How Servicers Engineer Defaults Using the Escrow Accounts, Forced Placed Insurance and False Projections

Servicers are creating the illusion of defaults by manipulating the escrow accounts even when no escrow account exists. So even where there is no agreement for the “lender” to maintain an escrow account, they will create one anyway and engineer circumstances to make it seem like a default occurred not just in the “escrow account” but in the accounting for principal and interest.



I have two cases involving this right now where I am attorney of record and several dozen where I am guiding lawyers and pro se litigants through the intricate process of showing that no reconciliation is possible between the payments actually made by the homeowner, the taxes that were paid, the insurance that was paid and who paid it or failed to pay it.

In one case in point, the servicer, as part of a modification required my client to fund the escrow in full with a lump sum payment, which they did. The “servicer” (BOA) failed to pay the insurance, which was then canceled and could not be reinstated without having an active policy in force.

My clients had to wait until forced placed insurance was established thus raising their total monthly PITI payment into the stratosphere, with BOA getting its usual kickback from BalBOA. Then my clients got regular insurance at a quarter of the premium that was charged to their account for forced placed insurance. Eventually BOA reconciled the “deficiency” without payment from my clients. But BOA continued to keep their account flagged as delinquent even though they had been paid in full for everything. Eventually BOA stopped accepting payments because the account was “late.” And then BOA filed suit to foreclose. Stay tuned on this one.

I have seen dozens of cases where the escrow is manipulated by either projecting taxes and insurance too high or projecting them too low. In the first case the homeowner instantly can’t afford the payments and in the second case they are suddenly hit with a demand for a large lump sum payment that most people can’t afford. Tens of thousands of homeowners have lost their homes this way even though they were completely current on their payment of interest and principal.

By the way these practices are illegal. But that hasn’t stopped the foreclosures.

Hat tip to Mark Chapin

Here is a more technical explanation for the accountants to ponder.

Re: Engineering default through leveraging projections and ignoring the law.

See Merger Rule

Leveraging the escrow disbursements through projections with assumptions for the future.

The Escrow low point projection makes assumptions into future periods and converts those to real time current cash requirements.

The escrow projection calculation assumes the projected disbursement of the inflated premiums of Force placed Insurance policies are repeated. That calculation incorporates that inflated projected payment into the Low Point Calculation for the Escrow Account by combining the projected with the actual disbursement. The projection is a phantom mirage at the time of the calculation which is converted into a real time cash requirement under the calculation employed by Citimortgage. A full payment of the actual escrow disbursement advance by the mortgagor or even more telling, the placement of mortgagor insurance would extinguish the reality of the base escrow advance. The basis for the calculation of the leveraged projection would not exist, but the real time billing based on the projection would remain.

The leveraged payment increase was in this case used to increase the monthly billing, from the previous monthly principal and interest billing for the note payment, by adding billing for the obligation suspended under the UCC 3 Merger Rule. The suspended obligation of escrow disbursements under the mortgage. The suspended obligation was maneuvered through engineering a default to a presentation as an unsuspended obligation.

The Engineered Default:

The new leveraged payment billing was then used as a measure, to compare regular payments of principal and interest that were maintaining the promissory note in a state of non-default, to make a decision to (1) to misapply payments, which should have been credited first to principal and interest as per TILA servicing requirements and the note itself. The misapplication created the illusion in the servicer records of partial payments, phantom escrow projections; and (2) then return the whole monthly principal and interest payments properly tendered as un-deposited and rejected payments. This action was necessary to further engineer the default by artificially creating the dishonor of the note itself. This action thereby was used by the servicer as a pretext to declare the entire loan: the note and merged, deferred obligation in default. to schedule CONSULT, leave message or make payments.

Bankers Using Foreclosure Judges to Force Investors into Bad Deals

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“Foreclosure judges don’t realize that they are entering orders and judgments on cases that are not in front of them or in which they have any jurisdiction. Foreclosure Judges are forcing bad loans down the throat of investors when the investor signed an agreement (PSA and prospectus) excluding that from happening. The problem is that most lawyers and pro se litigants don’t know enough to make that argument. The investor bought exclusively “good” loans. Foreclosure judges are shoving bad loans down their throats without notice or an opportunity to be heard. This is a classic case of necessary and indispensable parties being ignored.”

— Neil F Garfield,

Editor’s Comment:  About three times per week, something occurs to me about what is going on here and then I figure it out or get the information from someone else. The layers of the onion are endless. But this one is a showstopper. When I started blogging in October 2007 I thought the issue of necessary and indispensable parties John Does 1-1000 and Jane Roes 1-100 were important enough that it would slow if not stop foreclosures. The Does are the pension funds and other investors who thought that they were buying mortgage bonds and the Roes were the dozens of intermediaries in the securitization chain.

Of course we know that the Does never got their bond in most cases, and even if they did they received it issued from a “REMIC” vehicle that wasn’t a REMIC and which did not have any money or bonds before, during or after the transaction. Instead of following the requirements of the Prospectus and Pooling and Servicing Agreement, the investment banker ignored the securitization documents (i.e., the agreement that induced the investor to advance the funds on a forward sale — i.e., sale of something the investment bank didn’t have yet). The money went from the investor into a Superfund escrow account. It is unclear as to whether the gigantic fees were taken out before or after the money went into the Superfund (my guess is that it was before). But one thing is clear — the partnership with other investors far larger than anything disclosed to the investors because the escrow account was from all investors and not for investors in each REMIC, which existed only in the imagination of the CDO manager at the investment bank that cooked this up.

We now know that in all but a scant few cases, the loan was (1) not documented properly in that it identified not the REMIC or the investor as the lender and creditor, but rather a naked straw-man that was a thinly capitalized or bankruptcy remote relationship and (2) the loan that was described in the documentation that the homeowner signed never occurred. The third thing, and the one I wish to elaborate on today, is that even if the note and mortgage were valid (i.e., referred to any actual transaction in which money exchanged hands between the parties to the agreements and documents that borrower signed) they never made it into the “pools” a/k/a REMICs, a/k/a Special Purpose Vehicle (SPV), a/k/a/ Trust (of which there were none according to my research).

The fact that the loan never made it into the pool is what caused all the robo-signing, fabrication of documents, fraudulent documents, forgeries, misrepresentations and corruption of both the title system and the court system. Because if the loan never made it into the pool, the investment banker and all the intermediaries that were used were depending upon a transaction that never took place at the level of the investor, to wit: the loan was not in the pool, the originator didn’t lend the money and therefore was not the lender, and the “mortgage” or “Deed of trust” was useless because it was the tail of a tiger that did not exist — an enforceable note. This left the pools empty and the loan from the Superfund of thousands of investors who thought they were in separate REMICS (b) subject to nothing more than a huge general partnership agreement.

But that left the note and mortgage unenforceable because it should have (a) disclosed the lender and (b) disclosed the terms of the loan known to the lender and the terms of the loan known to the borrower. They didn’t match. The answer was that those loans HAD to be in those pools and Judges HAD to be convinced that this was the case, so we ended up with all those assignments, allonges, endorsements, forgeries, improper notarizations etc. Most Judges were astute enough to understand that the documents were fabricated. But they felt that since the loan was valid, the note was real, the mortgage was enforceable, the issues of where the loan was amounted to internal bookkeeping and they were not about to deliver to borrowers a “free house.”  In a nutshell, most Judges feel that they are not going to let the borrower off scott free just because a document was created or executed improperly.

What Judges did not realize is that they were adjudicating the rights of persons who were not in the room, not in the building, and in fact did not even know the city in which these proceedings were being prosecuted much less the fact that the proceedings even existed. The entry of an order presuming or stating that the loan was in fact in the pool was the Judge’s stamp of approval on a major breach of the Prospectus and pooling and servicing agreement. It forced bad loans down the throat of the investors when their agreement with the investment banker was quite the contrary. In the agreements the cut-off was 90 days after closing and required a fully performing mortgage that was originated utilizing industry standards for due diligence and underwriting. None of those things happened. And each time a Judge enters an order in favor of for example U.S. Bank, as trustee for JP Morgan Chase Bank Trust 1234, the Judge is adjudicating the essential deal between the investor and the investment banker, forcing the investor to accept bad loans at the wrong time.

Forcing the investors to accept bad loans into their pools, probably to the exclusion of the good loans, created a pot of s–t instead of a pot of gold. It isn’t that the investor was not owed money from the investment banker and that the money from the investment banker was supposed to come from borrowers. It is that the pool of actual money sidestepped the REMIC document structure and created a huge general partnership, the governance of which is unknown.

By sidestepping the securitization document structure and the agreements, terms, conditions and provisions therein, the investment banker was able, for his own purposes, to claim ownership of the loans for as long as it took to buy insurance making the investment banker the insured and payee. But the fact is that the investment banker was at all times in an agent/fiduciary relationship with the investor and ALL the proceeds of ALL insurance, Credit Default Swaps, guarantees, and credit enhancements were required to be applied FIRST to the obligation to the investor. In turn the investor, as the real creditor, would have reduced the amount due from the borrower on each residential loan. This means that the accounting from the Master Servicer is essential to knowing the actual amount due, if any, under the original transaction between the borrower and the investors.

Maybe “management” would now be construed as a committee of “trustees” for the REMICs each of whom was given the right to manage at the beginning of the PSA and prospectus and then saw it taken away as one reads further and further into the securitization documents. But regardless of who or what controls the management of the pool or general partnership (majority of partners is my guess) they must be disclosed and they must be represented in each and every foreclosure and Trustees on deeds of trust are creating huge liability for themselves by accepting assignments of bad loans after the cut-off date as evidence of ownership fo the loan. The REMIC lacked the authority to accept the bad loan and it lacked the authority to accept a loan that was assigned after the cutoff date.

Based upon the above, if this isn’t a case where necessary and indispensable parties is the key issue, I do not know of one — and I won the book award in procedure when I was in law school besides practicing trial law for over 30 years.





Title and Escrow complaint to the California Department of Insurance

Title and Escrow complaint to the California Department of Insurance. Lennar the lender, the builder, the title and escrow. the insurance and many more controlled the whole process.
They made many mistakes and covered themself.

Guess who happened to call me to help him in a class action against the banksters–BRIANT HUMPHREY.

He worked for them and acted as though he was on my side. Maybe he is.

He set me up with a meeting with Arthur Silverberg who wants me to sign an nda or non disclosure agreement to work on a class action law suit. Arthur is best friends with the partner of K & L Gates who represents Lennar in my case. See emails.

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.

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