9th Circuit Inches Toward Decision of “America’s Wholesale Lender”

The issue is jurisdiction. Lawyers filed papers for AWL but AWL was dissolved as a corporation. The lawyers countered with the allegation, on appeal, that AWL was a fictitious name for Countrywide without specifying the location of CW. Hence no diversity of jurisdiction could be supported by the allegations in the notice for removal.

The claim of diversity was not supported by either facts or allegations establishing diversity. This is the common practice of foreclosure mills and their defenders. They simply make a claim and leave it as “implied” that the grounds exist. Attack that, and you can win.

So the issue before the 9th Circuit was whether the Federal District Court had jurisdiction to enter a dismissal of the claims for wrongful foreclosure. That in turn depended upon whether the case had been properly removed from state court by AWL. If it hadn’t been properly removed then the District Judge had no jurisdiction to enter any order other than the ministerial act of remand to the state court.

The 9th Circuit Court of Appeals approached the subject gingerly. Since AWL didn’t exist and there was no viable supporting allegation that it was the fictitious name of Countrywide the answer was obvious. AWL could not remove because it didn’t exist.

The hidden story is (a) the number of times AWL was named by lawyers as the foreclosing party with no reference to CW or anyone else claiming to use AWL as a fictitious name and (b) the number  of entities claiming that AWL was a fictitious name for them.

The real question is why should lawyers enjoy immunity from litigation under “litigation Privilege” when they file not for an actual legal entity  but for a group of vendors who all stand to benefit from the foreclosure? If there is no client why should lawyers be immunized?

see Martinez v AWL Remand

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Using TILA Rescission as Jurisdictional Issue

I think TILA Rescission should be approached as a jurisdictional issue since it focuses on the procedural aspects of the TILA Rescission statute. In other words it should always be front and center.

I think a problem with TILA Rescission is that not even borrowers understand that the rescission issue is over. By asking a court to  make rescission effective you underline the correct premise that rescission has already occurred. All your pleadings after that should be based upon that premise or you undermine yourself.

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The plain wording of the statute says that rescission is effective, as a matter of law, when delivered (or sent via USPS). SCOTUS says no lawsuit is required to make rescission effective. The fact that the banks treat it as ineffective is something they do at their own peril. The statute explicitly says otherwise along with REG Z procedures based on the statute 15 USC §1635 and the Jesinoski decision.
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Under the statute and Reg Z the loan contract is eliminated and replaced with a new relationship under the statute — a set of procedures creating a statutory claim for the debt. It follows that ONLY a party who is an actual creditor or owner of the debt can even appear much less claim or defend anything about rescission. If they claim standing from the loan contract, they have no standing.
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Hence if the formers holders of the now nonexistent note and mortgage are also creditors they have no problem. They can plead anything they want, including defenses to or motions (or lawsuits) to vacate TILA Rescission. 
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BUT usually the former holders of the loan contract (note and mortgage) were using the loan CONTRACT as the sole basis of their standing — desiring to raise legal presumptions from the existence of those contracts (note and mortgage).
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What happens next is incontrovertible by logic or legal reasoning. Although they might be named parties to an action pending in court such ex-holders have lost their standing in that court action or they never had it to begin with. By operation of law the note and mortgage from which all their claims derive do not exist. That is a jurisdictional issue and it MUST be decided against the banks — by operation of law. Failure to present this has resulted in a number of escape hatches for judges who don’t like TILA Rescission. Your job is to close those hatches.
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The whole point of the rescission strategy is to remove any possibility of an arguable claim for standing to foreclose on the now nonexistent mortgage or deed of trust. Unless the claim for standing is based upon ownership of the debt subject matter jurisdiction is absent.
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This means that no claim or defense against the effectiveness of the rescission can be raised by anyone other than the owner of the debt.  
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This also means that there can be no foreclosure because the loan contract has been replaced by a statutory “contract.”
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Borrowers undermine this premise by filing lawsuits asking the court to declare that the rescission is effective. The TILA Rescission statute 15 USC §1635 has already answered that and THAT is what should be pled. SCOTUS has also already answered that in the Jesinoski case. Asking the court to declare it so means that you take the position that the statute has not already answered that question, that SCOTUS has not already ruled and that therefore it is now up to the trial court to make a ruling.
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You are opening the door for argument when there is no such argument intended by the statute or the US Supreme Court. Upon being invited to do so a judge who doesn’t like the statute will come with reasons not to declare the rescission effective — usually based upon objections from parties who could not possibly have standing to raise such objections.
*
If that is true (and it is true by definition in our legal system once the highest court has ruled) then a party seeking relief from rescission would need to allege that they are the owners of the debt and then  prove it without reference to the note or mortgage. In other words they would need to prove they funded the debt or they purchased it with actual money.
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We all know that the fake securitization scheme was entirely dependent upon illegally funding the origination and purchase of the loans in the fictitious name of the trust for the account of the underwriter and that the investors were cut off contractually from having any right, title, interest or even opportunity to review or audit the portfolio of loans claimed to be in a fictitious pool that was being managed by a trust that did not exist, which in turn was managed by a trustee that had no powers of administration for the benefit of nonexistent beneficiaries.
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Hence the problem of the banks is clearly that they can’t prove funding or purchase because doing so would expose their illegal activities. Whether this would actually lead to a free house is debatable, depending upon the exercise of equitable jurisdiction in the courts.
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What is clear is that the banks were told by their own lawyers not to ignore rescission or they would lose everything. They ignored it anyway believing they could steamroll through the courts, which was in fact an accurate measurement of their own power.
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BUT as the banks persist along this strategy they continually build the inventory of homes that by operation of law are still owned by the borrowers, all other actions being void ab initio, not voidable by any stretch of the imagination.
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AND the banks are by their own actions and inaction causing the debt to slip away from them as well. Under TILA Rescission the old loan contract is replaced with a new statutory contract. Actions for enforcement under that contract must be based on violation of TILA. TILA has a statute of limitations. Thus claims beyond the statute of limitations are barred. And THAT means that claims for the debt are barred after the statute of limitations (on claims arising from TILA) has run — as result of plain arrogance of the banks — and no fault of any borrower.

Lateral Appeal in BKR to District Judge Often Overlooked

The PHH case underscores the statistics and the substance of actions brought in U.S> Bankruptcy Court. The fact is that BKR judges, once called magistrates, do not have the jurisdiction or power of ordinary District Court Judges.

In addition out of the three possible venues for appeal from BKR rulings and decisions, the one that gets the most traction the most often is directly to the sitting District Court judge in whose courthouse the BKR proceedings are pending. District judges are the most likely to find that the BKR “judge” lacked jurisdiction or power to even hear many matters.

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Hat tip to Dan Edstrom

see PHH v Sensenich US Dist Lexis 207801

There are three possible routes for appeal. The one that gets the best results is rarely used for unknown reasons. So here are some pointers on bringing an appeal from a ruling or decision entered by a BKR judge:

  1. Lateral appeal to District Court Judge: Success rate around 50%
  2. Bankruptcy Appellate Panel (BAP): Success rate around 15%
  3. Direct appeal to the Circuit Court of Appeals: Success rate less than 15%.

This anomaly was first pointed out by a Bankruptcy Court Judge in Arizona who as presenting at a CLE Bar Seminar for Bankruptcy lawyers. The seminar was in 2009 and still we are waiting for BKR practitioners to pick up the ball.

An apparently little known fact is that BKR courts are courts of limited jurisdiction as to what they can hear and how they can hear the issues. Many practitioners avoid an appeal from BKR to the Federal District Court Judge because they think that the District judge is on the same level as the BKR judge. And they think that two judges on the same bench are not going to rule against each other.

This view is simply wrong. They are not on the same bench. District Judges have authority over everything that happens in BKR court. BKR court is itself broken up into two categories. One category is simple rulings on motions in the administrative court proceeding (which is why the BKR “Judges” were called magistrates).

Most of what happens in the administrative phase of a bankruptcy is ministerial. Rulings that cross the line of ruling from ministerial to substantive judgments on the law regarding consumer rights, foreclosures etc. are subject to challenge and are as likely to get overturned by the District Judge as not. This is the part most people have some familiarity.

The other category is Adversary actions. This means someone has filed a lawsuit in Bankruptcy Court that is separately served and subject to the same rules of procedure as an action filed in U.S. District Court. But the similarity ends there. Many adversary actions go far beyond the jurisdiction of the BKR judge.

Lack of jurisdiction means the judgment or ruling is void. Those void judgments are generally reversed by the District Court judge and not necessarily by the BAP or Circuit Court probably because nobody brings up the issue of whether the BKR action was in the correct court.

Generally speaking there are two categories of appeal: procedural and substantive. Appeals citing errors in procedure (including jurisdiction) generally get the most traction. Appeals citing substantive law or worse, citing errors in apprehending the evidence, have the lowest success rate.

In the case cited above, Federal District Court Judge Geoffrey Crawford reversed a bankruptcy judge’s ruling that had imposed sanctions against a creditor “based on Rule 3002.1(i) of the Rules of Bankruptcy Procedure, the bankruptcy court’s inherent authority, and Bankruptcy Code section 105.”

The sanctions were awarded in three cases where debtors had to make mortgage payments pursuant to chapter 13 plans.  The mortgage servicer had billed the debtors for fees that the bankruptcy trustee asserted were improper. At a trustee’s request, the bankruptcy court imposed sanctions against the servicer of $375,000: $25,000 for each case under Rule 3002.(i) and $300,000 total for violations of court orders under its inherent powers and section 105.

Rule 3002.1 permits bankruptcy courts to provide relief to debtors when mortgage creditors fail to disclose certain fees and charges. Rule 3002.1(i) allows courts to remedy violations of certain provisions of Rule 3002.1 by (among other things) “award[ing] other appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.” Whether Rule 3002.1 authorizes punitive sanctions was a matter of first impression. Neither the parties nor the court had found a case where a bankruptcy court had invoked the rule to support sanctions in this manner.

Judge Crawford reasoned that, because Rule 3002.1 is a procedural rule, it cannot enlarge the substantive authority of the bankruptcy courts. If bankruptcy courts do not have the substantive authority under statute and case law to issue punitive sanctions, then a mere procedural rule cannot alter the lack of substantive authority. The court thus concluded that the question under Rule 3002.1(i) was reducible to the question under a bankruptcy court’s inherent powers and section 105.

For homeowners this ruling helps. Citing it puts the banks in the position of opposing a ruling that went in their favor, i.e., this PHH case.  This also puts the homeowner on notice to check carefully before filing an adversary action instead of a collateral action that is directly before the District Judge or even State Court.

The problem is that most BKR attorneys who mostly do Chapter 7 and Chapter 13, have little or no litigation experience. Thus it may be necessary to NOT  charge your BKR lawyer with there responsibility of filing an adversary or collateral action and to bring in separate trial counsel even if the decision is made to file an adversary complaint.

 

 

 

Colorado County Court Judge Gets It

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

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see Ruling on Motion RE Hearing December 4, 2015

Hat Tip Eric Mains

I have already commented on this case but there are issues that are becoming more clear as to jurisdiction and so a review of this case is warranted, where the Judge correctly declined to rule until a court of competent jurisdiction ruled on the issue of ownership. In so doing the court refused to grant the eviction order even though the sale had taken place and a deed was issued.

The Judge realized that as a county court judge he lacked jurisdiction to even hear the issue of whether the foreclosure sale was void. Hence he deferred any action on granting eviction until the issues of ownership were resolved. Why? Because eviction can only be granted to the owner of a the property. In this case there was a rescission in the mix. Hence any action after the rescission was mailed was void if it involved enforcing the alleged loan contract, note or mortgage.

As far as I know, there is no law or judicial doctrine that says that if the statutory or common law prohibits you from doing something, and then you do it anyway, that suddenly it becomes lawful because you did it anyway. Breaking the law would thus be changing the law.

The sub-point here that has reared its head and which virtually nobody is paying any attention is in the bankruptcy courts. People think of BKR judges as Federal Judges. Not so fast. They once were called magistrates and still rule subject to an appeal to the Federal District Judge.

It is doubtful, to say the least, that any bankruptcy action, whether 7, 11 or 13, can be continued where the home is a significant part of the estate if the there is a question of ownership, authority or balance raised by the Petitioner. Trustees, Judges and lawyers on all sides are missing the point here. The current trend of ignoring the defenses of the borrower are probably going to lead to a line of decisions that over-rules that practice. But more than anything, the question is whether the BKR judge has any jurisdiction to do anything other than follow the procedures in TILA Rescission as confirmed by SCOTUS.

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This case raises another huge potential problem for the banks on the TILA front, and on the possession front, in a nutshell: They ignored rescission, went ahead with foreclosure sale anyway. The State court ignores the rescission or the borrower does not raise TILA rescission in State Court, whatever. The property goes to sale, BUT, guess who credit bids? Hint, like usual , it ain’t the party who said they held the loan, oopsy! Homeowner won’t move out of the house, “Creditor” files for an eviction.

Think of situations like this where a Homeowner responds to eviction notice in court, “Your honor, First, I issued a TILA rescission before sale and they failed to respond, Second, they are not the proper owners, just look at the credit bid and see for yourself.”

Court says, “You are correct, we don’t have jurisdiction to hear such a claim”, OR they respond “OK we do have jurisdiction, but you can appeal this decision to a higher court”, either way, this is going to be a long haul for the claimed Plaintiff/owner, because getting the foreclosure in their favor does not equal possession, it may take them years and they may LOSE.

So trying to pretend like the rescission does not exist means you may not get possession. You may in fact be liable for quite a bit of damages, or lose even after winning a foreclosure action because a ruling in favor of TILA rescission in a federal or district court action may mean the foreclosure ruling can be overturned, potentially by quiet title, a rule 60 motion, or otherwise.

This opens a whole other dimension for homeowners, and against the banks. They have a judgment, but they can’t get the house, and are in limbo for a long time with possibly being overturned at a later date. Lesson here for them: Don’t mess with TILA, and don’t try to sneak in a credit bid post ruling that shows you were lying to the judge about ownership of the loan.

Courts Continue to Ratify Theft of Money and Documents by Banks

An ordinary individual finds a sack of promissory notes, and you might expect him to try to locate the owners of those notes. After all they are the equivalent of cash. But the banker sells the stolen notes with false assignments, insures them, gets them guaranteed with payment proceeds to himself and then settles with the lender for pennies on the dollar. Then the banker sues to collect on the stolen notes and wins. Except in this case the banker created the sack, created the notes, falsified the payee and inflated the amount due. The Banker has successfully stolen the money from the lender and stolen the notes from the lender. Despite 7 years of active litigation the judiciary has still failed to pick up on this scenario. Neil Garfield, www.livinglies.me

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I was responding to an email  from a lawyer who was wondering if a grievance could be filed against judges who failed to maintain judicial stability and demeanor. I ended up on a rant, and made it into an article. My conclusion is that a grievance is probably not he right venue, but judges should be a little more curious about what really went on in the mortgage meltdown.

I have been thinking about this sort of thing for a while now. The cases are prejudged not only individually by each judge but also because the judges speak with each other, and feed off of the decisions of other trial judges. Adding to this is the bias shown in Appellate courts.
This amounts to several presumptions against the homeowner, who is a best a pawn and at worst a victim of fraud just like the torrent of lawsuits and settlements have been stated by MBS investors, insurers, CDS counterparties, GSE guarantors, law enforcements and regulatory agencies — all saying the same thing: FRAUD (not breach of contract etc.).
Frustration is rising amongst homeowners and attorneys who represent their clients in a kangaroo court will the rules of pleading and the rules of evidence are turned upside down to give the thief the products of his fraudulent scheme.
First is the assumption behind the question “did you get the loan?” This is a fundamental question but the same judge who asks the borrower that question fails to require the foreclosing party that there WAS a loan from anyone in their paper trail. And the same issue applies to acquisition of loans after some bank with a charter makes the loan and then sells it to a “successor in interest.” The reason for this gross failure of the judiciary though is simply because they have never known a scheme like the one perpetrated by the banks this time.
Starting with that premise, the judiciary considers defenses by homeowners as perhaps technically right but leading to an unjust result— the loss of money by a bank who loaned money and who will now lose money if the homeowners’ defenses are applied. The logic is inexorable — it leads to the inevitable conclusion that the judiciary must put on a show about due process, but we all know that the foreclosure is inevitable. The corollary is that the reason the court dockets are clogged are because even though the loan was received by the borrower the homeowners are perpetrators a vast abuse of there judicial system.
In turn, the courts view foreclosure defense lawyers as something less than “real lawyers” and many judges have lost patience with both pro se litigants and lawyers defending the rights of homeowners. In your case, you were genuinely engrossed in a medical problem bunt the judge went ahead anyway because the judge saw the whole thing as “harmless error.” The foreclosure would, in the end, proceed, no matter what you said or what your clients or experts would proffer as facts in testimony.
The result is inexplicable rulings by trial courts and appellate courts. Underlying their opinions, rulings and orders is the basic premise that the homeowner received a loan. And so your judge called you a liar and refused to continue the case despite your inability to appear due to disability. Is this a case where a letter should be sent to the Judicial Qualification Committee or the Florida bar stating a grievance? Yes, as long as you realize that whoever reviews this is going to be suffering from the same delusion that permeates the rest of hedge judiciary. But it is of course relevant that the judge called you a liar, which goes far beyond the subject case at hand, and amounts to slander as well as prejudgment and bias. Perhaps a letter to the judge describing your reputation in the courts and the damage of having a judge call you a liar would cause the judge to reverse the judge’s opinion of you and apologizing for taking her remarks so far.
But the essential point remains the same. The issue is the unfortunate absence of support for basic pleading practice. Just look at the form pleadings published by the Florida Supreme Court, or look at the complaints filed by banks and credit unions for foreclosure. There is a requirement when you plead to collect on a loan to plead that you made the loan. In actions on a note, the requirement that the plaintiff allege financial injury is right there in the the Florida forms.
The real reason why the court dockets are clogged is because judges insist in ignoring basic pleading practice: the allegation of the existence of a debt owed by the Defendant to the Plaintiff and/or the allegation that financial injury has been suffered by the Plaintiff as a result of the failure of the Defendant/homeowner to make the payments set forth in the note.
The second question is whether the homeowners signed the note. The answer in most cases is yes. So what defenses will ultimately have merit in defending the foreclosure?
Even most foreclosure defense attorneys are far too timid in attacking these delusions maintained by the judiciary. They fear looking foolish and the embarrassment of losing repeatedly. They miss the first attack completely — that no, the homeowner did NOT receive a loan from the foreclosing party or anyone in the he chain in most cases. The problem is that their motion to dismiss does not force this issue. the result is that the existence of a debt wherein the homeowner became a debtor TO THE FORECLOSING PARTY is successfully avoided by the banks, as is the requirement of alleging financial injury.
The effect of this is to prevent the homeowner to enter an answer that denies the loan, denies the acquisition of the loan in any sale, and denies financial injury.
Instead by failing to require the banks to make the allegations that are required by the Supreme Court in its published forms, the homeowner is unfairly is unfairly required to raise the issues in affirmative defenses. The pernicious result of that is that the homeowner is required to prove a negative.
Discovery requests are met with fierce resistance by the banks, who usually run out the clock by the time the motion for summary judgment is heard or the the time that the trial occurs. The homeowner is therefore forced to prove a negative, when the rules require the banks to prove a positive fact that is based upon information that is ONLY accessible by the plaintiff.
The reason why the complaints do not allege the existence of a debt arising from receiving a loan from the foreclosing party or any predecessor in the chain of paper is that there is no such debt. The reason why the foreclosing party does not allege financial injury is (a) that there is no such financial injury and (b) the opening of this issue for discovery would require that all accounts be settled and resolved to determine the balance, if any, owed by the homeowner to anyone. 
The reason why lawsuits and regulatory actions allege that the broker- dealer investment banks committed fraud is that they intentionally lied and used the investor money to their own benefit. And the reason as why the investors, agencies, insurers, credit default swap counter parties and government sponsored guarantors are alleging fraud — and stating that the closing papers with the borrowers and the mortgage bonds are “unenforceable obligations” and “defective instruments” is because that is an accurate description. And the reason the banks are settling those cases and facing criminal prosecution is because they know that the paperwork is legally indefensible and unenforceable against borrowers.
By some twisted logic, thousands of judges, tens of thousands of lawyers, and millions of owners who lack the information and understanding of this massive fraud, the fraud at one end of the stick (sale of fraudulent mortgage bonds) is ignored on the the other end of the same stick (foreclosure of fraudulent Foreclosures on fatally defective STOLEN notes and mortgages). There was no debt in most of the cases and closings where documents were signed. There is no loss or financial injury to a party who has never funded the origination or acquisition of a loan.
The only debt ever created in most instances was from the homeowner directly to the pension funds and other investors who were left with no enforceable claim to enforce valid notes and mortgages. The only debt due in all cases is the amount due to the investors. Allowing the banks to enforce the debts on paperwork that is evidence of theft is a failure of the judicial system.
The dockets would be cleared with the questions “why have you not alleged a debt owed to you and financial injury?” This would establish jurisdiction or the lack of it at the outset. Unable to prove the debt, and being required to prove it because they alleged it, the banks would shrink from foreclosure and attempt to resolve the issues through non-judicial means.

 

Ohio Sets Back Steamrolling: First Things First

Mellon Bank v Shaffer Ohio Appeals Ct Says You can’t Fix Jurisdiction

In a decision that is interesting from many points of view an Ohio appellate court ruled that you can’t fix jurisdiction by assigning the loan and recording the documents after the foreclosure suit is filed. This could have substantial effects on non-judicial states as well. If at the time of the notice of sale the foreclosing party did not possess ownership of the loan the notice should be declared void and anything that happened after that point would be reversed. In this case the foreclosure judgment was reversed and so was the sale.

I find it interesting from other points of view as well. If you look at the style of the case you will see a sneaky attempt to correct fatal defects in the alleged securitization of the loan. As I have seen in numerous other cases especially those involving US Bank there is no actual trust mentioned as the plaintiff. In effect, nobody is suing. There are a lot of  places where the word “trust” is mentioned but there is nothing that actually says that interest exists or that a trust has been named as the plaintiff.

In previous articles I have outlined why I think that the investors are actually in a common-law general partnership and not as beneficiaries in the trust. In cases like this the first reason is that the trust doesn’t exist at all under the laws of any state. The second reason is that they are using the self-serving designation of “trustee” for a pile of certificates. In most cases the certificates do not exist on paper and therefore there is no pile. But even if there was a pile of certificates they would only be evidence of the issuance of a mortgage bond by an entity that doesn’t actually exist (the trust) or could only exist by operation of common law as a general partnership.  In effect each investor seems to own either an indivisible share or a divisible share of a cluster of loans —  but only if their money was used to purchase those loans or was used to pay for the origination of those loans. I have no doubt that the investor money was used for the origination of the loans.

The problem for the banks is that  the note and mortgage do not mention or name the individual investors or the investors as a group even though the money trail leads directly from the investors down to the closing agent, who will undoubtedly claim that they did not realize that the money was not coming from the party claiming to be the originator (the pretender lender) which is why the closing agent prepared a note and mortgage naming a party who was not the source of funds (and therefore not the lender) and who had no contractual relationship with the source of funds. In fact it is fair to assume that the closing agent had no idea of the identity or existence of the investors individually or as a group either as a general partnership or a trust.

This is the reason why I have expressed the opinion that the mortgage never became a perfected lien against the property even though it was recorded. It is either fraudulent or a wild deed.  whether the investors can claim the benefits of a contract signed by the borrower without assuming the liability for disclosures required under the truth in lending act is a question that has yet to be decided. But part of it has been decided. In Missouri and other states it is established law that there is no such thing as an equitable lien. It either exists because it conforms to state law or it does not exist.

Another thing about this decision which comes from the style of the case is that the plaintiff is supposedly the successor in interest to J.P. Morgan Chase Bank. This is where discovery and subpoenas aimed at the money trail will prove that no such transaction ever existed. As Judge Shack in New York has pointed out several times there is no reasonable business basis for the purchase of a loan that is already in default and where the collateral is either worthless or substantially below the amount due. While it is true that generally speaking the law does not look to the adequacy of consideration, is also true that where the consideration is wildly out of reason, that something other than the loan itself was conveyed, to wit: either the mortgage servicing rights or the right to receive income as “trustee”.

In the  last point I will make is simply that all of the entities mentioned in this specific case were heavily involved in the securitization scam. First they sold the mortgage bonds under false pretenses and then claimed ownership of the bonds and the underlying mortgages; second they received third-party mitigation payments under circumstances where there was an express waiver of subrogation or contribution from the borrower. Those payments were not sale of the bonds or the loans.

Thus the bond receivable account should have been correspondingly reduced by the amount of money received by the banks on behalf of the investors. This obviously would reduce the account receivable that was due to each investor.

If the account receivable was properly adjusted for payments received from third parties the amount due from anyone (including the borrower) would be correspondingly reduced.

Thus even if the securitization scheme was executed properly, most of the loans to borrowers should have reflected a decrease in the principal amount due because the creditors’ account receivable had been reduced by payment. This is why I say to follow the money trail before you follow the paper trail. The paper trail only talks about transactions. The money trail reveals the actual transactions against which you can compare the paper trail proffered by the banks in illegal and wrongful foreclosures.

Ohio S. Ct: Standing is jurisdictional at the beginning of the foreclosure

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In a well-reasoned and well-written opinion, the Supreme Court of the State of Ohio analyzed the questions of standing and real party in interest — two doctrines that are all too often used interchangeably. They lead to different results. You can fix “real party in interest” but you can’t fix standing, which is a jurisdictional issue. And standing applies at the moment the foreclosure is started — if they don’t have it they must be dismissed.

The question of wrongful foreclosure based upon standing is interesting because the normal doctrine is that jurisdiction can be raised at any time. But at some point the issue of “finality” comes into play. But it would be wise to consider an action where you believe that jurisdiction was lacking even though the case went all the way through foreclosure and eviction. If jurisdiction was lacking, then any orders for or against either party would be void.

Among the interesting parts of this decision is the concept of “injury,” and by that they mean financial injury. If the party attempting to foreclose has not suffered financial damage, they have no right to sue. They lack standing at the commencement of the action and if they try to correct that by showing up with a new assignment AFTER the action was started, that does NOT cure the issue of standing.

The reason is simple, if the court lacked jurisdiction at the beginning of the action because the party starting the foreclosure had not YET suffered any injury than the case MUST be dismissed. The fact that it wasn’t dismissed by the trial judge does not mean that the court had any right to hear the case. The trial court cannot confer jurisdiction upon itself.

If they want to come back in and go for it again, they could conceivably use the new assignment and pass the threshold for the jurisdictional requirement of standing.  BUT that doesn’t mean you should admit or accept the assignment as having any validity. This is where an inquiry into the assignment, why it wasn’t done before and whether any money was paid for the assignment. If there was no money exchanging hands (which in 99% of cases is true) then even the new forecloser fails the financial injury test.

The deeper you dig the more you will find that the assignment is defective either on its face or that the recitations in the assignment are untrue (“for value received”) or that the person signing the assignment lacked authority or even knowledge as to what he or she was signing.

Once you prove the assignment is materially defective YOU (following Stopa’s strategy) should move for summary judgment in favor of the homeowner or file a renewed motion to dismiss for lack of jurisdiction because the document upon which they rely is fabricated, forged, robo-signed and false.

The Achilles heal of the foreclosures is that virtually none of the pretenders can show actual financial injury. It is presumed to be true by borrowers, their lawyers, opposing counsel and the judge.

But in most cases it is not true. The initial closing was funded by investors whose money was commingled and mangled by the investment banks. The documents from closing and the so-called assignments, endorsements and allonges are neither supported y consideration nor is their any evidence of ACCEPTANCE of the assignment by the assignee.

So you have a financial transaction for which there are virtually no documents and you have a set of documents that are used to trade, buy insurance, make claims on credit default swaps and federal bailouts — none of which are based upon any transaction in which money exchanged hands.

If you can prove that none of the documents were supported by consideration then you have proven that there is no financial injury — which means that you could demand either dismissal on standing, a jurisdictional issue or summary judgment that relies on both the jurisdictional issue and the lack of other evidence.

Schwartzwald opinion

New MERS Standing Case Splits Note and Mortgage: Bellistri v Ocwen Loan Servicing, Mo App.20100309

From Max Gardner – QUIET TITLE GRANTED

Bellistri v Ocwen Loan Servicing, Mo App.20100309

Mortgage Declared Unenforceable in DOT Case: NOTE DECLARED UNSECURED

“When MERS assigned the note to Ocwen, the note became unsecured and the deed of trust became worthless”

Editor’s Note:

We know that MERS is named as nominee as beneficiary. We know that MERS is NOT named on the note. This appellate case from Missouri, quoting the Restatement 3rd, simply says that the note was split from the security instrument, and that there is no enforcement mechanism available under the Deed of Trust. Hence, the court concludes, quiet title was entirely appropriate and the only remedy to the situation because once the DOT and note are split they is no way to get them back together.

NOTE: THIS DOES NOT MEAN THE NOTE WAS INVALIDATED. BUT IT DOES MEAN THAT IN ORDER TO PROVE A CLAIM UNDER THE NOTE OR TO VERIFY THE DEBT, THE HOLDER MUST EXPLAIN HOW IT ACQUIRED ANY RIGHTS UNDER THE NOTE AND WHETHER IT IS ACTING IN ITS OWN RIGHT OR AS AGENT FOR ANOTHER.

The deed of trust, …did not name BNC [AN AURORA/LEHMAN FRONT ORGANIZATION TO ORIGINATE LOANS] as the beneficiary, but instead names Mortgage Electronic Registration System (MERS), solely as BNC’s nominee. The promissory note does not make any reference to MERS. The note and the deed of trust both require payments to be made to the lender, not MERS.

a party “must have some actual, justiciable interest.” Id. They must have a recognizable stake. Wahl v. Braun, 980 S.W.2d 322 (Mo. App. E.D. 1998). Lack of standing cannot be waived and may be considered by the court sua sponte. Brock v. City of St. Louis, 724 S.W.2d 721 (Mo. App. E.D. 1987). If a party seeking relief lacks standing, the trial court does not have jurisdiction to grant the requested relief. Shannon, 21 S.W.3d at 842.

A Missouri appellate court, without trying, may have drawn a map to a defense to foreclosures-if borrowers can figure it out before the Missouri Supreme Court overturns the decision in Bellistri v Ocwen. The opinion shows how an assignment of a loan to a servicing company for collection can actually make the loan uncollectible from the mortgaged property.

This case concerns the procedures of MERS, which is short for Mortgage Electronic Registration Service, created to solve problems created during the foreclosure epidemic of the 1980s, when it was sometimes impossible to track the ownership of mortgages after several layers of savings and loans and banks had failed without recording assignments of the mortgages. The MERS website contains this explanation:

MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.

MERS is the named mortgage holder in transactions having an aggregate dollar value in the hundreds of billions, and its service of providing a way to trace ownership of mortgages has played a large role in the securitization of mortgages and the marketability of derivative mortgage-backed securities, because it seemed to eliminate the necessity of recording assignments of mortgages in county records each time the ownership of a mortgage changed, allowing mortgage securities (packages of many mortgages) to be traded in the secondary market, with less risk.

This case began as a routine quiet title case on a collector’s deed, also known as a tax deed. Following the procedure by which people can pay delinquent property taxes and obtain the ownership of the delinquent property if the owner or lien holder fails after notice to redeem, Bellistri obtained a deed from the Jefferson County (Mo.) collector.

Because of the possibility of defects in the procedures of the county collectors and in the giving of proper notices, the quality of title conferred by a collector’s deed is not insurable.

A suit to cure the potential defects (called a “quiet title suit”) is required to make title good, so that the property can be conveyed by warranty deed and title insurance issued to new lenders and owners. The plaintiff in a quiet title suit is required to give notice of the suit to all parties who had an interest in the property identified in the collector’s deed.

A borrower named Crouther had obtained a loan from BCN Mortgage. The mortgage document (called a deed of trust) named MERS as the holder of the deed of trust as BCN’s nominee, though the promissory note secured by the deed of trust was payable to BCN Mortgage and didn’t mention MERS.

Crouther failed to pay property taxes on the mortgaged property.

Bellistri paid the taxes for three years, then sent notice to Crouther and  BNC that he was applying for a collector’s deed. After BNC failed to redeem (which means “pay the taxes with interest and penalties,” so that Bellistri could be reimbursed), the county collector issued a collector’s deed to Bellistri, in 2006.

Meanwhile, MERS assigned the promissory note and deed of trust to Ocwen Servicing, probably because nobody was making mortgage payments, so that Ocwen would be in a position to attempt to (a) get Crouther to bring the loan payments up to date or (b) to foreclose, if necessary. But this assignment, as explained below, eliminated Ocwen’s right to foreclose and any right to the property.

Bellistri filed a suit for quiet title and to terminate any right of Crouther to possess the property. After discovering the assignment of the deed of trust to Ocwen, Bellistri added Ocwen as a party to the quiet title suit, so that Ocwen could have an opportunity to prove that it had an interest in the property, or be forever silenced.

Bellistri’s attorney Phillip Gebhardt argued that Ocwen had no interest in the property, because the deed of trust that it got from MERS could not be foreclosed. As a matter of law, the right to foreclose goes away when the promissory note is “split”  from the deed of trust that it is supposed to secure. The note that Crouther signed and gave to BNC didn’t mention MERS, so MERS had no right to assign the note to Ocwen. The assignment that MERS made to Ocwen conveyed only the deed of trust, splitting it from the note.

When MERS assigned the note to Ocwen, the note became unsecured and the deed of trust became worthless. Ironically, the use of MERS to make ownership of the note and mortgage easier to trace also made the deed of trust unenforceable. Who knows how many promissory notes are out there that don’t mention MERS, even though MERS is the beneficiary of the deed of trust securing such notes?

O. Max Gardner III

Gardner & Gardner PLLC

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Discovery, Forensic Analysis and Motion Practice: The Prospectus

USE THIS AS A GUIDE FOR DISCOVERY, FORENSIC ANALYSIS AND MOTION PRACTICE TO COMPEL DISCLOSURE

see for this example SHARPS%20CDO%20II_16.08.07_9347

Comments in Red: THIS IS A PARTIAL ANNOTATION OF THE PROSPECTUS. IF YOU WANT A FULL ANNOTATION OF THIS PROSPECTUS OR ANY OTHER YOU NEED AN EXPERT IN SECURITIZATION TO DO IT. THERE ARE THREE OBVIOUS JURISDICTIONS RECITED HERE: CAYMAN ISLANDS, UNITED STATES (DELAWARE), AND IRELAND WITH MANY OTHER JURISDICTIONS RECITED AS WELL FOR PURPOSES OF THE OFFERING, ALL INDICATING THAT THE INVESTORS (CREDITORS) ARE SPREAD OUT ACROSS THE WORLD.

Note that the issuance of the bonds/notes are “non-recourse” which further corroborates the fact that the issuer (SPV/REMIC) is NOT the debtor, it is the homeowners who were funded out of the pool of money solicited from the investors, part of which was used to fund mortgages and a large part of which was kept by the investment bankers as “profit.”There is no language indicative that anyone other than the investors own the notes from homeowner/borrowers/debtors. Thus the investors are the creditors and the homeowners are the debtors. Without the investors there would have been no loan. Without the borrowers, there would would have been no investment. Hence, a SINGLE TRANSACTION.

If you read carefully you will see that there is Deutsch Bank as “initial purchaser” so that the notes (bonds) can be sold to pension funds, sovereign wealth funds etc. at a profit. This profit is the second tier of yield spread premium that no TILA audit I have ever seen has caught.

The amount of the “LEVEL 2” yield spread premium I compute on average to be approximately 30%-35% of the total loan amount that was funded FOR THE SUBJECT LOAN on average, depending upon the method of computation used.Thus a $300,000 loan would on average spawn two yield spread premiums, “level 1” being perhaps 2% or $6,000 and “level 2” being 33% or $100,000, neither of which were disclosed to the borrower, a violation of TILA.

The amount of the yield spread premium is a complex number based upon detailed information about the what actually took place in the sale of all the bonds and what actually took place in the sale of all the loan products to homeowners and what actually took place in the alleged transfer or assignment of “loans” into a master pool and what actually took place in the alleged transfer or assignment of “loans” into specific SPV pools and the alleged transfer or assignment of “loans” into specific tranches or classes within the SPV operating structure.

Here is the beginning of the prospectus with some of the annotations that are applicable:

Sharps CDO II Ltd., (obviously a name that doesn’t show up at the closing with the homeowner when they sign the promissory note, mortgage (or Deed of Trust and other documents. You want to ask for the name and contact information for the entity that issued the prospectus which is not necessarily the same company that issued the securities to the investors) an exempted company (you might ask for the identification of any companies that are declared as “exempted company” and their contact information to the extent that they issued any document or security relating to the subject loan) incorporated with limited liability you probably want to find out what liabilities are limited) under the laws of the Cayman Islands (ask for the identity of any foreign jurisdiction in which enabling documents were created, or under which jurisdiction is claimed or referred in the enabling documentation) (the “Issuer”) (Note that this is the “issuer” you don’t see don’t find about unless you ask for it), and Sharps CDO II Corp., (it would be wise to check with Delaware and get as much information about the names and addresses of the incorporators) a Delaware corporation (the “Co-Issuer” and together with the Issuer, the “Co-Issuers”), pursuant to an indenture (don’t confuse the prospectus with the indenture. The indenture is the actual terms of the bond issued just like the “terms of Note” specify the terms of the promissory note executed by the borrower/homeowner at closing) (the “Indenture”), among the Co-Issuers and The Bank of New York, as trustee (Note that BONY is identified “as trustee” but the usual language of “under the terms of that certain trust dated….etc” are absent. This is because there usually is NO TRUST AGREEMENT designated as such and NOT TRUST. In fact, as stated here it is merely an agreement between the co-issuers and BONY, which it means that far from being a trust it is more like the operating agreement of an LLC) (the “Trustee”), will issue up to U.S.$600,000,000 Class A-1 Senior Secured Floating Rate Notes Due 2046 (the “Class A-1 Notes”), U.S.$100,000,000 Class A-2 Senior Secured Floating Rate Notes Due 2046 (the “Class A-2 Notes”), U.S.$60,000,000 Class A-3 Senior Secured Floating Rate
Notes Due 2046 (the “Class A-3 Notes” and, together with the Class A-1 Notes and the Class A-2 Notes, the “Class A Notes”), U.S.$82,000,000 Class B Senior Secured Floating Rate Notes Due 2046 (the “Class B Notes”), U.S.$52,000,000 Class C Secured Deferrable Interest Floating Rate Notes Due 2046 (the “Class C Notes”), U.S.$34,000,000 Class D-1 Secured Deferrable Interest Floating Rate Notes Due 2046 (the “Class D-1 Notes”) and U.S.$27,000,000 Class D-2 Secured Deferrable Interest Floating Rate Notes Due 2046 (the “Class D-2 Notes” and, together with the Class D-1 Notes, the “Class D Notes”). The Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes are collectively referred to as the “Senior Notes.” The Class A-2 Notes, the Class A-3 Notes, the Class
B Notes, the Class C Notes and the Class D Notes and the Subordinated Notes (as defined below) are collectively referred to as the “Offered Notes.” Concurrently with the issuance of the Senior Notes, the Issuer will issue U.S.$27,000,000 Class D-2 Secured Deferrable Interest Floating Rate Notes Due 2046 (the “Class D-2 Notes” and, together with the Class D-1 Notes, the “Class D Notes pursuant to the Indenture and U.S.$45,000,000 Subordinated Notes due 2046 (the “Subordinated Notes”) pursuant to the Memorandum and Articles of Association of the Issuer (the “Issuer Charter”) and in accordance with a Deed of Covenant (“Deed of Covenant”) and a Fiscal Agency Agreement (the “Fiscal Agency Agreement”), among the Issuer, The Bank of New York, as Fiscal Agent (in such capacity, the “Fiscal Agent”) and the Trustee, as Note Registrar (in such capacity, the “Note Registrar”). The Senior Notes and the Subordinated Notes are collectively referred to as the “Notes.” Deutsche Bank Aktiengesellschaft (“Deutsche Bank”), New York Branch (“Deutsche Bank AG, New York Branch” and, in such capacity, the “TRS Counterparty”) will enter into a total return swap transaction (the “Total Return Swap”) with the Issuer pursuant to which it will be obligated to purchase (or cause to be purchased) the Class A-1 Notes issued from time to time by the Issuer under the circumstances described herein and therein. (cover continued on next page)

It is a condition to the issuance of the Notes on the Closing Date that the Class A-1 Notes be rated “Aaa” by Moody’s Investors Service, Inc. (“Moody’s”) and “AAA” by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (“Standard & Poor’s,” and together with Moody’s, the “Rating Agencies”), that the Class A-2 Notes be rated “Aaa” by Moody’s and “AAA” by Standard & Poor’s, that the Class A-3 Notes be rated “Aaa” by Moody’s and “AAA” by Standard & Poor’s, that the Class B Notes be rated at least “Aa2” by Moody’s and at least “AA” by Standard & Poor’s, that the Class C Notes be rated at least “A2” by Moody’s and at least “A” by Standard & Poor’s, that the Class D-1 Notes be rated “Baa1” by Moody’s and “BBB+” by Standard & Poor’s, that the Class D-2 Notes be rated “Baa3” by Moody’s and “BBB-” by Standard & Poor’s.
This Offering Circular constitutes the Prospectus (the “Prospectus”) for the purposes of Directive 2003/71/EC (the “Prospectus Directive”). Application has been made to the Irish Financial Services Regulatory Authority (the “Financial Regulator”) (you could ask for the identification and contact information of any financial regulator referred to in the offering circular, prospectus or other documents relating to the securitization of the subject loan), as competent authority under the Prospectus Directive for the Prospectus to be approved. Approval by the Financial Regulator relates only to the Senior Notes that are to be admitted to trading on the regulated market of the Irish Stock Exchange or other regulated markets for the purposes of the Directive 93/22/EEC or which are to be offered to the public in any Member State of the European Economic Area. Any foreign language text that is included within this document is for convenience purposes only and does not form part of the Prospectus.
Application has been made to the Irish Stock Exchange for the Senior Notes to be admitted to the Official List and to trading on its regulated market.
APPROVAL OF THE FINANCIAL REGULATOR RELATES ONLY TO THE SENIOR NOTES WHICH ARE TO BE ADMITTED TO TRADING ON THE REGULATED MARKET OF THE IRISH STOCK EXCHANGE OR OTHER REGULATED MARKETS FOR THE PURPOSES OF DIRECTIVE 93/22/EEC OR WHICH ARE TO BE OFFERED TO THE PUBLIC IN ANY MEMBER STATE OF THE EUROPEAN ECONOMIC AREA.
SEE “RISK FACTORS” IN THIS OFFERING CIRCULAR FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NOTES. THE SENIOR NOTES ARE NON-RECOURSE OBLIGATIONS OF THE CO-ISSUER AND THE NOTES ARE LIMITED
RECOURSE OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY FROM THE COLLATERAL DESCRIBED HEREIN.
THE NOTES DO NOT REPRESENT AN INTEREST IN OR OBLIGATIONS OF, AND ARE NOT INSURED OR GUARANTEED BY, THE TRUSTEE, DEUTSCHE BANK SECURITIES INC., DEUTSCHE BANK OR ANY OF THEIR RESPECTIVE AFFILIATES. Note that you have more than one trustee without any specific description of where one trustee ends and the other begins. It is classic obfuscation and musical chairs. NOTE ALSO THAT TRUSTEE DISCLAIMS ANY INTEREST IN THE BONDS BEING ISSUED [REFERRED TO AS “NOTES” JUST TO MAKE THINGS MORE CONFUSING].

Foreclosure Defense: King’s County, New York Case Thrashes Lenders

Case for Discussion at Foreclosure Workshop on 9/4/08 in Santa Monica

King’s County Case:

Editor’s Note: For those who are dubious about the legal positions and theories suggested in this blog, this case will be at least somewhat instructive. It is not just a technicality. It is reality. Nobody on the lender’s side can actually trace your note and mortgage to the real party in interest or anyone with actual personal knowledge of the assignments or the effect of those assignments.

This goes directly to the the issue of denying that payment was not made and the affirmative defense that the entire mortgage was prepaid by a third party who does not have any security rights in the property, was not disclosed to the borrower, and who possesses other assignments and cross guarantees through which payments were made, part of which was attributable to the revenue that was assigned. Note that the note itself has vanished in most cases, has not been assigned and neither has the mortgage. This is a picture of “smart” people eviscerating the “asset” from which an ABS supposedly derived its value thus hoisting a crowd of people up on their own petards.
HSBC Bank USA, N.A. v. Valentin
N.Y.Sup.,2008.
NOTE: THIS OPINION WILL NOT BE PUBLISHED IN A PRINTED VOLUME. THE DISPOSITION WILL APPEAR IN A REPORTER TABLE.
Supreme Court, Kings County, New York.
HSBC BANK USA, N.A., as Indenture Trustee for the Registered Noteholders of Renaissance Home Equity Loan Trust 2005-3, Renaissance Home Equity Loan Asset-Backed Notes, Series 2005-3,, Plaintiff,
v.
Candida VALENTIN, Candide Ruiz, et. al., Defendants.
No. 15968/07.

Jan. 30, 2008.

Vincent P. Surico, Esq., De Rose & Surico, Bayside, for Plaintiff.
No Opposition submitted by defendants to plaintiff’s Judgment of Foreclosure and Sale.
ARTHUR M. SCHACK, J.
*1 Plaintiff’s application, upon the default of all defendants, for an order of reference, for the premises located at 572 Riverdale Avenue, Brooklyn, New York (Block 3838, Lot 39, County of Kings) is denied without prejudice. The “affidavit of merit” submitted in support of this application for a default judgment is not by an officer of the plaintiff or someone with a power of attorney from the plaintiff. Leave is granted to plaintiff, HSBC BANK USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2005-3, RENAISSANCE HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 2005-3 (HSBC), to renew its application for an order of reference upon presentation to the Court of compliance with the statutory requirements of CPLR § 3215(f), with “an affidavit of facts” executed by someone who is an officer of HSBC or has a valid power of attorney from HSBC. Further, the Court, upon renewal of the application for an order of reference requires a satisfactory explanation to questions with respect to: the assignment of the instant nonperforming mortgage loan from the original lender, Delta Funding Corporation to HSBC Bank; the employment history of one Scott Anderson, who assigned the instant mortgage to HSBC, yet in a case I decided last month, HSBC Bank, N .A. v. Cherry, 18 Misc.3d 1102(A), swore in an affidavit to be HSBC’s servicing agent; and the relationship between HSBC, Ocwen Federal Bank, FSB (OCWEN), Deutsche Bank and Goldman Sachs, who all seem to share office space at 1661 Worthington Road, Suite 100, West Palm Beach, Florida 33409 (Suite 100).

Background

Defendants, Candida Valentin and Candide Ruiz, borrowed $340,000 from Delta Funding Corporation, on June 23, 2005. The note and mortgage were recorded in the Office of the City Register, New York City Department of Finance on July 14, 2005, at City Register File Number (CRFN) 2005000395517. Delta Funding Corporation, by MortgageElectronicRegistrationSystems, Inc. (MERS), its nominee for the purpose of recording the mortgage, assigned the note and mortgage to plaintiff HSBC, on May 1, 2007, with the assignment recorded on June 13, 2007 at CRFN 2007000306260.

Plaintiff’s moving papers for an order of reference fails to present an “affidavit made by the party,” pursuant to CPLR § 3215(f). The application contains an April 23, 2007-affidavit by Jessica Dybas, who states that she is “a Foreclosure Facilitator of OCWEN LOAN SERVICING, LLC, servicing agent and attorney in fact to the holder of the bond and mortgage sought to be foreclosed herein.”On that date, the note and mortgage were still held by MERS, as nominee of Delta Funding Corporation. For reasons unknown to the Court, MERS, as nominee of Delta Funding Corporation, or plaintiff HSBC failed to provide any power of attorney authorizing OCWEN to go forward with the instant foreclosure action. Further, even if HSBC authorized OCWEN to be its attorney in fact, Ms. Dybas is not an officer of OCWEN. She is a “Foreclosure Facilitator,” a job title unknown to this Court. Therefore, the proposed order of reference must be denied without prejudice. Leave is granted to plaintiff HSBC to comply with CPLR § 3215(f) by providing an “affidavit made by the party,” whether by an officer of HSBC or someone with a valid power of attorney from HSBC.

*2 Further, according to plaintiff’s application, the default of defendants Valentin and Ruiz began with the nonpayment of principal and interest due on January 1, 2007. Yet, four months later, plaintiff HSBC was willing to take an assignment of the instant nonperforming loan. The Court wonders why HSBC would purchase a nonperforming loan, four months in arrears?

Additionally, plaintiff HSBC must address a third matter if it renews its application for an order of reference. In the instant action, as noted above, Scott Anderson, as Vice President of MERS, assigned the instant mortgage to HSBC on May 1, 2007. Doris Chapman, the Notary Public, stated that on May 1, 2007, “personally appeared Scott Anderson, of 1661 Worthington Road, Suite 100, West Palm Beach, Florida 33409.”In HSBC Bank, N.A. v. Cherry, at 3, I observed that:

Scott Anderson, in his affidavit, executed on June 15, 2007, states he is Vice President of OCWEN. Yet, the June 13, 2007 assignment from MERS to HSBC is signed by the same Scott Anderson as Vice President of MERS. Did Mr. Anderson change his employer between June 13, 2007 and June 15, 2007. The Court is concerned that there may be fraud on the part of HSBC, or at least malfeasance. Before granting an application for an order of reference, the Court requires an affidavit from Mr. Anderson describing his employment history for the past three years.

Lastly, the court notes that Scott Anderson, in the MERS to HSBC assignment gave his address as Suite 100. This is also the address listed for HSBC in the assignment. In a foreclosure action that Idecided on May 11, 2007 (Deutsche Bank Nat. Trust Company v. Castellanos, 15 Misc.3d 1134[A] ), Deutsche Bank assigned the mortgage to MTGLQ Investors, L.P. I noted, at 4-5, that MTGLQ Investors, L.P.:

According to Exhibit 21.1 of the November 25, 2006 Goldman Sachs 10-K filing with the Securities and Exchange Commission … is a “significant subsidiary” of Goldman Sachs…. [T]he January 19, 2007 assignment has the same address for both the assignor Deutsche Bank and the assignee MTGLQ Investors, L.P., at 1661 Worthington Road, Suite 100, West Palm Beach, Florida 33409. The Court will not speculate about why two major financial behemoths, Deutsche Bank and Goldman Sachs share space in a West Palm Beach, Florida office suite

In the instant action, with HSBC, OCWEN and MERS, joining with Deutsche Bank and Goldman Sachs at Suite 100, the Court is now concerned as to why so many financial goliaths are in the same space. The Court ponders if Suite 100 is the size of Madison Square Garden to house all of these financial behemoths or if there is a more nefarious reason for this corporate togetherness. If HSBC seeks to renew its application for an order to reference, the Court needs to know, in the form of an affidavit, why Suite 100 is such a popular venue for these corporations.

Discussion

Real Property Actions and Proceedings Law (RPAPL) § 1321 allows the Court in a foreclosure action, upon the default of the defendant or defendant’s admission of mortgage payment arrears, to appoint a referee “to compute the amount due to the plaintiff.”In the instant action, plaintiff’s application for an order of reference is a preliminary step to obtaining a default judgment of foreclosure and sale. (Home Sav. Of Am., F.A. v. Gkanios, 230 A.D.2d 770 [2d Dept 1996] ).

*3 Plaintiff has failed to meet the requirements of CPLR § 3215(f) for a default judgment.

On any application for judgment by default, the applicant shall file proof of service of the summons and the complaint, or a summons and notice served pursuant to subdivision (b) of rule 305 or subdivision (a) of rule 316 of this chapter, and proof of the facts constituting the claim, the default and the amount due by affidavit made by the party… Where a verified complaint has been served, it may be used as the affidavit of the facts constituting the claim and the amount due; in such case, an affidavit as to the default shall be made by the party or the party’s attorney. [Emphasis added].

Plaintiff has failed to submit “proof of the facts” in “an affidavit made by the party.”The affidavit is submitted by Jessica Dybas, “a Foreclosure Facilitator of OCWEN LOAN SERVICING, LLC, servicing agent and attorney in fact to the holder of the bond and mortgage sought to be foreclosed herein.”There must be an affidavit by an officer of HSBC or a servicing agent, possessing a valid power of attorney from HSBC for that express purpose. Additionally, if a power of attorney is presented to this Court and it refers to pooling and servicing agreements, the Court needs a properly offered copy of the pooling and servicing agreements, to determine if the servicing agent may proceed on behalf of plaintiff. (EMC Mortg. Corp. v. Batista, 15 Misc.3d 1143(A) [Sup Ct, Kings County 2007]; Deutsche Bank Nat. Trust Co. v. Lewis, 14 Misc.3d 1201(A) [Sup Ct, Suffolk County 2006] ).

Also, the instant application upon defendants’ default must be denied because even though it contains a verified complaint, the attorney’s verification is insufficient to meet the requirements of CPLR § 3215(f). The Court, in Mullins v. Di Lorenzo, 199 A.D.2d 218 [1st Dept 1993], instructed that “a complaint verified by counsel amounts to no more than an attorney’s affidavit and is therefore insufficient to support entry of judgment pursuant to CPLR 3215.”Citing Mullins v. Di Lorenzo, the Court, in Feffer v. Malpeso, 210 A.D.2d 60, 61 [1st Dept 1994], held that a complaint with not more than an attorney’s affidavit, for purposes of entering a default judgment “was erroneous and must be deemed a nullity.”Professor David Siegel, in his Practice Commentaries (McKinney’s Cons Laws of NY, Book 7B, CPLR C3215: 16) explains that Mullins v. Di Lorenzo

is in point here. Perhaps the verified complaint can do service as an affidavit for various purposes within the litigation while the contest is on … but it will not suffice to put an end to the contest with as drastic a step as a default at the outset.It must be kept in mind that even an outright “affidavit” by the plaintiff’s attorney on the merits of the case-except in the relatively rare circumstances in which the attorney happens to have first-hand knowledge of the facts-lacks probative force and is usually deemed inadequate by the courts to establish the merits. A fortiori, a verified pleading tendered as proof of the merits would also lack probative force when the verification is the attorney’s. [Emphasis added ]

*4 In Blam v. Netcher, 17 AD3d 495, 496 [2d Dept 2005], the Court reversed a default judgment granted in Supreme Court, Nassau County, holding that:
In support of her motion for leave to enter judgment against the defendant upon her default in answering, the plaintiff failed to proffer either an affidavit of the facts or a complaint verified by a party with personal knowledge of the facts (seeCPLR 3215(f): Goodman v. New York City Health & Hosps. Corp. 2 AD3d 581 [2d Dept 2003]; Drake v. Drake, 296 A.D.2d 566 [2d Dept 2002]; Parratta v. McAllister, 283 A.D.2d 625 [2d Dept 2001] ). Accordingly, the plaintiff’s motion should have been denied, with leave to renew on proper papers (see Henriquez v. Purins, 245 A.D.2d 337, 338 [2d Dept 1997] ).

(See Hazim v. Winter, 234 A.D.2d 422 [2d Dept 1996]; Finnegan v. Sheahan, 269 A.D.2d 491 [2d Dept 2000]; De Vivo v. Spargo, 287 A.D.2d 535 [2d Dept 2001]; Peniston v. Epstein, 10 AD3d 450 [2d Dept 2004]; Taebong Choi v. JKS Dry Cleaning Eqip. Corp., 15 AD3d 566 [2d Dept 2005]; Matone v. Sycamore Realty Corp., 31 AD3d 721 [2d Dept 2006]; Crimmins v. Sagona Landscaping, Ltd., 33 AD3d 580 [2d Dept 2006] ).

Therefore, the instant application for an order of reference is denied without prejudice, with leave to renew. The Court will grant plaintiff HSBC an order of reference when it presents: an affidavit by either an officer of HSBC or someone with a valid power of attorney from HSBC, possessing personal knowledge of the facts; an affidavit from Scott Anderson clarifying his employment history for the past three years and what corporation he serves as an officer; and, an affidavit by an officer of HSBC explaining why HSBC would purchase a nonperforming loan from Delta Funding Corporation, and why HSBC, OCWEN, MERS, Deutsche Bank and Goldman Sachs all share office space in Suite 100.

Conclusion

Accordingly, it is

ORDERED, that the application of plaintiff, HSBC BANK N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2005-3, RENAISSANCE HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 2005-3, for an order of reference for the premises located at 572 Riverdale Avenue, Brooklyn, New York (Block 3838, Lot 29, County of Kings), is denied without prejudice; and it is further

ORDERED, that leave is granted to plaintiff, HSBC BANK N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2005-3, RENAISSANCE HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 2005-3, to renew its application for an order of reference for the premises located at 572 Riverdale Avenue, Brooklyn, New York (Block 3838, Lot 39, County of Kings), upon presentation to the Court, within forty-five (45) days of this decision and order, of: an affidavit of facts either by an officer of HSBC or someone with a valid power of attorney from HSBC, possessing personal knowledge of the facts; an affidavit from Scott Anderson, describing his employment history for the past three years; an affidavit from an officer of plaintiff HSBC BANK N.A., AS INDENTURE TRUSTEE FOR THE REGISTERED NOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2005-3, RENAISSANCE HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 2005-3, explaining why plaintiff would purchase a nonperforming loan from Delta Funding Corporation and why plaintiff

*5 HSBC BANK N.A., shares office space at Suite 100, 1661 Worthington Road, West Palm Beach, Florida 33409, with Ocwen Federal Bank FSB, MortgageElectronicRegistrationSystems, Inc., Deutsche Bank and Goldman Sachs.

This constitutes the Decision and Order of the Court.

N.Y.Sup.,2008.
HSBC Bank USA, N.A. v. Valentin
Slip Copy, 18 Misc.3d 1123(A), 2008 WL 239932 (N.Y.Sup.), 2008 N.Y. Slip Op. 50164(U)

END OF DOCUMENT

From the HSBC v Donohue Motion for Reconsideration before Judge Dowd in Ohio:

“Plaintiff’s acknowledge and respect the court’s duty To exercise only proper jurisdiction. Plaintiff’s ask for nothing more.. The Equal Protection Clause of the 14th amendment to the Constitution, however, prevents courts from  identifying classes of litigants and departing from established rule either to raise or lower the bar for their admission to court. This court lacks the discretion to apply the law differently so as to place additional jurisdictional burdens on the limited class of foreclosure Plaintiffs.”

FORECLOSURE DEFENSE: THE RELEVANCE OF SECURITIZATION

SEE GARFIELD’S GLOSSARY AND TACTICAL GUIDELINES 

http://livinglies.me/glossary-mortgage-meltdown-and-foreclosure/

THE UNDERLYING THEME OF THE MORTGAGE MELTDOWN WHICH HAS SIGNIFICANCE TO FORECLOSURE DEFENSE IS THAT FOR EACH “LOAN” TRANSACTION THERE WERE CORRESPONDING INVESTMENTS IN ONE OR MORE ASSET BACKED SECURITY, BOTH (MORTGAGE AND ABS) DEPENDENT ON EACH OTHER FOR THEIR CREATION.

THE SPREADING OF RISK, THE OBLIGATION FOR PAYMENT, AND THE SEPARATION OF THE OBLIGATION TO PAY FROM THE TERMS OF THE SECURITY INSTRUMENT (MORTGAGE) GIVE RISE TO NUMEROUS OFFENSIVE AND DEFENSIVE CLAIMS, DEFENSES, JURISDICTIONAL ISSUES, AND BUSINESS QUALIFICATION ISSUES IN VARIOUS STATES BY THE BORROWER WHO IS AT RISK OF FORECLOSURE OR WHO HAS BEEN DAMAGED BY THE LOAN TRANSACTION.

THE THEORY IS FURTHER EXPANDED BY THE NOTION THAT THE ESSENTIAL NATURE OF THE LOAN TRANSACTION WAS CONVERTED FROM A STANDARD PURCHASE MONEY FIRST, SECOND AND/OR THIRD MORTGAGE TO THE SALE OF TWO SECURITIES ON A SINGLE CHAIN — THE ABS INVESTOR WHO SUPPLIED THE MONEY AND THE PROPERTY INVESTOR WHO SUPPLIED THE SIGNATURES. 

PAYMENT:

In the context of the mortgage meltdown experience, payment was converted from one source to many. See SPV (Structured Purpose Vehicle). This was necessary because of the the purpose of the SPV and the collateralized securities issued from it to investors — the spreading of risk. It is therefore possible for an investor owning an ABS (Asset Backed Security) issued from an SPV to be paid in full without a single payment from any particular borrower. Thus the payment obligation on the note and mortgage at the loan closing was one of many options by which the obligation could be met. There is no doubt that efforts were made to make payments from the funds created in SPV’s through sale of their CDO/CMOs, and that contribution from third parties in the securitized chain starting with the “lender” all the way through guarantees, buy-back obligations and cross collateralization and credit swap vehicles. It is for this reason, among others, that the loan closing was itself the sale of a security based upon an inflated asset appraisal to support an inflated security rating, in which the borrower and the investor in the ABS were “assured” of a passive return on their investment through ever-increasing housing prices. Thus the securitized chain consists of two securities at its base — the “loan” and the ABS — and a myriad of other derivative securities and hedge products together with insurance policies that guaranteed the quality of the underwriting process at the lender level and at the investment banking level. 

Whether those who paid have any claims against any other obligors — including but not limited to the borrower — is unknown. But it is highly probable that those claims are unsecured and therefore dischargeable in bankruptcy. And it is highly probable that such claims are subject to offset, counterclaims and affirmative defenses based upon violations of TILA, RESPA, RICO, common law fraud and state unfair and deceptive business or lending practices together with state and federal securities regulation at the lender underwriting level and at the investment banking underwriting level.

SPECIAL PURPOSE VEHICLE (SPV)

THE “ENTITY” CREATED BY THE INVESTMENT BANKING FIRM TO HOLD AN INTEREST IN THE CASH FLOW AND/OR OWNERSHIP OF THE NOTE AND/OR OWNERSHIP OF THE SECURITY INSTRUMENTS (BY ASSIGNMENT, WHICH ARE RARELY RECORDED IN PROPERTY RECORDS) AND/OR OWNERSHIP OF THE RISK OF LOSS. It is the SPV that is the “company” which “issues” securities for the purpose of selling those securities (stock, bonds etc.) to qualified investors. The typical “security” that has been issued during the mortgage meltdown is the mortgage backed security (MBS) and more specifically, the collateralized debt obligation (CDO) and more specifically the collateralized mortgage obligation. The terms CDO and CMO are frequently used itnerchangeably but CDO connotes a larger class of securities that CMO.

CMO/CDOs vary in structure and underlying assets, but the basic principle is the same. Essentially a CDO is a corporate or other legal entity (LLC, LLP, Trust etc.) constructed to hold assets as collateral and to sell packages of cash flows to investors. A CDO is constructed as follows:

  • The SPV issues different classes of bonds and equity and the proceeds are used to purchase the portfolio of credits. The bonds and equity are entitled to the cash flows from the portfolio of credits, in accordance with the Priority of Payments set forth in the transaction documents. The senior notes are paid from the cash flows before the junior notes and equity notes. In this way, losses are first borne by the equity notes, next by the junior notes, and finally by the senior notes. In this way, the senior notes, junior notes, and equity notes offer distinctly different combinations of risk and return, while each reference the same portfolio of debt securities. These levels of risk are called “tranches”. 
  • A TYPICAL PROVISION OF THE CMO/CDO ISSUED BY THE SPV IS THAT THE PROCEEDS OF SALE CAN BE USED FOR PAYMENT OF THE PROMISED RETURN. THE SIGNIFICANCE OF THIS IN FORECLOSURE DEFENSE IS THAT THE PARTY TO WHOM PAYMENT IS TO BE MADE IS RECEIVING FUNDS FROM AN INTERMINGLING OF (A) THE FUND CREATED FROM THE SALE OF THE SPV SECURITIES (B) INCOME FROM THE LOWER TRANCHES (C) GUARANTEES OF THE SELLER OF THE SECURITIES, THE ORIGINATING LENDER (D) CLAIMS AGAINST THE SECURITY RATING AGENCY WHICH OFTEN RATED THE CMO/CDO ONLY IN ACCORDANCE WITH THE TOP TRANCHE WHICH MISSTATED THE RISK ASSOCIATED WTH THE ENTIRE SECURITY. THIS OVERSTATEMENT OF THE VALUE OF THE SECURITY IS IDENTICAL TO THE APPRAISER’S OVERSTATEMENT OF THE VALUE OF THE PROPERTY AND THE LENDER’S OVERSTATEMENT OF THE RISKS AND THEREFORE THE VALUE OF THE LOAN. 
  • In both cases (rating agency and appraiser) the public was deceived by intentional inflation of value. In both cases, there were specific financial incentives for the rating agency to overrate the security and for the appraiser to overvalue the property an for the lender to overrate the borrower’s financial ability or willingness to pay in accordance with the terms of the note and mortgage. In neither case was the potential liability and the potential litigation over these inherently bad practices ever disclosed to either the borrower or the investor. 

 

collateralized loan obligation (CLO) A multi-tranche security secured by a pool of corporate loans. Similar to the more familiar CMO, except that in a CBO the tiers or tranches are created with differing levels of credit quality. The CBO structure creates at least one tier of investment-grade bonds, thus providing liquidity to a portfolio of junk bonds.
collateralized mortgage obligation (CMO) A type of MBS created by dividing the rights to receive the principal and interest cash flows from an underlying pool of mortgages into separate classes or tiers. The tiers or classes are usually called tranches. In other words, it is a multiclass bond backed or collateralized by mortgage loans or mortgage pass-through securities. A given tranche is typically not redeemed until all bonds with earlier priority have been redeemed. By dividing the cash flows into one or more tranches with shorter terms, the risk resulting from the potential volatility from future changes in prevailing rates is shifted away from the shorter-term tranche or tranches and onto the longer-term tranches and the residual tranche.
commingled funds Money pooled for a common purpose. Often funds pooled for investments. See Quiet Title, Temporary Injunction. 
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