool” was an ever widening dark dynamic pool of money in which all the money of all investors was commingled with all the other investors of all the alleged Trusts. As I have previously stated the result can be compared to taking an apple, an orange and a banana and setting a food processor on Puree. At the end of that simple process it is impossible for the chef to produce the original apple, orange or banana.

If securitization was real, the banks could have easily done two things that would have completely knocked out any borrower defenses except payment. The first was to show the money chain and the second would be produce the proof that the Trust owned the debt, not the investors. The current talking points used by the Banks is that somehow the Trust can enforce the alleged loan even though it is the “investors” who own the loan. But that can only be true if the Trust owns the loan which it doesn’t. And naming the “investors” as the creditor does nothing to clarify the situation — especially when the “investors” cannot be identified.

As it stands now, the investors continue to allow the banks to act like they are really intermediaries, stealing both the money and the loans that should have been executed in favor of the investors and even allowing claims for collecting “servicer advances” that were not advances (they were return of investor capital) and never came from the servicer. It was and remains a classic PONZI scheme that government is too scared to do anything about and investors are too ignorant of the false securitization (or unwilling to admit human error in failing to do due diligence on the securitization package).

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Glaski Court refuses to “depublish” decision, two judges recuse themselves.

Corroborating what I have been saying for years on this blog, the Supreme Court of the state of California is reasserting its position that if entity ABC wants to collect on a debt in California, then that particular entity must own the debt. This is basic common sense and simply follows article 9 of the Uniform Commercial Code. If a court were to adopt the position of the banks, then a new industry would be born, to wit: spying on people to determine whether or not they are behind on any payment to anyone and then beating the real creditor to court, filing a complaint and getting a judgment without the real creditor even knowing about it. The Supreme Court of the state of California obviously understands this.

This is not really complicated although the words used are complicated. If you find out that your neighbor is behind in payments on their credit cards, it is obvious that you cannot serve your neighbor and collect. You don’t own the debt because you never loaned any money and because you never purchased the debt. If you are allowed to sue and collect on the credit card debt, you and the court would be committing a fraud on the actual creditor. This is why it is absurd for lawyers or judges to say “what difference does it make who they owe the debt to?  They stopped making payments and they are clearly in default.”  Any lawyer or judge makes that statement is wrong. It lacks the foundation of the factual determinations required to establish the existence of the debt, the current balance of the debt after deductions for all payments received from all parties on this account, and the ownership of the debt.

In the first year of law school, we learned that the note is not the debt.  The note is evidence of the debt and the terms of repayment but it is not a substitute for the actual transaction documents. Those transaction documents would have to include proof of transfer of consideration, which in this case would mean wire transfer receipts and wire transfer instructions. The banks don’t want to show the court this because it will show that the originator in most cases never made any loan at all and was merely serving as a sham nominee for an undisclosed lender. The banks are attempting to use this confusion to make themselves real parties in interest when in fact they were never more than intermediaries. And as intermediaries that misused their positions of trust to misrepresent and create fraudulent “mortgage bond” transactions with investors that led to fraudulent loans being made to borrowers.

The banks diverted or stole money from investors on several different levels through multiple channels of conduit sham entities that they called “bankruptcy remote vehicles.” The argument of “too big to fail” is now being rejected by the courts. That is a policy argument for the legislative branch of government. While the bank succeeded in scaring the executive and legislative branches into believing the risk of “too big to fail” most of the people in the legislative and executive branches of government on the federal and state level no longer subscribe to this myth.

There are dozens of other courts on the trial and appellate level across the country that are also grasping this issue. The position of the banks, which is been rejected by Congress and the state legislatures for good reason, would mean  the end of negotiable paper. The banks are desperate because they know they are not the owner of the debt, they are not the creditor, they have no authority to represent the creditor, and their actions are contrary to the interests of the creditor. They are pushing millions of homeowners into foreclosure, or luring them into an apparent default and foreclosure with false promises of modification and settlement.

The reason is simple. Without a foreclosure sale at auction, the banks are exposed to an enormous liability for all the money they collected on the alleged defaulted loans. The amount of the liability is vastly in excess of the entire principal of the loans, which is why I say that the major banks are publishing financial statements that are based on fictitious assets and fictitious income. Nobody can ignore the fact that the broker-dealers (investment banks) are getting sued by investors, insurers, counterparties on credit default swaps, government agencies who have already paid for alleged “losses”, and government agencies that have paid on guarantees for mortgages that did not conform to the required industry-standard underwriting practice.

This latest decision in which the Glaski court, at the request of the banks, revisited its prior decision and then reaffirmed it as a law of the land in the state of California, is evidence that the courts are turning the corner in favor of the real creditors and the real debtors. The recusal by two judges on the California Supreme Court is interesting but at this point there are no conclusions that can be drawn from that.

This opens the door in the state of California for people to regain title to their property or damages for the loss of title. It also serves to open the door to discovery of the actual money trail in order to trace real transactions as opposed to fictitious ones based upon fabricated documentation which often contain forgery, backdating, and are signed by people without authority or people claiming authority through a fictitious power of attorney.

Glaski Court Reaffirms Law of the Land In California: If you don’t own the debt, you cannot collect on it.

Banks Won’t Take the Money: Insist on Foreclosure Even When Payment in Full is Tendered

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We have seen a number of cases in which the bank is refusing to cooperate with a sale that would pay off the mortgage completely, as demanded, and at least one other case where the homeowner deeded the property without any agreement to the foreclosing party on the assumption that the foreclosing party had a right to foreclose, enforce the note or mortgage. There is a reason for that. They don’t want the money, they don’t even want the house — what they desperately need is a foreclosure judgment because that caps the liability on that loan to repay insurers and CDS counterparties, the Federal Reserve and many other parties who paid in full over and over again for the bonds of the REMIC trust that claimed to have ownership of the loan.

This should and does alert judges that something is amiss and some of their basic assumptions are at least questionable.

I strongly suggest we all read the Renuart article carefully as it contains many elements of what we seek to prove and could be used as an attachment to a memorandum of law. She does not go into the issue of their being actual consideration in the actual transactions because she is unfamiliar with Wall Street practices. But she does make clear that in order for the sale of a note to occur or even the creation of a note, there must be consideration flowing from the payee on the note to the maker. In the absence of that consideration, the note is non-negotiable. Thus it is relevant in discovery to ask for the the proof of the the first transaction in which the note and mortgage were created as well as the following alleged transactions in which it is “presumed” that the loan was sold because of an endorsement or assignment or allonge. To put it simply, if they didn’t pay for it, then it didn’t happen no matter what the instrument or endorsement says.

The facts are that in many if not most cases the origination of the loan, the execution of the note and mortgage and the settlement documents were all created and recorded under the presumption that the payee on the note was the source of consideration. It was easy to make that mistake. The originator was the one stated throughout the disclosure and settlement documents. And of course the money DID appear at the closing. But it did not appear because of anything that the originator did except pretend to be a lender and get paid for its acting service. Lastly, the mistake was easy to make, because even if the loan was known or suspected to be securitized, one would assume that the assignment and assumption agreement for funding would have been between the originator or aggregator (in the predatory loan practice of table funding) and the Trust for the asset pool. Instead it was between the originator and an aggregator who also contributed no consideration or value to the transaction. The REMIC trust is absent from the agreement and so is the ivnestor, the borrower, the isnurers and the counterparties to credit default swaps (CDS).

If the loan had been properly securitized, the investors’ money would have funded the REMIC trust, the Trust would have purchased the loan by giving money, and the assignment to the trust would have been timely (contemporaneous) with the creation of the trust and the sale of the the loan — or the Trust would simply have been named as the payee and secured party. Instead naked nominees and disinterested intermediaries were used in order to divert the promised debt from the investors who paid for it and to divert the promised collateral from the investors who counted on it. The servicer who brings the foreclosure action in its own name, the beneficiary who is self proclaimed and changes the trustee on deeds of trust does so without any foundation in law or fact. None of them meet the statutory standards of a creditor who could submit a credit bid. If the action is not brought by or on behalf of the creditor there is no jurisdiction.

Add to that the mistake made by the courts as to the accounting, and you have a more complete picture of the transactions. The Banks and servicers do not want to reveal the money trail because none exists. The money advanced by investors was the source of funds for the origination and acquisition of residential mortgage loans. But by substituting parties in origination and transfers, just as they substitute parties in non-judicial states without authority to do so, the intermediaries made themselves appear as principals. This presumption falls apart completely when they ordered to show consideration for the origination of the loan and consideration for each transfer of the loan on which they rely.

The objection to this analysis is that this might give the homeowner a windfall. The answer is that yes, a windfall might occur to homeowners who contest the mortgage or who defend foreclosure. But the overwhelming number of homeowners are not seeking a free house with no debt. They would be more than happy to execute new, valid documentation in place of the fatally defective old documentation. But they are only willing to do so with the actual creditor. And they are only willing to do so on the actual balance of their loan after all credits, debits and offsets. This requires discovery or disclosure of the receipt by the intermediaries of money while they were pretending to be lenders or owners of the debt on which they had contributed no value or consideration. Thus the investor’s agents received insurance, CDS and other moneys including sales to the Federal reserve of Bonds that were issued in street name to the name of the investment bankers, but which were purchased by investors and belonged to them under every theory of law one could apply.

Hence the receipt  of that money, which is still sitting with the investment banks, must be credited for purposes of determining the balance of the account receivable, because the money was paid with the express written waiver of any remedy against the borrower homeowners. Hence the payment reduces the account receivable. Those payments were made, like any insurance contract, as a result of payment of a premium. The premium was paid from the moneys held by the investment bank on behalf of the investors who advanced all the funds that were used in this scheme.

If the effect of these transactions was to satisfy the account payable to the investors several times over then the least the borrower should gain is extinguishing the debt and the most, as per the terms of the false note which really can’t be used for enforcement by either side, would be receipt of the over payment. The investor lenders are making claims based upon various theories and settling their claims against the investment banks for their misbehavior. The result is that the investors are satisfied, the investment bank is still keeping a large portion of illicit gains and the borrower is being foreclosed even though the account receivable has been closed.

As long as the intermediary banks continue to pull the wool over the eyes of most observers and act as though they are owners of the debt or that they have some mysterious right to enforce the debt on behalf of an unnamed creditor, and get judgment in the name of the intermediary bank thus robbing the investors, they will continue to interfere with investors and borrowers getting together to settle up. Perhaps the reason is that the debt on all $13 trillion of mortgages, whether in default or not, has been extinguished by payment, and that the banks will be left staring into the angry eyes of investors who finally got the whole picture.

READ CAREFULLY! UNEASY INTERSECTIONS: THE RIGHT TO FORECLOSE AND THE UCC by Elizabeth Renuart, Associate Professor of Law, Albany Law School — Google it or pick it off of Facebook

 

Illinois Takes A Step in the Right Direction

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The selection of an attorney is an important decision  and should only be made after you have interviewed licensed attorneys familiar with investment banking, securities, property law, consumer law, mortgages, foreclosures, and collection procedures. This site is dedicated to providing those services directly or indirectly through attorneys seeking guidance or assistance in representing consumers and homeowners. We are available to any lawyer seeking assistance anywhere in the country, U.S. possessions and territories. Neil Garfield is a licensed member of the Florida Bar and is qualified to appear as an expert witness or litigator in in several states including the district of Columbia. The information on this blog is general information and should NEVER be considered to be advice on one specific case. Consultation with a licensed attorney is required in this highly complex field.

Editor’s Comment: Illinois has taken a step forward but they are still plagued by the wrong assumption — that the courts are dealing with a legitimate debt. There is no debt if it is paid and in many cases the original debt has been paid down or paid off by  third party mitigation payments from insurance and credit default swaps.

Remember the note raises the presumption of the existence of the debt which is rebuttable. It does not prove the loss. Without proof of loss there is no foreclosure or any other lawsuit for that matter. The party seeking relief must show they have been or will be injured in some way to get money damages, equitable relief (like foreclosure) or anything else. Without injury they don’t belong in court, which is why we have a jurisdictional rule regarding standing. No injury=no standing.

So the bad point about the new rules is that the forecloser must prove the debt, but it doesn’t specifically say they must plead or prove the loss. The problem with that is production of the note (whether the the real note or something that looks like the real note) raises the presumption of the debt. It also causes Judges to assume that the loss is self-evident — i.e., if someone has the note it is presumed that they paid for it and will suffer a loss of their expectancy of payment under the terms of the note.

If you don’t demand to see the canceled check or the wire transfer receipt and wire transfer instructions or other forms of actual payment of money (where it can be seen that money actually exchanged hands) then there is no consideration, the paper is not negotiable, the UCC doesn’t apply and the party seeking to foreclose has no standing because they have not been injured by the borrower, even if the borrower didn’t make any payments. At the root of this mess is a scheme of illusions created by the banks. Demand reality and you will get traction.

But there are also some good points about the new rules. The one requiring counseling for the homeowners would be good if the counselors knew what they were talking about and understood the perfectly valid defenses available to homeowners who got swindled into signing papers in favor of a company that never made a loan to them. From what I have seen, the counselors don’t have any idea about such things and it is merely a debt counseling session about getting your life in order, which is a good thing, but not what you can do about having your life turned upside down by an illegal foreclosure.

The part I like is the burden placed on foreclosers that would show that a modification is not possible. This is simple: if the results of foreclosure are that the net proceeds are substantially less than what the homeowner is offering, then the loan  can be modified. Demand should be made for the methodology and the person who calculated the modification for the forecloser and their authority to do so. And demand should be made for what contact they had with the “creditor.” Then you contact the creditor and find out (a) if they are the creditor (b) whether they were contacted and (c) how they feel about getting $150,000 from the homeowner rather than $50,000 from foreclosure.

As for the modification part, the banks are going to fake it just like they fake everything else. Be ready with an expert declaration that shows that the modification offered is far better than foreclosure, and that this is evidence of the fact that the servicer never even “Considered” the modification, which is violation of HAMP and HARP.

Discussion Started Between Livinglies and AZ Attorney General Tom Horne

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Editor’s Comment:

Dear Kathleen,

Thank you very much for taking my call this morning.

The question that Neil F. Garfield, Esq. had asked AZ Attorney General Tom Horne at Darrell Blomberg’s meeting was:

Why is the Arizona Attorney General not prosecuting the banks and servicers for corruption and racketeering by submitting false credit bids from non-creditors at foreclosure auctions?

Please feel free to browse Mr. Garfield’s web blog, www.LivingLies.wordpress.com as you may find much of the research and many of the articles to be relevant and of interest.

Mr. Garfield wishes the following comments and observations to be added, in order to clarify the question being asked.

It should probably be noted that in my own research and from the research from at least two dozen other lawyers whose practice concentrates in real property and foreclosures have all reached the same conclusion.  The submission of a credit bid by a stranger to the transaction is a fraudulent act.  A credit bid is only permissible in the event that the party seeking to offer the bid meets the following criteria:

1.  The homeowner borrower owes money to the alleged creditor

2.  The money that is owed to the alleged creditor arises out of a transaction in which the homeowner borrower agreed to the power of sale regarding that debt

3.  Any other creditor would be as much a stranger to the transaction as a non-creditor

Our group is also in agreement that:

4.  Acceptance of the credit bid is an ultra vires act.

5.  The deed issued in foreclosure under such circumstances is a wild deed requiring the title registrar to attach a statement from the office of the title registrar (for example Helen Purcell) stating that the deed does not meet the requirements of statute and therefore does not meet the requirements for recording.

6.  In the event that nobody else is permitted to bid, the auction violates Arizona statutes.

And we arrived at the following conclusions:

7.  In the event that there is no cash bid and the only “bid” was accepted as a cash bid from either a non-creditor or a creditor whose debt is not secured by the power of sale, no sale has legally occurred.

8.  The applicable statutes preventing the corruption of the title chain by such illegal means include the filing of false documents, grand theft, and evasion of the payment of required fees.

9.  This phenomenon is extremely wide spread and based upon surveys conducted by our office and dozens of other offices (including an independent audit of the title registry of San Francisco county) strongly suggest that the vast majority of foreclosures in Arizona resulted in illegal auctions, illegal acceptance of a bid, and illegal issuance of a deed on foreclosure-which resulted in many cases in illegal evictions.

10.  Federal and State-equivalent RICO may also apply, as well as Federal mail fraud which should be referred to the US Attorney.

CONSTITUTIONAL CHALLENGE TO THE NON-JUDICIAL SALE STATUTE AS APPLIED.

It should also be noted that all the same attorneys agreed that the use of an instrument called “Substitution of Trustee” was improper in most cases in that it removed a trustee owing a duty to both the debtor and the creditor and replaced the old trustee with an entity owned or controlled by the creditor.

This is the equivalent of allowing the creditor to appoint itself as Trustee.

In virtually all cases in which a securitization claim was involved in the attempted foreclosure the Substitution of Trustee was used exactly in the manner described in this paragraph.  This method of applying the powers set forth in the Deed of Trust is obviously unconstitutional as applied.

Constitutional scholars agree that the legislature has wide discretion in substituting one form of due process for another.  In this case, non-judicial sale was permitted on the premise that an independent trustee would exercise the ministerial duties of what had previously been a burden on the judiciary.

However, the ability of any creditor or non-creditor to claim the status of being the successor payee on a promissory note, being the secured party on the Deed of Trust, and having the right to substitute trustees does not confer on such a party the right to appoint itself as the trustee, auctioneer, and signatory on the Deed upon foreclosure nor to have submitted a credit bid.

We are very interested in your reply.  If your office has any cogent reasons for disagreement with the above analysis, we would like to “hear back from you” as you promised at Mr. Blomberg’s meeting 22 days ago.  We would encourage you to stay in touch with Mr. Blomberg or myself with regard to your progress in this matter in as much as we are considering a constitutional challenge not to the statute, but to the application of the statute on the above stated grounds.

Thank you for your time and consideration,

Sincerely

Neil F Garfield esq

licensed in Florida #229318

www.LivingLies.wordpress.com

ACCEPTANCE OF THE ASSIGNMENT AND STATUS OF THE ASSIGNMENT

OK so you feel a little lost. That is because most of us are jumping in at the end of a long series of events and documents.

The most important point for you to make in order to jar the Judge’s thinking is that the closing with the borrower took place in the middle of the chain of securitization and within the context of the securitization documents executed without the borrower, before the borrower existed even as a prospective customer for the loan product.

Those documents provide the context in which loans will be offered, approved, assigned, accepted, replaced, returned, insured etc. Thus the key documents that creates the securitization structure for the creation and pooling of loans precede the offering of a loan product to the borrower. The closing documents of the borrower are in the middle of the securitization chain not at the beginning. The assignment is near the end of the securitization chain in practice, contrary to the usual conditions and prohibitions contained in the original enabling documents that created the securitization structure and process.

NOTE: Do not make any assumptions that your loan was securitized. Even if it was securitized it is entirely possible, if not probable, that the “assignment” is barred by a cutoff date in the securitization documents, or that the assignment was not executed with the form and content required by the securitization documents. Thus even if there is an assignment, you should not assume that it was or could be accepted. It is highly possible if your loan appears to be securitized, or even if there is a “Trustee” under an alleged securitization structure that a party making a claim on an assignment is unaware of the absence of acceptance or even that there is no authority for the Trustee to accept the assignment.You can be certain that if the other party is unaware of these defects, that the Judge is equally unaware.

The key to understanding this evolving process is that the Judge is looking at your transaction as the beginning point. That is simply flat wrong and you need to make that point as clearly as you can.

The beginning was the creation of the securitization structure.

  • The first transactions that occurred was the sale of securities to unsuspecting investors.
  • The second transaction that occurred was that the investor money was put into an account at an investment banking firm.
  • The third transaction was that the investment banker divided the money between fees for itself and then distributing the funds to aggregators or a Depository Institution.
  • The fourth transaction was the closing with the borrower. The loan was funded with the money from the investor but because of the disparity between the interest payable to the investor and the interest payable by the borrower, a yield spread was created, adding huge sums to what the investment banker took as fees without disclosure to the ivnestors or the borrowers.
  • The fifth was the assignment AND ACCEPTANCE of the loan (See below) into between 1 and 3 asset pools, each bearing distinctive language describing the pool such that they appeared to be different assets than already presumed to exist in the first pool.
  • The sixth was the receipt of insurance or counter-party payments on behalf of the pool pursuant to the documents creating the securitization structure.
  • The seventh was the resecuritization of the pooled assets between one and three times.
  • The eighth was the federal bailout payments and receipts allocable to the balances owed on the loans that were claimed to be part of the pool.
  • The ninth are the foreclosures by parties who never handled any money who allegedly represent investors who no longer have any interest in the loan.

Through the creation of multiple entities that never existed before securitization of mortgage loans, the intermediaries are able to support the illusion that they never received payment from outside parties on the obligations owed from borrowers.

Most loans are assigned only after they are delinquent or even after foreclosure has been ordered. By definition, the documents creating the securitized pool usually prohibit such an assignment from being accepted into the pool. Therefore, although an assignment was executed, it is entirely possible that it accomplished nothing of legal consequence.

Also, even if the loan was ever in a securitized pool of assets, no assumptions should be made regarding the CURRENT STATUS of the “assigned” loan. Most documents that create the securitization structure, require the assignor to take back a non-performing loan and replace it with either cash or a comparable performing loan. Therefore, it is at the very least a question of fact as to whether the loan is still in the pool whether the assignment was effective or not.

I think the fundamental issue that we have been weak on presenting is ACCEPTANCE OF THE ASSIGNMENT and STATUS OF THE ASSIGNMENT. The pretender lenders have been successful thus far in directing the court’s attention to the note, Deed of Trust (Mortgage) and the assignment and away from the facts dealing with the obligation itself and the securitization. The error is in allowing the opposition and the Court to focus its attention on the creation of the obligation and the assignment of the note. In an ABCDE chain, this is the equivalent of looking at B and D and ignoring A,C and E.

Securitization involves many documents. In broad brush, it involves the

  • Closing documents between loan originators, servicers, Special Purpose Vehicles, aggregators, etc. including the pooling and services agreement, the assignment and assumption agreement, the Master Services Agreement  [if separate], none of which includes the borrower as party or references any specific debtor or borrower because the debtor is unknown when the securitization structure is created
  • pre-application documents before the borrower was even a prospect,
  • the pre-closing documents and effect of documents that are not referenced at closing
  • the closing documents with the borrower
  • the assignment(s)
  • the conditions imposed on the assignment (conditional assignment because the assignment was pursuant to the pre-application and pre-closing documents)
  • and post closing documents involving third party payments and resecuritization of the loan or resecuritization involving additional insurance, credit enhancements, federal bailouts etc.

It should be argued aggressively that the opposing party needs to prove its case and not have the benefit of the Court assuming that a prima facie case exists. The putative creditor in each case at bar is claiming their standing by virtue of an assignment. But that assignment only exists by virtue of a larger structure of securitization in which the documents describe the conditions under which such an assignment is acceptable and further conditions if the loans ceases to perform. Provisions requiring insurance, credit default swaps, credit enhancements, and others add co-obligors to the borrower’s transaction which takes place not at the beginning of the chain, but rather in the middle of the chain.

Specialized Loan Services: “MISTAKE” Costs Elderly Couple Their Home

Editor’s Note: Besides the obvious, there are a number of not-so-obvious things to keep in mind.

  • The reason why they made the “mistake” is probably related to errors in procedure because they receive information from multiple sources. It is possible but unlikely that this was a normal error in posting. In Motion Practice and Discovery you would want to exploit such weaknesses to s how that there are too many “stakeholders” in the pie and that the procedures used to keep track of payments and status are intentionally obtuse to create plausible deniability when something like this happens with such horrendous results.
  • Ask yourself: why are all these players in the marketplace supposedly servicing different aspects of the loan? One for payments from borrower, another for payments from third party credit enhancements, another for federal bailouts, another to “substitute” for the original nominal party named at closing as the lender, another”Substitute” for the trustee, another to handle the delinquency, another to handle the default, another to handle the foreclosure sale etc.
  • Pretender lenders want the courts to handle foreclosures like “business as usual.” But business isn’t usual. When business was usual the bank that loaned the money was the bank that foreclosed on the mortgage or otherwise enforced the note. They should not be allowed to proclaim “business as usual” or standard operating procedure, or business records and affidavits, when business is far from usual.
  • Fabricated documents executed by people with dubious titles and even more dubious authority are being used to foreclose on property. The reason is simple: they don’t own the loan and they are successfully using the courts to steal from both the investors who advanced the money, the taxpayers to covered the money and the homeowners who advanced their home as collateral — all for a debt or obligation that no longer exists in the same form as the one presented at the borrower’s closing.
  • From www.themortgageinsider.net we find:

Specialized Loan Servicing LLC (SLS) is a mortgage servicer of residential mortgage loans primarily for other mortgage lenders. We uncovered three phone numbers, their website, and some pretty ugly customer complaints. We found an additional DBA name of The Terwin Group for SLS too.

Specialized Loan Servicing LLC Website and Phone Contacts

Specialized Loan Servicing LLC Website: https://www.sls.net/
Specialized Loan Servicing LLC Phone:
(800) 315-4757
(720) 241-7385
(720) 241-7364
Fax: (720) 241-7218
Address: 8742 Lucent Blvd. #300, Littleton, CO 80129

Specialized Loan Servicing LLC Review

Specialized Loan Servicing LLC services mortgage loans for other lenders and according to past customers, they have an ugly customer service track record.

When I search for complaints against Specialized Loan Servicing LLC, I found the worst complaints a mortgage service can get levied against them. Click here to see all the Specialized Loan Servicing LLC complaints listed in Google.

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Senior Couple Being Screwed Royally By Mortgage Servicer – Specialized Loan Servicers

H. Vincent and Theresa Price have lived in their home in Alameda for 32 years.  It’s where they raised their children.  They had always planned to leave it as their legacy.  They’ve NEVER been late on a mortgage payment… to this day! And they never wanted or asked for a loan modification.

Yes, everything was just fine at the Price home… until last September… when their mortgage servicer, Specialized Loan Services, made a mistake in their accounting department.  A simple mistake… they didn’t credit the Prices for having made their August and September mortgage payments, even though they most certainly did, just like they always had, and on time too.  Incredibly, less than five months later they had lost their home to foreclosure.

And today, although Mr. Price lies in a hospital bed with his wife at his side, they are scheduled to be LOCKED OUT by the Pasadena Sheriff’s Department pursuant to an order by the court.  If everything goes as planned by the mortgage servicer, when his doctors discharge him, the couple will be homeless.

How is such a thing possible?  Well, stay with me, because I promise you… this is not a story you’ve heard before.

According to the complaint filed in Los Angeles Superior Court, on August 1, 2008, Mrs. Price made the couple’s mortgage payment as she’s been doing for 32 years.  Certainly nothing remarkable about that.  A month later, when their September statement arrived showing that they owed their September payment, she made their mortgage payment again.  So far, so good, right?

It was right around September 29th that the Prices were notified that Specialized Loan Serivces had not received their August or September payments.  Mrs. Price assured the servicer’s representative that she had made the payments, and on time as always, thank you very much.

The servicer requested proof, so Mrs. Price sent in her bank statement showing that the payments had been made to Specialized Loan Services, and the amounts were deducted from her account on August 3rd and September 4th, respectively.  The Specialized representative called back to say they needed more proof, so she sent them a more detailed transaction report showing the payments having been made.  Still, not enough according to Specialized.  So, Mrs. Price went to her bank and had them print out her account’s record of the payment being made to Specialized and sent that document to the mortgage servicer.

The next call from Specialized came from a different representative of the servicer.  He informed Mrs. Price that they had not yet located her payments, but that her proof was acceptable and that they expected to soon. Meanwhile, he assured her, the servicer was placing a waiver on the October and November payments, a show of good faith, if you will, until the missing payments were found.  After a couple of weeks passed with no further word from Specialized, the Prices called to inquire as to the status of the situation.

They spoke with a woman who said her name was Lynette.  She told the Prices that their account was showing “CURRENT” for August, September, October and November, that they should make their next payment on the first of December, and that a new accounting statement would be sent out.

When no new statement had arrived two weeks later, the Prices called Specialized yet again.  It was November 23, 2008 and this time they spoke with another representative of the mortgage servicer, “Ben”.

They asked Ben about the new statement that was to have been sent out, but Ben had no idea what they were talking about.  He stated that he wasn’t aware of any sort of arrangement regarding the couple’s August and September payments, and further, now that they were four months late, if they did not make the delinquent payments and associated late charges within the next 24 HOURS… Specialized Loan Services WOULD FORECLOSE ON THE PROPERTY.

You can just imagine what happened next.  The Prices began calling the servicer asking to speak with the three representatives that had been speaking with over the last several months… the ones that had told them about the waiver and had been trying to find the missing payments.  They called… and called… and no one answered or returned their calls.  They then called the servicer’s Vice President of Customer Service… and… nothing.  No return call… nothing.

It was January when the Prices received their first piece of written communication from Specialized… it was a Notice of Default and Election to Sell.  Understandably, the couple was speechless.  How could this happen?  How was this possible?

The Prices were referred to a lawyer who said he was also a minister; a man identifying himself as a Mr. Reginald Jones.  Mr. Jones told the Prices that he was highly experienced in these matters and that he would file a lawsuit as soon as possible.  The couple would later learn that Mr. Jones was not an attorney.  What he had done was go into court, appearing as a plaintiff by claiming that he had an interest in the property, and file a frivolous lawsuit, which was later dismissed by the court…. as it might go without saying.

Now, having been defrauded by the so-called lawyer-minister, the Prices were forced to defend an unlawful detainer action in pro per, meaning without an attorney.  Unfortunately, they were not successful as they were told that they could not “litigate title in a summary proceeding,” which as I’m quite sure everyone would agree, they clearly should have known. They were advised that they should file an injunction, which they did, but unfortunately they mistakenly filed their injunction in the “wrong court,” and don’t we all hate it when that happens.

(I’m sorry for the sarcasm, but this is the most outrageous travesty of justice to which I’ve ever been exposed.)

The Prices searched and finally found an attorney they could trust, Zshonette Reed of the firm Lorden Reed in Chatsworth, California, but now it was only days before the Pasadena Sheriff would be locking the Prices out of their home potentially forever.  As quickly as was possible, Ms. Reed prepared the legal documents required for the filing of a Temporary Restraining Order, or TRO, and with her clients at her side, and confident that this horrendous injustice would not be allowed to prevail, she appeared in Superior Court yesterday, September 15, 2009.

The Price home is to be locked up by the Pasadena Sheriff today, although because that office is closed for a special training day today, the event has been moved to tomorrow.

Astonishingly, the judge denied her motion for a TRO, ruling that he had no jurisdiction over the judgment that had been entered against the Prices in the unlawful detainer court.  So, immediately she and her clients proceeded to the unlawful detainer court to ask that judge, in layman’s terms, to put a stop to the madness.

It may be hard for a reader to believe, but that judge also refused to provide the Prices any relief, because he said that the attorney could not litigate title in that court.  It was a classic Catch-22.  Ms. Reed couldn’t get relief from the Superior Court because that court said that it had no jurisdiction over the unlawful detainer court, and the unlawful detainer court wouldn’t provide relief because you can’t litigate title anywhere but in the Superior Court.  Ms. Reed begged the judge, explaining that her client’s home was to be locked up by the sheriff the very next day.  She needed time to prepare to present her client’s case to the appellate court.  The answer was still no.

Ms. Reed and her clients left the courthouse shocked and scared.  Mr. Price was clearly distressed as was his wife, and he was having a hard time breathing so he went to sit down on a stoop.  He went into cardiac arrest right there in front of the courthouse and was rushed to the hospital where he is today with his wife by his side.

Meanwhile, the Pasadena Sheriff is scheduled to lock the couple out of their home today, although that looks like it won’t be until tomorrow due to the department taking today off for special training.

Can you even imagine the horror?  After 32 years living in your home, raising your family, never being late on a mortgage payment… and then this?  It’s unthinkable.

And it cannot be allowed to happen to the Prices or anyone else.

The worst part is that, although this is certainly an extreme case, it is far from being the only example of mortgage servicers and banks disregarding the law, and abusing homeowners.  Why do they do it?  I don’t know… because they can, comes to mind.

How can a homeowner hope to go up against a bank or mortgage servicer?  They can’t.  It would seem that even the President of the United States and the United States Treasury is having trouble getting these companies to behave like human beings.

It’s time that the people of this country come to understand what’s happening here.  Past time.

Magnetar Echoes Livinglies call for Alignment of Investors, Servicers and Borrowers

see Magnetar%20Mortage%20Recovery%20Backstop%20Whitepaper%20Jun09.pdf

Magnetar Mortage Recovery Backstop Whitepaper Jun09

Two things jump out at me with this paper from June, 2009.

First it is obvious that the “real money” investors are defined as those seeking low risk and willing to take lower yield. The fact that they are called “Real Money Investors” underscores my point about the identity of the creditor. Those “traditional” investors are no longer available to buy the mortgage backed securities or any other resecuritized derivative package based upon mortgage backed securities. Legal restrictions requiring the securities to be investment grade would prevent them from jumping back in even if they wanted to do so, which they obviously don’t.

Thus the inevitable conclusion drawn almost a year ago and borne out by history, is that the fair market value of the securities, trading as pennies on the dollar, is reflective of a lack of demand for mortgage backed securities no matter how high the yield (i.e., no matter how low the price).

Second there is a growing realization that the interests of the investor and the borrowers are actually aligned in many ways and that the solution to mortgage modification, principal reduction, and other aspects of the mortgage mess and the foreclosure crisis lies in recognizing certain realities and then dealing with them in an equitable manner. The properties were never worth the amount of the appraisal in most instances and now they are worth even less than they were when the loan deals were closed. The securities were also “appraised” far too high thus creating a giant yield spread premium for the investment bank-created seller of mortgage backed securities.

In my opinion, based upon a sampling of the data available, it is entirely possible that the “true” fair market value of those securities in the best of circumstances is probably less than 40% of the initial offering price. It is this well-hidden analysis that is not getting the attention of the Obama administration and which completely explains why servicers are obstructing modifications under instruction from investment banking intermediaries like the “Trustee”.

Leaving the servicers and other parties as the middlemen “in the middle” to sort this out is another license to steal creating another mark-up applied against both borrowers and investors as the “real money” parties. The status quo is what is causing the stagnation in lieu of recovery. Until everyone accepts basic notions of “real party in interest” and eliminates those who don’t fit that description, the moral hazards will remain and escalate.

As concluded in this paper, either judicial or executive intervention is required to kick the middlemen out of the way and let the light in. When investors and borrowers are able to compare notes and work with each other the figures for both will be enhanced, foreclosures will decline, losses will be taken, and yes it is highly probable that the number of investor lawsuits will proliferate against those who defrauded them.

The lender is identified as the investor in this paper (indirectly) and the party who defrauded them is not some greedy borrower with stars in his eyes, it was the usual suspect — a financial wizard making a sales pitch that was so complex, the buyer basically was forced to rely upon the integrity of the investment banking house for appropriate pricing. That is where the system fell apart. Moral hazard escalated to moral mess.

Regulation and Prosecution on Wall Street

In my opinion, the growing anger at Wall Street is giving Lloyd Blankfein and Jamie Dimon another chance at misdirection. They are using the current popular angst to steer the debate into whether derivatives and synthetic CDOs should be banned. In the end they will win that debate, and they should win it. What they should lose is their freedom in a judicial forum where they are prosecuted like Ken Lay and Bernie Ebbers, and where it is proven beyond a reasonable doubt that they committed criminal fraud and securities fraud.

The fact that we had a bad experience with derivatives is not a reason to ban them. The fact that they were abused and that people were cheated and that the entire financial system was undermined is another story.

There is nothing wrong with any transaction if the playing field is relatively level and if the imbalances are addressed by law and regulation. That is what the Truth in lending Act is all about and the Real Estate Settlement Procedures Act is meant to address.

When the big guys use their superior knowledge to trick consumers into deadly transactions, the big guys should pay the price. We have the SEC to take care of that on the other end protecting investors. Licensing laws and administrative sanctions against those licensed by state or federal agencies are well-equipped to step in and deal with these abuses. But they didn’t.

Complaints sent to the Federal Trade Commission, Office of Thrift Supervision and Office of the Controller of the Currency have gone unheeded even to this day. The only answer you get is similar to the answer we get from sending short or long Qualified Written requests or Debt Validation Letters — short shrift of legitimate complaints that by law are required to be investigated, verified (not just restated) and corrected.

The inconvenient truth is that our regulators were not employing the tools given to them. Everyone knew it. In part it was because of undue influence and in part it was because they were deferring to larger “smarter” institutions like the Federal Reserve. But the biggest reason the Federal and state agencies didn’t do their job is that we, as a society, bought into the non-regulation philosophy which has failed so spectacularly. We didn’t support appropriate funding, training and resources for these agencies. If we had done what we should have done — elect people who were committed to government protecting and serving the people — this mess would never have mushroomed to the point where Wall Street issued proprietary currency equal to 12 times times the amount of government currency — all in a span only 25 years.

The simple truth is that there was nothing inherently wrong about securitizing residential mortgages. In theory, spreading the risk out created much greater liquidity for small and large consumers of credit. What was wrong and remains wrong is that the use of these instruments was for an illegal purpose — to defraud investors and borrowers alike. And they did it in an illegal manner — by denying and withholding information essential to the decision-making on both sides of these transactions.

On one side you had a creditor who was willing to loan money for residential mortgages under terms and conditions that were “explained” in mind-numbing prospectuses and guaranteed by “insurance” that wasn’t really insurance and which was appraised by government licensed rating agencies who issued investment grade appraisals that were so wrong that it strains credibility to assume they didn’t know they were part of a larger criminal enterprise. This creditor lent money and received a bond, whose terms referenced other documents in the securitization chain that imposed conditions, co-obligors, and protections to the intermediaries that completely changed the loans that were signed by borrowers far, far away.

On the other side, you had borrowers, homeowners, who put their largest or only investment in the world at risk in a transaction that they could not understand because the information required to understand it was withheld. But even Alan Greenspan admitted he didn’t understand the transactions with the help of 100 PhD’s. These borrowers relied upon the sanctity of an underwriting process that no longer existed. Verification of property value, quality, affordability etc. were no longer in the mix.

These borrowers undertook an obligation to repay and signed a note that was evidence of the obligation but was payable to someone other than the party(ies) who loaned the money. That note was only a tiny part of the obligation to the creditor as evidenced by the mortgage backed bond they received.

The creditor was bilked out of a dollar and contrary to the expectations of the creditor, less than 2/3 of each dollar was actually used to fund mortgages. The creditor never actually received or even saw the note but ownership of the note was conveyed to the investor along with many other terms — terms that were entirely different from the note the borrower signed as to interest payments, principal, fees etc.

In between were the dozens of intermediaries who treated the documentation like a hot potato because nobody wanted to be stuck with it — knowing that misrepresentation and bad appraisals were the root of the instruments signed by creditors and debtors. These intermediaries kept possession of the note, kept the security instrument and kept the money and most of the insurance proceeds, received the federal bailout and now are proceeding to repackage the junk they already sold and through “resecuritization” are selling them again.

In my opinion there is nothing theoretically wrong with anything described above except for one thing — they lied. Fraud is fraud. If they had educated the creditors and debtors, if they had complied with local property and contract law, if they had been transparent disclosing everything much the same way as the prospectus in an IPO, then two things are true: (a) transactions that were completed would have been done because both sides knew the risks and were willing to take the loss and (b) transactions that were NOT completed (which would have been nearly all of them) would been rejected because the costs were too high, the risks were too high, and the consequences too dire.

But none of that happened because we allowed our regulators to be co-opted by the industries they were supposed to regulate. So tell your legislators and government agencies that you’ll allow them the resources to properly regulate and that you expect to hold them and the elected officials who put them there fully accountable.

Don’t throw the baby out with the bathwater. It isn’t derivatives that are wrong it is the people who used them and the way they were used that is wrong. Killing derivatives would lead to stagnation of what once was our greatest asset — the engine of liquidity for access to capital that has kept our economy growing.


About those TRUSTS

Submitted by dan, whom I think is 100% right here:

After a closer look at trust law (see Gilbert Law Summeries on Trusts by Edward C. Halbach Jr), the 4 critical elements of a trust are:

1. trust intent.

2. specific trust res or property.

3. properly designated parties.

4. valid and legal trust purpose.

A grantor/trustor must objectively manifest a final, definite, and specific intention that a trust should immediately arise with respect to some particular property.

Grantor/trustor/settlor must express his/her purpose and intent and must own both legal and equitible title of trust res property (the note) prior to transfer or assignment.

A valid trust forms the moment trust property transfers to a trustee.

But banks formed the trust indentures way before they received our notes as trust property. You can’t form a trust with the prospect of receiving property at a future time. In the many mortgage trust indentures found on the SEC website, the “acting” grantor is actually the trust itself called the “issuer” or a second trust created to act as a “strawman grantor.”

The questions arise: how on earth can a dead legal fiction manifest an intent or purpose? And how can a legal fiction transfer trust property to a trustee for the benefit of an class of ascertainable beneficiaries? And the million dollar question: Why can’t we be the grantor and beneficiary of the note (negotiable instrument) bearing OUR signatures? Who could possibly make a superior claim on our own signatures? There is no doubt that we are in the land of trust and equity. I think our remedy will ultimately lie in the land of equity. We keep getting beat up in the land of Debtor/Creditor and UCC. Maybe an education in trust will level the playing field. I think we have been led astray by the misconception that trusts are stricly reserved for asset protection and avoiding probate. Hmmm.

Lehman dissection provides clues for discovery and motion practice

Challenge everything, assume nothing. The chances are that through this shadow banking system, your loan was paid in whole or in part through third party insurers, counterparties, federal bailout etc. Without an accounting from the CREDITOR, there is no basis for claiming a default. What the other side is doing is centering in on the note, which is only part of a string of evidence about the obligation in securitized debt. Your position is that you want ALL the evidence, so you can identify the CREDITOR,and pursuant to Federal and State law, either pay, settle, modify or litigate the case if you have legitimate defenses. You can’t do that if the party you are fighting has no power to execute a satisfaction of mortgage or release and reconveyance.
April 12, 2010

Lehman Channeled Risks Through ‘Alter Ego’ Firm

By LOUISE STORY and ERIC DASH

It was like a hidden passage on Wall Street, a secret channel that enabled billions of dollars to flow through Lehman Brothers.

In the years before its collapse, Lehman used a small company — its “alter ego,” in the words of a former Lehman trader — to shift investments off its books.

The firm, called Hudson Castle, played a crucial, behind-the-scenes role at Lehman, according to an internal Lehman document and interviews with former employees. The relationship raises new questions about the extent to which Lehman obscured its financial condition before it plunged into bankruptcy.

While Hudson Castle appeared to be an independent business, it was deeply entwined with Lehman. For years, its board was controlled by Lehman, which owned a quarter of the firm. It was also stocked with former Lehman employees.

None of this was disclosed by Lehman, however.

Entities like Hudson Castle are part of a vast financial system that operates in the shadows of Wall Street, largely beyond the reach of banking regulators. These entities enable banks to exchange investments for cash to finance their operations and, at times, make their finances look stronger than they are.

Critics say that such deals helped Lehman and other banks temporarily transfer their exposure to the risky investments tied to subprime mortgages and commercial real estate. Even now, a year and a half after Lehman’s collapse, major banks still undertake such transactions with businesses whose names, like Hudson Castle’s, are rarely mentioned outside of footnotes in financial statements, if at all.

The Securities and Exchange Commission is examining various creative borrowing tactics used by some 20 financial companies. A Congressional panel investigating the financial crisis also plans to examine such deals at a hearing in May to focus on Lehman and Bear Stearns, according to two people knowledgeable about the panel’s plans.

Most of these deals are legal. But certain Lehman transactions crossed the line, according to the account of the bank’s demise prepared by an examiner of the bank. Hudson Castle was not mentioned in that report, released last month, which concluded that some of Lehman’s bookkeeping was “materially misleading.” The report did not say that Hudson was involved in the misleading accounting.

At several points, Lehman did transactions greater than $1 billion with Hudson vehicles, but it is unclear how much money was involved since 2001.

Still, accounting experts say the shadow financial system needs some sunlight.

“How can anyone — regulators, investors or anyone — understand what’s in these financial statements if they have to dig 15 layers deep to find these kinds of interlocking relationships and these kinds of transactions?” said Francine McKenna, an accounting consultant who has examined the financial crisis on her blog, re: The Auditors. “Everybody’s talking about preventing the next crisis, but they can’t prevent the next crisis if they don’t understand all these incestuous relationships.”

The story of Lehman and Hudson Castle begins in 2001, when the housing bubble was just starting to inflate. That year, Lehman spent $7 million to buy into a small financial company, IBEX Capital Markets, which later became Hudson Castle.

From the start, Hudson Castle lived in Lehman’s shadow. According to a 2001 memorandum given to The New York Times, as well as interviews with seven former employees at Lehman and Hudson Castle, Lehman exerted an unusual level of control over the firm. Lehman, the memorandum said, would serve “as the internal and external ‘gatekeeper’ for all business activities conducted by the firm.”

The deal was proposed by Kyle Miller, who worked at Lehman. In the memorandum, Mr. Miller wrote that Lehman’s investment in Hudson Castle would give the bank and its clients access to financing while preventing “headline risk” if any of its deals went south. It would also reduce Lehman’s “moral obligation” to support its off-balance sheet vehicles, he wrote. The arrangement would maximize Lehman’s control over Hudson Castle “without jeopardizing the off-balance sheet accounting treatment.”

Mr. Miller became president of Hudson Castle and brought several Lehman employees with him. Through a Hudson Castle spokesman, Mr. Miller declined a request for an interview.

The spokesman did not dispute the 2001 memorandum but said the relationship with Lehman had evolved. After 2004, “all funding decisions at Hudson Castle were solely made by the management team and neither the board of directors nor Lehman Brothers participated in or influenced those decisions in any way,” he said, adding that Lehman was only a tenth of Hudson’s revenue.

Still, Lehman never told its shareholders about the arrangement. Nor did Moody’s choose to mention it in its credit ratings reports on Hudson Castle’s vehicles. Former Lehman workers, who spoke on the condition that they not be named because of confidentiality agreements with the bank, offered conflicting accounts of the bank’s relationship with Hudson Castle.

One said Lehman bought into Hudson Castle to compete with the big commercial banks like Citigroup, which had a greater ability to lend to corporate clients. “There were no bad intentions around any of this stuff,” this person said.

But another former employee said he was leery of the arrangement from the start. “Lehman wanted to have a company it controlled, but to the outside world be able to act like it was arm’s length,” this person said.

Typically, companies are required to disclose only material investments or purchases of public companies. Hudson Castle was neither.

Nonetheless, Hudson Castle was central to some Lehman deals up until the bank collapsed.

“This should have been disclosed, given how critical this relationship was,” said Elizabeth Nowicki, a professor at Boston University and a former lawyer at the S.E.C. “Part of the problems with all these bank failures is there were a lot of secondary actors — there were lawyers, accountants, and here you have a secondary company that was helping conceal the true state of Lehman.”

Until 2004, Hudson had an agreement with Lehman that blocked it from working with the investment bank’s competitors, but in 2004, that deal ended, and Lehman reduced its number of board seats to one, from five, according to two people with direct knowledge of the situation and an internal Hudson Castle document. Lehman remained Hudson’s largest shareholder, and its management remained close to important Lehman officials.

Hudson Castle created at least four separate legal entities to borrow money in the markets by issuing short-term i.o.u.’s to investors. It then used that money to make loans to Lehman and other financial companies, often via repurchase agreements, or repos. In repos, banks typically sell assets and promise to buy them back at a set price in the future.

One of the vehicles that Hudson Castle created was called Fenway, which was often used to lend to Lehman, including in the summer of 2008, as the investment bank foundered. Because of that relationship, Hudson Castle is now the second-largest creditor in the Lehman Estate, after JPMorgan Chase. Hudson Castle, which is still in business, doing similar work for other banks, bought out Lehman’s stake last year. The firm’s spokesman said Hudson operated independently in the Fenway deal in the summer of 2008.

Hudson Castle might have walked away earlier if not for Fenway’s ties to Lehman. Lehman itself bought $3 billion of Fenway notes just before its bankruptcy that, in turn, were used to back a loan from Fenway to a Lehman subsidiary. The loan was secured by part of Lehman’s investment in a California property developer, SunCal, which also collapsed. At the time, other lenders were already growing uneasy about dealing with Lehman.

Further complicating the arrangement, Lehman later pledged those Fenway notes to JPMorgan as collateral for still other loans as Lehman began to founder. When JPMorgan realized the circular relationship, “JPMorgan concluded that Fenway was worth practically nothing,” according the report prepared by the court examiner of Lehman.

Notarized MERS Assignment of DOT as Nominee: Forensic Analysis and Motion Practice

I was looking at an assignment signed by Margaret Dalton, “Vice President”, Mortgage Electronic Registration Systems, Inc (MERS) “as nominee” for “Hoecomings” (sic) Financial Network, Inc. with an execution date of March 5, 2010 and a notarization date of the same date, notarized by D. Pakusic in Duval County, Florida, naming United Independent Title as Trustee under the Deed of Trust and purporting to assign the Deed of Trust to JP Morgan Chase Bank National Association.

A forensic analysis report would or should state as follows:

  1. The title chain reveals the property is located in the County of Los Angeles, State of California and contains a purported assignment signed by Margaret Dalton, “Vice President”, Mortgage Electronic Registration Systems, Inc (MERS) “as nominee” for “Hoecomings” (sic) Financial Network, Inc. with an execution date of March 5, 2010 and a notarization date of the same date, notarized by D. Pakusic in Duval County, Florida, naming United Independent Title as Trustee under the Deed of Trust and purporting to assign the Deed of Trust to JP Morgan Chase Bank National Association. in public records book ____, at page ____ of the County of _________, in the State of Florida. The document appears on its face to have been prepared by Malcolm-Cisneros, a Law Corporation located at 2112 Business Center Dr., Irvine, California 92612. Given the location of the property in California, the location of the law firm that prepared it in California and the location of of the other parties, the fact that it was “notarized” in Florida raises numerous forensic questions requiring production of additional documentation and facts.
  2. Location Issues: The property is located in the State of California, as are the Trustors under the Deed of Trust (DOT). Margaret Dalton is believed to be located in Irvine, California, possibly employed by or on the premises of the above-referenced Law Corporation. The Notary is located in Duval County, Florida which has no known connection with any of the parties. MERS offices are reported to be located in states other than California and the IT platform is reported to be located in the Midwest. Homecoming Financial Network, Inc. (which undersigned believes was intended by the referenced instruments and title chain) is authorized to do business in the State of California, but upon research does not appear to be a chartered bank, financial institution or lender. HFN is a mortgage originator acting on behalf of unknown sources of funds who may be located anywhere, since they are neither disclosed nor described in the closing documentation nor any document on record. Accordingly there is a question as to the identity of the creditor at the time of the origination of the loan, the identity of the creditor at the current time, and the identity of the creditor at all times between the origination of the loan and the present. There are also questions requiring additional documentation and fats to reveal whether the purported assignment was executed by or on behalf of anyone in Duval County, Florida where the instrument was notarized or in Irvine, California where the instrument may have been executed.
  3. Margaret Dalton’s employment is unknown but it does not appear that she has ever been an employee of MERS, nor that MERS is located where Margaret Dalton apparently signed the document. Previous investigations by the undersigned indicate that MERS is an electronic database privately owned and operated by fewer than 17 employees, which do not include Ms. Dalton. According to information received from MERS, the database platform operated by MERS for its members, has an access procedure consisting of a user ID and password. With such information any person could enter, alter or amend any entry in the MERS database. The procedure also provides access to an automated procedure wherein the user may name a person to serve as “vice-president” or “limited signing officer” for MERS. No record has been produced for this analysis indicating that Ms. Dalton was named as “vice-president” or whether she did so herself, nor whether she was authorized to do so or from whom said authority would be claimed. There is accordingly a question as to whether the document was in fact signed by Ms. Dalton, and if so whether she had authority to sign a document that conveyed an interest in real property.
  4. Given the above information, there is also a question as to whether the notarization was valid or void. Florida law provides that if the Notary knows that the person signing does not possess authority to sign or knows that the person is ignorant of their authority, that the oath administered is invalid and that the instrument is construed to be not notarized, despite the signature and stamp. Recording laws require notarization. Thus there is a question as to whether the document is or would be construed as a recorded instrument despite its obvious appearance in the title record. If it is not construed as a recorded instrument, then the chain of title should be amended to remove this document.
  5. The chain of title, as stated above, reveals a Deed of Trust (DOT) in favor of MERS as nominee. No issues are readily apparent as to the execution of the Deed of Trust. However, the content of the DOT raises factual issues that require further examination and the production of additional documents and information. Since MERS is an IT platform operated for the purposes of its private owners, it is not authorized by Florida Statutes nor California Statutes to serve as the equivalent of a recording record for instruments in the public records. It is a data entry and retrieval system that is private, not public. Since MERS was named as nominee and the MERS documentation available on the internet clearly state that under no circumstances will MERS ever claim an interest in the real property, the DOT, the note, nor will ever be the actual lender, beneficiary or mortgagee in any transaction, the effect of naming MERS raises factual issues since there are questions regarding title raised by the conflict between naming MERS and MERS disclaiming any such interest. There is no record of MERS accepting the position as nominee and if so under what circumstances. Those terms exist in agreements executed between members of MERS and one of the MERS corporations and are unavailable to the undersigned forensic analyst.
  6. The DOT and the above-referenced purported assignment refer to MERS as nominee for HFN, which was neither the creditor nor the lender at the time of the origination of the loan. Thus the DOT appears to name MERS (who disclaims any interest in the loan) on behalf of HFN (who served as a conduit for a table-funded loan transaction, probably as part of the securitization of the subject loan transaction) both of whom served principals that were not disclosed at the time of the origination of the loan nor, to the knowledge of the undersigned, to the present. The effect of misspelling the name of HFN on the purported assignment is unknown, but based upon advice from title agents consulted, it would be ordinarily required in any subsequent transaction, that the document be re-executed with the proper spelling. Whether this affects the legality of the instrument is unknown to the undersigned analyst.
  7. The purported assignment refers only to the DOT, which raises several questions. It is unknown whether an assignment of the note, as evidence of the underlying obligation, was executed at the same time as the purported assignment of the DOT. It is unknown whether all the necessary parties executed instruments required to authorize the assignments, and if so when this was accomplished. If there were no such other assignments then there is a question as to whether the instrument was effective, and if so, whether it intended to provide ownership of the security instrument (DOT) to one party while the ownership of the note remained or was transferred to another party, while at the same time the underlying obligation to yet another party may have existed between the Trustor as debtor and the source of funds for the origination of the loan, as creditor. Additional documentation and facts would be required to make these determinations.

Garfield Continuum White Paper Explains Economics of Securitization of Residential Mortgages

SEE The Economics and Incentives of Yield Spread Premiums and Credit Default Swaps

March 23, 2010: Editor’s Note: The YSP/CDS paper is intentionally oversimplified in order to demonstrate the underlying economics of securitization as it was employed in the last decade.

To be clear, there are several things I was required to do in order to simplify the financial structure for presentation that would be understandable. Even so, it takes careful study and putting pencil to paper in order to “get it.”

In any reasonable analysis the securitization scheme was designed to cheat investors and borrowers in their respective positions as creditors and debtors. The method used was deceit, producing (a) an asymmetry of information and (b) a trust relationship wherein the trust was abused by the sellers of the financial instruments being promoted.

So before I get any more comments about it, here are some clarifying comments about my method.

1. The effects of amortization. The future values of the interest paid are overstated in the example and the premiums or commissions are over-stated in real dollars, but correct as they are expressed in percentages.

2. The effects of present values: As stated in the report, the future value of interest paid and the future value of principal received are both over-statements as they would be expressed in dollars today. Accordingly, the premium, commission or profit is correspondingly higher in the example than it would be in real life.

3. The effects of isolating a single loan versus the reality of a pool of loans. The examples used are not meant to convey the impression that any single loan was securitized by itself. Thus the example of the investment and the loan are hypothetical wherein an average jumbo loan is isolated from the pool from one of the lower tranches and an average bond is isolated from a pool of investors, and the isolated the loan is allocated to in part to only one of the many investors who in real life, would actually own it.

The following is the conclusion extracted directly from the white paper:

Based upon the foregoing facts and circumstances, it is apparent that the securitization of mortgages over the last decade has been conducted on false premises, false representations, resulting in intentional and inevitable negative outcomes for the debtors and creditors in virtually every transaction. The clear provisions for damages and other remedies provided under the Truth in Lending Act and Real Estate Settlement Procedures Act are sufficient to make most homeowners whole if they are applied. Since the level 2 yield spread premium (resulting from the difference in money advanced by the creditor (investor) and the money funded for mortgages) also give rise to claim from investors, it will be up to the courts how to apportion the the actual money damages. Examination of most loans that were securitized indicates that they are more than offset by undisclosed profits, kickbacks, fees, premiums, and rebates. The balance of “damages” due under applicable federal lending and securities laws will require judicial intervention to determine apportionment between debtors and creditors.

Credit Default Swaps Defined and Explained

Editor’s Comments: Everyone now has heard of credit default swaps but very few people understand what they mean and fewer still understand their importance in connection with the securitization of residential mortgage loans and other types of loans.The importance of understanding the operation of a CDS contract in the context of foreclosure defense cannot be understated.

In summary, a CDS is insurance even though it is defined as not being insurance by Federal Law. In fact, Federal Law allows these instruments to be traded as unregulated securities and treats them as though they were not securities.

Anyone can buy a CDS. In the securitization of loans, anybody can “bet” against a derivative security ( like mortgage backed bonds) by purchasing a CDS. FURTHER THEY CAN PURCHASE MULTIPLE BETS (CDS) AGAINST THE SAME SECURITY. In the mortgage meltdown, Goldman and other insiders created the mortgage backed bonds to fail — collecting a commission and profit in the process — and using the proceeds of sales of mortgage backed securities to purchase CDS contracts for themselves. So they were betting against the value of the security they had just sold to investors. The investors (pension funds, sovereign wealth funds etc.) of course knew nothing of this practice until long after they had purchased the bonds.

The bonds were represented to be “backed” by mortgage loans that collectively received a Triple AAA rating from the rating agencies who were obviously in acting in concert with the investment bankers who issued and sold the bonds. There were also other contracts that were purchased using the proceeds of the sale of the bonds that performed the same function — i.e., when the bonds were downgraded or failed, there was a payoff to the lucky investment banker who issued them or the lucky “trader” or bought the insurance or CDS. Sometimes the proceeds were used to pacify the investors and sometimes they were not.

The significance of this in foreclosure defense, is that while the investors were getting bonds for their investment, the bonds incorporated the mortgage loans, which is another way of saying that the investors were funding the loans through a series of steps starting with their purchase of mortgage backed bonds. Thus it was the investor who was the ONLY creditor in the transaction that funded a homeowner’s loan (at least initially before bailouts and payoffs of insurance and proceeds of CDS contracts).

The other item of significance is that the securities did not need to actually fail for the CDS to pay off. That is precisely why AIG got into an argument with Goldman Sachs that eventually led to the bailout. All that was needed was for the issuer or some other “trustworthy” source to downgrade the value of the bonds or announce that a substantial number of the loans in the pool were in danger of default, and that was enough to claim payment on the CDS contract.

The translation of that is that even if your loan was paid up or only slightly behind, someone was getting paid on a CDS contract in which a series of mortgage backed bonds were marked down in value. This payment was received by the investment banker who was the central figure in the securitization chain. And, as stated above, sometimes these proceeds were shared with investors and sometimes they were not — which is why identification of the creditor and getting a complete accounting is so important.

But the issue goes deeper than that. The investment banker was acting as the agent or conduit for both the actual creditor “investor) who was lending the money and the debtor (borrower or homeowner) who was borrowing the money. Therefore the payment of proceeds in a CDS may have accomplished one or more of the following:

  1. Cure of any default by the debtor as far as the creditor was concerned, since the investor or its agent received the money.
  2. Satisfaction through payment of all or part of the borrower’s obligation.
  3. Obfuscation of the real accounting for the money that exchanged hands
  4. Payment of an excess amount above the amount owed by the debtor which might be a liability to the debtor under TILA, a liability to the investor, or both, plus treble damages, rescission rights, and attorneys fees.
  5. Opening the door for non-creditors to step into the shoes of the actual creditor who has been paid, and claim that the debtor’s non-payment created a default even though the creditor or his agents is holding money paid on the obligation that either cures the default, satisfies the obligation in full, creates excess proceeds which under the note and applicable law should be returned to the debtor.
  6. Creates an opportunity for some party to get a “free house.” In the current environment nearly all of the houses obtained without investment or funding of one dime is going to these intermediaries whom I have dubbed pretender lenders. Note that the financial services industry has taken control of the narrative and framed it such that homeowners are claiming a free home when they borrowed money fair and square. But at least homeowners have put SOME money into the deal through payments, down payments, or lending their credit to these dubious transactions. The free house, as things now stand is going to parties who never invested a penny in the funding of the home and who stand to lose nothing if denied the right to foreclose.

FROM WIKIPEDIA —–The article below comes from www.wikipedia.com

A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument (typically a bond or loan) undergoes a defined ‘Credit Event‘, often described as a default (fails to pay). However the contract typically construes a Credit Event as being not only ‘Failure to Pay’ but also can be triggered by the ‘Reference Credit’ undergoing restructuring, bankruptcy, or even (much less common) by having its credit rating downgraded.

CDS contracts have been compared with insurance, because the buyer pays a premium and, in return, receives a sum of money if one of the events specified in the contract occurs. However, there are a number of differences between CDS and insurance, for example:

  • The buyer of a CDS does not need to own the underlying security or other form of credit exposure; in fact the buyer does not even have to suffer a loss from the default event.[1][2][3][4] In contrast, to purchase insurance, the insured is generally expected to have an insurable interest such as owning a debt obligation;
  • the seller need not be a regulated entity;
  • the seller is not required to maintain any reserves to pay off buyers, although major CDS dealers are subject to bank capital requirements;
  • insurers manage risk primarily by setting loss reserves based on the Law of large numbers, while dealers in CDS manage risk primarily by means of offsetting CDS (hedging) with other dealers and transactions in underlying bond markets;
  • in the United States CDS contracts are generally subject to mark to market accounting, introducing income statement and balance sheet volatility that would not be present in an insurance contract;
  • Hedge accounting may not be available under US Generally Accepted Accounting Principles (GAAP) unless the requirements of FAS 133 are met. In practice this rarely happens.

However the most important difference between CDS and Insurance is simply that an insurance contract provides an indemnity against the losses actually suffered by the policy holder, whereas the CDS provides an equal payout to all holders, calculated using an agreed, market-wide method.

There are also important differences in the approaches used to pricing. The cost of insurance is based on actuarial analysis. CDSs are derivatives whose cost is determined using financial models and by arbitrage relationships with other credit market instruments such as loans and bonds from the same ‘Reference Entity’ to which the CDS contract refers.

Insurance contracts require the disclosure of all risks involved. CDSs have no such requirement, and, as we have seen in the recent past, many of the risks are unknown or unknowable. Most significantly, unlike insurance companies, sellers of CDSs are not required to maintain any capital reserves to guarantee payment of claims. In that respect, a CDS is insurance that insures nothing.

Obama Considers Ban on Foreclosures

the obligation created when the debtor entered the transaction may well be satisfied in whole or in part by the U.S. Taxpayer, insurers, or counterparties in credit default swaps. Wall Street attempts to frame the argument as giving a free house to the unworthy homeowner. The TRUE argument is what to do with all the excess undisclosed profits that paid the obligations of the homeowners many times over.


If the foreclosures were done in the name of entities that never advanced any money toward the funding of the loan, directly or indirectly, then all of the sales are improper, all of them create defective title and all of them will produce a torrent of unmarketable transactions in the coming years as buyers and lenders discover they cannot get title insurance.
Editor’s Note: Obama’s incremental approach is maddening but it seems that he is “getting it” step by step. First reported by Bloomberg news. this article from the NY Times summarizes the progress.
The problem remains that the administration is not addressing the issue of clear title and legal authority. Mr. Frey from Greenwich Financial highlights the point in his lawsuit against Bank of America accusing them of negotiating loans that the servicer does not own. This problem is not going away, and is getting worse with each new foreclosure sale at the steps of courthouses across the country.

If the foreclosures were done in the name of entities that never advanced any money toward the funding of the loan, directly or indirectly, then all of the sales are improper, all of them create defective title and all of them will produce a torrent of unmarketable transactions in the coming years as buyers and lenders discover they cannot get title insurance.
If money is being paid to servicers who lack authority to collect, then the debtor (borrower/homeowner) is in financial double jeopardy when the real creditor makes a claim. What will happen when Greenwich Financial or some other holder of mortgage backed securities makes their claim for repayment of the money they forked over allegedly to fund mortgages? What will happen when Greenwich Financial realizes that only a fraction of the money they paid went to fund mortgages and that the rest went to fees, profits, commissions and kickbacks? And where are the other investors, who incidentally are the only real creditors in this scenario?
An inconvenient and inescapable truth is that the servicers, whose fees rise as the loan becomes troubled and progresses from performing to delinquent, to default, to foreclosure and sale, are still getting paid on non-performing loans. If the loans are non-performing, where is the money coming from? It can only be coming from the payments made under performing loans, which directs our attention to the essential defect in the securitization of residential mortgage loans: the simplest of terms in every note that require the payments be allocated to the interest and principal on the note is being breached regularly and universally. This is the unethical and illegal result of cross collateralization and over-collateralization.
Wall Street blithely assumed they could disregard the terms of the note (use of proceeds) and mortgage when they securitized these “assets.” And there is the nub of the problem. The transaction starts out simple — money advanced by investors to fund mortgage loans to homeowners (debtors). But in order to make virtually ALL the money turn into fees and profits for Wall Street, the participants in the securitization chain ignored basic contract law, property law, lending laws, rules and regulations. The result was a tangle of claims from intermediaries who have no legal nor equitable interest in the revenue stream, principal or interest derived from those loans — all at the expense of the only two real parties to the transaction, to wit: the investor (creditor) and the homeowner (debtor).
A ban on foreclosures pending mandatory modification procedures is an imperfect step, but definitely in the right direction. It’s going to be a big pill to swallow when we finally come to terms with the fact that the parties at mediation or discussing modification only include one side (the debtor). It means coming to accept that all that TARP money went to the brokers instead of the principals. It means unraveling the now secret AIG documents that would show where the money went. It means performing an audit to determine where the money should be allocated.
And all of THAT means the obligation created when the debtor entered the transaction may well be satisfied in whole or in part by the U.S. Taxpayer, insurers, or counterparties in credit default swaps. Wall Street attempts to frame the argument as giving a free house to the unworthy homeowner.

The TRUE argument is what to do with all the excess undisclosed profits that paid the obligations of the homeowners many times over. Federal and State laws generally agree — failure to disclose the real parties and the real fees paid to all the participants in the transaction results in a liability to the homeowner for those undisclosed fees. The real answer is NOT to give more money to the intermediaries who never advanced a dime to fund these loans but rather, how to claw back the money and put the investors and the homeowners back in the position they were in before this huge fraud began.
Existing laws seem to address all of this in both lending and the issuance of securities. It’s payback time. The only question is whether anyone with the power to do so, will enforce the laws as they are already written. As of this writing, complaints to the FTC, OTC, FDIC, FED etc. produce nothing but an acknowledgment of receipt. The power is there. Where is the will?
February 26, 2010

U.S. Weighs Requiring Lenders to Consider Changes Before Foreclosures

The Obama administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.

That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.

Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.

Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”

The government could use some favorable public relations for its modification program, which has been deemed disappointing.

Begun a year ago, the program was meant to help as many as four million homeowners but has fallen considerably short of those goals. The Treasury Department has said 116,297 loans have been permanently modified and more than 800,000 more are in trial programs.

The Mortgage Bankers Association said its members were already doing what the administration was considering.

“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.

Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.

The modification program was designed for people who had subprime loans, he said, not for borrowers with high-quality loans who are unemployed. Tweaking the interest rate for an unemployed family does not provide enough help.

The Mortgage Bankers Association announced this week their own plan for reducing foreclosures: Lenders and loan servicers would reduce unemployed borrowers’ payments for up to nine months while they looked for new jobs.

The banking group said the servicers would need special loans from the Treasury to pay for the program. The administration has not commented publicly on the proposal.

“The real strategy in Washington now is to pray for an improving economy so these issues will resolve themselves,” Mr. Glaser said. “At the end of the day, a strong jobs market will prevent the generation of new foreclosures.”

There was some positive news in that regard last week, when the mortgage bankers said the number of borrowers entering default unexpectedly declined in the fourth quarter. But on Thursday, the government reported that home prices sank 1.6 percent in December, a fresh sign that the real estate market is nowhere near healed.

Cramdown in Chapter 13!!

see Bradsher Cramdown in Chapter 13

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

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

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

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

Taxing Wall Street Down to Size: Litigation Guidelines

The mistake I detect from those who are not faring well in court is the attempt to treat preliminary motions and hearings as opportunities to prove your entire case. Don’t talk about conspiracy and theft, talk about evidence and discovery.

every debtor is entitled to know the identity of the creditor, the full accounting for the entire obligation and all transactions arising from the transaction, and an opportunity to comply with Federal and State law requiring attempts at modification and/or mediation or settlement with the real parties in interest.
The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class. To be sure, it was lured into these unsavory missions by a truly insane monetary policy under which, most recently, the Federal Reserve purchased $1.5 trillion of longer-dated Treasury bonds and housing agency securities in less than a year. It was an unprecedented exercise in market-rigging with printing-press money, and it gave a sharp boost to the price of bonds and other securities held by banks, permitting them to book huge revenues from trading and bookkeeping gains.

Editor’s Note: Stockman notes the myth (lie) that “a prodigious upwelling of profitability will repair bank balance sheets and bury toxic waste from the last bubble’s collapse.” He questions whether the “profitability” will be there. I don’t question it, I know it — both for the reasons he cites and because the reality is that at least certain institution “in the loop” have tons of money and profitability “off-balance sheet” and I might add, off-shore.

According to published reports, Wall Street is “taxed” on this gorging of money at the rate of 1% while some poor bloke earning $80,000 is paying 16% just for social security, directly or indirectly. Fix the budget, cure the deficit? There it is!

The current profits reported, and the bonuses that come along with them, are being attributed widely in the press to the give-away of the federal reserve is letting them borrow at zero rates and then giving them a much higher rate for money held on deposit. While this is true all it really describes is the cover the laundering the plunder of $24 trillion back into the system where it will be moved around again producing more fees, more “profits”, and greater “liquidity” (proprietary currency).

The significance of this cannot be understated for the foreclosure litigator. We have the SEC in a 10 year confidentiality agreement with AIG so that the bailout and payment to counter-parties is being kept secret while the foreclosures proceed on obligations that have been paid in full, sometimes thirty times over. And we have the treasure trove “off-balance sheet” that was created by a secret undisclosed yield spread premium that should have investors, borrowers, and the regulators screaming. This second YSP as described recently in this blog, dwarfs any other fees, profits or other revenue or capital made during the creation stage of the mortgage mess.

The job of the litigator is to pique the interest of the judge enough to allow you to inquire about a FULL ACCOUNTING from the CREDITOR who is positively identified. Don’t ask the Judge to buy into the whole conspiracy theory aspect of the mortgage meltdown. He or she is not there to listen to “fiction.”

Just use your expert to prove there is an absence of facts and numbers such that the full accounting from debtor through creditor is not present and that under the most basic of premises, every debtor is entitled to know the identity of the creditor, the full accounting for the entire obligation and all transactions arising from the transaction, and an opportunity to comply with Federal and State law requiring attempts at modification and/or mediation or settlement with the real parties in interest.

The mistake I detect from those who are not faring well in court is the attempt to treat preliminary motions and hearings as opportunities to prove your entire case. Don’t talk about conspiracy and theft, talk about evidence and discovery.

Don’t ask the Judge to accept the idea that all these big name banks and other entities are thieves or interlopers, ask the Judge to accept the premise that you have alleged that the real creditor is not present, not represented, and that this action is in derogation of that creditor. Talk about your attempts to identify the creditor (investors) and the stonewalling you have received. Talk about your attempts to get a consistent complete accounting for the obligation and your inability to get it.

TALK ABOUT YOUR ATTEMPTS TO FIND AN ACTUAL DECISION MAKER (CREDITOR) WHOM YOU COULD SPEAK WITH AND ATTEMPT RECONCILIATION, MODIFICATION OR SETTLEMENT. 

January 20, 2010
Op-Ed Contributor

Taxing Wall Street Down to Size

By DAVID STOCKMAN

WHILE supply-side catechism insists that lower taxes are a growth tonic, the theory also argues that if you want less of something, tax it more. The economy desperately needs less of our bloated, unproductive and increasingly parasitic banking system. In this respect, the White House appears to have gone over to the supply side with its proposed tax on big banks, as it scores populist points against the banksters, too.

Not surprisingly, the bankers are already whining, even though the tax would amount to a financial pinprick — a levy of only 0.15 percent on the debts (other than deposits) of the big financial conglomerates. Their objections are evidence that the administration is on the right track.

Make no mistake. The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class. To be sure, it was lured into these unsavory missions by a truly insane monetary policy under which, most recently, the Federal Reserve purchased $1.5 trillion of longer-dated Treasury bonds and housing agency securities in less than a year. It was an unprecedented exercise in market-rigging with printing-press money, and it gave a sharp boost to the price of bonds and other securities held by banks, permitting them to book huge revenues from trading and bookkeeping gains.

Meanwhile, by fixing short-term interest rates at near zero, the Fed planted its heavy boot squarely in the face of depositors, as it shrank the banks’ cost of production — their interest expense on depositor funds — to the vanishing point.

The resulting ultrasteep yield curve for banks is heralded, by a certain breed of Wall Street tout, as a financial miracle cure. Soon, it is claimed, a prodigious upwelling of profitability will repair bank balance sheets and bury toxic waste from the last bubble’s collapse. But will it?

In supplying the banks with free deposit money (effectively, zero-interest loans), the savers of America are taking a $250 billion annual haircut in lost interest income. And the banks, after reaping this ill-deserved windfall, are pleased to pronounce themselves solvent, ignoring the bad loans still on their books. This kind of Robin Hood redistribution in reverse is not sustainable. It requires permanently flooding world markets with cheap dollars — a recipe for the next bubble and financial crisis.

Moreover, rescuing the banks yet again, this time with a steeply sloped yield curve (that is, cheap short-term money and more expensive long-term rates), is not even a proper monetary policy action. It is a vast and capricious reallocation of national income, which would be hooted down in the halls of Congress, were it properly brought to a vote.

National economic policy has come to this absurd pass because for decades the Fed has juiced the banking system with excessive reserves. With this monetary fuel, the banks manufactured, aggressively at first and then recklessly, a tide of new loans and deposits. When Wall Street’s “heart attack” struck in September 2008, bank liabilities had reached 100 percent of gross domestic product — double the ratio of a few decades earlier.

This was a measurement of the perilous extent to which bad investments, financed by debt, had come to distort the warp and woof of the economy. Behind the worthless loans stands a vast assemblage of redundant housing units, shopping malls, office buildings, warehouses, tanning salons and fast food restaurants. These superfluous fixed assets had, over the past decade, given rise to a hothouse economy of jobs that have now vanished. Obviously, the legions of brokers, developers, appraisers, contractors, tradesmen and decorators who created the bad investments are long gone. But now the waitresses, yoga instructors, gardeners, repairmen, sales clerks, inventory managers, office workers and lift-truck drivers once thought needed to work at these places are disappearing into the unemployment statistics, as well.

The baleful reality is that the big banks, the freakish offspring of the Fed’s easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed. This is why the Obama tax is welcome: its underlying policy message is that big banking must get smaller because it does too little that is useful, productive or efficient.

To argue, as some conservatives surely will, that a policy-directed shrinking of big banking is an inappropriate interference in the marketplace is to miss a crucial point: the big Wall Street banks are wards of the state, not private enterprises. During recent quarters, for instance, the preponderant share of Goldman Sachs’ revenues came from trading in bonds, currencies and commodities.

But these profits were not evidence of Mr. Market doing God’s work, greasing the wheels of commerce and trade by facilitating productive financial transactions. In fact, they represented the fruits of hyperactive gambling in the Fed’s monetary casino — a place where the inside players obtain their chips at no cost from the Fed-controlled money markets, and are warned well in advance, by obscure wording changes in the Fed’s policy statements, about any pending shift in the gambling odds.

To be sure, the most direct way to cure the banking system’s ills would be to return to a rational monetary policy based on sensible interest rates, an end to frantic monetization of federal debt and a stable exchange value for the dollar. But Ben Bernanke, the Fed chairman, and his posse are not likely to go there, believing as they do that central banking is about micromanaging aggregate demand — asset bubbles and a flagging dollar be damned. Still, there can be no doubt that taxing big bank liabilities will cause there to be less of them. And that’s a start.

David Stockman, a director of the Office of Management and Budget under President Ronald Reagan, is working on a book about the financial crisis.

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