Financial Double Jeopardy and Illegality of Securitization

Editor’s Note: to most Judges and most lawyers the thought that a home could be foreclosed by the wrong party, or that there could be a declaration of default on a satisfied mortgage, and that these things could lead to sale of a home by a bank or other party that doesn’t own it to someone who also doesn’t own it — all these things are counter-intuitive. If certainty is a measure of confidence in the marketplace everyone has been certain about real property transactions which must be recorded in the property recording office of each county  in which the property is located.

So when you go into court or challenge the pretender lender out of court, they have the advantage of knowing that any Judge who hears your pleas is first going to assume that your defenses are technical, not real, and designed to delay the inevitable. It is stories like the one below you must keep in mind along with the quote from Beth Findsen who always reminds us that “you can be right as rain on the law, but if the Judge refuses to apply it, you lose anyway.”

That is why it is so important to get your act together (use the free intake form on this blog), get a forensic analysis done that includes securitization, and get an expert declaration that you or your lawyer can use in court. In the first round of motions you won’t convince the judge you’re right and the other side is wrong. But you CAN convince him that your case possibly has merit, that you are entitled to discovery, that you are entitled to a temporary injunction or temporary retraining order, and that you have a right to a hearing on the merits.

Having third party reports and declarations in your hand that you can lay down in front of the judge goes a long way to convince the judge that you at least have the right to be heard on the merits even if, at the moment, he or she doesn’t think it likely you will prevail. If you properly plead and show the Judge something he or she can hold in their hand that, if proven, means you would win the case, then the judge is more likely to follow the law and allow you to proceed.

NAPLES — It was retirement incarnate. Then, the foreclosure lawsuit came.

Warren Nyerges, 45, left his law enforcement career and moved to Golden Gate Estates late last year with his wife. He was spending his days preparing his backyard for grass, painting the interior of his home and joking about the snow he abandoned in Cleveland.

“I’ve had nothing but a ball. To come down here, it’s a life dream,” Nyerges said.

To top it all off, the couple’s single-story, 2,700-square-foot home was paid off. Nyerges said he even offered $5,000 more than Bank of America was asking, quickly sealing the deal with title insurance.

But on Feb. 18, a man came to the couple’s home with a lawsuit. Bank of America had begun foreclosing on the property, and Nyerges’ dream was temporarily put on hold.

“I wish I could have taken my blood pressure the day I got served that thing, because I was livid,” Nyerges said. “I told my wife it shortened my life by 10 years.”

Nyerges said he called the process server, who told him to call the courthouse, where officials told him to call the lawyer, who then told him the issue was between him and Bank of America. Nyerges said he felt like many of the officials thought he was trying to get out of paying a mortgage.

After he was served, Nyerges said in a March 1 interview, “each and every day thereafter, excluding Saturdays and Sundays, I’ve been in contact with someone from the bank or the law firm.”

After unsuccessful calls to Bank of America’s main number, Nyerges said he went to one of the bank’s branches, found a manager, and “plopped this mess down on his desk.”

“I work for Bank of America. I am with these people. This lawsuit has no merit. It needs to stop,” Nyerges said the bank manager told others at the company after reviewing Nyerges’ documents. Nyerges said the bank didn’t believe their own employee.

On Feb. 22, he went back to the bank branch and had the documents faxed to the company. By March, an employee at the bank said they were researching the case, Nyerges said.

“They’re researching it,” Nyerges said the bank employee told him. “Calm down.”

“She just couldn’t understand why I was so upset about this,” Nyerges said, adding that he was nice at first, but later became more frustrated.

With multiple trips to the bank branch and the courthouse and about 25 hours dealing with the suit, which he had 20 days to respond to in order to avoid acknowledging the facts as accurate, Nyerges said he had no choice but to file a motion.

Acting as his own attorney, Nyerges’ first motion demanded the suit be dismissed with damages and he later filed a second motion seeking $2,500 for his time and expenses.

In a statement, Bank of America said officials are still trying to determine what happened.

“Bank of America sincerely apologizes to Mr. Nyerges for this inconvenience. We are currently researching the matter and are stopping the foreclosure,” the statement said. “We are still in the process of identifying the root cause that created this issue.”

Public records filed for Nyerges’ property add only more confusion to the situation. According to the records, the previous owners are Henry and Nelly M. Imbachi, who bought the home in July 2005. The lawsuit is related to the first of two mortgages they took on the property by August 2005.

When her husband lost his job, Nelly Imbachi said Bank of America foreclosed on the second mortgage. That foreclosure began in September 2008, Bank of America obtained title to the home in April 2009 and the second mortgage — not the first mortgage — was satisfied in August 2009, according to official records filed with the Collier Clerk of Court.

Nelly Imbachi said the unemployment insurance she had with Bank of America didn’t help. She said the company told her she didn’t file the necessary papers. She said the family never got a lawyer, later filed for bankruptcy and have not been notified of the current lawsuit.

“When they told us we lost the house, that is when we stopped paying,” Nelly Imbachi said of the first mortgage.

Tuan Van Ho, a Macro Island man who did not return a request for comment, then purchased the home for $155,000 on July 17, 2009, according to official records.

A month later, Nyerges purchased the home for $165,000, just three days after the Imbachi’s second mortgage was satisfied, the records indicate. In November, Nyerges said he looked up the property on the Collier County Property Appraiser’s Web site, discovered Ho was still listed as the owner, and asked for the situation to be corrected.

Indeed, on Nov. 13, 2009, Ho transferred the property back to Bank of America for no cost, two-and-a-half months after Nyerges had bought the home from Bank of America and while the Imbachi’s first mortgage still wasn’t satisfied.

So, what led to Nyerges being named in the suit remains a mystery. For the most part, Nyerges is more concerned, he said, with having his family’s name cleared, damages for the time he has spent and expenses paid fighting the suit, and a return to the relative serenity he once had.

“As I explained in my pleading today, they cost me long distance phone calls, gas, time and do you know how far my house is from the court house?” Nyerges said. “A lawyer would charge you $200 or $250. I’m charging $100. Just cut me a check for $2500 and we’ll act like the whole thing never happened.”

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.


See Judge Long’s Decision – Make sure you shepardize 384283_Ibanez Larace motion to vacate memorandum Oct2009Misc 384283 and Misc 3867551

when a foreclosure is noticed and conducted for one party
by another, the name of the principal must be disclosed in the notice.

the plaintiffs themselves recognized that they needed assignments in recordable form explicitly to them (not in blank) prior to their initiation of the mortgage foreclosure process, that the plaintiffs’ “authorized agent” argument fails both on its facts and as a matter of law

Editor’s Note: We’ve reported on this case before. And as a caution, there is report that the case was overturned on appeal but I don’t see it. Either way, the reasoning of the case is extremely persuasive and the only basis for reversal would be on procedural grounds, not substance.

Here is the essence of the pretender lender tactic. Their argument is basically that they have the right to foreclose whether or not they are the real party in interest, whether or not they are the holder in due course and especially whether or not they are the creditor in the “loan” transaction with the homeowner(s).

RULES OF ENGAGEMENT FOR FORECLOSURE DEFENSE LAWYERS: If you engage the “enemy” on their terms you will most likely lose. After all they created a narration that they think they can win. So YOUR strategy should be to change the narrative to YOUR points that can win.

In this case, it was simple. The Judge simply saw that the creditor was not involved in the foreclosure process and that the sale was therefore invalid. Implicitly the Judge was protecting both the real creditor and the homeowner from financial double (or multiple jeopardy).

So the Judge helped out the homeowner here by giving the homeowner the correct narrative. to wit: even if the party seeking to initiate the collection on the note or the foreclosure of the mortgage is an authorized agent (by virtue of possession or holding the note, etc.) the principal MUST BE DISCLOSED. How else can the court or the homeowner or the principal know the matter is subject to disposition through sale or judgment?

In a recent case in Arizona a pro se litigant finally penetrated the fog of Chauncery (see Dickens, BLEAK HOUSE), and the Judge who denied all homeowner motions before the weekend, finally got it and asked the attorney for the pretender lender what was going on (in another case in Ohio the Judge said “what are you trying to pull here?”).

Those cases are now proceeding through discovery (which we all know will never be completed) in which the identity of the creditor and a full accounting of ALL money transacted in connection with the subject loan is fully disclosed.

While there are cases we are tracking in which the homeowner is being bounced on his/her rear end, the tide is turning. The fact that there was federal bailout money and insurance proceeds paid in connection with these loans, is extremely relevant to the amount due and the identity of the current creditor.

This in turn is extremely relevant to the homeowner and the “lender” complying with federal mandate for modifications or state mandate for mediation. If the creditor is unknown how can the court or anyone else know that the “agent” is authorized?

At first the Judge’s knee jerk reaction is “What are you talking about, who else would make payments on this loan.?” But upon hearing the answer that the U.S. Treasury (TARP, TALF etc.), Federal reserve, and counter-parties in credit default swap insurance have made billions of dollars in payments and have not thus far accounted for their use of the money, the Judge may not believe you will succeed in your case but he will agree that you have a right to inquire. And THAT is all you need. because once you make the inquiry, the pretender lender will be on the defensive from that point on, disclosing itself as an impostor and a fabricator.

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