Blomberg Celebrates New Revised Hogan

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Darrell Blomberg is a presenter at our kickoff of the national tour of seminars starting July 26, 2012 in Chandler, AZ. He is NOT a lawyer but in my opinion has a better understanding of the law, its application and the context of the fake securitized loans than practically any else I know. He is completely correct in his analysis of the Hogan decision below.

I strongly advise homeowners who are near the Chandler location, to go find a lawyer and or contact the one they already have and PAY for the lawyer to attend the seminar and maybe pay for their own attendance as well. Paralegal add-ons are available as well.

Editor’s Note:

Darrell is 100% right that this decision poses a mammoth shadow problem for those people who are working for “Trustees” and conducting sales, sending notices of default and sending notices of sale. Issuing a deed on foreclosure to a party who who was the creditor but submitted a credit bid instead of a cash bid is only one issue. The fact is that if the Trustee becomes aware of a bona fide dispute between the alleged beneficiary or creditor and the borrower the Trustee has only ONE CHOICE: They must petition the court for a ruling because the Trustee does not have the power to conduct hearings. It IS that simple.

The reason they are not doing that and the reason why there is a substitution of trustee filed in every case is that the original trustee WOULD do that and would conduct due diligence, which the banks cannot afford because they know they don’t have the goods — they are not the creditor and in many cases even the the real original creditor is no longer present because of the trading activity and recompilation of the pools with different assets, loans and even using other derivatives as assets. 

These facts will all come out when the burden is put on the supposed creditor to show the transaction in which they paid real money for the loan. No such transaction exists. So they cannot submit a credit bid and probably don’t have the authority to initiate foreclosure proceedings. The potential liability of the Trustees that were substituted and perhaps even the original trustees is staggering when applied to prior foreclosures. When it becomes clear that the new trustee is appointed by a stranger to the transaction calling itself the beneficiary when it is not the beneficiary and new trustee is owned or controlled by the new “beneficiary.”

By Darrell Blomberg, July 11, 2012:

The Supreme Court of Arizona released their amended opinion this morning.  I have attached it for you or here is the link:  The essential changes were confined to section 11.

First off, I offer HUGE KUDOS and THANKS to all the extraordinary people who contributed to the effort of getting this all the way to the Supremes and then back into their court for a well-earned reconsideration.

The challenge with Hogan was that the questions were never optimally framed and Hogan didn’t make the record with sufficient allegations and assertions.  His pleadings left too many escape hatches open.  (No slight to anybody; the questions didn’t appear until long after the best-for-the-day questions were put forth.)  I’m amazed at “amount” of decision we got from the Supremes considering those challenges.

I believe the new “Moreover, the trustee owes the trustor a duty to comply with the obligations created by the statutes governing trustee sales and the trust deed.” language is very beneficial to homeowners and attorneys.  I think this is vastly better than the prior decision and gives us a lot more umph.  This is a clear statement of the court tying “duty” together with “statutes governing trustee’s sales and the trust deed.”  I can’t remember something so elemental and so important happening for us at any administrative, judicial or legislative level.  Tying duty to the statutes and contract was always sketchy but this decision does it succinctly and boldly.

This is precisely what all of my “Cancellation Demand Letters” have been geared to convey.  This decision will certainly be added to every “Cancellation Demand Letter” from now on.

Don’t forget this amended language:”A.R.S. § 33-801(10) (providing that “[t]he trustee’s obligations . . . are as specified in this chapter [and] in the trust deed”).”  It’s sure to be used against our efforts.  I think this can be well mitigated by the Consumer Financial Protection Bureau bulletin 2012-03 which tied the servicer (beneficiary?) and the sub-servicer (trustee?) together for liability purposes.  Perhaps it doesn’t reign in the trustees so much but it sure raises the temperature on the beneficiary.  With the right amount of pressure on the beneficiary maybe they’ll heat up the trustee for us.  (See attached or this link:

For the record, here is the language that was removed from the original opinion: “Moreover, the trustee owes the trustor a fiduciary duty, and may be held liable for conducting a trustee’s sale when the trustor is not in default.”

My commercial:  If you know anybody that is in need of an all-out analysis of the Arizona Trustee’s Sale process that I turn into a letter for the homeowner, please let me know.  My letters are a great way to make the record and maybe even cancel a few notices of trustee’s sales along the way.  (Contact info is below.)

For further consideration, here is Black’s 6th on “Duty.”

Duty. A human action which is exactly conformable to the laws which require us to obey them. Legal or moral obligation. An obligation that one has by law or con­tract. Obligation to conform to legal standard of reason­able conduct in light of apparent risk. Karrar v. Barry County Road Com’n, 127 Mich.App. 821, 339 N.W.2d 653, 657. Obligatory conduct or service. Mandatory obligation to perform. Huey v. King, 220 Tenn. 189, 415 S.W.2d 136. An obligation, recognized by the law, re­quiring actor to conform to certain standard of conduct for protection of others against unreasonable risks. Samson v. Saginaw Professional Bldg., Inc., 44 Mich. App. 658, 205 N.W.2d 833, 835. See also Legal duty;Obligation.

Those obligations of performance, care, or observance which rest upon a person in an official or fiduciary capacity; as the duty of an executor, trustee, manager, etc.

In negligence cases term may be defined as an obli­gation, to which law will give recognition and effect, to comport to a particular standard of conduct toward another, and the duty is invariably the same, one must conform to legal standard of reasonable conduct in light of apparent risk. Merluzzi v. Larson, 96 Nev. 409, 610 P.2d 739, 741. The word”duty” is used throughout the Restatement of Torts to denote the fact that the actor is required to conduct himself in a particular manner at the risk that if he does not do so he becomes subject to liability to another to whom the duty is owed for any injury sustained by such other, of which that actor’s conduct is a legal cause. Restatement, Second, Torts § 4. See Care; Due care.

In its use in jurisprudence, this word is the correlative of right. Thus, wherever there exists a right in any person, there also rests a corresponding duty upon some other person or upon all persons generally.

Duty to act. Obligation to take some action to prevent harm to another and for failure of which there may or may not be liability in tort depending upon the circum­stances and the relationship of the parties to each other.





Bringing in the Clowns Through Breach of Fiduciary Duties


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


Editor’s Comment: In my many conversations with both attorneys and pro se litigants they frequently express intense frustration about those invisible relationships and entities that permeate the entire mortgage model starting in the 1990’s and continuing to the present day, every day court is in session.

I think they are right. This article takes it as given, whether the courts wish to recognize it or not, that the parties at the closing table with the homeowner were all fiduciaries and included all those who were getting fees paid out of the closing proceeds — in other words paid out either the homeowner’s hapless down payment (worthless the moment it was tendered) or the proceeds of a loan (undocumented as to the source of the loan and documented falsely as to the creditor and the terms of repayment.

This article also takes it as a given, whether the courts are ready to recognize it or not, that the parties at the closing table with the investors who were the source of funds pooled or not were all fiduciaries and included all those who were getting fees paid out of the closing proceeds — in other words paid out either the hopeless plunge into an abyss with no loans purchased or funded until long after the money was in “escrow” with the investment banker in exchange for a completely worthless mortgage backed security without any mortgages backing the security.

But the interesting fact is that while some of the parties were known to the investor, and some of the parties were known to the homeowners, the investor did not know the parties at the closing table with the homeowner; and the borrower did not know the parties at the closing table with the investor.

In point of fact, the borrower did not even know there was a table or an investor or a table funded loan until long after closing, if ever. Remember that for years MERS, the  servicers and others brought foreclosures that are still final (but subject to challenge) while they vigorously denied the very existence of a pool or any investors.

While this is interesting from the perspective of Reg Z that states that a pattern of table-funded loans is to be regarded as “predatory” per se, which the courts have refused to enforce or even recognize, I have a larger target — all the participants in the securitization chain, each of whom actually claims to have been some sort of escrow agent giving rise to a fiduciary relationship per se — meaning that the cause of action is simple and cannot be barred by the economic loss rule because they had no contract with the homeowners and probably had no contracts with the investors.

Again, I warn about the magic bullet. there isn’t one. But this one comes close because by including these fiduciaries by name from your combo title and securitization report and by description where the fake securitization was dubbed “private label” they are all brought into the courtroom and they are all subject to a simple action for accounting which can be amended later to allege damages, or if you think you have enough information already, state your damages.

Based upon my research of the fiduciary relationship there are no limits anywhere if the action is not based upon a direct contract, and some states and culled that down to a “no limit’ doctrine (see Florida cases) except in product liability or similar cases.

The allegation is simply that the homeowner bought a loan product that was known to be defective, poorly documented, if at all, and subject to a shell game (MERS) in which the homeowner would never know the identity of the chosen creditor until the homeowner was maneuvered into foreclosure. There are several potential channels of damages that can be alleged.

Lawyers are encouraged to do about 30 minutes of research into fiduciary liability in your state and match up the elements of the cause of action for breach of fiduciary duty with the securitization documents that either has already been admitted or that has been discovered.

Go through the PSA and look at it from the point of view of assumed agency and escrowing or holding documents, receivables, notes, money and mortgages. Each one of those is low hanging fruit for a breach of fiduciary duty lawsuit.

And of course any party specifically named as a “trustee” whether a trust exists or not raises the issue of trust duties which are fiduciary as well, whether it is the trustee of a “pool” or the trustee on the deed of trust (or more likely the alleged substitution trustee on the DOT).

Trust, Trustees, Constructive Trust, Fiduciary Duties

Editor’s Note: I am currently working on the issue of fiduciary duty, so I would appreciate receiving material from any of you that have submissions on the subject.
There is an article in the Florida Bar Journal this month on this topic. “If a fiduciary has special skills or becomes a fiduciary on the basis of representations of special skills or expertise, the fiduciary is under a duty to use those skills” . P. 22 Florida Bar Journal March, 2010 , “Understanding Fiduciary Duty” by John F Mariani, Christopher W Kammerer and Nancy Guffey Landers. So if a party presents itself to a borrower as a “lender” one would reasonable presume that they employed one or more underwriters who would perform due diligence on the loan, property and viability of the transactions including borrower’s income, affordability etc. A borrower would NOT reasonably presume that the “lender” didn’t care whether or not they would make the payments now or at some time in the future when the loan reset.
It is a fascinating subject, but the area I am centering in on, is the presumption of a trusted relationship giving rise to a fiduciary duty where (1) the superior party takes on MORE tasks than called for by the contractual relationship between the two would normally imply, and (2) where the transaction is so complex and the knowledge one of the parties so superior, that the injured party is virtually forced to rely on the superior party.
It doesn’t hurt either where the borrower is told not to bother with an attorney (“You can’t change anything anyway,” or “These documents are standard documents using Fannie Mae, FHA, HUD, Freddie Mac forms” etc.). Trust me, nobody who wrote those forms had nominees or MERS in mind when they were prepared.
The issue is particularly important when we look at the layers of Trustees (implicit or explicit) in each of the securitized transactions. Whether it is the Trustee on the Deed of Trust who obviously has duties to both the Trustor (homeowner) and beneficiary (?!?), the Trustee for the aggregate pool under the pooling and service agreement, The Trustee of the Structured Investment Vehicle which typically off shore, the so-called Trustee for the SPV (REMIC) that issued the mortgage backed securities, each of whom presumptively is the successor to the “Trustees” before it, we are stuck with layers upon layers of documents that contain discrepancies within the documents and between the provisions of the documents and the actions of the parties.
You also have the key issue that the true chronology of events differs substantially from the apparent chronology, starting with the fact that the mortgage backed securities were sold prior to the funding of the loan, the assignment and assumption agreement was executed prior to the borrower being known, and the pooling and service agreement also executed prior to any transaction with the borrower.
The use of “close-out” dates and the requirement that assignments be recorded or in recordable form creates another layer of analysis. On the one hand you have clear provisions that explicitly state that the “loan” is not accepted into the alleged “trust” while on the other hand you have the parties acting as though it was accepted into the “trust.”
You have entities described as trusts that have no property, tangible or intangible in them, and “trustees” named where the enabling documents chips away relentlessly at the powers and duties of the trustee leaving you with an agent whose powers are so limited they could be described as a candidate to be an agent rather than one with actual agency powers.
The laws allowing the borrower to claw back undisclosed fees and profits are obviously based upon the presumption that the party who received those fees had some duty toward the borrower to act in good faith, knowing that the borrower was relying upon them to advise them correctly. Steering them into a loan that is likely or guaranteed to put them into foreclosure is obviously a breach of that trust, and taking compensation to act against the interest of the borrower is exactly what Truth in Lending and deceptive lending laws are all about.
The article below clearly highlights the issues. The agent or broker gets paid only upon “closing the sale.” The agent gets paid a standard industry fee for doing so. But when the fee is a yield spread premium or some other form of kickback or rebate undisclosed to the borrower, the debtor ends up in a product that is not easily understood and is probably better for the “ledner” than the loan product that would have been offered if the “lending parties” were acting in good faith.
So this article should be read with an eye toward applying similar fact patterns to the securitized loan situation where the loan originator was in many cases not even a bank but looked like a bank to the borrower.
In the securities industry the issue is in flux more than the laws applying to mortgages where the investment represents the entire wealth of many borrowers. The stakes are usually much higher than in an individual stock purchase transaction.
March 4, 2010

Trusted Adviser or Stock Pusher? Finance Bill May Not Settle It

You have probably seen the television commercial, the one where you seem to be watching an intimate conversation between family members. But at the end, you learn that the conversation was actually between a broker and his client.

The advertisement is meant to evoke the idea of financial adviser as confidant, and is part of brokerage firms’ broader effort in recent years to recast their image — from mere stock pushers to trustworthy advisers.

But in interviews, former and current brokers said the ad told only part of the story. All said their jobs depended less on giving advice and more on closing sales. The more money they brought in, the more they, and their firms, would earn.

“I learned a lot about being a good salesman at Merrill,” said David B. Armstrong, who left Merrill Lynch after 10 years and with partners started an advisory firm in Alexandria, Va. “The amount of training I sat through to properly evaluate investment opportunities was almost nonexistent relative to the training I got on how to sell them.”

While the issue of broker responsibility is not new, it has resurfaced as Congress has been considering financial overhaul legislation. In his original draft, Senator Christopher J. Dodd, chairman of the Senate Banking Committee, proposed requiring brokers to put their customers’ interests first — what is known as fiduciary duty — when providing investment advice. But in recent weeks, the chances of this proposal’s making it into the bill began to dim.

Senator Tim Johnson, a South Dakota Democrat on the Banking Committee, has proposed an 18-month study of the brokerage and investment advisory industries, an effort that would replace Senator Dodd’s provision.

Imposing a fiduciary requirement could have an impact on investment firms’ profits. Guy Moszkowski, a securities industry analyst at Bank of America Merrill Lynch, said that the impact of a fiduciary standard was hard to determine because it would depend on how tightly the rules were interpreted. But he said it could cost a firm like Morgan Stanley Smith Barney as much as $300 million, or about 6 to 7 percent of this year’s expected earnings, if the rules were tightly defined. “It’s very nebulous, but I think that is a reasonable estimate,” he added.

In a research report about Morgan Stanley last year, Mr. Moszkowski wrote, “Financial advisers will be expected to take into account not just whether a product or investment is suitable for the client, but whether it is priced favorably relative to available alternatives, even though this could compromise the revenue the financial adviser and company could realize.”

Technically speaking, most brokers (including those who sell variable annuities or the 529 college savings plans) are now only required to steer their clients to “suitable” products — based on a customer’s financial situation, goals and stomach for risk.

But Marcus Harris, a financial planner who left Smith Barney 10 months ago to join an independent firm in Hunt Valley, Md., said the current rules leave room for abuse. “Under suitability, advisers would willy-nilly buy and sell investments that were the flavor of the month and make some infinitesimal case that they were somehow appropriate without worrying,” he said.

Kristofer Harrison, who spent a couple of years at Smith Barney before leaving to work as an independent financial planner in Clarks Summit, Pa., said the fact that brokers were paid for investments — but not advice — also fostered the sales mentality.

“The difficulty I had in the brokerage industry” he said, “is that you don’t get paid for the delivery of financial advice absent the sale of a financial product. That is not to say the advice I rendered was not of professional quality, but in the end, I always had the sales pitch in the back of my mind.”

Mr. Armstrong, Mr. Harris and Mr. Harrison all said they had decided to become independent because they felt constrained by their firms’ emphasis on profit-making and their inability to provide comprehensive advice.

A current branch manager of a major brokerage firm who did not want to be identified because he did not have his employer’s permission to speak to the media, confirmed that “you are rewarded for producing more fees and commissions.” While he said that “at the end of the day, I think that the clients’ interests are placed first and foremost by most advisers,” he added that “we are faced with ethical choices all day long.”

Brokers are typically paid a percentage of fees and commissions they generate. The more productive advisers at banks and big brokerage firms could collect 50 percent of the fees and commissions they generate, said Douglas Dannemiller, a senior analyst at Aite Group, a financial services research group.

The firms may also make money through other arrangements, including what is known as revenue sharing, where mutual fund managers may, for instance, agree to share a portion of their revenue with the brokerage firm. By doing this, the funds may land on the brokerage firm’s list of “preferred” funds. Some brokerage firms, including Merrill Lynch and Morgan Stanley Smith Barney disclose their revenue sharing information on their Web sites, or at the point of sale. Edward Jones discloses it as well, as the result of a settlement of a class-action lawsuit. UBS and Wells Fargo Advisors declined to comment on whether it discloses this information.

Unlike fiduciaries, brokers do not have to disclose how they are paid upfront or whether they are have incentives to push one investment over another. “The way the federal securities law regulates brokers, it does not require the delivery of information other than at the time of the transaction,” said Mercer E. Bullard, an associate professor at the University of Mississippi School of Law who serves on the Securities and Exchange Commission’s investment advisory committee.

The legislative language on fiduciary responsibility was one part of the financial overhaul bill aimed at protecting consumers’ interests. Another part, setting up an independent consumer protection agency, may also be watered down.

The study proposal by Senator Johnson may be included in the actual bill, which means it would not be subject to debate. And consumer advocates contended that the study would stop regulators from making any incremental consumer-friendly changes until the study was completed. The study would also require the S.E.C. to go over territory already covered in a 228-page study, conducted by the RAND Corporation in 2008 at a cost of about $875,000, the advocates said.

“In my opinion, the Johnson study is a stalling tactic that will either substantially delay or totally prevent a strong fiduciary standard from being applied,” said Kristina Fausti, a former S.E.C. lawyer who specialized in broker-dealer regulation.

“The S.E.C. has been studying issues related to investment-adviser and broker-dealer regulation and overall market conditions for over 10 years,” she said. “It’s puzzling to me why you would ask an agency to conduct a study when it is already an expert in the regulatory issues being discussed.”

Even after the study was completed, legislation would still need to be passed to give the S.E.C. authority to create a fiduciary standard for brokers who provide advice. “As we all know, the appetite for doing this in one or two years is certainly not going to be what it is today,” said Knut Rostad, chairman of the Committee for the Fiduciary Standard, a group of investment professionals advocating the standard. His group circulated an analysis that tried to illustrate where answers to the study’s questions could be found.

Swaps as Breach of Fiduciary Duties

“That’s right. Issuers are essentially paying twice for flawed deals that bestowed great riches on the bankers and advisers who sold them. Taxpayers should be outraged, but to be angry you have to be informed — and few taxpayers may even know that the complicated arrangements exist.”

Editor’s Note: At some point, it will become obvious and axiomatic that Wall Street works for itself and their pattern of selling is devoted to making money whether the investment sold goes up, down or sideways. As long as money moves Wall Street makes money. One of the crazier aspects of their hold on Government is that while they make all this money, they don’t get taxes, because they usually pick and choose when they report the income even as it is sitting safely in off-shore havens or buried in holding or contingency accounts. Much of the federal and State deficits would be partially or completely offset if they just enforced their tax laws — collecting taxes owed to them by Wall Street players.
Meanwhile, back at the ranch, everyone and everything is dying, drained of all lifeblood in what is left of our “free market” economy. The current case in point, deftly pointed out and explained by Gretchen Morgenstern of the New York Times, is local government officials who were misled into buying into a credit default swap program without knowing the risks. They thought they were increasing income and decreasing risk. Instead they were , like the borrowers on teaser rates, drawn into complicated instruments, relying upon the advice of the people who sold it to them. These isntruments gave them the initial appearance of something beneficial while in the end it wrecked them.
Sound familiar? Whether it is simply outright fraud, or breach of fiduciary duty there is no doubt that the public officers who bought into this plan thought that it would be good for them politically because it would be haled as a smart move.
They bought into this program because the investment bankers who sold it to them had knowledge so far superior to the public officials that there was no choice but to rely on the investment banker on the issues of value and risk. Most authorities claim that when that situation arises, a fiduciary relationship arises whether it was intended or not. And when a party has knowledge and skills far superior to the counter-party in a transaction, they have a duty to use those skills and inform the customer accordingly.
The same holds true in mortgage financing. In the last 10 years, underwriters tell me that the number of loan products grew from 4 to 400. The huge array of potential loan products alone made the choice out of the reach of knowledge and experience of most borrowers. Add the complexity of securitization and we were all sitting ducks, relying on the mortgage broker, appraiser, the party originating the loan (who often was confused as being a bank or acting as bank when they were acting as a broker or conduit), the closing agent, the real estate broker, developer, insurance companies (title and property) to assess the value and risks of each transaction. In truth no underwriting was being done because no bank would have approved the loan in most cases.
Investment bankers created a chain of participants to create layers and plausible deniability, in the process, millions of homeowners are losing their homes to companies they never knew existed and thousands of municipalities and local government projects are going broke.
March 5, 2010 NY Times

The Swaps That Swallowed Your Town


AS more details surface about how derivatives helped Greece and perhaps other countries mask their debt loads, let’s not forget that the wonders of these complex products aren’t on display only overseas. Across our very own country, municipalities, school districts, sewer systems and other tax-exempt debt issuers are ensnared in the derivatives mess.

Like the credit default swaps that hid Greece’s obligations, the instruments weighing on our municipalities were brought to us by the creative minds of Wall Street. The rocket scientists crafting the products got backup from swap advisers, a group of conflicted promoters who consulted municipalities and other issuers. Both of these camps peddled swaps as a way for tax-exempt debt issuers to reduce their financing costs.

Now, however, the promised benefits of these swaps have mutated into enormous, and sometimes smothering, expenses. Making matters worse, issuers who want out of the arrangements — swap contracts typically run for 30 years — must pay up in order to escape.

That’s right. Issuers are essentially paying twice for flawed deals that bestowed great riches on the bankers and advisers who sold them. Taxpayers should be outraged, but to be angry you have to be informed — and few taxpayers may even know that the complicated arrangements exist.

Here’s how municipal swaps worked (in theory): Say an issuer needed to raise money and prevailing rates for fixed-rate debt were 5 percent. A swap allowed issuers to reduce the interest rate they paid on their debt to, say, 4.5 percent, while still paying what was effectively a fixed rate.

Nothing wrong with that, right?

Sales presentations for these instruments, no surprise, accentuated the positives in them. “Derivative products are unique in the history of financial innovation,” gushed a pitch from Citigroup in November 2007 about a deal entered into by the Florida Keys Aqueduct Authority. Another selling point: “Swaps have become widely accepted by the rating agencies as an appropriate financial tool.” And, the presentation said, they can be easily unwound (for a fee, of course).

But these arrangements were riddled with risks, as issuers are finding out. The swaps were structured to generate a stream of income to the issuer — like your hometown — that was tethered to a variable interest rate. Variable rates can rise or fall wildly if economic circumstances change. Banks that executed the swaps received fixed payments from the issuers.

The contracts, however, assumed that economic and financial circumstances would be relatively stable and that interest rates used in the deals would stay in a narrow range. The exact opposite occurred: the financial system went into a tailspin two years ago, and rates plummeted. The auction-rate securities market, used by issuers to set their interest payments to bondholders, froze up. As a result, these rates rose.

For municipalities, that meant they were stuck with contracts that forced them to pay out a much higher interest rate than they were receiving in return. Sure, the rate plunge was unforeseen, but it was not an impossibility. And the impact of such a possible decline was rarely highlighted in sales presentations, municipal experts say.

Another aspect to these swaps’ designs made them especially ill-suited for municipal issuers. Almost all tax-exempt debt is structured so that after 10 years, it can be called or retired by the city, school district or highway authority that floated it. But by locking in the swap for 30 years, the municipality or school district is essentially giving up the option to call its debt and issue lower-cost bonds, without penalty, if interest rates have declined.

Imagine a homeowner who has a mortgage allowing her to refinance without a penalty if interest rates drop, as many do. Then she inexplicably agrees to give up that opportunity and not be compensated for doing so. Well, some towns did exactly that when they signed derivatives contracts that locked them in for 30 years.

Then there are the counterparty risks associated with municipal swaps. If the banks in the midst of these deals falter, the municipality is at peril, because getting out of a contract with a failed bank is also costly. For example, closing out swaps in which Lehman Brothers was the counterparty cost various New York State debt issuers $12 million, according to state filings.

Termination fees also kick in when a municipal issuer wants out of its swap agreement. They can be significant.

New York State provides a good example. An Oct. 30, 2009, filing describing its swaps shows that for the most recent fiscal year, April 2008 to March 2009, the state paid $103 million to terminate roughly $2 billion worth of swaps — more than a quarter of which resulted from the Lehman bankruptcy in September 2008.

(You can find this report online at

As of Nov. 30, 2009, New York had $3.74 billion worth of swaps outstanding. Even so, New York doesn’t have as much of a problem with swaps as other jurisdictions. Still, New York could have spent that $103 million on many other things that the state needs.

The prime example, of course, of a swap-imperiled issuer is Jefferson County, Ala. Its swaps were supposed to lower the county’s costs, but instead they wound up increasing its indebtedness. Groaning under a $3 billion debt load, the county is facing the possibility of bankruptcy.

Critics of swaps hope that increased taxpayer awareness of these souring deals will force municipalities to think twice. “When municipalities enter into these swaps they end up paying more and receiving much less,” said Andy Kalotay, an expert in fixed income.

Why is that? One reason, Mr. Kalotay said, is the use of swap advisers.

“The basic problem is the swap adviser gets paid only if there is a transaction — an unbelievable conflict of interest,” he said. “It’s the adviser who is supposed to protect you, but the swap adviser has a vested interest in seeing something happen.”

WHAT is especially maddening to many in the municipal securities market is that issuers are now relying on the same investment banks that put them into swaps-embedded debt to restructure their obligations. According to those who travel this world, issuers are afraid to upset their relationships with their bankers and are not holding them accountable for placing them in these costly trades.

“We need transparency where Wall Street discloses not only the risks but also calculates the potential costs associated with those risks,” said Joseph Fichera, chief executive at Saber Partners, an advisory firm. “If you just ask issuers to disclose, even in a footnote, the maximum possible loss or gain from the swap they probably wouldn’t do it. And if they did that, then investors and taxpayers would know what the risks are, in plain English.”

Mr. Fichera is right. At this intersection of two huge and extremely opaque arenas — the municipal debt market and derivatives trading — sunlight is sorely needed.

Foreclosure Defense and Offense: USURY

It is a central point of the discussion on securitization that usury lies at the heart of every claim. Unfortunately many states have eliminated usury laws but still maintain maximum interest laws, which can be used to state that the loan violates the state law on the maximum interest that can be charged.

While the limits vary widely from 5% to 45%, the basic calculation is the same and produces the same results, to wit:
the real APR was not disclosed,
the interest charged was greater than state law permitted,
the intentionally inflated appraisal lifted the APR far above any disclosed or permissible limits on interest when amortized over the known and likely life of the loan and
no exemptions apply for “financial institutions” or other “licensed” (e.g. pawnbroker lending organizations because the real source of the loan in a table-funded loan was not only lacking a bank charter or lending license, they were most probably not registered to do business in the state.
The pattern of cheating the state out of the revenues for registration and evading the taxes and revenues to the state by not recording the alleged “assignments” of the loans despite state law to the contrary, demonstrates that the fraudulent scheme of tricking borrowers into signing papers they would not have signed if they were aware of the true facts so that their identities could be stolen and used to sell unregulated and fraudulent securities, but that the state was also a victim of this fraud.

As you will see below, there are approximately 29 states (**) in which usury can be alleged and another 5 (*) states where consumer protections exist by statute that can be alleged and argued in connection with mortgages and deeds of trust that ended up costing the homeowner his home and all his net worth, a fact that was well-known to the “experts” and “fiduciaries” that engineered the loan closing. Thus if it was obvious to everyone other than the borrower that at the first reset there was no ability to pay, THAT is the known and expected life of the loan and the costs, including the inflated appraisal are thus amortized over 6-24 months rather than 30 years. In most cases this will result in a cost of the loan far in excess of anything permitted by law.

The argument that a national charter or other protection will shield the loan transaction from this attack is completely specious. The protected entity acted not as a lender but merely rented its charter or license for the purpose of providing unregulated, unauthorized and illegal cover for an entity that lacked any authority to be in the  home loan business.

Many state’s laws provide that you cannot lend money at an interest rate in excess of a certain statutory maximum. This is a “usury limit.” Unless Otherwise Stated, The Rates Are Simple, Not Compound Interest. Further We Are Stating The **Present** Limits, the ones applicable at the time that this research was completed. Many states have had lower limits in the past. Further, in most states a late charge or other fee exacted from someone who owes another money is also counted as interest.

“But my car loan is higher than that”; “But I’m paying way more than that on my credit cards.” That’s right! Banks have separate rules. In fact, due to high inflation, in 1980, the federal government passed a special law which allowed national banks (the ones that have the word “national” or the term “N.A.” in their name, and savings banks that are
federally chartered) to ignore state usury limits and pegged the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers (like car financing companies) have their own rules.

The usury limit which is stated as the general usury limit is the rate that can be charged by one person or corporation to another, in other words, if you lend your next door neighbor $ 100.00, the rate stated is the limit. To charge more you must get a banking, pawnbroking, or whatever license. This also means that special kinds of loans, like
those from pawnbrokers or small loan companies are not stated.

In some states we also have a “legal rate.” In such states, as a general rule, if you have a contractual obligation that provides simply for interest without a specific term, or “interest at the highest legal rate” then the “legal rate” what applies.

In other instances we have stated a “judgment rate.” That’s the rate that final judgments bear. In states without a usury limit, there still may be a federally imposed limit because at certain astronomical rates of interest “loan sharking” will be inferred by the federal government.

Usury Is A Complicated Area Of Law. Transactions that a person would not consider to be affected by usury often are, for example, repurchase agreements, or sales with an option to repurchase are often found to be loans. A word of caution. Before trying to lend someone money or “invest” with a guaranteed return, see an attorney to make sure that you don’t run afoul of the usury laws. In state’s that specify one limit for consumers and one limit for non-consumers, you cannot avoid the usury limit by creating a sham business deal. In a supplement that is now being prepared and will be available soon, we will review the penalties for usury in each state and point out special circumstances in each state.

**ALABAMA, the legal rate of interest is 6%; the general usury limit is 8%. The judgment rate is 12%.
**ALASKA, the legal rate of interest is 10.5%; the general usury limit is more than 5% above the Federal Reserve interest rate on the day the loan was made.
*ARIZONA, the legal rate of interest is 10%.
**ARKANSAS, the legal rate of interest is 6%; for non-consumers the usury limit is 5% above the Federal Reserve’s interest rate; for consumers the general usury limit is 17%. Judgments bear interest at the rate of 10% per annum, or the lawful agreed upon rate, whichever is greater.
**CALIFORNIA, the legal rate of interest is 10% for consumers; the general usury limit for non-consumers is more than 5% greater than the Federal Reserve Bank of San Francisco’s rate.
**COLORADO, the legal rate of interest is 8%; the general usury limit is 45%. The maximum rates to consumers is 12% per annum.
**CONNECTICUT, the legal rate of interest is 8%; the general usury rate is 12%. In civil suits where interest is allowed, it is allowed at 10%.
DELAWARE, the legal rate of interest is 5% over the Federal Reserve rate.
**DISTRICT OF COLUMBIA, the legal rate of interest is 6%; the general usury limit is in excess of 24%.
**FLORIDA, the legal rate of interest is 12%; the general usury limit is 18%. On loans above $ 500,000 the maximum rate is 25%.
**GEORGIA, the legal rate of interest is 7%; On loans below $ 3,000 the usury limit is 16%. On loans above $ 3,000, the limit appears to be 5% per month. As to loans below $ 250,000 the interest rate must be specified in simple interest and in writing.
**HAWAII, the legal rate of interest is 10%. The usury limit for consumer transactions is 12%.
IDAHO, the legal rate of interest is 12%. Judgments bear interest at the rate of 5% above the U.S. Treasury Securities rate.
**ILLINOIS, the legal rate of interest is 5%. The general usury limit is 9%. The judgment rate is 9%.
INDIANA, the legal rate of interest is 10%. Presently there is no usury limit; however, legislation is pending to establish limits. The judgment rate is also 10%.
*IOWA, the legal rate of interest is 10%. In general consumer transactions are governed at a maximum rate of 12%.
KANSAS, the legal rate of interest is 10%; the general usury limit is 15%. Judgments bear interest at 4% above the federal discount rate. On consumer transactions, the maximum rate of interest for the first $ 1,000 is 18%, above $ 1,000, 14.45%.
KENTUCKY, the legal rate of interest is 8%; the general usury limit is more than 4% greater than the Federal Reserve rate or 19%, whichever is less. On loans above $ 15,000 there is no limit. Judgments bear interest at the rate of 12% compounded yearly, or at such rate as is set by the Court.
**LOUISIANA, the legal rate of interest is one point over the average prime rate, not to exceed 14% nor be less than 7%. Usury limit for individuals is 12%, there is no limit for corporations. (As warned, you cannot evade the limit by forming a corporation when the loan is actually to an individual.)
MAINE, the legal rate of interest is 6%. Judgments below $ 30,000 bear 15%, otherwise they bear interest at the 52 week average discount rate for T-Bills, plus 4%.
**MARYLAND, the legal rate of interest is 6%; the general usury limit is 24%. There are many nuances and exceptions to this law. Judgments bear interest at the rate of 10%.
**MASSACHUSETTS, the legal rate of interest is 6%; the general usury rate is 20%. Judgments bear interest at either 12% or 18% depending on whether the court finds that a defense was frivolous.
**MICHIGAN, the legal rate of interest is 5%; the general usury limit is 7%. Judgments bear interest at the rate of 1% above the five year T-note rate.
**MINNESOTA, the legal rate of interest is 6%. The judgment rate is the “secondary market yield” for one year T-Bills. Usury limit is 8%.
**MISSISSIPPI, the legal rate of interest is 9%; the general usury limit is more than 10%, or more than 5% above the federal reserve rate. There is no usury limit on commercial loans above $ 5,000. The judgment rate is 9% or a rate legally agreed upon in the underlying obligation.
*MISSOURI, the legal and judgment rate of interest is 9%. Corporations do not have a usury defense. (Remember that a corporation set up for the purpose of loaning money to an individual will violate the usury laws.)
**MONTANA, the legal rate of interest is 10%; the general usury limit is above 6% greater than New York City banks’ prime rate. Judgments bear interest at the rate of 10% per annum.
**NEBRASKA, the legal rate of interest is 6%; the general usury limit is 16%. Accounts bear interest at the rate of 12%. Judgments bear interest at the rate of 1% above a bond yield equivalent to T-bill auction price.
NEVADA, the legal rate of interest is 12%; there is no usury limit.
NEW HAMPSHIRE, the legal rate of interest is 10%; there is no general usury rate.
**NEW JERSEY, the legal rate of interest is 6%; the general usury limit is 30% for individuals, 50% for corporations. There are a number of exceptions to this law.
NEW MEXICO, the legal rate of interest is 15%. Judgment rate is fixed by the Court.
**NEW YORK, the legal rate of interest is 9%; the general usury limit is 16%.
**NORTH CAROLINA, the legal interest rate and the general usury limit is 8%. However, there is a provision for a variable rate, which is 16% or the T-Bill rate for non-competitive T-Bills. Above $ 25,000 there is no express limit. However, the law providing for 8% is still on the books- be careful and see a lawyer!
**NORTH DAKOTA, the legal rate of interest is 6%; the general usury limit is 5 1/2% above the six-month treasury bill interest rate. The judgment rate is the contract rate or 12%, whichever is less. A late payment charge of 1 3/4% per month may be charged to commercial accounts that are overdue provided that the charge is revealed prior to the account being opened and that the terms were less than thirty days, that is, that the account terms were net 30 or less.
**OKLAHOMA, the legal rate of interest is 6%. Consumer loans may not exceed 10% unless the person is licensed to make consumer loans. Maximum rate on non-consumer loans is 45%. The judgment rate is the T-Bill rate plus 4%.
OREGON, the legal rate is 9%, the judgment rate is 9% or the contract rate, if lawful, whichever is higher. The general usury rate for loans below $ 50,000 is 12% or 5% above the discount rate for commercial paper.
**PENNSYLVANIA, the legal rate of interest is 6%, and this is the general usury limit for loans below $ 50,000, except for: loans with a lien on non-residential real estate; loans to corporations; loans that have no collateral above $ 35,000. Judgments bear interest at the legal rate. It is criminal usury to charge more than 25%.
PUERTO RICO, the legal rate of interest is 6%; all other rates are set by the Finance Board of Office of Commissioner of Financial Institutions. Judgments bear interest at the same rate as the underlying debt.
**RHODE ISLAND, the legal rate of interest and judgment rate is 12%. The general usury limit is 21% or the interest rate charged for T- Bills plus 9%.
*SOUTH CAROLINA, the legal rate of interest is 8.75%, and judgments bear interest at the rate of 14%. Subject to federal criminal laws against loan sharking there is no general usury limit for non- consumer transactions. The South Carolina Consumer Protection code provides regulations for maximum rates of interest for consumer transactions. Please consult with counsel for the latest rates.
SOUTH DAKOTA, the legal rate of interest is 15%, judgments bear interest at the rate of 12%. There is no other usury limit. There are certain limitations on consumer loans below $ 5,000.00.
**TENNESSEE, the legal rate and judgment rate of interest is 10%. The general usury limit is 24%, or four points above the average prime loan rate, WHICHEVER IS LESS.
*TEXAS, the legal rate of interest is 6%. Interest does not begin until 30 days after an account was due. The judgment rate of interest is 18% or the rate in the contract, whichever is less. There are a number of specific ceilings for different types of loans, please see counsel for information.
UTAH, the legal rate of interest is 10%. Judgments bear interest at the rate of 12%, or a lawfully agreed upon rate. There are floating rates prescribed for consumer transactions. Please see counsel for information.
**VERMONT, the legal rate of interest and judgment rate of interest is 12%. On retail installment contracts the maximum rate is 18% on the first $ 500, 15% above $ 500. The general usury limit is 12%.
*VIRGINIA, the legal rate of interest is 8%. Judgments bear interest at the rate of 8%, or the lawful contract rate. Corporations and business loans do not have a usury limit, and loans over $ 5,000 for “business” or “investment” purposes are also exempt from usury laws. Consumer loans are regulated and have multiple rates.
WASHINGTON, the legal rate is 12%. The general usury limit is 12%, or four points above the average T-Bill rate for the past 26 weeks, whichever is greater. (The maximum rate is announced by the State Treasurer.) Judgments bear interest at the rate of 12% or the lawful contract rate, whichever is higher.
**WEST VIRGINIA, the legal rate of interest is 6%. The maximum “contractual” rate is 8%; Commissioner of Banking issues rates for real estate loans, and, may establish maximum general usury limit based on market rates.
WISCONSIN, the legal rate of interest is 5%. There are a myriad of rates for different type of loans. There is no general usury limit for corporations. Note that a loan to an individual, even if a corporation is formed, will violate the law. The judgment rate of interest is 12%, except for mortgage foreclosures, where the rate will be the lawful contract rate.
WYOMING, the legal rate and judgment rate of interest is 10%. If a contract provides for a lesser rate, the judgment rate is the lesser of 10% and the contract rate.

Foreclosure Defense: Stated Income Loans, Income Overstated and TILA Rescission

Remember that rescission doesn’t mean you give back the house. It doesn’t even mean you have to give back the money to the lender against whom you are rescinding — THAT obligation commences AFTER the lender admits to the rescission or it is otherwise decreed and then it is reduced by the refunds of points, interest, closing costs you paid plus damages and attorney fees you suffered as a result of the issues raised in this post.

Rescission might not even mean you owe any money at all to the lender. It could mean that the mortgage lien is extingunished and so is the note. And unless the party coming into court or the auction as a “representative” of the lender can prove that they have received their instructions and authorization from a party who is authorized to give those instructions, then they lack authorization, they lack legal standing and they are probably committing a fraud on you, the court and everyone else. 

Most lawyers have a knee jerk reaction in advising clients about challenging foreclosure when the stated income application contains mistatements or outright fraud. They tell their clients that they better not open this box because of all the criminal and civil liability issues that will arise from the deceptive information stating the income of the borrower. WRONG! Fear tactics and unimaginative and uninformed lawyers are allowing people to lose their homes when they should be keeping their homes and getting paid damages for what was done tot hem. This advice they are giving is in most cases completely incorrect.

The lender has an obligation to verify the income. As such, when it failed to verify the income it waived it’s right to complain that the income was wrong because the courts say that the lender did not reasonably rely on the stated income, as set forth in the mortgage application. And when they failed to verify the true value of the property, as they were supposed to do to protect your interest as their “client”, they knowingly assisted in defrauding you out of the benefit of the bargain you thought you were getting. In fact, you got a home worth less than the mortgage indebtedness you signed at closing and you didn’t know it because they didn’t want you to know it.

This might seem overly lenient or liberal” to some, but it isn’t. In all cases but a few, the application is filed out by someone other than borrower and the person filing out the application puts down the income necessary to justify the the amount of the loan sought without even asking what the real income is. If the subject comes up most borrowers tell the mortgage broker or representative that their income is not what is stated on the application, and they are told they must submit the application “as is” in order to get the loan.

The old “don’t worry, everybody is doing it” is true — that is exactly what was happening. And the responsibilities of the “lender” who was in actuality a mortgage broker which was not disclosed (as required by law) to the borrower is unchanged: they have a fiducuiary duty to the borrower to present the borrower with a loan program (with everybody’s role and compensation and risk fully disclosed) that will work given the economic, income and liability circumstances of the borrower. We have many stories where people were given mortgage loans in the millions based upon zero actual income or close to zero.

Investment speculation was promoted through encouragement of speculators to take ARM financing and then flip the homes in the ever growing housing market and explosion of housing prices. Advertising for refinancing, first home financing, HELOCs (which are now often dischargeable in bankruptcy and are fully within the right to rescind the transction stated in Truth in lending Act, encouraged every man, woman and child to become further and further in debt, diverting capital from the economy, the marketplace and main street to a select few on Wall Street, which is why some salaries now for the same job require greater qualifications at less pay than they were getting with fewer qualifications and far more pay 20-30 years ago.

See the following article from the Bakruptcy Law Network for more information. BLN is a very good source on a wide variety of issues but the old expression that “he works with a hammer tends to look at everything as a nail” comes to mind. Most people petitioning for bankruptcy are not protecting their interests in the best possible way, in my opinion, but of course your own attorney is supposed to know what is best.

First of all if you are going to file for bankruptcy, given the fact that the mortgage and note have been transferred many times more than once, there is a question about who the creditor is and WHETHER THE CREDITOR HAS BEEN PAID ALL OR PART OF THE “MISSING” PAYMENTS.

If some investor bought your loan and the investMent banking house paid some of the payments to the investor to whom was sold a CDO or CMO, then the loan servicing company that is posting notice of sale or suing you for foreclosure has no idea whether the payments have been made on YOUR note or not.


Thus the creditor you name IN A BANKRUPTCY PETITION OR LAWSUIT OR PETITION FOR EMERGENCY INJUNCTION TO STOP THE SALE OR EVICTION should be a contingent creditor, the amount due on the note should be a contingent liability, and the so-called security aspect is also contingent.

Remember that rescission doesn’t mean you give back the house. It doesn’t even mean you have togive back the money to the ldner aginst whom you are rescinding — THAT obllgation commences AFTER the lender admits tot he rescission or it is otherwise decreed and then it is reduced by the refunds of points, interest, closing costs you paid plus dmages you suffered as a result of the issues raised in this post.

Rescission might not even mean you owe any money at all to the lender. It could mean that the mortgage lien is extingunished and so is the note. And unless the party coming into court or the auction as a “representative” of the lender can prove that they have received their instructions and authorization from a party who is authorized to give those instructions, then they lack authorization, they lack legal standing and they are probably committing a fraud on you, the court and everyone else. 



“Liar Loans”—Who’s the Real Liar?

A recent article in The Wall Street Journal, Are Borrowers Free to Lie?, talks about a recent Bankruptcy Court decision in the Northern District of California.In re Hill dealt with an attempt by National City Bank to hold the Hills’ mortgage loan non-dischargeable, meaning that, despite the loss of their home due to foreclosure  and their subsequent bankruptcy, they would have to pay it back. How did the Hills get in this situation? They did what many borrowers were urged to do over the past several years: take out a “stated income” loan.

Stated Income loans, also called “liar loans” or NINJA (No Income, No Job, No Assets) loans, were mortgage loans in which no proof of income, employment or assets was required. Rather, the borrower simply “states” on the loan application what his or her income is, and the bank does no checking. No pay stubs, no tax returns, nothing. Ask for a mortgage, in virtually any amount, and get it without any investigation of ability to pay, examination, or common sense. Common sense would have disclosed that something was very wrong in the Hills’ case.

The Hills were 54 years old, and worked as delivery drivers and employee for an auto-parts distributor. They signed a loan application falsely stating they earned about a combined $191,000 a year. They claimed that their independent broker and the bank put the income figures into the applications without their knowledge and that they didn’t read them before signing.

Based on the obviously false figures in the application, following the foreclosure on their home and the Hills  filing for bankruptcy, National City Bank, the lender on the loan, asked the Bankruptcy Court to find that their debt to the bank should not be discharged because they lied on their mortgage application. While agreeing that the income statement was false, the Bankruptcy Court disagreed that the Hills should lose their discharge.

The Court stated:

While the Court finds and concludes that the debtors made a material false representation concerning their financial condition to the Bank in October 2006, with knowledge of its falsity and the intent to deceive the Bank, the Court finds and concludes that the Bank’s nondischargeability claim under § 523(a)(2)(B) must fail. The Bank failed to prove that it reasonably relied on the Debtors’ false representation concerning their income, as set forth in the October Loan Application. As a result, the Bank’s claim has been discharged.  Judgment will be ordered accordingly.

In other words, because National City knew or should have known that the Hills misrepresented their income and didn’t check it out, it didn’t meet one of the criteria for nondischargeability: it didn’t rely on the Hills’ false statements in making the loan. The Hills’ loan was found to be dischargeable.

The Hill decision is an important one. It makes clear that banks cannot place sole responsibility for their poor lending practices and decisions on the shoulders of the borrowers. Mr. and Mrs. Hill aren’t without fault, but the fault was on both sides. The Hills lost their home of 20 years and had to file for bankruptcy. The bank lost its money.

Sounds to me as if the Court restored a bit of balance to the equation.

Foreclosure Defense: Get into the Details: Trustee Deeds


In states that use Trustees for deeds and mortgages, you should of course check the requirements of being a Trustee and whether any transfers or assignments have occurred that effectively change the duties of the Trustee. So if your mortgage and note was bundled up with others and sold to a mortgage aggregator and eventually sold to an investment banker and then sold to an investor, the paper trail needs to be as precise as the original documentation when you took title to your house subject to your mortgage.

In all likelihood, based upon our current information and interviews, most of these deals have in one or more of the transfers, failed to comply with State law, failed to properly transfer rights, and have transferred some rights that cannot be properly transferred.

In Arizona for example, under ARS Section 33-820, the Trustee is described and there is plenty of case law that says the Trustee is a fiduciary (owes an obligation to protect) both the borrower and the lender.


By failing to exercise proper due diligence on the status of the ownership of the mortgage and note and whether payments or refunds were due, the Trustee has not fulfilled the threshold requirements to post the sale of the property. Having failed that, the notice of sale is void or voidable.

This should be brought to the attention of the Trustee through a letter advising him/her that you will hold him/her accountable for the damages incurred, and that you challenge his/her right to proceed. 

It should also be brought to the attention of the Court and you should check with the clerk of the court on how you file a Notice of Contest in which you deny that the notice of sale is proper.

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