Authority of BKR Courts In Question as to Final Orders and Judgments

In the attached white paper, it is clear that many of the findings and judgments of Bankruptcy judges have dubious standing. Once referred to as Referees, and appointed under entirely different rules, subject to removal without tenure etc.., the elevation of the people serving on the bench to the term “Judge” is what is causing the problem. In the Stern case and further discussion in the white paper it is concluded that BKR judges lack jurisdiction or powers that would “Settle” any factual matter regarding property that is indisputably part of the bankruptcy estate. The paper also questions the authority of magistrates, but leaves us wondering whether the Trustees are exceeding their own authority when they fail to protect creditors and the debtor when there are genuine issues of fact regarding ownership of the loan.

Abandoning an interest in real property on which there is no legal encumbrance might well be an abuse of Trustee discretion, and acceptance of it might be beyond the power of the BKR Judge. But confusion abounds. I have personally seen orders granting lift stay motions that recite that the movant was the owner of the loan without any evidentiary hearing or any basis other than proffer by the movant of dubious affidavits or even without any affidavits.

This timely white paper, should be read in its entirety because it opens up a whole panoply of questions, objections that should be made, and the obvious lateral appeal to the supervising district court judge strictly on procedural grounds.

It appears as though the authors lean in the direction of treating BKR Judges as having many procedural powers of a civil court judge but lacking the power to render a verdict or conclusion on contested facts. This possibility then opens the issue of whether disputed facts should be automatically brought before the lifetime appointed district court judge with the BKR Judge deferring until a ruling is given in the proper court.

Reasonable people may differ, but where there are genuine issues of material fact, it seems to be a denial of due process to skip the hurdle of an adversary hearing is conducted by the district court judge subject to the rules of evidence and procedure and putting the burden of proof where it belongs.

All too often the order lifting stay recites that the movant is the owner of the loan and this in turn is taken by both litigants and state judges as res judicata as though the case had been tried. In fact, this is the case even when the Judge doesn’t recite the “finding” that the movant is the owner of the loan. In either case, the burden of proof of “colorable claim” is so low that it could never measure up to a preponderance of the evidence — which would lead to a verdict that this white paper and the Stern case would seem to indicate is beyond the powers of the BKR judge.

SEE W_SternPaper

Alabama Appeals Court Slams U.S. Bank Down on “Magic” Fabricated Allonge

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NY Trust Law — PSA Violation is FATAL

RE: Congress (yes that is really her name) versus U.S. Bank 2100934

Alabama Court of Civil Appeals

Editor’s Comment:

Yves Smith from Naked Capitalism has it right in the article below and you should not only read it but study it. The following are my comments in addition to the well written analysis on Naked Capitalism.

  1. Alabama is a very conservative state that has consistently disregarded issues regarding the rules of evidence and civil procedure until this decision from the Alabama Court of Civil Appeals was handed down on June 8, 2012. Happy Birthday, Brother! This court has finally recognized (a) that documents are fabricated shortly before hearings and (b) that it matters. They even understand WHY it matters.
  2. Judges talk to teach other both directly and indirectly. Sometimes it almost amounts to ex parte contact because they are actually discussing the merits of certain arguments as it would effect cases that are currently pending in front of them. I know of reports where Judges have stated in open Court in Arizona that they have spoken with other Judges and DECIDED that they are not going to give relief to deadbeat borrowers. So this decision in favor of the borrower, where a fabricated “Allonge” was used only a couple of days before the hearing is indicative that they are starting to change their thinking and that the deadbeats might just be the pretender lenders.
  3. But they missed the fact that an allonge is not an instrument that transfers anything. It is not a bill of sale, assignment or anything else like that. It is and always has been something added to a previously drafted instrument that adds, subtracts or changes terms. See my previous article last week on Allonges, Assignments and Endorsements.
  4. What they DID get is that under New York law, the manager or trustee of a so-called REMIC, SPV or “Trust” cannot do anything contrary to the instrument that appointed the manager or trustee to that position. This is of enormous importance. We have been saying on these pages and in my books that it is not possible for the trustee or manager of the “pool” to accept a loan into the pool if it violates the terms expressly stated in the Pooling and Servicing Agreement. If the cut-off date was three years ago then it can’t be accepted. If the loan is in default already then it cannot be accepted. So not only is this allonge being rejected, but any actual attempt to assign the instrument into the “pool” is also rejected.
  5. What that means is that like any contract there are three basic elements — offer, consideration and acceptance. The offer is clear enough, even if it is from a party who doesn’t own the loan. The consideration is at best muddy because there are no records to show that the REMIC or the parties to the REMIC (investors) ever funded the loan through the REMIC. And the acceptance is absolutely fatal because no investor would agree or did agree to accept loans that were already in default.
  6. The other thing I agree with and would expand is the whole notion of the burden of proof. In this case we are still dealing with a burden of proof on the homeowner instead of the pretender lender. But the door is open now to start talking about the burden of proof. Here, the Court simply stated that the burden of proof imposed by the trial judge should have been by a preponderance (over 50%) of the evidence instead of clear and convincing (somewhere around 80%) of the evidence. So if it is more likely than not that the instrument was fabricated, the document will NOT be accepted into evidence. The next thing to work on is putting the burden of proof on the party seeking affirmative relief — i.e., the one seeking to take the home through foreclosure. If you align the parties properly, all of the other procedural problems disappear. That will leave questions regarding admissible evidence (another time).
  7. Keep in mind that this decision will have rumbling effects throughout Alabama and other states but it is only persuasive, not authoritative. So the fact that this appellate court made this decision does not mean you win in your case in Arizona.
  8. But it can be used to say “Judge, I know how the bench views these defenses and claims. But it is becoming increasingly apparent that the party seeking to foreclose is now and always was a pretender. And further, it is equally apparent that they are submitting fabricated and forged documents. 
  9. ‘More importantly, they are trying to get you to participate in a fraudulent scheme they pursued against the investors who advanced money without any proper documentation. This Alabama Appellate Court understands, now that they have read the Pooling and Servicing Agreement, that it simply is not possible for the investors to be forced into accepting a defaulted loan long after the cut-off date established in the PSA.
  10. ‘If you rule for the pretender creditor here you are doing two things: (1) you are providing these pretenders with the argument that there is a judicial ruling requiring the innocent investors to take the defaulted loan and suffer the losses when they never had any interest in the loan before and (2) you are allowing and encouraging a party who is not a creditor and never was a creditor to submit a credit bid at auction in lieu of cash thus stealing the property from both the homeowner and in violation of their agency or duty to the investors.
  11. ‘This Court and hundreds of others across the country are reading these documents now. And what they are finding is that pension funds and other regulated managed funds were tricked into buying non-existent assets through a bogus mortgage bond. The offer and promise made to these investors, upon whom millions of pensioners depend to make ends meet, was that these were industry standard loans in good standing. None of that was true and it certainly isn’t true now. Yet they want you to rule that you can force investors from another state or country to accept these loans even though they are either worthless or worth substantially less than the amount represented at the time of the transaction where the investment banker took the money from the investor and put it into a giant escrow fund without regard to the REMIC’s existence.

We don’t deny the existence of an obligation, but we do deny that this trickster should be given the proceeds of ill-gotten gains. The actual creditors should be given an opportunity to reject non-conforming loans that are submitted after the cut-off date and are therefore indispensable parties to this transaction.”

Alabama Appeals Court Reverses Decision on Chain of TitleCase, Ruling Hinges on Question of Bogus Allonges

In a unanimous decision, the Alabama Court of Civil Appeals reversed a lower court decision on a foreclosure case, U.S. Bank v. Congress and remanded the case to trial court.

We’d flagged this case as important because to our knowledge, it was the first to argue what we call the New York trust theory, namely, that the election to use New York law in the overwhelming majority of mortgage securitizations meant that the parties to the securitization could operate only as stipulated in the pooling and servicing agreement that created that particular deal. Over 100 years of precedents in New York have produced well settled case law that deems actions outside what the trustee is specifically authorized to do as “void acts” having no legal force. The rigidity of New York trust has serious implications for mortgage securitizations. The PSAs required that the notes (the borrower IOUs) be transferred to the trust in a very specific fashion (endorsed with wet ink signatures through a particular set of parties) before a cut-off date, which typically was no later than 90 days after the trust closing. The problem is, as we’ve described in numerous posts, that there appears to have been massive disregard in the securitization for complying with the contractual requirements that they established and appear to have complied with, at least in the early years of the securitization industry. It’s difficult to know when the breakdown occurred, but it appears that well before 2004-2005, many subprime originators quit bothering with the nerdy task of endorsing notes and completing assignments as the PSAs required; they seemed to take the position they could do that right before foreclosure. Indeed, that’s kosher if the note has not been securitized, but as indicated above, it is a no-go with a New York trust. There is no legal way to remedy the problem after the fact.

The solution in the Congress case appears to have been a practice that has since become troublingly become common: a fabricated allonge. An allonge is an attachment to a note that is so firmly affixed that it can’t travel separately. The fact that a note was submitted to the court in the Congress case and an allonge that fixed all the problems appeared magically, on the eve of trial, looked highly sus. The allonge also contained signatures that looked less than legitimate: they were digitized (remember, signatures as supposed to be wet ink) and some were shrunk to fit signature lines. These issues were raised at trial by Congress’s attorneys, but the fact that the magic allonge appeared the Thursday evening before Memorial Day weekend 2011 when the trial was set for Tuesday morning meant, among other things, that defense counsel was put on the back foot (for instance, how do you find and engage a signature expert on such short notice? Answer, you can’t).

The case was ruled in favor of the US Bank, in a narrow and strained opinion (which was touted as significant by reliable securitization industry booster Paul Jackson). It argued that the case was an ejectment action (the final step to get the borrower out after the foreclosure was final) so that, per securitization expert, Georgetown law professor Adam Levitin,

..the question of ownership of the note was not an issue of standing, but an affirmative defense for which the homeowner had the burden of proof…Crazy or not, however, this meant that the homeowner wasn’t actually challenging the trust’s standing. From there it was a small step for the court to say that the homeowner couldn’t invoke the terms of the PSA because she wasn’t a party to it…..

The case has been remanded back to trial court, and the judges put the issue of the allonge front and center.





The Banks, Rushing To Foreclose So They Can Sit On Vacant Homes

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Editor’s Comment:


These damn judges here in Florida, they really need to wake up, start working harder and grant more foreclosures more quickly.  Hurry up already, and stop whining about budget cuts and staff positions cut, and who cares that the entire state court system is funded by less than one percent of the state budget, and shut up about case loads that have tripled to 3,000 or more cases per judge and frazzled judicial assistant.  Just grant those damn foreclosure judgments….after all, everyone knows the economy cannot recover until these damn slacking judges push through this foreclosure backlog….right?

Oh wait a minute, there’s apparently a bit of a fly in this ointment.  You see, apparently the banks are cancelling foreclosure sales just as quickly as our good judges are able to sign those damn Final Judgments of Foreclosure…yup…apparently, now wait just a dadgummed minute.

You mean to tell me our elected circuit court judges are busy throwing families out into the streets just so the banks can amass ever larger portfolios of vacant and abandoned properties that they are apparently not responsible for taking care of?

Well shut my mouth!  You don’t say?  Really!  No way?  Do you mean to tell me we can’t blame all this on our under-funded judges and this ain’t the fault of those damn ethically-challenged foreclosure defense attorneys what with all their delay tactics and pesky rules and those absurd arguments about THE LAW…blah, blah, blah.

When exactly will this nation wake up and start directing appropriate anger and rage at the real evil that’s hard at work, everyday all across this sleeping nation?

From the Tampa Times:

It’s an oft-repeated pattern.

In the last 12 months, lenders have canceled auctions on 4,204 properties in Pinellas and Hillsborough counties. Sales have been canceled two, three, even nine times on some homes.

In many cases, banks delay seizures to avoid having to pay maintenance bills or homeowner association fees. Meanwhile, neighbors fend off vandals and thieves and worry about property values falling because of the deteriorating houses.

The repeated cancellations burden the court system.

“These never seem to go away,” said Thomas McGrady, chief judge of the Pinellas-Pasco County Circuit. “It’s a nuisance.”


COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

Neil F Garfield, Esq.

Judge Arthur Schack, left, of New York State Supreme Court, called one filing “outrageous.” Jonathan Lippman, the state’s chief judge, says lawyers must ask clients if their paperwork is sound

Ozier Muhammad/The New York Times





Judge Pfau said, “If you can’t get good information, you shouldn’t be filing the cases in the first place.”

[COLLATERAL BENEFIT FROM VIOLATION OF RULE OF LAW — FREE HOUSE] “One case involved Sunny D. Eng, a former manager of computer systems on Wall Street. He and his wife, who has cancer, stopped paying the mortgage on their Holtsville, N.Y., home after Mr. Eng’s Internet services business foundered. The mortgage was originally held by the HTFC Corporation, but the foreclosure notice came from Wells Fargo, a bank that the Engs had no relationship with. They hired an experienced foreclosure defense lawyer on Long Island, Craig Robins. The court ultimately ruled in favor of Mr. Eng.”

“the courts in New York State, along with Florida, have begun requiring that lawyers in foreclosure cases vouch for the accuracy of the documents they present, which prompted a protest from the New York bar. The requirement, which is being considered by courts in other states, could open lawyers to disciplinary actions that could harm or even end careers.”

“When the consequence of a lawyer plying his trade is the loss of someone’s home, and it turns out there are documents being given to the courts that have no basis in reality, the profession gets a very big black eye,” Professor Gillers said.

EDITOR’S COMMENT: Remember your goal is to establish contact with the true creditor. That is the only party WITH WHOM you CAN settle, mediate or modify your documents and obligation. Winning these cases merely means that you knocked out the intermediaries who had no right to enforce the obligation, note or mortgage in the first place.

That still leaves the true creditor. If the creditor chooses not to come forward because they are afraid of counterclaims and defenses for predatory lending and fraud, then the FREE HOUSE is merely a collateral benefit resulting from applying the rule of law.

Your object should NOT be in form or substance the pursuit of a FREE HOUSE. Your object, as the Judge must perceive you in order for you to win, is to CLEAN HOUSE.

Judges Berate Bank Lawyers in Foreclosures


With judges looking ever more critically at home foreclosures, they are reaching beyond the bankers to heap some of their most scorching criticism on the lawyers.

In numerous opinions, judges have accused lawyers of processing shoddy or even fabricated paperwork in foreclosure actions when representing the banks.

Judge Arthur M. Schack of New York State Supreme Court in Brooklyn has taken aim at an upstate lawyer, Steven J. Baum, referring to one filing as “incredible, outrageous, ludicrous and disingenuous.”

But New York judges are also trying to take the lead in fixing the mortgage mess by leaning on the lawyers. In November, a judge ordered Mr. Baum’s firm to pay nearly $20,000 in fines and costs related to papers that he said contained numerous “falsities.” The judge, Scott Fairgrieve of Nassau County District Court, wrote that “swearing to false statements reflects poorly on the profession as a whole.”

More broadly, the courts in New York State, along with Florida, have begun requiring that lawyers in foreclosure cases vouch for the accuracy of the documents they present, which prompted a protest from the New York bar. The requirement, which is being considered by courts in other states, could open lawyers to disciplinary actions that could harm or even end careers.

Stephen Gillers, an expert in legal ethics at New York University, agreed with Judge Fairgrieve that the involvement of lawyers in questionable transactions could damage the overall reputation of the legal profession, “which does not fare well in public opinion” throughout history.

“When the consequence of a lawyer plying his trade is the loss of someone’s home, and it turns out there are documents being given to the courts that have no basis in reality, the profession gets a very big black eye,” Professor Gillers said.

The issue of vouching for documents will undoubtedly meet resistance by lawyers elsewhere as it has in New York.

Anne Reynolds Copps, the chairwoman of the real property law section of the New York State bar, said, “We had a lot of concerns, because it seemed to paint attorneys as being the problem.” Lawyers feared they would be responsible for a bank’s mistakes. “They are relying on a client, or the client’s employees, to provide the information on which they are basing the documents,” she said.

The role of lawyers is under scrutiny in the 23 states where foreclosures must be reviewed by a court. The situation has become especially heated for high-volume firms whose practices mirror the so-called robo-signing of some financial institutions; in these cases, documents were signed without sufficient examination or proper notarization.

In the most publicized example, David J. Stern, a lawyer whose Florida firm has been part of an estimated 20 percent of the foreclosure actions in the state, has been accused of filing sloppy and even fraudulent mortgage paperwork. Major institutions have dropped the firm, which has been the subject of several lawsuits, and 1,200 of the 1,400 people once at the firm are out of work.

The Florida attorney general’s office is conducting a civil investigation of Mr. Stern’s firm and two others.

“There’s been no determination” in a court that Mr. Stern or his employees “did wrong things, said Jeffrey Tew, Mr. Stern’s lawyer, adding that the impact was nevertheless devastating.

“There are groups in society that everybody likes to hate,” Mr. Tew added. “Now foreclosure lawyers are on the list.”

Such concerns have, in recent months, brought a sharp focus on activities in New York State, and in particular on the practice of Mr. Baum, a lawyer in Amherst, outside Buffalo. Judges have cited his firm for what they call slipshod work that, in some cases, was followed by the dismissal of foreclosure actions.

One case involved Sunny D. Eng, a former manager of computer systems on Wall Street. He and his wife, who has cancer, stopped paying the mortgage on their Holtsville, N.Y., home after Mr. Eng’s Internet services business foundered. The mortgage was originally held by the HTFC Corporation, but the foreclosure notice came from Wells Fargo, a bank that the Engs had no relationship with. They hired an experienced foreclosure defense lawyer on Long Island, Craig Robins. The court ultimately ruled in favor of Mr. Eng.

“You want to call it God, you can call it God,” Mr. Eng said. “You want to call it luck, you can call it luck. We just followed the system, and thank God the system worked.”

Through a spokesman, Mr. Baum said, “The foreclosure process in New York State is extremely complex and subject to extensive judicial review. We believe this review respects the due process of anyone who challenges a foreclosure. Consumer activists and attorneys representing homeowners have their own agenda in this process, including degrading the legal work we conduct on behalf of our clients by using terms like ’foreclosure mill,’ which I find personally and professionally insulting.”

He added, “What is important now is that all parties attempt to work together to resolve issues amicably. The barrage of accusations and litigation does little to help the underlying problems.”

Cases across the nation like Mr. Eng’s have led New York’s judicial system to take a hard look at the 80,000 pending foreclosures in the state and demand that the paperwork be sound, said the state’s chief judge, Jonathan Lippman. “Knowing what we know, our only option — at least from my perspective — is to turn to the lawyers who are officers of the court and say, ’You’d better go to your clients and find out if these cases are real,’ ” he said.

The court devised a two-page affirmation to be signed by lawyers in foreclosure actions saying they had reviewed the documents and had “confirmed the factual accuracy” of any allegations with the clients.

Ann Pfau, deputy chief administrative judge for New York State, who has worked directly with the state bar to carry out the plan, said, “We need to know that this is a court process that has some integrity.”

Judge Pfau said, “If you can’t get good information, you shouldn’t be filing the cases in the first place.”

To address some lawyer concerns, the judiciary issued a modified version of the affirmation in November but said that the alterations were minor. In the end, the lawyers are vouching for their filing, Judge Pfau said. “They are absolutely still on the hook.”

While lawyers are being implicated as part of the problem, they should also be part of the solution, said Stephen P. Younger, the president of the New York State Bar Association, which has not taken an overall position on the foreclosure matter. Foreclosure defense lawyers, he noted, have led court proceedings to throw out flawed cases.

“The real problem is that there are thousands and thousands of people who are unrepresented by lawyers,” Mr. Younger said.

Judges Rising to the Rules

Editor’s Comment: Without inventing anything, an increasing number of Judges are coming to the same conclusion. If they apply the rules and deny the pretender lender the benefit of presumptions to which they were not entitled in the first place, the case can be heard on the merits. They don’t need to decide who is right or who is wrong. They need to call balls and strikes.

In this submission from the Judge simply states the obvious — an affidavit from some stranger who says that he looked at some papers and arrived at some conclusions in his or her own mind is not evidence or even a proffer of evidence. It is nonsense. Summary Judgment denied. Motion to lift stay should similarly be denied. Any motion based upon such an affidavit from EITHER side should be denied. AND NOW THEY ARE…..

I SHOULD ADD THAT THE NAME “ICE” ESQ. IS COMING UP MORE FREQUENTLY. I’D LIKE TO SEE MORE FROM THIS LAWYER. He seems to be talking the same tack as Gator Bradshaw in Central Florida (Ocala et al) , Jon Lindemen (S. Fla and Orlando), George Gingo (Northern Florida) and others, to wit: we are out to win these cases not just “mix it up” to justify the fees. Very gratifying to me. 3 years ago, nobody would listen. Now they are taking the ideas developed here, by Max Gardner and April Charney and taking it to the next level. I hope they leave us in the dust.

Full Hearing Transcript attached . Courtesy of T. Ice Esq. Palm Beach Florida

Florida – June 2010 – MSJ denied. Affidavits Hearsay Insufficient

What we are starting to see here is a pattern of Judges not excepting these affidavits from these robo-signers.

I can tell you that, if properly challenged, they will pull the affidavits across the board.

Don,t let that stop you from deposing these people, because once you do it will clearly show that they DO NOT have the authority to produce them. It will also show you they know absolutely nothing about the documents that they are signing even though they state it is of their personal knowledge.

Below is a transcript of how one Judge, in Palm Beach County, DENIED a motion for summary judgment on pending issues, including the insufficient affidavit.

Another key issue was an affidavit presented by the defense from Expert Witness Lynn Szymoniak regarding the fraudulent assignment presented in the case.

Lynn’s expert testimony has stopped many foreclosures in its tracks.

If you are interested in talking to Lynn about her services she can be reached at and just tell her 4closureFraud sent ya…

Some excerpts from the transcript…



THE COURT: Okay. Without going into
anything else, I’m not about to enter a motion –
granting a motion for summary judgement based onan affidavit of Mr. Reardon.
MR. CHANE: Your Honor, there is simply no — there’s no basis to –
THE COURT: I’m sorry. It’s just — it
basically just says he looked at some records. I
don’t know what he looked at and he plugged some
numbers in.
MR. CHANE: Your Honor, it’s based on his
personal knowledge. That’s all he needs to do
according to the Rule.
THE COURT: Well, motion denied.
MR CHANE: On what basis, Judge?
THE COURT: On the basis that the Court
fears that there are many issues of fact to be
determined. This is not a matter in which
everything is undisputed.
MR. CHANE: What issues of fact?
THE DEPUTY: Sir, the Judge ruled. The
hearing is over.



NY Judges Slamming Debt Collectors

Eltman, Eltman & Cooper was one of 35 law firms sued last July by the state, which claimed that they had improperly obtained more than 100,000 judgments in consumer-debt cases. Editor’s notes: The dubious “enforcement” of mortgages, notes and “obligations (that have been paid many times over through credit enhancement) is both mirrored and amplified in the debt collection industry. Servicers are merely debt collectors since they are collecting for a third party. In an investigative report coming soon to these pages you will see that servicers are actually the “real trustee” for the investors, separate and apart from the Special Purpose Vehicle. But that is for later.

For now, before you slide into grief and shame over your financial condition, know this: the people hounding you for money are doing so in most cases illegally and Judges are reversing themselves across the country as they take a closer look at the the procedural tricks routinely employed by those who prey upon consumers with “debt” claims have that long since been extinguished, written off, repackaged into resecuritized asset backed securities, with even more credit swaps on top of the old ones.

In this article from the New York Times, the clarity of the scam is being revealed and unraveled. The ultimate conclusion of this mess will take years if not decades, to move us back to a state of equilibrium. In the meantime, the major piece of advice you will probably get from any consumer law advocate or attorney is this: don’t pay anyone unless you are sure you owe THEM the money. The question is not whether you owe money (i.e., the existence of the obligation), the question is the identity of the creditor and whether the obligation, without your knowledge was already paid in whole or in part by credit default swaps, other credit enhancement techniques, etc.


May 7, 2010

In New York, Some Judges Are Now Skeptical About Debt Collectors’ Claims


As New Yorkers have tumbled into credit card debt in large numbers during the great recession, bill collectors have inundated the courts to get what they say is due. In turn, the courts have issued hundreds of thousands of orders against residents. Some consumer groups argue that by doing so, the courts have become little more than an arm of the debt collection industry.

Now, a few judges in New York State are suggesting that they agree, at least in part, with the consumer groups. They have fumed at debt collectors and their lawyers, scolding them for interest as high as 30 percent a year and berating them for false statements and abusive practices.

Some of the rulings have even been sarcastic or incredulous. In December, a Staten Island judge said debt collectors seemed to think their lawsuits were taking place in a legal Land of Oz, where everyone was supposed to follow anticonsumer rules invented by some unseen debt-collection wizard.

Last month, a Manhattan appeals court threw out a credit card case, saying a debt collection company had sued the wrong person but pursued the case anyway.

“I think these judges are outraged at the status quo, and they’re trying to change it,” said Janet Ray Kalson, a Manhattan lawyer who is the chairwoman of a City Bar Association committee that has studied the deluge of credit card cases.

Debt-buyer businesses purchase debts — along with lists of names and amounts supposedly due — for pennies on the dollar from credit card companies and sometimes have no real evidence about whom they are suing or why. They then file tens of thousands of suits, often with little to back up their claims.

A Nassau County District Court judge said recently, for example, that one of New York City’s high-volume debt collection law firms, which has close ties to a debt-buying company, did not provide “a scintilla of evidence” that there was even a debt in a case against a Long Island woman.

The suit received an unusual amount of attention. The judge, Michael A. Ciaffa, said that it “regrettably, involves a veritable ‘perfect storm’ of mistakes, errors, misdeeds and improper litigation practices.” Judge Ciaffa said the law firm, Eltman, Eltman & Cooper, ignored court orders, made a “demonstrably false” assertion and harassed the woman for payment even after its suit was dismissed.

The case before Judge Ciaffa ended with an order that is far from typical in a credit card suit. The woman who had been sued, Patricia Bohnet, a bookkeeper and single mother, did not have to pay anything. But Eltman, Eltman & Cooper had to pay $14,800 in sanctions for violating ethical rules at least 18 times. Under the judge’s order, $4,800 is to go to Ms. Bohnet and the remainder to a state fund that works to reimburse clients for dishonest conduct by lawyers.

“They don’t care if you’re sick; they don’t care if you’re poor,” Ms. Bohnet said in an interview at her job in Woodmere. “Their only job is to collect money, and they’ll do it in any way possible.”

In response to questions, the law firm said in a written statement that Judge Ciaffa had not had all the facts but that the firm would not appeal. “As with any firm or business that handles this type of volume,” it added, “there exists a potential for errors or omissions in the normal course of business.”

Eltman, Eltman & Cooper was one of 35 law firms sued last July by the state, which claimed that they had improperly obtained more than 100,000 judgments in consumer-debt cases. Separate files in Federal District Court in Brooklyn show that without admitting fault, the Eltman law firm settled a class-action suit in 2006 that claimed it used “false, misleading and deceptive means” to collect debts.

Privately, some judges say they are embarrassed that in many New York courts, debt-collection lawyers have grown so comfortable that they give the impression they are in charge of the proceedings and do not need prove their claims with strong evidence.

In the recent pro-consumer rulings, skepticism of the debt collectors’ claims has been obvious. A Civil Court judge in Brooklyn, Noach Dear, has written decisions that come close to saying that the collection cases are sometimes based on falsehoods.

In a case in August, Judge Dear observed that there was nothing to substantiate a lawyer’s claim that she somehow remembered mailing a document to the credit card holder that was the foundation of the collection suit. The document, Judge Dear noted archly, had been mailed three and a half years earlier.

Behind the legalese of the credit card suits, some judges have suggested, there is often a disorganized jumble of documentation. A Mount Vernon City Court judge noted that one case was based on little more than “a self-serving computer printout.” A Manhattan judge said one company that bought debt claims from credit card companies had filed suit against a cardholder although it did not own that particular debt.

In the Staten Island case, the judge, Philip S. Straniere, said a credit card company was claiming interest of 28 percent on the balance due, which would be illegal as usury under New York law. The company argued that the credit card issued to a New Yorker that seemed to be from a national company had actually been issued by a one-branch bank in Utah, which had no usury law.

“Like the Land of Oz, run by a Wizard who no one has ever seen,” Judge Straniere wrote, “the Land of Credit Cards permits consumers to be bound by agreements they never sign, agreements they may never have received, subject to change without notice and the laws of a state other than those existing where they reside.”

The judge ruled that the supposed agreement allowing unlimited interest charges was not enforceable in New York.

Industry officials said that tales of abusive collection cases were misleading. “There are certainly colorful stories,” said Joann Needleman, an officer of the National Association of Retail Collection Attorneys. “People think that handful is the rule, not the exception, but it’s not.”

But Ms. Bohnet, the Long Island woman who was sued by a New York law firm, said just one case could be harrowing. When she received a call last year at the charity where she keeps the books for $39,000 a year, the voice on the other end told her the debt collectors had a five-year-old court judgment against her for a $4,861 debt. She had to pay, or they would start taking money out of her salary, she said she was told.

The address of the debt-collection firm and its lawyers at Eltman, Eltman & Cooper seemed to be the same, she noticed.

Ms. Bohnet did not know she had ever been sued. She started to cry, she said, worried that with a chunk of money taken every month, she might lose the modest apartment she needed to share custody of her teenage daughter.

“I was in all-out fear,” she said, adding, “After I got off the phone, I realized I didn’t even know what the debt was for.” She might have had an old credit card debt, but she had had some years of problems with alcohol and drugs and tangled financial problems. In recovery, she said, she had worked to clean up her financial affairs.

The next time the collectors called, she said, she told them that she was willing to pay if she owed any money but that she needed to see some proof that they had the right person. Then, without a lawyer, she went to the court, in Hempstead, to check into the order the debt collectors said they had against her.

After some digging, she found the case. The debt-buyer’s lawyers had filed a sworn statement that they said was proof she had been given notice of the suit. A process server for Eltman, Eltman & Cooper claimed she had been given a copy of the suit personally on July 30, 2004.

Judge Ciaffa doubted that. Ms. Bohnet, he wrote, “hadn’t lived at that address since 1998.”


We have attempted to provide assistance here to attorneys and to people without attorneys. A good friend and colleague submitted the following piece which is well worth reading.

In reading through the many mortgage “horror stories” which I have seen both on your blog and elsewhere, it is understandable that homeowners who are being sued for foreclosure are frustrated with the system and that many have  decided, through their own reading and possibly because of financial issues, to defend their case themselves and proceed to court without an attorney. Doing so not may not only hamper a homeowner’s efforts to defend the foreclosure, but may make the matter worse and actually wind up accelerating the foreclosure process.
An increasing popular perception among homeowners who “surf the net” is that (a) I can look up defenses to the foreclosure on the web and learn them, and (b) I can do this myself without an attorney and do just as good a job as if I paid an attorney to defend me. Both assumptions are deplorably incorrect.
The area of law in mortgage foreclosure defense is evolving at a rapid and unprecedented rate. Never in the history of the United States have so many foreclosure cases been filed in such a short period of time. The Judges of the Courts, who are for the most part already overworked, now have caseloads which well exceed any capacity which anyone could have imagined and, as to foreclosure cases (which were historically disposed of on a 5-minute “motion” hearing with little or no opposition from the homeowner), each case now has the potential for going all the way to trial. Further, not every Judge is an expert in any one area of the law, and most do not have the additional time to learn or keep up with a rapidly evolving area of the law such as mortgage foreclosure defense. Most mortgage foreclosure cases are “blind assigned” by the Clerk of the Court, meaning that the homeowner’s case could be assigned to a Judge with little or no knowledge of current mortgage foreclosure defense law. Strike one.
Lawyers attend three years of intensive schooling just to learn “legalese” and prepare for the Bar Exam. Real “lawyering” comes years later after an attorney has practiced his or her craft for literally hundreds of thousands of hours. Litigation, which is that area of the law involving court battles, is a specialty in itself. Professional litigators have years of training and experience in not only learning the actual law itself, but applying it in the proper manner in court papers and argument through the proper procedure and properly before the Judge. As Judges recognize a litigator, the case can proceed much more smoothly and properly on the law (including the establishment of defenses) when a litigator is involved. Judges usually have little or no time or patience with non-lawyers who try to argue their own cases. Strike two.
  • As such, when a homeowner attempts to proceed in court without an attorney in defending a claim in a rapidly expanding area of the law, it is akin to going into battle against the Special Forces with a Boy Scout knife. The chances of a homeowner taking on the bank’s attorney and the Judge in their own backyard with no attorney can be likened to going into the Super Bowl with Donald Duck as the quarterback for your team. No insults are intended here as to homeowners; the homeowner just has to realize what is in store for them. The lender’s attorney is going to know that the homeowner does not know what is going on, so things may happen that probably would not happen if the homeowner had an attorney. Strike three, you’re out (of your house).
I would thus caution homeowners not to be “penny wise but pound foolish” when it comes to their foreclosure case. This is your home we are talking about here, and the defense of it is better left to the professionals. In sum, here is a piece of free legal advice to homeowners who want to defend their foreclosure case: “Don’t try this at home!”
Jeff Barnes, Esq.

Can You Contest Your Foreclosure?

"This is not about mismanagement of a hedge fund. 
It is about premeditated lies to investors and lenders"

       - Mark Mershon, head of New York FBI office, 
after the arrests of two former Bear Stearns managers 
on conspiracy and fraud charges.

Picked these up from

The first point that the lender might not have standing is correct.

The second point that the reason is that the person does not have a valid assignement is also correct but only half the story.

  1. The other half of the story is that if your original lender is the Plaintiff in your foreclosure action or is otherwise taking the position that property can be sold (e.g. in Arizona where civil procedure more or less works in reverse) the same argument can be made.
  2. Unless the lender shows that they are STILL the owner, they have no standing.
  3. AND more likely than not, they are NOT the owner because most loans were sold into pools that were in turn sold to investment bankers who in turn bundled them and sold deriviative securities (Collateralized mortgage obligations).
  • COMES NOW the borrower and moves this court to dismiss the instant cause of action (or in other stages, to enjoin the sale of the subject property) on the grounds that the Court lacks subject Matter and in personnam jursidiction, to wit: the alleged lender is not the owner of the mortgage note and security agreement, has not alleged or attached documetnation supporting said fact and thus lacks standing to pursue foreclosure or sale of the subject property.
  • Then you sign your name and send a copy of your motion to the lawyer on the other side, the original to the clerk of the court, and a copy to the Judge assigned to the case. Call the Judge and ask for a hearing date.
  • Make sure at the end of your pleading you say” I HEREBY CERTIFY that a true and correct copy of the foregoing Motion to Dismiss was sent to (fill in name of lawyer) at (fill in his/her address) this ___ day of (Fill in Month, 2008. And then sign it again.
  • Although probably unnecessary it might be wise to get your signature notarized.
  • I guess at this point I’m supposed to say consult with an attorney in your area for local rules, procedures and laws. There, I said it.

Can You Contest Your Foreclosure?

There is a recent trend, fueled by the unscrupulous practices of lenders, in which homeowners are contesting their foreclosures. How and why is this done?

In many cases the party who wrote your loan is no longer the party who is now alleging ownership. This fact provides the first method for contesting a loan in foreclosure. Simply put, homeowners are forcing the lender to provide proof that they actually own the loan. Since many loans are sold in mortgage “pools” “there is a tendency of many lenders to sell these pools without following formal legal requirements required for the sale of a mortgage and note. Basically, there must be executed by the lender selling the loan an “assignment” which indicates that ownership is being transferred. When they sell pools of hundreds or even larger pools of mortgages in the normal course of business, many sales forego this necessary legal step. In doing so, lenders who acquire the loans really don’t have what’s known as “legal standing” to bring the action for foreclosure in the first instance. As such, many courts are dismissing foreclosure actions after homeowners have hired sharp attorneys who are making the argument that without providing the court with a signed assignment the party suing has no standing. In the case of lenders who are selling these mortgage pools and then going defunct, it makes it virtually impossible for the party who bought your loan to acquire the necessary signed assignment after the fact. That means that there is no party who can actually foreclosure on your home. This has resulted in a windfall for many homeowners, whose debt is essentially reduced to nothing. Many Judges are in fact dismissing foreclosure actions when there is no valid assignment.

Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish
By Bob Ivry

Feb. 22 (Bloomberg) — Joe Lents hasn’t made a payment on his $1.5 million mortgage since 2002.

That’s when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents’s mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.

“If you’re going to take my house away from me, you better own the note,” said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.

Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven’t been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.

“I think it’s going to become pretty hairy,” said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. “Regulators appear to have ignored this, given the size and scope of the problem.”

More than $2.1 trillion, or 19 percent, of outstanding mortgages have been bundled into securities by private banks, according to Inside Mortgage Finance, a Bethesda, Maryland-based industry newsletter. Those loans may be sold several times before they land in a security. Mortgage servicers, who collect monthly payments and distribute them to securities investors, can buy and sell the home loans many times.

Housing Boom

Each time the mortgages change hands, the sellers are required to sign over the mortgage notes to the buyers. In the rush to originate more loans during the U.S. mortgage boom, from 2003 to 2006, that assignment of ownership wasn’t always properly completed, saidAlan White, assistant professor at Valparaiso University School of Law in Valparaiso, Indiana.

“Loans were mass produced and short cuts were taken,” White said. “A lot of the paperwork is done in the name of the original lender and a lot of the original lenders aren’t around anymore.”

More than 100 mortgage companies stopped making loans, closed or were sold last year, according to Bloomberg data.

The foreclosure rate, at 1.69 percent of all U.S. homeowners, is the highest since theMortgage Bankers Association began tracking it in 1993. The foreclosure rate for subprime borrowers, who have bad or incomplete credit and whose mortgages typically are securitized by private banks rather than government-sponsored entities Fannie Mae and Freddie Mac, is at a four-year high, according to the mortgage bankers.

750,000 Homeowners

More than 1.5 million homeowners will enter the foreclosure process this year, said Rick Sharga, executive vice president for marketing at RealtyTrac Inc., the Irvine, California-based seller of foreclosure information. About half of them, 750,000, will have their homes repossessed, Sharga said.

Borrower advocates, including Ohio Attorney General Marc Dann, have seized upon the issue of missing mortgage notes as a way to stem foreclosures.

“The best thing to do is to keep people in their homes and for everybody to take steps necessary to make that happen,” said Chris Geidner, an attorney in Dann’s office. “These trusts are purchasing these notes, and before they even get the paperwork, they foreclose on people. They become foreclosure machines.”

Lost-Note Affidavits

When the mortgage servicers and securitizing banks that act as trustees of the securities fail to present proof that they own a mortgage, they sometimes file what’s called a lost-note affidavit, said April Charney, a lawyer at Jacksonville Area Legal Aid in Florida.

Nobody knows how widespread the use of lost-note affidavits are, Charney said. She’s had foreclosure proceedings for 300 clients dismissed or postponed in the past year, with about 80 percent of them involving lost-note affidavits, she said.

“They raise the issue of whether the trusts own the loans at all,” Charney said. “Lost-note affidavits are pattern and practice in the industry. They are not exceptions. They are the rule.”

State laws generally make it difficult to foreclose because they favor the homeowner, saidStuart Saft, a real estate lawyer and partner at the New York firm Dewey & LeBoeuf LLP.

“All these loan documents are being sent to the inside of a mountain in the middle of America and not being checked very carefully,” Saft said. “The lenders can’t find the paper. We’re dealing with a lot of paper produced in a mortgage closing.”

`Waste of Time’

Requiring banks to produce the paperwork at a foreclosure hearing is a nuisance, saidJeffrey Naimon, a partner in the Washington office of Buckley Kolar LLP.

“It’s a gigantic waste of time,” Naimon said. “The mortgage may have transferred five, six, eight times. It’s possible that you don’t have all the pieces of paper, but it was enough to convince the next guy in the chain. There’s no true controversy over whether the owner owns the loan.”

Judges are becoming increasingly impatient with plaintiffs who produce no more proof of ownership than a lost-note affidavit or a copy of the note, said Michael Doan, an attorney atDoan Law Firm LLP in Carlsbad, California.

“Things are heating up,” Doan said.

In Ohio, where RealtyTrac reported an 88 percent jump in foreclosures last year, Dann, the attorney general, is now arguing 40 foreclosure cases that challenge ownership of mortgage notes, according to his office.

`Cavalier Approach’

U.S. District Judge David D. Dowd Jr. in Ohio’s northern district chastised Deutsche Bank National Trust Co. and Argent Mortgage Securities Inc. in October for what he called their “cavalier approach” and “take my word for it” attitude toward proving ownership of the mortgage note in a foreclosure case.

John Gallagher, a spokesman for Frankfurt-based Deutsche Bank AG, said the bank had no comment.

Federal District Judge Christopher Boyko dismissed 14 foreclosure cases in Cleveland in November due to the inability of the trustee and the servicer to prove ownership of the mortgages.

Similar cases were dismissed during the past year by judges in California, Massachusetts, Kansas and New York.

“Judges are human beings,” said Kenneth M. Lapine, a partner at the Cleveland law firmRoetzel & Andress LPA. “They no doubt feel the little guy needs all the help he can get against the impersonal, out of town, mega-investment banking company.”

Warning Plaintiffs

U.S. Bankruptcy Judge Samuel L. Bufford in Los Angeles issued a notice last month warning plaintiffs in foreclosure cases to bring the mortgage notes to court and not submit copies.

“This requirement will apply because developments in the secondary market for mortgages and other security interests cause the court to lack confidence that presenting a copy of a promissory note is sufficient to show that movant has a right to enforce the note or that it qualifies as a real party in interest,” the notice said.

Quick foreclosures benefit communities because properties in default lose value and homeowners in financial distress don’t maintain their houses or pay real estate taxes, said Saft of Dewey & Leboeuf.

Painted as the Enemy

“When banks originally made the loans they used people’s money from pension funds and savings accounts and they should be allowed to foreclose the loan as quickly as possible before the property depreciates in value any more,” Saft said. “The mortgage industry has been painted as the enemy when all they did was make loans to enable people to buy homes. Now there’s less money available for new borrowers to buy homes and that’s what’s causing the value of homes to go down.”

Lents is former CEO of Investco Inc., a Boca Raton, Florida-based developer of voice recognition software. In 2002, the U.S. Securities and Exchange Commission sanctionedLents and others for stock manipulation, according to the SEC Web site. He lost his job, was fined and his assets were frozen. That’s the reason he couldn’t pay his mortgage, he said.

“If the homeowner doesn’t object to the lost-note affidavit, the judge rubber-stamps it,” Lents said. “Is it oversight, or are they trying to get around the law?”

Washington Mutual spokeswoman Geri Ann Baptista said the bank had no comment.

Looking for Loopholes

“I can’t believe the handling of notes is worse than it was five years ago,” said Guy Cecala, publisher of Inside Mortgage Finance. “What we didn’t have back then were armies of attorneys out there looking for loopholes. People are challenging foreclosures and courts are paying a lot more attention to foreclosures than they ever did before.”

American Home Mortgage Investment Corp., the Melville, New York-based lender that filed for bankruptcy last August, said it was paying $45,000 a month to store loan paperwork and petitioned U.S. Bankruptcy Judge Christopher Sontchi in Wilmington, Delaware, for the right to toss it all. Sontchi ruled last week that American Home Mortgage could charge banks from $3 to $13 a file to retrieve documents.

The home-loan industry has had a central electronic database since 1997 to track mortgages as they are bought and sold. It’s run by Mortgage Electronic Registration System, or MERS, a subsidiary of Vienna, Virginia-based MERSCORP Inc., which is owned by mortgage companies.

No Tracking Mechanism

MERS has 3,246 member companies and about half of outstanding mortgages are registered with the company, including loans purchased by government-sponsored entities Fannie Mae, Freddie Mac and Ginnie Mae, said R.K. Arnold, the company’s CEO.

For about half of U.S. mortgages, there is no tracking mechanism.

MERS rules don’t allow members to submit lost-note affidavits in place of mortgage notes, Arnold said.

“A lot of companies say the note is lost when it’s highly unlikely the note is lost,” Arnold said. “Saying a note is lost when it’s not really lost is wrong.”

Lents’s attorney, Jane Raskin of Raskin & Raskin in Miami, said she has no idea who owns Lents’s mortgage note.

“Something is wrong if you start from what I think is the reasonable assumption that these banks are not losing all of these notes,” Raskin said. “As an officer of the court, I find it troubling that they’ve been going in and saying we lost the note, and because nobody is challenging it, the foreclosures are pushed through the system.”

To contact the reporter on this story: Bob Ivry in New York at

Last Updated: February 22, 2008 00:03 EST

Mortgage Meltdown: Don’t wait for the Cavalry

It isn’t coming. Practicality is being trumped by ideology and politics. Help will not arrive in time to help you. You must help yourself. Whether you have a lawyer to help or not, you need to aggressively defend, refuse to cooperate and demand judicial fairness. If you all pile into the court system, the court system will not have the personnel or infrastructure to accommodate you. You force the hand of the judges, clerks and other members of the judicial system to come up with procedures that give you your day in court. You are entitled to be heard in a court of law and they cannot and will not take that away from you. 

It doesn’t matter whether you have a sub-prime mortgage, a standard mortgage, purchased a new home or purchased an existing home. Prices, terms and mortgages were unfairly and fraudulently inflated.  

Even if the nay-sayers were right that it was your own fault for not being educated enough, not being sophisticated enough, being too trustful, and that you should have known better, you will be doing a disservice to yourself, your family, your neighborhood, state and your country by rolling over and letting them take your house. 

The simple fact is that more than 20 million homeowners are going to be subject to severe consequences as a result of the stagflation, recession and depression that is already underway. That means more than 60 million people are going to be negatively impacted by an economy that was torpedoed by industries that were supposed to be properly regulated and were not. 

Write a letter, file a motion and go down to the courthouse and ask the clerk for any file that has a contested foreclosure in it. Copy the motions, copy the discovery requests, and add to them as you see fit. Get copies of discovery from other case files. get friendly with the clerks and enlist their aid.

Find out the rules about serving discovery requests and motions and follow them. When the lender stonewalls the discovery, file Motions to Compel and motions for Contempt.  Make this your second job if you have another one. 

In discovery make sure you get copies of all internal emails, documents, and presentations made to third parties who were prospectively going to purchase or re-market the risk element of the loan. 

Get a hold of the business plan outlined internally on how this plan would work. Find references or emails to appraisers, mortgage brokers, real estate brokers, developers, etc. and include them in your suit if you can. 

Have someone competent audit your mortgage to see if there are differences between disclosures and the actual amounts they charged you. There are usually differences that will put the lender on the defensive. 

Find out the names and contact information of those who were decision-makers (file interrogatories asking for this information) and get every document they have and take their deposition to see what they knew about your deal and others like your deal. Ask them what their instructions were on approving loans. Ask them if they had any personal doubts about the rapidly rising prices of housing. 

File a counterclaim for fraud. Google it up and you’ll find many examples. File a counterclaim for rescission. File a claim for breach of fiduciary duty (lenders have that duty to borrowers). Make it expensive and embarrassing for the lender to foreclose. It is never too late. File an appeal if you can. 

File an emergency petition in Federal Court alleging denial of due process, violation of your civil rights through improper application of state action. Foreclosure may be an appropriate remedy in normal circumstances but not where you were knowingly and intentionally tricked into a deal where you reasonably relied upon the misrepresentations of a group of conspirators giving you the misleading impression, upon which you relied, that the property was worth what you were paying for it and that the mortgage had been reviewed by experts who concluded that your financial circumstances were such that you could pay for it. 

You tried and failed because of factors well-known to the lenders who were selling off the risk to unsuspecting investors and therefore did not care whether you defaulted or not. 

The lenders were motivated strictly by greed without any sense of or actual accountability. They enlisted the tacit and overt agreements in conspiracy with appraisers, mortgage brokers, developers, closing agents and others who all contributed their part in misleading you into a deal that was false, misleading, damaging to your finances, damaging to your health, and damaging to your financial reputation, FICO score etc. 

Their behavior fulfills the requirements of racketeering, fraud, and crimes against local, state and federal government. You are entitled to damages and you are entitled to equitable relief. You not only lost everything you put into that house at closing, you lost the value of the improvements, furnishings, landscaping and appliances you added after closing. 

You are entitled to the benefit of the bargain, to wit: you were promised a house that you could afford and that was worth what you paid for it. The proper remedy is NOT for you to move out and the lender to take over the investment. The proper remedy is for the lender to adjust the mortgage, pay you damages and give you the payment schedule that you could afford. 

Go to your local property appraiser’s office and file forms to get your house deceased in appraised value. It will reduce your taxes and serve as proof of the true value of your house. Fight for the lowest level you can get. Use auction values in your neighborhood and short sales.  

If you want to settle the claim with the lender, get help. But here are some talking points for you. There are others, but this will get you started.

1. Reduction of mortgage note to 80% of current fair market value. Use an arbitrary formula we have come up with in the GTC|Honors program: Take the original purchase price and reduce it 25%.

2. Adjustment of payment to Fed Funds rate plus 1% fixed 30 year amortization

3. Allow lender to participate in increased fair market value at the time of refinance or sale to recover the downward adjustment of the principal on the mortgage note. I would suggest that they get 25% of the increase in value starting with the date of your settlement and ending with 30 days prior to the refinance or sale. If the value increases to an amount higher than the original purchase price, then let the lender participate at a rate of 75% of the increase over the original purchase price up to the amount of the adjustment they agreed to in the settlement without interest accruing on the adjustment. 

4. Get a moratorium on payments for 3-6 months so you can get on your feet again. But you’ll still have to pay for taxes and insurance. 

5. Delete the PMI provision if you have one and if you want to. Don’t delete it if you can afford it.

6. Insert a 60 day grace period for payments under the new plan.

7. Both parties agree to general release of all other claims.

8. No additional financial disclosure required. This is not anew loan. This is the loan you should have received when they first agreed to give you financing. 

9. If you can’t stay in the house because of inability to make even minimum payments, get some payment for damages.

10. In all cases get a letter from the lender that says you are are not and never were in default that you can send into the credit reporting agencies. 

And make sure you keep track of your attorney fees, costs and expenses and get a payment for that from the lender even if you compromise and add it to the back end of the mortgage (tacked on without interest accruing).

Bankruptcy IS an option but it should be avoided if possible. A lot of the rules are stacked against you now after the recent changes. But in bankruptcy you can file an adversary proceeding that will bring up the same issues and you could get favorable treatment. bankruptcy judges are usually quite sophisticated and very sympathetic to those seeking relief. Litigation in federal Court is more complex than state court litigation. Make sure you get help.


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